Infinera Corporation
2016 Proxy Statement
and
2015 Annual Report on Form 10-K
Infinera Corporation
140 Caspian Court
Sunnyvale, California 94089
NOTICE OF 2016 ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 12, 2016
10:00 a.m. Pacific Time
Dear Stockholder:
You are cordially invited to attend the 2016 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 12,
2016, 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 III directors named in the
Proxy Statement;
2. To approve, on an advisory basis, the compensation of Infinera’s named executive officers, as described
in the Proxy Statement;
3. To approve Infinera’s 2016 Equity Incentive Plan;
4. To ratify the appointment of Ernst & Young LLP as Infinera’s independent registered public accounting
firm for the fiscal year ending December 31, 2016; and
5. 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 16, 2016. 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 24, 2016.
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
Secretary
Sunnyvale, California
March 24, 2016
TABLE OF CONTENTS
PROXY STATEMENT SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Annual Meeting of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meeting Agenda and Voting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board and Governance Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2015 Business Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation Program Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND VOTING PROCEDURAL
MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quorum and Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL 1 – ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information Regarding Nominees and Continuing Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Independence of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholder Communications with the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Leadership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Oversight of Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Code of Business Conduct and Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Governance Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Ownership Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Information Regarding the Board and its Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPENSATION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Equity Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2015 Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information with Respect to Director Equity Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . .
COMPENSATION DISCUSSION AND ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Overview of our Executive Compensation Program Philosophy and Process . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2015 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information Regarding Our Compensation Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Report
EXECUTIVE COMPENSATION TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2015 Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2015 Grants of Plan-Based Awards Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2015 Outstanding Equity Awards at Fiscal Year-End Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2015 Option Exercises and Stock Vested Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated Payments and Benefits upon Termination, Change of Control or Death/Disability . . . . . . . . . .
Fiscal 2015 Estimated Payments and Benefits Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RISK ASSESSMENT OF COMPENSATION PRACTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL 2—ADVISORY APPROVAL OF NAMED EXECUTIVE OFFICER COMPENSATION . . . . . . . . .
PROPOSAL 3—APPROVAL OF THE 2016 EQUITY INCENTIVE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL 4—RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Independent Registered Public Accounting Firm’s Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-Approval Policies and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REPORT OF THE AUDIT COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EQUITY COMPENSATION PLAN INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
STOCKHOLDER PROPOSALS FOR 2017 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DELIVERY OF DOCUMENTS TO STOCKHOLDERS SHARING THE SAME LAST NAME AND
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ADDRESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPENDIX A—UNAUDITED RECONCILIATIONS FROM GAAP TO NON-GAAP . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B—2016 EQUITY INCENTIVE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
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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.
2016 Annual Meeting of Stockholders
Time and Date: 10:00 a.m. Pacific Time, on Thursday, May 12, 2016
Place:
Record Date:
Voting:
Infinera Corporation, 140 Caspian Court, Sunnyvale, California 94089
March 16, 2016
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
1. To elect to the Board of Directors the three nominees for Class III
directors named in the Proxy Statement.
2. To approve, on an advisory basis, the compensation of Infinera’s
named executive officers, as described in the Proxy Statement.
3. To approve Infinera’s 2016 Equity Incentive Plan.
4. To ratify the appointment of Ernst & Young LLP as Infinera’s
independent registered public accounting firm for the fiscal year
ending December 31, 2016.
5. To transact such other business that may properly come before
the meeting or any postponement or adjournment thereof.
Board Nominees
Board Vote
Recommendation
Page Reference
(for more detail)
FOR EACH
DIRECTOR NOMINEE
FOR
FOR
FOR
7
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Committee Memberships(2)
Name
Age Director Since
Independent(1)
AC
CC
NGC
TAC
John P. Daane . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marcel Gani . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark A. Wegleitner . . . . . . . . . . . . . . . . . . . . . . . .
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2016
2014
2011
X
X
X
— M
M
C
— —
—
—
C
—
—
C
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 U.S. Securities and Exchange Commission and the listing standards of The NASDAQ
Stock Market (“NASDAQ”).
(2) Committee memberships are as of the date of this Proxy Statement. Changes to the composition of certain committees were
made by the Board of Directors on February 24, 2016.
Board and Governance Highlights
Board Independence. After this meeting, six out of eight of our directors will be independent. Currently seven
out of nine of our directors are independent.
Board Composition. After this meeting, the size of the Board of Directors will be fixed at eight and is divided
into three classes. The Board of Directors annually assesses its performance through a board self-evaluation.
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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 (David F. Welch, our President, serves on this committee), all other committees are composed
entirely of independent directors.
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.
Fiscal 2015 Business Highlights
We continued our transformation to a multi-market company in fiscal 2015 by adding metro and cloud/data
center interconnect (“DCI”) to our core long-haul business. In August 2015, we successfully completed our public
offer to the shareholders of Transmode AB (“Transmode”), a metro packet-optical networking company based in
Stockholm, Sweden. In addition, we enhanced our position in the DCI market in fiscal 2015 by expanding our
Cloud Xpress offering to include 10 gigabit Ethernet (“GbE”), 40 GbE and 100 GbE client interfaces to meet
additional customer requirements. We also introduced the XT-500, to provide a compact wavelength-division
multiplexing (“WDM”) solution optimized for long-haul interconnect applications.
Overall, we grew total revenue by 33% compared to fiscal 2014 including revenue from Transmode in the
post-acquisition period. Organically, excluding the partial year of Transmode revenue, our revenue grew in the
mid-20% range in fiscal 2015, marking the third consecutive year we have grown significantly faster than the
overall WDM market. We also continued to expand our gross margin and operating margin in fiscal 2015,
demonstrating the leverage we have achieved from our vertical integration, the value proposition of our Intelligent
Transport Network and our commitment to prudent expense management. Highlights included:
• Revenue was $886.7 million in fiscal 2015, compared to $668.1 million in fiscal 2014 and $544.1 million
in fiscal 2013.
• GAAP gross margin in fiscal 2015 was 45.5%, compared to 43.2% in fiscal 2014 and 40.2% in fiscal
2013. Non-GAAP gross margin(1) was 47.8% in fiscal 2015, compared to 44.0% in fiscal 2014 and 41.6%
in fiscal 2013.
• GAAP operating income was $59.7 million in fiscal 2015, compared to operating income of $27.3 million
in fiscal 2014 and operating loss of $24.1 million in fiscal 2013. Non-GAAP operating income(1) was
$116.5 million in fiscal 2015, compared to $55.7 million in fiscal 2014 and $7.8 million in fiscal 2013.
• GAAP net income in fiscal 2015 was $51.4 million, or $0.36 per diluted share, compared to $13.7 million,
or $0.11 per diluted share, in fiscal 2014, and a net loss of $32.1 million, or $0.27 per diluted share in
fiscal 2013.
(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, gross margin and operating income for fiscal years 2015, 2014 and 2013, please see
Appendix A to this Proxy Statement.
Executive Compensation Program Highlights
Our executive compensation program continues to be designed to balance near-term results with long-term
success and continues to encourage our executive officers (including our named executive officers (“NEOs”) for
fiscal 2015) 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
Compensation Committee. As explained in more detail in the Compensation Discussion and Analysis section of
this Proxy Statement, the design of our executive compensation program for fiscal 2015 promoted the continued
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strong alignment of the interests of our executive officers with those of our stockholders. Highlights of our
executive compensation program for fiscal 2015 included:
• The majority of our CEO’s fiscal 2015 target total direct compensation was in equity.
•
66% of our CEO’s target total direct compensation (the sum of base salary, target cash
incentive opportunity and target equity incentive compensation) was in the form of equity
awards, which links our CEO’s compensation directly to the value of our common stock. In fiscal
2015, our CEO received two performance-based restricted stock unit (“PSU”) awards for a total of
79,540 shares of our common stock (at target attainment) and a time-based restricted stock unit
(“RSU”) award for 55,240 shares of our common stock.
FY15 Total Direct Compensation: CEO
Base Salary,
15%
Target Cash
Incentive, 19%
Target Equity
Incentive, 66%
• The majority of our CEO’s fiscal 2015 target total direct compensation and target equity
compensation were at risk.
•
•
59% of our CEO’s target total direct compensation was fully “at risk.” This significant portion of
his compensation was based on our performance against measurable performance objectives set
forth under the fiscal 2015 bonus plan (the “2015 Bonus Plan”) and PSU awards.
60% of our CEO’s target equity compensation was in the form of PSU awards. These PSU
awards could be earned based on (i) our relative total stockholder return (“TSR”) performance
measured over three performance periods against the Standard & Poor’s North American
Technology Multimedia Networking Index (“S&P Networking Index”)(the “2015 TSR Award”); and
(ii) achievement of a pre-established minimum revenue target for sales of our CX family of products
(“CX PSU Award”).
• Our fiscal 2015 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 2015 PSU awards contain several features we consider to be best practices. The 2015 TSR
Award is consistent with prior year awards that measured our stock performance against a networking
index. In fiscal 2015, we also included the CX PSU Award to highlight the importance of a new platform
key to our long-term success.
2015 PSUs Measured on Relative TSR
• Sustained performance requirement. To earn the maximum number of shares under the 2015
TSR Award, which is 150% of the target number of shares, our TSR must exceed that of the S&P
Networking Index by 25 points or more as calculated on each of the one, two and three year
measurement periods (coinciding with the end of our fiscal 2015, 2016 and 2017).
• Steeper downside risk. The number of shares that may be earned under the 2015 TSR Award is
reduced one and one-half times faster if our TSR underperforms the S&P Networking Index (3-to-1
downside) than it is 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
number of shares subject to the award would be earned. If we outperform the S&P Networking Index
by 10 points of TSR, 120% of the target number of shares subject to the award would be earned.
• Payment cap. Regardless of our performance versus the S&P Networking Index, the number of
shares that may be earned under the 2015 TSR Award is capped at 100% of target for any period in
which our TSR is negative. Therefore, even if we significantly outperform the S&P Networking Index
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in challenging market conditions, this award only provides rewards above the target performance
level if incremental stockholder value is created.
PSUs Measured on Financial Objectives
•
In fiscal 2015, we included the CX PSU Award tied to revenue targets for a group of new products.
To earn the shares subject to the CX PSU Award at target, a meaningful minimum revenue threshold
was set for our new CX family of products.
• Our fiscal 2015 payouts reflect our pay-for-performance philosophy. Our fiscal 2015 payouts reflect
our continued strong performance and execution. As indicated above, a significant portion of our
executive compensation program is designed to align the compensation outcomes for our NEOs with
performance against measurable objectives. Our fiscal 2015 revenue and non-GAAP operating income
results demonstrated significant growth over fiscal 2014 and exceeded the maximum levels established
under our fiscal 2015 Bonus Plan for the financial objectives, resulting in the maximum payout for the
financial component at 150%. As of the end of fiscal 2015, we had three PSU award programs
outstanding for which fiscal 2015 was part of the performance period. We continued to outperform both
the S&P Networking Index and the NASDAQ Telecommunications Index (“Telecomm Index”) for our fiscal
2015 PSU awards, fiscal 2014 PSU awards and fiscal 2013 PSU awards, which resulted in maximum
payouts (150% of target) for the performance periods that concluded at the end of our fiscal 2015.
• We continue to maintain sound corporate governance policies and practices. We seek to maintain
sound corporate governance standards and recently we introduced majority voting for the election of
directors, which under the previous standard had been determined by plurality voting. During fiscal 2015,
the following policies and practices continued to be in effect:
“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
2016 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 2016 Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Thursday,
May 12, 2016 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 24, 2016.
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 the Notice 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 the Notice by email,
you will receive an email next year with instructions containing a link to the proxy materials and a link to the
proxy voting site. Your election to receive the Notice 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 16, 2016 (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, you must obtain a legal proxy issued in your name from the broker, trustee
or other nominee that holds your shares, 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 III directors to serve until the 2019 Annual Meeting of Stockholders or until
their successors have been duly elected and qualified;
• The approval, on an advisory basis, of the compensation of Infinera’s named executive officers, as
described in this Proxy Statement;
• The approval of the Infinera Corporation 2016 Equity Incentive Plan (the “2016 Plan”); and
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• The ratification of the appointment of Ernst & Young LLP as Infinera’s independent registered public
accounting firm for the fiscal year ending December 31, 2016.
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 majority vote, which 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 for each
nominee 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” the nominees listed in Proposal 1.
Proposal 2—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 2.
Proposal 3—Approval of the 2016 Plan 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.
Proposal 4—Ratification of the appointment of Ernst & Young LLP as Infinera’s independent registered public
accounting firm for the fiscal year ending December 31, 2016, 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 4.
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, Inc., you are the stockholder of record with respect to those shares, and 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
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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.
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 141,417,504 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), the non-binding advisory vote on Infinera’s named executive officer
compensation (Proposal 2) and the approval of the 2016 Plan (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, 2 and 3. Thus, if you hold your shares beneficially in street name and you do not instruct your
broker, bank or other nominee how to vote with respect to Proposals 1, 2 and 3, no votes will be cast on your
behalf.
The ratification of Ernst & Young LLP as our independent registered public accounting firm (Proposal 4) 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 4.
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.
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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 Annual 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.
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 are a stockholder of record and 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, 3 and 4. 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, 2 and 3 and will be counted as broker non-votes, and with respect to Proposal 4 will be voted 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.
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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-
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 Infinera;
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.
A representative from Computershare will serve as the inspector of election.
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 our 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 26, 2015 (the “2015 Annual Report”) is also available on the Internet as indicated in the
Notice. In addition, you can access this Proxy Statement and the 2015 Annual Report by going to Infinera’s
website at www.infinera.com/annual_meeting. The 2015 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.
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Q: How can I view or request copies of Infinera’s corporate documents and SEC filings?
A: Our website contains our Amended and Restated Bylaws, Corporate Governance Guidelines, Board
committee charters, Code of Business Conduct and Ethics, and SEC filings. To view these documents, go to
www.infinera.com, click on “Investor Relations” under the “Company” heading 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 “Investor Relations” under the “Company” heading and then click on “SEC Filings”
under the “Financials” heading.
We will promptly deliver free of charge, upon request, a copy of our 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 2015 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.
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PROPOSAL 1—ELECTION OF DIRECTORS
General
The Board currently consists of nine directors and is divided into three classes. Each class of the Board
serves a staggered three-year term. Our Class III directors, whose terms expire at the Annual Meeting, are
John P. Daane, Marcel Gani and Mark A. Wegleitner. On January 14, 2016, Carl Redfield informed the Board that
he will be resigning from the Board effective immediately prior to the Annual Meeting and will not be standing for
re-election. In addition, on January 26, 2016, James A. Dolce, Jr. resigned from the Board. After the Annual
Meeting, the Board will consist of eight members.
There are three nominees for election to Class III of the Board this year, Messrs. Daane, Gani and Wegleitner.
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 III directors, if elected, will serve for a three-year term expiring at the 2019 Annual Meeting of Stockholders,
or until his successor is duly elected and qualified, or until his earlier death, resignation or removal from the Board.
On February 24, 2016, the Board approved an amendment and restatement of our Bylaws to provide for
majority voting in the election of directors. The Bylaws provide that each director nominee be elected to the Board
if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election. The Board,
after taking into consideration the recommendation of the Nominating and Governance Committee, will determine
whether or not to accept the pre-tendered resignation of any nominee for director, in an uncontested election, who
receives a greater number of votes against his or her election than votes for such election.
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 III 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 III director at the
Annual Meeting, as well as for each director continuing service on the Board, including their ages as of March 24,
2016, 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.
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Nominees for Election as Class III Directors whose terms expire at the 2016 Annual Meeting of
Stockholders. If re-elected the Class III Directors terms would expire at the 2019 Annual Meeting of
Stockholders.
John P. Daane
Director since 2016
Age 52
Marcel Gani
Director since 2014
Age 63
John P. Daane has been a member of our Board since January 2016.
Mr. Daane served as President, CEO, and a board member of Altera
Corporation, a semiconductor company, from November 2000 through
Altera’s acquisition by Intel Corporation in December 2015. Mr. Daane
also served as Chairman of Altera’s board from May 2003 through
December 2015. From June 1985 through November 2000, Mr. Daane
worked for LSI Logic Corporation, a semiconductor manufacturer, in a
variety of positions starting as an engineering intern and ending as
Executive Vice President of the Communication Product Divisions,
including the Networking, Wireless, Telecom, Computer and Consumer
Divisions, and central engineering. Mr. Daane also served as a board
member of the Semiconductor Industry Association from January 2003
through December 2015. Mr. Daane holds a B.A. in Artificial Intelligence
from the University of California at Berkeley.
The Board believes that Mr. Daane brings extensive executive leadership
experience in the technology industry, including as the former CEO of
Altera. His service as a former CEO of a large public company combined
with his technology expertise allows him to provide significant
contributions to the Board. The Board also benefits from his service as a
member of the Compensation Committee.
Marcel Gani has been a member of our 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, Inc., including Chief of Staff from January 2005 to March 2006
and Executive Vice President and Chief Financial Officer (“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 currently serves on the board of directors of SolarEdge
Technologies, Inc., a power optimizer solutions company. Mr. Gani
previously served on the board of directors of Envivo, Inc., a video
technology company, from May 2011 through October 2015.
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 Chairman of our Compensation Committee and a
member of our Audit Committee, as well as an Audit Committee Financial
Expert.
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Mark A. Wegleitner
Director since 2011
Age 65
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 Chairman of our Nominating and Governance Committee and
our Technology and Acquisition Committee.
Incumbent Class II Directors whose terms expire at the 2018 Annual Meeting of Stockholders.
Paul J. Milbury
Director since 2010
Age 67
Paul J. Milbury has been a member of the Board since July 2010.
Mr. Milbury served as Vice President of Operations and 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., a provider of network traffic visibility
solutions, enabling stronger security and superior performance.
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.
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David F. Welch, Ph.D.
Director since 2010
Age 55
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 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 as a member of our Technology and
Acquisition Committee.
Incumbent Class I Directors whose terms expire at the 2017 Annual Meeting of Stockholders.
Thomas J. Fallon
Director since 2009
Age 54
Thomas J. Fallon has served as our CEO since January 2010 and as a
member of our 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 one
other public company board, Hercules Capital, Inc., a specialty finance
company. Mr. Fallon also serves on 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.
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Kambiz Y. Hooshmand
Director since 2009
Age 54
Rajal M. Patel
Director since 2015
Age 47
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,
Nominating and Governance Committee and Technology and Acquisition
Committee.
Rajal M. Patel has been a member of the Board since September 2015.
Mr. Patel brings more than 20 years of experience in scaling cloud
infrastructure and applications for consumer Internet, SaaS and other
service providers globally. Since March 2014, Mr. Patel has served as the
Head of Cloud Engineering at Pinterest. Prior to Pinterest, Mr. Patel
served as Senior Vice President for Technical Operations at
Salesforce.com from July 2013 to December 2013. Mr. Patel was Vice
President for Cloud Services Engineering at Cisco from April 2010 to July
2013 for the Webex collaboration portfolio, and held various engineering
and management roles at Yahoo! Inc. from 2004 to early 2010. Prior to
joining Yahoo!, Mr. Patel worked at Exodus Communications, which was
shortly thereafter acquired by Cable and Wireless. While at Cable and
Wireless, Mr. Patel served as Vice President of Network Services and
facilitated the integration of Exodus technology assets into Cable and
Wireless. Mr. Patel began his career at Pacific Bell, which is now AT&T,
and over a 10 year span was last the GM of the Advanced Technologies
Group.
With over 20 years of experience in technology management and
engineering over several transformations of infrastructure and networking
technologies ranging from traditional service providers to the most modern
webscale networks at the advent of consumer internet providers, the
Board believes that Mr. Patel’s leadership and know-how are additive to
Infinera as it pursues these markets. The Board also benefits from his
service on the Nominating and Governance Committee and Technology
and Acquisition Committee.
11
Vote Required
Directors are elected by a majority vote, which means that each of the three director nominees requires the
affirmative vote of a majority of the votes cast in order to be elected. 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 1—Recommendation of the Board
The Board unanimously recommends a vote “FOR” the election of each of the three Class III nominees listed
above.
12
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 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
13
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 recently updated our Code of Business Conduct and Ethics, which 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, board
composition, board responsibilities, committee composition, management succession and stockholder
communications. 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 eight times during fiscal 2015. The Board did not act by written consent during fiscal 2015.
During fiscal 2015, each director then in office 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. 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. Two members of the Board attended our 2015 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
14
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 2015:
Name
Board(1) Audit Compensation
James A. Dolce, Jr.(2) . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marcel Gani
Kambiz Y. Hooshmand . . . . . . . . . . . . . . . . . . . . . . . .
Paul J. Milbury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rajal M. Patel(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carl Redfield(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark A. Wegleitner
David F. Welch, Ph.D. . . . . . . . . . . . . . . . . . . . . . . . . .
Total Meetings in Fiscal 2015 . . . . . . . . . . . . . . . . . . .
M
M
M
C
M
M
M
M
M
8
—
—
M
M
C
—
—
—
—
8
—
—
—
—
M
—
M
C
—
7
Nominating
and
Governance
Technology
and
Acquisition
—
—
M
M
—
—
C
—
—
4
M
—
—
C
—
—
—
M
M
3
C = Chairman; M = Member
(1) Mr. Daane was appointed to the Board effective January 14, 2016 and did not begin his service as a director until after the
end of fiscal 2015.
(2) Mr. Dolce resigned as a director effective January 26, 2016.
(3) Mr. Patel was appointed as a director effective September 17, 2015.
(4) On January 14, 2016, Mr. Redfield informed the Board that he will be resigning from the Board effective immediately prior to
the Annual Meeting and will not be standing for re-election.
Below is a description of each standing committee of the Board as well as the current composition of each
committee.
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. In addition, the Audit Committee meets in
executive sessions, without management present and with the independent registered public accounting firm,
during most regular meetings of the Audit Committee. 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 eight times during fiscal 2015. The Audit Committee did not act by
written consent during fiscal 2015. 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.
15
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 our Investor Relations page.
During fiscal 2015, the members of the Compensation Committee were Messrs. Milbury, Redfield and
Wegleitner. The current members of the Compensation Committee as of February 24, 2016 are Messrs. Daane,
Gani, Milbury and Redfield. Mr. Wegleitner chaired the Compensation Committee through February 24, 2016 and
was replaced as chair by Mr. Gani. The Compensation Committee met seven times during fiscal 2015. The
Compensation Committee acted by written consent one time during fiscal 2015. 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 (“Section 162(m)”)
and satisfies the director and compensation committee independence requirements under the listing standards of
NASDAQ.
On January 14, 2016, Mr. Redfield informed the Board that he will be resigning from the Board and as a
member of the Compensation Committee effective immediately prior to the Annual Meeting and will not be
standing for re-election.
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 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. 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 during
fiscal 2015.
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.
16
During fiscal 2015, the members of the Nominating and Governance Committee were Messrs. Gani,
Hooshmand and Redfield. The current members of the Nominating and Governance Committee as of February 24,
2016 are Messrs. Hooshmand, Patel, Redfield and Wegleitner. Mr. Redfield chaired the Nominating and
Governance Committee through February 24, 2016 and was replaced as chair by Mr. Wegleitner. The Nominating
and Governance Committee met four times during fiscal 2015. The Nominating and Governance Committee did
not act by written consent during fiscal 2015. Each member of the Nominating and Governance Committee
satisfies the independence requirements under the listing standards of NASDAQ.
On January 14, 2016, Mr. Redfield informed the Board that he will be resigning from the Board and as a
member of the Nominating and Governance Committee effective immediately prior to the Annual Meeting and will
not be standing for re-election.
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 would be 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.
17
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
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.
During fiscal 2015, the members of the Technology and Acquisition Committee were Messrs. Dolce,
Hooshmand and Wegleitner and Dr. Welch. The current members of the Technology and Acquisition Committee
as of February 24, 2016 are Messrs. Hooshmand, Patel and Wegleitner and Dr. Welch. Mr. Hooshmand chaired
the Technology and Acquisition Committee through February 24, 2016 and was replaced as chair by
Mr. Wegleitner. The Technology and Acquisition Committee met three times during fiscal 2015. The Technology
and Acquisition Committee did not act by written consent during fiscal 2015. Mr. Dolce resigned as a director
effective January 26, 2016.
Compensation Committee Interlocks and Insider Participation
During fiscal 2015, the Compensation Committee of the Board consisted of Messrs. Milbury, Redfield and
Wegleitner. None of these individuals was at any time during fiscal 2015, 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 2015 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.
18
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. The Compensation
Committee, which consists solely of independent directors, 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. During fiscal 2015, the Compensation Committee engaged an outside advisor to provide
relevant market data regarding our director compensation program in order to review the program. The
Compensation 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. The full Board approved some changes to the director cash
compensation program beginning in fiscal 2016 as noted below.
Director Fees
During fiscal 2015, 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
40,000
30,000
12,500
20,000
8,000
10,000
5,000
10,000
5,000
Beginning at the start of fiscal 2016, the Board approved changes to our cash compensation program for non-
employee directors as follows: the annual retainer for the Chairman of the Board was increased from $40,000
annually to $50,000 annually; the annual retainer for the members of the Compensation Committee was increased
from $8,000 annually to $10,000 annually; the annual retainer for the Chair of the Nominating and Governance
Committee was increased from $10,000 annually to $11,000 annually; and the annual retainer for the members of
the Nominating and Governance Committee was increased from $5,000 annually to $6,000 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 annual installments over three years, provided that the non-employee director
remains a service provider of Infinera on 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 Infinera on the vesting date.
19
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 $165,000 pro-rated for the number of months remaining until the next scheduled
annual meeting of stockholders.
For the Annual RSU Award in connection with the 2015 Annual Meeting of Stockholders, we granted RSU
awards in the amount of 7,913 shares of Infinera common stock to each non-employee director then in office.
These RSU awards vest in full on May 12, 2016, subject to each non-employee director’s continued service to
Infinera on the vesting date.
Fiscal 2015 Director Compensation
The following table sets forth all of the compensation awarded to or earned by the non-employee members of
the Board in fiscal 2015.
Name
Fees Earned
or Paid in Cash
($)(1)
Stock
Awards
($)(2)
Option
Awards
($)
James A. Dolce, Jr.(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marcel Gani . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kambiz Y. Hooshmand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paul J. Milbury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rajal M. Patel(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carl Redfield(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark A. Wegleitner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55,000
67,500
117,500
88,000
13,874
68,000
75,000
168,389 —
168,389 —
168,389 —
168,389 —
278,520 —
168,389 —
168,389 —
Total
($)
223,389
235,889
285,889
256,389
292,394
236,389
243,389
(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 2015
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 resigned as a director effective January 26, 2016 and the outstanding RSUs were cancelled.
(4) Mr. Patel was appointed as a director effective September 17, 2015.
(5) Mr. Redfield has decided not to stand for re-election and will no longer serve as a director after the Annual Meeting.
Additional Information with Respect to Director Equity Awards
Name
James A. Dolce, Jr.(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marcel Gani
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kambiz Y. Hooshmand . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paul J. Milbury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rajal M. Patel(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carl Redfield(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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)
20,585
19,766
7,913
7,913
13,113
7,913
7,913
—
—
—
7,600
—
107,100
40,000
(1)
(2)
Includes unvested RSU awards.
Includes both vested and unvested stock options to purchase shares of Infinera common stock.
(3) Mr. Dolce resigned as a director effective January 26, 2016 and the outstanding RSUs were cancelled.
(4) Mr. Patel was appointed as a director effective September 17, 2015.
(5) Mr. Redfield has decided not to stand for re-election and will no longer serve as a director after the Annual Meeting.
20
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 141,417,504 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
5% or More Stockholders
FMR LLC(2)
The Vanguard Group(3)
BlackRock, Inc.(4)
Named Executive Officers and
. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Directors
Thomas J. Fallon(5) . . . . . . . . . . . . . . . . .
Brad D. Feller . . . . . . . . . . . . . . . . . . . . .
David F. Welch, Ph.D.(6) . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . . .
James L. Laufman . . . . . . . . . . . . . . . . .
John P. Daane(7) . . . . . . . . . . . . . . . . . . .
Marcel Gani . . . . . . . . . . . . . . . . . . . . . . .
Kambiz Y. Hooshmand(8) . . . . . . . . . . . .
Paul J. Milbury . . . . . . . . . . . . . . . . . . . .
Rajal M. Patel . . . . . . . . . . . . . . . . . . . . .
Carl Redfield(9)
. . . . . . . . . . . . . . . . . . . .
Mark A. Wegleitner . . . . . . . . . . . . . . . . .
All current executive officers and
directors as a group (12
persons) . . . . . . . . . . . . . . . . . . . . . . .
Common
Shares
Currently
Held
Common Shares
That May Be
Acquired Within
60 Days of the
Record Date(1)
Total
Beneficial
Ownership
Percent
Beneficially
Owned
20,970,781
9,878,284
8,236,147
—
—
—
20,970,781
9,878,284
8,236,147
14.8%
7.0%
5.8%
888,815
61,628
1,356,314
49,210
10,152
—
23,707
67,576
17,342
—
88,010
30,476
404,075
20,770
920,069
19,537
—
—
7,913
7,913
15,513
5,245
115,013
47,913
1,292,890
82,398
2,276,383
68,747
10,152
—
31,620
75,489
32,855
5,245
203,023
78,389
*
*
1.6%
*
*
*
*
*
*
*
*
*
2,593,230
1,563,961
4,157,191
2.9%
*
(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 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 12, 2016 by FMR LLC (“FMR”), 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 20,970,781 shares by virtue of its control over
Fidelity, which is deemed to be the beneficial owner of 12,689,328 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 4,015,768 shares, shared voting power over no shares, sole dispositive
21
power over 20,970,781 shares, and shared dispositive power over no shares; (b) Ms. Johnson has neither sole nor shared
voting power over any shares, sole dispositive power over 20,970,781 shares, and shared dispositive power over no shares
and (c) Fidelity has sole voting power over 12,689,328 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 11, 2016 by The Vanguard Group (“Vanguard”). Vanguard is
the beneficial owner of 9,878,284 shares and has sole voting power with respect to 295,796 shares, shared voting power
with respect to 7,300 shares, sole dispositive power with respect to 9,583,588 shares and shared dispositive power with
respect to 294,696 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 26, 2016 by BlackRock, Inc. (“BlackRock”). BlackRock is the
beneficial owner of 8,236,147 shares and has sole voting power with respect to 7,929,526 shares and sole dispositive power
with respect to 8,236,147 shares. The address of BlackRock is 55 East 52nd Street, New York, New York 10055.
(5) Shares held by The Fallon Family Revocable Trust dated 9/7/94.
(6) Consists of (i) 14,132 shares held by Dr. Welch; (ii) 326,439 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) 140,000 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.
(7) Mr. Daane was appointed as a director effective January 14, 2016.
(8) Consists of (i) 35,234 shares held by Mr. Hooshmand; and (ii) 32,342 shares held by 2002 Hooshmand Family Trust UA
03/01/2002.
(9) Consists of (i) 39,562 shares held by Mr. Redfield; and (ii) 48,448 shares held by The Carl Redfield Trust 2000 dated
10/18/00.
22
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis provides information related to the fiscal 2015 compensation
program and related decisions for our NEOs identified below. For fiscal 2015, these individuals were:
• Thomas J. Fallon, our CEO;
• Brad D. Feller, our CFO;
• David F. Welch, Ph.D., our President;
• Robert J. Jandro, our Senior Vice President, Worldwide Sales; and
•
James L. Laufman, our Senior Vice President, General Counsel and Secretary.
Executive Summary
Our executive compensation program is designed to balance near-term results with long-term success and to
encourage our executive officers 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 of the Board. In addition, we are committed to
equity-based pay practices, which help insure alignment of our executive officers’ interests with the interests of our
stockholders.
Fiscal 2015 Business Highlights
We continued our transformation to a multi-market company in fiscal 2015 by adding metro and DCI to our
core long-haul business. In August 2015, we successfully completed our public offer to the shareholders of
Transmode, a metro packet-optical networking company based in Stockholm, Sweden. In addition, we enhanced
our position in the DCI market in fiscal 2015 by expanding our Cloud Xpress offering to include 10 GbE, 40 GbE
and 100 GbE client interfaces to meet additional customer requirements. We also introduced the XT-500, to
provide a compact WDM solution optimized for long-haul interconnect applications.
Overall, we grew total revenue by 33% compared to fiscal 2014 including revenue from Transmode in the
post-acquisition period. Organically, excluding the partial year of Transmode revenue, our revenue grew in the
mid-20% range in fiscal 2015, marking the third consecutive year we have grown significantly faster than the
overall WDM market. We also continued to expand our gross margin and operating margin in fiscal 2015,
demonstrating the leverage we have achieved from our vertical integration, the value proposition of our Intelligent
Transport Network and our commitment to prudent expense management. Highlights included:
• Revenue was $886.7 million in fiscal 2015, compared to $668.1 million in fiscal 2014 and $544.1 million
in fiscal 2013.
• GAAP gross margin in fiscal 2015 was 45.5%, compared to 43.2% in fiscal 2014 and 40.2% in fiscal
2013. Non-GAAP gross margin(1) was 47.8% in fiscal 2015, compared to 44.0% in fiscal 2014 and 41.6%
in fiscal 2013.
• GAAP operating income was $59.7 million in fiscal 2015, compared to operating income of $27.3 million
in fiscal 2014 and operating loss of $24.1 million in fiscal 2013. Non-GAAP operating income(1) was
$116.5 million in fiscal 2015, compared to $55.7 million in fiscal 2014 and $7.8 million in fiscal 2013.
• GAAP net income in fiscal 2015 was $51.4 million, or $0.36 per diluted share, compared to $13.7 million,
or $0.11 per diluted share, in fiscal 2014, and a net loss of $32.1 million, or $0.27 per diluted share in
fiscal 2013.
(1) For a reconciliation of GAAP to non-GAAP gross profit, gross margin and operating income for fiscal years 2015, 2014 and
2013, please see Appendix A to this Proxy Statement.
23
The following tables illustrate the growth in our revenue and non-GAAP operating income over the last three
fiscal years (in millions):
)
s
d
n
a
s
u
o
h
t
n
i
(
e
u
n
e
v
e
R
$1,000
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
Revenue
$668.1
$886.7
$544.1
FY13
FY14
Fiscal Year
FY15
)
s
d
n
a
s
u
o
h
t
n
i
(
e
m
o
c
n
I
g
n
(cid:2)
a
r
e
p
O
$140
$120
$100
$80
$60
$40
$20
$0
Non-GAAP Opera(cid:2)ng Income(1)
$116.5
$55.7
$7.8
FY13
FY14
Fiscal Year
FY15
(1) For a reconciliation of GAAP to non-GAAP gross profit, gross margin and operating income for fiscal years 2015, 2014 and
2013, please see Appendix A to this Proxy Statement.
We also continued to outperform our industry in terms of delivering stockholder returns, as shown by our 1-, 3-
and 5-year TSR as compared to the S&P Networking Index.
Annualized 1-Year, 3-Year, 5-Year Total Stockholder Return
Infinera
S&P Networking Index
47%
24%
-1%
1-year TSR
11%
12%
3%
3-year TSR
5-year TSR
Fiscal 2015 Executive Compensation Program Design Highlights
The design of our executive compensation program for fiscal 2015 promoted the continued strong alignment
of the interests of our executive officers with those of our stockholders. Highlights of our executive compensation
program for fiscal 2015 were:
• The majority of our CEO’s fiscal 2015 target total direct compensation was in equity.
•
66% of our CEO’s target total direct compensation (the sum of base salary, target cash
incentive opportunity and target equity incentive compensation) was in the form of equity
awards, which links our CEO’s compensation directly to the value of our common stock. In fiscal
2015, our CEO received two PSU awards for a total of 79,540 shares of our common stock (at target
attainment) and a time-based RSU award for 55,240 shares of our common stock.
FY15 Total Direct Compensation: CEO
Base Salary,
15%
Target Cash
Incentive, 19%
Target Equity
Incentive, 66%
• The majority of our CEO’s fiscal 2015 target total direct compensation and target equity
compensation were at risk.
•
59% of our CEO’s target total direct compensation was fully “at risk.” This significant portion of
his compensation was based on our performance against measurable performance objectives set
forth under the 2015 Bonus Plan and PSU awards.
24
•
60% of our CEO’s target equity compensation was in the form of PSU awards. These PSU
awards could be earned based on (i) our relative TSR performance measured over three
performance periods against the S&P Networking Index (the “2015 TSR Award”); and
(ii) achievement of a pre-established minimum revenue target for sales of our CX family of products
(“CX PSU Award”).
• Our fiscal 2015 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 2015 PSU awards contain several features we consider to be best practices. The 2015 TSR
Award is consistent with prior year awards that measured our stock performance against a networking
index. In fiscal 2015, we also included the CX PSU Award to highlight the importance of a new platform
key to our long-term success.
2015 PSUs Measured on Relative TSR
• Sustained performance requirement. To earn the maximum number of shares under the 2015
TSR Award, which is 150% of the target number of shares, our TSR must exceed that of the S&P
Networking Index by 25 points or more as calculated on each of the one, two and three year
measurement periods (coinciding with the end of our fiscal 2015, 2016 and 2017).
• Steeper downside risk. The number of shares that may be earned under the 2015 TSR Award is
reduced one and one-half times faster if our TSR underperforms the S&P Networking Index (3-to-1
downside) than it is 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
number of shares subject to the award would be earned. If we outperform the S&P Networking Index
by 10 points of TSR, 120% of the target number of shares subject to the award would be earned.
• Payment cap. Regardless of our performance versus the S&P Networking Index, the number of
shares that may be earned under the 2015 TSR Award is capped at 100% 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, this award only provides rewards above the target performance
level if incremental stockholder value is created.
PSUs Measured on Financial Objectives
•
In fiscal 2015, we included the CX PSU Award tied to revenue targets for a group of new products.
To earn the shares subject to the CX PSU Award at target, a meaningful minimum revenue threshold
was set for our new CX family of products.
