Infinera Corporation
2020 Proxy Statement
and
2019 Annual Report on Form 10-K
Infinera Corporation
140 Caspian Court
Sunnyvale, California 94089
Dear Shareholders,
The new communications infrastructure built on the internet has redefined how people around the globe
connect and interact—in business, education, entertainment and almost every corner of our personal lives. At a
time when “social distancing” has become an expectation, this infrastructure plays an increasingly critical role in
keeping our communities engaged and businesses alive, while democratizing communication opportunity for
everyone, everywhere.
Our innovations, backed by almost 1,900 patents and recognized by multiple industry awards, rely not only on
incremental improvements to current technology, but on radical re-invention of how people will approach
communications in the future. This “re-imagining” drives our pipeline of invention, our new product roadmap, and
our opportunities with customers around the world as they also re-imagine how to better service their customers in
this new era of global connectivity. We believe we are well positioned to take advantage of—and potentially
accelerate—growing market demand for more capacity delivered to the edge of the network at an always
decreasing cost. Through our leadership in vertical integration, and by designing and manufacturing our
differentiated optical technology in-house, we believe that we will deliver the core ingredients necessary to address
tomorrow’s network requirements while building a company that will be valued on this unique capability. Our
motivation to help our customers and shareholders achieve this opportunity has never been greater.
We are proud to have attracted a first-rate set of shareholders and are pleased that they gave us over 96%
support for both our compensation plans and our stock plan proposals in 2019. We ask for your voting support so
that we can continue this work. We welcome your input through any of the means described in this proxy, and we
thank you for your investment.
Sincerely,
Thomas J. Fallon
Chief Executive Officer
Dear Fellow Infinera Shareholders,
Infinera Corporation
140 Caspian Court
Sunnyvale, California 94089
As Infinera’s independent board chair, I feel very fortunate to be writing to you on behalf of our board of
directors. I would like to take this opportunity to explain (1) what we do, (2) how we govern and (3) how we strive
to create shareholder value.
We provide Optical Transport equipment. As a premier provider of optical technology, a significant percentage
of global internet traffic is transported using our products. Our customers include many of the globe’s largest
telecommunications and internet content companies. Imagine that we enable our customers to build the network of
roads and freeways to carry their global internet traffic. Our innovative solutions allow building additional freeways
on-demand to carry excess traffic.
Our technology requires very specialized knowledge of optical components and optical systems as well as
complex software-based network services. The natural cadence of our business is long. Each product cycle is 3-4
years and nominally allows a doubling of the optical transport systems we make. As such, we must always
balance short term gains against a host of strategic investments to deliver our next product cycle.
At Infinera, we have a strong culture of governance. I am an independent chair who, along with the board,
oversees the CEO. Our board is diverse, with deep experience in optical components and systems, telecom
networks, modern data centers, intellectual property, and financial management. Please refer to Proposal 1 in our
proxy for a detailed view of each board member’s qualifications. I am sure you will agree that we have assembled
an impressive and diverse group of individuals to guide our management.
The average age for our board is approximately 59 years and the average tenure for our board is
approximately six years. We also value experience on our board given the long product cycles and strategic
cadence of our business.
Perhaps, not surprisingly, given this balance, we have long been a leader in human capital and environmental
management in a sector not known for either. Sustainalytics ranks us 6th in the world for communications
equipment peers, and we are a leader in making detailed diversity data available. I encourage you to read more
about our accomplishments in the At-A-Glance section that follows.
Infinera is a company that invests heavily in innovation. As a board, given our diverse experience, we help
guide management’s incorporation of this innovation into business strategies that target specific market segments
and customer solutions. This strategy helps drive long term shareholder value.
Our fiduciary duty to shareholders is to assemble the best management team and long-term strategy, align
our team’s compensation with shareholders, and govern with the highest standards of integrity. With all that I have
covered here, I am asking for your voting support at our upcoming annual meeting.
Sincerely,
Kambiz Y. Hooshmand
Independent Board Chair
Infinera Corporation
140 Caspian Court
Sunnyvale, California 94089
NOTICE OF 2020 ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May 21, 2020
10:00 a.m. Pacific Time
Dear Shareholder:
You are cordially invited to attend the virtual 2020 Annual Meeting of Shareholders of Infinera Corporation, a
Delaware corporation, and any postponement, adjournment or other delay thereof (the “Annual Meeting”). The
Annual Meeting will be held via live webcast at www.virtualshareholdermeeting.com/INFN2020 on Thursday,
May 21, 2020 at 10:00 a.m. Pacific Time. You will be able to attend the meeting online and submit questions
during the meeting by visiting the website listed above. You will also be able to vote your shares electronically at
the annual meeting.
This meeting is being held for the following purposes:
1. To elect to the Board of Directors the three nominees for Class I directors named in the Proxy Statement;
2. To approve an amendment of the Infinera Corporation 2016 Equity Incentive Plan to (i) increase the
number of shares authorized for issuance thereunder by 8,100,000 shares and (ii) effect minor technical
revisions and improvements;
3. To approve, on an advisory basis, the compensation of Infinera’s named executive officers, as described
in the Proxy Statement;
4. To ratify the appointment of Ernst & Young LLP as Infinera’s independent registered public accounting
firm for the fiscal year ending December 26, 2020; 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 was March 26, 2020 (the “Record Date”). Only shareholders of record
at the close of business on that date may vote at the Annual Meeting.
Your vote is important. Whether or not you expect to attend the Annual Meeting, it is important that
you vote as soon as possible so that your shares are represented. To vote your shares, please follow the
instructions on your proxy card, which is being mailed to you on or about April 15, 2020.
On behalf of the Board of Directors, thank you for your participation in this important annual process.
By Order of the Board,
Nancy Erba
Chief Financial Officer
Sunnyvale, California
April 14, 2020
Important Notice Regarding Proxy Materials for the Shareholder Meeting
to be Held on May 21, 2020
The Notice of Annual Meeting, Proxy Statement and Form of Proxy are first being mailed on or about April 15,
2020 to all shareholders entitled to vote at the Annual Meeting. This Proxy Statement and our 2019 Annual Report
are also available on the Investors page at www.infinera.com.
Virtual Meeting Admission
Shareholders of record as of March 26, 2020 will be able to participate in the Annual Meeting by visiting our
Annual Meeting website at www.virtualshareholdermeeting.com/INFN2020. To participate in the Annual Meeting,
you will need the 16-digit control number included on your proxy card.
The Annual Meeting will begin promptly at 10:00 a.m. Pacific time on Thursday, May 21, 2020.
Online check-in will begin at 9:45 a.m. Pacific time, and you should allow approximately 15 minutes for the
online check-in procedures.
Voting. Whether or not you plan to virtually attend the Annual Meeting and regardless of the number of
shares of common stock that you own, please cast your vote, at your earliest convenience, as instructed on your
proxy card and/or voting instruction form. Your vote is very important. Your vote before the Annual Meeting will
ensure representation of your shares at the Annual Meeting even if you are unable to virtually attend. You may
submit your vote by the internet, telephone, mail or virtually at the Annual Meeting. Voting over the internet or by
telephone is fast and convenient, and your vote is immediately confirmed and tabulated. By using the Internet or
telephone, you help us reduce postage, printing and proxy tabulation costs. We encourage all holders of record to
vote in accordance with the instructions on the proxy card and/or voting instruction form prior to the Annual
Meeting even if they plan on virtually attending the Annual Meeting. Submitting a vote before the Annual Meeting
will not preclude you from voting your shares at the Annual Meeting should you decide to virtually attend. You may
vote using the following methods:
Prior to the Annual Meeting, visit the website listed on your
proxy card/voting instruction form to vote via the internet.
During the Annual Meeting, visit our Annual Meeting website
at www.virtualshareholdermeeting.com/INFN2020
Sign, date and return your proxy card/voting instruction form
to vote by mail.
Call the telephone number on your proxy card/voting
instruction form to vote by telephone.
About Infinera
INFINERA AT A GLANCE
Our Mission
Enable an Infinite Network that can provide unlimited communications services to everyone—Everywhere,
Always and Instantly
Our Vision
Continually challenge conventional thinking to reimagine networking solutions that will provide unique value to
our customers and shareholders
Our Differentiation
The Infinera Experience defines our promise of a differentiated business relationship with our customers—
from how we design our products for ease of use and help our customers gain a competitive advantage to
how we rapidly respond to customer needs, issues, and challenges
Our Company, Customers, and Solutions
$1B+ in Revenue
~1,900 Patents
3,000+ Employees
45+ Countries with
Operations
High-End Subcomponent
Technology
Systems for Network
Infrastructure
Automation Software
Professional Services
1,000+ Customers
Worldwide
9 of the Top 10 Service
Providers
5 of the Top 6 Internet
Content Providers
History of Technology Innovation
Infinera’s Optical Innovation Center has a distinguished history of delivering breakthrough innovation through multi-
discipline opto-electronic R&D including: industry-leading high-performance optical engines, revolutionary
point-to-multipoint coherent optics, and customized design and production
AISC/DSP Design
Analog Electronics Design
Holistic Co-design
RF Interconnects
Packaging Manufacturing
Packaging Design
PIC Design
PIC Manufacturing
Responsibility & Ethics Throughout Our Business
At Infinera, we apply our innovation mindset to the task of determining what elements of sustainability are most material
to our business and to the needs of our stakeholders.
Corporate governance
• Business ethics
• Transparency and reporting
• Supply chain management
Environmental responsibility
• Greenhouse gas emissions
• Energy management
• Waste and hazardous materials management
• Environmental compliance
Product responsibility
• Data security
• Product safety and compliance
Social Responsibility
• Employee health and safety
• Employee development and engagement
• Diversity and inclusion
•
Labor practices and human rights
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Table of Contents
Page
Proxy Statement Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Meeting Agenda and Voting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Board Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Board and Governance Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Executive Compensation Program Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Our Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Proposal 1—Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Who We Are . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
How We Are Selected and Elected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
How We Govern and Are Governed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
How We Are Organized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
How to Communicate with Us . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
How We Are Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
Our Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
Overview of our Executive Compensation Program Philosophy and Process . . . . . . . . . . . . . . . . . . . . . .
30
Fiscal 2019 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33
Additional Information Regarding Our Compensation Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41
Compensation Committee Report
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44
Executive Compensation Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45
Risk Assessment of Compensation Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55
Proposal 2—Approval of Amendment of the Infinera Corporation 2016 Equity Incentive Plan . . . . . . . . . . . . .
56
Proposal 3—Advisory Approval of Named Executive Officer Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
66
Our Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67
Proposal 4—Ratification of Appointment of Independent Registered Public Accounting Firm . . . . . . . . .
67
Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69
Certain Relationships and Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70
Deliquent Section 16(A) Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70
Equity Compensation Plan Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71
Our Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
72
Security Ownership of Certain Beneficial Owners and Management
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
72
Shareholder Proposals for 2021 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73
Delivery of Documents to Shareholders Sharing the Same Last Name and Address . . . . . . . . . . . . . . . .
74
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75
User’s Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76
Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76
Stock Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78
Quorum and Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80
Appendix A—Unaudited Reconciliations from Gaap to Non-Gaap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Appendix B—Infinera Corporation 2016 Equity Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
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PROXY STATEMENT SUMMARY
Here are highlights of important information you will find in this Proxy Statement. As it is only a
summary, please review the complete Proxy Statement before you vote.
Virtual Shareholder Meeting
In light of the current COVID-19 pandemic and government orders related to activities in the state and county
where we usually hold our annual meeting of shareholders, we believe a virtual meeting would allow the greatest
number of shareholders to attend. As such, our 2020 Annual Meeting will be conducted exclusively online via
live webcast, allowing all of our shareholders the option to participate in the live, online meeting from any
location convenient to them, providing shareholder access to our Board and management, and enhancing
participation while supporting the safety of our shareholders and maintaining legal compliance with government
orders. Shareholders at the close of business on March 26, 2020 will be allowed to communicate with us and
ask questions in our virtual shareholder meeting forum before and during the meeting. All directors and key
executive officers are expected to be available to answer questions. For further information on the virtual
meeting, please see the “User’s Guide” at the back of this Proxy Statement. Please note that there will not be a
physical meeting.
Meeting Agenda and Voting Matters
Agenda Items
1. To elect to the Board of Directors the three nominees for Class I
directors named in the Proxy Statement to serve until the 2023
annual meeting of shareholders or until their successors have
been duly elected and qualified, or until his or her earlier death,
resignation or removal from the Board.
2. To approve an amendment of the Infinera Corporation 2016 Equity
Incentive Plan (the “2016 Plan”) to (i) increase the number of
shares authorized for issuance thereunder by 8,100,000 shares
and (ii) effect minor technical revisions and improvements.
3. To approve, on an advisory basis, the compensation of Infinera’s
named executive officers, as described in the Proxy Statement.
4. To ratify the appointment of Ernst & Young LLP as Infinera’s
independent registered public accounting firm for the fiscal year
ending December 26, 2020.
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
4
56
66
67
Name
Age Director Since
Independent(1)
AC
Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . .
Kambiz Y. Hooshmand(3) . . . . . . . . . . . . . . . . . . .
Amy H. Rice(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58
58
40
2009
2009
2020
—
✓
✓
—
M
—
CC
—
—
—
NGC
—
M
M
Committee Memberships(2)
AC = Audit Committee; CC = Compensation Committee; NGC = Nominating and Governance Committee;
C = Chairman; M = Member
(1) Under the rules and regulations of the Securities and Exchange Commission (“SEC”) and the listing standards of The
Nasdaq Stock Market (“Nasdaq”).
(2) The Board suspended the Technology and Acquisition Committee in June 2019 and determined not to reconstitute this
committee in March 2020.
(3) Mr. Hooshmand currently serves as Chairman of the Board.
(4) Ms. Rice was appointed to the Board and Nominating and Governance Committee effective as of April 13, 2020.
1
Board and Governance Highlights
Board Independence. Eight out of ten of our directors are independent in accordance with the rules and
regulations of the SEC and the listing standards of Nasdaq.
Board Diversity. The Board consists of a diverse group of professionals who bring significant leadership and
distinct qualities and skill sets to Infinera. We believe the current composition of the Board is culturally and
ethnically diverse, which provides a diverse range of perspectives and experience to engage each other and
management to effectively represent our shareholders.
Leadership Structure. We have separated the positions of Chairman and Chief Executive Officer (“CEO”).
Board and Committee Evaluation. The Board and its committees annually assess their performance through
an annual self-evaluation.
Board Tenure. The average tenure of our current Board members is approximately five years and eleven
months. We have refreshed our Board by appointing three new directors in the last two years.
Board Committees. We have three standing committees of the Board—Audit, Compensation, and Nominating
and Governance. All committees are composed entirely of independent directors.
Director Stock Ownership. Each non-employee director is required to own shares of Infinera common stock
having a value of at least four times their respective 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, as a whole and through its committees, has
responsibility for the oversight of overall risk management.
Executive Compensation Program Highlights
The design of our executive compensation program for fiscal 2019 reflects our ongoing commitment to
pay-for-performance and the continued strong alignment of the interests of our named executive officers (“NEOs”)
with those of our shareholders. At the beginning of fiscal 2019, when a majority of executive compensation
decisions were made, the Compensation Committee considered the performance of our company as we exited
fiscal 2018 and the importance of achieving the successful integration with Infinera of the recently acquired
Telecom Holding Parent LLC (“Coriant”). The decisions made reflected a continuing effort to maintain a strong
pay-for-performance profile and support accountability of our leadership team for our financial performance.
Highlights of our executive compensation program for fiscal 2019 included:
There were no increases in target cash compensation for our CEO. During the Compensation Committee’s
annual review in February 2019, the Compensation Committee approved no increase in base salary or annual
incentive targets for our CEO. This included maintaining the 20% salary reduction that was applied in
December 2017. This decision was based on the Compensation Committee’s view of Infinera’s challenging
business environment and an analysis of the market data provided by the Compensation Committee’s
independent compensation consultant.
Our long-term incentive program continues to emphasize performance-based awards. For our CEO, 100% of
the target value of equity granted in fiscal 2019 was in the form of two performance share awards. The first
performance share award was based on the achievement of positive non-GAAP operating income (the “OI
PSAs”).
The second performance share award was only granted to our CEO in lieu of time-based RSUs. This award
would only vest if the stock price was equal to or greater than $10.00 per share for each trading day during a
ninety-calendar day period occurring during a three-year performance period beginning on the grant date. The
$10.00 per share target represented a premium of 232% above the closing share price on the date of grant.
2
We continue to maintain sound corporate governance policies and practices. During fiscal 2019,
the following policies and practices continued to be in effect:
“Double-Trigger” Change-of-Control Agreements
• Majority Voting for the Election of Directors
• No Tax Gross-Ups
•
• Annual Compensation Risk Assessment
• No Executive Perquisites
•
Independent Compensation Consultant Reporting
Directly to Compensation Committee
• Compensation At-Risk
• Executive Clawback Policy
• Anti-Hedging Policy
• No Pledging of our Common Stock by
NEOs
• Fully Independent Compensation
Committee
• Stock Ownership Policy
3
INFINERA CORPORATION
PROXY STATEMENT
2020 ANNUAL MEETING OF SHAREHOLDERS
OUR BOARD OF DIRECTORS
Proposal 1—Election of Directors
We have endeavored to summarize the accomplishments, attributes and experiences of the members of our
Board in short bullets to make them easy to read because we think there is little that is more important to
emphasize in this proxy statement than the caliber of our directors.
Our Board members have created and patented technologies, founded and grown companies, managed
complex financial and accounting issues and spent significant time representing investors and shareholders. We
believe that the caliber of our people and the breadth and complementary nature of their skills, attributes and
experiences are among the most important aspects of our governance best practices.
WHO WE ARE
The director information we provide below includes their respective ages as of the Record Date, 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.
Nominees for election as Class I Directors. If elected, the Class I Directors terms would expire at the 2023
Annual Meeting of Shareholders.
Thomas J. Fallon
Age: 58
Chief Executive Officer of Infinera
Director since July 2009
Committees: None
Experience:
• CEO of Infinera (January 2010 to present); President (January 2010 to June 2013); Chief Operating
Officer (“COO”) (October 2006 to December 2009; Vice President of Engineering and Operations (April
2004 to September 2006)
• Vice President, Corporate Quality and Development Operations at Cisco Systems, Inc., a networking and
telecommunications company (August 2003 to March 2004); served in a variety of functions at Cisco,
including General Manager of the Optical Transport Business Unit and Vice President of Service Provider
Manufacturing (March 1991 to August 2003)
• Served in various manufacturing roles at Sun Microsystems and Hewlett Packard
Other Boards:
• Hercules Capital, Inc., a public specialty finance company (present)
• Engineering Advisory Board of the Cockrell School at the University of Texas (present)
Qualifications:
• Deep knowledge of Infinera and the industry
• Critical strategic planning, executive management, leadership and director expertise
• Technical expertise
4
Kambiz Y. Hooshmand
Age: 58
Chairman of the Board since October 2010
Independent Director since December 2009
Committees: Audit; Nominating and Governance
Experience:
• President and CEO of Applied Micro Circuits Corporation, a communications solutions company (March
2005 to May 2009)
• Group Vice President and General Manager of Cisco Systems (February 2002 to March 2005); Vice
President and Division General Manager of the DSL Business Unit (March 2000 to February 2002); Vice
President of Engineering (June 1997 to February 2000)
• Director of Engineering of StrataCom, Inc., a networking solutions company, which was acquired by
Cisco Systems (January 1992 to June 1997)
Other Boards:
• Former:
•
Power-One, Inc., an energy efficient power solutions company (October 2009 to July 2013,
when acquired by ABB Ltd.)
Qualifications:
• Board and executive leadership
• Broad knowledge of the business and industry
• Engineering expertise
Amy H. Rice
Age: 40
Independent Director since April 2020
Committees: Nominating and Governance
Experience:
• Managing Director in Oaktree Capital Management L.P.’s Special Situations Group and leads the group’s
investing efforts in several industry sectors (February 2019 to present)
• Senior Vice President for Oaktree Capital Management L.P. (February 2013 to February 2019)
• Prior to joining Oaktree in 2009, Ms. Rice spent two years as an associate at Lindsay Goldberg, LLC, and
before that, she spent two years as an analyst in the Leveraged Finance group at Deutsche Bank
Qualifications:
• Expertise in capital markets transactions and merger and acquisition transactions, outside of her primary
industry coverage
• Representative of the investor perspective
5
Incumbent Class II Directors whose terms expire at the 2021 Annual Meeting of Shareholders
Gregory P. Dougherty
Age: 60
Independent Director since January 2019
Committees: Compensation
Experience:
• CEO of Oclaro, Inc. (June 2013 until its acquisition by Lumentum Holdings Inc. in December 2018)
•
Interim CEO of Picarro, Inc., a manufacturer of ultra-sensitive gas spectroscopy equipment using laser-
based technology (January 2003 to April 2004)
• COO of SDL (1997 to 2001, when the company was acquired by JDS Uniphase Corporation), where he
continued in the role until 2002
• Director of Product Management and Marketing at Lucent Technologies Microelectronics in the
Optoelectronics Strategic Business Unit. (1989 to 1997)
Other Boards:
•
IPG Photonics Corporation, a fiber laser manufacturer (January 2019 to present)
• Fabrinet, an optical, electro-mechanical and electronic manufacturing services company (February 2019
to present)
• Max Linear, a fabless integrated circuit design company (March 2020 to present)
• Former:
•
•
Qualifications:
Oclaro, Inc. (April 2009 to December 2018)
Avanex Corporation, a leading global provider of intelligent photonic solution (April 2005 to April
2009, when Avanex and Bookham merged to become Oclaro)
• Board expertise as Lead Independent Director and compensation and audit committee chairs
• Extensive knowledge of the fiber optic component and transceiver markets
• Significant restructuring and integration experience
6
Paul J. Milbury
Age: 71
Independent Director since July 2010
Committees: Audit (Chair); Compensation
Experience:
• Cisco Systems—Played a key role in integrating Starent Networks into Cisco Systems to create the
Mobile Internet Technology Group (2009 to 2010)
• Vice-President of Operations and Chief Financial Officer (“CFO”) of Starent Networks, Corp, a provider of
mobile network solutions (2006 to 2009, when acquired by Cisco Systems)
• Vice-President and CFO of Avid Technology, a digital media creation, management and distribution
solutions company (2000 to 2007)
• Vice-President and CFO of private internet companies iBelong and JuniorNet (1998 to 2000)
• Vice-President and Treasurer of Digital Equipment Corporation (1994 to 1998, when acquired by Compaq
Computer)
Other Boards:
• Former:
•
•
Gigamon, a provider of network visibility and analytics (January 2014 to December 2017, AC
Chair, acquired by Elliott Management Corp)
Aerohive Networks, a pioneer in cloud-managed WLAN. (November 2012 to August 2014, AC
Chair; IPO 2014)
Qualifications:
• Significant finance, accounting and technology operations experience; Financial Expert
• Wide executive management and board experience at leading public and private technology companies
7
David F. Welch, Ph.D.
Age: 59
Director since October 2010; previously May 2001 to November 2006
Committees: None
Experience:
• Co-founded Infinera; Chief Innovation Officer (October 2018 to present); Chief Strategy and Technology
Officer (November 2017 to October 2018); President (June 2013 to November 2017); Executive Vice
President and Chief Strategy Officer (May 2004 to June 2013); Chief Development Officer/Chief
Technology Officer (May 2001 to May 2004)
• Chief Technology Officer of the Transmission Division of JDS Uniphase Corporation, an optical
component company (February 2001 to April 2001)
• Served in various executive roles, including Chief Technology Officer and Vice President of Corporate
Development of SDL, an optical component company (January 1985 to February 2001)
Other Boards:
• CytoDyn Inc., a biopharmaceutical company (January 2019 to present)
• Former:
•
Rezolute, Inc., a clinical stage biopharmaceutical company (June 2015 to January 2019)
Other:
• Holds over 130 patents
• 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
• Fellow of OSA and the Institute of Electrical and Electronics Engineers
Qualifications:
• One of the most highly regarded innovators in the optical communications sector
• Deep technology knowledge of the optical networking industry
• Experience as an Infinera founder, executive leader and board member
• Product development, marketing and sales strategies insights
8
Incumbent Class III Directors whose terms expire at the 2022 Annual Meeting of Shareholders
Sharon Holt
Age: 55
Independent Director since June 2019
Committees: Nominating and Governance (Chair)
Experience:
• Principal at Fraser Stuart Ventures, LLC, a private investment and advisory firm (2016 to present)
• Advisor to several technology companies (2012 to present)
• Senior executive at Rambus Inc., a leading technology development and licensing company, where she
served as Senior Vice President of Sales, Licensing and Marketing, and Senior Vice President and
General Manager of the Semiconductor Business Group (2004 to 2012)
• Executive at Agilent Technologies in the Semiconductor Products Group (now Broadcom), where her last
position was Vice President & General Manager of Americas Field Operations, overseeing sales and
technical support operations for the semiconductor business, including ASICs, ASSPs, optical and
wireless ICs and previously ran sales operations focused on Agilent’s largest global customers (1999 to
2004)
• Worked at HP in Applications Engineering, Sales, and Distribution Channel Management for the
Semiconductor Products Group (1986 to 1999)
Other Boards:
•
Immersion Corporation, a publicly traded developer of haptics technology for cellphones and other
devices (August 2016 to Present; Chair through August 2018)
Qualifications:
• Board expertise as Lead Independent Director and nominating and governance and compensation
committee chairs
• Wide technology sector executive leadership experience and intellectual property expertise
9
Marcel Gani
Age: 67
Independent Director since June 2014
Committees: Compensation (Chair); Audit
Experience:
•
•
Independent consultant (2009 to present)
Lecturer in Accounting and Finance at the Leavey School of Business at Santa Clara University (2005 to
2009)
• Held multiple roles at Juniper Networks, Inc., including Chief of Staff (January 2005 to March 2006);
Executive Vice President and CFO (February 1997 to December 2004)
• Vice President and CFO of NVIDIA Corporation (February 1996 to February 1997)
• Served as CFO of Grand Junction Networks, Primary Access Corporation and NeXT Computer, Inc.
Other Boards:
• SolarEdge Technologies, Inc., a power optimizer solutions company (March 2015 to present)
• Former:
•
Envivio, Inc., a video technology company (May 2011 to October 2015.)
Qualifications:
• Public and private company technology industry CFO experience
• Financial, accounting and financial reporting experience
10
Mark A. Wegleitner
Age: 69
Independent Director since May 2011
Committees: Nominating and Governance
Experience:
• President of Wegleitner Consulting, LLC, a privately-owned telecommunications consulting company
(April 2011 to present)
• 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 (September 2007 until his
retirement in July 2010). Chief Technology Officer, with responsibility for wireline communications
technologies (July 2000 to September 2007)
• Held various positions in the Network Services division of Bell Atlantic, a telecommunications company,
including Chief Technology Officer from January 1999 to July 2000
• Worked at Bell Laboratories and AT&T General Departments
Qualifications:
• Extensive telecommunications industry and technology experience
• Representative of the customer perspective
11
Departing Director
Mr. Patel is not standing for election at the Annual meeting and will retire from the Board at the conclusion of
the 2020 annual meeting. The Board thanks Mr. Patel for his distinguished service to our company and his many
contributions as a director.
Rajal M. Patel
Age: 51
Independent Director since September 2015
Committees: Nominating and Governance
Experience:
• Vice President, Infrastructure and Production Engineering for Workday, Inc. (September 2019 to present)
• Vice President, Cloud Platform Engineering at Symantec Corporation (April 2016 to September 2019)
• Head of Cloud Engineering at Pinterest (March 2014 to April 2016)
• Senior Vice President for Technical Operations at Salesforce.com (July 2013 to December 2013)
• Vice President for Cloud Services Engineering for the Webex collaboration portfolio at Cisco (April 2010
to July 2013)
• Held various engineering and management roles at Yahoo! Inc. (2004 to early 2010)
• Worked at Exodus Communications, which was shortly thereafter acquired by Cable and Wireless where
he served as Vice President of Network Services and facilitated the integration of Exodus technology
assets into Cable and Wireless
• 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
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 I nominees listed
above.
12
HOW WE ARE SELECTED AND ELECTED
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 seeks to assure that the Board is composed of individuals of diverse backgrounds who have a variety
of complementary experience, training, attributes and relationships relevant to our business. 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 I directors have 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.
The Board currently consists of ten directors and is divided into three classes. Each class of the Board serves
a staggered three-year term. Our Class I directors, whose terms expire at the Annual Meeting, are Thomas J.
Fallon, Kambiz Y. Hooshmand, Rajal M. Patel and Amy Rice. After the Annual Meeting, the Board will consist of
nine members.
There are three nominees for election to Class I of the Board this year, Messrs. Fallon and Hooshmand and
Ms. Rice. 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 I directors, if elected, will serve for a three-year term expiring at the 2023 Annual Meeting of Shareholders,
or until his successor is duly elected and qualified, or until his earlier death, resignation or removal from the Board.
Our Amended and Restated Bylaws (“Bylaws”) provide that, in an election of directors where the number of
nominees does not exceed the number of directors to be elected, each director nominee must receive a majority of
votes cast with respect to that director nominee. Should one of the nominees up for election not receive a majority
of votes cast, the Board, after taking into consideration the recommendation of the Nominating and Governance
Committee, will determine whether or not to accept a pre-tendered resignation of such nominee. The Board will
publicly disclose its decision and its rationale within 90 days of the certification of the election results. The director
whose resignation is under consideration shall abstain from participating in any decision regarding that resignation.
We believe the current Board consists of a diverse group of professionals, including former CEOs, CFOs and
industry leaders, who bring significant leadership and distinct qualities and skill sets to Infinera, including direct
shareholder representation by our second largest shareholder. This group provides a diverse range of
perspectives and experience to engage each other and management to effectively represent our shareholders. In
addition, the Board added its first female director in June 2019, which further highlights our commitment to
diversity. Any search firms retained to assist the Nominating and Governance Committee will be
specifically advised to seek to include qualified, diverse candidates from traditional and nontraditional
environments, including women and ethnically diverse minorities.
Independence of the Board
On an annual basis, in accordance with the current listing standards of Nasdaq, the Board affirmatively
determines the independence of each director or nominee for election as a director. The Board has determined
that eight out of ten of our directors (with the exception of Mr. Fallon and Dr. Welch, both of whom are employees
13
of Infinera) are “independent” in accordance with the rules and regulations of the SEC and 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.
HOW WE GOVERN AND ARE GOVERNED
Although it is important and exciting to focus on opportunities and successes, we at Infinera believe it is also
important to focus on responsible compliance, risk management, and governance structures and functions.
Success in our sector in particular depends on maintaining an ability to identify challenges early, maintaining best-
possible security and governance practices, and fostering an ability to pivot quickly and continually.
Board Oversight of Risk
Risk is inherent with every business and the Board is responsible for overseeing our risk management
function, including a regular review of our strategic plans and business objectives. 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
addition, each of the committees of the Board considers any risks that may be within its area of responsibilities and
Board members, or Board committee members, periodically engage in discussions with members of our senior
management team as appropriate. Specifically, the Audit Committee assists the Board in fulfilling its oversight
responsibilities with respect to risk management in the areas of financial reporting, internal controls, key
accounting and reporting policies, and cybersecurity, as well as meeting with the Head of Internal Audit and our
external independent auditors. 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 smaller acquisitions and investments. Each of the committee chairs reports to the full
Board at regular meetings concerning the activities of the committee, the significant issues it has discussed, and
the actions taken by the committee.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics, most recently updated in March 2019, 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 honestly and with integrity with everyone, including our
customers, employees, investors and suppliers. We require all employees to complete training on our Code of
Business Conduct and Ethics.
Our Code of Business Conduct and Ethics is just one element of the many practices and procedures we
utilize to try to create a diverse and inclusive culture that encourages helpful and honest communication both up
and down reporting relationship chains. Our executive leaders set the tone for this culture at the top and our ability
to maintain a positive and creative work environment depends on its success. Our annual Infinera Sustainability
Report describes some of the additional programs and practices we maintain to protect our people and their
productivity, health and well-being.
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 Investors 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 Current Report on Form 8-K if required by the applicable listing standards.
14
Corporate Governance Guidelines
The letter from our Board Chair at the beginning of this proxy statement references some of our governance
best practices. The Board has adopted Corporate Governance Guidelines which govern, among other things,
Board composition, Board responsibilities, committee composition, management succession and shareholder
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
Investors page.
Stock Ownership Policy
The Board believes that it is important to link the interests of our directors and management to those of our
shareholders. Accordingly, the Board has adopted a Stock Ownership Policy for our directors and executive
officers who are designated as reporting officers under Section 16 (“Section 16 Officers”) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). 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.”
Corporate Social Responsibility
We aim to create a corporation that strategically considers all choices in light of our role in the global
community. As an established player in transport networking, we recognize that we have some level of influence in
the communities where we operate and in the marketplace. We view this influence as a privilege that inspires us to
lead with bold and intentional socially responsible practices. Whenever possible, our hope is to use that influence
to drive new best practices and a sense of obligation to the world around us. Each year we summarize our
sustainability program and activities in a report, the Infinera Sustainability Report.
These are not just words: we have the practices, metrics, targets and disclosures to back them up. Rather we
encourage you to read the current Infinera Sustainability Report and watch for our updated one which we expect to
post in the coming months.
In addition:
• We have leveraged our ability as a company with an immense customer base and supply chain to
promote good practices broadly. We not only conduct individual supplier reviews and supplier audits but
have achieved 100% certification of our supplier code of conduct. A copy of the Supplier Code of
Conduct as well as other related policies related information can be found on the “Corporate Social
Responsibility” page of our website at www.infinera.com.
• We provide detailed diversity data.
• We are committed to using our design, development and sales practice to protect personal data against
unauthorized access, use, retention and disclosure. We are not aware of any complaints about breaches
of customers’ privacy or of any leaks, thefts, losses of customers’ personal data from any such breach.
• All of our full-time employees and regular 24 hr+ part time employees are eligible for all Infinera benefits.
• We are members of the Responsible Minerals Initiative.
• We incorporate SASB into our materiality assessment and use both a UN Global Compact and a GRI
Index in our ESG reporting.
We are fortunate to operate in a sector that presents relatively few major environmental challenges while
creating many opportunities to provide environmental and social benefits. In addition to the practices, targets,
metrics and disclosures summarized above, our operations directly help people connect socially and
professionally; run their businesses more efficiently, fairly and globally; and enable the management of risks that
are created by living in a connected global economy.
15
HOW WE ARE ORGANIZED
Board Leadership Structure
The Board believes its current leadership structure best serves the objectives of the Board’s oversight of
management, the Board’s ability to carry out its roles and responsibilities on behalf of our shareholders, and our
overall corporate governance. Separating the positions of Chairman of the Board and CEO 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 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.
Mr. Hooshmand has served as Chairman of the Board since October 2010.
The Board also believes that the combination of an independent Chairman of the Board, all three of our
current standing committees being 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.
Agreement with Oaktree Optical Holdings
In April 2020, we entered into a letter agreement with Oaktree Optical Holdings, L.P. (“Oaktree”) pursuant to
which we agreed, among other things, to nominate and support Ms. Rice for election as a director at the Annual
Meeting. Subject to certain exceptions set forth in the letter agreement, Oaktree and certain affiliates agreed to
vote all of its shares at the Annual Meeting in a manner consistent with the recommendation of our board of
directors. Oaktree also agreed to customary standstill restrictions.
Information Regarding the Board and its Committees
The Board met 12 times during fiscal 2019. The Board acted by written consent six times during fiscal 2019.
During fiscal 2019, each director then in office attended 75% or more of the meetings of the Board other than
Dr. Welch who attended 66% of the Board meetings. During fiscal 2019, each director then in office attended 75%
or more of the meetings of the committees on which he or she served during the period for which he or she was a
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 shareholders. Two members of the Board attended our 2019 Annual
Meeting of Shareholders. In addition, John P. Daane stepped down from the Board and did not stand for
re-election to the Board in May 2019.
16
The Board had three standing committees as of the end of fiscal 2019: an Audit Committee, a Compensation
Committee and a Nominating and Governance Committee. The Board suspended the Technology and Acquisition
Committee in June 2019 and determined not to reconstitute this ad hoc committee in March 2020. The Board also
established an Integration Oversight Committee with a one-year term in October 2018 (as described in more detail
below). Mr. Fallon and Dr. Welch do not currently serve on any committees of the Board.
Name
Board Audit Compensation
Gregory P. Dougherty(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marcel Gani
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sharon E. Holt(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kambiz Y. Hooshmand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paul J. Milbury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rajal M. Patel(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amy H. Rice(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark A. Wegleitner
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David F. Welch, Ph.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
M
M
M
M
C
M
M
M
M
M
Total Meetings in Fiscal 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
—
—
M
—
M
C
—
—
—
—
11
M
—
C
—
—
M
—
—
—
—
6
Nominating
and
Governance
—
—
—
C
M
—
M
M
M
—
5
C = Chairman; M = Member
(1) Effective as of January 29, 2019, Mr. Dougherty joined the Board and replaced Mr. Daane on the Compensation Committee.
(2) Effective as of June 3, 2019, Ms. Holt joined the Board, effective July 16, 2019, Ms. Holt joined the Nominating and
Governance Committee, and effective April 13, 2020 Ms. Holt replaced Mr. Patel as Chairman of the Nominating and
Governance Committee.
(3) Effective as of May 23, 2019, Mr. Patel replaced Mr. Daane as Chairman of the Nominating and Governance Committee and
served as Chairman until April 13, 2020.
(4) Effective as of April 13, 2020, Ms. Rice joined the Board and was appointed to the Nominating and Governance 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. The Audit Committee also
consults with our management and our independent registered public accounting firm prior to the presentation of
financial statements to shareholders and, as appropriate, initiates inquiries into aspects of our financial affairs. The
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, the
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 the 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 Investors page.
The current members of the Audit Committee are Messrs. Gani, Hooshmand and Milbury. Mr. Milbury chairs
the Audit Committee. Each current member of the Audit Committee served the entire fiscal year. The Audit
Committee met eleven times during fiscal 2019. The Audit Committee acted by written consent once during fiscal
2019. Each member of the 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 the 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
17
does not impose on Messrs. Gani and Milbury any duties, obligations or liabilities that are greater than are
generally imposed on them as members of the Audit Committee and the Board.
Compensation Committee
The Compensation Committee has the responsibility, authority and oversight relating to the development of
our overall compensation strategy and compensation policies and programs. The Compensation Committee
establishes our compensation philosophy and policies, administers all of our compensation plans for executive
officers, and recommends the compensation for the non-employee directors of the Board. The Compensation
Committee seeks to assure that our compensation policies and practices promote shareholder 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 Investors page.
The current members of the Compensation Committee are Messrs. Dougherty, Gani and Milbury. Mr. Gani
chairs the Compensation Committee. In addition, Mr. Dougherty replaced Mr. Daane on the Compensation
Committee effective as of January 29, 2019. Other than Mr. Dougherty, each current member of the
Compensation Committee served the entire fiscal year. The Compensation Committee met six times during fiscal
2019. The Compensation Committee acted by written consent three times during fiscal 2019. Each member of the
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) (“Section 162(m)”) of the Internal Revenue Code,
as amended (the “Code”) and satisfies the director and compensation committee independence requirements
under the listing standards of Nasdaq.
Non-Executive Equity Award Subcommittee
The guidelines for the size of new hire, promotional and annual retention equity awards for Section 16 Officers
are reviewed and approved by the Compensation Committee. The Compensation Committee has delegated to the
Non-Executive Equity Award Subcommittee (the “Subcommittee”) the authority to formally approve new hire,
promotional and retention equity awards to certain employees pursuant to guidelines pre-approved from time to
time 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 fourteen times during fiscal 2019. This Subcommittee is currently
comprised solely of our CEO (who is also a Board member).
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 shareholders.
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. In addition, the Nominating and Governance Committee
oversees our succession planning process. 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 Investors page.
18
The current members of the Nominating and Governance Committee are Messrs. Hooshmand, Patel, and
Wegleitner and Mses. Holt and Rice. In addition, Mr. Patel replaced Mr. Daane as Chairman on the Nominating
and Governance Committee effective as of May 23, 2019 and Ms. Holt replaced Mr. Patel as Chairman of the
Nominating and Governance Committee effective as of April 13, 2020. Other than Ms. Holt and Ms. Rice, each
current member of the Nominating and Governance Committee served during the entire 2019 fiscal year. The
Nominating and Governance Committee met five times during fiscal 2019. The Nominating and Governance
Committee acted by written consent twice during fiscal 2019. Each member of the Nominating and Governance
Committee satisfies the independence requirements under the listing standards of Nasdaq.
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, the Nominating and Governance Committee reviews and makes
recommendations to the Board regarding the size and composition of the Board and the appropriate skills and
characteristics 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 shareholders’ long-term interests. The Board and
the Nominating and Governance Committee follow a process that we consider best practices 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. The Board and Nominating and Governance Committee
evaluates the skill sets needed to provide the right level of guidance and oversight to the management team.
Within the context of evaluating the skills needed on the Board, the Nominating and Governance Committee also
considers diversity attributes, including gender, race, orientation, ethnicity, specialized expertise and a range of
insight gathered from relevant industries. These factors, and others considered useful by the 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.
The 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. From time to
time, the Nominating and Governance Committee may engage the services of a search firm to identify director
candidates. Any search firms retained to assist the Nominating and Governance Committee will be
specifically advised to seek to include qualified, diverse candidates from traditional and nontraditional
environments, including women and ethnically diverse minorities. The Nominating and Governance
Committee will also consider candidates proposed in writing by shareholders, provided such proposal meets the
eligibility requirements for submitting shareholder 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 shareholders are evaluated by the Nominating and Governance Committee using the same criteria as
for all other candidates.
If a shareholder wishes to recommend a director candidate for consideration by the Nominating and
Governance Committee, pursuant to our Corporate Governance Guidelines, the shareholder 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 shareholder believes is relevant in considering the director candidate.
19
Technology and Acquisition Committee
At the time the Technology and Acquisition Committee was suspended in June 2019, this committee was
comprised of Messrs. Hooshmand, Patel, Wegleitner and Dr. Welch. Mr. Wegleitner chaired the Technology and
Acquisition Committee. The Technology and Acquisition Committee met once during fiscal 2019. The Technology
and Acquisition Committee did not act by written consent during fiscal 2019.
The Board suspended the Technology and Acquisition Committee in June 2019 in order to re-evaluate its
responsibilities. There were no further meetings after its initial meeting in February 2019. The Board finally
determined not to reconstitute the Technology and Acquisition Committee in March 2020.
Integration Oversight Committee
In October 2018, the Board formed the Integration Oversight Committee to provide guidance to the
management of Infinera in its integration of the business, personnel and infrastructure of Coriant with Infinera, and
assist the Board in its oversight of the integration. The Integration Oversight Committee provided general oversight
of all activities related to the integration, oversaw the formulation and implementation of a plan for the integration
and oversaw the execution, performance and results of the integration. This committee had a one-year term which
terminated in October 2019.
The Integration Oversight Committee consisted of Messrs. Dougherty, Hooshmand and Milbury at its
termination. Mr. Dougherty had replaced Mr. Daane as a member of the Integration Oversight Committee effective
as of March 1, 2019. The Integration Oversight Committee met twice during fiscal 2019. The Integration Oversight
Committee did not act by written consent during fiscal 2019.
Compensation Committee Interlocks and Insider Participation
During fiscal 2019, Messrs. Daane, Dougherty, Gani and Milbury served on the Compensation Committee.
None of these individuals was at any time during fiscal 2019, or at any other time, an executive officer or employee
of Infinera. No member of the Compensation Committee had any relationship with Infinera during fiscal 2019
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.
HOW TO COMMUNICATE WITH US
The board of directors actively seeks input from shareholders, stakeholders, thought leaders and many others
to perform its functions optimally. As shareholders bring wide and relevant experiences and have a financial stake
in the wisdom of their input, the board values maintaining a number of avenues to receive that input. These
include:
• Shareholder attendance or participation at our annual shareholders meetings
•
Input from proxy voting
• Use of the company’s various reporting mechanisms such as its “hot lines’ and reports to the internal
audit function
• Participation in our numerous investor relations programs and conferences
Write to the directors as a whole or individually to the following address:
Board of Directors
c/o Corporate Secretary
Infinera Corporation
140 Caspian Court
Sunnyvale, California 94089
20
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.
HOW WE ARE PAID
Our compensation program for our non-employee directors is designed to attract and retain highly qualified,
independent directors to represent shareholders 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 2019, 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 Compensation Committee did not recommend any changes to our
director compensation program after its review during fiscal 2019. The full Board last approved changes to the
director cash compensation program in December 2015 other than to approve fees for service on the Integration
Oversight Committee, which has since ceased to exist.
Director Fees
During fiscal 2019, our cash compensation program for our non-employee directors was as follows:
Position
Non-Employee Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominating and Governance Committee Chairman . . . . . . . . . . . . . . . . . . . . . . . . .
Nominating and Governance Committee Member
. . . . . . . . . . . . . . . . . . . . . . . . . .
Technology and Acquisition Committee Chairman . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology and Acquisition Committee Member
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Integration Oversight Committee Member(2)
Annual Retainer Fee
($)
50,000
50,000
30,000
12,500
20,000
10,000
11,000
6,000
10,000(1)
5,000(1)
15,000
(1) The annual retainer fees for the Technology and Acquisition Committee were suspended for the third and fourth quarter of
fiscal 2019. The Board determined not to reconstitute the Technology and Acquisition Committee in March 2020.
(2) Beginning the third quarter of fiscal 2019, the Integration Oversight Committee was disbanded.
We do not pay 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
appointment to the Board or election at an annual meeting of shareholders will receive an RSU award
covering a number of shares with an aggregate fair market value as reported on Nasdaq on the day prior
to the grant date equal to approximately $165,000 (the “Initial RSU Award”). The Initial RSU Award vests
in annual installments over three years, provided that the non-employee director remains a service
provider of Infinera through each applicable vesting date.
21
• Annual RSU Award. On the date of each annual meeting of shareholders, each individual who continues
to serve as a non-employee director after that annual meeting will be eligible to receive an RSU award
covering a number of shares with an aggregate fair market value as reported on Nasdaq on the day prior
to the grant date equal to approximately $165,000 (the “Annual RSU Award”). The Annual RSU Award
will vest as to 100% of the underlying shares on the earlier of the date of the next annual meeting of
shareholders or the one-year anniversary of the date of grant, provided that the non-employee director
remains a service provider of Infinera on the applicable vesting date.
Assuming a non-employee director is appointed to the Board at least six months prior to the next annual
meeting of shareholders, such non-employee director will also be eligible for an RSU award covering a number of
shares with an aggregate fair market value as reported on Nasdaq on the day prior to the grant date equal to
approximately $165,000. The number of shares covering this RSU award will be prorated for the number of
months remaining until the next scheduled annual meeting of shareholders.
For the Annual RSU Award in connection with the 2019 Annual Meeting of Shareholders, we granted RSU
awards covering 53,745 shares of Infinera common stock to each non-employee director then in office. These
RSU awards vest in full on May 21, 2020, subject to each non-employee director’s continued service to Infinera on
the applicable vesting date.
Fiscal 2019 Director Compensation
The following table sets forth all of the compensation awarded to or earned by the non-employee members of
the Board in fiscal 2019.
Name
Fees Earned
or Paid in Cash
($)(1)
Stock
Awards
($)(2)
Option
Awards
($)
John P. Daane(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gregory P. Dougherty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marcel Gani . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sharon E. Holt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kambiz Y. Hooshmand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paul J. Milbury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rajal M. Patel
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark A. Wegleitner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26,813
60,041
82,500
31,445
128,500
97,500
61,508
61,000
—
—
324,622(4) —
159,623 —
329,997(5) —
159,623 —
159,623 —
159,623 —
159,623 —
Total
($)
26,813
384,663
242,123
361,442
288,123
257,123
221,131
220,623
(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 2019
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. Daane did not stand for re-election at the 2019 Annual Meeting of Shareholders and no longer serves as a director.
In addition to the Annual RSU Award, this amount includes the value of an Initial RSU Award upon Mr. Dougherty’s
(4)
appointment to the Board on January 29, 2020.
In addition to the Annual RSU Award, this amount includes the value of an Initial RSU Award upon Ms. Holt’s appointment to
the Board on June 3, 2020.
(5)
22
Additional Information with Respect to Director Equity Awards
Name
John P. Daane(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gregory P. Dougherty . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marcel Gani
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sharon E. Holt
Kambiz Y. Hooshmand . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paul J. Milbury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rajal M. Patel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark A. Wegleitner
Shares Subject to
Stock Awards Outstanding
at Fiscal Year-End
(#)(1)
Shares Subject to
Option Awards Outstanding
at Fiscal Year-End
(#)
—
91,589
53,745
107,142
53,745
53,745
53,745
53,745
—
—
—
—
—
7,600
—
40,000
(1) Unvested time-based RSU awards.
(2) Mr. Daane did not stand for re-election at the 2019 Annual Meeting of Shareholders and no longer serves as a director.
23
OUR PAY
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis provides information related to the fiscal 2019 compensation
program and related decisions for our NEOs identified below.
Executive Summary
Fiscal 2019 was a mixed year for Infinera. Although we had a very strong one-year total shareholder return
(“TSR”) of 95%, this was largely due to a depressed share price at the beginning of the year. While we met our
synergy targets as part of the integration of Infinera and Coriant and we achieved non-GAAP operating profitability
in the fourth quarter of 2019, our financial performance for the full year did not meet our expectations set forth in
our 2019 annual operating plan approved by the Board in the beginning of the year.
That mixed performance had a significant impact on our compensation structure and compensation outcomes
in fiscal 2019. Last year, our CEO’s compensation reflected this year in many ways, including that:
• Target pay opportunity was reduced nearly 10% below the level in 2018;
• Base salary continued to be paid at a level 20% below the level in 2017;
• Equity-based compensation was shifted to 100% performance-based;
• No annual cash bonus was earned; and
• Realized compensation value for our CEO in fiscal 2019 was less than a quarter of his target
compensation.
We believe in strong pay and performance alignment, as these pay program decisions and outcomes
demonstrate. The remainder of this executive summary will illustrate these various aspects of our compensation
program.
Our Company
We are a global supplier of networking solutions comprised of networking equipment, software, and services.
Our portfolio of solutions includes optical transport platforms, converged packet-optical transport platforms, optical
line systems, disaggregated router platforms, a suite of networking and automation software offerings, and support
and professional services. Our end-user’s services and applications include, but are not limited to, high-speed
internet access, business Ethernet services, 4G/5G mobile broadband, cloud-based services, high-definition video
streaming services, virtual and augmented reality, and the Internet of Things.
• Our systems are highly scalable, flexible and designed with open networking principles for ease of
deployment.
• We build our systems using a combination of internally manufactured and third-party components. Our
portfolio includes systems that leverage our innovative optical engine technology, comprised of large-
scale photonic integrated circuits (“PICs”) and digital signal processors (“DSPs”). We optimize the
manufacturing process by using indium phosphide to build our PICs, which enables the integration of
hundreds of optical functions onto a set of semiconductor chips.
• This large-scale integration of our PICs and advanced DSPs allows us to deliver high-performance
transport networking platforms with features that customers care about the most, including cost per bit,
low power consumption and space savings.
• We design our optical engines to increase the capacity and reach performance of our products by
leveraging coherent optical transmission.
Our Named Executive Officers
For fiscal 2019, our NEOs were the following:
• Thomas J. Fallon, our CEO;
24
• Nancy Erba, our CFO
• Brad D. Feller, our former CFO;
• David W. Heard, our COO;
• David L. Teichmann, our Chief Legal Officer (“CLO”) and Corporate Secretary; and
• Robert J. Jandro, our Senior Vice President, Worldwide Sales.
Fiscal 2019 Management Changes. In February 2019, the Compensation Committee established fiscal 2019
target compensation for our NEOs who were then employed with us. Mr. Feller resigned as CFO from Infinera
effective as of August 26, 2019 and was replaced by Ms. Erba effective as of August 26, 2019. Ms. Erba originally
joined Infinera on August 1, 2019 as the Senior Vice President, Strategic Finance until her appointment as CFO.
Mr. Teichmann was appointed as our CLO and Corporate Secretary effective as of April 1, 2019. Mr. Jandro
served in his role for the full fiscal year, but on January 3, 2020, Mr. Jandro informed us of his decision to retire
from his position as our Senior Vice President, Worldwide Sales, effective immediately.
Fiscal 2019 Business Results
Our fiscal 2019 financial performance fell short of the expectations we established at the beginning of the
year. In particular, our non-GAAP operating loss was $82.5 million compared to a target non-GAAP operating
income loss of $45 million established at the beginning of the year in our 2019 bonus plan (the “2019 Bonus
Plan”). However, this annualized view of performance could overshadow significant improvements during the year,
including a significant drop in operating expenses as a percentage of revenue as we started to benefit from
synergies related to reducing headcount, combining systems and decreasing our real estate footprint. It is
noteworthy that our non-GAAP operating loss for the second half of the year of $9.7 million compared to a loss of
$72.7 million in the first half of the year and included positive non-GAAP operating income of $8.8 million in the
fourth quarter of 2019.
However, in spite of these financial outcomes, fiscal 2019 was also a year of significant accomplishment in
establishing us as a leader in the optical networking market. Our progress is marked by achievements in four key
areas:
• We made significant improvements in our financial performance, ending the year strong with solid results
for the fourth quarter of 2019. Non-GAAP revenue for the quarter was $386 million, exceeding our
guidance range, as customer demand remained robust in the quarter. In addition, non-GAAP operating
margin improved to positive 2.3% in the fourth quarter of 2019 as we achieved our goal of exiting fiscal
2019 with non-GAAP operating profitability for the quarter.
• We completed the integration of Coriant and met or exceeded our year one integration goals, laying the
foundation for improved operational efficiencies.
• Our portfolio of products and services enabled us to win new customers in fiscal 2019. We view these
wins as important validation of the value we now bring to the market and believe our portfolio positions us
well for continued growth.
• We increased our investment in differentiated optical technology, positioning us to lead in the emerging
fifth generation 800 gigabits per second DSP markets and laying the foundation to create an entirely new
market category with XR Optics.
25
The following table illustrates our GAAP revenue and non-GAAP operating loss over the last three fiscal
years:
1400
1200
1000
800
600
400
200
0
Revenue (in millions)
Non-GAAP Opera(cid:2)ng Loss (in millions)(1)
$1298.9
$943.4
$740.7
FY17
FY18
Fiscal Year
FY19
0
-10
-20
-30
-40
-50
-60
-70
-80
-90
($48.9)
FY18
Fiscal Year
($74.9)
FY17
($82.5)
FY19
(1) For a reconciliation of GAAP to non-GAAP revenue, gross profit, gross margin, operating income (loss) and operating
margin for fiscal 2019, 2018 and 2017, please see Appendix A to this Proxy Statement.
The following graph shows our 1-, 3- and 5-year TSR as compared to the Standard & Poor’s North American
Technology Multimedia Networking Index (“S&P Networking Index”).
Annualized 1-Year, 3-Year and 5-Year
Total Stockholder Return
INFN
S&P Networking
0.95
0.17
0.09
0.09
-0.03
1-Year
3-Year
-0.12
5-Year
1.2
1
0.8
0.6
0.4
0.2
0
-0.2
Fiscal 2019 Executive Compensation Program Overview
At the beginning of fiscal 2019, when a majority of executive compensation decisions were made, the
Compensation Committee considered the performance of our company as we exited fiscal 2018 and the
importance of achieving the successful integration of Infinera and the recently acquired Coriant. The decisions
made reflected a continuing effort to maintain a strong pay-for-performance profile and supported accountability of
our leadership team for our financial performance. The key elements of our executive compensation program
include base salary, a cash bonus plan and long-term incentives in the form of performance shares and, for
executives other than our CEO, time-based RSUs.
Our business is still in a period of transformation. We are making significant progress in this transformation.
For example, we reached non-GAAP operating profitability in the fourth quarter of 2019, exited the fourth quarter
of 2019 with positive cash flow and also logged significant bookings growth. We have a plan for continued
technology innovation over the next several years, as we build on our existing technologies such as DRX/XTM and
ICE6, as well as a roadmap for developing new products and technologies, such as XR Optics.
26
Our compensation plans have been designed to reward our executives, and our employees more broadly, as
we make progress toward long-term sustainable profitability and growth. Because we are in this period of
transition, our compensation program measures progress on similar metrics in the short- and long-term, and
contains rewards for our executives that are earned when certain strategically important financial milestones are
met and sustained. We believe this program is in the best interests of and aligned with our shareholders and
maximizes the incentive for our employees and executive team to deliver shareholder value.
Due to rapidly evolving business developments, in August 2019, our Compensation Committee worked with
Compensia to effect changes to our annual incentive program to ensure that the program retained a motivational
value for our NEOs and employees throughout Infinera. The CEO was not included in this program modification;
Mr. Fallon continued to be held accountable to goals set at the beginning of the year. As part of this modification
for our NEOs, the award payout was capped at 75% of the target opportunity to account for the decreased targets;
actual payouts were further modified in a downward fashion due to the exercise of negative Compensation
Committee discretion to create better alignment with our financial outcomes.
Executive Compensation Program Structure
Compensation Element
(CEO/aggregate NEO(1)
allocation at target)
Structure and Attributes
Base Salary
(13% CEO/23% NEOs)
• Competitively benchmarked
• No base salary increase for our CEO in 2019
Target Annual Cash
Incentive
(16% CEO/16% NEOs)
Long-Term Performance-
Based Stock Awards
(71% CEO/27% NEOs)
Long-Term Restricted Stock
Awards
(0% CEO/34% NEOs)
• Based on objective performance metrics(2):
• 75% based on Non-GAAP Operating Income
• 25% based on Positive Cash Flow in Fourth Quarter of 2019
• Program revised mid-year to account for business developments;
payouts capped at 75% of target and goals for CEO not modified
• CEO received no payout; after negative discretion, other NEOs
received payout at 55% of target
• Based on objective performance metrics:
• 75% based on Non-GAAP Operating Income (100% for NEOs
other than the CEO)
• 25% based on Market Price of the company’s shares (0% for
NEOs other than the CEO)
• Vesting occurs when pre-set targets for each award are met and
sustained for periods required by each award
• Designed for long-term retention and to provide strong long-term
shareholder alignment
• RSUs vest pro-rata annually over four years. No shares vest prior
to the first anniversary of grant
• CEO receives no restricted stock awards
(1) Only included then-current NEOs at time compensation decisions were made in February 2019
(2) Post-modification
Pay-for-Performance Outcome in Fiscal 2019
Our emphasis on performance-based incentives is evidenced in the chart below, which illustrates our CEO’s
target total direct compensation versus his actual realized compensation during the most recent three fiscal years.
Target total direct compensation is defined as the sum of the base salary rate approved for each fiscal year, the
bonus target for the year, and the grant date target value of equity. The target value of equity reflects the grant
27
date share price of performance share awards, which differs from the value reported in the Summary
Compensation Table below. Actual realized compensation includes the base salary and cash annual incentive
earned during the year plus the sum of any RSUs and performance shares that vested during the year, valued
using the share price on the vesting date.
First, the Compensation Committee kept our CEO’s base salary the same as the prior fiscal year. In addition,
target equity awards in fiscal 2019 were equal to the value of target grants in fiscal 2018, and took the form of two
performance share awards for our CEO. The Compensation Committee believes keeping CEO pay in line with the
prior fiscal year was consistent taking into consideration the performance of Infinera exiting fiscal 2018.
In addition, our CEO’s realized compensation is aligned with our shareholder return in 2019 and was
significantly below target in 2017, 2018 and 2019. This relationship between realized pay and our total shareholder
return continues a pattern from 2017 and demonstrates the alignment of pay and performance inherent in the
design of our executive compensation programs. As the chart below illustrates, realized compensation for our
CEO was approximately 70% to 80% below target in each of the most recent three fiscal years.
Our fiscal 2019 payouts reflect the alignment of our executive compensation program with the performance of
Infinera. As indicated above, a significant portion of our executive compensation program was designed to align
the compensation outcomes for our participating NEOs with performance against measurable objectives.
Chief Execu(cid:2)ve Officer Compensa(cid:2)on and INFN Price
)
M
$
(
n
o
(cid:2)
a
s
n
e
p
m
o
C
O
E
C
$6.0
$5.0
$4.0
$3.0
$2.0
$1.0
$0.0
$14.00
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
e
c
i
r
P
k
c
o
t
S
$4.7
$1.4
$4.4
$1.3
$4.0
$0.9
2017
2018
2019
Target Compensa(cid:2)on
Realized Compensa(cid:2)on
INFN Share Price
Bonuses under the amended 2019 Bonus Plan for participating NEOs were determined based on our
performance against the achievement of financial targets. The financial performance targets for our participating
NEOs under the amended 2019 Bonus Plan (as described in the section “Performance-Based Incentive Cash
Compensation (2019 Bonus Plan)-Amended 2019 Bonus Plan”) were tied to non-GAAP operating income for fiscal
2019 and positive cash flow for the fourth quarter of 2019. We met our financial targets under the amended 2019
Bonus Plan, which (after negative Compensation Committee discretion) resulted in a payout at 55% for our
participating NEOs. Our CEO was not eligible to participate in the amended 2019 Bonus Plan.
Portions of long-term performance share awards made in 2017 and 2018 were earned at the completion of
fiscal 2019. Each of those portions was earned below target levels of performance and were based on two- and
three-year performance objectives based on total shareholder return. More details on those payouts are located in
the section “Long-term Incentive Compensation-Outstanding Performance Share Awards Granted in Prior Fiscal
Years.”
During fiscal 2019, we granted performance share awards with a new type of performance goal related to the
achievement of non-GAAP profitability. One hundred percent of the shares subject to the performance award
would become eligible to vest based upon our achievement of positive non-GAAP operating income (that is,
28
greater than $0). We did not achieve positive non-GAAP operating income for fiscal 2019 and no shares have
become eligible to vest.
Governance of Executive Compensation
Our executive compensation program includes the following executive compensation governance policies and
practices:
• Compensation At-Risk. Our executive compensation program is designed so that a significant portion of
our NEO’s compensation is “at risk” based on corporate performance, as well as equity-based to align the
interests of our executives and shareholders.
• Executive Clawback Policy. We maintain an executive clawback policy that applies to our Section 16
Officers and provides for recovery of both cash and equity incentive compensation under specified
circumstances.
• Anti-Hedging Policy. Our Insider Trading Policy prohibits all employees, including our NEOs, and Board
members, from hedging their Infinera common stock.