Fiscal 2015 Executive Compensation Program Payout Highlights
Our fiscal 2015 payouts reflect our continued strong performance and execution. As indicated above, a
significant portion of our executive compensation program was designed to align the compensation outcomes for
our NEOs with performance against measurable objectives. The tables below summarize the results of the key
performance measures that included fiscal 2015 in the performance period.
Our fiscal 2015 revenue and non-GAAP operating income results demonstrated significant growth over fiscal
2014 and exceeded the maximum levels established under the 2015 Bonus Plan, resulting in the maximum payout
for the financial component of the plan at 150%.
Performance Measure
Fiscal 2014
Actual Results
Fiscal 2015 Financial Performance
Target
Maximum
Actual(1)
Funding as a
% of Target
Revenue (in millions) . . . . . . . . . . . . . . . . . .
Non-GAAP Operating Income (in millions) .
$668.1
$ 55.7
$ 750.0
>$ 87.90
$ 825.0
>$105.86
$886.7
$116.5
150%
(1) These amounts represent the consolidated results for Infinera in fiscal 2015. As these objectives were established prior to
knowledge of the Transmode acquisition, for purposes of determining whether or not the financial objectives established
under the 2015 Bonus Plan were met, the Compensation Committee only considered the revenue and non-GAAP operating
25
income of Infinera on a stand-alone basis, without taking into account the additional revenue and/or profit from Transmode
since its acquisition on August 20, 2015.
For the operational objectives under the 2015 Bonus Plan, the Compensation Committee included (i) an
important quality measure related to the CX family of products; (ii) three key technology development objectives;
and (iii) two objectives related to the adoption of the CX family of products (a minimum number of new customers
and new channel partners). For fiscal 2015, we achieved a majority of the operational objectives, resulting in a
payout for the operational component of the 2015 Bonus Plan at 55%.
As of the end of fiscal 2015, we had three PSU award programs outstanding for which fiscal 2015 was some
or all of the performance period. Each measured our TSR against that of an independently constituted market
index. As summarized in the table below, we continued to outperform the TSR of both the S&P Networking Index
(applicable to the fiscal 2014 and 2015 PSU awards) and the Telecomm Index (applicable to the fiscal 2013 PSU
awards), which resulted in maximum payouts (150% of target) for each of the performance periods that concluded
at the end of fiscal 2015.
Year of
Grant
2015
2014
2013
Benchmark(1)(2)
S&P Networking Index
S&P Networking Index
Telecomm Index
Applicable
Measurement
Period
% of Target
Award Tied
to Period
Performance Comparison
Infinera %
Change
Index %
Change
Infinera
Minus Index
Payout as a % of
Target
(2-for-1 upside,
150% max)
~1-year
~2-years
~3-years
33%
33%
33%
+ 31%
+ 3% + ~28 points
+ 138% + 14% + ~124 points
+230% +23% + ~207 points
150%
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.
In addition, to underscore the importance of the new CX family of products to our long-term success, in fiscal
2015, the Compensation Committee granted the CX PSU Award that could be earned based on the revenue
performance of our CX family of products. Based on the performance criteria as of the end of fiscal 2015, no
shares have been earned.
Governance of Executive Compensation
Our executive compensation program includes the following executive compensation governance policies and
practices:
• Executive Clawback Policy. We maintain an executive clawback policy that applies to our Section 16
Officers and provides for recovery of incentive compensation under specified circumstances as described
below in the section entitled “Compensation Discussion and Analysis—Additional Information Regarding
our Compensation Practices—Executive Clawback Policy.”
• Anti-Hedging Policy. Our Insider Trading Policy prohibits all employees, including our NEOs, from
hedging their Infinera common stock.
• Anti-Pledging Policy. Our Insider Trading Policy prohibits our NEOs from pledging Infinera common stock
as collateral for a loan.
• Fully Independent Compensation Committee. Our executive compensation program is administered
annually by the Compensation Committee, which consists solely of independent directors.
• Stock Ownership Policy. Our Section 16 Officers and the non-employee members of the Board 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.
26
• 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.
• No Executive Perquisites. Our executive officers are only eligible to receive the same benefits and
perquisites as our other U.S. salaried employees.
•
Independent Compensation Consultant Reporting Directly to Compensation Committee. The
Compensation Committee utilizes input from an independent compensation consultant that is retained
directly by the Compensation Committee.
Advisory Vote on Fiscal 2014 Named Executive Officer Compensation—“Say-on-Pay” Vote
In calendar 2015, stockholders were provided with the opportunity to cast an advisory (non-binding) vote (a
“say-on-pay” proposal) on the compensation of our NEOs for fiscal 2014. Our stockholders overwhelmingly
approved this say-on-pay proposal, with over 96% of votes cast voting in favor of our executive compensation
program. Noting the results of this vote, for fiscal 2015, the Compensation Committee 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 considers input
from our stockholders, as well as the outcome of our annual say-on-pay vote, when making executive
compensation program decisions.
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 company environment
relative to industry conditions, current business priorities and strategy and product development cycles.
Compensation-Setting Process
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 establish and approve the compensation of each of our executive officers, including our 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 our 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 2015, the Compensation Committee engaged the services of
Compensia, Inc. (“Compensia”), a national compensation consulting firm. Compensia provided the Compensation
Committee with an analysis of industry sector competitive market data regarding NEO compensation, 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 program. During fiscal 2015, Compensia also
provided assistance with respect to the terms of the proposed 2016 Plan and in a review of the compensation
program for our non-employee directors relative to peer practices.
27
Compensia reports 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 2015. Compensia’s fees were paid by Infinera. The Compensation Committee annually reviews the
independence of its compensation consultant and during fiscal 2015 determined that there were no conflicts of
interest in connection with Compensia’s work.
Determination of CEO Compensation. Our compensation consultant provides market data and considerations
for the Compensation Committee regarding 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 with respect to the performance of our CEO. After considering the feedback and
recommendations received, all decisions regarding our CEO’s compensation are made by the Compensation
Committee, based on its own judgment and the interests of our stockholders, in executive sessions excluding our
CEO.
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,
including considerations regarding retention and importance to Infinera. 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 NEOs (other than himself). While the Compensation
Committee considers the recommendations of our CEO in determining compensation for our other NEOs,
ultimately its decisions are based on its own judgment and the interests of our stockholders. None of our 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 our NEOs are present at meetings in which their 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 objectives, and long-term incentive compensation delivered in the form of equity awards to align
the interests of our executive officers with those of our stockholders and provide significant motivational and
retention value to our 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 to allocate an NEO’s target total direct compensation opportunity among these various
elements, the Compensation Committee seeks to take into account market competitive practices for companies of
a similar size and with a comparable business focus. Individual retention considerations specific to the individual
are also factored in, as more fully described in the section entitled “Relevant Factors Related to Individual
Executives” below. Equity awards, which for fiscal 2015 consisted of time-based RSU awards and two types of
PSU awards, represented the largest component of our NEOs’ target total direct compensation opportunity. This
approach was designed to encourage sustained, long-term performance and to ensure alignment of the interests
of our NEOs and our stockholders. Consistent with our “pay-for-performance” philosophy, a significant portion of
our NEOs’ fiscal 2015 target total direct compensation opportunity was completely “at-risk,” including 59% of our
CEO’s target total direct compensation opportunity.
28
The following charts show the target total direct compensation mix for fiscal 2015 for our CEO and our other
NEOs as a group:
FY15 Mix of Pay: CEO
FY15 Mix of Pay: Other NEO Average
Base Salary
15%
Base Salary
26%
Perf.-Based RSUs
40%
Target Bonus
19%
Perf.-Based RSUs
26%
Target Bonus
23%
Time-Based RSUs
26%
Time-Based RSUs
25%
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, due to the lack of data specific to this
position, the Compensation Committee used an approximation of peer compensation based on data available from
these sources.
The Compensation Committee reviews the compensation peer group 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 fiscal 2015 peer group was based on the following targeted selection criteria:
•
Industry: companies in the communications equipment or related industry segments;
• Annual Revenue: $225 million to $1.4 billion;
• Market Capitalization: $335 million to $3 billion; and
• Number of Employees: 660 to 2,635.
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
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 firms. 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 targeted selection criteria.
The compensation peer group established to assist in determining fiscal 2015 compensation for our NEOs
included 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
NETGEAR, Inc.
Plantronics*
QLogic*
Riverbed Technology, Inc.
ShoreTel, Inc.
Sonus Networks, Inc.
ViaSat, Inc.
*
Indicates an addition to the peer group for fiscal 2015. Companies removed from the fiscal 2014 peer group include
Symmetricom (acquired) and Neophotonics (below target range for market capitalization).
29
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 for
companies with annual revenues between $200 million and $1 billion. 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 data,” we are referring to the combined compensation peer group and survey data
described above that were then in effect and applicable to the NEOs. For these purposes, each data source was
weighted equally.
Use of Market Data
For its fiscal 2015 compensation decisions, the Compensation Committee maintained a holistic and flexible
approach in its use of market data. The Compensation Committee’s goal is generally to set all elements of
compensation within a competitive range, using a balanced approach that does not use rigid percentiles to target
pay levels for each compensation element, but instead makes its compensation decisions based on a variety of
relevant factors, including those listed below. While the Compensation Committee continues to review and
reference market data, the data generally is used to inform the Compensation Committee of market practices to
ensure that our executive compensation program remains within a competitive range of our peers. In addition to
the market data, several other factors are taken into account in setting the amount of each NEO’s target total direct
compensation opportunity. These factors include:
• Recruitment, retention and historical factors. The Compensation Committee reviews existing NEO
compensation and retention levels relative to estimated replacement cost with respect to the scope,
responsibilities and skills required of the particular position.
• 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.
• Market positioning may be distorted by the source of the data. Certain elements of compensation
reported from one source can be consistently higher or lower than the data collected from another, given
differences in methods and samples used by each source to collect market data. Given this variability and
volatility within the market data, the Compensation Committee has determined that targeting pay levels at
specific percentiles of this data could result in outcomes that do not align with the internal value and
strategic importance of various roles at Infinera.
• Desire to account for other factors not captured in the market data. As discussed below, the
Compensation Committee also considers several qualitative factors.
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 for our NEOs,
including:
• The role the executive officer plays and the importance of such individual to our ability to execute on our
business strategy and to achieve our strategic 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 each 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 management team and senior employees;
• The impact of our compensation decisions on key financial and other measures such as our equity award
“burn-rate”;
• Our overall performance as compared to internal plans and external benchmarks;
30
• The potential impact on stockholder dilution of our compensation decisions relative to peers and historical
practices;
•
Internal pay equity across the executive management 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 NEOs.
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 2015 executive compensation for our NEOs, 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. In determining his compensation
for fiscal 2015, the Compensation Committee considered Mr. Fallon’s exceptional strategic leadership
and his role in managing Infinera and our executive team during his time as our CEO. In addition, the
Compensation Committee took into account:
• Our strong performance under Mr. Fallon’s leadership during fiscal 2014 where our stock price and
annual revenue increased by 52% and 23%, respectively;
• Competitive market data for companies of similar size and scope (as described above) and a desire
to recognize Mr. Fallon’s contributions to our performance by transitioning his target total cash
compensation to a level that was more consistent with companies of similar size;
• Mr. Fallon’s significant institutional and industry knowledge, as well as his role in the development
and oversight of corporate strategy and management development; and
• The desire to retain Mr. Fallon in light of the potential risk of a competitor or other company seeking
to recruit Mr. Fallon given his demonstrated leadership and performance, specifically, the
Compensation Committee considered the potential amount of compensation such a competitor may
offer both in total and when compared to Mr. Fallon’s current equity holdings.
• Mr. Feller assumed the role of CFO in March 2014. In determining his compensation for fiscal 2015, the
Compensation Committee considered Mr. Feller’s role in building a strong finance team, improving our
internal processes and expanding our outreach to stakeholders. In addition, the Compensation
Committee took into account:
• Our strong financial performance during fiscal 2014;
• Competitive market data for companies of similar size and scope (as described above); and
• Mr. Feller’s ability to oversee prudent expense management and demonstrated leadership in
successful fulfillment of corporate strategy.
• 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 leading our product marketing, corporate marketing, business development,
network strategy, product line management, product architecture, network systems analysis and systems
engineering organizations. In addition, the Compensation Committee took into account:
• Our strong financial performance during fiscal 2014;
• Competitive market data for companies of similar size and scope (as described above) and a desire
to recognize Dr. Welch’s contributions to our performance by transitioning his target total cash
compensation to a level that was more consistent with companies of similar size;
31
• Dr. Welch’s experience, knowledge and deep technical understanding of the optical network industry
as well as his leadership in overseeing our strategy to transition to a multi-market company; and
• The desire to retain Dr. Welch in light of the potential risk of a competitor or other company seeking
to recruit Dr. Welch given his demonstrated leadership and performance, specifically, the
Compensation Committee considered the potential amount of compensation such a competitor may
offer both in total and when compared to Dr. Welch’s current equity holdings.
• 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. In addition, the Compensation Committee took
into account:
• Our strong financial performance during fiscal 2014;
• Competitive market data for companies of similar size and scope (as described above); and
• Mr. Jandro’s successful oversight of the expansion of our footprint and sales channels as part of
implementing our overall sales strategy.
• Mr. Laufman has served as our Senior Vice President, General Counsel and Secretary 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. His base salary, target annual
bonus opportunity and initial equity awards were approved at levels that the Compensation Committee
believed were necessary to recruit him to join Infinera and deemed to be appropriate in light of his
experience. No additional changes were made to his compensation in fiscal 2015.
Fiscal 2015 Compensation
Base Salaries
The Compensation Committee reviewed the base salaries for fiscal 2015 for each of our NEOs, and approved
an increase for Mr. Fallon and Dr. Welch, but made no adjustments for Messrs. Feller, Jandro and Laufman. Given
that our CEO’s and President’s base salaries had historically been below market levels, and after taking into
consideration their significant contributions and strong leadership during fiscal 2014, the Compensation Committee
determined that increases in their base salaries were appropriate to maintain competitiveness with market
practices and to recognize their performance during the year.
The following table shows the annual base salary for each of our NEOs for fiscal 2014 and fiscal 2015:
Name
Fiscal 2014
Annual Base Salary
Fiscal 2015
Annual Base Salary
Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brad D. Feller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David F. Welch, Ph.D.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James L. Laufman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$468,750
$360,000
$375,000
$350,000
$325,000
$540,000
$360,000
$450,000
$350,000
$325,000
32
Performance-Based Incentive Cash Compensation (2015 Bonus Plan)
Target Bonus Opportunities. The Compensation Committee reviewed the target bonus opportunities (which
are expressed as a percentage of base salary) for fiscal 2015 for each of our NEOs, and determined that an
adjustment was in order only for Mr. Feller to maintain competitiveness with market practices. The following table
shows the target bonus opportunities for each of our NEOs for fiscal 2014 and fiscal 2015:
Name
Fiscal 2014
Target Bonus
(as a percentage
of base salary)
Fiscal 2015
Target Bonus
(as a percentage
of base salary)
Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brad D. Feller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David F. Welch, Ph.D.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James L. Laufman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125%
60%
80%
100%
60%
125%
70%
80%
100%
60%
Bonus Plan Design. Bonuses under the 2015 Bonus Plan for NEOs were paid out based on our performance
against a mix of financial objectives (weighted at 80%) and operational objectives (weighted at 20%) as discussed
below.
The 2015 Bonus Plan also contained an individual performance component that could be used to adjust the
bonus payouts for our NEOs by factors of 75% to 125% of the funded amount. Our CEO was responsible for
reviewing the individual performance of each NEO (other than himself) and recommending a bonus adjustment for
each NEO. The Compensation Committee then had sole discretion to determine any individual performance
adjustments for each NEO (including the CEO) and the final bonus payout for fiscal 2015.
The financial performance objectives for the 2015 Bonus Plan consisted of 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 2015 Bonus Plan, “non-GAAP operating income” was calculated excluding non-cash stock-
based compensation expenses, acquisition-related costs and certain purchasing accounting adjustments. For a
reconciliation of GAAP to non-GAAP operating income for fiscal 2015, please see Appendix A to this Proxy
Statement.
For fiscal 2015, the financial performance objectives for revenue and non-GAAP operating income were as
follows:
Revenue
$675 million
$700 million
$725 million
$750 million
$775 million
$800 million
$825 million
Non-GAAP Operating Income
Payout as a Percentage of Target
$68.68 million
$74.99 million
$81.31 million
$87.90 million
$93.70 million
$99.78 million
$105.86 million
25%
50%
75%
100%
116.7%
133.3%
150%
•
If the level of performance for either of the financial objectives was below the minimum thresholds of $675
million for revenue or $68.68 million for non-GAAP operating income, there would have been no payout
for the financial objectives.
• For a payout to occur at each of the percentages indicated in the table above, both the revenue and non-
GAAP operating income objectives had to be met at the specified levels applicable to that payout
percentage. If the revenue and non-GAAP operating income objectives are achieved at levels that are at
different payout percentages, then the payout will be governed by whichever objective is achieved at the
33
lower level (and using straight line interpolation if achievement of such objective is between any two
levels in the table above).
• For performance attainment above the maximum level, the payout was capped at 150%.
The Compensation Committee also believed that focusing on specific operational objectives was important to
measuring our success in fiscal 2015. The Compensation Committee approved the following operational
objectives for the 2015 Bonus Plan, which included (i) an important quality measure related to the CX family of
products; (ii) three key technology development objectives; and (iii) two objectives related to the adoption of the
CX family of products (a minimum number of new customers and new channel partners). Payouts tied to the
operating objectives were based upon the achievement, as determined by the Compensation Committee, of each
operating objective. No payout would be made for any operating objective that was behind schedule or failed to
meet quality target measures. Payouts were capped at 100% for the operational objectives.
Operational Objectives
Weighting
Quality Goal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25%
Three Product Development Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15% each (45%)
Two Goals Relating to Key Wins (consisting of new Infinera CX customers and
Maximum
Attainment
100%
100%
new Infinera CX channel partners) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15% each (30%)
100%
Bonus Plan Payouts. The following table shows our actual performance with respect to each financial and
operational objective under the 2015 Bonus Plan:
Performance Measures
Financial Objectives (weighted at 80%)
Actual Performance
Revenue for Fiscal 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-GAAP Operating Income for Fiscal 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
886.7 million(1)
116.5 million(1)
Operational Objectives (weighted at 20%)
Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Key Wins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Achieved
Partially Achieved(2)
Partially Achieved(3)
(1) These amounts represent the consolidated results for Infinera in fiscal 2015. As these objectives were established prior to
knowledge of the Transmode acquisition, for purposes of determining whether or not the financial objectives established
under the 2015 Bonus Plan were met, the Compensation Committee only considered the revenue and non-GAAP operating
income of Infinera on a stand-alone basis, without taking into account the additional revenue and/or profit from Transmode
since its acquisition on August 20, 2015.
(2) We achieved one of the three development goals during fiscal 2015. For the development goals that were not achieved, the
eligible NEOs received no payout for this portion of the bonus.
(3) We achieved one of the two key wins goals during fiscal 2015. For the key wins goal that was not achieved, the eligible
NEOs received no payout for this portion of the bonus.
Upon review of our actual financial and operational performance for fiscal 2015 as compared to the pre-
established target levels, the Compensation Committee approved a bonus payout to our NEOs based on the
achievement of the financial objectives at 150% of target performance and the operational objectives at 55% of
target performance. No adjustments were made to the payouts of any of our NEOs, including our CEO, based on
individual performance. The following table sets forth the bonus payments for fiscal 2015 earned by our NEOs
pursuant to the 2015 Bonus Plan.
Name
Fiscal 2015
Final Bonus Payout(1)
Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brad D. Feller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David F. Welch, Ph.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James L. Laufman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$884,250
$330,120
$471,600
$458,500
$255,450
(1) Bonuses were paid in March 2016.
34
Long-Term Incentive Compensation
Our long-term incentive compensation opportunities are delivered in the form of equity awards.
Equity Compensation Design. Under the Infinera 2007 Equity Incentive Plan (the “2007 Plan”), the
Compensation Committee grants equity awards to eligible employees, including our NEOs. The Compensation
Committee actively monitors our annual aggregate equity utilization as measured by our burn rate.
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 our NEOs. It also believes that our performance-
based equity awards foster a “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. Our NEOs 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 create the results that drive stockholder value.
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 Award
Description
Why It Is Used
• Provide the opportunity to earn a
specified number of shares of
Infinera common stock 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.
• 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.
PSU Award
• Provide the opportunity to earn
shares of Infinera common stock
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 is
forfeited.
In February 2015, the Compensation Committee granted annual equity awards for fiscal 2015 in the form of
RSU awards and two different types of PSU awards to each of our NEOs other than Mr. Laufman (due to the fact
he had just recently joined Infinera in October 2014). For the fiscal 2015 PSU awards, the Compensation
Committee determined that with regards to the target value typically assigned to the PSU awards that two-thirds of
the target value would be assigned to the 2015 TSR Award and one-third would be assigned to the CX PSU
Award.
In addition to the foregoing awards, and given Dr. Welch’s importance to the implementation of the long-term
strategy of Infinera, the Compensation Committee determined that an additional award of RSUs to Dr. Welch was
appropriate in order to increase the retention value of his long-term incentive compensation. The vesting of this
retention award differs from the standard time-based award granted to the NEOs in that fifty percent of the award
vests after two years and the remaining fifty percent vests after three years.
35
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 the equity awards and the amount and value of unvested equity awards held by each of our
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.
The following table sets forth the NEO equity awards in the fiscal 2015 program:
Name
Thomas J. Fallon . . . . . . . .
Brad D. Feller . . . . . . . . . . .
David F. Welch, Ph.D.(1)
. .
Robert J. Jandro . . . . . . . .
James L. Laufman(2)
. . . . .
2015 TSR Award
CX PSU Award
Number of Shares
Subject to RSU
Awards
Target
Number of
Shares
Maximum Number
of Shares
(150% of Target)
Target
Number of
Shares
Maximum Number
of Shares
(200% of Target)
55,240
18,560
28,770
17,990
—
51,920
11,630
18,030
11,270
—
77,879
17,444
27,045
16,904
—
27,620
6,190
9,590
6,000
—
55,240
12,380
19,180
12,000
—
(1) Dr. Welch was awarded an additional grant of 28,770 RSUs in fiscal 2015 (for an aggregate of 57,540 RSUs). This second
award of RSUs is scheduled to vest as follows: one-half of the underlying shares on May 5, 2017 and one-half of the shares
on May 5, 2018, subject to Dr. Welch’s continued service to Infinera on each applicable vesting date.
(2) Mr. Laufman did not receive any equity awards in fiscal 2015 since he received equity awards when he was hired in October
2014.
The RSU awards in the table above (other than Dr. Welch’s additional RSU award) vest in annual installments
with one-third of the underlying shares of Infinera common stock vesting on May 5 of each of 2016, 2017 and
2018, subject to the NEO’s continued service with Infinera on each applicable vesting date.
The shares of Infinera common stock subject to the 2015 TSR Award are eligible to vest based on our TSR
performance relative to the S&P Networking Index over the applicable performance periods (as discussed below).
The Compensation Committee selected relative TSR as the performance measure for this PSU award because it
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 (or eliminating) the dilutive effect of our equity
awards in the event of underperformance. In choosing an appropriate comparator group, the Compensation
Committee selected the S&P Networking Index based on a review of its components (including the fact that
Infinera is a component of the index, which shows it relevance), the relatively close correlation between our
historical stock price movement and that of the S&P Networking Index, as well as the importance of the multimedia
networking industry to our business.
Our relative TSR is measured against the S&P Networking Index at three intervals for the 2015 TSR Award,
with one-third of the total number of shares of Infinera common stock subject to each NEO’s 2015 TSR Award
allocated to each of the three performance periods. For purposes of calculating TSR performance for Infinera and
the S&P Networking Index, the performance periods are as follows:
(i) For the first performance period, the starting price is the 60-day average (of our closing stock price or the
index, as applicable) leading up to and inclusive of February 24, 2015, and the ending price is the 60-day
average leading up to and inclusive of the last day of fiscal 2015;
(ii) For the second performance period, the starting price is the 60-day average leading up to and inclusive of
February 24, 2015, and the ending price is the 60-day average leading up to and inclusive of the last day
of fiscal 2016; and
(iii) For the third performance period, the starting price is the 60-day average leading up to and inclusive of
February 24, 2015 and the ending price is the 60-day average leading up to and inclusive of the last day
of fiscal 2017.
36
The table below summarizes the performance criteria used to determine the percentage of the shares subject
to the 2015 TSR Awards that would be eligible to vest by our NEOs for various levels of TSR performance relative
to the S&P Networking Index for each performance period.
INFN TSR vs. Index . . . . . . . . . . . .
Payment as a Percentage of
Target . . . . . . . . . . . . . . . . . . . . .
Slope . . . . . . . . . . . . . . . . . . . . . . . .
Minimum Target Maximum
-33 Points Match +25 Points
0% 100%
3 to 1
—
150%
2 to 1
Payment is capped at target if TSR is
negative. To earn the maximum number of
shares under the 2015 TSR Award, 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 eligible to vest 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 eligible to vest
decreases by 3% and can be reduced to 0% of the target award level.
Notwithstanding our TSR performance relative to the S&P Networking Index, if our TSR is negative for any
performance period, the potential payout will be capped at 100% of the target number of shares allocated to that
period. The 2015 TSR 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 100% 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, provided in each case that
our TSR is positive and results achieved are at or above 100% of target for the applicable subsequent
performance period.
As disclosed in last year’s proxy statement, for awards measuring TSR against an index that may be awarded
to our executive officers as part of their fiscal 2016 target total direct compensation opportunities, the
Compensation Committee has determined that the start of the measurement period will be 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.
In addition, to underscore the importance of the new CX family of products to our long-term success, in fiscal
2015, the Compensation Committee also granted the CX PSU Award to be earned based on the cumulative
revenue performance of the CX products over an 18-month performance period commencing on the first day of
fiscal 2015 and ending on the last day of the second quarter of fiscal 2016 (the “Performance Period”). The CX
PSU Award set a meaningful minimum threshold for cumulative revenue performance at which 100% of the target
number of shares could be earned and a maximum level for revenue performance (two times the minimum
threshold for cumulative revenue performance) at which 200% of the target number of shares could be earned. For
revenue performance between the minimum threshold and the maximum level, the final award is determined on a
linear basis using straight line interpolation. The CX PSU Award also contained a provision that provided that the
shares of our common stock subject to the award could be earned prior to the end of the Performance Period at no
more than target if we achieved at least the target cumulative revenue performance level for fiscal 2015. If the
target cumulative revenue performance level was achieved by this date, then the shares of common stock subject
to the CX PSU Award would be earned based on our actual cumulative CX family revenue for fiscal 2015. In this
instance, the number of shares earned at the end of the Performance Period would equal the difference between
the number of shares earned based on our actual cumulative CX family revenue performance level for the
Performance Period (subject to the 200% cap) and the number of shares actually earned as of the end of fiscal
2015. No shares would be earned if the target cumulative revenue performance level was not achieved.
37
PSU Results. For the initial performance period ended December 26, 2015 under the 2015 TSR Award, our
TSR performance exceeded the TSR performance of the S&P Networking Index by approximately 28 points. As a
result, 150% of the target number of shares of Infinera common stock allocated to the initial performance period
vested, as shown in the table below:
Name
2015 TSR Award Summary for Initial Performance Period
Target Number of PSUs Granted Actual Number of PSUs Vested
Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . .
Brad D. Feller . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David F. Welch, Ph.D. . . . . . . . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,307
3,877
6,010
3,757
25,960
5,815
9,015
5,635
For the first measurement period of the CX PSU Award, which measures cumulative revenue performance
during fiscal 2015, no shares subject to the award have yet become earned. The CX PSU Award is measured from
the first day of fiscal 2015 through the second quarter of fiscal 2016.
Outstanding PSU Awards Granted in Prior Fiscal Years. The following table provides information regarding
outstanding PSU awards granted prior to fiscal 2015 that were eligible to be earned in fiscal 2015 for our NEOs,
including the performance requirements and number of shares of Infinera common stock earned through fiscal
2015.
Name
Thomas J. Fallon . . . . . . .
David F. Welch, Ph.D.
. .
Robert J. Jandro . . . . . . .
Fiscal
Year of
Grant
2014
2013
2014
2013
2014
Total Target
Number of
PSUs
Granted in
Grant Year
(#)
Target Number
of Shares that
Could Vest
For Fiscal 2015
Performance
Period
(#)
Maximum
Number of
Shares that
Could Vest
For Fiscal 2015
Performance
Period
(#)
Actual Number
of Shares
Vested For
Fiscal 2015
Performance
Period
(#)
160,330
170,000
41,847
75,000
27,079
53,443
56,666
13,949
25,000
9,026
80,164
84,999
20,923
37,500
13,539
80,164
84,999
20,923
37,500
13,539
Performance
Measure
Relative TSR(1)
Relative TSR(2)
Relative TSR(1)
Relative TSR(2)
Relative TSR(1)
(1)
(2)
In fiscal 2014, the Compensation Committee granted to the then-current NEOs a PSU award that measures our TSR against
the TSR of the S&P Networking Index. This PSU 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 124 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 February 25, 2014 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
2015.
In fiscal 2013, the Compensation Committee granted to the then-current NEOs a PSU award that measures our TSR against
the TSR of the Telecomm Index. This PSU 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 207 points for the
performance period measured. For the third and last 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 2015.
Employee Benefits and Perquisites
Our NEOs are only eligible to receive the same benefits as our U.S. salaried employees except with respect
to accrued paid time off (“PTO”) as explained below. Infinera and the Compensation Committee believe this
approach is reasonable and consistent with the overall compensation objectives to attract and retain employees.
These benefits include medical, dental, vision, and disability benefits, a Section 401(k) plan, and other plans and
programs, including the 2007 Employee Stock Purchase Plan (“2007 ESPP”), made available to other eligible
employees in the applicable country of residence. In fiscal 2015, we began to provide a matching contribution
under the Section 401(k) plan that is applicable to all eligible participants, including our NEOs. Employee benefits
38
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.
U.S. employees at the Senior Vice President level and above, at any U.S. work location, participate in our “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.
Additional Information Regarding Our Compensation Practices
Change of Control Payments and Benefits
The Compensation Committee considers maintaining a stable and effective management team to be essential
to protecting the best interests of Infinera and its stockholders. Accordingly, Infinera has entered into Change of
Control Agreements (the “COC Agreements”) with certain Vice President level officers and above, including each
of our 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.
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 of Infinera. 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 of Infinera, 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;
• Our CEO will be paid a lump sum severance payment equal to two times his annual base salary and our
other NEOs will be paid a lump sum severance payment equal to one and one-half times their annual
base salary; and
• Our CEO will be reimbursed for premiums under COBRA for a period of 24 months and our other NEOs
will be reimbursed for premiums under COBRA for a period of 18 months.
Executive 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 the members of our senior management team, including our
NEOs, and enable us to continue to recruit talented senior executive officers. Accordingly, the Compensation
Committee has adopted an executive severance policy, under which the following severance payments and
benefits will become payable if the employment of one of our NEOs is terminated by us without “cause” (as
defined in the policy) subject to such individual entering into and not revoking a release of claims in our favor:
• Our CEO will be paid a lump sum severance payment equal to one and one-half (1.5) times his annual
base salary and our other NEOs will be paid a lump sum severance payment equal to one (1) times their
annual base salary; and
39
• Our CEO will be reimbursed for premiums under COBRA for a period of 18 months and our other NEOs
will be reimbursed for premiums under COBRA for a period of 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
Under our Equity Grant 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 retention 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.
Executive Clawback Policy
We maintain an Executive Clawback Policy that applies to our Section 16 Officers (which includes each of our
NEOs) and directors. 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 awards; and
• Repayment of any compensation earned on previously exercised or released equity awards,
where such payments, equity awards and/or compensation earned on previously exercised or released cash
incentive and/or equity 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 a
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 our 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.
40
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 non-employee directors and 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 of the director or appointment/promotion of
the Section 16 Officer. As of the Record Date, each of our Section 16 Officers and the non-employee members of
the Board 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 non-employee directors as a multiple of annual base
salary (or cash retainer, in the case of the non-employee 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 of Infinera common stock that count towards satisfaction of this policy include: (i) shares owned
outright by the Section 16 Officer or non-employee 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 non-employee director or his or
her family and (iii) shares subject to vested, unexercised, in-the-money stock options (the “spread” or “intrinsic
value” of options). The value of a share of Infinera common stock 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 shares of Infinera
common stock subject to 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
Under our Insider Trading Policy, we prohibit our NEOs and directors from pledging any Infinera securities as
collateral for a loan.
Tax and Accounting Treatment of Compensation
Section 162(m) limits the amount that we may deduct for compensation paid to our CEO and to our three
other 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. One exemption from this deduction limit is available
for various forms of “qualified performance-based compensation.”
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 other senior executive officers, the Compensation Committee intends to consider tax deductibility
under Section 162(m) as a factor in its compensation decisions. For example, pursuant to Proposal 3 under this
proxy statement, we are asking our stockholders to approve the 2016 Plan that will permit the grant of equity
awards intended to qualify as “performance-based” with the meaning of Section 162(m). However, from time to
time, the Compensation Committee 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.
41
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
Marcel Gani (Chairman since February 24, 2016)
John P. Daane (member since February 24, 2016)
Paul J. Milbury
Carl Redfield
Mark A. Wegleitner (served as Chairman and a
member until February 24, 2016)
42
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 2015. As previously noted, we refer to these executive
officers as our NEOs.
Fiscal 2015 Summary Compensation Table
Name and Principal
Position
Year
Salary
($)
Bonus
($)
Stock
Awards
($)(1)
Option
Awards
($)(1)
Non-Equity
Incentive Plan
Compensation
($)(2)
All Other
Compensation
($)
CEO
Thomas J. Fallon . . . . . . . . . . 2015 526,298
2014 468,029
2013 375,000
Brad D. Feller . . . . . . . . . . . . . 2015 360,000
CFO
President
David F. Welch, Ph.D.
. . . . . . 2015 435,577
2014 374,885
2013 355,308
Robert J. Jandro . . . . . . . . . . . 2015 350,000
350,000
207,338
James L. Laufman . . . . . . . . . 2015 325,000
62,500
Senior Vice President,
Worldwide Sales
Senior Vice President,
2014
2013
— 2,383,666
— 2,036,202
— 1,898,390
— 641,511
2014 346,154 30,000 1,499,999
— 1,494,385
— 822,290
— 1,433,280
— 621,760
532,106
—
—
1,303,200
—
— 999,996
2014
—
—
—
—
—
96,323
—
—
—
—
—
—
—
—
884,250(3)
808,594
635,250
330,120(3)
285,796
471,600(3)
414,000
390,298
458,500(3)
483,000
280,162(3)
255,450(3)
—
312(4)
16,423(4)
—
281(4)
1,034(4)
312(4)
31,774(4)
—
273(4)
11,068(4)
—
254(4)
59(4)
Total
($)
3,794,526
3,329,248
2,908,640
1,331,912
2,259,306
2,401,874
1,642,949
2,178,886
1,430,533
1,376,174
1,790,700
580,704
1,062,555
General Counsel and
Secretary
(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 2015 Annual
Report on Form 10-K filed on February 23, 2016 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 payouts under our annual cash incentive plan.
(3) The amounts reported represent annual incentive cash awards earned under the 2015 Bonus Plan. For additional information
regarding the 2015 Bonus Plan, please see the section entitled “Fiscal 2015 Compensation – Performance-Based Incentive Cash
Compensation (2015 Bonus Plan)” in the Compensation Discussion and Analysis above.
(4) For fiscal 2015, this amount represented the payment of life insurance premiums. For fiscal 2014, this amount represented the
payment of accrued vacation time and life insurance premiums.
43
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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 24, 2015, was
$18.51 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, 2016.
(4) This PSU award can be earned based on our TSR performance relative to that of the Telecomm Index as measured over
one-, two- and three-year 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 PSU award pays out at a
maximum of 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, 2016 as to 150% of the
target shares upon the achievement of the third and final performance period.
(5) The remaining unvested portion of this RSU grant vests in its entirety on May 5, 2017, subject to his continued service to
Infinera on each applicable vesting date.
(6) This PSU award can be earned based on our TSR performance relative to that of the S&P Networking Index as measured
over one-, two- and three-year performance periods. For purposes of calculating TSR performance for Infinera and the S&P
Networking 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 S&P Networking Index leading up to February 25, 2014, which was the grant date of the
awards. TSR for Infinera and the S&P Networking Index is then calculated by comparing the average closing price of our
common stock and the S&P Networking Index to this baseline value for the final 60 days of our fiscal 2014, 2015 and 2016.
This PSU award pays out at a maximum of 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 33 points or more. The PSUs vested on February 5, 2016
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, 2018, subject to his continued service to
Infinera on each applicable vesting date.
(8) This PSU award can be earned based on our TSR performance relative to that of the S&P Networking Index as measured
over one-, two- and three-year performance periods. For purposes of calculating TSR performance for Infinera and the S&P
Networking 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 S&P Networking Index leading up to February 24, 2015, which was the grant date of the
awards. TSR for Infinera and the S&P Networking Index is then calculated by comparing the average closing price of our
common stock and the S&P Networking Index to this baseline value for the final 60 days of our fiscal 2015, 2016 and 2017.
This PSU award pays out at a maximum of 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 33 points or more. The PSUs vested on February 5, 2016
as to 150% of the target shares upon the achievement of the first performance period. For a more detailed description of this
PSU award, please see the section entitled “Fiscal 2015 Compensation—Long-Term Incentive Compensation” in the
Compensation Discussion and Analysis above.
(9) This PSU award measures the cumulative revenue performance of the CX family of products over a period of 18 months. At
the minimum threshold 100% of the target shares may be earned and at two times the minimum threshold revenue 200% of
the target shares may be earned. For a more detailed description of this PSU award, please see the section entitled “Fiscal
2015 Compensation—Long-Term Incentive Compensation” in the Compensation Discussion and Analysis above.
(10) 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.
(11) The remaining unvested portion of this RSU grant vests in its entirety on February 5, 2018, 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 as to one-half of the underlying shares vesting on May 5, 2017 and
one-half of the shares on May 5, 2018, subject to Dr. Welch’s continued service to Infinera on each applicable vesting date.
(14) 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.
46
Fiscal 2015 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 2015 by each of our NEOs.
Name
Thomas J. Fallon . . . . . . . . . . . . . . . . . .
Brad D. Feller . . . . . . . . . . . . . . . . . . . . .
David F. Welch, Ph.D. . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . .
James L. Laufman . . . . . . . . . . . . . . . . .
Number of Shares
Acquired on
Exercise
(#)
Value Realized
on Exercise
($)(1)
Number of Shares
Acquired on
Vesting
(#)
Value Realized
on Vesting
($)(2)
450,000
4,826,618
—
—
—
—
—
—
—
—
290,129
41,575
208,930
57,080
23,652
4,980,904
708,854
3,499,251
1,193,512
490,306
(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.
Estimated Payments and Benefits upon Termination, Change of Control or Death/Disability
Change of Control Payments and Benefits
As discussed above in more detail in the section entitled “Compensation Discussion and Analysis—Additional
Information Regarding Our Compensation Practices—Change of Control Payments and Benefits,” Infinera has
entered into COC Agreements with certain Vice President level officers and above, including each of our 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.
Executive Severance Policy
As discussed above in more detail in the section entitled “Compensation Discussion and Analysis—Additional
Information Regarding Our Compensation Practices—Executive Severance Policy,” the Compensation Committee
has taken appropriate steps to provide competitive post-employment compensation arrangements that promote
the continued attention, dedication and continuity of the members of our senior management team, including our
NEOs, and enable us to continue to recruit talented senior executive officers. Infinera shall not pay severance
pursuant to this policy to the individuals subject to this policy in the event of (i) a change of control of Infinera (as
defined below), or (ii) if such individual is terminated for Cause (as defined below).
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
47
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
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.
Cause . . . . . . . . . . . . . . . . . . . . .
48
Fiscal 2015 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 (as defined
above), 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 26, 2015, the last day of fiscal 2015. The closing price of our
common stock as of the last trading day of fiscal 2015, was $18.51 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 $18.51 and
(ii) subtracting the exercise price for the unvested stock options.
Name
Type of Benefit
Thomas J. Fallon . . . . . . . Cash Severance
Vesting Acceleration(1)
Continued Coverage of Employee Benefits
Potential Payments in Connection With:
Termination
Under
Severance
Policy
($)
Termination
After a
Change
of Control
($)
Termination
Upon
Death or
Disability
($)
789,447
—
39,108
1,052,596
7,538,309
52,145
—
7,538,309
—
Total Benefits
828,555
8,643,050
7,538,309
Brad D. Feller . . . . . . . . . . Cash Severance
Vesting Acceleration(2)
Continued Coverage of Employee Benefits
360,000
—
19,800
540,000
3,105,567
29,700
—
3,105,567
—
Total Benefits
379,800
3,675,267
3,105,567
David F. Welch, Ph.D.
. . . Cash Severance
Vesting Acceleration(3)
Continued Coverage of Employee Benefits
435,577
—
26,072
653,366
4,144,463
39,108
—
4,144,463
—
Total Benefits
461,649
4,836,937
4,144,463
Robert J. Jandro . . . . . . . . Cash Severance
Vesting Acceleration(4)
Continued Coverage of Employee Benefits
350,000
—
13,776
525,000
2,598,637
20,664
—
2,598,637
—
Total Benefits
363,776
3,144,301
2,598,637
James L. Laufman . . . . . . Cash Severance
Vesting Acceleration(5)
Continued Coverage of Employee Benefits
325,000
—
19,800
487,500
1,313,377
29,700
—
1,313,377
—
Total Benefits
344,800
1,830,577
1,313,377
(1) The vesting of 407,256 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 26, 2015.
(2) The vesting of 174,123 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 26, 2015.
(3) The vesting of 223,904 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 26, 2015.
(4) The vesting of 140,391 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 26, 2015.
(5) The vesting of 70,955 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 26, 2015.
49
RISK ASSESSMENT OF COMPENSATION PRACTICES
During fiscal 2015, 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. Equity incentive compensation was
found to be based on a blend of financial objectives and TSR, 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 Excess Compensation; 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.
50
PROPOSAL 2—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 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 non-GAAP operating income targets as well as important operational
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 23 for additional details about our executive
compensation programs, including information about the fiscal 2015 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 stockholders approve, on an advisory basis, the compensation of the named
executive officers, as disclosed in the Proxy Statement for the 2016 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
narrative disclosures.”
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 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 approval of the compensation of our named executive
officers, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC.
51
PROPOSAL 3—APPROVAL OF THE 2016 EQUITY INCENTIVE PLAN
We are asking our stockholders to approve a new 2016 Plan and its material terms. Upon recommendation of
the Compensation Committee, the Board adopted the 2016 Plan on February 24, 2016, subject to approval from
our stockholders at our Annual Meeting. If approved by our stockholders, the 2016 Plan will replace our current
2007 Plan, and the 2016 Plan will continue in effect until 2026 unless earlier terminated by the Board or the
Compensation Committee. Upon stockholder approval of the 2016 Plan, we will cease granting awards under the
2007 Plan, but the 2007 Plan will continue to govern awards previously granted under it.
The Board believes that our future success depends on our ability to attract and retain talented employees
and that the ability to grant equity awards is a necessary and powerful recruiting and retention tool for Infinera. The
Board believes that equity awards motivate high levels of performance, align the interests of employees and
stockholders by giving employees an opportunity to hold an ownership stake in Infinera, and provides an effective
means of recognizing employee contributions to the success of Infinera. If stockholders do not approve the 2016
Plan, the 2007 Plan will remain in effect until we terminate it or it expires in accordance with its terms. However,
the 2007 Plan is scheduled to expire in February 2017. Therefore, if stockholders do not approve the 2016 Plan,
we will not be able to continue our equity incentive program after the expiration of the 2007 Plan, which could
prevent us from successfully attracting and retaining highly skilled executive officers and other employees.
If our stockholders approve the 2016 Plan, we currently anticipate that the shares available under the
2016 Plan (the “Shares”) will be sufficient to meet our expected needs through approximately the end of calendar
2017. In determining the number of Shares to be reserved for issuance under the 2016 Plan, the Compensation
Committee and the Board considered the following:
• Historical Grant Practices. The Compensation Committee and the Board considered the historical
amounts of equity awards that we granted in the past three years. In fiscal years 2013, 2014, and 2015,
we granted equity awards of 4.153 million, 3.152 million and 2.534 million Shares, respectively, or a total
of approximately 9.839 million Shares over the three-year period.
• Forecasted Grants. In determining the projected Share utilization, the Compensation Committee and the
Board considered a forecast that included the following factors: (i) the Shares that would be available for
grant under the 2016 Plan, if the stockholders approve the 2016 Plan, which would be 7,500,000 Shares
(excluding Shares already subject to outstanding awards granted under the 2007 Plan that, if forfeited,
would be added to the number of Shares reserved under the 2016 Plan); (ii) the estimated number of
Shares to be added to the 2016 Plan from forfeited awards under the 2007 Plan; and (iii) forecasted
future grants, which are “value-based,” meaning that Share amounts granted will be determined based on
the competitive dollar value to be delivered to the participant and stock price of Infinera. Due to our
value-based grant program, any significant changes in our stock price as compared to the stock price we
assumed for forecasting purposes could cause our actual Share usage to deviate significantly from our
anticipated Share usage. The Compensation Committee and the Board also took into account future
headcount growth on projected Share utilization.
• Proxy Advisory Firm Guidelines. Given our significant institutional stockholder base, the Compensation
Committee and the Board considered proxy advisory firm guidelines.
Key Corporate Governance Improvements in the 2016 Plan
The following is a summary of the key corporate governance improvements made to the 2016 Plan as
compared to the 2007 Plan. These improvements also summarize the key differences between the 2016 Plan and
2007 Plan. This comparative summary is qualified in its entirety by reference to the actual text of the 2007 Plan
and the actual text of the 2016 Plan. The 2016 Plan is set forth as Appendix B to this Proxy Statement.
• Elimination of Annual “Evergreen” Provision. Our stockholders are being asked to approve a number of
Shares for issuance under the 2016 Plan, subject to the adjustment provisions contained in the 2016
Plan, equal to the sum of (1) 7,500,000 Shares plus (2) Shares subject to awards granted under the 2007
Plan that expire or otherwise terminate after stockholder approval of the 2016 Plan (provided that the
maximum number of Shares that may be added to the 2016 Plan with respect to awards granted under
52
the 2007 Plan pursuant to this clause (2) is 7,700,000 Shares). The 2016 Plan does not contain an
annual “evergreen” provision that increases the number of Shares available for issuance each year. The
2016 Plan authorizes only a fixed number of Shares, so that stockholder approval will be required for any
increases to the maximum number of Shares that may be issued under the 2016 Plan.
The number of Shares that have been reserved for issuance under the 2007 Plan, subject to the
adjustment provisions contained in the 2007 Plan, is 46,824,488 Shares, which includes Shares that
became available pursuant to annual increases (beginning with our 2008 fiscal year through our 2014
fiscal year) on the first day of each fiscal year in an amount equal to the least of 9,000,000 Shares, 5% of
the outstanding Shares on the last day of our immediately preceding fiscal year, or such other amount
determined by the Board. If our stockholders do not approve the 2016 Plan and the 2007 Plan remains in
effect, then on the first day of our 2017 fiscal year, the number of Shares reserved under the 2007 Plan
will be increased by the least of 9,000,000 Shares, 5% of the outstanding Shares on the last day of our
immediately preceding fiscal year, or such other amount determined by the Board.
• Changes to Which Shares are Returned to the Share Reserve. Under the 2016 Plan, if an option or stock
appreciation right expires or becomes unexercisable without having been exercised in full, or if Shares
subject to other types of awards are forfeited or repurchased due to failure to vest, those Shares will
become available for issuance again under the 2016 Plan. Shares used to pay the exercise or purchase
price of an award will not become available for future grant under the 2016 Plan. Shares used to satisfy
the tax withholding obligations for awards other than options and stock appreciation rights will become
available for future grant under the 2016 Plan. With respect to stock appreciation rights settled in Shares,
the gross number of Shares exercised under the stock appreciation right award will cease to be available
under the 2016 Plan. In addition, to the extent that we pay out an award in cash rather than Shares, such
cash payment will not reduce the number of Shares available for issuance under the 2016 Plan. The
2016 Plan clarifies that no Shares purchased by us with proceeds received from the exercise of an option
will become available for issuance under the 2016 Plan or the 2007 Plan.
Under the 2007 Plan, if an option or stock appreciation right expires or becomes unexercisable without
having been exercised in full, or if Shares subject to other types of awards are forfeited or repurchased
due to failure to vest, those Shares will become available for issuance again under the 2007 Plan. If an
award is surrendered pursuant to a program providing participants the opportunity to transfer outstanding
awards to a financial institution or other person or entity selected by the administrator, exchange awards
for awards of the same type, awards of a different type, and/or cash, or have the exercise price of awards
reduced, the Shares subject to that award will become available for issuance again under the 2007 Plan.
With respect to stock appreciation rights, only Shares actually issued pursuant to the stock appreciation
right will cease to be available under the 2007 Plan. Shares used to pay the exercise price of an award or
to satisfy the tax withholding obligations related to an award will become available for future grant under
the 2007 Plan. In addition, to the extent that we pay out an award in cash rather than Shares, such cash
payment will not reduce the number of Shares available for issuance under the 2007 Plan.
• Ability to Grant Performance-based Compensation Exception under Section 162(m). The 2016 Plan has
been designed to enable us to grant certain awards intended to allow a deduction in full for U.S. federal
income tax purposes of the compensation recognized by our executive officers. Section 162(m) generally
denies a corporate tax deduction for annual compensation exceeding $1 million paid to the chief
executive officer and other “covered employees” as determined under Section 162(m) and applicable
guidance. However, certain types of compensation, including performance-based compensation,
generally are excluded from this deductibility limit. To enable performance-based equity awards granted
under the 2016 Plan that are intended to qualify as performance-based compensation within the meaning
of Section 162(m), the 2016 Plan includes certain procedural requirements as well as certain limitations
on the number of Shares subject to awards that may be granted to an individual during any fiscal year
(described below), and specifies certain performance criteria that may be used for such awards
(described below). Notwithstanding the foregoing, we will have the ability to grant equity awards under
the 2016 Plan that do not qualify as “performance-based” compensation within the meaning of
Section 162(m) and therefore are not subject to such procedural requirements or numerical limitations.
The 2007 Plan does not set forth provisions that would enable the grant of performance-based equity
awards intended to qualify as performance-based compensation within the meaning of Section 162(m).
The 2007 Plan therefore does not specify any of these requirements that otherwise are provided in the
53
2016 Plan specifically for Section 162(m) purposes, such as annual limitations on the number of Shares
subject to awards that may be granted to an individual and specific performance criteria for
performance-based awards.
• Annual Limits on Awards Granted. The 2016 Plan specifies the following limitations to the number of
Shares subject to awards that may be granted to an individual during any fiscal year (subject to any
adjustment provisions contained in the 2016 Plan), which is necessary to allow us to be eligible to receive
income tax deductions under Section 162(m):
Award Type
Stock options
Aggregate Per Person Award Limit
1,500,000 Shares during any fiscal year of ours, plus an additional
1,500,000 Shares in connection with an award recipient’s initial service as an
employee
Stock appreciation rights 1,500,000 Shares during any fiscal year of ours, plus an additional
Restricted stock
Restricted stock units
Performance shares
Performance units
1,500,000 Shares in connection with an award recipient’s initial service as an
employee
1,500,000 Shares during any fiscal year of ours, plus an additional
1,500,000 Shares in connection with an award recipient’s initial service as an
employee
1,500,000 Shares during any fiscal year of ours, plus an additional
1,500,000 Shares in connection with an award recipient’s initial service as an
employee
1,500,000 Shares during any fiscal year of ours, plus an additional
1,500,000 Shares in connection with an award recipient’s initial service as an
employee
$7,500,000
As noted above, the 2007 Plan does not specify annual limitations on the number of Shares subject to
awards that may be granted to an individual.
• Performance Criteria. The 2016 Plan includes specific performance criteria so that certain awards may be
granted subject to or conditioned upon the satisfaction of performance objectives, which in turn is
intended to allow us to be eligible to receive income tax deductions under Section 162(m). These
performance criteria include: revenue; gross margin; operating margin; operating income; pre-tax profit;
earnings before stock-based compensation expense, interest, taxes and depreciation and amortization;
earnings before interest, taxes and depreciation and amortization; earnings before interest and taxes; net
income; expenses; new product development; stock price; earnings per share; return on stockholder
equity; return on capital; return on net assets; economic value added; market share; customer service;
customer satisfaction; sales; total stockholder return; free cash flow; net operating income; operating
cash flow; return on investment; employee satisfaction; employee retention; balance of cash, cash
equivalents and marketable securities; product development; research and development expenses;
completion of an identified special project; completion of a joint venture or other corporate transaction;
inventory balance; or inventory turnover ratio.
As noted above, the 2007 Plan does not specify any performance criteria for performance-based awards.
• Minimum Vesting Requirements. 95% of the Shares reserved for issuance under the 2016 Plan may be
issued only through awards that cannot vest in less than one year from the date of grant unless the
vesting of such awards is accelerated due to the participant’s death, disability, or retirement or upon a
major capital change of Infinera (such as our change in control). The 2007 Plan does not specify vesting
limitations.
• Repricing Prohibition. The 2016 Plan prohibits any program providing participants the opportunity to
transfer outstanding awards to a financial institution or other person or entity selected by the
administrator, exchange awards for awards of the same type, awards of a different type, and/or cash, or
have the exercise price of awards repriced (i.e., increased or reduced).
54
The 2007 Plan allows the administrator to institute a program providing participants the opportunity to
transfer outstanding awards to a financial institution or other person or entity selected by the
administrator, exchange awards for awards of the same type, awards of a different type, and/or cash, or
have the exercise price of awards reduced.
• Non-Employee Director Award Limits. Under the 2016 Plan, in any fiscal year, a non-employee director
may be granted equity awards (with an aggregate grant date fair value) and any other compensation
(including cash retainers or fees) of no more than an aggregate of $750,000, increased to $1,000,000 in
our fiscal year of his or her initial service. Any equity awards or other compensation provided to the
director for his or her services as an employee or consultant (other than as a non-employee director) will
be excluded for purposes of these limits. The 2007 Plan does not specify any limits on the equity awards
or compensation that may be granted to a non-employee director.
Our executive officers and directors have an interest in the approval of the 2016 Plan by our stockholders
because they would be eligible to receive awards under the 2016 Plan.
Description of the 2016 Plan
The following paragraphs provide a summary of the principal features of the 2016 Plan and its operation.
However, this summary is not a complete description of all of the provisions of the 2016 Plan and is qualified in its
entirety by the specific language of the 2016 Plan. A copy of the 2016 Plan is provided as Appendix B to this Proxy
Statement.
Purposes. The purposes of the 2016 Plan are to attract and retain the best available personnel for positions of
substantial responsibility; to provide additional incentive to employees, directors, and consultants; and to promote
the success of our business. These incentives will be provided through the grant of stock options, stock
appreciation rights, restricted stock, RSUs, performance units, and performance shares as the administrator of the
2016 Plan may determine.
Authorized Shares. Our stockholders are being asked to approve a number of Shares for issuance under the
2016 Plan, subject to the adjustment provisions contained in the 2016 Plan, equal to the sum of (1) 7,500,000
Shares plus (2) Shares subject to awards granted under the 2007 Plan that after stockholder approval of the 2016
Plan expire, are forfeited or otherwise terminate, or are repurchased by us due to failure to vest (provided that the
maximum number of Shares that may be added to the 2016 Plan with respect to awards granted under the 2007
Plan pursuant to this clause (2) above is 7,700,000 Shares).
Shares may be authorized, but unissued, or reacquired Shares. If an option or stock appreciation right expires
or becomes unexercisable without having been exercised in full, or if Shares subject to other types of awards are
forfeited to or repurchased by us due to failure to vest, those Shares will become available for issuance again
under the 2016 Plan. Shares used to pay the exercise or purchase price of an award will cease to be available for
future grant under the 2016 Plan. Shares used to satisfy the tax withholding obligations related to an award,
except with respect to options and stock appreciation rights, will become available for future grant under the 2016
Plan. With respect to stock appreciation rights settled in Shares, the gross number of Shares exercised under the
stock appreciation right award will cease to be available under the 2016 Plan. In addition, to the extent that we pay
out an award in cash rather than Shares, such cash payment will not reduce the number of Shares available for
issuance under the 2016 Plan. No Shares purchased by us with proceeds received from the exercise of an option
will become available for issuance under the 2016 Plan or the 2007 Plan.
Plan Administration. The Compensation Committee (or other committee appointed by the Board) will
administer the 2016 Plan. With respect to awards granted or to be granted to certain officers and key employees
intended to be an exempt transaction under Rule 16b-3 of the Securities Exchange Act of 1934, as amended
(“Rule 16b-3”), the members of the committee administering the 2016 Plan with respect to those awards must
qualify as “non-employee directors” under Rule 16b-3 will administer the 2016 Plan with respect to such awards. In
the case of awards intended to qualify as “performance-based compensation” within the meaning of
Section 162(m) of the Code, the committee administering the 2016 Plan with respect to those awards will consist
of two or more “outside directors” within the meaning of Section 162(m).
55
Subject to the provisions of the 2016 Plan, the administrator will have the power to determine the award
recipients and the terms of the awards, including the exercise price, the number of Shares subject to each such
award, the exercisability of the awards, and the form of consideration, if any, payable upon exercise. The
administrator also will have the authority to amend existing awards, to prescribe rules and to construe and interpret
the 2016 Plan and awards granted under the 2016 Plan, to establish rules and regulations, including sub-plans for
satisfying, or qualifying for favorable tax treatment under, applicable laws in jurisdictions outside of the United
States, and to make all other determinations necessary or advisable for administering the 2016 Plan.
No Repricing. The 2016 Plan prohibits any program providing participants the opportunity to transfer
outstanding awards to a financial institution or other person or entity selected by the administrator, exchange
awards for awards of the same type, awards of a different type, and/or cash, or have the exercise price of awards
repriced (i.e., increased or reduced).
Vesting Requirements. 95% of the Shares reserved for issuance under the 2016 Plan may be issued only
through awards that cannot vest in less than one year from the date of grant unless the vesting of such awards is
accelerated due to the participant’s death, disability, or retirement or upon a major capital change of Infinera (such
as our change in control).
Eligibility. We will be able to grant all types of awards under the 2016 Plan to our employees, consultants, and
non-employee directors and employees and consultants of our parent or subsidiary corporations. We will be able
to grant incentive stock options under the 2016 Plan only to individuals who, as of the time of grant, are employees
of ours or of any parent or subsidiary corporation of ours. As of February 27, 2016, we had seven non-employee
directors, and approximately 2,115 employees (including five executive officers) and 40 consultants.
Non-Employee Director Award Limits. The 2016 Plan provides that all non-employee directors will be eligible
to receive all types of awards (except for incentive stock options) under the 2016 Plan. However, in any fiscal year,
a non-employee director may be granted equity awards (with an aggregate grant date fair value) and any other
compensation (including cash retainers or fees) of no more than an aggregate of $750,000, increased to
$1,000,000 in our fiscal year of his or her initial service. Any equity awards or other compensation provided to the
director for his or her services as an employee or consultant (other than as a non-employee director) will be
excluded for purposes of these limits.
Certain Other Limits. In any fiscal year in which Infinera is publicly held and Section 162(m) applies to our
employees who would be considered “covered employees” under Section 162(m), subject to any adjustment
provisions contained in the 2016 Plan, the maximum aggregate number of Shares covering equity awards that a
participant may receive is:
• With respect to stock options, 1,500,000 Shares, plus an additional 1,500,000 Shares in connection with
his or her initial service as an employee;
• With respect to stock appreciation rights, 1,500,000 Shares, plus an additional 1,500,000 Shares in
connection with his or her initial service as an employee;
• With respect to restricted stock, 1,500,000 Shares, plus an additional 1,500,000 Shares in connection
with his or her initial service as an employee;
• With respect to RSUs, 1,500,000 Shares, plus an additional 1,500,000 Shares in connection with his or
her initial service as an employee; and
• With respect to performance shares, 1,500,000 Shares, plus an additional 1,500,000 Shares in
connection with his or her initial service as an employee.
In addition, for each such fiscal year, the maximum aggregate grant date value of performance units that a
participant may receive is $7,500,000.
Stock Options. We will be able to grant stock options under the 2016 Plan. Each option will be evidenced by
an award agreement that specifies the exercise price, the term of the option, forms of consideration for exercise,
and such other terms and conditions as the administrator determines, subject to the terms of the 2016 Plan. The
exercise price of options granted under the 2016 Plan must be at least equal to the fair market value of our
56
common stock on the date of grant, except in special, limited circumstances as set forth in the 2016 Plan. The
maximum term of an option will be specified in an award agreement, provided that an incentive stock option must
have a term not exceeding 10 years. However, with respect to any participant who owns more than 10% of the
voting power of all classes of outstanding stock of ours or of any parent or subsidiary of ours, the term must not
exceed five years and the per share exercise price must equal at least 110% of the fair market value of a Share on
the grant date. Generally, the fair market value of our common stock is the closing sales price on the relevant date
as quoted on The NASDAQ Stock Market. Options will be exercisable at such times and under such conditions as
determined by the administrator and as set forth in the applicable award agreement.
Stock Appreciation Rights. We will be able to grant stock appreciation rights under the 2016 Plan. Stock
appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock
between the exercise date and the date of grant. Each stock appreciation right will be evidenced by an award
agreement that specifies the exercise price, the term of the stock appreciation right, and other terms and
conditions as determined by the administrator, subject to the terms of the 2016 Plan. The per Share exercise price
for the Shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the
fair market value per Share on the date of grant. Stock appreciation rights will be exercisable at such times and
under such conditions as determined by the administrator and set forth in the applicable award agreement. At the
discretion of the administrator, the payment upon exercise of a stock appreciation right may be paid in cash,
Shares, or a combination of both.
Restricted Stock. We will be able to grant restricted stock under the 2016 Plan. Restricted stock awards are
grants of Shares that are subject to various restrictions, including restrictions on transferability and forfeiture
provisions. Each restricted stock award granted will be evidenced by an award agreement specifying the number
of Shares subject to the award, any period of restriction, and other terms and conditions of the award, as
determined by the administrator, subject to the terms of the 2016 Plan.
Restricted stock awards may (but are not required to) be subject to vesting conditions, as the administrator
specifies (subject to the minimum vesting requirements), and the Shares acquired may not be transferred by the
participant until the vesting conditions (if any) are satisfied. The administrator, in its sole discretion, may accelerate
the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally will
have voting rights and rights to dividends and other distributions with respect to such Shares upon grant without
regard to vesting, unless the administrator provides otherwise. Such dividends and other distributions, if any, will
be subject to the same restrictions as the Shares of restricted stock on which they were paid. Unless otherwise
determined by the administrator, a participant will forfeit any Shares of restricted stock as to which the restriction
have not lapsed prior to the participant’s termination of service.
Restricted Stock Units. We will be able to grant RSUs under the 2016 Plan. Each RSU granted is a
bookkeeping entry representing an amount equal to the fair market value of one Share. Each RSU award will be
evidenced by an award agreement that specifies the number of RSUs subject to the award, vesting criteria (which
may include accomplishing specified performance criteria or continued service to us), form of payout, and other
terms and conditions of the award, as determined by the administrator, subject to the terms of the 2016 Plan.
RSUs result in a payment to a participant if the performance goals or other vesting criteria are achieved or the
awards otherwise vest. The administrator, in its sole discretion, may accelerate the time at which any restrictions
will lapse or be removed. The administrator determines in its sole discretion whether an award will be settled in
stock, cash, or a combination of both.
Performance Units and Performance Shares. We will be able to grant performance units and performance
shares under the 2016 Plan. Performance units and performance shares are awards that will result in a payment
to a participant only if performance goals established by the administrator are achieved or the awards otherwise
vest. Each award of performance units or performance shares will be evidenced by an award agreement
specifying the number of units or shares (as applicable), the vesting conditions, the performance period, and other
terms and conditions of the award, as determined by the administrator, subject to the terms and conditions of the
2016 Plan. Prior to the date of grant, the administrator will establish an initial dollar value for each performance
unit. Each performance share will have an initial value equal to the fair market value of a Share on the date of
grant. The administrator in its discretion will establish performance goals or other vesting criteria (which may
include continued service), which, depending on the extent to which they are met, will determine the number and/
57
or the value of performance units and performance shares to be paid out. After the grant of performance units or
performance shares, the administrator, in its sole discretion, may reduce or waive any performance objectives or
other vesting provisions for such performance units or performance shares. The administrator, in its sole
discretion, may pay earned performance units or performance shares in the form of cash, in Shares, or in some
combination of both.
Performance Goals. Awards granted under the 2016 Plan that are intended to qualify as performance-based
compensation under Section 162(m) will be granted in accordance with additional terms set forth in the 2016 Plan.
The administrator in its discretion may make performance goals applicable to any award granted in its
discretion, including but not limited to one or more of the performance goals listed below. If the administrator
desires that an award of restricted stock, RSUs, performance shares or performance units under the 2016 Plan
intended to qualify as performance-based compensation under Section 162(m), then the award may be made
subject to the attainment of performance goal(s) relating to one or more business criteria within the meaning of
Section 162(m) and may provide for a targeted level or levels of achievement using one or more of the following
measures: revenue; gross margin; operating margin; operating income; pre-tax profit; earnings before stock-based
compensation expense, interest, taxes and depreciation and amortization; earnings before interest, taxes and
depreciation and amortization; earnings before interest and taxes; net income; expenses; new product
development; stock price; earnings per share; return on stockholder equity; return on capital; return on net assets;
economic value added; market share; customer service; customer satisfaction; sales; total stockholder return; free
cash flow; net operating income; operating cash flow; return on investment; employee satisfaction; employee
retention; balance of cash, cash equivalents and marketable securities; product development; research and
development expenses; completion of an identified special project; completion of a joint venture or other corporate
transaction; inventory balance; or inventory turnover ratio.
The performance goal(s) may differ from participant to participant and from award to award. Any criteria used
may be measured (as applicable), in absolute or relative terms, in combination with another performance goal or
goals, on a per-share or per-capita basis, against the performance of the company as a whole or a segment of the
company, and/or on a pre-tax or after-tax basis. Prior to the latest date that would meet the requirements under
Section 162(m), the administrator will determine whether any significant elements or items will be included or
excluded from the calculation of performance goals with respect to any award recipient. Except as so determined
otherwise by the administrator, performance goals will be calculated in accordance with our financial statements,
generally accepted accounting principles, or under a methodology established by the administrator prior to the
issuance of the award.
Notwithstanding any other terms of the 2016 Plan, if we intend an award granted to a participant to qualify as
performance-based compensation under Section 162(m), then in determining the amounts earned by a participant,
the administrator may reduce or eliminate (but not increase) the amount payable at a given level of performance to
take into account additional factors that the administrator deems relevant to the assessment of individual or
corporate performance for the performance period. A participant may receive payment under such an award only if
the performance goals for the performance period are achieved (unless otherwise permitted by Section 162(m)
and determined by the administrator).
Non-Transferability of Awards. Unless the administrator provides otherwise, the 2016 Plan generally will not
allow for the transfer of awards, and only the recipient of an award may exercise an award during his or her
lifetime.
Certain Adjustments. In the event of any dividend or other distribution (whether in the form of cash, Shares,
other securities or other property), recapitalization, stock split, reverse stock split, reorganization, reincorporation,
reclassification, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or our
other securities, or other change in our corporate structure affecting Shares, then in order to prevent diminution or
enlargement of the benefits or potential benefits available under the 2016 Plan, the administrator will adjust the
number and class of shares that may be delivered under the 2016 Plan and/or the number, class and price of
shares covered by each outstanding award, and the numerical share limits set forth in the 2016 Plan. In the event
of our proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and all
awards will terminate immediately prior to the completion of such proposed transaction.
58
Merger or Change in Control. The 2016 Plan provides that in the event of a merger or change in control, as
defined in the 2016 Plan, each outstanding award will be treated as the administrator determines, including that
each award be assumed or substituted by the successor corporation or its parent or subsidiary for an equivalent
award for each outstanding award. The administrator will not be required to treat all awards similarly. If there is no
assumption or substitution of outstanding awards, the awards will fully vest, all restrictions will lapse, all
performance goals or other vesting criteria will be deemed achieved at 100% of target levels, and the awards will
become fully exercisable. In addition, if an option or stock appreciation right is not assumed or substituted in the
event of a change in control, the administrator will notify the participant that such award will be exercisable for a
specified period prior to the transaction, and such award will terminate upon the expiration of such period.
Plan Amendment; Termination. The administrator has the authority to amend, suspend, or terminate the 2016
Plan provided such action does not impair the existing rights of any participant unless mutually agreed in writing.
The 2016 Plan will terminate automatically in 2026, unless we terminate it sooner.
Number of Awards Granted to Employees, Consultants and Directors
The number of awards that an employee, director, or consultant may receive under the 2016 Plan is in the
discretion of the administrator and therefore cannot be determined in advance. The following table sets forth the
aggregate number of RSUs and PSUs (at target) granted under the 2007 Plan during fiscal 2015 to each of our
named executive officers; executive officers, as a group; directors who are not executive officers, as a group; and
all employees who are not executive officers, as a group. There were no stock options granted to any employees
(including our named executive officers) or directors in fiscal 2015.
Name of Individual or Identity of Group and
Principal Position
Number of Restricted
Stock Units Granted
(#)
Dollar Value
of Award(s)
($)(1)
Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
134,780
2,383,666
Chief Executive Officer
Brad D. Feller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,380
641,511
Chief Financial Officer
David F. Welch, Ph.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85,160
1,494,385
35,260
621,760
Senior Vice President, Worldwide Sales
James L. Laufman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Senior Vice President, General Counsel and Secretary
All current executive officers as a group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All current directors who are not executive officers as a group . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
All employees (excluding executive officers as a group)
291,580
60,591
2,181,951
5,141,322
1,288,852
40,320,967
(1) Reflects the aggregate grant date fair value of awards computed in accordance with ASC 718.
U.S. Federal Income Tax Consequences
The following paragraphs are a summary of the general federal income tax consequences to U.S. taxpayers
and Infinera of awards granted under the 2016 Plan. Tax consequences for any particular individual may be
different.
Incentive Stock Options. A participant recognizes no taxable income as the result of the grant or exercise of
an incentive stock option qualifying under Section 422 of the Internal Revenue Code (unless the participant is
subject to the alternative minimum tax). If the participant exercises the option and then later sells or otherwise
disposes of the Shares acquired through the exercise of the option after both the two-year anniversary of the grant
date and the one-year anniversary of the exercise date, the difference between the sale price and the exercise
price will be taxed as capital gain or loss. If the participant exercises the option and then later sells or otherwise
disposes of the Shares on or before the two- or one-year anniversaries described above (a “disqualifying
59
disposition”), he or she generally will have ordinary income at the time of the sale equal to the fair market value of
the Shares on the exercise date (or the sale price, if less) minus the exercise price of the option.
Nonstatutory Stock Options. A participant generally recognizes no taxable income on the date of grant of a
nonstatutory stock option with an exercise price equal to the fair market value of the underlying stock on the date
of grant. Upon the exercise of a nonstatutory stock option, the participant generally will recognize ordinary income
equal to the excess of the fair market value of the Shares on the exercise date over the exercise price of the
option. If the participant is an employee, such ordinary income generally is subject to withholding of income and
employment taxes. Upon the sale of Shares acquired through the exercise of a nonstatutory stock option, any
subsequent gain or loss (generally based on the difference between the sale price and the fair market value on the
exercise date) will be treated as long-term or short-term capital gain or loss, depending on how long the Shares
were held by the participant.
Stock Appreciation Rights. A participant generally recognizes no taxable income on the date of grant of a
stock appreciation right with an exercise price equal to the fair market value of the underlying stock on the date of
grant. Upon exercise of the stock appreciation right, the participant generally will be required to include as ordinary
income an amount equal to the sum of the amount of any cash received and the fair market value of any Shares
received upon the exercise. If the participant is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. Upon the sale of Shares acquired by an exercise of the stock
appreciation right, any gain or loss (generally based on the difference between the sale price and the fair market
value on the exercise date) will be treated as long-term or short-term capital gain or loss, depending on how long
the Shares were held by the participant.
Restricted Stock, Restricted Stock Units, Performance Awards, and Performance Shares. A participant
generally will not have taxable income at the time an award of restricted stock, RSUs, performance shares, or
performance units is granted. Instead, he or she generally will recognize ordinary income in the first taxable year in
which his or her interest in the Shares underlying the award becomes either (i) freely transferable, or (ii) no longer
subject to substantial risk of forfeiture. If the participant is an employee, such ordinary income generally is subject
to withholding of income and employment taxes. However, the recipient of a restricted stock award may elect to
recognize income at the time he or she receives the award in an amount equal to the fair market value of the
Shares underlying the award (less any cash paid for the Shares) on the date the award is granted.
Section 409A. Section 409A of the Code (“Section 409A”) provides certain requirements for non-qualified
deferred compensation arrangements with respect to an individual’s deferral and distribution elections and
permissible distribution events. Awards granted under the Plans with a deferral feature will be subject to the
requirements of Section 409A. If an award is subject to and fails to satisfy the requirements of Section 409A, the
recipient of that award may recognize ordinary income on the amounts deferred under the award, to the extent
vested, which may be prior to when the compensation is actually or constructively received. Also, if an award that
is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20%
tax on compensation recognized as ordinary income, as well as interest on such deferred compensation.
Tax Effect for Infinera. We generally will be entitled to a tax deduction in connection with an award under the
2016 Plan in an amount equal to the ordinary income realized by a participant and at the time the participant
recognizes such income (for example, the exercise of a nonqualified stock option). However, special rules limit the
deductibility of compensation paid to our CEO and other “covered employees” as determined under
Section 162(m) of the Code and applicable guidance. Under Section 162(m), the annual compensation paid to any
of these specified executives will be deductible only to the extent that it does not exceed $1,000,000. However, we
can preserve the deductibility of certain compensation in excess of $1,000,000 if the conditions of Section 162(m)
are met. These conditions include (among others) stockholder approval of the 2016 Plan and its material terms,
setting certain limits on the number of Shares subject to awards and, for awards other than options and stock
appreciation rights, establishing performance criteria that must be met before the award actually will vest or be
paid. The 2016 Plan has been designed to permit (but not require) the administrator to grant awards that are
intended to qualify as performance-based for purposes of satisfying the conditions of Section 162(m).
60
THE FOREGOING IS ONLY A SUMMARY OF THE TAX EFFECT OF FEDERAL INCOME TAXATION
UPON PARTICIPANTS AND INFINERA WITH RESPECT TO THE GRANT AND VESTING OR EXERCISE OF
AWARDS UNDER THE 2016 PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS
THE TAX CONSEQUENCES OF A SERVICE PROVIDER’S DEATH OR THE PROVISIONS OF THE INCOME
TAX LAWS OF ANY MUNICIPALITY, STATE, OR NON-U.S. COUNTRY TO WHICH THE SERVICE PROVIDER
MAY BE SUBJECT.
Summary
The Board believes that it is in the best interests of our company and our stockholders to continue to provide
employees, consultants and directors with the opportunity to acquire an ownership interest in Infinera through the
grant of equity awards under the 2016 Plan and thereby encourage them to remain in our service and more closely
align their interests with those of our stockholders.
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 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 3—Recommendation of the Board
The Board unanimously recommends a vote “FOR” the approval of the 2016 Plan.