• Anti-Pledging Policy. Our Insider Trading Policy prohibits our NEOs and Board members 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.
• 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 and performed no services for Infinera during fiscal 2019 other
than services for the Compensation Committee.
Advisory Vote on Fiscal 2018 Named Executive Officer Compensation—“Say-on-Pay” Vote
In calendar 2019, shareholders 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 2018. Our shareholders approved this
say-on-pay proposal, with more than 96% of votes cast voting in favor of our executive compensation program.
Noting the results of this vote, the Compensation Committee considered this when making compensation
decisions for fiscal 2019.
In light of the 2019 say-on-pay vote, the Compensation Committee maintained a consistent general approach
to our executive officer compensation program. This included a continued emphasis on pay-for-performance
through the use of performance shares that reward executive officers only if they deliver value for our
shareholders. For fiscal 2019, and as noted above, the Compensation Committee also approved no increases to
the base salaries or target annual incentives of our CEO and COO when compensation decisions were made in
February 2019. The 2019 Bonus Plan was modified for our NEOs, other than our CEO, and as modified enabled
payout to our NEOs only if the financial performance objectives were met.
29
The Compensation Committee will continue to consider input from our shareholders as reflected in 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
shareholders. 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 level employees), the internal company environment
relative to industry conditions, current business priorities, strategy and product development cycles, and current
market practices of our peer group.
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 and administers our 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 2019, the Compensation Committee engaged the services of
Compensia, Inc. (“Compensia”), a national compensation consulting firm, as its independent compensation
consultant to provide advice on matters relating to the compensation of our executives and non-employee
directors. 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 the parameters used to determine the peer group, base salary, incentive plan
design and the structure of our executive compensation program. During fiscal 2019, Compensia also provided
general observations about our compensation programs and reviewed and provided input on the compensation
discussion & analysis section of our Proxy Statement.
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 2019. Compensia’s fees were paid by Infinera. The Compensation Committee annually reviews the
independence of its compensation consultant and during fiscal 2019 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 after considering the interests of our shareholders, 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 of their contributions to Infinera. Our CEO is assisted
by our Chief Human Resources Officer in making these assessments. Our CEO then presents his performance
assessment of the other NEOs 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
30
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
shareholders. None of our NEOs makes any recommendations regarding his own compensation and none of our
NEOs are present at meetings in which their compensation is determined. The Compensation Committee finalized
compensation decisions for the CEO in executive session without management present.
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 shareholders 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 the Compensation Committee’s final determination of target total direct compensation. Equity
awards, which for fiscal 2019 consisted of awards of time-based RSUs (for our NEOs other than our CEO) and
performance shares (for all NEOs), 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 with those of our shareholders. Consistent with our
“pay-for-performance” philosophy, a significant portion of our NEOs’ fiscal 2019 target total direct compensation
opportunity was completely “at risk,” including 87% of our CEO’s target total direct compensation opportunity as
our CEO received all of his equity in performance shares. We define “at risk” compensation as opportunities for
which vesting as well as the level of achievement is contingent upon achievement of specified performance
conditions. In fiscal 2019, this included the amended 2019 Bonus Plan and performance share awards, where the
value of performance shares is included based on the grant date target value of shares awarded.
The following charts show the target total direct compensation mix for fiscal 2019 for our CEO and our other
NEOs then employed with us as a group (value of equity awards is determined using grant date fair value):
FY19 Pay Mix: CEO
FY19 Pay Mix: Other NEO Average
Perfor-
mance
Shares:
71%
Base Salary:
13%
Perfor-
mance
Shares:
27%
Target
Bonus:
16%
Time-
Based RSUs:
34%
31
Base Salary:
23%
Target
Bonus:
16%
The foregoing chart for our other NEOs as a group does not take into account new hires during the year that
included Ms. Erba and Mr. Teichmann, and reflects decisions made by the Compensation Committee in February
2019 (other than for the integration bonuses) as it related to our NEOs who were then employed with us, for our
fiscal 2019 executive compensation program.
Role of Benchmarking and the Compensation Peer Group
In making compensation decisions for our executive officers, 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 June 2018, the Compensation Committee reviewed the peer group used for executive compensation
decision-making as part of its annual review of the peer group. The changes made in June 2018 were minimal and
primarily to account for the recent acquisitions of two of the peer companies. However, in light of the impending
acquisition of Coriant in October 2018, the Compensation Committee reviewed the peer group to account for the
increased size of Infinera in terms of projected annual revenue and number of employees. The target selection
criteria for the peer group identified in August 2018 and used for fiscal 2019 compensation planning were:
•
Industry: companies in the communications equipment or related industry segments;
• Annual Revenue: $800 million to $3.2 billion;
• Market Capitalization: $500 million to $4.5 billion; and
•
Location: U.S.-based companies, with a preference for Bay Area headquartered companies.
Based on this recalibration, the new peer group now consists of the following 16 companies:
Ciena Corporation
Cirrus Logic, Inc.*
Coherent, Inc.*
EchoStar Corporation*
Electronics for Imaging, Inc.*
Extreme Networks, Inc.
Finisar Corporation
Itron, Inc.*
Lumentum Holdings Inc.*
NETGEAR, Inc.
NetScout Systems, Inc.*
OSI Systems, Inc.*
Plantronics, Inc.
Synaptics Incorporated*
ViaSat, Inc.
Viavi Solutions Inc.
*
Indicates an addition to the recalibrated peer group for fiscal 2019. Companies removed from the fiscal 2018 peer group
included Acacia Communications, ADTRAN, Barracuda Networks, Harmonic, Integrated Device Technology, InterDigital,
Oclaro, ShoreTel and Silicon Laboratories.
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. 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 our NEOs.
Data collected from this updated compensation peer group was considered in negotiating and determining
Mr. Teichmann’s initial compensation in connection with his appointment as our CLO in April 2019 and Ms. Erba’s
initial compensation in connection with her appointment as our CFO in August 2019.
Use of Market Data
For its fiscal 2019 compensation decisions, the Compensation Committee continued to maintain 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 generally competitive range of our peers. In
32
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 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’s contributions 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), and with respect to the CEO’s performance, assessment by the Board;
• 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;
•
Internal pay equity across the executive management team;
• 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;
• The potential impact on shareholder dilution of our compensation decisions relative to peers and
historical practices; 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.
Fiscal 2019 Compensation
Base Salaries
For fiscal 2019, the Compensation Committee reviewed the base salaries in February 2019 for each of our
NEOs who were then employed with us. The Compensation Committee approved no changes to the base salaries
33
of our CEO and COO but did approve increases to such other NEOs after taking into consideration the market
data provided by its independent compensation consultant and increased size of the company in terms of scale as
well as the challenging integration tasks expected in fiscal 2019. Mr. Teichmann’s base salary was established at
the time he joined us in April 2019 and Ms. Erba’s base salary was established at the time she joined us in August
2019, which salaries remained the same through fiscal 2019.
The following table shows the annual base salary for each of our NEOs for fiscal 2018 and fiscal 2019:
Name
Fiscal 2018
Annual Base Salary
Fiscal 2019
Annual Base Salary
Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brad D. Feller(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nancy Erba(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David W. Heard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David L. Teichmann(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$520,000
$400,000
—
$520,000(3)
—
$365,000
$520,000
$425,000
$425,000
$520,000
$385,000
$420,000
(1) Mr. Feller resigned as CFO effective as of August 26, 2019. Mr. Feller received a separation payment of $1.5 million upon
termination of his employment with us on September 30, 2019.
(2) Ms. Erba’s annual base salary was set as part of her new hire package in August 2019. Her actual fiscal 2019 salary was
prorated based on her length of service during fiscal 2019.
(3) Mr. Heard’s fiscal 2018 annual base salary increased from $500,000 to $520,000 effective as of October 1, 2018 in
connection with his appointment to his new role of COO.
(4) Mr. Teichmann’s annual base salary was set as part of his new hire package in April 2019. His actual fiscal 2019 salary was
prorated based on his length of service during fiscal 2019.
Performance-Based Incentive Cash Compensation (2019 Bonus Plan)
Target Bonus Opportunities. In February 2019, the Compensation Committee reviewed the target bonus
opportunities (which are expressed as a percentage of base salary) for fiscal 2019 for each of our NEOs who were
then employed with us, and determined that our CEO, CFO and COO would remain the same. After a review of
the market data and in light of the increase to Mr. Jandro’s base salary, the Compensation Committee approved a
decrease to Mr. Jandro’s target bonus opportunity as a percentage of his base salary. Mr. Teichmann’s target
bonus opportunity as a percentage of base salary was established at the time he joined us in April 2019 and
Ms. Erba’s target bonus opportunity as a percentage of base salary was established at the time she joined us in
August 2019.
The following table shows the target bonus opportunities for each of our NEOs for fiscal 2018 and fiscal 2019.
Name
Fiscal 2018
Target Bonus
(as a percentage
of base salary)
Fiscal 2019
Target Bonus
(as a percentage
of base salary)
Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brad D. Feller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nancy Erba . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David W. Heard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David L. Teichmann . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125%
75%
—
90%(2)
—
100%
125%
75%
75%(1)
90%
70%(3)
80%
(1) Ms. Erba’s target bonus opportunity (which is expressed as a percentage of base salary) was established as part of her new
hire package in August 2019. As part of her offer letter and in light of her joining us in the latter part of the fiscal year,
Ms. Erba was guaranteed a bonus under the 2019 Bonus Plan equal to 100% of her target bonus for fiscal 2019 prorated
based on her length of service during fiscal 2019.
(2) Mr. Heard’s fiscal 2018 target bonus opportunity (which is expressed as a percentage of base salary) was changed from
75% to 90% effective October 1, 2018 in connection with his appointment to the new role of COO. In considering the
increased target bonus opportunity for Mr. Heard, the Compensation Committee considered the scope of Mr. Heard’s new
role as well as the competitive market data provided by Compensia.
34
(3) Mr. Teichmann’s target bonus opportunity (which is expressed as a percentage of base salary) was established as part of
his new hire package in April 2019. As part of his offer letter, Mr. Teichmann was guaranteed a bonus under the 2019 Bonus
Plan equal to at least 50% of his target bonus for fiscal 2019 prorated based on his length of service during fiscal 2019.
2019 Bonus Plan Design. In February 2019, the Compensation Committee approved a 2019 Bonus Plan that
was applicable to our NEOs who were then employed with us. Given the continued challenges facing us as we
entered fiscal 2019 and the need to successfully integrate Infinera and Coriant, the Compensation Committee
considered an emphasis on improved operating income as an important goal that would support alignment of the
interests of our executive officers with those of our shareholders. In particular, the Compensation Committee
believes that non-GAAP operating income continues to be a key metric for our shareholders that supports a
balanced approach to near-term and long-term growth.
Taking these considerations into account, the 2019 Bonus Plan approved in February 2019 established an
opportunity for a bonus between 75% and 100% of target for non-GAAP operating income losses of $45 million
(threshold) and $35 million (target), respectively. No bonus would be earned for a non-GAAP operating income
loss that exceeded $45 million, and the percentage of the target bonus earned would be interpolated on a linear
basis for results between threshold and target. The Compensation Committee determined that there would be no
opportunity for our NEOs to earn a bonus that exceeds their individual targets. This bonus plan design was
intended to balance retention and motivational objectives and a desire to maintain alignment with shareholders
with a reasonable profile of executive compensation as we worked to reestablish profitability.
Amended 2019 Bonus Plan. Following the approval of the 2019 Bonus Plan design described above, the
Compensation Committee, with management’s assistance, reassessed the appropriateness of the initial
non-GAAP operating loss targets and determined to amend the 2019 Bonus Plan. In deciding to revise the 2019
Bonus Plan, the Compensation Committee considered not only the importance of the successful completion of the
integration but also the retention concerns of management while maintaining alignment with the interests of our
shareholders.
In August 2019, in consultation with Compensia and management, the Compensation Committee approved
the amended 2019 Bonus Plan to incorporate a mix of non-GAAP operating income and cash flow goals, weighted
75% and 25%, respectively, and adjusting overall funding thresholds based on non-GAAP operating loss for the
full fiscal year and setting positive cash flow thresholds for the fourth quarter of 2019.
In order to maintain our emphasis on pay-for-performance while also recognizing the challenges facing our
business, our CEO was excluded from the amended 2019 Bonus Plan and was only eligible to earn a bonus if we
achieved the goals established at the beginning of the year. In addition, the maximum payout for our NEOs other
than our CEO was reduced from 100% of target to 75% of target.
As a first step in determining fiscal 2019 bonuses becoming payable under the amended 2019 Bonus Plan,
we were required to achieve as a precondition both of the following goals during the fourth quarter of 2019:
• Non-GAAP profitability (after taking into account all 2019 Bonus Plan funding).
• Positive cash flow (for purposes of the amended 2019 Bonus Plan, cash flow threshold means at least
one dollar of positive cash flow for the fourth quarter of 2019).
In the event both funding preconditions were met, the bonus would be determined based on the following
financial performance objectives for non-GAAP operating loss (weighted 75%) and cash flow (weighted 25%):
Operating Loss
Threshold
Operating Loss
Target
Cash Flow
Threshold
Cash Flow
Target
Amount
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funding % of Target . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(97) million
25%
$(77) million
90%
$(82.5) million
$1
25%
$20 million
90%
$23.6 million
For any result that falls between the threshold and target levels in the table above, the funding as a percent of
target would be determined using straight-line interpolation. Although funding up to 90% of target for each of the
operating loss and cash flow targets, the total payout for plan participants at or above SVP level and accordingly,
for each of our NEOs (other than Mr. Fallon and Ms. Erba) was capped at 75% of target.
35
In addition to the minimum financial targets to fund the amended 2019 Bonus Plan, the bonus earned by our
NEOs could be modified by an individual performance component that could be used to downward adjust the
bonus. In the event that our financial performance was achieved at a level that would trigger a bonus, our CEO
would be responsible for reviewing the performance of each NEO (other than himself) and recommending any
changes to each NEO (other than himself). The individual performance factor was based on a qualitative
assessment of the NEO’s contributions during 2019 and did not include specific, pre-established, individual
performance targets. The Compensation Committee then had sole discretion to determine any downward
adjustments for each NEO (including the CEO) and the final bonus payout for fiscal 2019.
For purposes of the amended 2019 Bonus Plan, “cash” is defined as non-GAAP cash from operations
(excluding cash used to pay integration and restructuring costs), less budgeted capital expenditure for the period
and any additional capital expenditure beyond such budgeted amount. For purposes of the amended 2019 Bonus
Plan, “non-GAAP operating income” was calculated excluding acquisition-related deferred revenue and inventory
adjustments, other customer related charges, non-cash stock-based compensation expenses, amortization of
acquired intangible assets, acquisition and integration costs, restructuring and other related costs, litigation
charges, intangible asset impairment, and certain purchase accounting adjustments related to Infinera’s
acquisitions. For a reconciliation of GAAP to non-GAAP operating income for the fourth quarter and full fiscal year
2019, please see Appendix A to this Proxy Statement.
2019 Bonus Plan Results. Our non-GAAP operating income loss of $82.5 million fell below the threshold
established under the original 2019 Bonus Plan in February 2019. As a result, our CEO did not earn a bonus for
fiscal 2019 performance.
We did achieve both funding preconditions for the amended 2019 Bonus Plan, including non-GAAP profit of
2.3% for the fourth quarter of 2019 and $23.6 million of cash flow in the fourth quarter of 2019, and finished the
year with a non-GAAP operating loss of $82.5 million. Overall, this resulted in bonus achievement of 77% for our
NEOs other than our CEO. In light of our overall cash position, the Compensation Committee applied negative
discretion and approved limited funding at 55% for our NEOs and limited funding at 70% for our VPs and below.
Ms. Erba was paid out at 100% of her target bonus for fiscal 2019 prorated based on her length of service during
fiscal 2019 as contractually agreed to as part of her new hire package. Our CEO was not eligible to receive a
bonus under the amended 2019 Bonus Plan.
2019 Integration Bonus. In February 2019, the Compensation Committee also approved additional bonuses
tied to the successful completion of the integration of Infinera and Coriant, a critical project to drive down costs and
for the long-term success of Infinera. These integration bonuses were given to Messrs. Heard, Feller and Jandro
and not our CEO. Mr. Feller’s opportunity to earn an integration bonus terminated upon his separation from
Infinera. The Compensation Committee established performance goals for each participating NEO that were
allocated different weightings in order to drive key integration activities. Full achievement of a performance goal
resulted in payout of, and was capped at, 100% for that portion of the integration bonus.
The Compensation Committee approved a target integration bonus opportunity of $650,000 for Mr. Heard,
which resulted in a payout of $552,500 upon the achievement of the integration goals set forth below. The
following table sets forth the goals, weighting of each goal, resulting percentage of goal met and final payout.
Integration Goals
Achieve synergies of $160 million . . . . . . . . . . . . . . . . . . . .
Non-GAAP Gross Margin of 36% or above . . . . . . . . . . . .
Annual revenue targets for legacy Coriant products and
services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Completion of key integration activities . . . . . . . . . . . . . . .
Weighting
Results
Percentage of
Goal Met
Amount
Earned
50%
15%
20%
15%
$198 million
33.6%
100%
0%
$325,000
0
$
Achieved
Partially
achieved
100%
$130,000
80%
$ 97,500
36
The Compensation Committee approved a target integration bonus opportunity of $500,000 for Mr. Jandro,
which resulted in a payout of $500,000 upon the achievement of the integration goals set forth below. The
following table sets forth the goals, weighting of each goal, resulting percentage of goal met and final payout.
Integration Goals
Achieve sales synergies of $25.1 million . . . . . . . . . . . . . .
Succession plan in place during fiscal 2019 . . . . . . . . . . .
Annual revenue targets for legacy Coriant products and
Weighting
Results
Percentage of
Goal Met
Amount
Earned
50%
25%
$30.6 million
Achieved
100%
100%
$250,000
$125,000
services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25%
Achieved
100%
$125,000
2019 Final Bonus Payouts. The following table sets forth the bonus payments earned for fiscal 2019 by our
participating NEOs pursuant to the amended 2019 Bonus Plan and integration bonus plan.
Name
Amended 2019 Bonus Plan Payout
2019 Integration Bonus Payout
Tom J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nancy Erba(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
David W. Heard . . . . . . . . . . . . . . . . . . . . . . . . . .
David L. Teichmann . . . . . . . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . . . .
—
$130,120
$257,400
$110,052
$184,800
—
—
$552,500
—
$500,000
(1) As part of her offer letter and in light of her joining us in the latter part of the fiscal year, Ms. Erba was guaranteed a bonus
under the 2019 Bonus Plan equal to 100% of her target bonus for fiscal 2019 prorated based on her length of service during
fiscal 2019.
Mr. Feller’s employment with us terminated as of September 30, 2019 and was not eligible in either of the two
bonus programs. Mr. Feller received a separation payment of $1.5 million following his separation.
Long-Term Incentive Compensation
Our long-term incentive compensation opportunities are delivered in the form of equity awards. Annual equity
awards for NEOs are generally approved by the Compensation Committee during the first open trading window of
each new calendar year.
Equity Compensation Design. Under the 2016 Plan, the Compensation Committee grants equity awards to
eligible employees, including our NEOs. All awards to our NEOs were made pursuant to the 2016 other than
Ms. Erba’s two awards, which were made under the 2019 Inducement Equity Incentive Plan. 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 shareholders to grant
a combination of time-based and performance-based equity awards to senior level 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 shareholders. Our NEOs benefit from these equity awards based on our sustained performance over
time and the ability of our NEOs to create the results that drive shareholder value.
37
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
Performance Share
Award
Description
Why It Is Used
• Provides the opportunity to earn
• Supports pay-for-performance
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.
philosophy and retention efforts.
•
•
Links compensation directly to
Infinera’s stock performance in
areas identified as important by the
Compensation Committee.
Increases alignment with interests
of shareholders.
RSU Award
• Provides the opportunity to earn a
• Supports retention and succession
specified number of shares of Infinera
common stock subject to the
participant’s continued employment
for a specified period.
• Typically has a three-year or four-year
vesting period to encourage a long-
term perspective and to encourage
key employees to remain at Infinera.
planning.
• Provides a direct incentive for future
performance.
• Useful in recruiting new executives.
In February 2019, the Compensation Committee granted annual equity awards for fiscal 2019 in the form of a
time-based RSU award and a performance share award to each of our NEOs who were then employed with us,
except our CEO. Our CEO was not awarded any time-based RSUs in fiscal 2019 and instead was awarded two
performance share awards in March 2019. The Compensation Committee determined to move away performance
awards based on TSR and instead focused on increasing revenue and reducing operating expenses as
management undertook the task of integration of Infinera and Coriant during fiscal 2019. The Compensation
Committee decided to focus on non-GAAP operating income and designed the award to reward sustained positive
non-GAAP operating income over four consecutive quarters or a full fiscal year during the three-year performance
period that began with fiscal 2019 and ended with fiscal 2021.
The grants made in fiscal 2019 were carefully considered and designed to work in concert with grants made in
previous years that will have overlapping performance cycles. For instance, in fiscal 2018, the company made
relative TSR performance awards to all our NEOs that will continue to have performance periods through the end
of fiscal 2020. Fiscal 2019 awards were structured differently to encourage executives to accelerate our return to
sustained profitability and, for our CEO, to make significant gains on our share price. We made this decision
carefully, considering the context of overlapping programs from multiple years maintaining our executives’
attention on relative performance and long-term sustained value creation, while providing them with an incentive to
deliver value to our shareholders quickly and efficiently.
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” and “Relevant Qualitative Factors,” with particular
attention to market data, 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 shareholders.
The Compensation Committee first determined the target value of long-term incentive compensation for each
executive. The number of RSUs and performance shares granted to each executive was then determined based
on an average stock price of $5.00 per share and assuming a 100% allocation of target value into performance
shares for our CEO, a 50% allocation of target value into performance shares for our COO and a 40% allocation of
target value into performance shares for our other NEOs who were then employed by us. Ms. Erba’s and
Mr. Teichmann’s allocation were determined as part of their new hire package. The target value approved by the
38
Compensation Committee differs from the Summary Compensation Table reported value of equity below. The
following table sets forth the equity awards granted to our NEOs in February 2019 unless otherwise noted.
2019 Performance Share Awards
Name
Number of Shares
Subject
to RSU Awards
Non-GAAP
Operating
Income
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas J. Fallon(1)
Brad D. Feller(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nancy Erba(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David W. Heard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David L. Teichmann(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
132,000
562,500
220,000
220,000
102,000
487,500
88,000
187,500
220,000
65,000
68,000
Market
Price
162,500
—
—
—
—
—
(1) Mr. Fallon’s performance share awards were granted in March 2019.
(2) Mr. Feller’s employment with us terminated effective as of September 30, 2019.
(3) Ms. Erba’s awards were granted effective as of August 26, 2020 to coincide with the date of her appointment to CFO.
Ms. Erba’s awards were granted under the 2019 Inducement Equity Incentive Plan and not the 2016 Plan.
(4) Mr. Teichmann’s time-based RSU award was granted effective as of April 1, 2020. Mr. Teichmann’s was awarded an OI
PSA in June 2019.
The RSU awards in the table above for Messrs. Feller and Jandro vest in annual installments with one-fourth
of the underlying shares of Infinera common stock vesting on May 5th of each of 2020, 2021, 2022 and 2023,
subject to the NEO’s continued service with Infinera through each applicable vesting date. Mr. Feller’s outstanding
time-based RSUs that had not vested were cancelled upon his separation from Infinera.
In April 2019, Mr. Teichmann, in connection with his new hire, was granted a time-based RSU award covering
220,000 shares. These shares vest in annual installments with one-fourth of the underlying shares of Infinera
common stock vesting on April 5th of each of 2020, 2021, 2022 and 2023. In finalizing the terms of this grant, the
Compensation Committee considered the scope of Mr. Teichmann’s new role with us as well as competitive
market data provided by Compensia. Mr. Teichmann’s OI PSA is subject to the same non-GAAP operating income
target granted to the other NEOs and described in more detail below.
In August 2019, Ms. Erba, in connection with her appointment as CFO, was granted a time-based RSU award
covering 562,500 shares. These shares vest in annual installments with one-fourth of the underlying shares of
Infinera common stock vesting on September 5th of each of 2020, 2021, 2022 and 2023. In finalizing the terms of
this grant, the Compensation Committee considered the scope of Ms. Erba’s new role with us as well as
competitive market data provided by Compensia. Ms. Erba’s OI PSA is subject to the same non-GAAP operating
income target granted to the other NEOs and described in more detail below. Ms. Erba’s two equity awards were
granted under the 2019 Inducement Equity Incentive Plan.
Under the terms of the OI PSA for fiscal 2019, the Compensation Committee established a three-year
performance period in which 100% of the shares subject to this award will become eligible to vest based upon our
achievement of positive non-GAAP operating income (that is, greater than $0) (the “Profitability Goal”) for:
(i) Any of Fiscal Years 2019, 2020 or 2021 (the “Fiscal Year Period”); or
(ii) Each fiscal quarter of Infinera in four (4), consecutive fiscal quarters of Infinera completed during the
performance period, excluding our four (4) consecutive fiscal quarters of any Fiscal Year Period (each fiscal
quarter of the Company occurring during the Performance Period, a “Fiscal Quarter”).
The OI PSA shall only vest upon the determination by the Compensation Committee of the achievement of
the performance metrics and are subject to each NEO’s continued service to Infinera through each applicable
vesting date. The Profitability Goal will be measured on a non-GAAP basis, as reported in our earnings release as
filed on Form 8-K with respect to any Fiscal Quarter or Fiscal Year Period, as applicable.
Any eligible shares (that is, eligible to vest as a result of performance achievement, as described above) that
vest on or before fiscal 2021 shall also have a time-based component such that if the Profitability Goal is achieved
39
before the last day of fiscal 2021, then a number of eligible shares, equal to the product of (A) the number of
performance shares that became eligible shares on the date of achievement of such goal, multiplied by (B) a
fraction, the numerator of which is the number of whole calendar months within the performance period that was
completed through the date of achievement of such goal, and the denominator of which is thirty-six (36) months
(with any resulting fractional eligible shares rounded down to the nearest whole eligible share), will vest on the 5th
day of the month following the date of achievement, and the remainder will vest on January 5, 2020.
For fiscal 2019, a second performance share award was granted only to our CEO in lieu of time-based RSUs.
This award will only vest if the stock price is equal to or greater than $10.00 per share for each trading day during
a ninety-calendar day period occurring during a three-year performance period beginning on the grant date. The
award is designed to be rigorous and require significant effort to achieve; the $10.00 per share target represents a
premium of 232% above the closing share price on the date of grant. Mr. Fallon was not granted time-based RSUs
in fiscal 2019. The mix of performance shares for our CEO that measured both non-GAAP operating income and
shareholder value creation was intended to reinforce a strong pay-for-performance culture and a commitment to
long-term growth in shareholder value. This award represented 25% of the target value of long-term incentives
awarded to Mr. Fallon in fiscal 2019.
Results of Performance Shares Through Fiscal 2019. We did not achieve the Profitability Goal for fiscal 2019.
Our non-GAAP operating loss for the fiscal year was $82.5 million. As a result, as of the end of fiscal 2019, the
target number of shares subject to the OI PSAs granted to each NEO remained unearned and outstanding. These
shares are eligible to be earned and vest if the Profitability Goal is achieved during the remainder of the
performance period through the end of our fiscal 2021. The second performance award for our CEO was also not
triggered in fiscal 2019.
Outstanding Performance Share Awards Granted in Prior Fiscal Years. The following table provides
information regarding outstanding performance share awards granted prior to fiscal 2019 that were eligible to be
earned in fiscal 2019 by our NEOs based on the achievement of performance with respect to relative TSR,
including the performance requirements and number of shares of Infinera common stock earned through fiscal
2019. Mr. Feller’s outstanding equity awards were cancelled upon termination of his employment with us as of
September 30, 2019.
Name
Thomas J. Fallon . . . . . . . . . . . . . . .
David W. Heard . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . .
Total
Number of
Performance
Shares
Remaining
at Target
(#)
Target Number
of Shares that
Could Vest
for Fiscal 2019
Performance
Period
(#)
Maximum
Number of
Shares that
Could Vest
for Fiscal 2019
Performance
Period
(#)
Actual Number
of Shares
Vested for
Fiscal 2019
Performance
Period
(#)
57,415
136,416
16,666
30,555
14,011
23,610
57,415
67,708
16,666
15,728
14,011
11,805
114,830
135,416
33,332
31,456
28,022
23,610
30,217
58,032
8,771
13,094
7,373
10,118
Fiscal
Year of
Grant
2017(1)
2018(2)
2017(1)
2018(2)
2017(1)
2018(2)
(1)
(2)
In fiscal 2017, the Compensation Committee granted to the NEOs in the table above a performance share award that
measures our TSR against the TSR of each of the companies (the “Index Companies”) listed in the S&P Networking Index.
This award is subject to a payout of between 0% and 200% of the target number of shares based on our relative
performance against the Index Companies for that period, with 100% of the target number of shares allocated to the
performance. Our TSR performance for the third and final performance period finished with a ranking of 15 out of 20 Index
Companies (26th percentile) listed in the S&P Index. As a result, 52.63% of the target number of shares of our common stock
allocated to the second performance period became eligible to vest. For the three-year performance period ended
December 28, 2019, 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 December 28, 2016 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 2019.
In fiscal 2018, the Compensation Committee granted to the NEOs in the table above a performance share award that
measures our TSR against the TSR of the Index Companies listed in the S&P Index. This award is subject to a payout of
between 0% and 200% of the target number of shares based on our relative performance against the Index Companies for
that period, with 100% of the target number of shares allocated to the performance. Our TSR performance for the second
40
performance period finished with a ranking of 13 out of 22 Index Companies (43rd percentile) listed in the S&P Index. As a
result, 85.71% of the target number of shares of our common stock allocated to the second performance period became
eligible to vest. For the two-year performance period ended December 28, 2019, 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 December 28, 2016 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 2019.
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 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 ESPP, made available to other eligible employees in the applicable country of
residence. We provide a matching contribution of up to $2,500 under the Section 401(k) plan that is applicable to
all eligible participants, including our NEOs. Employee benefits and perquisites are reviewed periodically to ensure
that benefit levels remain competitive, but are not included in the Compensation Committee’s annual determination
of the total compensation for each of our NEOs.
All exempt U.S. employees, at any U.S. work location, participate in our “As Needed” FTO Program (“Flexible
Time Off”). Under this program, these employees may schedule FTO 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, FTO 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 shareholders. Accordingly, Infinera has entered into Change of
Control Agreements (the “COC Agreements”) with 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. The current terms of these COC Agreements are
included below.
An NEO will receive payments and benefits under the 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), beginning on the date three (3) months prior to the first change of control to occur following the effective
date of the COC Agreement and ending on the date eighteen (18) 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 shareholders,
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 each of the NEOs if Infinera undergoes a change of control and the
NEO’s employment is terminated without cause or as a result of a constructive termination during the Change of
Control Period, 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 (awards based on the achievement of performance
criteria will vest as to 100% of the amount of the award assuming the performance criteria have been
achieved at target levels);
41
• Our CEO will be paid a lump sum severance payment (less applicable tax withholdings) equal to two
times his annual base salary and our other NEOs will be paid a lump sum severance payment (less
applicable tax withholdings) equal to one and one-half times their annual base salary;
• Our CEO will be paid a lump sum severance payment (less applicable tax withholdings) equal to two
times his annual target incentive bonus amount and our other NEOs will be paid a lump sum severance
payment (less applicable tax withholdings) equal to one and one-half times their annual target incentive
bonus amount; 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.