61
PROPOSAL 4—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 31, 2016 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.
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 26, 2015 and December 27, 2014. All of the services described in the
following table were approved in conformity with the Audit Committee’s pre-approval processes and procedures.
2015
2014
Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,768,000 $1,563,000
Audit-Related Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Tax Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
810,000
73,000
2,000
47,000
2,000
Total Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,653,000 $1,612,000
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, 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 or engagements for those fiscal years. The preparation of our
audited consolidated financial statements includes compliance with Section 404 of the Sarbanes-Oxley Act of
2002 and the preparation by Ernst & Young LLP of a report expressing its opinion regarding the effectiveness of
our internal control over financial reporting.
Audit-Related Fees
Audit-related fees for fiscal 2015 include fees related to procedures in connection with the acquisition of
Transmode during the second quarter of fiscal 2015. Audit-related services principally include due diligence in
connection with acquisitions, accounting consultations, audits in connection with proposed or consummated
acquisitions and information systems audits.
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.
62
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 4 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 4—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 31, 2016.
63
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 2015
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 2015 Annual Report for filing with the
SEC.
Submitted by the members of the Audit Committee:
Paul J. Milbury, Chairman
Marcel Gani
Kambiz Y. Hooshmand
64
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 2015, 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
2015 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 2015.
65
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 26, 2015 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,174,690(1)
$7.26
21,395,991(2)
Equity compensation plans not approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
8,174,690
—
—
21,395,991
(1) This amount includes the following:
•
•
•
2,511,502 shares issuable upon the exercise of outstanding stock options granted under the 2000 Stock Plan and 2007
Plan.
4,931,672 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).
731,516 shares issuable pursuant to outstanding stock awards that have been granted under the 2007 Plan, but not yet
earned as of December 26, 2015. 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).
(2) This amount includes 6,033,065 shares of common stock available for future issuances under our 2007 ESPP.
STOCKHOLDER PROPOSALS FOR 2017 ANNUAL MEETING
To be considered for inclusion in our Proxy Statement for the 2017 Annual Meeting of Stockholders (the “2017
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 25, 2016, 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 2017 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 2017 Annual
Meeting. To be timely, the stockholder notice must be received by our Corporate Secretary no later than
February 7, 2017 nor earlier than January 8, 2017, 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 materials or a notice of availability of proxy
materials (whichever is earlier) to 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.
66
Under Rule 14a-8 of the Exchange Act, if the date of the 2017 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 2017 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 2017 Annual Meeting and no later than the close of business on the later of
(i) the 90th day prior to the 2017 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 2017 Annual Meeting is first made.
If we receive notice of a matter to come before the 2017 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 2017 Annual Meeting. If such
matter is brought before the 2017 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 set of 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.
67
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
Secretary
Sunnyvale, California
March 24, 2016
68
APPENDIX A—UNAUDITED RECONCILIATIONS FROM GAAP TO NON-GAAP
Infinera Corporation
Unaudited Reconciliations from GAAP to Non-GAAP
(In thousands)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciliation of Gross Profit:
Years Ended
December 26,
2015
December 27,
2014
December 28,
2013
$886,714
$668,079
$544,122
U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Acquisition-related deferred revenue adjustment
Amortization of acquired intangible assets . . . . . . . . . . . . . . . . . .
Acquisition-related inventory step-up expense . . . . . . . . . . . . . .
Acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$403,477
6,090
1,326
6,562
6,710
39
$288,304
5,607
—
—
—
—
$218,639
7,496
—
—
—
—
Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$424,204
$293,911
$226,135
Reconciliation of Gross Margin:
U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related deferred revenue adjustment
. . . . . . . . . . . .
Amortization of acquired intangible assets . . . . . . . . . . . . . . . . . .
Acquisition-related inventory step-up expense . . . . . . . . . . . . . .
Acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45.5%
0.7%
0.1%
0.7%
0.8%
—
43.2%
0.8%
—
—
—
—
40.2%
1.4%
—
—
—
—
Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
47.8% $
44.0% $
41.6%
Reconciliation of Operating Income:
U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related deferred revenue adjustment
. . . . . . . . . . . .
Amortization of acquired intangible assets . . . . . . . . . . . . . . . . . .
Acquisition-related inventory step-up expense . . . . . . . . . . . . . .
Acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 59,736
32,580
1,326
8,904
6,710
7,280
$ 27,342
28,394
—
—
—
—
$ (24,186)
31,976
—
—
—
—
Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$116,536
$ 55,736
$ 7,790
The non-GAAP measures of gross profit, gross margin and operating income exclude non-cash stock-based
compensation expenses, acquisition-related costs and certain purchase accounting adjustments. 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 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.
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APPENDIX B—2016 EQUITY INCENTIVE PLAN
INFINERA CORPORATION
2016 EQUITY INCENTIVE PLAN
(Effective as of
, 2016)
1. Purposes of the Plan. The purposes of this Plan are:
•
•
•
to attract and retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to Employees, Directors and Consultants, and
to promote the success of the Company’s business.
The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock,
Restricted Stock Units, Stock Appreciation Rights, Performance Units and Performance Shares.
2. Definitions. As used herein, the following definitions will apply:
(a) “Administrator” means the Board or any of its Committees as will be administering the Plan, in
accordance with Section 4 of the Plan.
(b) “Applicable Laws” means the legal and regulatory requirements relating to the administration of
equity-based awards, including but not limited to U.S. federal and state corporate laws, U.S. federal and state
securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted
and the applicable laws of any non-U.S. country or jurisdiction where Awards are, or will be, granted under the
Plan.
(c) “Award” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation
Rights, Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares.
(d) “Award Agreement” means the written or electronic agreement setting forth the terms and provisions
applicable to each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of
the Plan.
(e) “Board” means the Board of Directors of the Company.
(f) “Change in Control” means the occurrence of any of the following events:
(i) A change in the ownership of the Company which occurs on the date that any one person, or
more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, together
with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock
of the Company; provided, however, that for purposes of this subsection, (A) the acquisition of additional stock by
any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of
the Company will not be considered a Change in Control, and (B) if the stockholders of the Company immediately
before the change in ownership continue to retain, immediately after the change in ownership, in substantially the
same proportions as their ownership of shares of the Company’s voting stock immediately prior to the change in
ownership, the direct or indirect beneficial ownership of fifty percent (50%) or more of the total voting power of the
shares of the Company or of the ultimate parent entity of the Company, such event will not be considered a
Change in Control; or
(ii) A change in the effective control of the Company which occurs on the date that a majority of
members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election
is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For
purposes of this clause (ii), if any Person is considered to be in effective control of the Company, the acquisition of
additional control of the Company by the same Person will not be considered a Change in Control; or
B-1
(iii) A change in the ownership of a substantial portion of the Company’s assets which occurs on the
date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most
recent acquisition by such person or persons) assets from the Company that have a total gross fair market value
equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company
immediately prior to such acquisition or acquisitions. For purposes of this subsection (iii), gross fair market value
means the value of the assets of the Company, or the value of the assets being disposed of, determined without
regard to any liabilities associated with such assets.
For purposes of this definition, persons will be considered to be acting as a group if they are owners
of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business
transaction with the Company.
(iv) Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the
transaction qualifies as a change in control event within the meaning of Section 409A. Further and for the
avoidance of doubt, a transaction will not constitute a Change in Control if: (x) its sole purpose is to change the
jurisdiction of the Company’s incorporation, or (y) its sole purpose is to create a holding company that will be
owned in substantially the same proportions by the persons who held the Company’s securities immediately
before such transaction.
(g) “Code” means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the
Code or regulation thereunder shall include such section or regulation, any valid regulation promulgated under
such section, and any comparable provision of any future legislation or regulation amending, supplementing or
superseding such section or regulation.
(h) “Committee” means a committee of Directors or of other individuals satisfying Applicable Laws
appointed by the Board, or a duly authorized committee of the Board, in accordance with Section 4 hereof.
(i) “Common Stock” means the common stock of the Company.
(j) “Company” means Infinera Corporation, a Delaware corporation, or any successor thereto.
(k) “Consultant” means any natural person, including an advisor, engaged by the Company or a Parent or
Subsidiary to render bona fide services to such entity, provided the services (i) are not in connection with the offer
or sale of securities in a capital-raising transaction, and (ii) do not directly promote or maintain a market for the
Company’s securities, in each case, within the meaning of Form S-8 promulgated under the Securities Act, and
provided, further, that a Consultant will include only those persons to whom the issuance of Shares may be
registered under Form S-8 promulgated under the Securities Act.
(l) “Covered Employee” means any Service Provider who would be considered a “covered employee”
within the meaning of Section 162(m) of the Code.
(m) “Determination Date” means the latest possible date that will not jeopardize the qualification of an
Award granted under the Plan as “performance-based compensation” under Section 162(m) of the Code.
(n) “Director” means a member of the Board.
(o) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided
that in the case of Awards other than Incentive Stock Options, the Administrator in its discretion may determine
whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards
adopted by the Administrator from time to time.
(p) “Employee” means any person, including Officers and Directors, employed by the Company or any
Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the
Company will be sufficient to constitute “employment” by the Company.
(q) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
B-2
(r) “Exchange Program” means a program under which (i) outstanding Awards are surrendered or
cancelled in exchange for awards of the same type (which may have higher or lower exercise prices and different
terms), awards of a different type, and/or cash, (ii) Participants would have the opportunity to transfer any
outstanding Awards to a financial institution or other person or entity selected by the Administrator, and/or (iii) the
exercise price of an outstanding Award is increased or reduced. For the avoidance of doubt, as set forth in
Section 5(e), the Administrator may not implement an Exchange Program.
(s) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system,
including without limitation the New York Stock Exchange, the NASDAQ Global Select Market, the NASDAQ
Global Market or the NASDAQ Capital Market of The NASDAQ Stock Market, its Fair Market Value will be the
closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or
system on the day of determination, as reported in The Wall Street Journal or such other source as the
Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are
not reported, the Fair Market Value of a Share will be the mean between the high bid and low asked prices for the
Common Stock on the day of determination (or, if no bids and asks were reported on that date, as applicable, on
the last trading date such bids and asks were reported), as reported in The Wall Street Journal or such other
source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock, the Fair Market Value will be
determined in good faith by the Administrator.
Notwithstanding the foregoing under this Section 2(s), for federal, state and local income tax reporting
purposes, fair market value will be determined by the Company (or its delegate) in accordance with uniform and
nondiscriminatory standards adopted by it from time to time.
(t) “Fiscal Year” means the fiscal year of the Company.
(u) “Incentive Stock Option” means an Option that by its terms qualifies and otherwise is intended to
qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations
promulgated thereunder.
(v) “Initial Value” means (i) with respect to any Option or Stock Appreciation Right, the value of such
Option or Stock Appreciation Right calculated in accordance with the Black-Scholes option valuation methodology
on the grant date, and (ii) with respect to any Award other than an Option or Stock Appreciation Right, the product
of (A) the Fair Market Value of one Share on the grant date of the Award and (B) the aggregate number of Shares
subject to the Award, as applicable.
(w) “Inside Director” means a Director who is an Employee.
(x) “Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to
qualify as an Incentive Stock Option.
(y) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the
Exchange Act and the rules and regulations promulgated thereunder.
(z) “Option” means a stock option granted pursuant to the Plan.
(aa) “Outside Director” means a Director who is not an Employee.
(bb) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in
Section 424(e) of the Code.
B-3
(cc) “Participant” means the holder of an outstanding Award.
(dd) “Performance Goals” will have the meaning set forth in Section 12 of the Plan.
(ee) “Performance Period” means the time period of any Fiscal Year of the Company or such other period
as determined by the Administrator in its sole discretion.
(ff) “Performance Share” means an Award denominated in Shares which may be earned in whole or in
part upon attainment of Performance Goals or other vesting criteria as the Administrator may determine pursuant
to Section 111.
(gg) “Performance Unit” means an Award which may be earned in whole or in part upon attainment of
Performance Goals or other vesting criteria as the Administrator may determine and which may be settled for
cash, Shares or other securities or a combination of the foregoing pursuant to Section 111.
(hh) “Period of Restriction” means the period during which the transfer of Shares of Restricted Stock are
subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may
be based on the passage of time, continued service, the achievement of target levels of performance, the
achievement of Performance Goals, or the occurrence of other events as determined by the Administrator.
(ii) “Plan” means this 2016 Equity Incentive Plan, as may be amended from time to time.
(jj) “Restricted Stock” means Shares issued pursuant to a Restricted Stock award under Section 8 of the
Plan, or issued pursuant to the early exercise of an Option.
(kk) “Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market
Value of one Share, granted pursuant to Section 9. Each Restricted Stock Unit represents an unfunded and
unsecured obligation of the Company.
(ll) “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect
when discretion is being exercised with respect to the Plan.
(mm) “Securities Act” means the Securities Act of 1933, as amended.
(nn) “Section 16(b)” means Section 16(b) of the Exchange Act.
(oo) “Section 409A” means Section 409A of the Code and the final regulations and any guidance
promulgated thereunder, as may be amended from time to time.
(pp) “Service Provider” means an Employee, Director or Consultant.
(qq) “Share” means a share of the Common Stock, as adjusted in accordance with Section 15 of the
Plan.
(rr) “Stock Appreciation Right” means an Award, granted alone or in connection with an Option, that
pursuant to Section 10 is designated as a Stock Appreciation Right.
(ss) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in
Section 424(f) of the Code.
(tt) “Tax Obligations” means tax, social insurance and social security liability obligations and requirements
in connection with the Awards, including, without limitation, (i) all federal, state, and local income, employment and
any other taxes (including the Participant’s Federal Insurance Contributions Act (FICA) obligation) that are
required to be withheld by the Company (or Company’s Parent or Subsidiary, as applicable), (ii) the Participant’s
and, to the extent required by the Company (or its Parent or Subsidiary, as applicable), the Company’s (or its
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Parent’s or Subsidiary’s) fringe benefit tax liability, if any, associated with the grant, vesting, or exercise of an
Award or sale of Shares issued under the Award, and (iii) any other taxes or social insurance or social security
liabilities or premium the responsibility for which the Participant has, or has agreed to bear, with respect to such
Award (or exercise thereof or issuance of Shares or other consideration thereunder).
3. Stock Subject to the Plan.
(a) Stock Subject to the Plan. Subject to the provisions of Section 15 of the Plan, the maximum aggregate
number of Shares that may be issued under the Plan is (i) 7,500,000 Shares, plus (ii) any Shares subject to
awards granted under the Company’s 2007 Equity Incentive Plan (the “Existing Plan”) that, after the effective date
of the Plan, expire, are forfeited or otherwise terminate without having been exercised in full to the extent such
awards were exercisable, and Shares issued pursuant to awards granted under the Existing Plan that, after the
effective date of the Plan, are forfeited to or repurchased by the Company due to failure to vest, with the maximum
number of Shares to be added to the Plan pursuant to clause (ii) equal to 7,700,000 Shares. The Shares may be
authorized, but unissued, or reacquired Common Stock.
(b) Lapsed Awards. Shares that actually have been issued under the Plan under any Award will not be
returned to the Plan and will not become available for future distribution under the Plan (unless repurchased as
specified in this subsection (b) below). If an Option or Stock Appreciation Right Award expires or becomes
unexercisable without having been exercised in full, the unexercised Shares which were subject thereto will
become available for future grant or sale under the Plan (unless the Plan has terminated). If an Award of
Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares (each, a “Full Value Award”)
is forfeited or repurchased by the Company due to failure to vest, then the forfeited or repurchased Shares subject
thereto will become available for future grant or sale under the Plan (unless the Plan has terminated). With respect
to Stock Appreciation Rights settled in Shares, the gross number of Shares covered by the portion of the Award so
exercised will cease to be available under the Plan. Shares used to pay the exercise or purchase price of an
Award will cease to be available for future grant or sale under the Plan. Shares used to satisfy the Tax Obligations
related to an Option or Stock Appreciation Right will not become available for future grant or sale under the Plan.
Shares used to satisfy the Tax Obligations related to a Full Value Award will be available for future grant or sale
under the Plan. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment
will not result in reducing the number of Shares available for issuance under the Plan. For purposes of clarification,
no Shares purchased by the Company with proceeds received from the exercise of an Option will become
available for issuance under this Plan or the Existing Plan. Notwithstanding the foregoing and, subject to
adjustment as provided in Section 15, the maximum number of Shares that may be issued upon the exercise of
Incentive Stock Options will equal the aggregate Share number stated in Section 3(a), plus, to the extent allowable
under Section 422 of the Code and the Treasury Regulations promulgated thereunder, any Shares that become
available for issuance under the Plan pursuant to Section 3(b).
(c) Share Reserve. The Company, during the term of this Plan, will at all times reserve and keep available
such number of Shares as will be sufficient to satisfy the requirements of the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. Different Committees with respect to different groups of Service
Providers may administer the Plan.
(ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify
Awards granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the
Code, the Plan will be administered by a Committee of two (2) or more “outside directors” within the meaning of
Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under
Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption
under Rule 16b-3.
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(iv) Other Administration. Other than as provided above, the Plan will be administered by (A) the
Board or (B) a Committee, which committee will be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee,
subject to the specific duties delegated by the Board to such Committee, the Administrator will have the authority,
in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Awards may be granted hereunder;
(iii) to determine the number of Shares to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award
granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times
when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver
of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based
in each case on such factors as the Administrator will determine;
(vi) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;
(vii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and
regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws or for qualifying
for favorable tax treatment under applicable foreign laws;
(viii) to modify or amend each Award (subject to Section 5 and Section 20 of the Plan), including but
not limited to the discretionary authority to extend the post-termination exercisability period of Awards and to
extend the maximum term of an Option (subject to Section 5 of the Plan regarding Incentive Stock Options);
(ix) to allow Participants to satisfy Tax Obligations in such manner as prescribed in Section 16 of the
Plan;
(x) to authorize any person to execute on behalf of the Company any instrument required to effect
the grant of an Award previously granted by the Administrator;
(xi) to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant under an Award; and
(xii) to make all other determinations deemed necessary or advisable for administering the Plan.
(c) Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations
will be final and binding on all Participants and any other holders of Awards and will be given the maximum
deference permitted by law.
5. Limits.
(a) Share Limits. For so long as: (x) the Company is a “publicly held corporation” within the meaning of
Code Section 162(m) and (y) the deduction limitations of Code Section 162(m) are applicable to the Company’s
Covered Employees, then, subject to Section 15, the limits specified below shall be applicable to Awards issued
under the Plan:
(i) Limits on Options. No Participant shall receive Options during any Fiscal Year covering in excess
of 1,500,000 Shares; provided, however, that in connection with a Participant’s initial service as an Employee, the
Participant may be granted Options covering up to an additional 1,500,000 Shares.
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(ii) Limits on Stock Appreciation Rights. No Participant shall receive Stock Appreciation Rights during
any Fiscal Year covering in excess of 1,500,000 Shares; provided, however, that in connection with a Participant’s
initial service as an Employee, the Participant may be granted Stock Appreciation Rights covering up to an
additional 1,500,000 Shares.
(iii) Limits on Restricted Stock. No Participant shall receive Awards of Restricted Stock during any
Fiscal Year covering in excess of 1,500,000 Shares; provided, however, that in connection with a Participant’s
initial service as an Employee, the Participant may be granted an aggregate of up to an additional
1,500,000 Shares of Restricted Stock.
(iv) Limits on Restricted Stock Units. No Participant shall receive Restricted Stock Units during any
Fiscal Year covering in excess of 1,500,000 Shares; provided, however, that in connection with a Participant’s
initial service as an Employee, the Participant may be granted an aggregate of up to an additional
1,500,000 Restricted Stock Units.
(v) Limits on Performance Shares. No Participant shall receive Performance Shares during any
Fiscal Year covering in excess of 1,500,000 Shares; provided, however, that in connection with a Participant’s
initial service as an Employee, the Participant may be granted up to an additional 1,500,000 Performance Shares.
(vi) Limits on Performance Units. No Participant shall receive Performance Units with an aggregate
Initial Value of greater than $7,500,000.
(b) Outside Director Share Limits. No Outside Director may be granted, in any Fiscal Year, Awards (the
value of which will be based on their grant date fair value determined in accordance with U.S. generally accepted
accounting principles) and any other compensation (including without limitation any cash retainers or fees) that, in
the aggregate, exceed $750,000, provided that such amount is increased to $1,000,000 in the Fiscal Year of his or
her initial service as an Outside Director. Any Awards or other compensation provided to an individual for his or
her services as an Employee, or for his or her services as a Consultant other than an Outside Director, will be
excluded for purposes of this Section 5(b).
(c) Vesting Limits. Awards granted under the Plan shall vest no earlier than the one (1) year anniversary
of the Award’s date of grant, provided that the Administrator, in its sole discretion, may provide an Award may
accelerate vesting by reason of the Participant’s death, Disability or retirement, or upon a major capital change of
the Company (including without limitation upon the occurrence of a Change in Control, merger of the Company
with or into another corporation or entity, or similar transaction), and provided further, that, notwithstanding the
foregoing in this sentence, Awards that result in the issuance of an aggregate of up to 5% of the Shares reserved
for issuance under Section 3(a) may be granted to Service Providers, or outstanding Awards modified, without
regard to such minimum vesting, exercisability and distribution provisions.
(d) Incentive Stock Options.
(i) $100,000 Limitation. Notwithstanding any designation of an Option as an Incentive Stock Option,
to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any
Parent or Subsidiary) exceeds one hundred thousand dollars ($100,000), the portion of the Options falling within
such limit will be Incentive Stock Options and the excess Options will be treated as Nonstatutory Stock Options.
For these purposes, Incentive Stock Options will be taken into account in the order in which they were granted.
The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is
granted.
(ii) Maximum Option Term. In the case of an Incentive Stock Option, the term of an Option will be ten
(10) years from the date of grant or such shorter term as may be provided by the Administrator and set forth in the
Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock
Option will be five (5) years from the date of grant or such shorter term as may be provided in the Award
Agreement.
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(iii) Option Exercise Price. In the case of an Incentive Stock Option granted to an Employee who, at
the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price will be no
less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant. An Incentive
Stock Option granted to any Employee other than an Employee described in immediately preceding sentence, the
per Share exercise price will be no less than one hundred percent (100%) of the Fair Market Value per Share on
the date of grant. Notwithstanding the foregoing provisions of this subsection (iii), Incentive Stock Options may be
granted with a per Share exercise price of less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant pursuant to a transaction described in, and in a manner consistent with,
Section 424(a) of the Code.
(e) No Exchange Program or Repricing. The Administrator may not implement an Exchange Program.
6. Eligibility. Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units,
Performance Shares and Performance Units may be granted to Service Providers. Incentive Stock Options may
be granted only to Employees.
7. Stock Options.
(a) Grant of Options. Subject to the terms and conditions of the Plan, an Option may be granted to
Service Providers at any time and from time to time as will be determined by the Administrator, in its sole
discretion. Each Option will be designated in the Award Agreement as either an Incentive Stock Option or a
Nonstatutory Stock Option.
(b) Number of Shares. The Administrator will have complete discretion to determine the number of
Shares subject to Options granted to any Participant, provided that during any Fiscal Year, no Participant will be
granted Options covering more than 1,500,000 Shares. Notwithstanding the foregoing limitation, in connection with
a Participant’s initial service as an Employee, the Participant may be granted Options covering up to an additional
1,500,000 Shares.
(c) Term of Option. The term of each Option will be determined by the Administrator and stated in the
Award Agreement, but in no event shall the term of an Option be more than ten (10) years from the date of grant.
(d) Option Exercise Price and Consideration.
(i) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of
an Option will be determined by the Administrator, but shall in no event be less than one hundred percent
(100%) of the Fair Market Value per Share on the date of grant, subject to Section 5. Notwithstanding the
foregoing, Options may be granted with a per Share exercise price of less than one hundred percent (100%) of the
Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner
consistent with, Section 424(a) of the Code.
(ii) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator will fix the
period within which the Option may be exercised and will determine any conditions that must be satisfied before
the Option may be exercised.
(iii) Form of Consideration. The Administrator will determine the acceptable form of consideration for
exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator
will determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of:
(1) cash; (2) check; (3) promissory note, to the extent permitted by Applicable Laws, (4) other Shares, provided
that such Shares have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which such Option will be exercised and provided that accepting such Shares will not result in any
adverse accounting consequences to the Company, as the Administrator determines in its sole discretion;
(5) consideration received by the Company under a broker-assisted (or other) cashless exercise program (whether
through a broker or otherwise) implemented by the Company in connection with the Plan; (6) by net exercise;
(7) such other consideration and method of payment for the issuance of Shares to the extent permitted by
Applicable Laws; or (8) any combination of the foregoing methods of payment.
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(e) Exercise of Option.
(i) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder will be
exercisable according to the terms of the Plan and at such times and under such conditions as determined by the
Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share.
An Option will be deemed exercised when the Company receives: (i) a notice of exercise (in such
form as the Administrator may specify from time to time) from the person entitled to exercise the Option, and
(ii) full payment for the Shares with respect to which the Option is exercised (together with applicable withholding
taxes). Full payment may consist of any consideration and method of payment authorized by the Administrator and
permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the
name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a
stockholder will exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option.
The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment
will be made for a dividend or other right for which the record date is prior to the date the Shares are issued,
except as provided in Section 15 of the Plan.
Exercising an Option in any manner will decrease the number of Shares thereafter available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(ii) Termination of Relationship as a Service Provider. If a Participant ceases to be a Service
Provider, other than as the result of the Participant’s death or Disability, the Participant may exercise his or her
Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on
the date of termination of Participant’s status as a Service Provider (but in no event later than the expiration of the
term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award
Agreement, the Option will remain exercisable for three (3) months following the termination of Participant’s status
as a Service Provider, but in no event later than the expiration of the term of such Option as set forth in the Award
Agreement. Unless otherwise provided by the Administrator, if on the date of termination of Participant’s status as
a Service Provider, the Participant is not vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option
within the time specified by the Administrator, the Option will terminate, and the Shares covered by such Option
will revert to the Plan.
(iii) Disability of Participant. If a Participant ceases to be a Service Provider as a result of the
Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in
the Award Agreement to the extent the Option is vested on the date of death (but in no event may the Option be
exercised later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence
of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following
termination of Participant’s status as a Service Provider, but in no event later than the expiration of the term of
such Option as set forth in the Award Agreement. Unless otherwise provided by the Administrator, if on the date of
termination of Participant’s status as a Service Provider, the Participant is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant
does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares
covered by such Option will revert to the Plan.
(iv) Death of Participant. If a Participant dies while a Service Provider, the Option may be exercised
following the Participant’s death within such period of time as is specified in the Award Agreement to the extent the
Option is vested on the date of termination of Participant’s status as a Service Provider (but in no event later than
the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time
in the Award Agreement, the Option will remain exercisable for twelve (12) months following termination of
Participant’s status as a Service Provider, but in no event may the Option be exercised later than the expiration of
the term of such Option as set forth in the Award Agreement. Unless otherwise provided by the Administrator, if at
the time of death Participant is not vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option will immediately revert to the Plan. If the Option is not so exercised within the time specified
herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
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In the event that the Participant dies while a Service Provider, but before the expiration of the
Participant’s Option as set forth in subsections (iii) or (iv), as applicable, all or part of the Option (to the extent
vested) may be exercised (prior to expiration) by the Participant’s designated beneficiary, provided such
beneficiary has been properly designated prior to Participant’s death in a form acceptable to the Administrator and
to the extent permitted by Applicable Law. In the absence of such designated beneficiary (or to the extent not
permitted by Applicable Law), such Option may be exercised by the personal representative of the Participant’s
estate or by the person(s) to whom the Option is transferred pursuant to the Participant’s will or in accordance with
the laws of descent and distribution.
8. Restricted Stock.
(a) Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Administrator, at any
time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the
Administrator, in its sole discretion, will determine.
(b) Restricted Stock Agreement. Each Award of Restricted Stock will be evidenced by an Award
Agreement that will specify the Period of Restriction (if any), the number of Shares granted, and such other terms
and conditions as the Administrator, in its sole discretion, will determine. Unless the Administrator determines
otherwise, the Company as escrow agent will hold Shares of Restricted Stock until the restrictions on such Shares
have lapsed.
(c) Transferability. Except as provided in this Section 8 or the Award Agreement, Shares of Restricted
Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the
applicable Period of Restriction.
(d) Other Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on
Shares of Restricted Stock as it may deem advisable or appropriate.
(e) Removal of Restrictions. Except as otherwise provided in this Section 8, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable
after the last day of the Period of Restriction or at such other time as the Administrator may determine. Subject to
the vesting limitations under Section 5, the Administrator, in its discretion, may accelerate the time at which any
restrictions will lapse or be removed.
(f) Voting Rights. During the Period of Restriction, Service Providers holding Shares of Restricted Stock
granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator
determines otherwise.
(g) Dividends and Other Distributions. During the Period of Restriction, Service Providers holding Shares
of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares,
unless the Administrator provides otherwise. If any such dividends or distributions are paid in Shares, the Shares
will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with
respect to which they were paid.
(h) Return of Restricted Stock to Company. On the date set forth in the Award Agreement, the Restricted
Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant
under the Plan.
(i) Section 162(m) Performance Restrictions. For purposes of qualifying grants of Restricted Stock as
“performance-based compensation” under Section 162(m) of the Code, the Administrator, in its discretion, may set
restrictions based upon the achievement of Performance Goal(s). The Performance Goal(s) will be set by the
Administrator on or before the Determination Date. In granting Restricted Stock which is intended to qualify under
Section 162(m) of the Code, the Administrator will follow any procedures determined by it from time to time to be
necessary or appropriate to ensure qualification of the Award under Section 162(m) of the Code (e.g., in
determining the Performance Goal(s)).
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9. Restricted Stock Units.
(a) Grant. Restricted Stock Units may be granted at any time and from time to time as determined by the
Administrator. Each Restricted Stock Unit grant will be evidenced by an Award Agreement that will specify such
terms and conditions as the Administrator in its sole discretion determines, including all terms, conditions, and
restrictions related to the grant, the number of Restricted Stock Units and the form of payout, which, subject to
Section 9(d), may be left to the discretion of the Administrator.
(b) Vesting Criteria and Other Terms. The Administrator will set vesting criteria in its discretion, which,
depending on the extent to which the criteria are met, will determine the number of Restricted Stock Units that will
be paid out to the Participant. The Administrator may set vesting criteria based upon the achievement of
Company-wide, divisional, business unit, or individual goals (including, but not limited to, continued employment or
service), applicable federal or state securities laws or any other basis determined by the Administrator in its sole
discretion.
(c) Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the Participant will be
entitled to receive a payout as determined by the Administrator. Notwithstanding the foregoing, subject to the
vesting limitations under Section 5, at any time after the grant of Restricted Stock Units, the Administrator, in its
sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout.
(d) Form and Timing of Payment. Payment of earned Restricted Stock Units will be made as soon as
practicable after the date(s) determined by the Administrator and set forth in the Award Agreement. The
Administrator, in its sole discretion, may pay earned Restricted Stock Units in cash, Shares, or a combination of
both.
(e) Cancellation. On the date set forth in the Award Agreement, all unearned Restricted Stock Units will
be forfeited to the Company.
(f) Section 162(m) Performance Restrictions. For purposes of qualifying grants of Restricted Stock Units
as “performance-based compensation” under Section 162(m) of the Code, the Administrator, in its discretion, may
set restrictions based upon the achievement of Performance Goal(s). The Performance Goal(s) will be set by the
Administrator on or before the Determination Date. In granting Restricted Stock Units which are intended to qualify
under Section 162(m) of the Code, the Administrator will follow any procedures determined by it from time to time
to be necessary or appropriate to ensure qualification of the Award under Section 162(m) of the Code (e.g., in
determining the Performance Goal(s)).
10. Stock Appreciation Rights.
(a) Grant of Stock Appreciation Rights. Subject to the terms and conditions of the Plan, a Stock
Appreciation Right may be granted to Service Providers at any time and from time to time as will be determined by
the Administrator, in its sole discretion.
(b) Number of Shares. The Administrator will have complete discretion to determine the number of Stock
Appreciation Rights granted to any Service Provider.
(c) Exercise Price and Other Terms. The per share exercise price for the Shares to be issued pursuant to
exercise of a Stock Appreciation Right will be determined by the Administrator and will be no less than one
hundred percent (100%) of the Fair Market Value per Share on the date of grant. Otherwise, the Administrator,
subject to the provisions of the Plan, will have complete discretion to determine the terms and conditions of Stock
Appreciation Rights granted under the Plan.
(d) Stock Appreciation Right Agreement. Each Stock Appreciation Right grant will be evidenced by an
Award Agreement that will specify the exercise price, the term of the Stock Appreciation Right, the conditions of
exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine.
B-11
(e) Expiration of Stock Appreciation Rights. A Stock Appreciation Right granted under the Plan will expire
upon the date determined by the Administrator, in its sole discretion, and set forth in the Award Agreement.
Notwithstanding the foregoing, the rules of Section 7(c) relating to the maximum term and Section 7(e) relating to
exercise also will apply to Stock Appreciation Rights.
(f) Payment of Stock Appreciation Right Amount. Upon exercise of a Stock Appreciation Right, a
Participant will be entitled to receive payment from the Company in an amount determined by multiplying:
(i) The difference between the Fair Market Value of a Share on the date of exercise over the exercise
price; times
(ii) The number of Shares with respect to which the Stock Appreciation Right is exercised.
At the discretion of the Administrator, the payment upon Stock Appreciation Right exercise may be in cash, in
Shares of equivalent value, or in some combination thereof.
11. Performance Units and Performance Shares.
(a) Grant of Performance Units/Shares. Performance Units and Performance Shares may be granted to
Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole
discretion. The Administrator will have complete discretion in determining the number of Performance Units and
Performance Shares granted to each Participant.
(b) Value of Performance Units/Shares. Each Performance Unit will have an initial value that is
established by the Administrator on or before the date of grant. Each Performance Share will have an initial value
equal to the Fair Market Value of a Share on the date of grant.
(c) Performance Objectives and Other Terms. The Administrator will set performance objectives or other
vesting provisions (including, without limitation, continued status as a Service Provider) in its discretion which,
depending on the extent to which they are met, will determine the number or value of Performance Units/Shares
that will be paid out to the Participant. Each Award of Performance Units/Shares will be evidenced by an Award
Agreement that will specify the Performance Period, and such other terms and conditions as the Administrator, in
its sole discretion, will determine. The Administrator may set performance objectives based upon the achievement
of Company-wide, divisional, business unit or individual goals (including, but not limited to, continued employment
or service), applicable federal or state securities laws, or any other basis determined by the Administrator in its
discretion.
(d) Earning of Performance Units/Shares. After the applicable Performance Period has ended, the holder
of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares
earned by the Participant over the Performance Period, to be determined as a function of the extent to which the
corresponding performance objectives or other vesting provisions have been achieved. After the grant of a
Performance Unit/Share, subject to the vesting limitations under Section 54(b), the Administrator, in its sole
discretion, may reduce or waive any performance objectives or other vesting provisions for such Performance Unit/
Share.
(e) Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units/
Shares will be made as soon as practicable after the expiration of the applicable Performance Period. The
Administrator, in its sole discretion, may pay earned Performance Units/Shares in the form of cash, in Shares
(which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the
close of the applicable Performance Period) or in a combination thereof.
(f) Cancellation of Performance Units/Shares. On the date set forth in the Award Agreement, all unearned
or unvested Performance Units/Shares will be forfeited to the Company, and again will be available for grant under
the Plan.
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(g) Section 162(m) Performance Restrictions. For purposes of qualifying grants of Performance Units/
Shares as “performance-based compensation” under Section 162(m) of the Code, the Administrator, in its
discretion, may set restrictions based upon the achievement of Performance Goal(s). The Performance Goal(s)
will be set by the Administrator on or before the Determination Date. In granting Performance Units/Shares which
are intended to qualify under Section 162(m) of the Code, the Administrator will follow any procedures determined
by it from time to time to be necessary or appropriate to ensure qualification of the Award under Section 162(m) of
the Code (e.g., in determining the Performance Goal(s)).
12. Performance-based Compensation Under Code Section 162(m).
(a) General. If the Administrator, in its discretion, decides to grant an Award intended to qualify as
“performance-based compensation” under Code Section 162(m), the provisions of this Section 122 will control
over any contrary provision in the Plan; provided, however, that the Administrator in its discretion may grant
Awards that are not intended to qualify as “performance-based compensation” under Section 162(m) of the Code
to such Participants that are based on Performance Goal(s) or other specific criteria or goals but that do not satisfy
the requirements of this Section 122.
(b) Performance Goals. The granting and/or vesting of Awards of Restricted Stock, Restricted Stock
Units, Performance Shares and Performance Units and other incentives under the Plan may be made subject to
the attainment of performance goals relating to one or more business criteria within the meaning of Section 162(m)
of the Code and may provide for a targeted level or levels of achievement (“Performance Goals”) including
(i) revenue; (ii) gross margin; (iii) operating margin; (iv) operating income; (v) pre-tax profit; (vi) earnings before
stock-based compensation expense, interest, taxes and depreciation and amortization; (vii) earnings before
interest, taxes and depreciation and amortization; (viii) earnings before interest and taxes; (ix) net income;
(x) expenses; (xi) new product development; (xii) stock price; (xiii) earnings per share; (xiv) return on stockholder
equity; (xv) return on capital; (xvi) return on net assets; (xvii) economic value added; (xviii) market share;
(xix) customer service; (xx) customer satisfaction; (xxi) sales; (xxii) total stockholder return; (xxiii) free cash flow;
(xxiv) net operating income; (xxv) operating cash flow; (xxvi) return on investment; (xxvii) employee satisfaction;
(xxviii) employee retention; (xxix) balance of cash, cash equivalents and marketable securities; (xxx) product
development; (xxxi) research and development expenses; (xxxii) completion of an identified special project;
(xxxiii) completion of a joint venture or other corporate transaction; (xxxiv) inventory balance; or (xxxv) inventory
turnover ratio. Any criteria used may be measured, as applicable, (A) in absolute terms, (B) in combination with
another Performance Goal or Goals (for example, but not by way of limitation, as a ratio or matrix), (C) in relative
terms (including, but not limited to, results for other periods, passage of time and/or against another company or
companies or an index or indices), (D) on a per-share or per-capita basis, (E) against the performance of the
Company as a whole or a segment of the Company (including, but not limited to, any combination of the Company
and any subsidiary, division, business unit, joint venture and/or other segment), and/or (F) on a pre-tax or after-tax
basis. The Performance Goals may differ from Participant to Participant and from Award to Award. Prior to the
Determination Date, the Administrator will determine whether any significant element(s) will be included in or
excluded from the calculation of any Performance Goal with respect to any Participant. In all other respects,
Performance Goals will be calculated in accordance with the Company’s financial statements, generally accepted
accounting principles, or under a methodology established by the Administrator prior to the issuance of an Award.
(c) Procedures. To the extent necessary to comply with the performance-based compensation provisions
of Code Section 162(m), with respect to any Award granted subject to Performance Goal(s), within the first twenty-
five percent (25%) of the Performance Period, but in no event more than ninety (90) days following the
commencement of any Performance Period (or such other time as may be required or permitted by Code
Section 162(m)), the Administrator will, in writing, (i) designate one or more Participants to whom an Award will be
made, (ii) select the Performance Goal(s) applicable to the Performance Period, (iii) establish the Performance
Goal(s), and amounts of such Awards, as applicable, which may be earned for such Performance Period, and
(iv) specify the relationship between Performance Goal(s) and the amounts of such Awards, as applicable, to be
earned by each Participant for such Performance Period. Following the completion of each Performance Period,
the Administrator will certify in writing whether the applicable Performance Goal(s) have been achieved for such
Performance Period. In determining the amounts earned by a Participant, the Administrator will have the right to
reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account
additional factors that the Administrator may deem relevant to the assessment of individual or corporate
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performance for the Performance Period. A Participant will be eligible to receive payment pursuant to an Award for
a Performance Period only if the Performance Goal(s) for such period are achieved.
(d) Additional Limitations. Notwithstanding any other provision of the Plan, any Award which is granted to
a Participant and is intended to constitute qualified performance based compensation under Code Section 162(m)
will be subject to any additional limitations set forth in the Code (including any amendment to Section 162(m)) or
any regulations and rulings issued thereunder that are requirements for qualification as qualified performance-
based compensation as described in Section 162(m) of the Code, and the Plan will be deemed amended to the
extent necessary to conform to such requirements.
13. Service Provider Status.
(a) Leaves of Absence/Transfer Between Locations. Unless the Administrator provides otherwise, vesting
of Awards granted hereunder will be suspended during any unpaid leave of absence. A Service Provider will not
cease to be an Employee or Director in the case of (i) any leave of absence approved by the Company or
(ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary. For
purposes of Incentive Stock Options, no leave of absence may exceed three (3) months, unless reemployment
upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of
absence approved by the Company is not so guaranteed, then six (6) months following the first (1st) day of such
leave any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and
will be treated for tax purposes as a Nonstatutory Stock Option.
14. Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the
Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the
Administrator deems appropriate.
15. Adjustments; Dissolution or Liquidation; Merger or Change in Control.
(a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares,
other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, reincorporation,
reclassification, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other
securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs,
the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, will adjust the number and class of Shares that may be delivered under the Plan
and/or the number, class, and price of Shares covered by each outstanding Award, and the numerical Share limits
in Sections 3 and 5 of the Plan.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the
Administrator will notify each Participant as soon as practicable prior to the effective date of such proposed
transaction. To the extent it has not been previously exercised, an Award will terminate immediately prior to the
consummation of such proposed action.
(c) Change in Control. In the event of a merger of the Company with or into another corporation or other
entity or a Change in Control, each outstanding Award will be treated as the Administrator determines, including,
without limitation, that each Award be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. The Administrator will not be required to treat
all Awards similarly in the transaction.
In the event that the successor corporation does not assume or substitute for the Award, (and for the
avoidance of doubt, notwithstanding the vesting limitations under Section 5), the Participant will fully vest in and
have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights, including Shares as to
which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted
Stock Units will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other
vesting criteria will be deemed achieved at one hundred percent (100%) of target levels, and all other terms and
conditions are met. In addition, if an Option or Stock Appreciation Right is not assumed or substituted in the event of
B-14
a Change in Control, the Administrator will notify the Participant in writing or electronically that the Option or Stock
Appreciation Right will be exercisable for a period of time determined by the Administrator in its sole discretion, and
the Option or Stock Appreciation Right will terminate upon the expiration of such period.
For the purposes of this subsection (c), an Award will be considered assumed if, following the Change in
Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior
to the Change in Control, the consideration (whether stock, cash, or other securities or property) received in the
Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if
holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the
outstanding Shares); provided, however, that if such consideration received in the Change in Control is not solely
common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation
Right or upon the payout of a Restricted Stock Unit, Performance Unit or Performance Share, for each Share
subject to such Award, to be solely common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the Change in Control.
Notwithstanding anything in this Section 15(c) to the contrary, an Award that vests, is earned or paid-out
upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its
successor modifies any of such performance goals without the Participant’s consent; provided, however, a
modification to such performance goals only to reflect the successor corporation’s post-Change in Control
corporate structure will not be deemed to invalidate an otherwise valid Award assumption.
Notwithstanding anything in this Section 15(c) to the contrary, if a payment under an Award Agreement is
subject to Section 409A and if the change in control definition contained in the Award Agreement does not comply
with the definition of “change in control” for purposes of a distribution under Section 409A, then any payment of an
amount that otherwise is accelerated under this Section will be delayed until the earliest time that such payment
would be permissible under Section 409A without triggering any penalties applicable under Section 409A.
16. Tax.
(a) Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or
exercise thereof) or such earlier time as any Tax Obligations are due, the Company will have the power and the
right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy all Tax
Obligations with respect to such Award (or exercise thereof).
(b) Withholding Arrangements. The Administrator, in its sole discretion and pursuant to such procedures
as it may specify from time to time, may permit a Participant to satisfy such Tax Obligation, in whole or in part by
(without limitation) (a) paying cash, (b) having the Company withhold otherwise deliverable cash or Shares having
a Fair Market Value equal to the minimum statutory amount required to be withheld, (c) delivering to the Company
already-owned Shares having a Fair Market Value equal to the minimum statutory amount required to be withheld,
provided the delivery of such Shares will not result in adverse accounting consequences as the Administrator
determines in its sole discretion, or (d) selling a sufficient number of Shares otherwise deliverable to the
Participant through such means as the Administrator may determine in its sole discretion (whether through a
broker or otherwise) equal to the amount required to be withheld. The Fair Market Value of the Shares to be
withheld or delivered will be determined as of the date that such Shares are withheld or delivered, as applicable.
(c) Compliance With Section 409A. Awards will be designed and operated in such a manner that they are
either exempt from the application of, or comply with, the requirements of Section 409A such that the grant,
payment, settlement or deferral will not be subject to the additional tax or interest applicable under Section 409A,
except as otherwise determined in the sole discretion of the Administrator. The Plan and each Award Agreement
under the Plan is intended to meet the requirements of Section 409A and will be construed and interpreted in
accordance with such intent, except as otherwise determined in the sole discretion of the Administrator. To the
extent that an Award or payment, or the settlement or deferral thereof, is subject to Section 409A the Award will be
granted, paid, settled or deferred in a manner that will meet the requirements of Section 409A, such that the grant,
payment, settlement or deferral will not be subject to the additional tax or interest applicable under Section 409A.
Notwithstanding the foregoing, in no event will the Company reimburse any Participant for any taxes that may be
imposed upon Participant as a result of Section 409A.
B-15
17. No Effect on Employment or Service. Neither the Plan nor any Award will confer upon a Participant any
right with respect to continuing the Participant’s relationship as a Service Provider with the Company or any Parent
or Subsidiary, nor will they interfere in any way with the Participant’s right or the right of the Company or any
Parent or Subsidiary, as applicable, to terminate such relationship at any time, with or without cause, to the extent
permitted by Applicable Laws.
18. Date of Grant. The date of grant of an Award will be, for all purposes, the date on which the Administrator
makes the determination granting such Award, or such other later date as is determined by the Administrator.
Notice of the determination will be provided to each Participant within a reasonable time after the date of such
grant.
19. Term of Plan. Subject to Section 23 of the Plan, the Plan will become effective upon approval of the Plan
by the stockholders of the Company. It will continue in effect for a term of ten (10) years from the date of such
stockholder approval, unless terminated earlier under Section 20 of the Plan.
20. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Administrator may at any time amend, alter, suspend or terminate
the Plan.
(b) Stockholder Approval. The Company will obtain stockholder approval of any Plan amendment to the
extent necessary and desirable to comply with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan
will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the
Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of
the Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to
Awards granted under the Plan prior to the date of such termination.
21. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares will not be issued pursuant to the exercise of an Award unless the exercise
of such Award and the issuance and delivery of such Shares will comply with Applicable Laws and will be further
subject to the approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an Award, the Company may require
the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
22. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body
having jurisdiction or to complete or comply with the requirements of any registration or other qualification of the
Shares under any state, federal or foreign law or under the rules and regulations of the Securities and Exchange
Commission, the stock exchange on which Shares of the same class are then listed, or any other governmental or
regulatory body, which authority, registration, qualification or rule compliance is deemed by the Company’s
counsel to be necessary or advisable for the issuance and sale of any Shares hereunder, will relieve the Company
of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority, registration,
qualification or rule compliance will not have been obtained.
23. Stockholder Approval. The Plan will be subject to approval by the stockholders of the Company within
twelve (12) months after the date the Plan is adopted by the Board. Such stockholder approval will be obtained in
the manner and to the degree required under Applicable Laws.
24. Captions. Captions are provided herein for convenience only, and will not serve as a basis for
interpretation or construction of the Plan.
B-16
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 26, 2015
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
(cid:3)
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 26,
No
2015, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $1,985,339,928 (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 18,
2016, 141,389,267 shares of the registrant’s common stock, $0.001 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement relating to its 2016 Annual Meeting of Stockholders (the “2016 Proxy Statement”) are
incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 2016 Proxy Statement will be filed with the U.S.
Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
INFINERA CORPORATION
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 26, 2015
Table of Contents
Part I
(cid:3)
(cid:3)
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
31
31
31
32
33
35
36
53
55
106
106
107
108
108
108
108
108
Item 15. Exhibits, Financial Statement Schedules .................................................................................
109
(cid:3)
ITEM 1.
Overview
BUSINESS
Part I
Infinera Corporation (“we,” "us," "our" or “Infinera”) provides optical transport networking equipment,
software and services to telecommunications service providers, Internet content providers (“ICPs”), cable
providers, 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 optical bandwidth prompted by increased use of high-speed Internet access,
mobile broadband, high-definition video streaming services, business Ethernet services and cloud-based
services.
We manufacture large-scale Indium Phosphide photonic integrated circuits ("PICs"), which are used as
a key differentiating component inside our Intelligent Transport Network platforms. Our third generation PICs,
commercially available since 2012, transmit and receive 500 Gigabits per second ("Gbps"), incorporating over
600 discrete optical functions into a pair of PICs. Our PICs are combined with our 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.
In 2014, we increased our addressable markets by introducing the Cloud Xpress platform for the metro
cloud market. We enhanced our position in the cloud/data center interconnect (“DCI") market in 2015 by
expanding our Cloud Xpress offering to now include 10 gigabit Ethernet (“GbE”), 40 GbE and 100 GbE client
interfaces to meet customer specific requirements. We also introduced the XT-500, to provide a compact
wavelength-division multiplexing (“WDM”) solution optimized for long-haul interconnect applications.
In the second half of 2015, we entered the metro market with the acquisition of Transmode AB
(“Transmode”), a leader in metro packet-optical applications, and introduced the Infinera XTC-2 and XTC-2E
products. We can now offer our customers a comprehensive portfolio addressing the metro market with 100G
metro core/regional transport capabilities and packet-optical solutions optimized for fast growing applications
including mobile fronthaul and backhaul, triple-play and cable broadband aggregation, and business Ethernet
services with Metro Ethernet Forum (“MEF”) certification(cid:17)
Our end-to-end packet-optical portfolio is designed to be managed with a single network management
system. In addition to offering our traditional management system for WDM operations, we also provide solutions
for enabling programmability of our Intelligent Transport Network with software defined networking (“SDN”) via
the Infinera Open Transport Switch (“OTS”). This SDN platform can enable Service Providers to write software
applications that can control the Intelligent Transport Network to more rapidly deliver innovative services with
service level agreements while efficiently using their network resources.
The Infinera Intelligent Transport Network architecture enables Service Providers to scale network
bandwidth, accelerate service innovation and simplify optical network operations. Service Providers across the
globe rely on Infinera Intelligent Transport Networks to enable services that create rich end-user experiences
based on efficient, high-bandwidth optical networking. Building on our leadership in long-haul, we now provide an
end-to-end portfolio of packet-optical solutions for metro, DCI, long-haul and subsea networks.
We were incorporated in December 2000 and originally operated under the name “Zepton Networks.”
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.
“Infinera,” “Infinera DTN,” “Infinera DTN-X,” “ATN,” “Infinera Intelligent Transport Network,”
“FlexCoherent,” "Infinera FlexILS" and “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.
(cid:20)
Industry Background
Optical transport networking equipment carries digital information using light waves over fiber optic
cables. With the advent of WDM systems, data is transmitted by using multiple wavelengths of light using
different frequencies or colors over a single optical fiber. Service Providers deploy WDM systems to carry
information between continents, across countries, between cities and within metropolitan areas, and in some
cases all the way to the end user. Fiber optic networks are generally capable of carrying most types of
communications traffic. We believe that a number of trends in the communications industry are driving demand
for network bandwidth 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. As traffic grows, Service Providers add transmission bandwidth to existing optical networks or
purchase and deploy additional systems to keep pace with bandwidth demands and service expansion.
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 original request. This server-to-server traffic is also called east-west traffic and this magnification
effect is accelerating the deployment of high-bandwidth optical transport solutions to support cloud network
infrastructures.
We deliver highly scalable optical networking solutions to support the growing demand for high
bandwidth across various end-to-end network locations all the way from the high-capacity long-haul core to the
metro access.
We believe that Service Providers seek the following solutions that will allow them to increase their
revenue and/or expand their service offerings:
•
•
•
•
high-bandwidth solutions that scale optical transmission bandwidth to meet increasing demand;
efficient solutions that optimize performance and increase reliability while reducing physical space,
power consumption and heat dissipation leading to lower operational expenses;
easy to use solutions that reduce the time and complexity of deploying new transmission
bandwidth; 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. We also believe that our Intelligent
Transport Networks enable Service Providers to deploy scalable, high-bandwidth, optical transport network
solutions that accelerate service innovation and simplify optical network operations.
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:
(cid:135)(cid:3)
(cid:135)(cid:3)
Proliferating our broader base of technologies into our existing customers as well as obtaining new
customers. We have introduced multiple purpose built products to allow us to serve adjacent
markets and also better serve our existing markets.
Enhancing our existing product portfolio for the metro, DCI, long-haul and subsea markets.(cid:3)We are
enhancing existing products and building new products for specific markets, including metro
aggregation, DCI, long-haul and subsea.
• Continuing commitment to provide world-class support services to our customers. We believe that
our lead in customer experience capabilities is a major differentiator. Our 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.
(cid:21)
• Maintaining and extending our technology lead. We intend to continually invest in key technologies
such as our FlexCoherent processor, various forms of the PIC, application specific integrated
circuits ("ASICs"), software and other key technology differentiators. We plan to incorporate the
functionality of additional discrete functions into our PICs, and overall vertically integrated design, in
order to continue to increase our technology lead. In addition, we intend to pursue the expansion of
our digital and packet switching and bandwidth management capabilities in order to enhance the
performance, scalability and economic advantages of our products.
• Continuing investment in vertically integrated manufacturing activities. We believe that our vertical
integration and manufacturing capabilities serve as competitive advantages from a technology,
supply chain and financial perspective, and we plan to continue to invest in our next-generation PIC
technologies.
•
Investing in Network Management System and SDN.(cid:3)We believe that we lead the industry in ease
of use facilitated through our Infinera Management System suite of software products. We continue
to invest in our software products, including adding new capabilities such as Infinera Instant
Bandwidth control and extending the system across our entire portfolio with a goal of achieving
end-to-end service provisioning and management. We are also seeing a trend in which Service
Providers are looking for more programmable networks and we have added application
programming interfaces to the Infinera Intelligent Transport Network architecture so they can be
used by Service Providers to build more agile networks that can deliver competitive services.
Customers
Our customers include:
•
•
•
Tier-1 carriers for domestic and international networks;
Tier-2 and Tier-3 carriers;
ICP and cloud operators;
• wholesale and enterprise carriers;
• multiple system operators/cable companies; and
•
research and education/government entities.
We sell our products both directly to customers who are end users, and utilize channel partners that sell
on our behalf. We believe one of our strengths is the diversity of our customer base as we generate annual
revenues from each of the verticals listed above, and have multiple customers within each vertical that have
historically spent significantly on our solutions. We do not have long-term sales commitments from our
customers. Two customers each accounted for over 10% of our revenue in 2015. These two customers
accounted for 17% and 13%, respectively, of our revenue in 2015. One customer accounted for over 10% of our
revenue in 2014. Revenue from this customer accounted for 19% of our revenue in 2014. No individual customer
accounted for over 10% of our revenue in 2013.
Technology
Infinera Intelligent Transport Network Architecture
We were founded with a vision of enabling an infinite pool of intelligent bandwidth that the next
communications infrastructure is built upon. We have focused our efforts, time and capital on developing multiple
platforms based on our Intelligent Transport Network architecture, which enables Service Providers to create rich
end-user experiences based on efficient, high-bandwidth transport by combining the following elements:
(cid:135)(cid:3)
Scalability. The proliferation of data centers, rise of cloud computing, increasing consumption
of video and growth in mobile access are fundamentally changing traffic characteristics in
operator networks. The Infinera Intelligent Transport Network delivers 500Gbps FlexCoherent
super-channels today and is designed to scale without compromise to enable terabit super-
channels and terabit Ethernet in the future.
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(cid:135)(cid:3)
(cid:135)(cid:3)
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 combining packet and OTN switching functions with WDM, the Infinera Intelligent Transport
Network is designed to reduce complexity while lowering overall network operating costs
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. Furthermore, our Infinera Instant
Bandwidth offering enables our customers to benefit from a “pay as you grow” model by
instantly provisioning additional capacity when it is needed.
Infinera Photonic Integrated Circuits
We believe that our proprietary PICs and FlexCoherent processor are key components of our value
proposition and competitive advantage. We manufacture and package our PICs at our own facilities for use
exclusively with our Infinera DTN, DTN-X XTC-series, DTN-X XT-series and Cloud Xpress platforms. Our PICs
are purpose built for diverse network locations and applications. As a leader in 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. We believe that large-scale photonic
integration, using indium phosphide, 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
Optical transmission is based on a number of technologies, namely: phase modulation, polarization
multiplexing, coherent detection and advanced digital signal processing. These “coherent technologies” are used
by network operators 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 the previous generation. We
have integrated proprietary coherent technologies onto our FlexCoherent processor based on advanced
electronics, which works in conjunction with our large-scale PICs based on advanced photonics, to construct a
single module for exceptional optical transport performance.
Super-Channels
The Infinera DTN-X XTC-10, DTN-X XTC-4 and Cloud Xpress platforms support five channels of
100Gbps capacity in a single line card or unit depending on the platform form-factor. This 500Gbps pool of
bandwidth is managed as a single super-channel that can be deployed in a single operational motion.
Competitive solutions would require the installation of discrete line modules or units, which in some cases could
be as high as five, each turned up with its own operational motion, in order to achieve the same system
capacity. Super-channels result 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.
(cid:23)
Integrated OTN Switching
OTN offers a highly-structured approach to service multiplexing and switching that 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-X XTC-series platforms to fully integrate WDM transport and
OTN switching capabilities in a single platform, without compromising overall system functionality or capacity.
This results in an improved total cost of ownership for the customer. Further the integrated OTN switching
capability along with GMPLS automation allows customers to deploy Fast Shared Mesh Protection, a new
standards-based resiliency technique for networks to recover from local and network-wide multiple failures
without the need to dedicate backup bandwidth for every active circuit. We implement this technology using a
purpose built hardware acceleration chip included in every single card of the Infinera DTN-X XTC platform,
ensuring a sub(cid:16)50 milliseconds recovery.
Infinera Instant Bandwidth
Infinera Instant Bandwidth enables Service Providers to license the 500Gbps super-channel pool of
bandwidth in 100Gbps increments. With the Infinera Instant Bandwidth technology, which is available with the
Infinera DTN-X XTC-10, DTN-X XTC-4 and Cloud Xpress platforms, Service Providers can instantly provision an
additional 100Gbps of transmission capacity on demand without the deployment of any incremental equipment.
The Infinera Instant Bandwidth technology is uniquely enabled by our super-channel capability and PICs.
Infinera Packet Optical Transport
Our packet optical technologies included in both the Infinera DTN-X XTC series and the TM-series
platforms offer the right amount of packet and optical switching integrated into efficient packet optical platforms.
This enables service providers to support Ethernet and Multi-Protocol Label Switching (“MPLS”) packet transport,
aggregation and service functions directly within optical WDM layer. Operators can build highly efficient router
interconnects and bandwidth engineering capabilities within the transport layer, without having to send the traffic
to the router layer for transit. Our Intelligent Transport Networks not only enhance network efficiency but also
provide scalable bandwidth and performance for revenue-yielding MEF certified Carrier Ethernet and MPLS
packet services.
Products and Services
Our product portfolio consists of the Infinera DTN-X family of platforms, the Infinera DTN platform, the
Infinera Cloud Xpress platform, the Infinera TM-Series, the Infinera TG-Series and the Infinera ATN platform
addressing subsea, long-haul and metro networks end-to-end. The emerging DCI application is a subset of the
long-haul and metro application. We also provide software solutions including the Infinera OTS and Infinera
Management Suite to increase the efficiency and optimization of the network.
Product Portfolio
Infinera DTN-X Family of Platforms
The Infinera DTN-X family consists of the XTC-10, XTC-4, XTC-2/2E and the XT-500. With the
exception of the XTC-2/2E, these platforms are built on the 500Gbps PIC technology that integrates more than
600 discrete photonic functions delivering the world’s first 500Gbps super-channel, based on 100Gbps per
channel. The XTC-2/2E is designed for the metro and smaller capacity long haul networks and uses an
optimized 100G PIC. The DTN-X family is powered by cutting-edge electronics delivered by our FlexCoherent
processor and supports Infinera Instant Bandwidth technology, which helps operators closely match service
revenue to network operating costs.
(cid:24)
The Infinera DTN-X XTC series are multi-terabit packet optical transport platforms that integrate
Ethernet and MPLS packet services with digital OTN switching and optical WDM transmission. The highest end
XTC-10 platform provides fiber capacity of 9.5 Terabits per second ("Tbps") that is upgradeable to 25.6Tbps. The
per-chassis capacity is 5Tbps today and is upgradable to 12Tbps per chassis and up to 260Tbps in a multi-bay
configuration in the future. In most competitive solutions, network operators must make a choice between
maximizing either the system’s transmission capacity or its switching capability. The Infinera XTC platforms
combine switching with WDM transport without compromising the performance of either function. They support a
broad range of Ethernet and OTN client interfaces for flexibility. The platforms are designed for subsea, long-
haul, regional and metro mesh networks that require 100Gbps wavelengths. The XTC-4 supports 500 Gbps
super-channels but is a half rack platform for more space constrained applications. The XTC-2/2E is the smallest
platform designed for metro applications or lower capacity sites requiring 100Gbps dense WDM.
The Infinera DTN-X XT-500 is a compact platform that is just 2 rack units high with 500Gbps line-side
capacity and a mix of 10/100GbE client interfaces. It provides high levels of reliability, low power consumption
and operational simplicity. It integrates with the Infinera FlexILS line system and can be managed as a single
node when combined with the XTC series. The platform is designed for long-haul networks that require 100Gbps
wavelengths as well as long-haul DCI applications.
Infinera DTN Platform
The Infinera DTN platform is built on 100G PIC technology, integrating digital OTN switching with optical
WDM transmission at 10Gbps wavelengths for a fiber capacity of 1.6Tbps and per-chassis capacity of 400Gbps.
It supports a broad range of Ethernet and OTN client interfaces for flexibility. The platform is designed for
subsea, long-haul and regional mesh networks that require 10Gbps wavelengths.
Infinera FlexILS Line System
The Infinera FlexILS line system platform connects various Infinera platforms over long distance fiber
optic cable while providing switching, multiplexing, amplification and management channels. It supports up to
25.6Tbps of fiber capacity when used with the Infinera DTN-X platform. The platform supports a flexible grid
architecture that enables more efficient use of the available optical spectrum. The modular super-channel
FlexROADM component provides multi-degree optical switching and, when combined with other Infinera
platforms featuring OTN and packet switching along with SDN and GMPLS based unified control plane, the
solution provides multi-layer switching. Operators can now manage line-side capacity as a single pool of
bandwidth for end-user client services ranging from 1Gbps up to 100Gbps.
Infinera TM-Series
The TM-Series carrier-grade packet-optical transport platform enables high performance metro
networks with service-aware, application-specific capabilities. Supporting integrated packet-optical features, the
TM-Series builds on key design philosophies such as low power, high density and high scalability. It offers
advanced capabilities for 3G and 4G mobile infrastructure such as superior sync features for backhaul, WDM in
cloud radio access network architecture and fronthaul. The platform supports the Intelligent WDM Passive
Optical Network solution providing simple operations for Fiber to the X applications along with Intelligent SFPs
for transparent delivery of SDH/SONET services over a packet-optical network. It provides error correction, OTN
transport, Ethernet, MPLS-TP and optics, all on one packet optical transport switch module. It includes a fully
backwards compatible terabit scale packet-optical transport switching with a rich set of MEF Carrier Ethernet 2.0
and MPLS-TP service options. The platform is designed for application-rich packet-optical metro and regional
networks providing cable, mobile, broadband and business services that require 10Gbps and 100Gbps
wavelengths.
Infinera TS-Series
The TG-Series is a family of passive optical WDM products. Designed for access applications, it fits in a
wide range of applications from controlled environments in central offices to street cabinets or even underground
enclosures such as manhole applications that require environmentally hardened products, such as fiber to the
curb, fiber to the building and high-security access networks. The TG-Series is fully compatible and interoperable
with the TM-Series.
(cid:25)
Infinera Cloud Xpress Platform
The Infinera Cloud Xpress is a compact platform designed for DCI applications, built on the 500Gbps
PIC technology with hyper-scale density, simplified operations and low power consumption. It provides 1Tbps of
combined input and output capacity in just two rack units with flexible client interfaces of 10GbE, 40GbE and
100GbE. It is designed with a rack-and-stack form factor and a new software approach that enables it to easily
plug into existing cloud provisioning systems using open SDN APIs, an approach similar to the server and
storage infrastructure deployed in the cloud.
Infinera ATN Platform
The Infinera ATN is a small form-factor WDM platform for cost-effective add/drop and multi-service
aggregation in metro networks supporting direct wavelength connectivity to the Infinera DTN platform.
Software and Services
Infinera Open Transport Switch
The Infinera OTS is a software platform that enables a high degree of abstraction and virtualization of
the underlying Infinera platforms. The open and modular architecture of OTS allows it to easily integrate into a
diverse array of customer applications through standard and secure APIs. OTS was purpose built with a modern
IT mindset, and its lightweight approach and ability to rapidly innovate new features paves the way for operators
to transform to a DevOps model of network development. The Hybrid Control Mode feature allows network
operators to migrate to an SDN model without disturbing revenues from existing production services(cid:17)
Infinera Management Suite
The Infinera Management Suite is a network management system used by network operators to
manage all Infinera platforms in an integrated manner. The suite includes the Digital Node Administrator, a
scalable, robust, feature-rich element management system, our Graphical Node Manager, an easy-to-use web-
based management interface, our Network Planning System for offline graphical modeling, planning and
configuration capabilities, and Transport Network Manager for TM-Series and TG-Series management.
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
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customers in over 70 countries around the world. In addition, we continue to expand our services portfolio in
order to meet the evolving needs of our customers.
Competition
(cid:3)
metro and DCI.
Our current technologies and platforms support three transport equipment markets - long-haul/subsea,
The optical transport networking equipment market for long-haul/subsea networks is highly competitive
but has consolidated significantly over the last decade. The metro market is a highly competitive market that we
entered in 2015 with the acquisition of Transmode and the introduction of the Infinera DTN-X XTC-2 and DTN-X
XTC-2E. The metro cloud transport equipment market (also known as DCI) 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;
form factor or density;
power consumption;
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•
•
•
•
•
•
•
•
heat dissipation;
customer qualification testing;
existing business and customer relationships;
the ability of products and services to meet customers’ immediate and future network requirements;
installation and operation simplicity;
service and support;
scalability and investment protection; and
product lead times.
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
(acquired by Nokia), Ciena, Coriant, Huawei and ZTE. In the metro market, we face the same competitors as in
long-haul, plus Cisco, Adva, Arista and Fujitsu. In addition, there are also several smaller, but established,
companies that offer one or more products that compete directly or indirectly with our offerings. In the DCI
market, we believe we are one of the few companies shipping purpose built small form factor devices. Several
other competitors including many named above have announced competing solutions that we expect to be
shipping in 2016. 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 or another solution with similar and/or better functionality than 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 service providers and other potential
customers than we have. Many of our competitors have more resources 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, which can increase pricing pressure, 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 commercially 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.
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.
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Direct Sales Force(cid:17)(cid:3)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 2015 to address 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(cid:17)(cid:3)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(cid:17)(cid:3)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; Kanata, Canada; and Stockholm, Sweden. 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 PICs, and we intend to enable further integration in the Infinera 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 $180.7 million, $133.5 million and $124.8 million in
2015, 2014 and 2013, respectively.
Employees
As of December 26, 2015, we had 2,056 employees. A total of 971 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.
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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 four contract manufacturers in five
different countries, China, Malaysia, Mexico, Sweden 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 26, 2015 and December 27, 2014, our total order backlog was approximately $87.1
million and $124.4 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.
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 26, 2015, we held 343 U.S. patents and 80 international patents expiring between
2021 and 2035, and held 128 U.S. and 46 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 were recently involved in litigation for alleged patent infringement that was adjudicated in our
favor. 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 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.
(cid:20)(cid:19)
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
We are committed to maintaining compliance with all environmental laws and regulations applicable to
our operations, products and services. Our business and operations are subject to various federal, state, local
and foreign laws and regulations that have been adopted with respect to the environment, including the Waste
Electrical and Electronic Equipment (“WEEE”) Directive, Directive on the Restriction of the Use of Certain
Hazardous Substances in Electrical and Electronic Equipment (“RoHS”), and Registration, Evaluation,
Authorization, and Restriction of Chemicals (“REACH”) regulations adopted by the European Union.
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 17, “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 17, “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.”
Executive Officers
Our executive officers and their ages and positions as of December 26, 2015, are set forth below:
Name
Thomas J. Fallon ...............
Age
54
Position
Chief Executive Officer and Director
David F. Welch, Ph.D.........
Brad Feller .........................
Robert J. Jandro ................
James L. Laufman .............
55
42
60
50
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 and as a member of
our board of directors since July 2009. 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.
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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 one other public company board, Hercules
Technology Growth Capital, Inc., a specialty finance company. Mr. Fallon also serves on 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 us,
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 was appointed as our Chief Financial Officer in March 2014 after joining us as Senior Vice
President of Finance in January 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 holds 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.
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 Vice President, 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
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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.
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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 vary significantly from period to period, 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, in particular, our revenue, gross margins, operating expenses, operating margins
and net income, have historically varied from period to period and may continue to do so in the future. 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 26, 2015, our accumulated
deficit was $539.4 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 that 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 to execute and may take
significant 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, given the increase in the size of our business as a result of the acquisition of Transmode, our historical
results may not be indicative of our combined operations going forward.
Factors that may contribute to fluctuations in our quarterly results, many of which are outside our control
and may be difficult to predict, include:
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fluctuations in demand, sales cycles and prices for products and services, including discounts given
in response to competitive pricing pressures;
fluctuations in our customer, product or geographic 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;
the process of integrating the Transmode business with our business and the associated potential
disruptions to our business;
how quickly, or at all, the market adopts our solutions, including in new markets like metro and DCI;
order cancellations or reductions or delays in delivery schedules by our customers;
our ability to control costs, including our operating expenses and the costs of components we
purchase for our products;
our ability to maintain volumes and yields on products manufactured in our internal manufacturing
facilities;
the timing of product releases or upgrades by us;
any significant changes in the competitive dynamics of our market, including any new entrants, or
customer or competitor consolidation;
readiness of customer sites for installation of our products;
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 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
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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
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general economic conditions in domestic and international markets.
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 do not meet the expectations of investors or securities analysts or fall below any
guidance we provide to the market, the price of our common stock may decline substantially.
Our business and operations have experienced rapid growth in recent periods, including growth related
to the acquisition of Transmode, and if we do not effectively manage any future growth or are unable to
improve our systems, processes and controls, our operating results may be adversely affected.
We have experienced rapid growth and increased demand for our products over the last few years. Our
employee headcount and number of end-customers have increased significantly, and we expect to continue to
grow over the next year. For example, from the end of fiscal 2013 to the end of fiscal 2015, our headcount
increased from 1,318 to 2,056 employees. The growth and expansion of our business and product and service
offerings places a continuous significant strain on our management, and operational and financial resources. To
manage any future growth effectively, we must continue to improve and expand our information technology and
financial infrastructure, our operating and administrative systems, and our ability to manage headcount and
processes in an efficient manner.
We may not be able to successfully scale improvements to our enterprise resource planning system or
implement or scale improvements to our other systems, processes and controls in an efficient or timely manner,
or in a manner that does not negatively affect our operating results. In addition, our existing systems, processes
and controls may not prevent or detect all errors, omissions or fraud. We may experience difficulties in managing
improvements to our systems, processes and controls, or in connection with third-party software, which could
disrupt existing customer relationships, cause us to lose customers, or increase our technical support costs. Our
failure to improve our systems, processes and controls, or their failure to operate in the intended manner, may
result in our inability to manage the growth of our business and to accurately forecast our revenue, expenses and
earnings, or to prevent certain losses. Failure to manage any future growth effectively could result in increased
costs, negatively impact our customers’ satisfaction with our products and services, and harm our operating
results.
We may not be able to successfully integrate our business with the business of Transmode, and we may
not be able to achieve the anticipated strategic benefits from our acquisition of Transmode.
The transaction to acquire Transmode was completed on August 20, 2015, and Transmode’s business
became a part of our business as of that date. The integration of our company with Transmode has been and will
continue to be a complex, costly and time-consuming process. The integration process will require substantial
management time and attention, which may divert attention and resources from other important areas, including
our existing business. Additional unanticipated costs may be incurred in the course of integrating the respective
businesses of Infinera and Transmode. In addition, we may not be able to fully realize the anticipated strategic
benefits of the combination, which include the ability to achieve revenue synergies, increased negotiating leverage
with third-party suppliers as a result of higher volumes, and, to a lesser extent, certain operating expense synergies
expected from avoiding duplicative costs. The failure to successfully integrate the combined operations, including
retention of key employees, could impact our ability to realize the full benefits of our acquisition of Transmode. If
we are not able to achieve the anticipated strategic benefits of the combination, it could adversely affect our business,
financial condition and results of operations, and could adversely affect the market price of our common stock if the
integration or the anticipated financial and strategic benefits of the acquisition are not realized as rapidly as, or to
the extent anticipated by investors and analysts. Failure to achieve these anticipated benefits could result in increased
costs and decreases in future revenue and/or net income following the acquisition.
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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 varies by customer and by product. Over the past
eight fiscal quarters, our gross margin has ranged from 41% to 47%. Our gross margin is likely to continue to
fluctuate and will be affected by a number of factors, including:
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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 deploy network footprint;
the volume of Infinera Instant Bandwidth licenses sold;
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 clauses that require us to annually 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 by more 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 this often results in aggressive
business tactics by our competitors, including:
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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 purchases;
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, and/or we could be required to reduce
our prices to compete in the market.
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Our ability to increase our revenue will depend upon continued growth of demand by consumers and
businesses for additional network capacity and on the level and timing of capital spending by our
customers.
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 transport networking equipment may not continue to grow and our product sales would be negatively
impacted.
In addition, demand for our products depends on the level and timing of capital spending in optical networks
by Service Providers as they construct, expand and upgrade the capacity of their optical networks. Capital
spending is cyclical in our industry and spending by customers can change on short notice. Any future decisions
by our customers to reduce capital spending, whether caused by weakening economic conditions, changes in
government regulations relating to telecommunications and data networks, or other reasons, could have a
material adverse effect on our business, results of operations and financial condition.
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 does 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.
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,
including 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:
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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;
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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.
The markets in which we compete are highly competitive and we may not be able to compete effectively.
Competition in the optical transport networking 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 (acquired by Nokia), Ciena Corporation, Coriant, Huawei and ZTE. In the metro market we face
the same competitors as in long-haul, plus Cisco, Adva, Arista and Fujitsu. In addition, there are also several
smaller, but established, companies that offer one or more products that compete directly or indirectly with our
offerings. In the DCI market, we believe we are one of the few companies shipping purpose built small form
factor devices. Several other competitors including many named above have announced competing solutions
that we expect to be shipping in 2016.
Competition in the markets we serve is based on any one or a combination of the following factors:
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price and other commercial terms;
functionality;
form factor or density;
power consumption;
heat dissipation;
customer qualification testing;
existing business and customer relationships;
the ability of products and services to meet customers’ immediate and future network requirements;
installation and operation simplicity;
service and support;
scalability and investment protection; and
product lead times.