Each COC Agreement will have an initial term of three years commencing on the effective date of such COC
Agreement. On the third anniversary of the effective date, such COC Agreement will renew automatically for an
additional, one-year term unless either party provides the other party with written notice of nonrenewal at least one
year prior to the date of automatic renewal.
Executive Severance Policy
In addition to the change of control-related 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 times his annual base
salary and our other NEOs will be paid a lump sum severance payment equal to their annual base salary;
and
• 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 policy with respect to severance payments or benefits in
the event of an employee’s death or disability other than certain disability and life insurance benefits generally
available to our employees, 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, performance
share 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, the Compensation Committee has delegated to a Subcommittee the authority
to grant new hire, promotional and retention equity awards to non-executive employees pursuant to certain
pre-approved guidelines. This Subcommittee is currently comprised of our CEO.
The Subcommittee approves the award by written consent on the second Monday of each month to approve
new hire, promotional and retention equity awards. Annual focal equity awards are approved by the Compensation
42
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.
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 payments and equity awards 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.
Stock Ownership Policy
The Board believes that it is important to link the interests of our NEOs to those of our shareholders. 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 are as follows:
• CEO:
• CFO:
• Other NEOs:
• Non-employee directors:
4x annual base salary
2x annual base salary
1x annual base salary
4x annual cash retainer for annual Board service
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, performance share awards and other similar full value awards is zero).
Anti-hedging Policy
Under our Insider Trading Policy, we prohibit our employees, including our NEOs, and Board members, from
hedging the risk associated with ownership of shares of Infinera common stock and other securities.
43
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
Prior to 2018, Section 162(m) of the Code generally limited the tax deductibility of compensation paid to the
CEO and each of the next three most highly compensated executive officers (excluding the CFO) that exceeded
$1 million in any taxable year unless the compensation over $1 million qualified as “performance-based” within the
meaning of Section 162(m).
The ability to rely on the “performance-based” compensation exception under Section 162(m) was eliminated
in 2017 and the $1 million limitation on deductibility generally was expanded to include any individuals serving as
the CEO or CFO during the tax year, the next three most highly compensated executive officers during the tax
year and any other individual who was considered a covered employee for any prior tax year beginning after 2016.
Thus, we generally will not be able to take a deduction for any compensation paid to our NEOs in excess of
$1 million unless the compensation qualifies for transition relief applicable to certain arrangements in place on
November 2, 2017. We cannot guarantee that any compensation payable to our NEOs will qualify for the transition
relief or that the compensation will ultimately be deductible. Historically, the Compensation Committee had not
adopted a formal policy regarding tax deductibility of compensation paid to our CEO and other senior executive
officers. Nonetheless, the Compensation Committee intends to maintain an approach to executive compensation
that strongly links pay to performance.
We account for the equity compensation awarded to our executive officers and other employees under
ASC 718, which requires us to estimate and record an expense for each award of equity compensation over the
service period of the award. Accounting rules also require us to record cash compensation as an expense at the
time the obligation is incurred.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with
management. Based on its review and discussions with management, the Compensation Committee has
recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
Compensation Committee
Marcel Gani (Chair)
Gregory P. Dougherty
Paul J. Milbury
44
EXECUTIVE COMPENSATION TABLES
The following tabular information and accompanying narratives and footnotes provide all of the compensation
awarded to, earned by, or paid to the individuals who served as our principal executive officer, principal financial
officer and our three other highest paid executive officers during fiscal 2019. The tables also include Brad D. Feller
who served as our principal financial office until August 26, 2019. As previously noted, we refer to these executive
officers as our NEOs.
Fiscal 2019 Summary Compensation Table
Name and Principal
Position
Year
Salary
($)(1)
Bonus
($)
Stock
Awards
($)(2)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
All
Other
Compensation
($)(3)
—
—
—
—
Brad D. Feller(6)
Chief Financial Officer
Chief Executive Officer
former Chief Financial Officer
Thomas J. Fallon . . . . . . . . . . . . . . 2019 520,000
2018 520,000
2017 630,000
Nancy Erba(4) . . . . . . . . . . . . . . . . . 2019 166,731
2,439,125 —
—
4,362,442 —
—
4,250,478 —
—
3,660,000 —
—
—
—
—
—
—
—
1,078,000 —
—
. . . . . . . . . . . . . . . 2019 327,981
1,351,009 —
—
2018 400,000
1,258,532 —
—
2017 400,000
2,156,000 —
—
David W. Heard . . . . . . . . . . . . . . . 2019 520,000
2018 503,077
1,783,609 —
—
2017 278,846 215,750(9) 2,526,000 —
50,000(11) 1,187,450 —
—
—
833,000 —
1,043,955 —
1,195,615 —
. . . . . . . . . . . . 2019 418,731
2018 365,000
2017 365,000
Chief Legal Officer and
Corporate Secretary
Senior Vice President,
Worldwide Sales
. . . . . . . . . 2019 281,346
Chief Operating Officer
David L. Teichmann(10)
Robert J. Jandro(13)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
130,120(5)
—
—
—
—
—
809,900(8)
—
—
110,052(12)
—
—
684,800(14)
—
—
Total
($)
2,962,093
4,882,910
4,880,790
3,959,283
—
—
—
—
1,939,499
1,409,423
1,560,900
2,968
468
312
2,432
—
—
468
312
2,968
468
312
2,968
—
—
2,968
468
285
1,502,968(7) 2,908,949
1,751,477
1,658,844
3,488,868
2,287,154
3,020,908
1,631,816
(1) Salary data is provided from payroll records based on the calendar year.
(2) 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 16 of the notes to our consolidated financial statements contained in our 2019
Annual Report on Form 10-K filed on March 4, 2020 (the “2019 Annual Report”) for a discussion of all assumptions made by
us in determining the ASC 718 values of equity awards.
(3) For fiscal 2017 and 2018, this amount represented the payment of life insurance premiums. For fiscal 2019, this amount
represented the payment of life insurance premiums and 401(k) match.
(4) Ms. Erba was appointed Senior Vice President of Strategic Finance on August 1, 2019 and was appointed CFO effective as
of August 26, 2019. Ms. Erba’s annual base salary was set at $425,000.
(5) For fiscal 2019, Ms. Erba’s prorated annual target bonus opportunity was fully guaranteed at 100%.
(6) Mr. Feller resigned as CFO effective as of August 26, 2019 and terminated effective as of September 30, 2019.
(7)
In addition to the payments represented by life insurance premiums and the 401(k) match, Mr. Feller was also paid a
separation payment of $1.5 million following his separation from Infinera on September 30, 2019.
(8) Mr. Heard received a payment of $257,400 from his participation in the amended 2019 Bonus Plan and a payment of
$552,500 as part of his Integration Bonus. Please see the section entitled “Fiscal 2019 Compensation—Performance-Based
Incentive Cash Compensation (2019 Bonus Plan)” for more information on the amended 2019 Bonus Plan and the Integration
Bonus.
(9) Mr. Heard was not eligible to participate in the 2017 Bonus Plan; however, in connection with his new hire package, he
received a one-time bonus in the amount of $215,750, which was paid out at the same time as the 2017 bonus for all
Infinera employees in April 2018.
(10) Mr. Teichmann was appointed Chief Legal Officer and Corporate Secretary on April 1, 2019. Mr. Teichmann’s annual base
salary was set at $385,000.
(11) Mr. Teichmann received a sign-on bonus in connection with his hiring on April 1, 2019.
(12) Mr. Teichmann received a payment of $110,052 from his participation in the amended 2019 Bonus Plan.
(13) Mr. Jandro resigned as Senior Vice President, Worldwide Sales effective January 3, 2020.
(14) Mr. Jandro received a payment of $184,800 from his participation in the amended 2019 Bonus Plan and a payment of
$500,000 as part of his Integration Bonus. Please see the section entitled “Fiscal 2019 Compensation—Performance-Based
Incentive Cash Compensation (2019 Bonus Plan)” for more information on the amended 2019 Bonus Plan and the
Integration Bonus.
45
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(4) For fiscal 2019 only, Ms. Erba’s prorated annual target bonus opportunity was fully guaranteed at 100%.
(5) This RSU award is scheduled to vest in annual installments with one-fourth of the underlying shares vesting on September 5
of each of 2020, 2021, 2022 and 2023, subject to Ms. Erba’s continued service to Infinera through each applicable vesting
date. Ms. Erba’s RSU award was granted under the 2019 Inducement Equity Plan and not the 2016 Plan.
(6) On May 7, 2019, Mr. Feller informed us of his intention to resign as CFO no later than the end of the third quarter of fiscal
2019. As part of this arrangement, we agreed to provide Mr. Feller a separation payment of $1.5 million and 18 months of
COBRA benefits. Mr. Feller also agreed that he would no longer be eligible to participate in the 2019 Bonus Plan.
(7) These RSU awards are scheduled to vest in annual installments with one-fourth of the underlying shares vesting on May 5
of each of 2020, 2021 and 2022, subject to each NEO’s continued service to Infinera through each applicable vesting date.
Mr. Feller’s RSUs subject to this award were cancelled upon his separation on September 30, 2019.
(8) The original objectives that were established in February 2019 were amended by the Compensation Committee in August
2019. The maximum amount that could be earned by our NEOs was also reduced from 90% at target to 75% at target. This
table reflects the updated values that could be earned by each NEO under the amended 2019 Bonus Plan. For a further
description of the amended 2019 Bonus Plan applicable to our eligible NEOs (excluding the CEO) and payouts, please see
the section entitled “Fiscal 2019 Compensation—Performance-Based Incentive Cash Compensation (2019 Bonus Plan)” in
the Compensation Discussion and Analysis above.
(9) Messrs. Heard and Jandro were eligible to earn an Integration Bonus for fiscal 2019. For a further description of the
Integration Bonus applicable to each of Messrs. Heard and Jandro and payouts, please see the section entitled “Fiscal 2019
Compensation—Performance-Based Incentive Cash Compensation (2019 Bonus Plan)” in the Compensation Discussion
and Analysis above.
(10) The threshold reflects the minimum amount that Mr. Teichmann could earn under the 2019 Bonus Plan. For fiscal 2019 only,
Mr. Teichmann’s prorated annual target bonus opportunity was fully guaranteed at 50%.
(11) This RSU award is scheduled to vest in annual installments with one-fourth of the underlying shares vesting on April 5 of
each of 2020, 2021, 2022 and 2023, subject to Mr. Teichmann’s continued service to Infinera through each applicable
vesting date.
47
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(3) The remaining unvested portion of this RSU grant vests in its entirety on May 5, 2020, subject to the NEO’s continued
service to Infinera through each applicable vesting date.
(4) This performance share award had three performance periods, with one-third (1/3) of the target number of performance-
based awards eligible to vest based on our one-year TSR relative to the TSR of each of the Index Companies listed in the
S&P Networking Index, one-third (1/3) based on our two-year TSR relative to the TSR of each of the Index Companies, and
one-third (1/3) based on our three-year TSR relative to the to the TSR of each of the Index Companies. For purposes of
calculating TSR performance for Infinera and each of the Index Companies under these performance share awards, the
baseline value for our relative TSR calculations is the 60-day average closing price of our common stock and each of the
Index Companies leading up to and inclusive of December 31, 2016, which was the last day of fiscal 2016. TSR for Infinera
and each of the Index Companies is then calculated by comparing the average closing price of our common stock and each
of the Index Companies to this baseline value for the final 60 days of our fiscal 2017, 2018 and 2019. Shares subject to his
award will vest on May 5, 2020, as partial achievement of the third and final performance period was met.
(5) The remaining unvested portion of this RSU grant vests in its entirety on May 5 of 2021, subject to each NEO’s continued
service to Infinera through each applicable vesting date.
(6) This performance share award has three performance periods, with one-third (1/3) of the target number of performance-
based awards eligible to vest based on our one-year TSR relative to the TSR of each of the Index Companies listed in the
S&P Networking Index, one-third (1/3) based on our two-year TSR relative to the TSR of each of the Index Companies, and
one-third (1/3) based on our three-year TSR relative to the to the TSR of each of the Index Companies. For purposes of
calculating TSR performance for Infinera and each of the Index Companies under these performance share awards, the
baseline value for our relative TSR calculations is the 60-day average closing price of our common stock and each of the
Index Companies leading up to and inclusive of December 30, 2017, which was the last day of fiscal 2017. TSR for Infinera
and each of the Index Companies is then calculated by comparing the average closing price of our common stock and each
of the Index Companies to this baseline value for the final 60 days of our fiscal 2018, 2019 and 2020. Shares subject to his
award will vest on May 5, 2020, as partial achievement of the second performance period was met.
(7) These RSU awards are scheduled to vest in annual installments with one-fourth of the underlying shares vesting on May 5
of each of 2019, 2020, 2021 and 2022, subject to each NEO’s continued service to Infinera through each applicable vesting
date.
(8) This performance share award can be earned based on the performance of our achievement of a positive operating income,
measured on a non-GAAP basis, on either the fiscal years 2019, 2020 or 2021, or each our fiscal quarters in four
(4) consecutive fiscal quarters completed during fiscal 2019 through fiscal 2021. For a more detailed description of this
performance share award, please see the section entitled “Fiscal 2019 Compensation—Long-Term Incentive
Compensation” in the Compensation Discussion and Analysis above.
(9) This performance share award will only vest if the stock price is equal to or greater than $10.00 per share for each trading
day during a ninety-calendar day period occurring during the three-year performance period. The performance period for this
award was three years from the date of grant. For additional information regarding this performance share awards granted to
our CEO in fiscal 2019, please see the section entitled “Fiscal 2019 Compensation-Long-Term Incentive Compensation” in
the Compensation Discussion and Analysis above.
(10) These RSU awards are scheduled to vest in annual installments with one-fourth of the underlying shares vesting on
September 5 of each of 2020, 2021, 2022 and 2023, subject to Ms. Erba’s continued service to Infinera through each
applicable vesting date.
(11) This stock option grant was fully vested. This option was cancelled 90 days after his termination on September 30, 2019.
(12) The remaining unvested portion of this RSU grant vests in its entirety on July 5 of 2021, subject to Mr. Heard’s continued
service to Infinera through each applicable vesting date.
(13) This RSU award is scheduled to vest in annual installments with one-fourth of the underlying shares vesting on October 5 of
each of 2019, 2020, 2021 and 2022, subject to Mr. Heard’s continued service to Infinera through each applicable vesting
date.
(14) These RSU awards are scheduled to vest in annual installments with one-fourth of the underlying shares vesting on May 5
of each of 2020, 2021 and 2022, subject to each NEO’s continued service to Infinera through each applicable vesting date.
(15) These RSU awards are scheduled to vest in annual installments with one-fourth of the underlying shares vesting on April 5
of each of 2020, 2021, 2022 and 2023, subject to Mr. Teichmann’s continued service to Infinera through each applicable
vesting date.
49
Fiscal 2019 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 performance share awards during fiscal 2019 by each of our NEOs.
Name
Thomas J. Fallon . . . . . . . . . . . . . . . . . .
Nancy Erba . . . . . . . . . . . . . . . . . . . . . .
Brad D. Feller . . . . . . . . . . . . . . . . . . . . .
David W. Heard . . . . . . . . . . . . . . . . . . .
David L. Teichmann . . . . . . . . . . . . . . . .
Robert J. Jandro . . . . . . . . . . . . . . . . . .
Number of Shares
Acquired on
Exercise
(#)
Value Realized
on Exercise
($)(1)
Number of Shares
Acquired on
Vesting
(#)
Value Realized
on Vesting
($)(2)
—
—
—
—
—
—
—
—
—
—
—
—
84,274
—
36,317
72,188
—
31,621
373,334
—
160,884
282,418
—
140,081
(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 the vesting date 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.
2019 CEO Pay Ratio
We are providing the following information regarding the relationship of the annual total compensation of our
median employee to the annual total compensation of our CEO (in each case, the annual total compensation was
calculated in accordance with SEC rules applicable to the Summary Compensation Table above). The pay ratio
included in this information is a reasonable estimate calculated in a manner consistent with Item 402(u) of
Regulation S-K.
For 2019:
• Our median employee’s annual total compensation was $90,432.
• Our CEO’s annual total compensation, as reported on page 45 in the Summary Compensation Table,
was $2,962,093.
• Based on this information, the ratio of the annual total compensation of our CEO to the annual total
compensation of our median employee is 33 to 1.
Pay Ratio Methodology
SEC rules allow us to select a methodology for identifying our median employee in a manner that is most
appropriate based on our size, organizational structure and compensation plans, policies and procedures.
We selected December 1, 2019 as the date on which to determine our median employee, which is a date
within the last three months of our last completed fiscal year. As of that date, we had 3,291 employees, with 1,210
employees based in the United States and 2,081 employees located outside of the United States. The pay ratio
disclosure rules provide an exemption for companies to exclude non-U.S. employees from the median employee
calculation if non-U.S. employees in a particular jurisdiction account for five percent (5%) or less of the company’s
total number of employees. We applied this de minimis exemption when identifying the median employee by
excluding 25 countries: 26 employees in Malaysia, 19 employees in Argentina, 17 employees in South Africa, 15
employees in Russian Federation, 9 employees in Indonesia, 8 employees in Philippines, 8 employees in Saudi
Arabia, 7 employees in Kazakhstan, 7 employees in Poland, 6 employees in Egypt, 6 employees in Taiwan, 4
employees in Belgium, 4 employees in Colombia, 4 employees in Thailand, 3 employees in Hungary, 3 employees
in Korea, 3 employees in Vietnam, 2 employees in Denmark, 2 employees in Israel, 2 employees in Serbia, 2
employees in United Arab Emirates, 1 employee in Greece, 1 employee in Luxembourg, 1 employee in Norway,
and 1 employee in Turkey.
50
After taking into account the de minimis exemption, 1,210 employees based in the United States and 1,920
employees located outside of the United States were considered for identifying the median employee.
For purposes of identifying the median employee from our employee population base, we considered total
cash compensation (base salary, including overtime, annual bonus and the sum of other bonuses, which included
retention bonuses), as compiled from our payroll records. We selected total cash compensation as this information
is readily available in each country. In addition, we measured compensation for purposes of determining the
median employee using the year-to-date period ended December 28, 2019 and annualized for employees who
were employed on December 1, 2019 but did not work for us for all of 2019. Compensation paid in foreign
currencies was converted to U.S. dollars based on exchange rates in effect on December 1, 2019.
Estimated Payments and Benefits upon Termination, Change of Control or Death/Disability
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 the Infinera Corporation 2007 Equity Incentive Plan (the “2007 Plan”) and the 2016 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. We do not currently provide any other benefits in the event of an
employee’s death or permanent 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,” we entered into
COC Agreements with 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.
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
the Exchange Act), directly or indirectly, of securities of Infinera representing fifty
percent (50%) or more of the total voting power represented by Infinera’s then
outstanding voting securities; (ii) the consummation of the sale or disposition by
Infinera of all or substantially all of Infinera’s assets; (iii) the consummation of a
merger or consolidation of Infinera with any other corporation, other than a
merger or consolidation which would result in the voting securities of Infinera
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or its parent) at least fifty percent (50%) of the total voting power
represented by the voting securities of Infinera or such surviving entity or its
parent outstanding immediately after such merger or consolidation; or (iv) a
change in the composition of the Board occurring within a two (2) year period, as
a result of which less than a majority of the directors are Incumbent Directors.
51
“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 . . . . . . . . . . . . . . . . . . . . .
52
Fiscal 2019 Estimated Payments and Benefits Table
The amount of compensation and benefits payable to each of our NEOs (as of the last day of fiscal 2019) 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 28, 2019, the last day of fiscal 2019. The
closing price of our common stock as of the last trading day of fiscal 2019 (December 27, 2019) was $7.78 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 $7.78 and (ii) subtracting the exercise price for the unvested stock
options.
Name
Type of Benefit
Thomas J. Fallon . . . . . . . . Cash Severance
Bonus
Vesting Acceleration(1)
Continued Coverage of Employee Benefits
Potential Payments in Connection With:
Termination
Under
Severance
Policy
($)
Termination
After a
Change
of Control
($)
Termination
Upon
Death or
Disability
($)
780,000
—
—
48,878
1,040,000
1,300,000
7,962,986
65,171
—
—
7,962,986
—
Total Benefits
828,878
10,368,157
7,962,986
Nancy Erba . . . . . . . . . . . . . Cash Severance
Bonus
Vesting Acceleration(2)
Continued Coverage of Employee Benefits
425,000
—
—
19,581
637,500
478,125
5,835,000
29,372
—
—
5,835,000
—
Total Benefits
444,581
6,979,997
5,835,000
David W. Heard . . . . . . . . . Cash Severance
Bonus
Vesting Acceleration(3)
Continued Coverage of Employee Benefits
520,000
—
—
28,206
780,000
702,000
5,183,682
42,310
—
—
5,183,682
—
Total Benefits
548,206
6,707,992
5,183,682
David L. Teichmann . . . . . . Cash Severance
Bonus
Vesting Acceleration(4)
Continued Coverage of Employee Benefits
385,000
—
—
28,206
577,500
404,250
2,217,300
42,310
—
—
2,217,300
—
Total Benefits
413,206
3,241,360
2,217,300
Robert J. Jandro . . . . . . . . Cash Severance
Bonus
Vesting Acceleration(5)
Continued Coverage of Employee Benefits
420,000
—
—
18,650
630,000
504,000
2,149,700
27,975
—
—
2,149,700
—
Total Benefits
438,650
3,311,675
2,149,700
(1) The vesting of 1,023,520 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 28, 2019.
(2) The vesting of 750,000 shares of common stock would accelerate if Ms. Erba 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 28, 2019.
(3) The vesting of 666,283 shares of common stock would accelerate if Mr. Heard 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 28, 2019.
53
(4) The vesting of 285,000 shares of common stock would accelerate if Mr. Teichmann 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 28, 2019.
(5) The vesting of 276,311 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 28, 2019.
54
RISK ASSESSMENT OF COMPENSATION PRACTICES
At the request of the Compensation Committee, a review of the risks associated with our organization-wide
compensation policies and practices was conducted for fiscal 2019 compensation. This assessment covered
topics including: our compensation policies and practices; a review of each of the compensation vehicles that we
employ; the identification of any compensation design features that could encourage excessive risk taking; and the
controls, policies and plan features that mitigate our compensation risk.
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. The review found that, because our incentive
programs are based primarily on financial objectives important to Infinera, we avoid an over-emphasis on shorter-
term financial goals. In addition, the financial 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. Those elements include
the Compensation Committee’s ability use discretion to adjust payouts on most awards; strong stock ownership
requirements for our Section 16 Officers; a clawback policy; and the existence of, and training related to, corporate
standards of business conduct and ethics.
This risk assessment was presented to and reviewed by the Compensation Committee. The Compensation
Committee agreed with the result of the review, which concluded that the risks associated with our compensation
policies and practices were being effectively managed. 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.
55
PROPOSAL 2—APPROVAL OF AMENDMENT OF THE INFINERA CORPORATION
2016 EQUITY INCENTIVE PLAN
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, more closely align the interests of
employees and shareholders by giving employees an opportunity to hold an ownership stake in Infinera, and
provide an effective means of recognizing employee contributions to the success of Infinera. At the Annual
Meeting, we are requesting that shareholders approve (i) an increase to the number of shares of our common
stock (the “Shares”) authorized for issuance thereunder by 8,100,000 Shares and (ii) effecting minor technical
revisions and improvements.
The 2016 Plan has not been amended in any material way, other than to effect minor technical revisions and
improvements, as discussed further below, including affirmatively providing that no dividends may be paid or
distributed to any unvested equity. Upon recommendation of the Compensation Committee, the Board approved
amendments to the 2016 Plan on March 5, 2020 and March 26, 2020, subject to the approval of our shareholders
at the Annual Meeting.
As of March 28, 2020, there were 883,163 Shares available for issuance pursuant to awards that may be
granted under the 2016 Plan, excluding Shares already subject to outstanding awards granted under our
predecessor 2007 Plan that, if forfeited, would be added to the number of Shares reserved under the 2016 Plan. If
the proposed amendment to the 2016 Plan is not approved by our shareholders, the 2016 Plan will remain in effect
without the amendment and awards will continue to be made under the 2016 Plan to the extent Shares remain
available. However, in this event, we may not be able to continue our equity incentive program in the future. This
could preclude us from successfully attracting and retaining highly skilled employees. The Board and the
Compensation Committee believe that the additional Shares under the increased Share reserve will enable us to
continue to use the 2016 Plan to achieve our recruiting, retention and incentive goals and will be essential to our
future success.
If our shareholders approve this amendment to the 2016 Plan, we currently anticipate that the Shares will be
sufficient to meet our expected needs through the date of our 2021 annual meeting of our shareholders (“2021
Annual Meeting”). 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 2017, 2018 and 2019, we
granted equity awards covering 5.197 million, 4.277 million and 11.152 million Shares, respectively, or a
total of approximately 20.626 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 our shareholders approve this amendment to the 2016 Plan, which is
8,983,163 Shares (consisting of 883,163 Shares available for issuance under the 2016 Plan as of
March 28, 2020, plus the 8,100,000 additional Shares pursuant to this amendment to the 2016 Plan, and
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
a dollar value of the award to be granted 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.
• Proxy Advisory Firm Guidelines. Given our significant institutional shareholder base, the Compensation
Committee and the Board considered proxy advisory firm guidelines.
56
Outstanding Awards
The following table sets forth information regarding all outstanding stock options and RSUs and performance
shares under all of our equity plans (other than our 2007 Employee Stock Purchase Plan (the “2007 ESPP”)) as of
March 28, 2020. We do not currently have any outstanding stock options under the 2016 Plan. The last sales price
of our common stock as reported on The Nasdaq Global Select Market on March 27, 2020, was $5.14 per share.
Outstanding Options
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Term
(in years)
Unvested
Performance Shares /
RSUs Outstanding
Number of Shares
Available for Grant
under 2016 Plan(1)
604,979
$8.33
0.96
21,270,819
883,163
(1) There are no other outstanding equity plans under which awards of shares could be granted.
Reasons for Voting for the Proposal
The 2016 Plan has been designed consistent with best corporate governance practices.
• Administration. The 2016 Plan is administered by the Compensation Committee of the Board, which is
comprised entirely of independent non-employee directors.
• Shareholder Approval is Required for Additional Shares. The 2016 Plan does not contain an annual
“evergreen” provision but instead reserves a fixed maximum number of Shares for issuance. Shareholder
approval is required to increase that number.
• Share Counting Provisions. 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 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
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. 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.
• 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 a
termination of the participant’s service that occurs in connection with our change in control.
•
Limited Vesting Acceleration Upon a Change in Control. Except (x) as permitted under the minimum
vesting requirements and (y) for any awards made to non-employee directors, the administrator shall not
be permitted to accelerate the vesting of an award upon a change in control other than in the event an
award is not assumed or substituted for as described in this proposal below in the section entitled
“Description of the 2016 Plan—Merger or Change in Control.”
• 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).
• 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.
57
• No Dividends on Options and Stock Appreciation Rights Until Shares are Issued or on Other Equity
Awards While Unvested. Under the revised 2016 Plan, shareholders are being asked to approve an
amendment to the 2016 Plan so that no participant will have any rights to dividends or any other
shareholder rights with respect to any Shares subject to options or stock appreciation rights until such
Shares are issued following award exercise, and any dividends that the administrator may determine will
be payable on any other equity awards will be subject to the same vesting criteria, forfeitability, and/or
transferability restrictions as apply to the Shares subject the awards on which such dividends would be
paid.
Our executive officers and directors have an interest in the approval of the 2016 Plan by our shareholders
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. Subject to the adjustment provisions contained in the 2016 Plan, the maximum number of
Shares that may be issued pursuant to awards under the 2016 Plan is equal to the sum of (1) 22,700,000 Shares
plus (2) Shares subject to awards granted under the 2007 Plan that after May 12, 2016, expire, are forfeited or
otherwise terminate without being exercised in full (to the extent they were exercisable), or are forfeited to or
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). Our shareholders are being asked to approve an increase of 8,100,000 Shares in the maximum number
of Shares that may be issued pursuant to awards under the 2016 Plan. Thus, if our shareholders approve this
increase, the maximum number of Shares that may be issued pursuant to awards under the 2016 Plan will be
increased to 30,800,000 Shares, plus the number of Shares described in clause (2) above.
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. Shares used to pay the exercise price of an award will not be available for future
grant or sale 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) administers
the 2016 Plan. The Board or any committee of directors or other individuals satisfying applicable laws appointed
by the Board or a duly authorized committee of the Board may 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 Exchange Act (“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 that historically were intended to qualify as “performance-based
58
compensation” within the meaning of Section 162(m), the 2016 Plan provided for administration with respect to
those awards by a committee consisting of two or more “outside directors” within the meaning of Section 162(m).
However, this provision relating to Section 162(m) no longer applies under the amended 2016 Plan due to
changes to certain tax laws that have eliminated the “performance-based compensation” exemption under
Section 162(m).
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 not inconsistent with the 2016 Plan, 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 by an option holder upon exercise. The administrator also will have the authority to amend existing
awards, to determine fair market value of Shares, to construe and interpret the 2016 Plan and awards granted
under the 2016 Plan, to establish rules and regulations, including sub-plans for the purpose of 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. The administrator’s
decisions 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.
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. Awards granted under the 2016 Plan are required to vest no earlier than the one-year
anniversary of the awards’ grant date, except that (a) without regard to such limitation, vesting of awards can be
accelerated due to a participant’s death, disability or retirement, or service termination in connection with our
change in control, and (b) awards that result in the issuance of up to an aggregate of 5% of the Shares reserved
for issuance under the 2016 Plan may granted under the 2016 Plan, or outstanding awards granted under the
2016 Plan modified, without regard to such limitation. The administrator may provide for the acceleration of an
award granted under the 2016 Plan in connection with the termination of a participant’s service upon or in
connection with our change in control. Except for any awards granted to non-employee directors or as described
above in this paragraph, the administrator will not be permitted to accelerate the vesting of awards upon our
change in control other than if the awards are not assumed or substituted for in our change in control.
Eligibility. We will be able to grant stock options, stock appreciation rights, restricted stock, RSUs,
performance units and performance shares 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 March 28, 2020, we had seven non-employee directors,
and approximately 3,376 employees (including five NEOs) and 47 independent 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 as a non-employee director. 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, subject to any adjustment provisions contained in the 2016 Plan, the
maximum aggregate number of Shares covering equity awards that a participant is permitted to receive under the
2016 Plan 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;
59
• 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.
The 2016 Plan also provides that during any fiscal year, the maximum aggregate initial value (based on the
fair market value of the Shares underlying the award on the award’s grant date) of performance units that a
participant is permitted to receive under the 2016 Plan is $7,500,000. The 2016 Plan as amended clarifies that
such limit for performance units is on a fiscal year by fiscal year basis.
Dividends. Until Shares are issued under a stock option or stock appreciation right granted under the
2016 Plan, the holder of such awards will have no right to receive dividends or any other rights as a shareholder
with respect to the Shares subject to the award and no adjustment will be made for a dividend or other right for
which the record date occurs before the date the related Shares are issued under the stock option or stock
appreciation right award (other than subject to the adjustment provisions contained in the 2016 Plan, as discussed
under “Certain Adjustments” further below). The 2016 Plan, as amended, provides that whether payable in Shares
or otherwise, any dividends or distributions payable with respect to Shares subject to a restricted stock award
granted under the 2016 Plan will be subject to the same restrictions on transferability and/or forfeitability as the
Shares subject to such award. The Administrator also may determine, in its discretion, that such restricted stock
awards will not be eligible to receive any dividends or other distributions during the period of restriction applicable
to the award. The 2016 Plan, as amended, provides further that holders of any restricted stock units, performance
shares and performance units granted thereunder will have no right to receive dividends or other distributions as a
shareholder with respect to the Shares subject to such awards unless the Administrator determines otherwise, in
which case any such dividends or distributions will be subject to the same vesting criteria and forfeitability
provisions as the Shares subject to such award on which they are paid. For clarity, the Shares reserved for
issuance under the 2016 Plan will not be reduced by dividends or other distributions that are paid on the Shares
subject to awards granted under the 2016 Plan.
Stock Options. We are able to grant stock options under the 2016 Plan. Each option will be evidenced by an
award agreement that specifies the exercise price, the number of Shares subject to the option, the maximum 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 common stock on the date of grant, except in special, limited
circumstances as set forth in the 2016 Plan. The maximum term of a stock option must not exceed 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 maximum term of an incentive stock option
granted to such participant must not exceed five years and such option’s 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 a Share is the
closing sales price of a Share on the relevant date as quoted on Nasdaq. 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.
The administrator will determine and specify in each award agreement, and solely in its discretion, the period of
post-termination exercise applicable to each option. In the absence of such a determination by the administrator,
the participant generally will be able to exercise the vested portion of the option for three months following his or
her termination for reasons other than death or disability, and for 12 months following his or her termination due to
disability or death while holding the option (to the extent vested on the date of disability or death). However, in no
event can an option be exercised after the expiration of the term of the option.
Stock Appreciation Rights. We are 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 the underlying Shares
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
of a stock appreciation right will be no less than 100% of the fair market value per Share on the date of grant.
60
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. The maximum term of a stock appreciation right
must not exceed 10 years. The administrator will determine and specify in each award agreement, and solely in its
discretion, the period of post-termination exercise applicable to each stock appreciation right. In the absence of
such a determination by the administrator, the participant generally will be able to exercise the vested portion of
the stock appreciation right for three months following his or her termination for reasons other than death or
disability, and for 12 months following his or her termination due to disability or death while holding the stock
appreciation right (to the extent vested on the date of disability or death). However, in no event can a stock
appreciation right be exercised after the expiration of the term of the option. 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 are able to grant restricted stock under the 2016 Plan. Restricted stock awards are
grants of Shares that may be subject to various restrictions, which may include 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 (subject to minimum vesting requirements). Recipients
of restricted stock awards generally will have full voting rights with respect to such Shares upon grant without
regard to vesting, unless the administrator provides otherwise. Unless otherwise determined by the administrator,
a participant generally will forfeit any Shares of restricted stock as to which the restrictions have not lapsed as of a
date specified in the award agreement (such as the participant’s termination of service).
Restricted Stock Units. We are 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 (subject to the minimum vesting requirements). The administrator determines in its sole discretion
whether an award will be settled in cash, Shares, or a combination of both.
Performance Units and Performance Shares. We are 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 or other vesting criteria 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 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. On or before 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 value or number of performance units or 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 (subject to the minimum vesting requirements). The administrator, in its sole discretion, may
pay earned performance units or performance shares in the form of cash, Shares, or in some combination of both.
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,
61
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 intended to be made 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.
Merger or Change in Control. The 2016 Plan provides that in the event of our merger or change in control, as
defined in the 2016 Plan, each outstanding award will be treated as the administrator determines, in accordance
with the following: (i) the assumption or substitution of the award by the acquirer or successor corporation or its
parent or subsidiary, (ii) termination of the award upon or immediately prior to the consummation of the merger or
change in control following written notice and subject to the next paragraph, (iii) subject to the next paragraph,
(A) termination of the award in exchange for an amount of cash and/or property in an amount that would have
been attained upon exercise or realization of the award as of the date of the merger or change in control, or
(B) replacement of the award with other rights or property, or (iv) any combination of the above. The administrator
will not be required to treat all awards, all awards held by a participant, or all awards of the same type, similarly.
If outstanding awards (or portion of the awards) are not assumed or substituted for, the awards will fully vest
and become exercisable and all restrictions will lapse, except that with respect to awards subject to performance-
based vesting, performance criteria will be deemed achieved based on actual performance measured through the
last date that the awards remain outstanding (or such earlier date that the administrator may determine), with any
performance period shortened proportionately and applicable performance goals or other vesting criteria adjusted
proportionately to reflect the adjusted performance period (or to the extent applicable, the value of the
consideration to be received by our shareholders in connection with the merger or change in control). In addition, if
an option or stock appreciation right is not assumed or substituted in the event of a merger or 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.
Dissolution or Liquidation. In the event of our dissolution or liquidation, the administrator will notify each
participant as soon as practicable before the effective date of the proposed transaction. To the extent not
previously exercised (as applicable), an award granted under the 2016 Plan will terminated immediately before the
consummation of such proposed transaction.
Plan Amendment; Termination. The administrator has the authority to amend, alter, suspend, or terminate the
2016 Plan at any time, 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.
Forfeiture of Awards. The 2016 Plan adds grants the administrator authority to specify in an award agreement
that a participant’s rights, payments and benefits with respect to an award granted under the 2016 Plan will be
subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain specified events. The
2016 Plan also provides that awards granted under the 2016 Plan also will be subject to any Infinera clawback
policy as may be established or amended from time to time. The administrator may require a participant to forfeit,
return or reimburse to Infinera all or a portion of an award and any amounts paid under the award pursuant to the
terms of Infinera’s clawback policy or in order to comply with applicable laws.
62
Number of Awards Granted to Employees and Directors
The number of awards, and Shares subject thereunder, 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 Shares subject to RSUs and performance shares (at target)
granted under the 2016 Plan during fiscal 2019 to each of our NEOs; our current 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 NEOs) or directors in fiscal 2019.
Name of Individual or Identity of Group and
Principal Position
Dollar
Value
of Award(s)
($)(1)
Number of RSUs and
Performance Shares
Granted
(#)
Thomas J. Fallon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,439,125
650,000
Chief Executive Officer
Nancy Erba . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Chief Financial Officer
Brad D. Feller(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,078,000
220,000
Former Chief Financial Officer
David W. Heard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,156,000
440,000
Chief Operating Officer
David L. Teichmann . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,187,450
285,000
Chief Legal Officer and Corporate Secretary
Robert J. Jandro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
833,000
170,000
Senior Vice President, Worldwide Sales
9,654,075
All current executive officers as a group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All current directors who are not executive officers as a group . . . . . . . . . . . . . .
2,087,233
All employees (excluding executive officers as a group) . . . . . . . . . . . . . . . . . . . 36,101,346
2,175,000
617,456
8,149,690
(1) For RSUs, represents the aggregate grant date fair value of each equity award computed in accordance with ASC 718. For
performance shares, represents the aggregate grant date fair value of each equity award at the target payout level
computed in accordance with ASC 718. See Notes 2 and 16 of the notes to our consolidated financial statements contained
in our 2019 Annual Report, for a discussion of all assumptions made by us in determining the ASC 718 values of equity
awards.
(2) Mr. Feller’s equity awards were cancelled upon his separation from Infinera on September 30, 2019.
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 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 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
63
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 Units 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 2016 Plan 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.
Medicare Surtax. In addition, a participant’s annual “net investment income”, as defined in Section 1411 of the
Code, may be subject to a 3.8% federal surtax. Net investment income may include capital gain and/or loss arising
from the disposition of Shares issued pursuant to awards granted under the 2016 Plan. Whether a participant’s net
investment income will be subject to this surtax will depend on the participant’s level of annual income and other
factors.
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 nonstatutory stock option). However, special rules limit the
deductibility of compensation paid to our CEO and other “covered employees” as determined under
Section 162(m) and applicable guidance. Under Section 162(m), the annual compensation paid to any of these
specified individuals will be deductible only to the extent that it does not exceed $1,000,000. However, under
Section 162(m) as it was in effect during fiscal year 2018, we could preserve the deductibility of certain
compensation in excess of $1,000,000 if the conditions of Section 162(m) were met. These conditions included
(among others) shareholder 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 was vested or paid. As a result of the Tax Cuts
and Jobs Act of 2017, for taxable years beginning on or after January 1, 2018, and except for certain
grandfathered arrangements, under Section 162(m), any compensation over $1,000,000 paid to the covered
employees is not deductible to Infinera.
THE FOREGOING IS ONLY A SUMMARY OF THE TAX EFFECT OF U.S. 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
64
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 shareholders 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 shareholders.
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 amendment to (i) increase the number
of shares authorized for issuance thereunder by 8,100,000 shares and (ii) effect minor technical revisions and
improvements.
65
PROPOSAL 3—ADVISORY APPROVAL OF NAMED EXECUTIVE OFFICER COMPENSATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, enables
our shareholders 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 shareholders 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 shareholders. The specific
goals that our current executive compensation programs reward are focused on financial objectives, including
specific non-GAAP operating loss targets. Please read the “Compensation Discussion and Analysis” section of this
Proxy Statement beginning on page 24 for additional details about our executive compensation programs,
including information about the fiscal 2019 compensation of our NEOs.
The Board is asking our shareholders 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, the Board recommends that our shareholders vote “FOR” the following resolution at the
Annual Meeting:
“RESOLVED: That the shareholders approve, on an advisory basis, the compensation of the named
executive officers, as disclosed in the Proxy Statement for the 2020 Annual Meeting of Shareholders 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
shareholders and will continue to consider our shareholders’ feedback in evaluating future compensation options
for our NEOs.
Vote Required
Approval of Proposal 3 requires the affirmative vote of a majority of the votes cast on this proposal.
Abstentions will have the same effect as an “AGAINST” vote. Broker non-votes 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 compensation of our NEOs, as
disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC.
66
OUR AUDITORS
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 28, 2019 and has further directed that we
submit the appointment of independent auditors for ratification by the shareholders at the Annual Meeting. Ernst &
Young LLP has audited our financial statements since fiscal 2001. Representatives of Ernst & Young LLP 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 shareholders for ratification as a matter of good corporate practice. If the
shareholders 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 shareholders.
Independent Registered Public Accounting Firm’s Fees
The following table sets forth the aggregate fees for audit, audit-related, tax and other services provided by
Ernst & Young LLP for the fiscal years ended December 28, 2019 and December 29, 2018. All of the services
described in the following table were approved in conformity with the Audit Committee’s pre-approval processes
and procedures.
2019
2018(1)
Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,009,000 $6,493,000
135,000
Audit-Related Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
485,000
Tax Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
257,000
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
362,000
532,000
—
Total Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,903,000 $7,370,000
(1) Prior year numbers have been reclassified to conform to current year classification.
Audit Fees
This category includes Ernst & Young LLP’s audit of our annual financial statements and internal control over
financial reporting, review of financial statements included in our Form 10-Q quarterly reports, and services that
are typically provided by the independent registered public accounting firm in connection with statutory and
regulatory filings or engagements for those fiscal years. This category also includes statutory audits required by
non-U.S. jurisdictions, consultation and advice on new accounting pronouncements, and technical advice on
various accounting matters related to the consolidated financial statements or statutory financial statements that
are required to be filed by non-U.S. jurisdictions, comfort letters, and consents issued in connection with SEC
filings. Fiscal 2018 fees were higher than the fiscal 2019 fees because of the additional fees for a registered debt
offering and acquisition-related work in connection with our acquisition of Coriant, partially offset by higher fiscal
2019 fees for a full year audit of the combined company.
Audit-Related Fees
This category consists of assurance and related services provided by Ernst & Young LLP that are reasonably
related to the performance of the audit or review of our financial statements and are not included in the fees
reported in the table above under “Audit fees.” Audit-related services principally include due diligence services in
connection with acquisitions.
67
Tax Fees
This category includes fees for tax compliance, tax advice, tax planning and transfer pricing.
All Other Fees
This category consists of any permitted services provided by Ernst & Young LLP that are not included in the
category descriptions under “Audit Fees,” “Audit-Related Fess” or “Tax Fees” in the table above, and principally
includes non-audit services, including permissible business and advisory consulting services.
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, if any, 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 26, 2020.
68
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 our independent registered public accounting firm. 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.
A copy of the Audit Committee charter is available on our website at www.infinera.com.
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 for the year ended
December 28, 2019 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. 1301, “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 Annual Report on Form 10-K for the year
ended December 28, 2019 for filing with the SEC.
Submitted by the members of the Audit Committee:
Paul J. Milbury (Chair)
Marcel Gani
Kambiz Y. Hooshmand
69
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We have adopted a formal policy that our executive officers, directors, and principal shareholders, including
their immediate family members and affiliates, are not permitted to enter into a related party transaction with us
without the prior consent of the Audit Committee, or other independent members of the Board in the case it is
inappropriate for the 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 shareholder, or any of such persons’ immediate
family members or affiliates, in which the amount involved exceeds $120,000 must first be presented to the Audit
Committee for review, consideration and approval. All of our directors, executive officers and employees are
required to report to the Audit Committee any such related party transaction. In approving or rejecting the
proposed agreement, the 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. The Audit Committee shall approve only those agreements that, in light of
known circumstances, are, or are not inconsistent with, our best interests, as the Audit Committee determines in
the good faith exercise of its discretion.
On March 4, 2020, Dr. Welch, our Chief Innovation Officer and a member of the Board, was granted an award
of 650,000 performance-based shares. This award provided for a number of quantitative and qualitative
performance objectives related to the successful development of our XR Optics program. These shares may vest
up to 100% over a four-year period through the end of fiscal 2024 upon the achievement of various performance
metrics within specified time periods during this four-year range.
We did not engage in any other related party transactions during fiscal 2019.
DELIQUENT SECTION 16(a) REPORTS
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
2019 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 2019 with the exception that Dr. Welch was late filing a Form 4 with respect to
three transactions.
70
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 28, 2019 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,835,144(1)
$8.41
20,586,694(2)
Equity compensation plans not approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
—
14,835,144
—
—
20,586,694
(1) This amount includes the following:
•
•
•
729,979 shares issuable upon the exercise of outstanding stock options granted under the 2007 Plan.
11,600,707 shares subject to RSUs granted under the 2007 Plan and 2016 Plan. Since these awards have no exercise
price, they are not included in the weighted average exercise price calculation in column (b).
2,504,458 shares issuable pursuant to outstanding stock awards that have been granted under the 2007 Plan, but not
yet earned as of December 28, 2019. 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 section entitled “Fiscal 2019
Compensation-Long-Term Incentive Compensation” in the Compensation Discussion and Analysis. 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 12,437,898 shares of common stock available for future issuances under the 2007 ESPP.
71
OUR SHAREHOLDERS
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 10% of any class of our voting
securities;
• Our NEOs;
• Each of our directors; and
• All current 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
shareholder 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 183,197,658 shares of common stock
outstanding on the Record Date. Unless otherwise indicated, the principal address of each of the shareholders
below is c/o Infinera Corporation, 140 Caspian Court, Sunnyvale, California 94089.
Name of Beneficial Owner
Common
Shares
Currently
Held
Common Shares
That May Be Acquired
Within 60 Days of the
Record Date(1)
Total
Beneficial
Ownership
Percent
Beneficially
Owned
1,482,246
5% or More Shareholders
FMR LLC(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,120,389
Oaktree Optical Holdings, L.P.(3) . . . . . . . . . . . . 25,175,384
The Vanguard Group(4) . . . . . . . . . . . . . . . . . . . . 16,173,674
BlackRock, Inc.(5)
. . . . . . . . . . . . . . . . . . . . . . . . 13,066,352
Named Executive Officers and Directors
Thomas J. Fallon(6) . . . . . . . . . . . . . . . . . . . . . . .
Nancy Erba . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brad D. Feller(7) . . . . . . . . . . . . . . . . . . . . . . . . . .
David W. Heard . . . . . . . . . . . . . . . . . . . . . . . . . .
David L. Teichmann . . . . . . . . . . . . . . . . . . . . . .
Robert J. Jandro(8)
. . . . . . . . . . . . . . . . . . . . . . .
Gregory P. Dougherty . . . . . . . . . . . . . . . . . . . . .
Marcel Gani . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sharon E. Holt . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kambiz Y. Hooshmand(9)
. . . . . . . . . . . . . . . . . .
Paul J. Milbury . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rajal M. Patel(11) . . . . . . . . . . . . . . . . . . . . . . . . .
Mark A. Wegleitner . . . . . . . . . . . . . . . . . . . . . . .
David F. Welch, Ph.D.(13)
. . . . . . . . . . . . . . . . . .
122,589
72,355
60,213
85,489
1,619,084
201,481
12,615
240,573
259,972
116,796
—
—
—
—
—
—
—
27,120,389
25,175,384
16,173,674
13,066,352
14.80%
13.74%
8.83%
7.13%
432,499
—
0
112,387
55,000
83,111
53,745
53,745
53,571
53,745
61,345(10)
53,745
93,745(12)
306,253
1,914,745
—
259,972
229,183
55,000
284,592
66,360
294,318
53,571
176,334
133,700
113,958
179,234
1,925,337
1.04%
*
*
*
*
*
*
*
*
*
*
*
*
1.05%
All Current Executive Officers and
Directors as a Group (13 Persons)
. . . . . .
3,814,960
1,354,109(14)
5,169,069
2.82%
*
(1)
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.
(2) According to a Schedule 13G/A filed with the SEC on February 7, 2020 by FMR LLC (“FMR”), Abigail P. Johnson (FMR’s
Director, Chairman and CEO) and Fidelity Growth Company Fund (“Fidelity”). Such amendment states that FMR is deemed
to be the beneficial owner of 27,120,389 shares by virtue of its control over Fidelity, which is deemed to be the beneficial
owner of 12,590,819 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
72
10,421,158 shares, shared voting power over no shares, sole dispositive power over 27,120,389 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 27,120,389 shares, and shared dispositive power over no shares and (c) Fidelity has sole voting
power over 12,590,819 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 Forms 4 filed on March 18, 2020 and March 23, 2020 and a Schedule 13D/A filed with the SEC on March 19,
2020 jointly, pursuant to a joint filing agreement, by (i) Oaktree Optical Holdings, L.P., a Delaware limited partnership
(“Optical”), whose principal business is to invest in securities; (ii) Oaktree Fund GP, LLC, a Delaware limited liability
company (“GP LLC”), whose principal business is to serve as and perform the functions of the general partner of certain
investment funds including Optical; (iii) Oaktree Fund GP I, L.P., a Delaware limited partnership (“GP I”), whose principal
business is (A) serve as, and perform the functions of, the general partner of certain investment funds or to serve as, and
perform the functions of, the managing member of the general partner of certain investment funds or (B) to act as the sole
shareholder of certain controlling entities of certain investment funds; (iv) Oaktree Capital I, L.P., a Delaware limited
partnership (“Capital I”), whose principal business is to serve as, and perform the functions of, the general partner of GP I;
(v) OCM Holdings I, LLC, a Delaware limited liability company (“Holdings I”), whose principal business is to serve as, and
perform the functions of, the general partner of Capital I and to hold limited partnership interests in Capital I; (vi) Oaktree
Holdings, LLC, a Delaware limited liability company (“Holdings”), whose principal business is to serve as, and perform the
functions of, the managing member of Holdings I; (vii) Oaktree Capital Group, LLC, a Delaware limited liability company
(“OCG”), whose principal business is to act as the holding company and controlling entity of each of the general partner and
investment adviser of certain investment funds and separately managed accounts; and (viii) Oaktree Capital Group Holdings
GP, LLC, a Delaware limited liability company (“OCGH GP” and together with Optical, GP I, Capital I, Holdings I, Holdings,
OCG and GP LLC, collectively, the “Reporting Persons”), whose principal business is to serve as, and perform the functions
of, the manager of OCG. The principal business address of each of the Reporting Persons is c/o Oaktree Capital Group
Holdings GP, LLC, 333 South Grand Avenue, 28th Floor, Los Angeles, California 90071.
(4) According to a Schedule 13G/A filed with the SEC on February 12, 2020 by The Vanguard Group (“Vanguard”). Vanguard is
the beneficial owner of 16,173,674 shares and has sole voting power over 168,101 shares, shared voting power over 35,086
shares, sole dispositive power over 15,994,818 shares and shared dispositive power over 178,856 shares. The address of
Vanguard is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355.
(5) According to a Schedule 13G/A filed with the SEC on February 10, 2020 by BlackRock, Inc. (“BlackRock”). BlackRock is the
beneficial owner of 13,066,352 shares and has sole voting power over 12,688,972 shares and sole dispositive power over
13,066,352 shares. The address of BlackRock is 55 East 52nd Street, New York, New York 10055.
(6) Shares held by The Fallon Family Revocable Trust dated 9/7/1994.
(7) Mr. Feller resigned as CFO effective as of August 26, 2019 and terminated effective as of September 30, 2019.
(8) Mr. Jandro resigned as Senior Vice President, Worldwide Sales effective January 3, 2020.
(9) Consists of (i) 64,042 shares held by Mr. Hooshmand; and (ii) 58,547 shares held by 2002 Hooshmand Family Trust UA
03/01/2002.
Includes (i) 7,600 vested, unexercised stock options and (ii) 53,745 unvested RSUs.
(10)
(11) Shares held by The Rajal & Brinda Patel Trust U/A DTD 9/6/2016.
(12)
Includes (i) 40,000 vested, unexercised stock options and (ii) 53,745 unvested RSUs.
(13) Consists of (i) 1,499,291 shares held by The Welch Family Trust U/A DTD 4/3/1996; (ii) 117,293 shares held by LRFA, LLC,
a limited liability company of which Dr. Welch is the sole managing member; and (iii) 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.
Includes (i) 469,576 vested, unexercised stock options and (ii) 884,533 unvested RSUs.
(14)
SHAREHOLDER PROPOSALS FOR 2021 ANNUAL MEETING
To be considered for inclusion in our Proxy Statement for the 2021 Annual Meeting, shareholder 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 December 4, 2020, or no later than 120
calendar days before the one-year anniversary of the date on which we first mailed our Proxy Statement to
shareholders in connection with this year’s Annual Meeting.
Under Rule 14a-8 of the Exchange Act, if the date of the 2021 Annual Meeting changes by more than 30 days
from the anniversary of this year’s Annual Meeting, to be included in our Proxy Statement, shareholder proposals
must be received by us within a reasonable time before our solicitation is made.
To be raised at the 2021 Annual Meeting, shareholder proposals must comply with our Bylaws. Under our
Bylaws, a shareholder 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 shareholder wishes to raise at our 2021 Annual
73
Meeting. To be timely, the shareholder notice must be received by our Corporate Secretary no later than
February 17, 2021 nor earlier than January 18, 2021. To be in proper written form, the shareholder 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 shareholder
nomination of a candidate for the Board, the shareholder notice must also include certain information as set forth
in our Bylaws about both the nominee and the shareholder making the nomination. If you wish to bring a
shareholder proposal or nominate a candidate for director, you are advised to review our Bylaws, which contain
additional requirements about advance notice of shareholder proposals and director nominations. Our current
Bylaws may be found on our website at www.infinera.com in the Corporate Governance section on our Investors
page.
Under our Bylaws, if the date of the 2021 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 shareholder 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 2021 Annual Meeting and no later than the close of business on the later of
(i) the 90th day prior to the 2021 Annual Meeting, or (ii) the tenth day following the day on which disclosure in a
press release reported by GlobeNewswire, 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 2021 Annual Meeting is first made.
DELIVERY OF DOCUMENTS TO SHAREHOLDERS
SHARING THE SAME LAST NAME AND ADDRESS
To reduce the expense of delivering duplicate proxy materials to shareholders 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, shareholders 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 this Proxy Statement,
our Annual Report and any additional proxy materials that are delivered. This procedure reduces duplicate
mailings and saves printing costs and postage fees, as well as natural resources. Shareholders 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. Shareholders 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.
74
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,
Sunnyvale, California
April 14, 2020
Nancy Erba
Chief Financial Officer
75
USER’S GUIDE
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: We are providing you access to these proxy materials in connection with the solicitation of proxies by the
Board for use at the 2020 Annual Meeting of Shareholders to be held exclusively virtually on Thursday,
May 21, 2020 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
shareholders on or about April 15, 2020. You are invited to virtually attend the Annual Meeting and requested
to vote on the items described in this proxy statement.
Q: Where is the Annual Meeting?
A: The Annual Meeting will be held virtually at www.virtualshareholdermeeting.com/INFN2020.
Q: Why are you holding a virtual meeting instead of a physical meeting?
A:
In light of the current COVID-19 pandemic and government orders related to activities in the state and county
where we operate, we believe that a virtual Annual Meeting would allow the greatest number of shareholders
to attend. We are excited to embrace the latest technology to provide expanded access, improved
communication and cost savings for our shareholders and our Company. We believe that hosting a virtual
Annual Meeting will enable more of our shareholders to attend and participate in the meeting since our
shareholders can participate from any location around the world with Internet access.
Q: How can I attend the virtual Annual Meeting?
A: The Annual Meeting will be a completely virtual meeting of shareholders conducted exclusively by a live audio
webcast.
If you are a shareholder of record as of the close of business on March 26, 2020, the record date for the
Annual Meeting, you will be able to virtually attend the Annual Meeting, vote your shares and submit your
questions online during the meeting by visiting www.virtualshareholdermeeting.com/INFN2020. You will need
to enter the 16-digit control number included on your notice, on your proxy card or on the instructions that
accompanied your proxy materials.
If you are a shareholder holding your shares in “street name” as of the close of business on March 26, 2020,
you may gain access to the meeting by following the instructions in the voting instruction card provided by
your broker, bank, trustee or other nominee. You may not vote your shares electronically at the Annual
Meeting unless you receive a valid “legal proxy” from your broker, bank, trustee or other nominee.
The online meeting will begin promptly at 10:00 a.m., Pacific time. We encourage you to access the meeting
prior to the start time. Online check-in will begin at 9:45 a.m., Pacific time, and you should allow approximately
15 minutes for the online check-in procedures.
If you wish to submit a question for the Annual Meeting, you may do so in advance at
www.virtualshareholdermeeting.com/INFN2020, or you may type it into the dialog box provided at any point
during the virtual meeting (until the floor is closed to questions).
Q: What can I do if I need technical assistance during the Annual Meeting?
A:
If you encounter any difficulties accessing the virtual Annual Meeting webcast please call the technical
support number that will be posted on the Annual Meeting website log-in page.
76
Q: What proposals will be voted on at the Annual Meeting?
A: At the Annual Meeting, shareholders will be asked to vote on:
• The election of three Class I directors to serve until the 2023 Annual Meeting of Shareholders or until
their successors have been duly elected and qualified, or until his or her earlier death, resignation or
removal from the Board;
• The approval of an amendment of the 2016 Plan to (i) increase the number of shares authorized for
issuance thereunder by 8,100,000 shares and (ii) effect minor technical revisions and improvements;
• The approval, on an advisory basis, of the compensation of Infinera’s NEOs, as described in the Proxy
Statement; and
• The ratification of the appointment of Ernst & Young LLP as Infinera’s independent registered public
accounting firm for the fiscal year ending December 26, 2020.
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, 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 the chairperson of the meeting or approval of the holders of common stock representing a majority of the
votes present virtually 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 virtually, 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—The approval of an amendment of the 2016 Plan to (i) increase the number of shares authorized
for issuance thereunder by 8,100,000 shares and (ii) effect minor technical revisions and improvements,
requires the affirmative vote of a majority of the total votes cast by holders of shares present virtually, 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—The approval, on an advisory basis, of the compensation of Infinera’s NEOs requires the
affirmative vote of a majority of the total votes cast by holders of shares present virtually, 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—The ratification of the appointment of Ernst & Young LLP as Infinera’s independent registered
public accounting firm for the fiscal year ending December 26, 2020, requires the affirmative vote of a majority
of the total votes cast by holders of shares present virtually, 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, if any, 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.
77
Stock Ownership
Q: What is the difference between holding shares as a shareholder of record and as a beneficial owner?
A: Shareholders of Record—If your shares are registered directly in your name with our transfer agent,
Computershare, Inc., you are the shareholder of record with respect to those shares, and this Proxy
Statement has been sent directly to you.
Beneficial Owners—If your shares are held through a broker, bank, trustee or other nominee, rather than
directly in their own name, you are considered the “beneficial owner” of shares held in “street name.” The
Proxy Statement has been forwarded to you by your broker, trustee or other nominee who is considered, with
respect to those shares, the shareholder of record. As the beneficial owner, you have the right to direct your
broker, bank, trustee or other nominee on how to vote your shares. For directions on how to vote shares
beneficially held in street name, please refer to the voting instruction card provided by your broker, bank,
trustee or other nominee. Because a beneficial owner is not the shareholder of record, you may not vote these
shares virtually at the Annual Meeting unless you obtain a legal proxy issued in your name from the broker,
bank, trustee or other nominee that holds your shares, giving you the right to vote your shares at the Annual
Meeting.
Quorum and Voting
Q: Who is entitled to vote at the Annual Meeting?
A: Shareholders 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 shareholders 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 183,197,658 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
shareholder of record and those shares held for you as a beneficial owner through a broker, bank, trustee or
other nominee.
Q: How many shares must be present or represented to conduct business at the Annual Meeting?
A: The presence virtually 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 shareholders are counted
as present at the meeting if they (i) are present virtually at the Annual Meeting or (ii) 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
non-routine proposal because the broker does not have discretionary voting power with respect to such
proposal. 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 amendment of the 2016 Plan (Proposal 2) and the non-binding
advisory vote on Infinera’s NEO compensation (Proposal 3) are “non-routine” matters for which discretionary
voting power does not exist under applicable rules. A broker, bank, 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, trustee or other nominee how to vote with respect to Proposals 1, 2 and 3, no votes will be cast
on your behalf.
78
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,
bank, trustee or other nominee may generally vote on routine matters without instructions from the beneficial
owner of the shares being voted, and therefore no broker non-votes are expected to exist in connection with
Proposal 4.
Q: How can I vote my shares virtually at the Annual Meeting?
A: Shareholders of Record—Shares held in your name as the shareholder of record may be voted virtually at the
Annual Meeting, even if previously voted by another method. You will need the 16-digit control number on
your proxy card or voting instructions to vote at the Annual Meeting.
Beneficial Owners—Shares held beneficially in street name may be voted virtually at the Annual Meeting only
if you obtain a legal proxy issued in your name from the broker, bank, trustee or other nominee that holds your
shares, giving you the right to virtually vote the shares at the Annual Meeting. Otherwise, you will not be
permitted to virtually vote at the Annual Meeting. You will need the 16-digit control number on your proxy card
or voting instructions to vote at the Annual Meeting.
Even if you plan to virtually attend the Annual Meeting, we recommend that you submit your vote as
described in this Proxy Statement 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 virtually attending the Annual Meeting?
A: Whether you hold shares directly as the shareholder of record or beneficially in street name, you may direct
how your shares are voted without attending the Annual Meeting. If you are a shareholder of record, you may
vote by submitting a proxy (please refer to the voting instructions in this Proxy Statement or below). If you hold
shares beneficially in street name, you may vote by submitting voting instructions to your broker, bank, trustee
or other nominee (please refer to the voting instructions provided to you by your broker, bank, trustee or other
nominee).