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
or another solution with similar and/or better functionality than 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 Service Providers and other potential
customers than we have. Many of our competitors have more resources and more experience in developing or
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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 commercially 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 experienced 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.
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.
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The manufacturing process for our PICs 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 our PICs and certain components of our products is very complex. 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 damage customer relations and cause business reputation problems,
harming our business and operating results.
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.
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 have increased
our reliance on third parties to develop and manufacture components for certain products, some of which require
custom development. We purchase these components on a purchase order basis and have no long-term
contracts with many of these sole source or limited source suppliers. If any of our sole source 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. In addition, 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 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 problems experienced by our suppliers or contract manufacturers,
strong demand in the industry for such components, or other disruptions in our supply chain. Global
macroeconomic conditions are 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
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requirements. Any failure to meet our customers’ product delivery requirements could harm our reputation and
our customer relationships, either of which would harm our business and operating results.
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.
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. For example, for
fiscal 2015, two customers accounted for approximately 30% of our total 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. While we view our diverse customer base across multiple
customer verticals as a strength and expect greater overall customer diversification as a result of our acquisition
of Transmode, we expect a relatively small number of customers to continue to account for a large percentage of
revenue from period to period.
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 our contract manufacturers do not perform as we expect, our business may be harmed.
We rely on third party contract manufacturers to perform a 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 that will guarantee product availability, or the
continuation of particular pricing or payment terms. There are a number of risks associated with our dependence
on contract manufacturers, including:
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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;
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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;
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. 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.
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
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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
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.
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:
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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 or business expectations by any securities analysts that elect to
follow our common stock;
our ability to integrate Transmode’s business with our business efficiently;
• mergers and acquisitions by us or by our competitors;
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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
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.
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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:
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reduced demand for our products as a result of constraints on capital spending by our customers;
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
(cid:135)(cid:3) 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.
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 our products,
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:
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delays in our ability to recognize revenue;
costs associated with fixing software or hardware defects or replacing products;
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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.
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:
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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
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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.
The acquisition of Transmode may not be accretive to our earnings and may cause dilution to our
earnings per share, which may negatively affect the market price of our common stock.
We currently anticipate that the acquisition will be accretive to our earnings per share in the fiscal year
2016. This expectation is based on preliminary estimates that may materially change. We may encounter
additional integration-related costs, fail to realize the benefits anticipated in the acquisition or be subject to other
factors that adversely affect preliminary estimates. Any of these factors could delay or significantly reduce the
expected accretive effect of the acquisition and contribute to a decrease in the price of our common stock.
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
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, some of which may be enhanced following our acquisition of Transmode.
Sales of our products into international markets are an important part of our business and these
international sales, particularly in the EMEA region, are expected to increase as a result of the Transmode
acquisition. During the fiscal years 2015, 2014 and 2013, we derived approximately 32%, 29% and 36%,
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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, including as a result of our acquisition of Transmode. 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 Canada, China, India and Sweden, and expect to continue to increase hiring
of personnel for these facilities. There is no assurance that our reliance upon development resources in
international locations 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:
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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;
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.
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We may be adversely affected by fluctuations in currency exchange rates.
A portion of our sales and expenses stem from countries outside of the United States, and are in
currencies other than U.S. dollars, and therefore subject to foreign currency fluctuation. We expect the
acquisition of Transmode to increase our sales and expenses that are denominated in currencies other than U.S.
dollars. Accordingly, fluctuations in foreign currency rates could have a material impact on our financial results in
future periods. We may enter into other financial contracts to reduce the impact of foreign currency fluctuations.
We currently enter into foreign currency exchange forward contracts to reduce the impact of foreign currency
fluctuations on accounts receivable. These forward contracts 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, such as
the recently completed acquisition of Transmode. The expansion of our business through acquisitions allows us
to complement our technological capabilities and address new markets. 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:
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issue stock that would dilute our current stockholders’ percentage ownership;
incur debt and assume other liabilities;
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 can result in adverse tax consequences, warranty or product liability exposure related to
acquired assets, additional stock-based compensation expense, and write-up of acquired inventory to fair value.
In addition, we may record goodwill and other purchased intangible assets in connection with an acquisition and
incur impairment charges in the future. If our actual results, or the plans and estimates used in future impairment
analyses, are less favorable than the original estimates used to assess the recoverability of these assets, we
could incur additional impairment charges.
Acquisitions also involve numerous risks that could disrupt our ongoing business and distract our
management team, including:
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problems integrating the acquired operations, technologies or products with our own;
diversion of management’s attention from our core business;
adverse impact on overall company operating results;
adverse effects on existing business relationships with suppliers and customers;
risks associated with entering new markets; and
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.
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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 WEEE, RoHS and REACH
regulations adopted by the European Union. If we experience a problem with complying with these regulations, 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. These 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 regulations on net neutrality or generally affecting communications
services, 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 cybersecurity, 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 the United States 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.
(cid:21)(cid:28)
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, customers and business partners, which 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.
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:
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
(cid:135)(cid:3)
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.
(cid:22)(cid:19)
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.(cid:3)
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 26, 2015:
Location
Sunnyvale, CA
Allentown, PA
Function
Corporate headquarters and manufacturing
Manufacturing and research and development
Annapolis Junction, MD
Research and development, service and support
Carrollton, TX
Bangalore, India
Beijing, China
Kanata, Canada
Stockholm, Sweden
London, United Kingdom
Hong Kong, China
Tokyo, Japan
Sales, service and support
Software development
Research and development
Research and development
Research and development, sales, service and support
Sales, service and support
Sales, service and support
Sales and support
Square
Footage
261,000
44,000
12,000
5,000
111,000
22,000
8,000
78,000
6,000
2,000
2,000
The above leases expire between 2016 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. We 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
(cid:22)(cid:20)
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 appeal regarding the ruling of non-infringement to the
Court of Appeals for the Federal Circuit (“CAFC”), and Cambrian’s appeal brief was filed on November 6, 2014.
We filed our responsive brief on January 5, 2015, arguing that the CAFC should affirm the lower court’s finding of
non-infringement, and on February 2, 2015, Cambrian filed their reply brief. Oral argument of this appeal took
place on May 5, 2015. On June 29, 2015, the CAFC affirmed the court’s claim construction and grant of
summary judgment of non-infringement. We have not received notice of any further filings since the CAFC
affirmation and believe the judgment of non-infringement to be final.
ITEM 4.
MINE SAFETY DISCLOSURES
Not Applicable.
(cid:22)(cid:21)
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.(cid:3)
Fourth Quarter 2015 ......................................................................................... $
Third Quarter 2015 ........................................................................................... $
Second Quarter 2015 ....................................................................................... $
First Quarter 2015 ............................................................................................ $
Fourth Quarter 2014 ......................................................................................... $
Third Quarter 2014 ........................................................................................... $
Second Quarter 2014 ....................................................................................... $
First Quarter 2014 ............................................................................................ $
High
Low
22.85
25.24
22.95
19.70
15.74
11.84
9.65
10.14
$
$
$
$
$
$
$
$
16.98
18.35
17.58
13.00
9.15
8.32
7.89
6.96
As of February 18, 2016, there were 103 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.
(cid:22)(cid:22)
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 25, 2010 and its relative performance
is tracked through December 26, 2015. 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
12/10
12/11
12/12
12/13
12/14
12/15
Infinera Corporation
NASDAQ Composite
NASDAQ Telecommunications
*$100 invested on December 25, 2010 in our common stock or December 31, 2010 in the NASDAQ Composite
Index and the NASDAQ Telecommunications Index, with reinvestment of all dividends, if any. Indexes calculated
on month-end basis.
(cid:22)(cid:23)
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 26, 2015, December 27,
2014 and December 28, 2013 and the balance sheet data as of December 26, 2015 and December 27, 2014
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 29,
2012 and December 31, 2011 and the balance sheet data as of December 28, 2013, December 29, 2012 and
December 31, 2011 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.(cid:3)
(cid:3)
(cid:3)
December 26,
2015
December 27,
2014
December 28,
2013
December 29,
2012
December 31,
2011
Years Ended
(cid:3)
Revenue ................................ $
Gross profit ............................ $
Net income (loss) .................. $
Net income (loss) attributable
to Infinera Corporation ........... $
Net income (loss) per
common share attributable to
Infinera Corporation:
886,714
403,477
50,950
51,413
Basic .............................. $
Diluted ............................ $
0.39
0.36
Weighted average number of
shares used in computing
basic and diluted net income
(loss) per common share:
Basic ..............................
Diluted ............................
133,259
143,171
Total cash and cash
equivalents, investments and
restricted cash ....................... $
Cost-method investment........ $
Intangible assets, net ............ $
Goodwill ................................ $
Total assets ........................... $
Long-term debt, net ............... $
Common stock and
additional paid-in capital ........ $
Infinera stockholders' equity .. $
Noncontrolling interest ........... $
Total stockholders’ equity ...... $
356,479
14,500
156,319
191,560
1,226,294
125,440
1,300,441
762,151
14,910
777,061
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(In thousands, except per share data)
668,079
288,304
13,659
13,659
0.11
0.11
$
$
$
$
$
$
544,122
218,639
$
$
438,437
157,569
$
$
404,877
165,491
(32,119) $
(85,330) $
(81,744)
(32,119) $
(85,330) $
(81,744)
(0.27) $
(0.27) $
(0.77) $
(0.77) $
(0.78)
(0.78)
123,672
128,565
117,425
117,425
110,739
110,739
105,432
105,432
390,816
14,500
361
$
$
$
365,313
9,000
416
$
$
$
187,554
9,000
470
$
$
$
— $
— $
— $
253,116
9,000
621
—
818,016
116,894
1,077,351
481,907
$
$
$
$
700,926
109,164
1,025,781
417,810
$
$
$
$
528,170
$
531,704
— $
—
930,730
356,136
$
$
877,034
387,803
— $
— $
— $
—
481,907
$
417,810
$
356,136
$
387,803
(cid:22)(cid:24)
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 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; statements related to the integration of Transmode; factors that may affect our operating results;
anticipated customer activity; statements concerning new products or services, including new product costs, and
delivery dates; 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 or our effective tax rate; 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 Financial Data” included in Item 6 of this Annual Report on Form 10-K and
consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.
Overview
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 optical
bandwidth prompted by increased use of high-speed Internet access, mobile broadband, high-definition video
streaming services, business Ethernet services and cloud-based services.
We manufacture large-scale Indium Phosphide PICs, which are used as a key differentiating component
inside our Intelligent Transport Network platforms. The Infinera Intelligent Transport Network architecture enables
Service Providers to scale network bandwidth, accelerate service innovation and simplify optical network
operations. Service Providers across the globe rely on Infinera Intelligent Transport Networks to enable services
that create rich end-user experiences based on efficient, high-bandwidth optical networking. Late in 2014,
building on our leadership in long-haul and sub-sea networks, we introduced the Cloud Xpress, targeting the DCI
market, which we believe will be a rapidly growing market as cloud infrastructures continue to evolve.
On August 20, 2015, we successfully completed our public offer to the shareholders of Transmode,
acquiring 95.8% of the outstanding common shares and voting interest in Transmode. Transmode is a metro
packet-optical networking company based in Stockholm, Sweden. The combination of the two companies brings
together a complementary set of customers, products and technologies into one company. With the acquisition of
Transmode and the introduction of the Infinera XTC-2/2E during 2015, we now provide an end-to-end portfolio of
packet-optical solutions for metro, DCI, long-haul and subsea networks. We believe we are well positioned to
address the changing requirements of our growing and diverse customer base.
We primarily sell our products through our direct sales force, with a small portion sold indirectly through
resellers. We derived 93%, 95% and 92% of our revenue from direct sales to customers for 2015, 2014 and
2013, respectively. We expect to continue generating a substantial majority of our revenue from direct sales in
the future.
We are headquartered in Sunnyvale, California, with employees located throughout the Americas,
Europe and the Asia Pacific region. We expect to continue to add personnel in the United States and
(cid:22)(cid:25)
internationally to develop our products, provide additional sales support for key market verticals and emerging
geographic regions, and invest in personnel to allow our business to scale to support our expanded business
opportunities.
2015 Financial and Business Performance
We continued our transformation to a multi-market company in 2015 by adding metro and DCI to our
core long-haul business. We grew total revenue by 33% compared to 2014 including revenue from Transmode in
the post-acquisition period. Organically, excluding the partial year of Transmode revenues, our revenues grew in
the mid-20% range in 2015, marking the third consecutive year we have grown significantly faster than the
overall WDM market. We also continued to expand our gross margin and operating margin in 2015,
demonstrating the leverage we have achieved from our vertical integration, the value proposition of our Intelligent
Transport Network and our commitment to prudent expense management.
Two customers each accounted for over 10% of our revenue in 2015. These two customers accounted
for 17% and 13%, respectively, of our revenue in 2015. One customer accounted for over 10% of our revenue in
2014. Revenue from this customer accounted for 19% of our revenue in 2014. No individual customer accounted
for over 10% of our revenue in 2013.
Future Business and Industry Trends
Across the broader market, we believe we have good opportunity to increase revenue in 2016 based on
driving the growth of Cloud Xpress, achieving traction from new products, the inclusion of a full year of
Transmode revenues including cross-selling synergies, and capacity adds to our 100G footprint in the long-haul
market. Our focus on revenue growth will be complemented with continued efforts to drive cost improvements
across all of our products and services. With respect to operating expenses, we will need to increase our
investment levels in the short-term to more closely align with our growing market opportunity across long-haul,
metro and DCI. We have not scaled our operating expenses at the same rate as our revenue growth over the
past several years as our revenue growth has exceeded our expectations. Over a longer period of time, we
believe that with sustained revenue growth, we can further leverage our vertically-integrated manufacturing
model, which combined with the introduction of additional purpose built products, the ability to continue to sell
incremental bandwidth capacity into deployed networks and expense management, can result in improved
profitability and cash flow.
Our goal is to be the preeminent provider of optical transport networking systems to Service Providers
around the world. 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.
Our near-term quarter-over-quarter revenue may 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.
(cid:22)(cid:26)
Results of Operations
Revenue
The following table sets forth, for periods presented, certain consolidated statements of operations
information (in thousands, except percentages):(cid:3)
Years Ended
December 26,
2015
% of total
revenue
December 27,
2014
% of total
revenue
Change
% Change
Revenue:
Product ...................... $
Services ....................
769,230
117,484
87% $
572,276
86% $ 196,954
13%
95,803
14%
21,681
Total revenue...... $
886,714
100% $
668,079
100% $ 218,635
Cost of revenue:
Product ...................... $
Services ....................
436,916
46,321
49% $
340,856
51% $ 96,060
5%
38,919
6%
7,402
Total cost of
revenue .............. $
483,237
54% $
379,775
57% $ 103,462
Gross profit ......... $
403,477
46% $
288,304
43% $ 115,173
34%
23%
33%
28%
19%
27%
40%
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%
2015 Compared to 2014. Product revenue increased by $197.0 million, or 34%, in 2015 from 2014. The
increase was primarily driven by continued momentum associated with the Infinera DTN-X platform through both
new network builds and capacity adds to existing networks. Additionally, we benefited from the inclusion of
revenue from Transmode's metro products since the acquisition, which occurred during the third quarter of 2015.
In 2015, we also experienced significant growth in revenue associated with our Cloud Xpress platform, which
was introduced during the fourth quarter of 2014. These increases were partially offset by a reduction in sales of
the DTN platform, reflecting the continued shift to 100Gbps network deployments.
Services revenue increased by $21.7 million, or 23%, in 2015 from 2014. The increase was primarily
due to higher on-going support services as we continued to grow our installed base. Additionally, during 2015, we
experienced higher levels of deployment services as customers built new networks utilizing our teams’ expertise.
Our services revenue also benefited from the inclusion of Transmode's services revenue since the acquisition.
2014 Compared to 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
(cid:22)(cid:27)
increase in Infinera DTN-X platform revenue was partially offset by a reduction in sales of the Infinera DTN
platform.
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.
The following table summarizes our revenue by geography and sales channel for the periods presented
(in thousands, except percentages):(cid:3)
(cid:3)
(cid:3)
Total revenue by geography
Years Ended
December 26,
2015
% of total
revenue
December 27,
2014
% of total
revenue
Change
% Change
Domestic ........................... $
International ......................
602,433
284,281
68% $
476,172
71% $ 126,261
32%
191,907
29%
92,374
$
886,714
100% $
668,079
100% $ 218,635
Total revenue by sales channel
Direct ................................. $
Indirect ..............................
825,952
60,762
93% $
633,619
95% $ 192,333
7%
34,460
5%
26,302
$
886,714
100% $
668,079
100% $ 218,635
27%
48%
33%
30%
76%
33%
(cid:3)
(cid:3)
Total revenue by geography
Years Ended
December 27,
2014
% of total
revenue
December 28,
2013
% of total
revenue
Change
% Change
Domestic ........................... $
476,172
71% $
345,734
64% $ 130,438
International ......................
191,907
29%
198,388
36%
(6,481)
$
668,079
100% $
544,122
100% $ 123,957
Total revenue by sales channel
Direct ................................. $
633,619
95% $
501,375
92% $ 132,244
Indirect ..............................
34,460
5%
42,747
8%
(8,287)
$
668,079
100% $
544,122
100% $ 123,957
38 %
(3)%
23 %
26 %
(19)%
23 %
2015 Compared to 2014. Domestic revenue increased by $126.3 million, or 27%, during 2015
compared to 2014, primarily driven by customers in our wholesale and enterprise carrier and ICP verticals. Many
of our largest customers are based in this region, including our two greater than 10% of revenue customers for
the year.
International revenue increased by $92.4 million, or 48%, during 2015 compared to 2014. In 2015,
growth in the Europe, Middle East and Africa region was primarily driven by customers in our wholesale and
enterprise carrier and ICP verticals, and the inclusion of revenue from Transmode’s metro products across
various verticals since the acquisition. Within the Other Americas region, during 2015, we experienced significant
growth with our wholesale and enterprise carrier customers expanding into the Latin America region, as well as
continued traction with multiple carriers based in this region.
Within the Asia Pacific and Japan region, we also had strong growth in 2015 compared to 2014
primarily within the subsea markets as customers expand their footprints.
The acquisition of Transmode considerably broadens our application base with both existing as well as
new customers, and enables us to offer an end-to-end product portfolio addressing the long-haul, metro cloud
and metro aggregation markets. We believe that the Infinera DTN-X platform is well positioned across our
diverse customer base, as existing customers continue to build new networks and add capacity to existing
(cid:22)(cid:28)
networks and as we win opportunities to deploy our products with new customers. In addition, we gained strong
momentum with our Cloud Xpress platform in 2015 and expect that to continue as the DCI market continues to
expand. We continue to see strong demand across multiple regions and customer verticals. We currently expect
overall revenue in the first quarter of 2016 to be lower on a sequential basis compared to the prior quarter due to
seasonal weakness within the industry as customers take additional time to finalize their capital expenditure
budgets well into the quarter.
2014 Compared to 2013. Domestic revenue increased by $130.4 million, or 38%, during 2014
compared to 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, or 3%,
during 2014 compared to 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.
Cost of Revenue and Gross Margin
2015 Compared to 2014. Gross margin increased to 46% in 2015 from 43% in 2014. Gross margin
increased primarily as a result of financial leverage gained from our vertically integrated operating model. As
volumes continue to grow, we are able to spread our fixed manufacturing costs over a much broader base of
units. In addition, we continued to see an increased level of capacity additions to existing customer networks
both in the form of line card additions and additional licenses under the Infinera Instant Bandwidth program.
These capacity additions carry a higher gross margin profile than the footprint builds of new networks. These
increases were partially offset by the impact of purchase accounting adjustments of $13.3 million.
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.
We currently expect that gross margin in the first quarter of 2016 will be relatively consistent as
compared to the prior quarter as we continue to deliver value to our customers and execute on our financial
operating model.
Operating Expenses
The following table summarizes our operating expenses for the periods presented (in thousands, except
(cid:3)
Research and development ....... $
Sales and marketing ..................
General and administrative ........
December 26,
2015
Years Ended
% of total
revenue
December 27,
2014
% of total
revenue
Change
%
Change
180,703
101,398
61,640
20% $
133,484
20% $ 47,219
11%
7%
79,026
48,452
12%
7%
22,372
13,188
Total operating expenses .... $
343,741
38% $
260,962
39% $ 82,779
percentages): (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Research and development ....... $
December 27,
2014
Years Ended
% of total
revenue
December 28,
2013
% of total
revenue
Change
%
Change
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
(cid:23)(cid:19)
35%
28%
27%
32%
7%
9%
7%
7%
The following table summarizes the stock-based compensation expense included in our operating
expenses for the periods presented (in thousands):(cid:3)
(cid:3)
(cid:3)
Years Ended
December 26,
2015
December 27,
2014
December 28,
2013
Research and development ................................................... $
11,055
$
8,927
$
10,900
Sales and marketing ..............................................................
General and administration ....................................................
8,081
7,354
7,477
6,383
7,624
5,956
Total
............................................................................... $
26,490
$
22,787
$
24,480
Research and Development Expenses
2015 Compared to 2014. Research and development expenses increased $47.2 million, or 35%, in
2015 from 2014 primarily due to increased personnel costs of $23.8 million as a result of incremental headcount
to support our expanding product roadmap. In addition, we had increased spending on prototype and other
engineering materials of $12.8 million in 2015 compared to 2014, as we further enhanced our product portfolio to
ensure we deliver on our next generation platforms. During 2015, we also incurred increased costs of outside
professional services of $7.1 million and higher discretionary spending of $3.5 million to support our growing
business compared to 2014. The inclusion of the Transmode business increased research and development
expenses by $10.1 million in 2015.
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.
Sales and Marketing Expenses
2015 Compared to 2014. Sales and marketing expenses increased $22.4 million, or 28%, in 2015 from
2014 primarily driven by increased personnel costs of $11.7 million as a result of higher sales commissions and
incremental headcount to support the continued expansion of our business into new markets and customer
verticals. We also had increased discretionary spending of $2.6 million, amortization of intangible assets of $2.2
million, prototype and lab trial spending of $2.0 million, and other marketing expenses of $3.9 million. The
inclusion of the Transmode business during 2015 increased sales and marketing expense by $12.1 million.
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 $1.5 million.
General and Administrative Expenses
2015 Compared to 2014. General and administrative expenses increased $13.2 million, or 27%, in 2015
from 2014. During 2015, the increases were primarily due to acquisition-related expenses related to the
Transmode acquisition of $6.8 million. Additionally, we incurred increased personnel costs of $4.6 million driven
by incremental headcount and higher discretionary spending of $1.7 million to support our growing business. The
inclusion of the Transmode business increased general and administrative expenses by $2.2 million.
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
(cid:23)(cid:20)
software expenses and other discretionary spending of $1.0 million. These increases were partially offset by
decreased depreciation expense of $0.5 million.
Other Income (Expense), Net
(cid:3)
(cid:3)
(cid:3)
Years Ended
December 26,
2015
December 27,
2014
December 28,
2013
(In thousands)
Interest income ...................................................................... $
1,837
$
1,456
$
Interest expense ....................................................................
Other gain (loss), net .............................................................
(11,941)
2,399
(11,021)
(1,365)
Total other income (expense), net ................................... $
(7,705) $
(10,930) $
923
(6,061)
(1,141)
(6,279)
2015 Compared to 2014. Interest income increased mainly due to a higher average investment balance
due to cash generated from the business during the year. Interest expense for 2015 increased by $0.9 million
due to an increase of amortization of discount and issuance costs related to the $150.0 million of 1.75%
convertible senior notes (the "Notes"). Other gain (loss), net, for 2015 mainly comprised of $1.3 million of gains
due to foreign currency exchange rate changes and a $1.1 million gain primarily from foreign currency forward
contracts that we entered into to hedge currency exposures associated with the cash portion of the offer to
acquire Transmode. Other gain (loss), net, for 2014 mainly comprised of $1.4 million of losses due to foreign
currency exchange rate changes.
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 2015 and 2014 consisted of amortization of debt discount costs, debt issuance costs and contractual
interest expense related to the Notes issued in May 2013. See Note 11, “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 rate changes. 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.
Income Tax Provision
We recognized income tax expense of $1.1 million on income before income taxes of $52.0 million, $2.8
million on income before income taxes of $16.4 million and $1.7 million on loss before income taxes of $30.5
million in fiscal years 2015, 2014 and 2013, respectively. The resulting effective tax rates were 2.1%, 16.8% and
(5.4)% for 2015, 2014 and 2013, respectively. The 2015 and 2014 effective tax rates differ 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 decrease in 2015 tax expense compared to
2014 tax expense relates to the tax benefit of acquisition related amortization expenses and charges, offset by
higher state income taxes because of the profitable position of our U.S. operations, additional tax reserves and
an increase in taxable foreign profits in certain jurisdictions. The tax expense for 2014 was greater than 2013 due
to higher income and associated taxes as well as increases in state taxes as a result of income that could not be
offset by loss carryforwards. The 2013 effective tax rate reflects unbenefited current U.S. losses and foreign
taxes provided on our profitable foreign subsidiaries.
Because of our significant loss carryforward position and corresponding full valuation allowance, in all
periods, we have not been subject to federal or state tax on its U.S. income because of the availability of loss
carryforwards, with the exception of amounts for certain states’ taxes for which the losses are limited by statute
or amount in 2014 and more significantly in 2015. If these losses and other tax attributes become fully utilized,
our taxes will increase significantly to a more normalized, expected rate on U.S. earnings. The release of transfer
pricing reserves in the future will have a beneficial impact to tax expense, but the timing of the impact depends
on factors such as expiration of the statute of limitations or settlements with tax authorities. No significant
releases are expected in the near future based on information available at this time.
(cid:23)(cid:21)
The valuation allowance for deferred tax assets as of December 26, 2015 and December 27, 2014 was
$169.2 million and $199.7 million, respectively. The net change in the valuation allowance were decreases of
$30.5 million and $3.0 million for the years ended December 26, 2015 and December 27, 2014, respectively.
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 does not believe it is more likely than not that the domestic net
deferred tax assets will be realizable. Accordingly, we have provided a full valuation allowance against our
domestic deferred tax assets, net of deferred tax liabilities, as of December 26, 2015 and December 27, 2014.
Even though we have been profitable in recent quarters, we must consider other positive and negative
evidence, including our forecasts of taxable income over the applicable carryforward periods, our current
financial performance, our market environment, and other factors in evaluating the need for a full or partial
valuation allowance against its net U.S. deferred tax assets. Management has concluded that it was not more
likely than not that we would be able to utilize those deferred tax assets in the foreseeable future. Accordingly,
the domestic net deferred tax assets were fully reserved with a valuation allowance. 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. To the extent that we determine that deferred tax assets are
realizable on a more likely than not basis, and adjustment is needed, that adjustment will be recorded in the
period that the determination is made and would generally decrease the valuation allowance and record a
corresponding benefit to earnings.
As of December 26, 2015, we had net operating loss carryforwards of approximately $255.7 million for
federal tax purposes and $160.3 million for state tax purposes. The carryforward balance reflects expected
utilization of both federal and state net operating losses for the year ended December 26, 2015. Federal net
operating loss carryforwards will begin to expire in 2025 while California losses will expire in 2016. Additionally,
we have federal and California research and development credits available to reduce future income taxes
payable of approximately $31.5 million and $33.7 million, respectively. Infinera Canada Inc., an indirect wholly
owned subsidiary, has Scientific Research and Experimental Development Expenditures (“SRED”) credits
available of $1.7 million to offset future Canadian income tax payable. The federal research credits will begin to
expire in the year 2022 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.
Net operating loss carryforwards of $78.7 million and $57.8 million for federal and state purposes,
respectively, have not been included in the deferred tax asset table above as these net operating loss
carryforwards are attributable to excess tax benefits from equity award settlements. Under current accounting
guidance, these tax benefits will not be recognized in the financial statements until they result in a reduction to
taxes payable, at which point, the tax benefits will be reflected in stockholder’s equity. During the fiscal year
ended December 26, 2015, we recognized $0.8 million of excess tax benefits which resulted in a credit to
stockholder’s 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 26, 2015, 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.
(cid:3)
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.
(cid:23)(cid:22)
Liquidity and Capital Resources
(cid:3)
(cid:3)
(cid:3)
Net cash flow provided by (used in):
Years Ended
December 26,
2015
December 27,
2014
December 28,
2013
(In thousands)
Operating activities ......................................................... $
Investing activities .......................................................... $
Financing activities ......................................................... $
133,176
$
35,963
$
35,180
(91,475) $
(96,059) $
(180,800)
20,983
$
22,861
$
166,110
(cid:3)
(cid:3)
(cid:3)
Years Ended
December 26,
2015
December 27,
2014
(cid:3)
Cash and cash equivalents ............................................................................... $
Short-term and long-term investments ..............................................................
Long-term restricted cash .................................................................................
(In thousands)
149,101
$
86,495
202,068
5,310
298,861
5,460
$
356,479
$
390,816
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 was $133.2 million for 2015, $36.0 million for 2014 and $35.2
million for 2013.
Net income for 2015 was $51.0 million, which included non-cash charges of $80.1 million, compared to
a net income of $13.7 million for 2014, which included non-cash charges of $66.5 million. Net loss for 2013 was
$32.1 million, which included non-cash charges of $62.3 million.
Net cash provided by working capital was $2.1 million for 2015. Accounts receivables increased by
$16.0 million primarily due to the timing of invoicing in the period and inventory levels increased by $17.1 million
to support the higher expected demand including multiple new products. Accounts payable increased by $19.2
million primarily reflecting the volume of the business and timing of payments during the period. Accrued
warranty increased by $10.8 million due to general warranty reserves, the incremental cost to support the
increased installed base and higher repair costs.
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.
(cid:23)(cid:23)
Investing Activities
Net cash used in investing activities for 2015 was $91.5 million. Investing activities during 2015 included
the payment of $144.4 million in connection with the acquisition of Transmode and net proceeds of $93.8 million
associated with purchases, maturities and sales of investments during the year as we rearranged our portfolio to
fund the acquisition. In addition, we spent $42.0 million on capital expenditures to support our growing business.
Finally, we realized $1.1 million of gain from foreign currency exchange forward contracts.
Net cash used in investing activities for 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 for 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.
Financing Activities
Net proceeds from financing activities were $21.0 million, $22.9 million and $166.1 million for 2015,
2014 and 2013, respectively. Financing activities primarily included net proceeds from the exercise of stock
options and purchase of shares under our 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, including any
cash we will be required to expend as part of the Transmode related squeeze-out proceedings. For more
information regarding the squeeze-out proceedings, see Note 6, "Business Combination," to the Notes to
Condensed Consolidated Financial Statements. 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.
During the three months ended December 26, 2015, the closing price of our common stock exceeded
130% of the applicable conversion price of the Notes on at least 20 of the last 30 consecutive trading days of the
quarter; therefore, holders of the Notes may convert their notes during the first quarter of 2016. Any conversion
of the Notes prior to their maturity or acceleration of the repayment of the Notes could have a material adverse
effect on our cash flows, business, results of operations and financial condition. Should the closing price
conditions be met during the 30 consecutive trading days prior to the end of the first quarter of 2016 or a future
quarter, the Notes will be convertible at their holders’ option during the immediately following quarter. Under
current market conditions, we do not expect the Notes will be converted in the short-term.
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. As of December 26, 2015,
long-term debt, net, was $125.4 million as of December 26, 2015, which represents the liability component of the
$150.0 million principal balance, net of $24.6 million debt discount. The debt discount is currently being
(cid:23)(cid:24)
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 26, 2015, contractual obligations related to the Notes are payments of $2.6 million due
each year from 2016 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 11,
“Convertible Senior Notes,” to the Notes to Consolidated Financial Statements.
As of December 26, 2015, we had $274.7 million of cash, cash equivalents and short-term investments,
including $57.6 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 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 26, 2015: (cid:3)
(cid:3)
(cid:3)
(cid:3)
Payments Due by Period
Total
Less than
1 year
1 - 3
years
3 - 5
years
More than
5 years
(cid:3)
Purchase obligations(1) .................................. $ 137,439
Operating leases(2) ........................................
50,396
Convertible senior notes, including interest ...
156,563
Total contractual obligations(3) ............... $ 344,398
(In thousands)
$ 135,889
$
1,550
$
— $
10,619
2,625
20,071
153,938
16,606
—
—
3,100
—
$ 149,133
$ 175,559
$
16,606
$
3,100
(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 $2.9 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 $5.2 million of standby letters of credit outstanding as of December 26, 2015. These consisted
of $3.1 million related to a customer proposal guarantee, $1.2 million related to a value added tax license and
$0.9 million related to property leases. 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 value added tax license, $1.3 million related to a
customer proposal guarantee and $0.7 million related to property leases.
(cid:23)(cid:25)
Off-Balance Sheet Arrangements
As of December 26, 2015, 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.
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, 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. Management believes that the estimates, assumptions 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
(cid:3)
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.
(cid:23)(cid:26)
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
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 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 issued
by a creditworthy bank or if the letter of credit 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.
(cid:23)(cid:27)
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.
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.
We granted performance stock units ("PSUs") to our executive officers and senior management in 2013,
2014 and 2015 as part of our annual refresh grant process. These PSUs entitle our executive officers and senior
management 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. These 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 a 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 addition, certain other PSUs granted to our executive officers, senior management and certain
employees will only vest upon the achievement of specific financial or operational performance criteria.
(cid:23)(cid:28)
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
(cid:3)
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 26, 2015, we have been profitable for seven consecutive quarters beginning
with the second quarter of 2014. Despite this trend, we must consider other positive and negative evidence,
including our forecasts of taxable income over the applicable carryforward periods, our current financial
performance, our market environment, and other factors in evaluating the need for a full or partial valuation
allowance against our net U.S. deferred tax assets. At December 26, 2015, we believed that it was more likely
than not, that we would not be able to utilize our deferred tax assets in the future. Accordingly, the domestic net
deferred tax assets were fully reserved with a valuation allowance. To the extent that we determine that deferred
tax assets are realizable on a more likely than not basis, and adjustment is needed, that adjustment will be
recorded in the period that the determination is made and would generally decrease the valuation allowance and
record a corresponding benefit to earnings.
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:
(cid:3)
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.
(cid:24)(cid:19)
We classify our certificates of deposit, commercial paper, U.S. agency notes, 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.
U.S. Agency Notes
We review trading activity and pricing for our U.S. agency notes as of the measurement date.
When sufficient quoted pricing for identical securities is not available, we use market pricing and other
observable market inputs for similar securities obtained from a number of industry standard data
providers. These inputs represent quoted prices for similar assets in active markets or these inputs
have been derived from observable market data.
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.
During 2013, we disposed of our remaining ARS. As of December 26, 2015, none of our existing
securities were classified as Level 3 securities.
(cid:24)(cid:20)
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
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 generally 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.
Business Combinations
Accounting for acquisitions requires our management to estimate the fair value of the assets and
liabilities acquired, which involves a number of judgments, assumptions, and estimates that could materially
affect the timing or amounts recognized in our financial statements. The items involving the most significant
assumptions, estimates, and judgments include determining the fair value of the following:
•
•
Intangible assets, including valuation methodology, estimations of future cash flows, and discount rates,
as well as the estimated useful life of the intangible assets;
the acquired company’s brand, as well as assumptions about the period of time the acquired brand will
continue to be used;
•
deferred tax assets and liabilities, uncertain tax positions, and tax-related valuation allowances, which
are initially estimated as of the acquisition date;
While we use our best estimates and assumptions to accurately value assets acquired and liabilities
assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result,
during the measurement period, which may be up to one year following the acquisition date, we record
adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.
(cid:24)(cid:21)
Impairment of Intangible Assets and Goodwill
Goodwill is evaluated for impairment on an annual basis in the fourth quarter of our fiscal year, and
whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable.
We have elected to first assess qualitative factors to determine whether it is more likely than not that the fair
value of its single reporting unit is less than its carrying amount. If we determine that it is more likely than not that
the fair value of our single reporting unit is less than its carrying amount, then the two-step goodwill impairment
test will be performed. The first step, identifying a potential impairment, compares the fair value of its single
reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the second step will be
performed; otherwise, no further step is required. The second step, measuring the impairment loss, compares
the implied fair value of the goodwill with the carrying amount of the goodwill. Any excess of the goodwill carrying
amount over the implied fair value is recognized as an impairment loss. We evaluate events and changes in
circumstances that could indicate carrying amounts of purchased intangible assets may not be recoverable.
When such events or changes in circumstances occur, we assess the recoverability of these assets by
determining whether or not the carrying amount will be recovered through undiscounted expected future cash
flows. If the total of the future undiscounted cash flows is less than the carrying amount of an asset, we record an
impairment loss for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
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
We operate in international markets, which expose us to market risk associated with foreign currency
exchange rate fluctuations between the U.S. dollar and various foreign currencies, the most significant of which
is the euro. Historically, the majority of our revenue contracts are denominated in U.S. dollars, with the most
significant exception being in Europe, where we invoice primarily in euros. Additionally, a portion of our
expenses, primarily the cost of personnel for research and development, sales and sales support to deliver
technical support on our products and professional services, and the cost to manufacture, are denominated in
foreign currencies, primarily the Indian rupee, euro, Swedish krona and British pound. Revenue resulting from
selling in local currencies and costs incurred in local currencies are exposed to foreign currency exchange rate
fluctuations that can affect our operating income. As exchange rates vary, operating income may differ from
expectations.
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. 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. Our foreign currency denominated accounts
receivables are generally offset by our foreign currency exchange forward contracts. Accordingly, the effect of an
immediate adverse change in foreign exchange rates on these transactions at December 26, 2015 would not be
material to our results of operations or financial condition.
Interest Rate Sensitivity
We had cash and cash equivalents, short-term and long-term investments and short-term and long-term
restricted cash totaling $356.5 million and $390.8 million as of December 26, 2015 and December 27, 2014,
respectively. As of December 26, 2015, we have invested in certificates of deposit, money market funds,
commercial paper, U.S. agency notes, 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 2015 and 2014, our interest income would have declined approximately $0.2 million and $0.1
million, respectively, assuming consistent investment levels.