Internet—Shareholders of record with Internet access may submit proxies by following the instructions in this
Proxy Statement. Shareholders who hold shares beneficially in street name may vote by accessing the
website specified in the voting instructions provided by their brokers, banks, 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—Shareholders who have received a paper copy of a proxy card or voting instruction card by mail may
submit their vote by completing, signing and dating their proxy card or voting instruction card where indicated
and returning it in the accompanying prepaid envelope.
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 shareholder of record or have obtained a proxy voting form from your broker, bank, 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, bank, 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 or 3 and will be counted as broker non-votes with respect to these proposals. With respect to
Proposal 4, your broker, bank, trustee or other nominee will have the discretion to vote your shares.
Q: Can I change or revoke my vote?
A: Subject to any rules your broker, bank, trustee or other nominee may have, you may change your proxy
instructions at any time before your proxy is voted at the Annual Meeting.
79
Shareholders of Record—If you are a shareholder 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) virtually attending the Annual Meeting and voting (although virtual 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 shareholder 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 through your broker,
trustee or other nominee, or (2) virtually attending the Annual Meeting and voting if you have obtained a proxy
voting form from the broker, trustee or other nominee that holds your shares giving you the right to vote the
shares.
Q: Who will bear the cost of soliciting votes for the Annual Meeting?
A: We will bear all expenses of soliciting proxies for the Annual Meeting. We may reimburse brokerage firms,
custodians, nominees, fiduciaries and other persons representing beneficial owners of common stock for their
reasonable expenses in forwarding solicitation materials to such beneficial owners. Directors, officers and
employees of Infinera may also solicit proxies in person or by other means of communication. Such directors,
officers and employees will not be additionally compensated, but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. We have engaged the services of Morrow Sodali
LLC, 470 West Avenue, Stamford, Connecticut 06902, as our proxy solicitor to aid in the solicitation of proxies
from certain brokers, banks, trustees, nominees and other institutional owners. Morrow’s fees for this service
are estimated to be $12,000 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: Proxy instructions, ballots, and voting tabulations that identify individual shareholders are handled in a manner
that protects your voting privacy. We will not disclose the proxy instructions or ballots of individual
shareholders, except:
•
•
•
•
as necessary to meet applicable legal requirements and to assert or defend claims for or against Infinera;
to facilitate a successful proxy solicitation;
if a shareholder makes a written comment on the proxy card or otherwise communicates his or her vote
to management; or
to allow the independent inspector of election to certify the results of the vote.
A representative from Broadridge will serve as the inspector of election.
Additional Information
Q: What should I do if I receive more than one set of proxy materials?
A:
If you receive more than one set of proxy materials, your shares are likely registered in more than one name
or with more than one broker, bank, trustee or nominee. Please follow the voting instructions on each proxy
card or set of voting instructions that you receive to ensure that all of your shares are voted.
80
Q: How can I access Infinera’s proxy materials and Annual Report on Form 10-K?
A: Our proxy materials will be sent to you directly, and all shareholders of record and beneficial owners will have
the ability to vote free of charge online with their control number referred to on their proxy card or voting
instructions at www.proxyvote.com. Our Annual Report on Form 10-K for the fiscal year ended December 28,
2019 is also being mailed to you directly. The 2019 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 Exchange Act that
incorporate future filings, including this proxy statement, in whole or in part. However, the Compensation
Committee Report and the Report of the Audit Committee shall not be incorporated by reference into any such
filings.
Q: How can I view or request copies of Infinera’s corporate documents and SEC filings?
A: Our website contains our Bylaws, Corporate Governance Guidelines, Board committee charters, Code of
Business Conduct and Ethics, and SEC filings. To view these documents, please go to
http://investors.infinera.com/home/default.aspx and then click on “Committee Charters & Governance
Documents” under the “Corporate Governance” heading. To view our SEC filings and Forms 3, 4 and 5 filed
by our directors and executive officers, please go http://investors.infinera.com/home/default.aspx 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 shareholder 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 2019 Annual Report and this Proxy
Statement to any shareholder requesting a copy. Requests should be directed to Infinera Corporation, c/o
Corporate Secretary, 140 Caspian Court, Sunnyvale, California 94089.
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APPENDIX A—UNAUDITED RECONCILIATIONS FROM GAAP TO NON-GAAP
Infinera Corporation
Unaudited Reconciliations from GAAP to Non-GAAP
(In thousands)
Years Ended
December 28,
2019
December 29,
2018
December 30,
2017
Reconciliation of Revenue:
U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,298,865
9,631
Acquisition-related deferred revenue adjustment . . . . . . . . . . . . . . . . .
8,100
Other customer related chargers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 943,379
4,582
—
$ 740,739
—
—
Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,316,596
$ 947,961
$ 740,739
Reconciliation of Gross Profit:
U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 325,923
9,631
Acquisition-related deferred revenue adjustment . . . . . . . . . . . . . . . . .
8,100
Other customer related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,449
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,583
Amortization of acquired intangible assets . . . . . . . . . . . . . . . . . . . . . .
28,449
Acquisition and integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,778
Acquisition-related inventory adjustments . . . . . . . . . . . . . . . . . . . . . .
29,935
Restructuring and related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 321,156
4,582
—
6,621
23,476
—
5,337
2,630
$ 244,000
—
—
7,811
20,474
46
—
19,141
Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 442,848
$ 363,802
$ 291,472
Reconciliation of Gross Margin:
U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related deferred revenue adjustment . . . . . . . . . . . . . . . . .
Other customer related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired intangible assets . . . . . . . . . . . . . . . . . . . . . .
Acquisition and integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related inventory adjustments . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other related costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25.1%
0.7%
0.6%
0.5%
2.4%
2.0%
0.1%
2.2%
33.6%
34.0%
0.5%
—
0.7%
2.4%
—
0.5%
0.3%
38.4%
32.9%
—
—
1.0%
2.8%
—
—
2.6%
39.3%
Reconciliation of Net Loss from Operations:
U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (350,230) $(185,679)
4,582
Acquisition-related deferred revenue adjustment . . . . . . . . . . . . . . . . .
Other customer related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired intangible assets . . . . . . . . . . . . . . . . . . . . . .
Acquisition and integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related inventory adjustments . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other related costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Litigation charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible asset impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,631
8,100
42,779
59,863
70,720
1,778
70,786
4,100
—
43,409
52,772
15,530
5,337
15,142
—
—
$(183,087)
—
—
45,720
26,634
368
—
35,247
—
252
Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (82,473) $ (48,907)
$ (74,866)
Reconciliation of Operating Margin:
U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related deferred revenue adjustment . . . . . . . . . . . . . . . . .
Other customer related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired intangible assets . . . . . . . . . . . . . . . . . . . . . .
Acquisition and integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related inventory adjustments . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other related costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Litigation charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible asset impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-27.0%
0.8%
0.6%
3.3%
4.6%
5.5%
0.1%
5.5%
0.3%
—
-6.3%
-19.7%
0.5%
—
4.6%
5.6%
1.6%
0.6%
1.6%
—
—
-5.2%
-24.7%
—
—
6.2%
3.6%
—
—
4.8%
—
—
-10.1%
A-1
Three Months Ended
December 28,
2019
September 28,
2019
June 29,
2019
March 30,
2019
Reconciliation of Revenue:
U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related deferred revenue adjustment . . . . . .
Other customer related chargers . . . . . . . . . . . . . . . . . . .
$384,567
1,891
—
$325,341
2,305
—
$ 296,250 $ 292,707
2,905
—
2,530
8,100
Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . .
$386,458
$327,646
$ 306,880 $ 295,612
Reconciliation of Gross Profit:
U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related deferred revenue adjustment . . . . . .
Other customer related charges . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired intangible assets . . . . . . . . . . .
Acquisition and integration costs . . . . . . . . . . . . . . . . . . .
Acquisition-related inventory adjustments . . . . . . . . . . . .
Restructuring and related . . . . . . . . . . . . . . . . . . . . . . . . .
$111,406
1,891
—
1,752
8,437
7,238
—
5,407
$ 86,829
2,305
—
1,778
7,796
8,447
—
1,198
2,530
8,100
1,591
8,098
10,700
$ 61,256 $ 66,432
2,905
—
1,328
8,252
2,064
1,778
21,466
—
1,864
Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . .
$136,131
$108,353
$ 94,139 $ 104,225
Reconciliation of Gross Margin:
U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related deferred revenue adjustment . . . . . .
Other customer related charges . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired intangible assets . . . . . . . . . . .
Acquisition and integration costs . . . . . . . . . . . . . . . . . . .
Acquisition-related inventory adjustments . . . . . . . . . . . .
Restructuring and other related costs . . . . . . . . . . . . . . .
Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciliation of Net Income/(Loss) from Operations:
29.0%
0.5%
—
0.4%
2.1%
1.8%
—
1.4%
35.2%
26.7%
0.7%
—
0.5%
2.3%
2.5%
—
0.4%
33.1%
20.7%
0.8%
2.5%
0.4%
2.5%
3.2%
—
0.6%
30.7%
22.7%
1.0%
—
0.4%
2.8%
0.7%
0.6%
7.1%
35.3%
U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related deferred revenue adjustment . . . . . .
Other customer related charges . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired intangible assets . . . . . . . . . . .
Acquisition and integration costs . . . . . . . . . . . . . . . . . . .
Acquisition-related inventory adjustments . . . . . . . . . . . .
Restructuring and other related costs . . . . . . . . . . . . . . .
Litigation charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Intangible asset impairment
$ (60,871)
1,891
—
11,073
15,054
18,249
—
23,431
—
—
$ (69,287)
2,305
—
9,946
14,657
20,409
—
3,366
50
—
2,530
8,100
13,047
14,843
22,864
$(108,384) $(111,688)
2,905
—
8,713
15,309
9,198
1,778
38,654
—
5,335
4,050
—
—
—
Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,827
$ (18,554)
$ (37,615) $ (35,131)
Reconciliation of Operating Margin:
U.S. GAAP as reported . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related deferred revenue adjustment . . . . . .
Other customer related charges . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired intangible assets . . . . . . . . . . .
Acquisition and integration costs . . . . . . . . . . . . . . . . . . .
Acquisition-related inventory adjustments . . . . . . . . . . . .
Restructuring and other related costs . . . . . . . . . . . . . . .
Litigation charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Intangible asset impairment
Non-GAAP as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . .
-15.8%
0.5%
—
2.9%
3.9%
4.8%
—
6.0%
—
—
2.3%
-21.3%
0.7%
—
3.1%
4.5%
6.3%
—
1.0%
—
—
-5.7%
-36.6%
0.9%
2.8%
4.5%
5.1%
7.8%
—
1.8%
1.4%
—
-12.3%
-38.2%
1.0%
—
3.0%
5.3%
3.1%
0.6%
13.3%
—
—
-11.9%
A-2
The non-GAAP measures of revenue, gross profit, gross margin, operating income (loss) and operating
margin exclude acquisition-related deferred revenue and inventory adjustments, other customer related charges,
non-cash stock-based compensation expenses, amortization of acquired intangible assets, acquisition and
integration costs, restructuring and other related costs, litigation charges, intangible asset impairment, and certain
purchase accounting adjustments related to Infinera’s acquisitions. 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 its 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 revenue,
gross margin, net loss from operations or operating margin 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—INFINERA CORPORATION 2016 EQUITY INCENTIVE PLAN
INFINERA CORPORATION
2016 EQUITY INCENTIVE PLAN
(as amended and restated on May 24, 2018, as amended May 23, 2019, and
, 2020)
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) “Director” means a member of the Board.
(m) “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.
(n) “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.
(o) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(p) “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.
B-2
(q) “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(q), 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.
(r) “Fiscal Year” means the fiscal year of the Company.
(s) “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.
(t) “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.
(u) “Inside Director” means a Director who is an Employee.
(v) “Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to
qualify as an Incentive Stock Option.
(w) “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.
(x) “Option” means a stock option granted pursuant to the Plan.
(y) “Outside Director” means a Director who is not an Employee.
(z) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in
Section 424(e) of the Code.
(aa) “Participant” means the holder of an outstanding Award.
(bb) “Performance Goals” means performance goals relating to one or more business criteria, which may
provide for a targeted level or levels of achievement including without limitation: (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
B-3
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. 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.
(cc) “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.
(dd) “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 11.
(ee) “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 11.
(ff) “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.
(gg) “Plan” means this 2016 Equity Incentive Plan, as may be amended from time to time.
(hh) “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.
(ii) “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.
(jj) “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.
(kk) “Securities Act” means the Securities Act of 1933, as amended.
(ll) “Section 16(b)” means Section 16(b) of the Exchange Act.
(mm) “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.
(nn) “Service Provider” means an Employee, Director or Consultant.
B-4
(oo) “Share” means a share of the Common Stock, as adjusted in accordance with Section 14 of the
Plan.
(pp) “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.
(qq) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in
Section 424(f) of the Code.
(rr) “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 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 14 of the Plan, the maximum aggregate
number of Shares that may be issued under the Plan is (i) 30,800,000, 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 (eh, 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 14, 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.
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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) 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.
(iii) 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 19 of the Plan), including but
not limited to the discretionary authority to extend the post-termination exercisability period of Awards;
(ix) to allow Participants to satisfy Tax Obligations in such manner as prescribed in Section 15 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.
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5. Limits.
(a) Share Limits. Subject to Section 14, 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.
(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 Restricted Stock Units covering an aggregate of up
to an additional 1,500,000 Shares.
(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 Performance Shares covering up to an additional
1,500,000 Shares.
(vi) Limits on Performance Units. No Participant shall receive Performance Units during any Fiscal
Year with an aggregate Initial Value in excess of $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.
(i) One-Year Vesting Requirement. 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 a
termination of the Participant’s service that occurs in connection with a Change in Control, 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.
(ii) Limited Vesting Acceleration upon a Change in Control. Except (x) as permitted under
Section 5(c)(i) and (y) for any Awards made to Outside Directors, the Administrator shall not be permitted to
accelerate the vesting of an Award upon a Change in Control other than in the event an Award is not assumed or
substituted for as provided for in Section 14(c). For purposes of clarification, the Administrator will be permitted to
provide for the acceleration of an Award in connection with a termination of service upon or in connection with a
Change in Control.
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(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.
(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.
(f) Dividends. With respect to any Options and Stock Appreciation Rights, 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) thereunder, no right to receive dividends or any other rights as a stockholder will exist with respect to
the Shares subject to such Award, including without limitation notwithstanding any exercise of such Award.
Further, 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 under an Option or Stock Appreciation Right, except as provided in Section 14 of the Plan.
During any applicable 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; provided, however, that any such dividends or distributions payable with respect to such Shares will be
subject to the same restrictions on transferability and/or forfeitability as the Shares of Restricted Stock with respect
to which they were paid. With respect to Awards of Restricted Stock Units, Performance Units and Performance
Shares, until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or a duly
authorized transfer agent of the Company), no right to receive dividends or any other rights as a stockholder will
exist with respect to the Shares subject to such Award, unless determined otherwise by the Administrator;
provided, however, that any such dividends or distributions that the Administrator determines will be payable with
respect to such Shares will be subject to the same vesting criteria and forfeitability provisions as the Shares
subject to such Award with respect to which they were paid. For the avoidance of doubt, the number of Shares
available for issuance under the Plan will not be reduced to reflect any dividends or other distributions that are
reinvested into additional Shares or credited as additional Shares subject to or paid with respect to an Award.
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.
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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, subject to Section 5.
(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.
(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.
The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised.
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
B-9
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.
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.
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(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) 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.
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.
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
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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.
(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 5, 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.
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(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.
12. 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.
13. 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.
14. 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, in
accordance with the following (i) Awards will be assumed or an equivalent option or right substituted by the
acquiring or succeeding corporation or a Parent or Subsidiary thereof, (ii) upon written notice to a Participant and
subject to the next paragraph, that the Participant’s Awards will terminate upon or immediately prior to the
consummation of such merger or Change in Control; (iii) subject to the next paragraph, (A) the termination of an
Award in exchange for an amount of cash and/or property, if any, equal to the amount that would have been
attained upon the exercise of such Award or realization of the Participant’s rights as of the date of the occurrence
of the transaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the
Administrator determines in good faith that no amount would have been attained upon the exercise of such Award
or realization of the Participant’s rights, then such Award may be terminated by the Company without payment), or
(B) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion;
or (iv) any combination of the foregoing. The Administrator will not be required to treat all Awards, all Awards held
by a Participant, or all Awards of the same type, 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) (or portion of the Award), (A) the
Participant will fully vest in and have the right to exercise such outstanding Option and Stock Appreciation Right,
B-13
including Shares as to which such Award would not otherwise be vested or exercisable, (B) all restrictions on such
Restricted Stock and Restricted Stock Units will lapse, and (C) with respect to such Award with performance-
based vesting, all performance goals or other vesting criteria will be deemed achieved based on actual
performance measured through the last date that the Award remains outstanding (or such earlier date, as
determined by the Administrator, in its sole discretion), with any performance period shortened proportionately and
applicable performance goals or other vesting criteria adjusted proportionately to reflect the shortened
performance period (or to the extent applicable, the value of the consideration to be received by the Company’s
stockholders in connection with the merger or Change in Control), as determined by the Administrator, in its sole
discretion. In addition, if an Option or Stock Appreciation Right is not assumed or substituted in the event of a
merger or 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 merger or
Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award
immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or
property) received in the merger or 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 merger or 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 merger or Change in Control.
Notwithstanding anything in this Section 14(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 14(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.
15. 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.
B-14
(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 or any Parent, Subsidiary or other affiliate of the
Company have any liability or obligation to reimburse, indemnify, or hold harmless any Participant for any taxes,
interest, or penalties imposed, or other costs incurred, as a result of Section 409A.
16. 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.
17. 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.
18. 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 19 of the Plan.
19. 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.
20. Forfeiture Events. The Administrator may specify in an Award Agreement that the Participant’s rights,
payments, and benefits with respect to an Award will be subject to reduction, cancellation, forfeiture, or
recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or
performance conditions of an Award. Notwithstanding any contrary provisions to the contrary under this Plan, an
Award shall be subject to the Company’s clawback policy as may be established and/or amended from time to
time (the “Clawback Policy”). The Administrator may require a Participant to forfeit, return or reimburse the
Company all or a portion of the Award and any amounts paid thereunder pursuant to the terms of the Clawback
Policy or as necessary or appropriate to comply with Applicable Laws.
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-15
(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 28, 2019
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(g) of the Act: None
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common shares, par value $0.001 per share
Trading Symbol
g y
INFN
Name of exchange on which registered
The Nasdaq Global Select Market
g
g
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 every Interactive Data File required to be submitted 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 such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
Non-accelerated filer r
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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 29,
No
2019, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $372,288,790 (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 10% 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 21,
2020, 183,026,317 shares of the registrant’s common stock, $0.001 par value per share, were issued and outstanding.
Portions of the registrant’s definitive proxy statement relating to its 2020 Annual Meeting of Stockholders (the “2020 Proxy Statement”) are
incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 2020 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.
DOCUMENTS INCORPORATED BY REFERENCE
INFINERA CORPORATION
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 28, 2019
Table of Contents
Part I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Item 6.
Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Part III
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
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
Page
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Part I
ITEM 1.
BUSINESS
Overview
Infinera Corporation (“we,” “us,” “our” or “Infinera”) is a global supplier of networking solutions comprised of
networking equipment, software and services. Our portfolio of solutions includes optical transport platforms, converged
packet-optical transport platforms, optical line systems, disaggregated router platforms, a suite of networking and
automation software offerings, and support and professional services.
Our customers include telecommunications service providers, internet content providers (“ICPs”), cable
providers, wholesale carriers, research and education institutions, large enterprises and government entities. Our
networking solutions enable our customers to deliver business and consumer communications services. Our
comprehensive portfolio of networking solutions also enables our customers to scale their transport networks as end-
user services and applications continue to drive growth in demand for network bandwidth. These end-user services
and applications include, but are not limited to, high-speed internet access, business Ethernet services, 4G/5G mobile
broadband, cloud-based services, high-definition video streaming services, virtual and augmented reality and the
Internet of Things (“IoT”).
Our systems are highly scalable, flexible and designed with open networking principles for ease of
deployment. We build our systems using a combination of internally manufactured and third-party components. Our
portfolio includes systems that leverage our innovative optical engine technology, comprised of large-scale photonic
integrated circuits (“PICs”) and digital signal processors (“DSPs”). We optimize the manufacturing process by using
indium phosphide to build our PICs, which enables the integration of hundreds of optical functions onto a set of
semiconductor chips. This large-scale integration of our PICs and advanced DSPs allows us to deliver high-
performance transport networking platforms with features that customers care about the most, including cost per bit,
low power consumption and space savings. In addition, we design our optical engines to increase the capacity and
reach performance of our products by leveraging coherent optical transmission. We believe our vertical integration
strategy becomes increasingly more valuable as our customers transition to 800 gigabits per second (“Gb/s”) per
wavelength transmission speeds and beyond, as the combination of our optical integration, DSP, and tightly integrated
packaging enables leading optical performance at higher optical speeds. Over time, we plan to integrate our optical
engine technology into a broader set of transport platforms in order to enhance customer value and lower production
costs.
Over the past several years, we expanded our portfolio of solutions, evolving from our initial focus on the
long-haul and subsea optical transport markets to offering a more complete suite of packet-optical networking
solutions that address multiple markets within the end-to-end transport infrastructure. These markets include metro
access, metro aggregation and switching, data center interconnect (“DCI”), and long-haul and subsea transport.
We have grown our portfolio through internal development as well as acquisitions. In 2014, we introduced the
Infinera Cloud Xpress to address the emerging DCI market opportunity. In 2015, we entered the metro market with the
acquisition of Transmode AB (“Transmode”), a leader in metro packet-optical applications. In October 2018, we
expanded our product portfolio and customer base through the acquisition of Telecom Holding Parent LLC (“Coriant”),
a privately held global supplier of open network solutions for the largest global network operators (the “Acquisition”).
The Acquisition has helped position us as one of the largest providers of vertically integrated transport networking
solutions in the world and enhanced our ability to serve a global customer base and accelerated the delivery of the
innovative solutions our customers demand. The Acquisition has also enabled us to expand the breadth of customer
applications we can address, including metro aggregation and switching, disaggregated routing, and software-enabled
multi-layer network management and control.
Our high-speed optical transport platforms are differentiated by the Infinite Capacity Engine (ICE), our optical
engine technology. ICE enables different subsystems that can be customized for a variety of network applications in
different transport markets, including metro, DCI, long-haul and subsea. Our latest generation of optical engine
technology delivers multi-terabit opto-electronic subsystems powered by our fourth-generation PIC and latest
generation FlexCoherent DSP (the combination of which we market as “ICE4”).
As part of the Acquisition, we expanded our high-speed optical transport portfolio with 600 Gb/s transmission
capabilities powered by our CloudWave T technology, which enabled us to expand the high-speed transmission
applications we can address.
1
Our products are designed to be managed by a suite of software solutions that enable end-to-end common
network management, multi-layer service orchestration, and automated operations. We also provide software-enabled
programmability that offers differentiated capabilities such as Instant Bandwidth. Combined with our differentiated
hardware solutions, Instant Bandwidth enables our customers to purchase and activate bandwidth as needed through
our unique software licensing feature set. This, in turn, allows our customers to accomplish two key objectives: (1) limit
their initial network startup costs and investments; and (2) instantly activate new bandwidth as their customers’ and
their own network needs evolve.
We believe our end-to-end portfolio of solutions benefits our customers by providing a unique combination of
highly scalable capacity and features that address various applications and ultimately simplify and automate packet-
optical network operations.
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-X,” “FlexCoherent,” “Infinera Groove,”
“Infinera mTera,” “Infinera DRX,” “Infinera Transcend” and the Infinera logo, 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.
Industry Background
Optical transport networking equipment carries digital information using light waves over fiber optic cables.
With the advent of wavelength division multiplexing (“WDM”) systems, data is transmitted by using multiple
wavelengths of light using different frequencies or colors over a single optical fiber. Customers 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
large amounts of network bandwidth and ultimately will increase demand for packet-optical transport networking
systems and software. These trends include:
•
•
•
•
•
growth of cloud services;
growth of over-the-top services and high-definition video streaming;
growth of mobile broadband services, including 4G and emerging 5G services;
increasing use of connected virtual and augmented reality devices; and
the IoT, which continues to drive massive growth in the number of network-connected devices.
As network traffic grows, customers add transmission capacity to existing optical networks or deploy new
systems to address bandwidth demands and offer expanded services to end-users.
We believe we are in the midst of two significant shifts in transport network architectures that impact the
markets we serve. The first is the bifurcation of the traditional transport market into either a cloud-based model or a
more traditional carrier model. Cloud-based architectures are characterized by transport networks optimized to handle
the massive growth of server-to-server traffic between data center sites. To manage server-to-server traffic growth, our
customers seek open, scalable and disaggregated transport solutions designed to accommodate point-to-point, high-
capacity traffic patterns. These customers require solutions that are cost-optimized for low cost per bit, low power
consumption, reduced footprint and ease of deployment. In contrast, traditional service providers require high capacity
solutions with more integrated network platforms, which can provide multi-service capabilities and aggregate data
flows and can perform traffic add/drop at various points across their networks. These customers require protection
schemes and a larger variety of interfaces to address their end customer needs. Our solutions serve both the point-to-
point applications driven by increasing data center traffic and the more traditional mesh-oriented switched transport
networks.
A second shift is happening at the edge of the network, where fiber is increasingly being deployed closer to
the end-user. This trend is frequently referred to as “Fiber Deep,” and primarily occurs in two types of access networks:
4G/5G mobile transport networks and next-generation cable and multiple system operator (“MSO”) networks. Both of
these trends require cost-efficient scalability, higher density and lower power per bit networking devices with integrated
packet switching capabilities.
In all of these transport applications, we believe our customers seek the following solutions to increase their
revenue, expand their service offerings and lower the total cost of operations:
•
high-bandwidth solutions that scale optical transmission capacity to meet increasing bandwidth demand
while providing efficiency through service granularity;
2
efficient solutions with the right mix of disaggregated and integrated systems that optimize performance
and increase reliability while reducing physical space and power consumption, leading to lower
operational and capital expenses;
easy-to-use solutions that are highly programmable, open, and automated, which help reduce the time
and complexity of deploying new transmission bandwidth;
improved integration between Ethernet or Internet Protocol equipment such as switches or routers, and
optical transport networking equipment; and
strong encryption at the transport layer.
•
•
•
•
Strategy
Our goal is to be the preeminent provider of end-to-end transport networking solutions in the world by
delivering the highest performance and lowest total cost solutions for our customers. Key aspects of our strategy
include:
•
•
•
•
•
Leveraging our vertically integrated solutions to deliver lowest total cost network solutions. We will
continue to provide our customers differentiated value by leveraging our vertically integrated optical
engine. This value includes significant cost advantages that our innovative PIC and DSP technology
enable, including service agility, spectral efficiency, optical performance leadership and reliability,
industry-leading optical scalability, and high-density and ultra-power efficient platforms. Our strategy is to
continue to evolve our unique optical technology with higher speed and increasingly efficient solutions,
integrating our optical engine across a broader end-to-end portfolio set and extending this innovation
toward the edge of the network.
Driving cost structure optimization and achieving cost advantages of scale. Leveraging scale as part of
our vertical integration strategy, which includes integration of our optical engine across a broader set of
platforms, enables us to achieve cost advantages and cost structure efficiencies that enhance our ability
to continue to invest in research and development in our optical engine and end-to-end portfolio, as well
as drive profitability. In particular, we believe our vertically integrated manufacturing capabilities serve as
a competitive advantage from a technology and supply chain perspective, and enable a lower cost
structure and thus, higher profitability. To further drive cost structure optimization, we are transforming
our supply chain to enable us to move from a fixed cost structure to an increasingly outsourced model
that will allow for enhanced flexibility in our delivery capabilities to better support customers, while
optimizing our cost leverage.
Offering comprehensive networking solutions and expanding our go-to-market reach. We believe a broad
and integrated solutions portfolio spanning multi-layer technologies and optimized for edge-to-core
transport markets is critical to helping our customers most cost effectively provide services with new 5G,
distributed access architecture, DCI, cloud and business services. By expanding and enhancing our
solutions portfolio and leveraging application-optimized capabilities and disruptive innovation, we are
able to expand our go-to-market reach and address a broader set of our customers’ transport
applications, from core network scalability to packet- and application-optimized metro transport.
Delivering a superior customer experience. Our success will continue to be driven by our commitment to
providing a superior experience to all customers. In addition to product delivery capability that efficiently
and predictably delivers innovative technology and high-quality products to market, we bring value to our
customers by providing end-to-end solutions with differentiation that includes usage-based bandwidth
provisioning, service agility and ease-of-use that accelerates time-to-revenue. Additionally, our global
customer services team is committed to making our customers successful by providing the highest
quality support services that help our customers deploy, operate and maintain their networks. We believe
our technology leadership combined with our ability to provide the most reliable products and a
differentiated customer experience contribute to customer success and represent major differentiators.
Utilizing software-driven automation to deliver differentiated solutions. We believe we lead the industry in
ease of use and automation, both integrated into our system design and facilitated by our software
capabilities. We continue to invest in our differentiated technologies, including enhancing capabilities of
Instant Bandwidth offerings and introducing automation and programmability capabilities. We are
extending management and control capabilities across our entire product portfolio with the addition of a
new orchestration solution. This new solution enables customers to utilize end-to-end network resources
and the automation of multi-layer, multi-domain and multi-vendor networks. Additionally, based on our
customers’ desire for more programmable networks, we have added open application programming
interfaces (“APIs”) to our solutions to enable our customers to create more agile and customized
automated operations.
3
Customers
Our customer verticals include:
•
•
•
•
•
•
•
•
•
Tier-1 carriers for domestic and international networks;
Tier-2 and Tier-3 carriers;
ICP and data center operators;
cable providers and MSOs;
wholesale carriers;
submarine network operators;
large enterprise customers;
research and education institutions; and
government entities.
We sell our products directly to our end-user customers and to channel partners that sell on our behalf. We
do not have long-term sales commitments from our customers. One customer accounted for approximately 13% of our
revenue in each of 2019 and 2018. This same customer completed a merger with another customer in 2017, and
these two customers accounted for approximately 6% and 12% of our revenue in 2017, respectively. One other
customer accounted for approximately 15% of our revenue in 2018. No other customers accounted for over 10% of our
revenue in 2019, 2018 or 2017.
Technology
We were founded on a vision of enabling an infinite pool of intelligent bandwidth powered by software-
enabled on-demand service provisioning. We have focused our efforts and capital on developing application-optimized
platforms that enable customers to create rich end-user experiences delivered through efficient, high-bandwidth
packet-optical transport characterized by the following attributes:
•
•
•
•
Scalable. The proliferation of data centers, rise of cloud computing, increasing consumption of video
and growth in mobile access is fundamentally changing traffic characteristics in operator networks.
We currently deliver multi-terabit class coherent, sliceable super-channels, which allow a massive
pool of bandwidth to be provisioned in a single operation.
Flexible. In addition to providing our customers end-to-end solutions, we offer a mix of integrated
and disaggregated platforms to reduce complexity and enable flexibility as transport network
architectures evolve. There are varying customer preferences as some customers continue to favor
integrated multi-service mesh networks while others, such as ICPs, favor disaggregated platforms
that address high-capacity point-to-point connections.
Open. Network operators are facing intensifying competition to meet customer demand for
immediate bandwidth and better visibility into the network. Our networking solutions feature
disaggregated and highly programmable platforms with software-defined networking (“SDN”) APIs
enabling networks to be open, which simplifies end-to-end, multi-layer service provisioning and
network control.
Automated. The demand for reducing the cost of operations as networks scale increases the need
for software-enabled automation capabilities in the transport layer of the network. We currently
deliver a suite of software solutions that provide a radical reduction in complexity and improved
customer satisfaction with time-saving management and automation tools. Our solutions, coupled
with a practical approach to network automation, are designed to make it easier to achieve
measurable improvements in network and operational efficiency, as well as service agility.
4
Infinera Optical Engines
We believe our optical engines, with the latest available version being ICE4, are key to our value proposition
and a competitive advantage to our system solutions. Technologically, we are able to deliver multi-terabit class
coherent super-channels through PICs in systems that significantly exceed reliability standards. Additionally, our DSPs
enable network operators to utilize coherent technologies to enable higher data capacity transmissions over existing
optical fiber infrastructure. We have integrated advanced coherent technologies onto our FlexCoherent DSP in ICE4,
such as cutting-edge Nyquist subcarriers and soft-decision forward error correction gain sharing techniques.
Financially, we believe our technology approach enables 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 and greater functional integration. These advantages allow us to develop new cost-effective
architectures that enable our customers to solve their business needs.
In 2019, we announced our sixth-generation Infinite Capacity Engine (“ICE6”), which is designed to support
high-capacity optical transmission with dual-channel 800 Gb/s and leading optical performance. ICE6 builds on the
market success of ICE4 and Instant Bandwidth with a 1.6 terabits per second ("Tb/s") optical engine, providing a path
for network operators to meet the ongoing growth of bandwidth and increasingly dynamic, unpredictable traffic flow.
ICE6 combines our sixth-generation PIC with our internally developed 7 nanometer FlexCoherent DSP technology.
Platforms powered by ICE6 will be commercially available in the second half of 2020.
Infinera Super-Channels and Sliceable Photonics
We offer customers flexibility in deploying WDM by using single or multiple channels simultaneously.
Infinera’s XT and Cloud Xpress Family of products, for example, are designed to support multiple channels, each up to
200 Gb/s capacity, in a single line card or unit depending on the platform form factor. This pool of bandwidth can either
be managed as a single super-channel, with up to 1.2 Tb/s that can be deployed in a single operation, or sliced into
smaller increments to allow operators more flexibility. Super-channels result in competitive advantages leading to
lower operational costs and long-term system reliability, as well as significant reductions in installation time. Our ICE4
technology combines the benefits of super-channels with the capability of being able to slice capacity into smaller unit
increments such as 100 Gb/s. Each increment can be tuned and routed in multiple separate directions, with each fully
tuned to its own flexible grid frequency as well as having its own coherent modulation profile. This significantly reduces
the number of modules required in networks, resulting in lower total cost of ownership.
Infinera Instant Bandwidth
Infinera Instant Bandwidth enables customers to license super-channel bandwidth in smaller increments such
as 100 Gb/s. With Instant Bandwidth technology, which is available on the Infinera XTC Series, XT Series, XTS Series,
Cloud Xpress Family and XTM Series platforms, customers can provision additional transmission capacity on demand
without the deployment of any incremental equipment. Our Instant Bandwidth technology is uniquely enabled by our
hardware, providing customers the ability to adopt a success-based business model for network growth.
Infinera CloudWave T Optics
Infinera CloudWave T Optics is a coherent detection interface technology leveraged by the Infinera Groove
G30 that features a flexible sled-based architecture designed to support pay-as-you-grow network scalability. The
CloudWave T Optics solution leverages technologies acquired through the Acquisition and is based on third-party
components that provide rapid go-to-market capabilities for 600 Gb/s transmission. The CloudWave T solution also
enables low initial costs, reduces sparing costs, and supports cost-effective growth as capacity demands increase over
time.
Infinera Auto-Lambda
The cost of manual operations in packet-optical networks has a significant impact to a network operator's total
cost of ownership. Our Auto-Lambda feature provides a unique solution for deploying access and aggregation
networks. It enables network operators to simply plug DWDM optics into aggregation and access nodes, which allows
the packet-optical network element to automatically tune each of the optical signals to the appropriate wavelength. The
result is a dramatic reduction in the number of truck rolls and the amount of effort required to deploy high-capacity
access and aggregation networks, and a simultaneous reduction in deployment and configuration errors.
5
Infinera Disaggregated Routing
Compared to traditional closed and proprietary chassis-based routers, our open and disaggregated routing
technology reduces vendor lock-in, speeds innovation, lowers costs and removes the chassis backplane and number
of slots as barriers to cost-optimized scaling. Our disaggregated router solution is comprised of hardware-independent,
carrier-class routing software, which we market as the Converged Network Operating System (“CNOS”), and the
Infinera DRX Series of packet switching white boxes that support capacities from 300 Gb/s to 9.6 Tb/s in one or two
rack unit (“RU”) form factor platforms.
Software-enabled Network Automation
Leveraging open network architectures based on SDN principles, the Infinera Transcend Software Suite
provides a platform for advanced network automation that reduces operational costs, optimizes deployed network
assets, speeds time to revenue and maximizes network and service availability. Intent-based automation translates
service requests into optimized multi-layer network configurations while closed loop automation proactively monitors
network state and service performance and, when appropriate, takes actions to assure service quality. Additional
highlights include DevOps-style programmability, open interfaces and graphical user interface-based portals.
Products and Services
Our hardware product portfolio consists of optical line systems, packet-optical platforms, compact modular
platforms and network routers. Software products include the Infinera Transcend Software Suite, which includes SDN
and network management software, and our CNOS routing software. These products address the metro, long-haul
and subsea network markets from end-to-end. DCI is a subset of these markets. We also provide customer support
services, including professional service offerings designed to help customers optimize their network assets and
migrate legacy services.
The high-speed transport network infrastructure is comprised of multiple technology layers that require
intelligent interworking and coordination between layers to ensure efficient delivery of end-user services. These
technology layers include Layer 0 (WDM), Layer 1 (optical transport network (“OTN”), SONET/SDH), Layer 2 (Carrier
Ethernet), Layer 2.5 (MPLS-TP) and Layer 3 (Internet Protocol). Our product portfolio includes solutions that span all
of these transport network layers. Our product portfolio also includes multi-layer network management and automation
software that helps simplify operational tasks and accelerate provisioning of end-user services across multiple
transport market domains, including metro, long-haul and subsea.
Optical Line Systems
Infinera Groove Series
The Infinera Groove Series of modular, sled-based platforms includes integrated optical line system capabilities
optimized to support a variety of transport network applications. With a compact and flexible architectural design, the
Groove solution supports up to 600 Gb/s per wavelength to deliver cost-optimized optical reach in metro and long-haul
applications, enabling rapid capacity increases as network traffic grows. We will be introducing expansions to the
Groove Series in 2020, including the addition of our 800 Gb/s per wavelength ICE6 optical engine.
Infinera 7300 Series
The Infinera 7300 Series is an SDN-ready coherent optical transport system. Supporting the latest optical
technology, the 7300 Series addresses the needs of regional, long-haul, and ultra-long-haul optical networking,
including long, unrepeatered single-span and festoon subsea networks. The 7300 enables network operators to
achieve the highest network resiliency with fast optical protection switching and the use of autonomous and SDN-
controlled restoration capabilities.
Infinera FlexILS Open Optical Line System
The Infinera FlexILS open optical line system connects various Infinera and third-party terminal equipment
platforms over long-distance fiber optic cable while providing switching, multiplexing, amplification and management
channels. The FlexILS solution is designed to support over 50 Tb/s of fiber capacity when used with the Infinera
platforms over extended C-band and L-band. The FlexILS also supports reconfigurable optical add-drop multiplexer
(“ROADM”) functionality with a flexible grid architecture and provides unconstrained optical switching by eliminating
the restrictions of fixed wavelengths by port or direction. This platform is designed to provide open APIs interfacing
with SDN control for multi-layer switching when combined with other platforms featuring WDM, OTN and packet
switching.
6
Packet-Optical Platforms
Infinera 7090 Series
The Infinera 7090 Packet Transport Platforms provide both Multiprotocol Label Switching ("MPLS")-Transport
Profile ("MPLS-TP") and Carrier Ethernet-based options, addressing applications including business Ethernet services,
migration from TDM to packet, and residential and mobile backhaul. The 7090 Series includes MPLS-TP platforms
with capacities ranging from 5 Gb/s to 960 Gb/s and Carrier Ethernet-based platforms that provide a range of compact
gigabit Ethernet (“GbE”) and 10 GbE Ethernet access devices.
Infinera XTM Series
The Infinera XTM Series packet-optical transport platform enables high-performance metro connectivity
solutions with service-aware capabilities optimized for 5G, Fiber Deep, business services and other metro transport
applications. The XTM Series offers superior density, lower power consumption and higher scalability for multi-service
metro access and aggregation networks, including integrated Layer 1 and Layer 2 support and Time Sensitive
Networking features required for 5G mobile x-haul applications. The platform is designed for application-rich packet-
optical metro networks providing cable, mobile, broadband and business services that require 10 Gb/s, 100 Gb/s or
200 Gb/s wavelengths with differentiated performance.
Infinera 7100 Series
Infinera 7100 Series of packet-optical transport platforms are right-sized and support a flexible mix of
transponders, muxponders, packet switching, OTN switching, SONET/SDH switching, and ROADM-based optical line
systems, providing compact and flexible transport for metro networks. The 7100 Series includes the 7100 Nano, a
5RU platform optimized for metro transport and the 7100 Pico, a 2RU platform that extends services to the metro edge
and enables metro access applications. The 7100 Series also includes the PSX-3S, a 1RU 376 Gb/s packet switch
optimized for aggregation and access applications.
Infinera mTera Series
The Infinera mTera Universal Transport Platform is a flexible and efficient network transport solution
supporting scalable grooming and an innovative protocol-agnostic switch fabric in which each and every port on
virtually every card can be software-configured between OTN and Ethernet. The mTera Series includes a compact 8-
slot, 4 Tb/s shelf and a higher capacity 14-slot, 7 Tb/s shelf, with paired 14-slot shelves able to deliver 12 Tb/s of
electrical switching. The mTera Series combines SDN-ready, advanced ROADM capabilities and support for the
universal switching of OTN, packet and SONET/SDH traffic at the electrical layer.
Infinera XTC Series
The Infinera XTC Series includes multi-terabit packet optical transport platforms that integrate digital OTN
switching and optical WDM transmission. The XTC Series delivers converged packet, OTN, and WDM for metro core,
regional, long-haul, and subsea applications. The XTC Series features ICE4, Instant Bandwidth, and massively simple
operations to drive cost reduction and speed time to revenue. These platforms also support a broad range of Ethernet
and OTN client interfaces for flexibility and are designed for metro, long-haul and subsea networks.
Compact Modular Platforms
Infinera Cloud Xpress Family
The Infinera Cloud Xpress Family is designed to meet the varying needs of ICPs, communication service
providers, internet exchange service providers, enterprises and other large-scale data center operators. The first
generation of the Cloud Xpress has a 500 Gb/s WDM super-channel output in 2RUs. Our second generation, the
Cloud Xpress 2, released in June 2017, leverages the ICE4 optical engine, and has a 1.2 Tb/s super-channel output in
1RU. These platforms are designed with a rack-and-stack form factor and utilize a software approach that enables
them 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 Groove Series
The Infinera Groove Series of highly compact, modular, and sled-based platforms includes integrated
muxponder capabilities optimized to support a variety of transport network applications. With a compact and flexible
architectural design, the Groove solution supports up to 600 Gb/s per wavelength to deliver cost-optimized optical
reach in metro and long-haul applications, enabling rapid capacity increases as network traffic grows. The Groove
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muxponder solution supports deployment over virtually any optical line system, ensuring that network operators always
have access to best-of-breed solutions.
Infinera XT Series
The Infinera XT Series of compact, open and disaggregated platforms, powered by our ICE4, delivers up to
2.4 Tb/s of line-side capacity for metro, DCI, regional and long-haul networks in compact 1RU and 4RU form factors,
with ultra-long-haul and submarine reach. These platforms are designed to power cloud scale network services over
metro, DCI, long-haul and subsea networks.
Network Routers
Infinera DRX Series
The Infinera DRX Series of disaggregated routers is designed to help network operators reduce capital
expenditures and accelerate innovation by minimizing vendor lock-in, while also reducing operating expenses with
open SDN-enabled network automation. The DRX Series includes carrier-class 1RU and 2RU white boxes purpose-
built for disaggregated router applications including 5G backhaul and Fiber Deep. As an open networking solution, the
DRX Series leverages Infinera CNOS routing software as well as third-party hardware-independent network operating
systems. While the capacity of individual DRX devices ranges from 300 Gb/s to 9.6 Tb/s, stacking and leaf-spine
architectures enabled by CNOS provide for much larger node capacities. Carrier-class capabilities of the DRX Series
include advanced synchronization, equipment redundancy and temperature hardened options.
Infinera 8600 Series
The Infinera 8600 Series of SDN-ready Internet Protocol/MPLS routers provides compact, cost-effective and
power-efficient solutions for cell sites, metro core and aggregation applications. By boosting network performance,
integrating advanced synchronization and enabling new fixed mobile services, the 8600 Series helps network
operators ensure a high-quality user experience in 3G, 4G, fixed mobile convergence and emerging 5G networks.
Software and Services
Transcend Software Suite
Leveraging open architectures based on SDN principles, the Infinera Transcend Software Suite includes a
multi-layer and multi-domain orchestrator, multi-vendor SDN domain controllers, network managers, and open,
standards-based network management capabilities with granular control across network elements at micro and macro
levels. The Transcend Software Suite provides a platform for automation that reduces operational costs, optimizes
network assets, speeds time to revenue, and maximizes network and service availability. Intent-based automation
translates service requests into optimized multi-layer (L0-L3) network configurations while closed loop automation
proactively monitors network state and service performance and, when appropriate, takes actions to assure service
quality. Additional highlights include DevOps-style programmability, open interfaces, and graphical user interface-
based portals.
Infinera CNOS
Infinera CNOS is a hardware-independent network operating system that leverages field-proven 8600
Internet Protocol/MPLS software widely deployed by leading Tier-1 carriers. Infinera CNOS is designed to run on the
Infinera DRX platform or on third-party packet switching white boxes to provide a scalable disaggregated router
solution. This solution is designed to enable network operators to reduce capital expenses and accelerate innovation
by minimizing vendor lock-in, while also reducing operational expenses with SDN-enabled automation and the ability
to scale cost effectively with stacking and leaf-spine architectures.
Customer Support Services
In connection with our product offerings, we provide a comprehensive range of support services for all
hardware and software products. These support services cover all phases of network ownership, from the initial
installation through day-to-day maintenance activities and professional services. Our support services are designed to
efficiently manage and maintain customer network operations in the face of today's ever-increasing demands for lower
operational costs and minimized downtime.
Our support organization continues to scale and provide world-class services that successfully support
customers around the world. In addition, we continue to expand our services portfolio to meet the evolving needs of
our customers.
8
Competition
Our current technologies and platforms support the metro, DCI, long-haul and subsea markets. The packet-
optical networking equipment market is highly competitive and competition in the markets we serve is based on any
one or a combination of the following factors:
•
•
•
•
•
•
•
•
price and other commercial terms;
functionality;
existing business and customer relationships;
the ability of products and services to meet customers’ immediate and future network requirements;
power consumption;
heat dissipation;
form factor or density;
installation and operational simplicity;
•
quality and reliability;
•
•
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service and support;
security and encryption requirements;
scalability and investment protection; and
product lead times.
Competition in the packet-optical equipment market is intense. In the long-haul market, our main competitors
include WDM systems suppliers such as Ciena, Huawei, Nokia and ZTE. In the metro market, we face the same
competitors as in long-haul, plus Cisco, ADVA Optical Networking and Ribbon Communications, among others. In the
DCI market we also face competition from vendors that are selling optical components directly to customers as
opposed to WDM systems. In addition to our current competitors, other companies have, or may in the future, develop
products that are, or could be, competitive with our products. We also may encounter competitor consolidation in the
markets in which we compete, which could lead to a changing competitive landscape, capabilities and market share,
and could impact our results of operations.
Some of our competitors have substantially greater name recognition, technical, financial and marketing
resources, and better-established relationships with 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 and existing
customers and have the ability to provide financing to customers and could, therefore, have an inherent advantage in
selling products to those 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 experience with the buying
process and sales cycles typical of high-value telecommunications products.
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 leveraging our sales force and customer support capabilities.
Over the course of the sales cycle, potential customers often test our products before buying. Prior to
commercial deployment, the customer will generally perform a field trial of our products. Upon successful completion,
the customer 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 prospective customer through the
signing of a purchase agreement may, in some cases, take several quarters.
Direct Sales Force. Our sales team sells directly to service providers worldwide and is organized
geographically around the following markets: (i) United States and Canada (“North America”); (ii) Latin America and
South America (“LATAM”); (iii) Europe, Middle East and Africa (“EMEA”); and (iv) Asia Pacific and Japan (“APAC”).
9
Within each geographic area, we maintain specific teams or personnel that focus on a particular region, country,
customer or market vertical.
Indirect Sales Force. We employ business consultants and resale and logistics partners to assist in our sales
efforts, primarily in new regions for us whereby these partners have deep knowledge of typical business practices and
strong relationships with key local operators. 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 and support of our products.
Marketing and Product Management. Our product management team is responsible for defining the product
features and go-to-market plan required to maximize our success in the marketplace. Product management supports
our sales efforts with product and application expertise. Our corporate 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 internet programs and other marketing channels.
Research and Development
Continued investment in research and development is critical to our business. To this end, we have 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; Annapolis, Maryland;
Bangalore, India; Kanata, Canada; Stockholm, Sweden; Munich, Germany; Lisbon, Portugal; Shanghai, PRC; Espoo,
Finland; and Naperville, Illinois. We utilize a mix of internal resources and supplement our staffing with development
personnel provided by third parties on a contract basis. We have invested significant time and financial resources into
the enhancement of existing products and the development of new 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. As part of the integration efforts related to the Acquisition, we are integrating the legacy Infinera and
Coriant products into a seamless end-to-end portfolio; and we are investing in leveraging the vertical integration
capabilities of Infinera across a broader portion of our platforms. We are also working to develop new generations of
optical engines at a faster cadence than we have historically in order to bring new products to market more rapidly and
meet customer demand. We believe these efforts will enhance our competitiveness in the markets we currently serve
and also allow us to address adjacent markets to fuel our future growth.
Employees
As of December 28, 2019, we had 3,261 employees. A total of 2,061 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 processes 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 California and 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 patents, trade secrets 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, including our fabrication facility for our
PICs in California and our module manufacturing facility in Pennsylvania, can accommodate an increase in production
capacity as our business continues to grow.
We also use contract manufacturers to assemble portions of our products. Each contract manufacturer
procures components necessary to assemble products according to our specifications and bills of material. For
elements of our business where we outsource, we perform rigorous in-house quality control testing to ensure the
reliability of our products. Our supply chain risk mitigation strategies are continuous and institutionalized in our supply
chain design for external manufacturing and for procurement of components. We currently use four contract
manufacturers in several different countries, including China, Malaysia, Mexico, Hungary and Thailand, and we
maintain the capability to redirect select manufacturing activities to U.S. qualified factories of three electronic
manufacturing services partners.
We expect all suppliers to comply with our Supplier Code of Conduct, which addresses the rights of workers to
safe and healthy working conditions, environmental responsibility, and compliance with applicable laws.
10
Backlog
As of December 28, 2019 and December 29, 2018, our total order backlog was approximately $430.0 million
and $374.3 million, respectively. Our backlog represents purchase orders received from customers for future product
shipments and services to be provided in future periods. More than half of our total order backlog is related to services,
comprised primarily of annual maintenance contracts. 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 order receipt and 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
We believe our success 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.
Our optical engine technology, including our PIC, DSP, module and related technologies, are protected
through a combination of patents, trade secrets and contractual protections. However, there can be no assurances that
these protections 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 28, 2019, we held 1,122 U.S. patents and 767 international patents expiring between 2019
and 2038, and held 166 U.S. and 165 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 any 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 impact of these
patents cannot be predicted with certainty.
We believe that the frequency of assertions of patent infringement is increasing as patent holders, including
entities that are not in our industry and who purchase patents as an investment or to monetize such rights by obtaining
royalties, use such actions as a competitive tactic as well as a source of additional revenue. For example, we are
currently involved in litigation for alleged patent infringement. See Item 3. “Legal Proceedings” for additional
information regarding these lawsuits. 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 or could 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.
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 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 free and open source licensed software into our products. Although we monitor our use of
such 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 addition, non-compliance with open source software license
terms and conditions could subject us to potential liability, including intellectual property infringement and/or
contractual claims. In such event, we could be required to seek licenses from third parties in order to continue offering
11
our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot
be accomplished in a timely manner, 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 Directive ("WEEE"), 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.
Information about our Executive Officers
Our executive officers and their ages and positions as of December 28, 2019, are set forth below:
Name
Thomas J. Fallon
Nancy Erba
David W. Heard
David L. Teichmann
Robert J. Jandro
Ageg
58
Position
Chief Executive Officer and Director
53
51
63
64
Chief Financial Officer
Chief Operating Officer
Chief Legal Officer and Corporate Secretary
Senior Vice President, Worldwide Sales
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. 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 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.
Nancy Erba has served as our Chief Financial Officer since August 2019 after joining us as Senior Vice
President, Strategic Finance earlier in the same month. Prior to joining us, from September 2016 to March 2019, Ms.
Erba served as Chief Financial Officer of Immersion Corporation, a leader in touch feedback technology. From
February 2015 to October 2015, Ms. Erba was Vice President, Financial Planning and Analysis of Seagate Technology
plc, a data storage company. Prior executive roles at Seagate Technology include Division CFO and Vice President of
Finance for Strategic Growth Initiatives from 2013 to 2015; Vice President, Business Operations and Planning from
2009 to 2013; Division CFO and Vice President of Finance of the Consumer Solutions Division from 2008 to 2009; and
Vice President, Corporate Development from 2006 to 2008. Ms. Erba currently serves on the board of directors of PDF
Solutions, Inc., a software and engineering services company. Ms. Erba holds an M.B.A. from Baylor University and a
B.A. in mathematics from Smith College.
David W. Heard has served as our Chief Operating Officer since October 2018. Prior to that, Mr. Heard
served as our General Manager, Products and Solutions, since June 2017. Prior to joining us, Mr. Heard served as a
private consultant from 2015 to June 2017. From 2010 to 2015, Mr. Heard served as President of Network and Service
Enablement at JDS Uniphase. From 2007 to 2010, Mr. Heard served as Chief Operating Officer at BigBand Networks
(now part of Arris). From 2004 to 2006, Mr. Heard served as President and Chief Executive Officer at Somera (now
part of Jabil). From 2003 to 2004, Mr. Heard served as President and General Manager Switching Division at Tekelec
(now part of Oracle). From 1995 to 2003, Mr. Heard served in a number of leadership roles at Santera Systems Spatial
Networks and at Lucent Technologies (both now part of Nokia). Mr. Heard holds an M.B.A. from the University of
Dayton, an M.S. in management from Stanford Graduate School of Business, where he was a Sloan Fellow, and a
B.A. in production and operations management from Ohio State University.
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David L. Teichmann has served as our Chief Legal Officer and Secretary since April 2019. Prior to joining
us, Mr. Teichmann served as Executive Vice President, General Counsel and Corporate Secretary of Oclaro, Inc., a
maker of optical components and modules for the long-haul, metro and data center markets, from January 2014 until
its acquisition by Lumentum in December 2018. From 2007 to 2012, he served as the Executive Vice President,
General Counsel and Corporate Secretary of Trident Microsystems, Inc., a public fabless semiconductor company that
sold television and set top box integrated circuits. From August 1998 to February 2006, he served as the Senior Vice
President, General Counsel and Secretary of GoRemote Internet Communications, Inc., a secure managed global
remote access solutions provider, guiding the company through its initial public offering in 1999 and its acquisition by
iPass, Inc. in 2006. Mr. Teichmann held various senior legal counsel positions from 1989 to 2006 in Europe, Asia
Pacific, Latin America and Canada and began his career with the Fenwick & West law firm. Mr. Teichmann holds a J.D.
from the William S. Richardson School of Law at the University of Hawaii, an M.A. in law and diplomacy from the
Fletcher School of Law and Diplomacy, and a B.A. in political science from Trinity College.
Robert J. Jandro has served as our Senior Vice President, Worldwide Sales since May 2013 until January
2020. Prior to joining us, Mr. Jandro served as Vice President of Business Development of Openwater Software, Inc.,
a large 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 an M.S. in management from Northwestern University’s Kellogg Graduate School of Management and a B.S. in
business from the University of Missouri-St. Louis. On January 3, 2020, Mr. Jandro informed us of his decision to retire
from his position as our Senior Vice President, Worldwide Sales, effective immediately.
Available Information
Our website address is http://www.infinera.com. Information contained on our website or any website referred
to in this Form 10-K is not incorporated by reference unless expressly noted. We file reports with the Securities and
Exchange Commission (“SEC”), which we make available on our website free of charge. These reports include Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to such
reports, each of which is provided on our website as soon as reasonably practicable after we electronically file such
materials with or furnish them to the SEC.
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ITEM 1A.
RISK FACTORS
Investing in our securities involves a high degree of risk and a description of the risks and uncertainties
associated with our business is set forth below. You should carefully consider such risks and uncertainties,
together with the other information contained in this Annual Report on Form 10-K and in our other public filings.
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. If any of such risks and uncertainties actually
occurs, our business, financial condition or operating results could differ materially from the plans, projections
and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K and in our
other public filings, which could cause the market price of our common stock to decline, perhaps significantly.
Risks Related to Our Business and Our Common Stock
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, analyst or our
expectations.
Our quarterly results and, in particular, our revenue, gross margins, operating expenses, operating
margins and net income (loss), have historically varied significantly from period to period and may continue to do
so in the future. 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. Consequently, if our revenue does not meet projected
levels in the short-term, our inventory levels, cost of goods sold and operating expenses would be high relative to
revenue, resulting in potential operating losses. For example, in each of the prior ten quarters, we have had
operating losses, most recently the result of higher operating expenses related to the Acquisition and lower gross
margins.
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, as well as the timing of purchases by our key
customers;
changes in customers’ budgets for optical transport network purchases and changes or variability in
their purchasing cycles;
fluctuations in our customer, product or geographic mix, including the impact of new customer
deployments, which typically carry lower gross margins, and customer consolidation, which may
affect our ability to grow revenue;
the timing and acceptance of our new product releases and our competitors' new product releases;
how quickly, or whether at all, the markets in which we operate adopt our solutions;
our ability to increase volumes and yields on products manufactured in our internal manufacturing
facilities;
delays in operations we may continue to experience during the course of utilizing our new
enterprise resource planning (“ERP”) system, which we implemented in August 2019, including
unintended disruptions in our ability to deliver and bill for customer shipments, project our inventory
requirements, and manage our supply chain, including our hardware servicing operations;
our ability to successfully restructure our operations within our anticipated time frame and realize
our anticipated savings;
the quality and timing of delivery of key components from suppliers, including any delays in the
supply of components that may result from the effects of the coronavirus;
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order cancellations, reductions or delays in delivery schedules by our customers;
any delay in collecting or failure to collect accounts receivable;
our ability to control costs, including our operating expenses and the costs and availability of
components we purchase for our products;
any significant changes in the competitive dynamics of the markets we serve, including any new
entrants, new technologies, or customer or competitor consolidation;
readiness of customer sites for installation of our products as well as the availability of third-party
service partners to provide contract engineering and installation services for us;
the timing of revenue recognition and revenue deferrals;
any future changes in U.S. generally accepted accounting principles (“U.S. GAAP”) or new
interpretations of existing accounting rules;
the impact of a significant natural disaster, such as an earthquake, severe weather, or tsunami or
other flooding, as well as interruptions or shortages in the supply of utilities such as water and
electricity, in a key location such as our Northern California facilities, which is located near major
earthquake fault lines and in a designated flood zone; and
general economic and political conditions in domestic and international markets, including those
related to the upcoming presidential election in the United States.
Many factors affecting our results of operations are beyond our control and make it difficult to predict our
results for a particular quarter and beyond. 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.
Any delays in the development, introduction or acceptance of our new products or in releasing
enhancements to our existing products may harm our business.
Our products are based on complex technologies, including, in many cases, the development of next-
generation PICs, DSPs and specialized application-specific integrated circuits (“ASICs”), each of which are key
components of our optical engines. In addition, we may also depend on technologies from outside suppliers, all
of which may cause us to experience unanticipated delays in developing, improving, manufacturing or deploying
our products. The development process for our optical engines is lengthy, and any modifications entail significant
development cost and risks.
At any given time, various new product introductions and enhancements to our existing products 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, manufacture and deliver components for
our next-generation products, which can often require custom development. The development process from
laboratory prototype to customer trials, and subsequently to general availability, involves a significant number of
simultaneous efforts. These efforts often must be completed in a timely and coordinated manner so that they
may be incorporated into the product development cycle for our systems, and include:
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completion of product development, including the development and completion of our next-
generation optical engines, and the completion of associated module development;
the qualification and multiple sourcing of critical components;
validation of manufacturing methods and processes;
extensive quality assurance and reliability testing and staffing of testing infrastructure;
validation of software; and
establishment of systems integration and systems test validation requirements.
15
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 optical engines as well as 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, limited or constrained engineering resources,
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, including the successful development of our next generation optical engine, our competitive
position will suffer.
As we transition customers to new products, we face significant risk that our new products may not be
accepted by our current or new customers. To the extent that we fail to introduce new and innovative products
that are adopted by customers, we could fail to obtain an adequate return on these investments and could lose
market share to our competitors, which could be difficult or impossible to regain. Similarly, we may face
decreased revenue, gross margins and profitability due to a rapid decline in sales of current products as
customers hold spending to focus purchases on new product platforms. We could incur significant costs in
completing the transition, including costs of inventory write-downs of the current product as customers transition
to new product platforms. In addition, products or technologies developed by others may render our products
noncompetitive or obsolete and result in significant reduction in orders from our customers and the loss of
existing and prospective customers.
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 mobile, video and 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 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 lower customer demand or
weakening economic conditions, changes in government regulations relating to telecommunications and data
networks, customer or other reasons, could have a material adverse effect on our business, results of operations
and financial condition.
We may be unable to generate the cash flow necessary to make anticipated capital expenditures, to
service our debt or grow our business.
We may not be able to generate sufficient cash flow from operations to make anticipated capital
expenditures, to enable us to service our debt or to grow our business. For example, in each of the fiscal
quarters since the completion of the Acquisition, we have had a net loss and negative cash flows and we may
continue to incur losses in future quarters. Our ability to pay our expenses, service our debt and fund planned
capital expenditures will depend on our future performance, which will be affected by general economic,
competitive, legislative, political, regulatory, public health issues and other factors beyond our control, and our
ability to continue to realize synergies and anticipated cost savings. If we are unable to generate sufficient cash
flow from operations or to borrow sufficient funds in the future to service our debt or to make anticipated capital
expenditures, we may be required to sell assets, reduce capital expenditures or evaluate alternatives for
efficiently funding our capital expenditures and ongoing operations, including the issuance of equity, equity-linked
and debt securities. For example, in August 2019 and as supplemented in December 2019, we entered into a
credit facility with Wells Fargo Bank and BMO Harris Bank N.A. to provide additional working capital flexibility to
manage our business. For additional risks related to the $402.5 million of 2.125% convertible senior notes due
September 1, 2024 (the “2024 Notes”) please see “Risk Related to our 2024 Notes” below.