(cid:24)(cid:22)
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 26, 2015, the fair value of the Notes was $234.4 million. The fair value was determined
based on the quoted bid price of the Notes in an over-the-counter market on December 24, 2015. 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 11, “Convertible Senior Notes,” to the Notes to Consolidated Financial Statements for further
information.
(cid:24)(cid:23)
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(cid:3)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(cid:3)
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
56
58
59
60
61
63
64
(cid:24)(cid:24)
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 26,
2015 and December 27, 2014, 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 26, 2015.
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 26, 2015 and December 27, 2014, and the consolidated
results of its operations and its cash flows for each of the three years in the period ended December 26, 2015, 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 26, 2015, 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 23, 2016
expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Jose, California
February 23, 2016
(cid:24)(cid:25)
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 26, 2015, 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 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.
As indicated in the accompanying Management's Report on Internal Controls over Financial Reporting,
management's assessment of and conclusion on the effectiveness of internal control over financial reporting did
not include the internal controls of Transmode AB, which is included in the 2015 consolidated financial
statements of Infinera Corporation and constituted approximately 5% of consolidated net revenue for the year
ended December 26, 2015 and approximately 7% of consolidated total assets and 2% of consolidated net assets
(excluding goodwill and acquired intangibles) as of December 26, 2015. Our audit of internal control over
financial reporting of Infinera Corporation also did not include an evaluation of the internal control over financial
reporting of Transmode AB.
In our opinion, Infinera Corporation maintained, in all material respects, effective internal control over financial
reporting as of December 26, 2015, 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 26, 2015 and
December 27, 2014, 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 26, 2015 of
Infinera Corporation and our report dated February 23, 2016 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Jose, California
February 23, 2016
(cid:24)(cid:26)
INFINERA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
December 26,
2015
December 27,
2014
ASSETS
Current assets:
Cash and cash equivalents .......................................................................... $
Short-term investments ................................................................................
Accounts receivable, net of allowance for doubtful accounts of $630 in
2015 and $38 in 2014 ..................................................................................
Inventory ......................................................................................................
Prepaid expenses and other current assets .................................................
Total current assets ...............................................................................
Property, plant and equipment, net ......................................................................
Intangible assets .................................................................................................
Goodwill
..............................................................................................................
Long-term investments ........................................................................................
Cost-method investment
.....................................................................................
Long-term restricted cash ...................................................................................
Other non-current assets ....................................................................................
Total assets ........................................................................................... $
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 .....................................................................
Deferred tax liability, non-current ..................................................................
Other long-term liabilities .............................................................................
Commitments and contingencies (Note 12)
Stockholders’ equity:
149,101
125,561
$
186,243
174,699
29,511
665,115
110,861
156,319
191,560
76,507
14,500
5,310
6,122
1,226,294
92,554
33,736
49,887
17,889
42,977
237,043
125,440
20,955
13,881
35,731
16,183
$
$
86,495
239,628
154,596
146,500
24,636
651,855
81,566
361
—
59,233
14,500
5,460
5,041
818,016
61,533
26,441
38,795
12,241
35,321
174,331
116,894
14,799
10,758
2,132
17,195
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 2015 and 2014
Issued and outstanding shares—140,197 in 2015 and 126,160 in 2014...
Additional paid-in capital
..............................................................................
Accumulated other comprehensive income (loss) ........................................
Accumulated deficit ......................................................................................
Total Infinera Corporation stockholders’ equity .............................................
........................................................................................
Noncontrolling interest
Total stockholders' equity .............................................................................
Total liabilities and stockholders’ equity ................................................. $
140
1,300,301
1,123
(539,413)
762,151
14,910
777,061
1,226,294
$
126
1,077,225
(4,618)
(590,826)
481,907
—
481,907
818,016
The accompanying notes are an integral part of these consolidated financial statements.
(cid:24)(cid:27)
INFINERA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended
December 26,
2015
December 27,
2014
December 28,
2013
(cid:3)
(cid:3)
(cid:3)
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) ...................................................................
Less: Loss attributable to noncontrolling interest ............
Net income (loss) attributable to Infinera Corporation ............ $
Net income (loss) per common share attributable to Infinera
Corporation:
769,230
$
572,276
$
465,424
117,484
886,714
436,916
46,321
483,237
403,477
180,703
101,398
61,640
343,741
59,736
1,837
(11,941)
2,399
(7,705)
52,031
1,081
50,950
(463)
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
13,659
(cid:178)
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
(32,119)
(cid:178)
51,413
$
13,659
$
(32,119)
Basic .............................................................................. $
Diluted ............................................................................ $
0.39
0.36
$
$
0.11
0.11
$
$
(0.27)
(0.27)
Weighted average shares used in computing net income
(loss) per common share:
Basic ..............................................................................
Diluted ............................................................................
133,259
143,171
123,672
128,565
117,425
117,425
The accompanying notes are an integral part of these consolidated financial statements.
(cid:24)(cid:28)
INFINERA CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(cid:3)
(cid:3)
(cid:3)
Net income (loss) .................................................................... $
Other comprehensive income (loss):
Reclassification of realized gain on auction rate
securities ..........................................................................
Unrealized gain (loss) on all other available-for-sale
investments ......................................................................
Foreign currency translation adjustment ...........................
Net change in accumulated other comprehensive income
(loss) .......................................................................................
Less: Comprehensive loss attributable to noncontrolling
interest
....................................................................................
Comprehensive income (loss) attributable to Infinera
Corporation ............................................................................. $
December 26,
2015
Years Ended
December 27,
2014
December 28,
2013
50,950
$
13,659
$
(32,119)
—
(62)
5,803
—
(320)
(812)
(166)
(140)
(952)
5,741
(1,132)
(1,258)
(463)
—
—
57,154
$
12,527
$
(33,377)
The accompanying notes are an integral part of these consolidated financial statements.
(cid:25)(cid:19)
INFINERA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 28, 2013, December 27, 2014 and December 26, 2015
(In thousands)
(cid:3)
(cid:3)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Balance at December 29, 2012 ....................
112,461
$
112
930,618
$
(2,228) $
(572,366) $
356,136
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 ........................................
Net loss ............................................
Total comprehensive loss .......................
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)
Balance at December 28, 2013 ....................
119,887
$
120
$ 1,025,661
$
(3,486) $
(604,485) $
417,810
Stock options exercised..........................
ESPP shares issued ...............................
Shares withheld for tax obligations .........
Restricted stock units released...............
Stock-based compensation ....................
Comprehensive income:
Unrealized loss on all other
available-for-sale investments ..........
Foreign currency translation
adjustment ........................................
Net income .......................................
Total comprehensive income..................
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
Balance at December 27, 2014 ....................
126,160
$
126
$ 1,077,225
$
(4,618) $
(590,826) $
481,907
(cid:3)
The accompanying notes are an integral part of these consolidated financial statements.
(cid:25)(cid:20)
INFINERA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 28, 2013, December 27, 2014 and December 26, 2015 —
(Continued)
(In thousands)
(cid:3)
(cid:3)
(cid:3)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
Equity
Noncontrolling
Interest
Total
Balance at December 27,
2014.................................
126,160
$
126
$1,077,225
$
(4,618) $ (590,826) $
481,907
$
— $ 481,907
Stock options
exercised ...................
ESPP shares issued..
Shares withheld for
tax obligations ...........
Restricted stock units
released.....................
Issuance of common
stock related to
acquisition .................
Stock-based
compensation ............
Noncontrolling
interest investment ....
Tax benefit from
share-based award
activity .......................
Comprehensive
income:
Unrealized gain
on all other
available-for-sale
investments .........
Foreign currency
translation
adjustment...........
Net income ..........
Total comprehensive
loss ............................
Balance at December 26,
2015.................................
1,787
1,229
(300)
3,448
7,873
—
—
—
—
—
—
2
1
—
3
8
—
—
—
—
—
—
13,092
12,252
(5,227)
(3)
169,499
32,621
—
842
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(cid:178)
(cid:178)
—
—
13,094
12,253
(5,227)
—
169,507
32,621
—
—
—
—
(cid:178)
—
13,094
12,253
(5,227)
—
169,507
32,621
—
15,373
15,373
842
—
842
(62)
—
(62)
5,803
—
51,413
5,803
51,413
57,154
—
—
(62)
5,803
(463)
50,950
56,691
140,197
$
140
$1,300,301
$
1,123
$ (539,413) $
762,151
$
14,910
$ 777,061
The accompanying notes are an integral part of these consolidated financial statements.
(cid:25)(cid:21)
INFINERA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(cid:3)
December 26,
2015
Years Ended
December 27,
2014
December 28,
2013
50,950
$
13,659
$
(32,119)
Cash Flows from Operating Activities:
Net income (loss) ....................................................................................... $
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization ..............................................................
Amortization of debt discount and issuance costs ................................
Provision for (recovery of) doubtful accounts ........................................
Amortization of premium on investments ..............................................
Realized gain from forward contract .....................................................
Stock-based compensation expense ....................................................
Other (gain) loss ...................................................................................
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 operating activities ...........................
Cash Flows from Investing Activities:
Purchase of available-for-sale investments ..........................................
Proceeds from sales of available-for-sale investments .........................
Proceeds from maturities and calls of investments ...............................
Acquisition of business, net of cash acquired .......................................
Realized gain from forward contract for business acquisition ...............
Purchase of cost-method investment ....................................................
Purchase of property and equipment ....................................................
Change in restricted cash .....................................................................
Net cash 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 .............................................................................................
Excess tax benefit from stock option transactions ................................
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 ......................................... $
35,777
9,281
592
2,917
(1,053)
32,580
19
(15,971)
(17,116)
(3,248)
19,223
(2,369)
10,777
10,817
133,176
(186,737)
67,303
213,234
(144,445)
1,053
—
(42,018)
135
(91,475)
—
25,351
(5,227)
859
20,983
(78)
62,606
86,495
149,101
25,917
8,395
(5)
3,772
—
28,394
(7)
(53,948)
(25,486)
(8,324)
18,810
11,866
8,788
4,132
35,963
(302,398)
28,481
208,051
—
—
(5,500)
(23,122)
(1,571)
(96,059)
—
24,707
(1,846)
—
22,861
(600)
(37,835)
124,330
86,495
1,697
2,625
$
$
$
$
$
$
24,562
4,522
(51)
1,539
—
31,976
(331)
6,447
(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
5,458
—
500
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds .......................................... $
Cash paid for interest ........................................................................... $
4,570
2,647
Supplemental schedule of non-cash investing and financing
activities:
Transfer of inventory to fixed assets ..................................................... $
Common stock issued in connection with acquisition ........................... $
Warrant exercise ................................................................................... $
9,314
169,507
$
$
— $
2,569
$
— $
— $
The accompanying notes are an integral part of these consolidated financial statements.
(cid:25)(cid:22)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(cid:3)
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 telecommunications service providers, Internet content providers (“ICPs”),
cable providers, 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 bandwidth prompted by increased use of high-speed Internet access,
mobile broadband, high-definition video streaming services, business Ethernet services and cloud-based
services.
The Infinera Intelligent Transport Network architecture enables Service Providers to scale network
bandwidth, accelerate service innovation and simplify optical network operations. Service Providers across the
globe rely on Infinera Intelligent Transport Networks to enable services that create rich end-user experiences
based on efficient, high-bandwidth optical networking. Building on our leadership in long-haul, Infinera now
provides an end-to-end portfolio of packet-optical solutions for metro, cloud/data center interconnect (“DCI”),
long-haul and subsea networks.
During the third quarter of 2015, the Company completed its public offer to the shareholders of
Transmode AB (“Transmode”), acquiring 95.8% of the outstanding common shares and voting interest in
Transmode. This acquisition was accounted for as a business combination, and accordingly, the Company has
consolidated the financial results of Transmode with its financial results for the period from August 20, 2015, the
date the acquisition closed (the "Acquisition Date"). The noncontrolling interest position is reported as a separate
component of consolidated equity attributable to Transmode's shareholders. The noncontrolling interest in the
Transmode entity's net loss is reported as a separate component of consolidated net income attributable to
Transmode's shareholders.
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 2015, 2014 and 2013 were 52-week years that
ended on December 26, 2015, December 27, 2014 and December 28, 2013, 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 and
majority-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, business combinations, 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 and derivative instruments. Management believes that the
estimates, assumptions 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.
(cid:25)(cid:23)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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
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.
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.
(cid:3)
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
(cid:25)(cid:24)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 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. 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 issued by a creditworthy bank or the letter of credit 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.
Commission Expense
Sales commissions are recorded as sales and marketing expense and accrued compensation and
related benefits. The Company generally records commission expense when it bills the customers; thus no
contract acquisition costs are capitalized.
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.
(cid:25)(cid:25)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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
weighting of its own data in the expected volatility calculation associated with options gradually
increased to 100% by 2013.
(cid:3)
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 executive officers and senior
management in 2013, 2014 and 2015 as part of the Company's annual refresh grant process. These PSUs
entitle the Company's executive officers and senior management 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. These 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 a 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 addition, certain other PSUs granted to the Company’s executive officers, senior management and
certain employees will only vest upon the achievement of specific financial or operational performance criteria.
(cid:25)(cid:26)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 2015, 2014 and 2013 were $1.8
million, $1.5 million and $1.3 million, respectively.
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
(cid:3)
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 26, 2015 the
Company has been profitable for seven consecutive quarters beginning with the second quarter of 2014. Despite
this trend, the Company must consider other positive and negative evidence, including the Company's forecasts
of taxable income over the applicable carryforward periods, its current financial performance, its market
environment, and other factors in evaluating the need for a full or partial valuation allowance against its net U.S.
deferred tax assets. At December 26, 2015, management believed that it was more likely than not, that the
Company would not be able to utilize those deferred tax assets in the future. Accordingly, the domestic net
deferred tax assets were fully reserved with a valuation allowance. To the extent that the Company determines
that deferred tax assets are realizable on a more likely than not basis, and adjustment is needed, that adjustment
will be recorded in the period that the determination is made and would generally decrease the valuation
allowance and record a corresponding benefit to earnings.
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 other comprehensive income (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 transactions
(cid:25)(cid:27)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
recorded in 2015, 2014 and 2013 were a gain of $2.4 million, a loss of $1.4 million and a loss of $1.4 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, commercial
paper and U.S. treasuries. 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, U.S. agency notes, corporate bonds and U.S. treasuries.
Long-term investments primarily consist of certificates of deposits, U.S. agency notes and 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-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 income (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.
Because the Company does not intend to sell its debt securities and it is not more likely than not that it will be
required to sell the investment before recovery of their amortized cost basis, which may be maturity.
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.
(cid:25)(cid:28)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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
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.
U.S. Agency Notes
The Company reviews trading activity and pricing for its U.S. agency notes as of the
measurement date. When sufficient quoted pricing for identical securities is not available, the Company
uses market pricing and other observable market inputs for similar securities obtained from a number of
industry standard data providers. These inputs represent quoted prices for similar assets in active
markets or these inputs have been derived from observable market data.
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.
(cid:26)(cid:19)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During 2013, the Company disposed of its remaining auction rate securities. As of December 26, 2015,
none of the Company’s existing securities were classified as Level 3 securities.
Accounts Receivable and Allowances for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company
reviews its aging by category to identify significant customers or invoices with known dispute or collectability
issues. The Company makes judgments as to its ability to collect outstanding receivables based on various
factors including ongoing customer credit evaluations and historical collection experience. The Company
provides an allowance for receivable amounts that are potentially uncollectible.
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. At December 26, 2015, December 27, 2014 and December 28, 2013, revenue was
reduced for estimated sales returns by $0.6 million, $0.2 million and $0.1 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 26, 2015 and December 27, 2014, the Company's investment in a privately-held
company was $14.5 million. 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 26, 2015, one customer accounted for approximately 17% of the Company’s accounts
receivable balance. As of December 27, 2014, 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. Two
customers each accounted for over 10% of the Company's revenue in 2015. These two customers accounted for
17% and 13%, respectively, of the Company's revenue in 2015. One customer accounted for over 10% of the
Company's revenue in 2014. Revenue from this customer accounted for 19% of the Company's revenue in 2014.
No individual customer accounted for over 10% of the Company’s revenue in 2013.
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.
(cid:3)
(cid:26)(cid:20)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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
contracts, to reduce the impact of foreign exchange fluctuations on earnings. The forward contracts are with
high-quality institutions and the Company monitors the creditworthiness of the counter parties 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 2015 were denominated in euros and British pounds and the contracts are
settled for reporting currencies 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 or market. Costs are recognized utilizing the first-in, first-out
method. 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.
(cid:26)(cid:21)
INFINERA CORPORATION
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:(cid:3)
(cid:3)
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. 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's hardware warranty
periods generally range from one to five years from date of acceptance for hardware and the Company's
software warranty is 90 days. Upon delivery of the Company's products, the Company provides for the estimated
cost to repair or replace products that may be returned under 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. In addition, from time to time, specific
hardware warranty accruals may be made if unforeseen technical problems arise with specific products. The
Company regularly assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as
necessary.
Business Combinations
Accounting for acquisitions requires our management to estimate the fair value of the assets and
liabilities acquired, which involves a number of judgments, assumptions, and estimates that could materially
affect the timing or amounts recognized in our financial statements. The items involving the most significant
assumptions, estimates, and judgments include determining the fair value of the following:
•
•
•
Intangible assets, including valuation methodology, estimations of future cash flows, and discount rates,
as well as the estimated useful life of the intangible assets;
the acquired company’s brand, as well as assumptions about the period of time the acquired brand will
continue to be used;
deferred tax assets and liabilities, uncertain tax positions, and tax-related valuation allowances, which
are initially estimated as of the acquisition date;
(cid:26)(cid:22)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
While the Company uses its best estimates and assumptions to accurately value assets acquired and
liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement. As a
result, during the measurement period, which may be up to one year following the acquisition date, the Company
records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.
Amortization of Intangible Assets
Intangible assets with finite lives are carried at cost, less accumulated amortization. Amortization is
computed over the estimated useful lives of the respective assets. In-process research and development
represents the fair value of incomplete research and development projects that have not reached technological
feasibility as of the date of acquisition. Initially, these assets are not subject to amortization. Once projects have
been completed they are transferred to developed technology, which are subject to amortization, while assets
related to projects that have been abandoned are impaired and expensed to research and development.
Impairment of Intangible Assets and Goodwill
Goodwill is evaluated for impairment on an annual basis in the fourth quarter of the Company's fiscal
year, and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be
recoverable. The Company has elected to first assess qualitative factors to determine whether it is more likely
than not that the fair value of its single reporting unit is less than its carrying amount. If the Company determines
that it is more likely than not that the fair value of its single reporting unit is less than its carrying amount, then the
two-step goodwill impairment test will be performed. The first step, identifying a potential impairment, compares
the fair value of its single reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the
second step will be performed; otherwise, no further step is required. The second step, measuring the
impairment loss, compares the implied fair value of the goodwill with the carrying amount of the goodwill. Any
excess of the goodwill carrying amount over the implied fair value is recognized as an impairment loss. The
Company evaluates events and changes in circumstances that could indicate carrying amounts of purchased
intangible assets may not be recoverable. When such events or changes in circumstances occur, the Company
assesses the recoverability of these assets by determining whether or not the carrying amount will be recovered
through undiscounted expected future cash flows. If the total of the future undiscounted cash flows is less than
the carrying amount of an asset, the Company records an impairment loss for the amount by which the carrying
amount of the asset exceeds the fair value of the asset.
Recent Accounting Pronouncements
In January 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards
Update 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities” ("ASU 2016-01"), which amends various aspects of the recognition,
measurement, presentation and disclosure for financial instruments. With respect to the Company's consolidated
financial statements, the most significant impact relates to the presentation of financial assets and liabilities on
the balance sheet, as well as the need to evaluate for a valuation allowance on certain deferred tax assets. The
new guidance is effective for the Company in its first quarter of fiscal 2018. Early adoption is permitted only for
certain provisions. The Company is currently evaluating the impact of the pending adoption of ASU 2016-01 on
its consolidated financial statements.
In November 2015, the FASB issued Accounting Standards Update 2015-17, “Balance Sheet
Classification of Deferred Taxes” to simplify the presentation of deferred income taxes by permitting classification
of all deferred tax assets and liabilities as noncurrent on the consolidated balance sheet. The Company has
elected to early adopt the guidance on a prospective basis effective with the consolidated balance sheet as of
December 26, 2015. This is a change from the Company’s historical presentation whereby certain deferred tax
assets and liabilities were classified as current and the remainder were classified as non-current. Prior periods
were not retrospectively adjusted. Adoption of the guidance resulted in a reclassification of $2.9 million from
current assets within the consolidated balance sheet as of December 26, 2015.
In September 2015, the FASB issued Accounting Standards Update 2015-16, "Business Combinations
and Simplifying the Accounting for Measurement-Period Adjustments" ("ASU 2015-16"), which eliminates the
requirement for an acquirer in a business combination to account for measurement-period adjustments
retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which
(cid:26)(cid:23)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
it determines the amount of the adjustment. The guidance is effective for the Company in its first quarter of fiscal
2016. The Company is currently evaluating the impact of the pending adoption of ASU 2015-16 on its
consolidated financial statements and does not expect material impacts on its consolidated financial statements
upon adoption.
In July 2015, the FASB issued Accounting Standards Update 2015-11, "Simplifying the Measurement of
Inventory" ("ASU 2015-11"), to simplify the guidance on the subsequent measurement of inventory, excluding
inventory measured using last-in, first-out or the retail inventory method. Under ASU 2015-11, inventory should
be at the lower of cost and net realizable value. The new accounting guidance is effective for the Company in its
first quarter of fiscal 2017 with early adoption permitted. The Company is currently evaluating the impact of the
pending adoption of ASU 2015-11 on its consolidated financial statements.
In April 2015, the FASB issued Accounting Standards Update 2015-03, "Simplifying the Presentation of
(cid:3)
Debt Issuance Costs" ("ASU 2015-03"), which changes the presentation of debt issuance costs in financial
statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction
from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as
interest expense. ASU 2015-03 will be effective for the Company in its first quarter of fiscal 2016. Early adoption
is permitted. Other than requiring the change in balance sheet presentation, the Company does not expect
material impacts on its consolidated financial statements upon adoption.
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. In July 2015, the FASB deferred the
effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting
periods within those periods). Early adoption is permitted to the original effective date of December 15, 2016
(including interim reporting periods within those periods). ASU 2014-09 will be effective for the Company’s first
quarter of 2018. 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. The Company is currently evaluating the method and impact the
adoption of ASU 2014-09 will have on its consolidated financial statements.
(cid:26)(cid:24)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
3.
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):(cid:3)
(cid:3)
(cid:3)
(cid:3)
Assets
As of December 26, 2015
Fair Value Measured Using
As of December 27, 2014
Fair Value Measured Using
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Money market funds ... $37,829
Certificates of deposit .
—
Commercial paper ......
Corporate bonds .........
U.S. agency notes ......
$
— $ — $ 37,829
$21,478
$
— $ — $ 21,478
5,001
—
10,997
—
—
5,001
10,997
—
—
8,060
46,072
—
—
8,060
46,072
— 163,400
— 163,400
— 235,285
— 235,285
U.S. treasuries ............
24,851
—
—
10,717
—
—
10,717
—
24,851
14,810
—
—
—
—
—
14,810
Foreign currency
exchange forward
contracts ..................... $
— $
490
$ — $
490
$
— $
— $ — $
—
Total assets ......... $62,680
$190,605
$ — $253,285
$36,288
$289,417
$ — $325,705
Liabilities
Foreign currency
exchange forward
contracts ..................... $
— $
(44) $ — $
(44) $
— $
(64) $ — $
(64)
During 2015 and 2014, 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.
Investments were as follows (in thousands):(cid:3)
(cid:3)
December 26, 2015
Adjusted
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
37,829
$
— $
— $
—
—
(397)
(69)
(43)
37,829
5,001
10,997
163,400
10,717
24,851
$
(509) $
252,795
1
—
—
—
—
1
(cid:3)
Money market funds ..................................... $
Certificates of deposit ...................................
Commercial paper ........................................
Corporate bonds ..........................................
U.S. agency notes ........................................
U.S. treasuries .............................................
5,000
10,997
163,797
10,786
24,894
Total available-for-sale investments ...... $
253,303
$
(cid:3)
(cid:26)(cid:25)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(cid:3)
December 27, 2014
(cid:3)
Money market funds .................................... $
Certificates of deposit ..................................
Commercial paper .......................................
Corporate bonds ..........................................
U.S. treasuries .............................................
8,060
46,073
235,713
14,825
Adjusted
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
21,478
$
— $
— $
—
(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
As of December 26, 2015, the Company’s available-for-sale investments in certificates of deposit,
commercial paper, U.S. agency notes, corporate bonds and U.S. treasuries have a contractual maturity term of
up to 24 months. Proceeds from sales, maturities and calls of available-for-sale investments were $280.5 million,
$236.5 million and $128.5 million in 2015, 2014 and 2013, 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.
As of December 26, 2015, the Company had $274.7 million of cash, cash equivalents and short-term
investments, including $57.6 million of cash and cash equivalents held by its foreign subsidiaries. The
Company's cash in foreign locations is used for operational and investing activities in those locations, and the
Company does not currently have the need or the intent to repatriate those funds to the United States.
As of December 26, 2015 and December 27, 2014, the Company held $98.4 million and $59.7 million of
cash in banks, respectively, excluding restricted cash.
4.
Cost-method Investment
As of December 26, 2015 and December 27, 2014, the Company’s investment in a privately-held
company was $14.5 million. 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 26, 2015 and December 27,
2014, 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 2015, 2014 and 2013.
(cid:26)(cid:26)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
5.
Derivative Instruments
Foreign Currency Exchange Forward Contracts
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 and commercial letters of credit. Gains and losses on these contracts are intended to offset the impact
of foreign exchange rate fluctuations on the underlying foreign currency denominated accounts receivables and
restricted cash, and therefore, do not subject the Company to material balance sheet risk. These forward
contracts entered into during 2015 were denominated in euros and British pounds, and had maturities of no more
than one year. The contracts were settled for U.S. dollars and Swedish kronor ("SEK") at maturity and at rates
agreed to at inception of the contracts.
In April 2015, the Company entered into a foreign currency exchange forward contract with a notional
amount of SEK 831 million ($95.3 million) to hedge currency exposures associated with the cash consideration
of the offer to acquire Transmode. In July 2015, the Company entered into a series of additional foreign currency
exchange option contracts to purchase up to an additional SEK 1.3 billion ($153.8 million) and to sell up to SEK
650 million ($76.9 million), which achieves the economic equivalent of a “participating forward” in order to hedge
the anticipated foreign currency cash outflows associated with the additional cash consideration related to the
enhanced offer to acquire the shares of Transmode. As these contracts are not formally designated as hedges,
the gains and losses were recognized in the statement of operations. For 2015, the Company recorded a
realized gain of $1.6 million, which was included in other gain (loss), net, in the accompanying condensed
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 $3.8 million
for 2015, a gain of $1.6 million for 2014 and a loss of $2.2 million in 2013, included in Other gain (loss), net, in
the consolidated statements of operations. In each of these periods, the impact of the gross gains and losses
were offset by foreign exchange rate fluctuations on the underlying foreign currency denominated amounts. The
Company did not designate foreign currency exchange forward contracts as hedges for accounting purposes and
accordingly, changes in the fair value are recorded in other gain (loss), net, in the accompanying condensed
consolidated statements of operations. These contracts were with two high-quality institutions and the Company
consistently monitors the creditworthiness of the counterparties.
The fair value of derivative instruments not designated as hedging instruments in the Company’s
consolidated balance sheets was as follows (in thousands):(cid:3)
(cid:3)
As of December 26, 2015
As of December 27, 2014
Gross
Notional
(1)
Prepaid
Expenses
and Other
Assets
Other
Accrued
Liabilities
Gross
Notional
(1)
Prepaid
Expenses
and Other
Assets
Other
Accrued
Liabilities
(cid:3)
Foreign currency exchange
forward contracts
Related to euro
denominated
receivables ..................... $
Related to British pound
denominated
receivables ..................... $
Related to euro
denominated restricted
cash ............................... $
Total ........................
46,753
$
319
$
(44) $
34,445
$
— $
(53)
6,686
$
171
$
— $
2,678
$
— $
(9)
252
$
$
— $
490
$
— $
1,236
(44)
$
$
— $
— $
(2)
(64)
(1) Represents the face amounts of forward contracts that were outstanding as of the period noted.
(cid:26)(cid:27)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
6.
Business Combination
On the Acquisition Date, the Company completed its public offer to the shareholders of Transmode,
acquiring 95.8% of the outstanding common shares and voting interest in Transmode. Transmode is a metro
packet-optical networking company based in Stockholm, Sweden. The combination of the two companies brings
together a complementary set of customers, products, and technologies into one company. With the acquisition
of Transmode, Infinera now offers an end-to-end product portfolio of packet-optical solutions for metro, DCI, long-
haul and subsea networks.
Shortly after the Acquisition Date, the Company initiated compulsory acquisition proceedings in
accordance with Swedish law (the "Squeeze-out Proceedings") in order to acquire the remaining 4.2% or 1.2
million Transmode shares not tendered through the end of the offer period. As of the Acquisition Date, the fair
value of the noncontrolling interest was approximately $15.4 million, which was based on the implied enterprise
value of Transmode at the Acquisition Date. The Squeeze-out Proceedings to obtain advance title are expected
to be completed during 2016.
The Company has accounted for this transaction as a business combination in exchange for total
consideration of approximately $350.6 million, which consisted of the following (in thousands, except shares):
Cash ...................................................................................................................................... $
Common stock (7,873,055 shares) ........................................................................................
Total
.................................................................................................................................... $
181,133
169,507
350,640
The fair value of the 7.9 million shares of common stock issued was determined based on the closing
market price of the Company’s common stock on the Acquisition Date.
The Company expensed acquisition-related costs in the amount of $6.8 million in operating expenses in
2015.
The Company allocated the fair value of the purchase price of the acquisition to the tangible and
intangible assets acquired as well as liabilities assumed, based on their estimated fair values. The excess of the
purchase price over the fair values of these identifiable assets and liabilities was recorded as goodwill.
The Company prepared an initial determination of the fair value of assets acquired and liabilities
assumed as of the acquisition date using preliminary information. In accordance with Accounting Standard
Codification 805, "Business Combinations," during the measurement period an acquirer shall retrospectively
adjust the provisional amounts recognized at the acquisition date to reflect information obtained about facts and
circumstances that existed as of the Acquisition Date that, if known, would have affected the measurement of the
amounts recognized as of the Acquisition Date. Accordingly, the Company has recognized measurement period
adjustments made during the fourth quarter of 2015 to the fair value of certain assets acquired and liabilities
assumed as a result of additional information obtained. These adjustments were retrospectively applied to the
August 20, 2015 acquisition date balance sheet. None of the adjustments had an impact on the Company’s
previously reported results of operations.
The following table summarizes the Company’s preliminary allocation of the purchase consideration
based on the fair value of assets acquired and liabilities assumed as of the Acquisition Date (in thousands):
(cid:26)(cid:28)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amounts
Recognized as of
Acquisition Date
Measurement
Period
Adjustments
Total
Cash ................................................................... $
Accounts receivable ............................................
Inventory .............................................................
Other assets .......................................................
Intangible assets, net ..........................................
Goodwill ..............................................................
Current liabilities .................................................
Deferred tax liabilities .........................................
Long-term liabilities .............................................
Noncontrolling interest ........................................
36,688
$
— $
16,183
19,886
8,320
161,845
187,220
(24,320)
(39,221)
(589)
(15,372)
—
—
—
—
669
(800)
131
—
—
Total net assets ................................................ $
350,640
$
— $
36,688
16,183
19,886
8,320
161,845
187,889
(25,120)
(39,090)
(589)
(15,372)
350,640
The Company expects to finalize the allocation of the purchase consideration as soon as practicable,
pending finalization of income taxes and any other adjustments related to acquired assets or liabilities, but no
later than 12 months from the Acquisition Date.
The following table presents details of the identified intangible assets acquired at the Acquisition Date
(in thousands):
Fair Value
Estimated
Useful Life
(Years)
Trade name ..................................................................................................... $
Customer relationships ...................................................................................
Developed technology .....................................................................................
In-process technology .....................................................................................
234
49,033
92,450
20,128
0.5
8
5
N/A
Total .............................................................................................................. $
161,845
Goodwill generated from this business combination is primarily attributable to the synergies from
combining the operations of Transmode with that of the Company, which resulted in expanded selling
opportunities of both metro and long-haul solutions. The goodwill recognized is not tax deductible for Swedish
income tax purposes.
The amounts of revenue and net loss of Transmode included in the Company’s consolidated statement
of operations from the Acquisition Date to December 26, 2015 was $46.8 million and $11.0 million, respectively.
The following table presents the unaudited pro forma financial information for the years ended
December 26, 2015 and December 27, 2014, as though the companies were combined as of December 29,
2013 (in thousands):
Years Ended
December 26,
2015
December 27,
2014
Revenue ................................................................................................. $
................................................................................... $
Net income (loss)
976,817
59,933
$
$
803,869
(19,893)
The pro forma financial information for the years ended December 26, 2015 and December 27, 2014
has been calculated after applying the Company’s accounting policies and adjusting the results of Transmode to
(cid:27)(cid:19)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
reflect the acquisition costs incurred and the additional amortization that would have been charged assuming the
fair value adjustments to tangible and intangible assets had been applied on December 29, 2013, together with
the consequential tax effects. The pro forma financial information is for informational purposes only and is not
indicative of the results of the operations that would have been achieved if the acquisition had taken place at the
beginning of the Company's fiscal year 2014.
7. Goodwill and Intangible Assets
The gross carrying amount of goodwill and intangible assets and the related amortization expense of
intangible assets may change due to the effects of foreign currency fluctuations as a result of acquiring an
international business. Additional information existing as of the Acquisition Date but unknown to the Company
may become known during the remainder of the measurement period, not to exceed 12 months from the
Acquisition Date, which may result in changes to the amounts and allocations recorded.
Goodwill
Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net tangible
and identified intangible assets acquired.
The following table presents details of the Company’s goodwill for the year ended December 26, 2015
(in thousands):
Balance as of December 27, 2014 ............................................................................................. $
Goodwill acquired ......................................................................................................................
Purchase price adjustments .......................................................................................................
Foreign currency translation adjustments ..................................................................................
Accumulated impairment loss ....................................................................................................
—
187,220
669
3,671
—
Balance as of December 26, 2015 ............................................................................................. $
191,560
Intangible Assets
The following table presents details of the Company’s intangible assets as of December 26, 2015 (in
thousands):
December 26, 2015
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Weighted
Average
Remaining
Useful Life
(In Years)
Intangible assets with finite lives:
Trade names ................................................................ $
Customer relationships ................................................
Developed technology .................................................
49,991
94,256
Other intangible assets ................................................
819
Total intangible assets with finite lives .............................. $ 145,305
Acquired In-process technology .......................................
20,521
Total intangible assets ...................................................... $ 165,826
239
$
(168) $
71
(2,197)
(6,629)
(513)
47,794
87,627
306
$
$
(9,507) $ 135,798
—
20,521
(9,507) $ 156,319
0.2
7.7
4.6
5.6
5.7
Other intangible assets in the above table relate to an acquisition completed in a previous year.
Amortization expense related to these intangible assets were not significant and the net carrying amounts were
reported in other non-current assets in prior years. Amortization expense related to intangible assets was $9.0
million for the year ended December 26, 2015.
(cid:27)(cid:20)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Intangible assets are carried at cost less accumulated amortization. Amortization expenses are
recorded to the appropriate cost and expense categories.
The following table summarizes the Company’s estimated future amortization expense of intangible
assets as of December 26, 2015 (in thousands):
(cid:3)
(cid:3)
Total
2016
2017
2018
2019
2020 and
Thereafter
Fiscal Years
Total future amortization expense ..... $ 156,319
$ 26,037
$ 26,100
$ 28,201
$ 28,137
$
47,844
(cid:27)(cid:21)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
8.
Balance Sheet Details
Restricted Cash
The Company’s long-term restricted cash balance is primarily comprised of certificates of deposit and
money market funds, 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 and bank
guarantees. Additionally, the Company’s restricted cash balance includes a leave encashment fund for India
employees and a corporate bank card deposit for employees in the United Kingdom.
(cid:3)
The following table provides details of selected balance sheet items (in thousands):
December 26,
2015
December 27,
2014
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 ............................................................................
27,879
$
52,599
94,221
15,169
50,046
81,285
174,699
$
146,500
11,097
$
22,548
189,168
1,897
38,946
31,060
8,785
17,684
162,004
1,340
37,825
14,726
Subtotal
.............................................................................................. $
294,716
$
242,364
Less accumulated depreciation and amortization(4) ...................................
(183,855)
(160,798)
Total
................................................................................................... $
110,861
$
81,566
Accrued expenses:
Loss contingency related to non-cancelable purchase commitments ........ $
Professional and other consulting fees ......................................................
Taxes payable ...........................................................................................
Royalties ...................................................................................................
.
Other accrued expenses ............................................................................
6,821
$
5,363
3,295
4,290
13,967
Total
................................................................................................... $
33,736
$
5,390
1,831
3,993
2,648
12,579
26,441
(1)
Included in finished goods inventory at December 26, 2015 and December 27, 2014 were $3.6 million and
$10.2 million, respectively, of inventory at customer locations for which product acceptance had not
occurred.
(2) As of December 26, 2015 and December 27, 2014, the Company’s inventory value had been reduced by
$8.4 million and $10.1 million, respectively, for excess and obsolescence, and $4.7 million and $7.1
million, respectively, for LCM adjustments.
(3)
Included in computer software at December 26, 2015 and December 27, 2014 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 26, 2015 and December 27, 2014
were $4.0 million and $5.2 million, respectively.
(cid:27)(cid:22)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(4) Depreciation expense was $26.8 million, $25.9 million and $24.5 million (which includes depreciation of
capitalized ERP costs of $1.2 million, $1.1 million and $1.1 million, respectively) for 2015, 2014 and 2013,
respectively.
(cid:27)(cid:23)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
9.
Comprehensive Income (Loss)
Other comprehensive income (loss) includes certain changes in equity that are excluded from net
income (loss). The following table sets forth the changes in accumulated other comprehensive income (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 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 ............................................................
Balance at December 27, 2014.................. $
Other comprehensive income before
reclassifications ..................................
Amounts reclassified from
accumulated other comprehensive
loss .....................................................
Net current-period other comprehensive
income .......................................................
—
—
—
(320)
(812)
—
(1,132)
—
—
(320)
(812)
—
—
—
(1,132)
— $
(444) $
(3,414) $
(760) $ (4,618)
—
—
—
(62)
5,803
—
—
(62)
5,803
—
—
—
5,741
—
5,741
Balance at December 26, 2015.................. $
— $
(506) $
2,389
$
(760) $ 1,123
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 26,
2015
December 27,
2014
December 28,
2013
Unrealized gain on auction rate
securities ....................................... $
Total reclassifications for the
period ............................................ $
— $
—
— $
(cid:27)(cid:24)
— $
—
(166) Other gain (loss), net
— Provision for income taxes
— $
(166) Total, net of income tax
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
10.
Basic and Diluted Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) attributable to
Infinera Corporation by the weighted average number of common shares outstanding during the period. Diluted
net income (loss) attributable to Infinera Corporation per common share is computed using net income (loss)
attributable to Infinera Corporation 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 RSUs and PSUs, and assumed
issuance of common stock under the Company’s ESPP using the treasury stock method. Potentially dilutive
common shares also include the assumed conversion of convertible senior notes from the conversion spread (as
discussed in Note 11, "Convertible Senior Notes"). 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 excluded from the diluted net loss calculation.
(cid:3)
The following table sets forth the computation of net income (loss) per common share attributable to
Infinera Corporation —basic and diluted (in thousands, except per share amounts):(cid:3)
(cid:3)
(cid:3)
Numerator:
Years Ended
December 26,
2015
December 27,
2014
December 28,
2013
Net income (loss) attributable to Infinera Corporation ............ $
Denominator:
51,413
$
13,659
$
(32,119)
Basic weighted average common shares outstanding ...........
133,259
123,672
117,425
Effect of dilutive securities:
Employee equity plans ..........................................................
5,686
4,778
Assumed conversion of convertible senior notes from
conversion spread .................................................................
Dilutive weighted average common shares outstanding ........
4,226
143,171
—
—
115
128,565
117,425
Net income (loss) per common share attributable to Infinera
Corporation
Basic ..................................................................................... $
Diluted ................................................................................... $
0.39
0.36
$
$
0.11
0.11
$
$
(0.27)
(0.27)
During 2015, the Company included the dilutive effects of the Notes in the calculation of diluted net
income per common share as the applicable average market price was above the conversion price of the Notes.
The dilutive impact of the Notes for the year was based on the average dilution of the four quarters, which is
calculated as the difference between the Company's average stock price during the period and the conversion
price of the Notes. Upon conversion of the 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.
The effects of certain potentially outstanding shares were not included in the calculation of diluted net
income per share for years ended December 26, 2015 and December 27, 2014 because their effect were anti-
dilutive under the treasury stock method or the performance condition of the award had not been met.
(cid:27)(cid:25)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following sets forth the potentially dilutive shares excluded from the computation of the diluted net
income per share because their effect was anti-dilutive (in thousands):
(cid:3)
(cid:3)
Stock options outstanding ......................................................
Restricted stock units ............................................................
Performance stock units ........................................................
Employee stock purchase plan shares ..................................
Total ....................................................................................
As of
December 26,
2015
December 27,
2014
December 28,
2013
8
415
73
225
721
362
331
124
741
6,367
6,583
721
661
1,558
14,332
In 2015 and 2014, the Company included the dilutive effects of the Notes in the calculation of diluted net
income per common share as the applicable average market price for certain periods were above the conversion
price of the Notes. The dilutive impact of the Notes was based on the difference between the Company's
average stock price during the period and the conversion price of the Notes. In 2013, the Company excluded the
potential shares issuable upon conversion of the Notes in the calculation of diluted earnings per share because
the market price was below the conversion price. Upon conversion of the 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.
11.
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
(cid:27)(cid:26)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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
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 net carrying amounts of the debt obligation were as follows (in thousands):
December 26,
2015
December 27,
2014
Principal
Unamortized discount (1) ..................................................................................
.......................................................................................................... $
150,000
$
150,000
(24,560)
(33,106)
Total long-term debt, net ............................................................................... $
125,440
$
116,894
Unamortized issuance cost (1)
.........................................................................
(2,113)
(2,848)
Net carrying amount ........................................................................................ $
123,327
$
114,046
(1) Unamortized debt conversion discount and issuance costs will be amortized over the remaining life of the
Notes, which is approximately three years.
(cid:3)
As of December 26, 2015 and December 27, 2014, 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.
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.
(cid:27)(cid:27)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
The following table sets forth total interest expense recognized related to the Notes (in thousands):
Years Ended
December 26,
2015
December 27,
2014
December 28,
2013
Contractual interest expense ..................................................... $
Amortization of debt issuance costs ..........................................
Amortization of debt discount ....................................................
2,625
$
2,626
$
735
8,546
665
7,730
Total interest expense ............................................................... $
11,906
$
11,021
$
1,539
358
4,164
6,061
The coupon rate was 1.75%. For the years ended December 26, 2015 and December 27, 2014, 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 26, 2015, the fair value of the Notes was $234.4 million. The fair value was determined
based on the quoted bid price of the Notes in an over-the-counter market on December 24, 2015. The Notes are
classified as Level 2 of the fair value hierarchy.
During the three months ended December 26, 2015, the closing price of the Company's common stock
exceeded 130% of the applicable conversion price of the Notes on at least 20 of the last 30 consecutive trading
days of the quarter; therefore, holders of the Notes may convert their notes during the three months ending
March 26, 2016. Should the closing price conditions be met during the 30 consecutive trading days prior to the
end of the first quarter of 2016 or a future quarter, the Notes will be convertible at their holders’ option during the
immediately following quarter. Based on the closing price of the Company’s common stock of $18.51 on
December 24, 2015, the if-converted value of the Notes exceeded their principal amount by approximately $70.7
million.
12.
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
$2.8 million and $2.7 million as of December 26, 2015 and December 27, 2014, 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 $8.6
million, $7.2 million and $6.8 million for 2015, 2014 and 2013, respectively. The Company did not have any
sublease rental income for 2015, 2014 and 2013.
Future annual minimum operating lease payments at December 26, 2015 were as follows (in
thousands):
Operating lease
payments ......... $
2016
2017
2018
2019
2020
Thereafter
Total
10,619
$
10,278
$
9,793
$
8,871
$
7,735
$
3,100
$
50,396
(cid:27)(cid:28)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(cid:3)
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.
As of December 26, 2015, December 27, 2014 and December 28, 2013, these non-cancelable purchase
commitments were $137.4 million, $128.3 million and $69.6 million, respectively.
Future purchase commitments at December 26, 2015 were as follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
Total
Purchase
obligations ....... $ 135,889
$
1,550
$
— $
— $
— $
— $ 137,439
The contractual obligation tables above exclude tax liabilities of $2.9 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.
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. The term of the indemnification
period is for the officer’s or director’s lifetime for certain events or occurrences while the officer or director is, or
was, serving at the Company’s request in such capacity. 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.
13.
Guarantees
Product Warranties
The Company warrants that its products will operate substantially in conformity with product
specifications. 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's hardware warranty
periods generally range from one to five years from date of acceptance for hardware and the Company's
software warranty is 90 days. Upon delivery of the Company's products, the Company provides for the estimated
cost to repair or replace products that may be returned under warranty. The hardware warranty accrual is based
(cid:28)(cid:19)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. In addition, from time to time, specific
hardware warranty accruals may be made if unforeseen technical problems arise with specific products. The
Company regularly assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as
necessary.
Activity related to product warranty was as follows (in thousands):(cid:3)
December 26,
2015
December 27,
2014
Beginning balance ............................................................................................ $
Charges to operations ......................................................................................
Utilization ..........................................................................................................
Change in estimate(1)
Balance at the end of the period ....................................................................... $
........................................................................................
27,040
$
31,258
(15,114)
(4,340)
38,844
$
22,908
22,697
(10,860)
(7,705)
27,040
(cid:3)
(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, the
mix of new versus used units related to replacement of failed units, and changes in the estimated cost of
repair. As the Company's products mature over time, failure rates and repair costs generally decline leading
to favorable changes in warranty reserves.
Letters of Credit and Bank Guarantees
The Company had $5.2 million of standby letters of credit and bank guarantees outstanding as of
December 26, 2015. These consisted of $3.1 million related to customer performance guarantees, $1.2 million
related to a value added tax and customs' authorities licenses, and $0.9 million related to property leases. The
Company had $5.0 million of standby letters of outstanding as of December 27, 2014. These consisted of $3.0
million related to a customer performance guarantee, $1.3 million related to a value added tax license and $0.7
million related to property leases.
The Company has a line of credit for approximately $1.5 million to support the issuance of letters of
credit, of which $0.3 million had been issued and outstanding as of December 26, 2015. The Company has
pledged approximately $4.7 million of assets of a subsidiary to secure this line of credit and other obligations.
(cid:28)(cid:20)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
14.
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, 2014, Cambrian filed a notice of appeal regarding the ruling of non-infringement to the
Court of Appeals for the Federal Circuit (“CAFC”), and Cambrian’s appeal brief was filed on November 6, 2014.
The Company filed its responsive brief on January 5, 2015, arguing that the CAFC should affirm the lower court’s
finding of non-infringement, and on February 2, 2015, Cambrian filed their reply brief. Oral argument of this
appeal took place on May 5, 2015. On June 29, 2015, the CAFC affirmed the court’s claim construction and grant
of summary judgment of non-infringement. The Company has not received notice of any further filings since the
CAFC affirmation and believes the judgment of non-infringement to be final.
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 26, 2015, the
Company has accrued the estimated liabilities associated with these potential loss contingencies.
(cid:28)(cid:21)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
15.
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 26, 2015, options to purchase 0.5 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.
Shares Reserved for Future Issuances
Common stock reserved for future issuance was as follows (in thousands):
(cid:3)
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 26,
2015
8,175
15,363
6,033
29,571
(cid:28)(cid:22)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. The following tables
summarize the Company’s equity award activity and related information (in thousands, except per share data): (cid:3)
Number of
Options
Weighted-Average
Exercise Price
Per Share
Aggregate
Intrinsic
Value
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 ..................................
Options granted ...........................................................
Options exercised ........................................................
Options canceled .........................................................
Outstanding at December 26, 2015 ..................................
Vested and expected to vest as of December 25, 2015 ..
Exercisable at December 26, 2015 ...................................
9,008
$
— $
(2,217) $
(424) $
6,367
25
$
$
(2,001) $
(93) $
4,298
$
— $
(1,787) $
— $
2,511
$
2,511
2,496
$
(cid:3)
(cid:3)
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 ..................................
RSUs granted ..............................................................
RSUs released .............................................................
RSUs canceled ............................................................
Outstanding at December 26, 2015 ..................................
Expected to vest as of December 26, 2015 ......................
6,703
3,602
$
$
(3,070) $
(652) $
6,583
2,705
$
$
(2,797) $
(449) $
6,042
2,202
$
$
(3,035) $
(277) $
4,932
$
4,722
(cid:28)(cid:23)
7.13
$
5,726
—
6.59
$
7,583
8.04
7.26
$
17,452
9.02
6.99
$
8,182
12.38
7.29
$
32,833
—
7.33
$
21,566
—
7.26
7.25
8.01
7.63
8.26
7.63
7.72
8.80
7.84
7.85
8.14
18.48
$
$
$
$
$
$
$
$
28,288
28,283
28,148
Aggregate
Intrinsic
Value
38,873
25,028
64,443
24,858
90,085
7.88
$
53,892
10.95
12.76
$
$
91,285
87,403
Number of
Restricted
Stock Units
Weighted-Average
Grant Date
Fair Value
Per Share
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Number of
Performance
Stock Units
Weighted-Average
Grant Date
Fair Value Per Share
Aggregate
Intrinsic
Value
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 .............................
PSUs granted ..........................................................
PSU performance earned(1) .....................................
PSUs released ........................................................
PSUs canceled .......................................................
Outstanding at December 26, 2015 .............................
Expected to vest as of December 26, 2015.................
1,368
552
$
$
(684) $
(515) $
721
508
$
$
(255) $
(98) $
876
332
129
$
$
$
(413) $
(193) $
$
731
712
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
18.23
7.32
7.00
$
7,231
8.03
12.35
$
$
13,540
13,179
(cid:3)
(1)
Represents the additional PSUs awarded resulting from the achievement of performance goals above the
performance targets established at grant.
The aggregate intrinsic value of unexercised options is calculated as the difference between the closing
price of the Company’s common stock of $18.51 at December 24, 2015 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 $18.51 at December 24, 2015. 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.
(cid:3)
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 26, 2015.
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):(cid:3)
Stock options ........................................................................................ $
RSUs .................................................................................................... $
PSUs .................................................................................................... $
47
41,350
3,661
2.0
2.3
1.3
Unrecognized
Compensation
Expense, Net
Weighted-
Average Period
(in years)
(cid:28)(cid:24)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes information about options outstanding at December 26, 2015.(cid:3)
(cid:3)
Options Outstanding
Vested and Exercisable
Options
Number of
Shares
Weighted-
Average
Remaining
Contractual Life
Weighted-
Average
Exercise
Price
(In thousands)
(In years)
432
388
465
471
511
244
2,511
0.66
4.10
2.90
2.94
5.13
2.96
3.17
(cid:3)
$
$
$
$
$
$
$
2.23
6.93
7.53
8.11
8.58
11.72
7.26
Number of
Shares
(In thousands)
432
388
465
469
511
231
2,496
Weighted-
Average
Exercise
Price
(cid:3)
$
$
$
$
$
$
$
2.23
6.93
7.53
8.12
8.58
11.88
7.25
Exercise Price
(cid:3)
$1.32 - $ 4.04 ...............
$6.30 - $ 7.25 ...............
$7.45 - $ 7.61 ...............
$7.68 - $ 8.19 ...............
$ 8.58 ...........................
$9.02 - $ 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 3.2 years as of December 26, 2015. Total
fair value of stock options granted to employees and directors that vested during 2015, 2014 and 2013 was
approximately $0.2 million, $0.8 million and $3.2 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):(cid:3)
(cid:3)
Employee and Director Stock Options
Volatility .....................................................................
Risk-free interest rate .................................................
Expected life ..............................................................
Estimated fair value ...................................................
Total stock-based compensation expense..................
December 26,
2015
N/A
N/A
N/A
N/A
$196
Years Ended
December 27,
2014
52%
1.3%
4.3 years
3.85
$702
December 28,
2013
N/A
N/A
N/A
N/A
$2,792
(cid:3)
N/A Not applicable because the Company did not grant any options to employees for the period presented.
(cid:28)(cid:25)
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:
(cid:3)
(cid:3)
Volatility .....................................................................
December 26,
2015
Years Ended
December 27,
2014
December 28,
2013
39% - 53%
46% - 51%
46% - 49%
Risk-free interest rate .................................................
0.13% - 0.26%
0.02% - 0.11%
0.10% - 0.14%
Expected life ..............................................................
0.5 years
0.3 - 0.5 years
0.5 years
Estimated fair value ...................................................
$5.15 - $6.43
$2.05 - $2.57
$1.87 - $3.00
The Company’s ESPP activity for the following periods was as follows (in thousands):
(cid:3)
(cid:3)
Stock-based compensation expense ............................... $
Employee contributions ................................................... $
Shares purchased ...........................................................
December 26,
2015
Years Ended
December 27,
2014
December 28,
2013
$
$
4,472
12,253
1,229
$
$
3,760
10,728
1,438
3,022
8,559
1,656
Restricted Stock Units
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 2015,
2014 and 2013 was approximately $22.9 million, $21.6 million and $23.8 million, respectively.
Performance Stock Units
Pursuant to the 2007 Plan, the Company has granted PSUs to certain of the Company’s executive
officers, senior management and employees. All PSUs awarded are subject to each individual's continued
service to the Company through each applicable vesting date and if the performance metrics are not met within
the time limits specified in the award agreements, the PSUs will be canceled.
A number of PSUs granted to the Company’s executive officers and senior management are based on
the total shareholder return of the Company's common stock price as compared to the total shareholder return of
a designated index over the span of one year, two years and three years. The number of shares to be issued
upon vesting of these PSUs range from 0 to 1.5 times the target number of PSUs granted depending on the
Company’s performance against the index.
The ranges of estimated values of the PSUs granted that are compared to an index, as well as the
assumptions used in calculating these values were based on estimates as follows:
(cid:3)
2015
2014
2013
Index ...............................................
Index volatility ..................................
Infinera volatility ...............................
SPGIIPTR
18% - 19%
48%
SPGIIPTR
25%
49% - 50%
Risk-free interest rate ......................
0.97% - 1.10%
0.66% - 0.71%
Correlation with index ......................
0.52
0.60
NASDAQ Telecom
Composite
23%
55%
0.42%
0.56
Estimated fair value .........................
$18.08 - $19.29
$6.59 - $7.60
$6.27 - $7.06
(cid:28)(cid:26)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In addition, certain other PSUs granted to the Company’s executive officers, senior management and
certain employees will only vest upon the achievement of specific financial or operational performance criteria.
The following table summarizes by grant year, the Company’s PSU activity for the year ended
December 26, 2015 (in thousands):
Grant Year
Total
Number of
Performance
Stock Units
2012
2013
2014
2015
Outstanding at December 27, 2014.....
PSUs granted ........................................
PSUs performance earned(1) ..................
PSUs released .......................................
PSUs canceled ......................................
Outstanding at December 26, 2015.....
876
332
129
(413)
(193)
731
191
—
—
—
(191)
—
296
—
74
(223)
—
147
389
—
55
(184)
—
260
—
332
—
(6)
(2)
324
(cid:3)
(1)
Represents the additional PSUs awarded resulting from the achievement of performance goals above
the performance targets established at grant.
Amortization of stock-based compensation expense related to PSUs in 2015, 2014 and 2013 was
approximately $5.0 million, $2.2 million and $0.7 million, respectively.
(cid:3)
(cid:28)(cid:27)
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):
(cid:3)
(cid:3)
(cid:3)
Stock-based compensation effects in inventory ....................... $
Stock-based compensation effects in deferred inventory cost.. $
Stock-based compensation effects in fixed assets ................... $
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(cid:3)(1) ..............
Total stock-based compensation expense................................ $
December 26,
2015
Years Ended
December 27,
2014
December 28,
2013
3,129
13
$
$
— $
3,088
13
119
$
$
$
3,189
15
145
2,405
$
1,921
$
11,055
8,081
7,354
28,895
3,685
8,927
7,477
6,383
24,708
3,686
32,580
$
28,394
$
1,871
10,900
7,624
5,956
26,351
5,625
31,976
(1) Represents stock-based compensation expense deferred to inventory and deferred inventory costs in prior
periods and recognized in the current period.
(cid:3)
16.
(cid:3)
(cid:3)
(cid:3)
Current:
Income Taxes
The following is a geographic breakdown of the provision for income taxes (in thousands):
Years Ended
December 26,
2015
December 27,
2014
December 28,
2013
Federal ........................................................................... $
State ...............................................................................
Foreign ...........................................................................
— $
— $
1,239
3,482
446
2,423
Total current ............................................................ $
4,721
$
2,869
$
Deferred:
Federal ........................................................................... $
State ...............................................................................
Foreign ...........................................................................
Total deferred .......................................................... $
Total provision ....................................................................... $
— $
—
(3,640)
(3,640) $
1,081
$
— $
—
(116)
(116) $
2,753
$
—
(135)
1,719
1,584
—
—
70
70
1,654
Loss before provision for income taxes from international operations was $6.3 million for the year ended
December 26, 2015. Income before provision for income taxes from international operations was $5.6 million and
$5.8 million for the years ended December 27, 2014 and December 28, 2013, respectively.
(cid:28)(cid:28)
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:(cid:3)
(cid:3)
(cid:3)
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 26,
2015
December 27,
2014
December 28,
2013
35.0 %
1.5 %
(5.0)%
9.6 %
(43.0)%
4.0 %
2.1 %
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)%
The Company recognized income tax expense of $1.1 million on income before income taxes of $52.0
million, $2.8 million on income before income taxes of $16.4 million and $1.7 million on loss of $30.5 million in
fiscal years 2015, 2014 and 2013, respectively. The resulting effective tax rates were 2.1%, 16.8% and (5.4)% for
2015, 2014 and 2013, respectively. The 2015 and 2014 effective tax rates differ 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 decrease in 2015 tax expense compared to 2014 tax
expense relates to the tax benefit of acquisition related amortization expenses and charges, offset by higher
state income taxes because of the profitable position of our U.S. operations, additional tax reserves and an
increase in taxable foreign profits in certain jurisdictions. The tax expense for 2014 was greater than 2013 due to
higher income and associated taxes as well as increases in state taxes as a result of income that could not be
offset by loss carryforwards. The 2013 effective tax rate reflects unbenefited current U.S. losses and foreign
taxes provided on our profitable foreign subsidiaries.
Because of the Company's significant loss carryforward position and corresponding full valuation
allowance, in all periods, the Company has not been subject to federal or state tax on its U.S. income because of
the availability of loss carryforwards, with the exception of amounts for certain states’ taxes for which the losses
are limited by statute or amount in 2014 and more significantly in 2015. If these losses and other tax attributes
become fully utilized, our taxes will increase significantly to a more normalized, expected rate on U.S. earnings.
The release of transfer pricing reserves in the future will have a beneficial impact to tax expense, but the timing
of the impact depends on factors such as expiration of the statute of limitations or settlements with tax
authorities. No significant releases are expected in the near future based on information available at this time.
(cid:20)(cid:19)(cid:19)
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):
(cid:3)
(cid:3)
Deferred tax assets:
Years Ended
December 26,
2015
December 27,
2014
Net operating losses .................................................................................. $
Research credits ........................................................................................
Nondeductible accruals .............................................................................
Inventory valuation ....................................................................................
Property, plant and equipment ...................................................................
Intangible assets ........................................................................................
Stock-based compensation .......................................................................
67,973
$
107,601
42,093
38,978
21,550
989
796
9,299
37,435
33,582
19,625
1,387
2,119
12,830
Total deferred tax assets .................................................................... $
181,678
$
214,579
Valuation allowance ..........................................................................................
(169,240)
(199,698)
Net deferred tax assets ...................................................................... $
12,438
$
14,881
Deferred tax liabilities:
Depreciation ..............................................................................................
Accruals, reserves and prepaid expenses .................................................
Acquired intangible assets .........................................................................
Convertible senior notes ............................................................................
(232)
(3,874)
(34,894)
(9,070)
Total deferred tax liabilities ................................................................. $
Net deferred tax assets (liabilities) .................................................................... $
(48,070) $
(35,632) $
(203)
(2,431)
—
(12,167)
(14,801)
80
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 does not believe it is more likely than not that the domestic net
deferred tax assets will 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 26, 2015 and December 27, 2014.
Even though the Company has been profitable in recent quarters, the Company must consider other
positive and negative evidence, including the Company's forecasts of taxable income over the applicable
carryforward periods, its current financial performance, its market environment, and other factors in evaluating
the need for a full or partial valuation allowance against its net U.S. deferred tax assets. Management has
concluded that it was not more likely than not that the Company would be able to utilize those deferred tax
assets in the foreseeable future. Accordingly, the domestic net deferred tax assets were fully reserved with a
valuation allowance. To the extent that the Company determines that deferred tax assets are realizable on a
more likely than not basis, and adjustment is needed, that adjustment will be recorded in the period that the
determination is made and would generally decrease the valuation allowance and record a corresponding benefit
to earnings.
As of December 26, 2015, the Company has net operating loss carryforwards of approximately $255.7
million for federal tax purposes and $160.3 million for state tax purposes. The carryforward balance reflects
expected utilization of both federal and state net operating losses for the year ended December 26, 2015.
Federal net operating loss carryforwards will begin to expire in 2025 while California losses will expire in 2016.
Additionally, the Company has federal and California research and development credits available to reduce
future income taxes payable of approximately $31.5 million and $33.7 million, respectively, as of December 26,
(cid:20)(cid:19)(cid:20)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2015. Infinera Canada Inc., an indirect wholly owned subsidiary(cid:15) has Scientific Research and Experimental
Development Expenditures ("SRED") credits available of $1.7 million to offset future Canadian income tax
payable as of December 26, 2015. The federal research credits will begin to expire in the year 2022 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.
Net operating loss carryforwards $78.7 million and $57.8 million for federal and state purposes,
respectively, have not been included in the deferred tax asset table above as these net operating loss
carryforwards are attributable to excess tax benefits from equity award settlements. Under current accounting
guidance, these tax benefits will not be recognized in the financial statements until they result in a reduction to
taxes payable, at which point, the tax benefits will be reflected in stockholder’s equity. During the fiscal year
ended December 26, 2015, the Company recognized $0.8 million of excess tax benefits which resulted in a
credit to stockholder’s 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 26,
2015, 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 26, 2015, the undistributed earnings approximated $24.2 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):(cid:3)
December 26,
2015
December 27,
2014
December 28,
2013
Beginning balance ................................................................. $
Tax position related to current year ........................................
16,978
$
15,148
$
13,902
Additions ........................................................................
2,891
1,990
1,676
Tax positions related to prior years ........................................
Additions ........................................................................
Reductions .....................................................................
Lapses of statute of limitations .......................................
—
(497)
(242)
140
(76)
(224)
32
(132)
(330)
Ending balance ...................................................................... $
19,130
$
16,978
$
15,148
As of December 26, 2015, the cumulative unrecognized tax benefit was $19.1 million, of which $16.7
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 26, 2015, approximately $2.4 million, if
recognized, would impact the Company’s effective tax rate.
As of December 26, 2015, December 27, 2014 and December 28, 2013, the Company had $0.5 million,
$0.4 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
(cid:20)(cid:19)(cid:21)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 26, 2015, and less than $0.2 million was included in the Company’s provision for income taxes for the
years ended December 27, 2014 and December 28, 2013, respectively.
The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the
Company’s provision for income taxes.
(cid:3)
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.
The Company has received assessments of tax resulting from transfer pricing examinations in India for
all but two years in the range of fiscal years ending March 2005 through March 2012. While some of the
assessment years have been settled with no change from the original tax return position, the Company intends
to appeal all remaining assessment years, and does not expect a significant adjustment to unrecognized tax
benefits as a result of these inquiries. The Company believes that the resolution of these disputed issues will not
have a material impact on our financial statements.
The Company does not currently believe there to be a reasonable possibility of a significant change in
(cid:3)
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 26, 2015.
17.
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
(cid:3)
(cid:3)
Americas:
Years Ended
December 26,
2015
December 27,
2014
December 28,
2013
United States .................................................................. $
Other Americas ...............................................................
602,433
$
476,172
$
345,734
65,075
34,379
10,377
Europe, Middle East and Africa ..............................................
Asia Pacific and Japan ..........................................................
174,380
44,826
132,271
25,257
150,912
37,099
Total revenue .................................................................. $
886,714
$
668,079
$
544,122
$
667,508
$
510,551
$
356,111
(cid:20)(cid:19)(cid:22)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Property, plant and equipment, net
December 26,
2015
December 27,
2014
United States .................................................................................................... $
Other Americas .................................................................................................
Europe, Middle East and Africa .........................................................................
Asia Pacific and Japan .....................................................................................
Total property, plant and equipment, net ........................................................... $
110,861
$
102,702
$
79,025
173
5,417
2,569
196
868
1,477
81,566
18.
Employee Benefit Plan
Defined Contribution Plans
The Company has established a savings plan under Section 401(k) of the Internal Revenue Code (the
“401(k) Plan”). As allowed under Section 401(k) of the Internal Revenue Code, the 401(k) 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. Commencing in 2015, the Company made
voluntary cash contributions and matched a portion of employee contributions, totaling $1.7 million for the year.
Expenses related to the 401(k) Plan were insignificant for 2015, 2014 and 2013.
In connection with the Company's acquisition of Transmode during the third quarter of 2015, the
Company has an ITP pension plan covering its Swedish employees. Commitments for old-age and survivors'
pension for salaried employees in Sweden are vested through an insurance policy. Expenses related to the ITP
pension plan were $0.8 million from the Acquisition Date through December 26, 2015.
Infinera also provides defined contribution plans in certain foreign countries where required by local
statute.
(cid:20)(cid:19)(cid:23)
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
19.
Financial Information by Quarter (Unaudited)
The following table sets forth the Company’s unaudited quarterly consolidated statements of operations
data for 2015 and 2014. 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.
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Revenue:
For the Three Months Ended (Unaudited)
2015
(cid:3)
2014
Dec. 26
Sep. 26
Jun. 27
Mar. 28
Dec. 27
Sep. 27
Jun. 28
Mar. 29
(cid:3)
(In thousands, except per share data)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Product ........................... $227,040
Services .........................
32,994
$202,365
$178,982
$160,843
$158,492
$147,178
$142,364
$124,242
30,107
28,364
26,019
27,814
26,381
23,035
18,573
Total revenue..................
260,034
232,472
207,346
186,862
186,306
173,559
165,399
142,815
Cost of revenue:
Cost of product ...............
130,765
117,154
Cost of services ..............
13,505
12,513
99,491
11,059
89,506
9,244
89,809
12,154
Total cost of revenue............
144,270
129,667
110,550
98,750
101,963
Gross profit ..........................
115,764
102,805
Operating expenses.............
101,975
88,545
96,796
80,266
88,112
72,955
84,343
71,477
86,703
11,554
98,257
75,302
67,822
85,906
78,438
9,240
5,971
95,146
84,409
70,253
62,201
58,406
59,462
Income (loss) from
operations ............................
Other income (expense),
net .......................................
Income (loss) before income
taxes ....................................
Provision for income taxes...
(392)
Net income (loss) ................. $ 12,168
Less: Net loss attributable to
noncontrolling interest..........
(463)
Net income (loss)
attributable to Infinera
Corporation .......................... $ 12,631
Net income (loss) per
common share attributable
to Infinera Corporation
13,789
14,260
16,530
15,157
12,866
7,480
8,052
(1,056)
(2,013)
(5,901)
2,384
(2,175)
(2,773)
(2,432)
(2,655)
(3,070)
11,776
8,359
18,914
12,982
10,093
(151)
1,008
616
1,683
5,048
205
5,397
617
(4,126)
248
$ 8,510
$ 17,906
$ 12,366
$ 8,410
$ 4,843
$ 4,780
$ (4,374)
—
—
—
—
—
—
—
$ 8,510
$ 17,906
$ 12,366
$ 8,410
$ 4,843
$ 4,780
$ (4,374)
Basic .............................. $
Diluted ............................ $
0.09
0.08
$
$
0.06
0.06
$
$
0.14
0.13
$
$
0.10
0.09
$
$
0.07
0.06
$
$
0.04
0.04
$
$
0.04
0.04
$
$
(0.04)
(0.04)
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 2015 and 2014 were 52-week years that ended
on December 26, 2015 and December 27, 2014, respectively. The quarters for fiscal years 2015 and 2014 were
13-week quarters.
During the third quarter of 2015, the Company completed its public offer to the shareholders of
Transmode, acquiring 95.8% of the outstanding common shares and voting interest in Transmode. This
acquisition was accounted for as a business combination, and accordingly, the Company has consolidated the
financial results of Transmode with its financial results since the Acquisition Date.
(cid:20)(cid:19)(cid:24)
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 26,
2015, our disclosure controls and procedures are effective.
Inherent Limitations on Effectiveness of Controls
The Company's 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.
Changes in Internal Control over Financial Reporting
During the fourth quarter of fiscal 2015, there were no changes in the Company’s internal control over
(cid:3)
financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s
internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
The Company's 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 26, 2015, 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.
(cid:20)(cid:19)(cid:25)
As discussed in Note 6, "Business Combination," to the Notes to Consolidated Financial Statements,
Infinera completed the business combination of Transmode on August 20, 2015. Infinera has excluded Transmode
from its assessment of the effectiveness of its internal control over financial reporting as of December 26, 2015. In
accordance with guidance issued by the SEC, companies are permitted to exclude business combinations from
their final assessment of internal control over financial reporting during the year of acquisition while integrating the
acquired operations. The acquired business represented approximately 5% of consolidated net revenue for the year
ended December 26, 2015 and approximately 7% of consolidated total assets and 2% of consolidated net assets
(excluding goodwill and acquired intangibles) as of December 26, 2015.
Based on our assessment, management has concluded that our internal control over financial reporting
was effective as of the end of our fiscal year 2015 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.
The effectiveness of our internal control over financial reporting as of the end of fiscal year 2015 has
been audited by Ernst & Young, LLP, an independent registered public accounting firm, as stated in their report
which is included elsewhere herein.
ITEM 9B.
OTHER INFORMATION
None.
(cid:20)(cid:19)(cid:26)
(cid:3)
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Information responsive to this item is incorporated herein by reference to our definitive proxy statement
with respect to our 2016 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. For information pertaining to our executive offers,
refer to the section entitled “Executive Officers” 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.
(cid:3)
ITEM 11.
EXECUTIVE COMPENSATION
Information responsive to this item is incorporated herein by reference to our definitive proxy statement
with respect to our 2016 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.
(cid:3)
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 2016 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.
(cid:3)
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 2016 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.
(cid:3)
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 2016 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.
(cid:20)(cid:19)(cid:27)
(cid:3)
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a)(1) Consolidated Financial Statements
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:(cid:3)
(cid:3)
Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm.....................................
Page
56
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 ...........................................................................................
58
59
60
61
63
64
(a)(2) Financial Statement Schedule
Schedule II: Valuation and Qualifying Accounts
(cid:3)
(cid:3)
(cid:3)
Deferred tax asset, valuation allowance
Years Ended
December 26,
2015
December 27,
2014
December 28,
2013
(In thousands)
Beginning balance ................................................................. $
Additions ...............................................................................
Reductions ............................................................................
Ending balance ...................................................................... $
Allowance for doubtful accounts
Beginning balance ................................................................. $
Additions ...............................................................................
Reductions ............................................................................
199,698
$
202,747
$
213,449
15,266
(45,724)
17,276
(20,325)
5,706
(16,408)
169,240
$
199,698
$
202,747
38
$
657
(65)
$
43
18
(23)
94
56
(107)
43
Ending balance ...................................................................... $
630
$
38
$
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.
(cid:20)(cid:19)(cid:28)
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
INDEX TO EXHIBITS
(cid:3) Description
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
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, incorporated herein by reference to Exhibit 10.3 of the Registrant’s
Annual Report on Form 10-K (No. 001-33486), filed with the SEC on February 18, 2015.
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, incorporated herein by reference to Exhibit 10.7 of the Registrant’s Annual Report on Form
10-K (No. 001-33486), filed with the SEC on February 18, 2015.
Form of Section 16 Officer Performance Share Agreement under the 2007 Equity Incentive Plan,
incorporated herein by reference to Exhibit 10.8 of the Registrant’s Annual Report on Form 10-K
(No. 001-33486), filed with the SEC on February 18, 2015.
Form of Director Restricted Stock Unit Agreement under the 2007 Equity Incentive Plan,
incorporated herein by reference to Exhibit 10.9 of the Registrant’s Annual Report on Form 10-K
(No. 001-33486), filed with the SEC on February 18, 2015.
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.
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.
(cid:20)(cid:20)(cid:19)
Exhibit No.
Description
10.15*
Executive Severance Policy, incorporated herein by reference to Exhibit 10.19 of the Registrant’s
Annual Report on Form 10-K (No. 001-33486), filed with the SEC on February 18, 2015.
21.1
23.1
31.1
31.2
32.1**
32.2**
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
(cid:3) Subsidiaries.
(cid:3) 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.
(cid:3)
(cid:3)
(cid:3)
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.
(cid:3)
(cid:3) XBRL Instance Document
(cid:3) XBRL Taxonomy Extension Schema Document
(cid:3) XBRL Taxonomy Extension Calculation Linkbase Document
(cid:3) XBRL Taxonomy Extension Definition Linkbase Document
(cid:3) XBRL Taxonomy Extension Label Linkbase Document
(cid:3) 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.
(cid:20)(cid:20)(cid:20)
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 23, 2016
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.
(cid:20)(cid:20)(cid:21)
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 23, 2016
/s/ BRAD FELLER
Brad Feller
Chief Financial Officer, Principal
Financial and
Accounting Officer
February 23, 2016
/s/ DAVID F. WELCH, PH.D.
Co-founder, President and Director
February 23, 2016
David F. Welch, Ph.D.
/s/ KAMBIZ Y. HOOSHMAND
Kambiz Y. Hooshmand
/s/ JOHN P. DAANE
John P. Daane
/s/ MARCEL GANI
Marcel Gani
/s/ PAUL J. MILBURY
Paul J. Milbury
/s/ RAJAL M. PATEL
Rajal M. Patel
/s/ CARL REDFIELD
Carl Redfield
Chairman of the Board
February 23, 2016
Director
February 23, 2016
Director
February 23, 2016
Director
February 23, 2016
Director
February 23, 2016
Director
February 23, 2016
/s/ MARK A. WEGLEITNER
Mark A. Wegleitner
Director
February 23, 2016
(cid:20)(cid:20)(cid:22)
[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 23, 2016
(cid:3)
By:
(cid:3)
/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 23, 2016
(cid:3)
By:
(cid:3)
/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 26,
2015 (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 23, 2016
(cid:3)
/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 26,
2015 (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 23, 2016
(cid:3)
/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.
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