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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 sole or limited sources. In
particular, we rely on our own production of certain components of our products, such as PICs, and on third
parties, including sole source and limited 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 most of these components on a purchase order basis
and generally only have long-term contracts with 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. In addition, these same suppliers may decide to no longer manufacture or
support specific components necessary for some of our legacy products, which could lead to our inability to fulfill
demand without increased engineering and material costs necessary to replace such components. 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 within a suitable
time frame to be able to operate our business, or at all.
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. For example, the recent outbreak
of the coronavirus in China may cause a disruption of the global supply chain for certain components necessary
for our products and it is unknown the magnitude of or how long any such impact may continue. Due to cross
dependencies, any supply chain disruptions could negatively impact the demand for our products in the short
term. In addition, if our contract manufacturers do not receive critical components in a timely manner to build our
products, then we would not be able to ship certain products 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,
supply delays and increased prices. 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. In addition, disruptions to global macroeconomic
conditions may create pressure on us and our suppliers to accurately project overall component demand and
manufacturing capacity. These supplier disruptions may continue to occur in the future, which could limit our
ability to produce our products and cause us to fail to meet a customer’s delivery requirements. 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.
Our gross margin may fluctuate from period to period 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 20.7% to 40.5%. 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 of the types of customers purchasing our products as well as the product mix;
the initial products released powered by our next-generation technologies generate lower margin
initially, as per unit production costs for initial units tend to be higher and experience more
variability in production yields;
the pace at which we deploy solutions powered by our next generation technologies, which could
lead to higher excess or obsolete inventory;
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the mix of products sold to customers that benefit from vertical integration as compared to products
that include a higher percentage of third-party components;
significant new deployments to existing and new customers, often with a higher portion of lower
margin common equipment as we deploy network footprint;
aggressive pricing tactics by our competitors;
changes in our manufacturing costs, including fluctuations in yields and production volumes;
pricing and commercial terms designed to secure long-term customer relationships, as well as
commercial deals to transition certain customers to our new products;
consolidation amongst our suppliers, which may increase prices of components for our products;
the volume of Instant Bandwidth-enabled solutions sold, and capacity licenses activated;
price discounts negotiated by our customers;
charges for excess or obsolete inventory;
changes in the price or availability of components for our products, including the possible effect of
new or increased tariffs on the prices of raw materials used in such components; and
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changes in warranty related costs.
It is likely that the average unit prices of our products will decrease over time in response to competitive
pricing pressures. 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 from our supply partners.
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 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.
Actions that we are taking to restructure our business to cut costs in order to align our operating
structure with current opportunities may not be as effective as anticipated.
In December 2018, we implemented a restructuring initiative (the “2018 Restructuring Plan”) as part of a
comprehensive review of our operations and ongoing integration synergies in order to optimize resources for
future growth, improve efficiencies and address redundancies following the Acquisition. As part of the 2018
Restructuring Plan, we sought to reduce expenses, streamline the organization, and reallocate resources to align
more closely with our needs going forward. While we expect to realize efficiencies from these actions, these
activities might not produce the full efficiency and cost reduction benefits we expect. For example, in the third
quarter of 2019, we completed the transfer of our manufacturing operations in Berlin, Germany to a contract
manufacturer. We may not fully realize all the projected cost savings from the closure of this site or other sites,
which would harm our business. In addition, any disruptions in the smooth transition to a third-party manufacturer
could damage customer relations and harm our ability to achieve our financial plans.
Further, any anticipated benefits from the 2018 Restructuring Plan may be realized later than expected
or not at all, and the ongoing costs of implementing these measures may be greater than anticipated. While we
believe significant synergies have been achieved, our ability to continue to drive further synergies in the amounts
and time frames expected are subject to a number of risks, which may or may not be realized, as well as the
incurrence of other costs in our operations that may offset all or a portion of such synergies and other factors
outside our control. As a consequence, we may not be able to realize all of these synergies within the time frame
expected or at all, or the amounts of such synergies could be significantly reduced, and we may incur additional
and/or unexpected costs to realize these additional synergies. In addition, as a result of the restructuring, our
ability to execute on product development, address key market opportunities and/or meet customer demand,
could be materially and adversely affected.
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We are dependent on a small number of key customers for a significant portion of our revenue from
period to period 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.
While our revenue and customer base have become more diversified over the past few years, today a
relatively small number of customers account for a large percentage of our revenue from period to period. For
example, for fiscal 2019, our top ten customers accounted for approximately 46% of our total revenue. For the
fiscal year 2018, our top ten customers accounted for approximately 54% of our total revenue. Our business will
likely be harmed if any of our key customers are acquired, do not generate as much revenue as we forecast,
stop purchasing from us, delay anticipated product purchases, 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 or
do not add new larger customers over time. We continue to expect a relatively small number of customers to
continue to account for a large percentage of revenue from period to period. However, customer consolidation
could reduce the number of key customers that generate a significant percentage of our revenue and may
increase the risks relating to dependence on a small number of customers.
Our ability to continue to generate revenue from our key customers will depend on our ability to
maintain strong relationships with these customers and introduce competitive new products at competitive prices.
In most cases, our sales are made to these customers pursuant to standard purchase agreements, which may
be canceled or reduced readily, rather than long-term purchase commitments that would require these customers
to purchase any minimum or guaranteed volumes orders. 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. In
addition, we must regularly compete for and win business with existing and new customers across all of our
customer segments.
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 for free when bundled together with broader
technology purchases, such as router or wireless equipment purchases;
providing financing, marketing and advertising assistance to customers; and
influencing customer requirements to emphasize different product capabilities, which better suit
their products.
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 their 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.
Increased consolidation among our customers and suppliers in the communications networking
industry has had, and could continue to have, an adverse effect on our business and results of
operations.
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We have seen increased consolidation in the communications networking industry over the past few
years, which has adversely affected our business and results of operations. For example, several of our
customers have consolidated in the past. During 2016, Charter Communications completed its acquisition of
Time Warner Cable, Inc. and Altice completed its acquisition of Cablevision. During 2017, Verizon completed its
acquisition of XO Communications and CenturyLink completed its acquisition of Level 3 Communications.
Customer consolidation has led to changes in buying patterns, slowdowns in spending, redeployment of existing
equipment and re-architecture of parts of existing networks or future networks, as the combined companies
evaluate the needs of the combined business. Moreover, the significant purchasing power of these large
companies can increase pricing and competitive pressures for us, including the potential for decreases in our
average selling prices. If one of our customers is acquired by another company that does not rely on us to
provide it with products or relies on another provider of similar products, we may lose that customer’s business.
Such consolidation may further reduce the number of customers that generate a significant percentage of our
revenue and may exacerbate the risks relating to dependence on a small number of customers. Any of the
foregoing results will adversely affect our business, financial condition and results of operations.
In addition, our suppliers in the communications networking industry have recently continued to
consolidate. For example, in the fourth quarter of 2018, Lumentum completed its acquisition of Oclaro and, in the
third quarter of 2019, II-VI completed its acquisition of Finisar. Supplier consolidation may lead to increased
prices of components for our products, deployment delays and/or a disruption in output. In addition, such
consolidation may exacerbate the risks relating to our dependence on a small number of suppliers for certain
components and materials that are required to manufacture our products.
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. Because our products are complex, we must hire and retain 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
personnel and competition for these individuals is intense in our industry, especially in the San Francisco Bay
Area where we are headquartered and, increasingly, in certain cities and regions where we have operations
outside the United States as well. In addition, 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. In addition, we do not have long-term employment contracts or key person life insurance covering
any of our key personnel. If we are unable to attract and retain qualified personnel, we may be unable to manage
our business effectively, and our results of operations could suffer.
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 hardware, software, components and manufacturing methods. Complex hardware and
software systems, such as our products, can often contain undetected errors or bugs 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 and
performance issues related to software updates. From time to time we have had to replace certain components,
provide software remedies or other remediation in response to errors or bugs, and we may have to do so again
in the future. In addition, performance issues can be heightened during periods where we are developing and
introducing multiple new products to the market, as any performance issues we encounter in one technology or
product could impact the performance or timing of delivery of other products. Our products may suffer
degradation of performance and reliability over time. Also, as a result of the Acquisition, we will be adding,
augmenting, and modifying significant parts of our combined portfolio with network management and network
automation software and features. These efforts may introduce new software bugs or network level reliability
issues that are not known at this time, which could cause us to lose customers and fail to add new customers.
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If reliability, quality, security or network monitoring problems develop, a number of negative effects on
our business could result, including:
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reduced orders from existing customers;
declining interest from potential customers;
delays in our ability to recognize revenue or in collecting accounts receivables;
costs associated with fixing hardware or software defects or replacing products;
high service and warranty expenses;
delays in shipments;
high inventory excess and obsolescence expense;
high levels of product returns;
diversion of our engineering personnel from our product development efforts; and
payment of liquidated damages, performance guarantees or similar penalties.
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, fail to add new customers, and
consequently harm our financial results.
The markets in which we compete are highly competitive and we may not be able to compete effectively.
Competition in the packet-optical equipment market is intense. Our main competitors include WDM
system suppliers, such as ADVA Optical Networking, Ciena Corporation, Cisco Systems, ECI, Huawei
Technologies Co., Ltd., Nokia and ZTE. In addition, there are several other companies that offer one or more
products that partially compete with our offerings.
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;
existing business and customer relationships;
the ability of products and services to meet customers’ immediate and future network requirements;
power consumption;
heat dissipation;
form factor or density;
installation and operational simplicity;
quality and reliability;
service and support;
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security and encryption requirements;
scalability and investment protection; and
product lead times.
In addition to our current competitors, other companies have, or may in the future develop, products that
are or could be competitive with our products. We also could encounter competitor consolidation in the markets
in which we compete, which could lead to a changing competitive landscape, capabilities and market share, and
could impact our results of operations. For example, in the third quarter of fiscal 2019, Cisco Systems announced
its intention to acquire optical communications supplier Acacia Communications.
Some of our competitors have substantially greater name recognition, technical, financial and marketing
resources, and better-established relationships with 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 and existing 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 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. In
addition, we may also face increased competition from system and component companies that develop products
based on off-the-shelf hardware that offers 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.
We rely on various third-party service partners to help complement our global operations, and failure to
adequately manage these relationships could adversely impact our financial results and relationships
with customers.
We rely on a number of third-party service partners, both domestic and international, to complement our
global operations. We rely upon these partners for certain installation, maintenance, logistics and support
functions. In addition, as our customers increasingly seek to rely on vendors to perform additional services
relating to the design, construction and operation of their networks, the scope of work performed by our service
partners is likely to increase and may include areas where we have less experience providing or managing such
services. We must successfully identify, assess, train and certify qualified service partners in order to ensure the
proper installation, deployment and maintenance of our products. The vetting and certification of these partners
can be costly and time-consuming, and certain partners may not have the same operational history, financial
resources and scale as we have. Moreover, certain service partners may provide similar services for other
companies, including our competitors. We may not be able to manage our relationships with our service partners
effectively, and we cannot be certain that they will be able to deliver services in the manner or time required, that
we will be able to maintain the continuity of their services, or that they will adhere to our approach to ethical
business practices. We may also be exposed to a number of risks or challenges relating to the performance of
our service partners, including:
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delays in recognizing revenue;
liability for injuries to persons, damage to property or other claims relating to the actions or
omissions of our service partners;
our services revenue and gross margin may be adversely affected; and
our relationships with customers could suffer.
If we do not effectively manage our relationships with third-party service partners, or if they fail to
perform these services in the manner or time required, our financial results and relationships with our customers
could be adversely affected.
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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 will continue to improve the
performance of their existing products and 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 anticipate future customer requirements and 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.
The manufacturing process for our optical engine, and the assembly of our finished products, is very
complex. The partial or complete loss of any of our manufacturing facilities, a reduction in yields of our
PICs or an inability to scale capacity to meet customer demands could harm our business.
The manufacturing process for our optical engine, including the PICs, DSPs and specialized ASICs, and
the assembly of our finished products, is very complex. In the event that any of our manufacturing facilities
utilized to build these components and assemble our finished products were fully or partially destroyed, or shut
down, as a result of a natural disaster, work stoppage or otherwise, it could severely limit our ability to sell our
products. Because of the complex nature of our manufacturing facilities, such loss would take a considerable
amount of time to repair or replace. The partial or complete loss of any of our manufacturing facilities, or an event
causing the interruption in our use of any such facilities, whether as a result of a natural disaster, work stoppage
or otherwise, 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. Lower than expected 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 results of operations.
If we fail to accurately forecast our manufacturing requirements or customer demand, we could incur
additional costs, including inventory write-downs or equipment write-offs, which would adversely affect
our business and results of operations.
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We 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 lengthened 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. In addition, we must
manage our inventory to ensure we continue to meet our commitments as we introduce new products or make
enhancements to our existing products.
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 our ability to recognize revenue and the
potential loss of customers to competitors. In addition, we may be unable to meet our supply commitments to
customers, which could result in a loss of certain customer opportunities or a breach of our customer agreements
resulting in payment of damages.
If our contract manufacturers do not perform as we expect, our business may be harmed.
We rely on third-party contract manufacturers to perform a 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;
potential lack of adequate capacity during periods of high demand;
limited warranties on components;
potential misappropriation of our intellectual property; and
potential manufacturing disruptions (including disruptions caused by geopolitical events, military
actions, work stoppages, natural disasters or international health emergencies such as the
coronavirus).
Any of these risks could impair our ability to fulfill orders. Any delays by our contract manufacturers may
cause us to be unable to meet the delivery requirements of our customers, which could decrease customer
satisfaction and harm our product sales. In addition, 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.
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Our large customers have substantial negotiating leverage, which may cause us to agree to terms and
conditions that result in lower average selling prices and potentially increased cost of sales leading to
lower gross margin, each of which would harm our results of operations.
Many of our customers are large service providers and ICPs that have substantial purchasing power
and leverage in negotiating contractual arrangements with us. In addition, customer consolidation in the past few
years has created combined companies that are even larger and have greater negotiating leverage. Our
customers have sought and may continue to seek advantageous pricing, payment and other commercial terms.
We have agreed and may continue to agree to unfavorable commercial terms with these customers, including
the potential of reducing the average selling price of our products, increasing cost of sales 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, which
could affect our results of operations.
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,
including the need for the customer to obtain external financing. If sales expected from customers for a particular
quarter are not realized in that quarter or at all, our revenue will be negatively impacted.
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. For example, in August 2019 we completed a credit facility
with Wells Fargo to provide additional capital to manage our business, and in December 2019, we increased the
amount we could borrow under the credit facility. 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 equity-linked financing, debt financing or other financings in the future to fund our
operations, respond to competitive pressures or strategic opportunities or to refinance our existing debt
obligations. 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.
25
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 if 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. In addition, non-practicing patent holding companies seek to monetize
patents they have purchased or otherwise obtained. We expect that infringement claims may increase as the
number of products and competitors in our market increases and overlaps in technology implementation 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 asserted, 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, in the past we have had certain patent licenses with third parties that have not been
renewed, and if we cannot successfully renew these licenses, we could face claims of infringement. In the event
that we are unsuccessful in defending against any such claims, or any resulting lawsuits or proceedings, we
could incur liability for damages and/or have valuable proprietary rights invalidated. For additional information
regarding certain of the legal proceedings in which we are involved, see Part I, Item 3, "Legal Proceedings."
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
or could 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.
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We may also be required to indemnify some customers under our contracts if a third party alleges, or a
court finds, that our products have infringed upon the proprietary rights of other parties. From time to time, we
have agreed to indemnify certain customers for claims made against our products, where such claims allege
infringement of third-party intellectual property rights, including, but not limited to, patents, registered trademarks
and/or copyrights. If we are required to make a significant payment under any of our indemnification obligations,
our result of operations may be harmed.
We incorporate free and open source licensed software into our products. Although we monitor our use
of such 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 addition, non-compliance with open
source software license terms and conditions could subject us to potential liability, including intellectual property
infringement and/or contract claims. In such events, we may 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 in a timely manner, 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;
• mergers and acquisitions by us, by our competitors or by our customers;
• market conditions in our industry, the industries of our customers and the economy as a whole,
including global trade tariffs; and
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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 broader stock market experience a 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
financial results.
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.
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;
our customers facing financial difficulties, including bankruptcy;
excess manufacturing capacity and higher associated overhead costs as a percentage of revenue;
and
• more limited ability to accurately forecast our business and future financial performance.
A lack of liquidity and economic uncertainty may adversely affect our suppliers or the terms on which we
purchase products from these suppliers. It may also cause some of our suppliers to become illiquid. Any of these
impacts could limit our ability to obtain components for our products from these suppliers and could adversely
impact our supply chain or the delivery schedule to our customers. This also could require us to purchase more
expensive components, or re-design our products, which could cause increases in the cost of our products and
delays in the manufacturing and delivery of our products. Such events could harm our gross margin and harm
our reputation and our customer relationships, either of which could harm our business and operating results.
Our international sales and operations subject us to additional risks that may harm our operating
results.
Sales of our products into international markets continue to be an important part of our business. During
the fiscal 2019, fiscal 2018 and fiscal 2017, we derived approximately 52%, 49% and 42%, 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
operate in international markets. 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, Finland, Germany, India, Portugal and Sweden. 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. As a result of the Acquisition, we now have sales and
support personnel in a greater number of geographical locations throughout APAC (including China) and EMEA
(with offices in the Middle East).
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As a result of having global operations, the sudden disruption of the supply chain and/or the
manufacture of our customer’s components caused by events outside of our control could impact our results of
operations by impairing our ability to timely and efficiently deliver our products or provide installation and
maintenance services to our customers. For example, the recent outbreak of the coronavirus in China and other
geographic areas may cause a disruption of the global supply chain for certain components necessary for our
products and could threaten the health and safety of our employees.
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
effectively anticipate and manage these and other risks and expenses associated with our international
operations. For example, political instability and uncertainty in the European Union and, in particular, the United
Kingdom's pending exit from the E.U. (Brexit) as well as other countries potentially choosing to exit the E.U.,
could slow economic growth in the region, affect foreign exchange rates, and could further discourage near-term
economic activity, including our customers delaying purchases of our products. Our failure to manage any of
these risks successfully could harm our international operations and reduce our international sales, and business
generally, adversely affecting our business, financial condition and results of operations.
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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. 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, and also to reduce the volatility of cash flows primarily related to forecasted foreign currency revenue
and expenses. 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.
Our effective tax rate may increase or fluctuate, which could increase our income tax expense and
reduce our net income.
Our effective tax rate can be adversely affected by several factors, many of which are outside of our
control, including:
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changes in the valuation of our deferred tax assets and liabilities, and in deferred tax valuation
allowances;
changes in the relative proportions of revenue and income before taxes in the various jurisdictions
in which we operate that have differing statutory tax rates;
changing tax laws, regulations, rates and interpretations in multiple jurisdictions in which we
operate;
changes to the financial accounting rules for income taxes;
the tax effects of acquisitions, including the effects of integrating intellectual property; and
the resolution of issues arising from tax audits.
The United States enacted significant tax reform under the Tax Cuts and Jobs Act of 2017 (the “Tax
Act”). The U.S. Department of Treasury has broad authority to issue regulations and interpretative guidance that
may significantly impact how we will apply the law, which could affect our results of operations in the period
issued. Many countries and organizations such as the Organization for Economic Cooperation and Development
are actively considering changes to existing tax laws or have proposed or enacted new laws that could increase
our tax obligations in countries where we do business or cause us to change the way we operate our business.
Any changes in federal, state or international tax laws or tax rulings could adversely affect our effective tax rate
and our results of operations.
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. In
addition, if we are unable to implement key operation controls around pricing, spending and other financial
processes, we may not be able to improve our financial performance or sufficiently scale to support the growth of
our business.
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Prior to the Acquisition, we maintained separate internal controls over financial reporting with different
financial reporting processes and different ERP systems, and Coriant, as a private company, was not required to
comply with Section 404 of the Sarbanes-Oxley Act of 2002. In August 2019, we migrated to an integrated ERP
system. As a result of the integration, we may encounter difficulties and unanticipated issues due to the
complexity of the business processes and technical challenges faced by moving to a single ERP system. If we
are unable to successfully manage our integrated ERP system, and maintain effective internal control over
financial reporting of the combined company, we may fail to prevent or detect material misstatements in our
financial statements, in which case investors may lose confidence in the accuracy and completeness of our
financial reports and the market price of our securities may decline. Additionally, integration of our ERP system
may cause time delays and impact our ability to undertake financial reporting in a timely manner. For example,
we required additional time to complete our quarter-end closing procedures for the three months ended
September 28, 2019 due to issues encountered as part of the integration of three separate global instances into
a single ERP system.
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, including
most recently the Acquisition. In order to make acquisitions, we may use cash, issue equity that could dilute our
current stockholders, or incur debt or assume indebtedness. If we are unable to achieve the anticipated strategic
benefits of such acquisitions, it could adversely affect our business, financial condition and results of operations.
In addition, the market price of our common stock could be adversely affected if the integration or the anticipated
financial and strategic benefits of such acquisitions are not realized as rapidly as, or to the extent anticipated by
investors and securities analysts.
Acquisitions can also 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 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.
Unforeseen health, safety and environmental costs and restrictions could harm our business.
We are subject to various federal, state, local, foreign and international laws and regulations governing
health, safety and the environment. In particular, our manufacturing operations use substances that are regulated
by such laws and regulations, including WEEE, RoHS and REACH regulations adopted by the European Union.
From time to time, the European Union restricts or considers restricting certain substances under these
Directives. For example, indium phosphide is currently being considered for restriction under RoHS. Any
restriction of indium phosphide or any other substance integral to our systems could materially adversely affect
our business, financial condition and operating results. In addition, if we experience a problem with complying
with these laws and regulations, it could cause an interruption or delay in our manufacturing operations or it
could cause us to incur liabilities or costs related to health, safety or environmental remediation or compliance.
We could also be subject to liability if we do not handle these substances in compliance with safety standards for
handling, storage and transportation and applicable laws and regulations. If we experience a problem or fail to
31
comply with such safety standards or laws and regulations, 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 governmental regulations that could adversely affect our business. This includes U.S.
and foreign trade control laws that may limit where and to whom we sell our products as well as the impact of
new or revised environmental rules and regulations or other social initiatives on how we manufacture our
products. Trade control laws may also limit our ability to conduct product development activities in certain
countries and restrict the handling of our U.S. export-controlled technology. In addition, various countries
regulate the import of certain technologies and have enacted laws that could limit our ability to distribute our
products and certain product features or could limit our customers’ ability to implement our products in those
countries. Changes in our products or changes in U.S. and foreign 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 impacted 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, or any limitation on our ability to
develop, export or sell our products would adversely affect our business, financial condition and operating
results.
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. In
December 2017, the FCC voted to roll back its 2015 order regulating broadband internet service providers as
telecommunications service carriers under Title II of the Telecommunications Act. This decision repeals net
neutrality regulations that prohibit blocking, degrading or prioritizing certain types of internet traffic and restores
the light touch regulatory treatment of broadband service in place prior to 2015. Changes in regulatory
requirements or uncertainty associated with the regulatory environment could delay or impede investment in
network infrastructures. Similarly, changes in regulatory tariff requirements or other regulations relating to pricing
or terms of carriage on communications networks could slow the development or expansion of network
infrastructures and adversely affect our business, operating results, and financial condition. For example, in 2018
and 2019, the United States imposed tariffs on a large variety of products originating from China, including some
on components that are supplied to us from China. Depending upon the duration and implementation of these
and future tariffs, as well as our ability to mitigate their impact, these tariffs could materially affect our business,
including in the form of increased cost of goods sold, increased pricing for customers, and reduced sales. At this
time, it remains unclear what additional actions, if any, will be taken by the governments of the United States or
China with respect to such trade and tariff matters.
In addition, international regulatory standards could impair our ability to develop products for
international customers in the future. Moreover, many jurisdictions, including the United States, the EU and other
regions, are evaluating or have implemented regulations relating to cybersecurity, privacy and data protection,
which can affect the market and requirements for networking and communications equipment. For example, in
May 2018, the General Data Protection Regulation (the “GDPR”) came into effect, superseding then-current EU
data protection regulations. The GDPR imposes stringent data handling requirements on companies that receive
or process personal data of residents of the EU, and non-compliance with the GDPR could result in significant
penalties, including data protection audits and heavy fines. Any failure to obtain the required approvals or comply
with such laws and regulations 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
32
interrupt our operations for any extended period of time, our business, financial condition and operating results
would be harmed.
Security incidents, such as data breaches and cyber-attacks, could compromise our intellectual property
and proprietary or confidential information and cause significant damage to our business and
reputation.
In the ordinary course of our business, we maintain sensitive data on our networks, including data
related to our intellectual property and data related to our business, customers and business partners, which is
considered proprietary or confidential information, and includes certain personal information and other data
relating to our employees and others. 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, and those systems and other business applications maintained by our third-party
providers, 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 any other
unauthorized access or disclosure of our information or other information that we or our third-party vendors
maintain, could compromise our intellectual property and reveal proprietary or confidential business information.
While we continually work to safeguard our internal network systems and validate the security of our third-party
providers to mitigate these potential risks, including through information security policies and employee
awareness and training, there is no assurance that such actions will be sufficient to prevent cyber-attacks or
security breaches. We have been subjected in the past to a range of incidents including phishing, emails
purporting to come from an executive or vendor seeking payment requests, and communications from look-alike
corporate domains. While these have not had a material effect on our business or our network security to date,
security incidents involving access or improper use of our systems, networks or products could compromise
confidential or otherwise protected information, destroy or corrupt data, or otherwise disrupt our operations.
These security incidents could cause us to incur significant costs and expenses to remediate and otherwise
respond to the incident, subject us to regulatory actions and investigations, disrupt key business operations,
open us up to liability, and divert attention of management and key information technology resources, any of
which could cause significant harm to our business and reputation. Even the perception of inadequate security
may damage our reputation and negatively impact our business. Further, we could be required to expend
significant capital and other resources to address any data security incident or breach and in an effort to prevent
future security incidents and breaches.
Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent
a change in control of our company and may affect the trading price of our common stock.
We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation
Law, which apply to us, may discourage, delay or prevent a change in control by prohibiting us from engaging in
a business combination with an interested stockholder for a period of three years after the person becomes an
interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition,
our amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay
or prevent a change in our management or control over us that stockholders may consider favorable. Our
amended and restated certificate of incorporation and amended and restated bylaws:
•
•
•
•
authorize the issuance of “blank check” convertible preferred stock that could be issued by our
board of directors to thwart a takeover attempt;
establish a classified board of directors, as a result of which the successors to the directors whose
terms have expired will be elected to serve from the time of election and qualification until the third
annual meeting following their election;
require that directors only be removed from office for cause;
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
33
•
prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the
stockholders.
Risks Related to our 2024 Notes
Our debt obligations may adversely affect our ability to raise additional capital and will be a burden on our
future cash resources, particularly if we elect to settle these obligations in cash upon conversion or upon
maturity or required repurchase.
In September 2018, we issued the 2024 Notes, which will mature on September 1, 2024, unless earlier
repurchased by us or converted. The degree to which we are leveraged could have important consequences,
including, but not limited to, the following:
•
•
our ability to obtain additional financing in the future for working capital, capital expenditures,
acquisitions, litigation, general corporate or other purposes may be limited; and
a substantial portion of our future cash balance may be dedicated to the payment of the principal of
our indebtedness as we have stated the intention to pay the principal amount of the 2024 Notes in
cash upon conversion or when otherwise due, such that we would not have those funds available for
use in our business.
Our ability to meet our payment obligations under our debt instruments, including the 2024 Notes, 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. For
example, in each of the fiscal quarters after the Acquisition, the combined company had a significant net loss and
negative cash flows. 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 are 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 conversions of the 2024 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 2024 Notes are converted and we elect to deliver shares of common
stock, the ownership interests of existing stockholders will be diluted, and any sales in the public market of any
shares of our common stock issuable upon such conversion could adversely affect the prevailing market price of
our common stock. In addition, the anticipated conversion of the 2024 Notes could depress the market price of our
common stock.
The fundamental change provisions of the 2024 Notes may delay or prevent an otherwise beneficial takeover
attempt of us.
If a fundamental change, such as an acquisition of our company, occurs prior to the maturity of the 2024
Notes, holders of the 2024 Notes will have the right, at their option, to require us to repurchase all or a portion of
their 2024 Notes. In addition, if such fundamental change also constitutes a make-whole fundamental change, the
conversion rate for the 2024 Notes may be increased upon conversion of the 2024 Notes in connection with such
make-whole fundamental change. Any 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. Any such increase will be dilutive to our existing stockholders. Our
obligation to repurchase 2024 Notes or 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.
34
The capped call transactions may affect the value of the 2024 Notes and our common stock.
In connection with the issuance of the 2024 Notes, we entered into capped call transactions with the “option
counterparties.” The capped call transactions are expected generally to reduce or offset the potential dilution upon
conversion of the 2024 Notes and/or offset any cash payments we are required to make in excess of the principal
amount of converted 2024 Notes, as the case may be, with such reduction and/or offset subject to a cap.
From time to time, the option counterparties or their respective affiliates may modify their hedge positions
by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our
common stock or other securities of ours in secondary market transactions prior to the maturity of the 2024 Notes.
This activity could also cause or avoid an increase or a decrease in the market price of our common stock.
We are subject to counterparty risk with respect to the capped call transactions.
The option counterparties to the capped call transactions are financial institutions, and we will be subject
to the risk that any or all of them might default under the capped call transactions. Our exposure to the credit risk
of the counterparties will not be secured by any collateral. Past global economic conditions have resulted in the
actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes
subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal
to our exposure at the time under the capped call transactions with such option counterparty. Our exposure will
depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market
price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer
adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We
can provide no assurance as to the financial stability or viability of the option counterparties.
35
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
PROPERTIES
Our headquarters are located in Sunnyvale, California, which consist of approximately 321,000 square
feet under lease. In 2020, we will move our headquarters to San Jose, California, which will consist of
approximately 82,000 square feet under lease.
In addition to the leased building in Sunnyvale, California, we also lease approximately 1,223,000
square feet of office spaces for research and development centers and for sales, service and support in various
countries within (i) North America; (ii) LATAM; (iii) EMEA; and (iv) APAC.
All of these leases expire between 2019 and 2031. We also own a facility in Allentown, Pennsylvania.
We intend to adjust the facility space to meet our requirements and we believe that suitable additional or
substitute space will be available as needed to accommodate our business needs for our operations. We believe
that our existing facilities are adequate to meet our business needs through the next 12 months.
ITEM 3.
LEGAL PROCEEDINGS
Oyster Optics LLC I
On November 23, 2016, Oyster Optics, LLP (“Oyster Optics”) filed a complaint against us in the United
States District Court for the Eastern District of Texas. The complaint asserts infringement of U.S. Patent Nos.
6,469,816, 6,476,952, 6,594,055, 7,099,592, 7,620,327 (the “’327 patent”), 8,374,511 (the “’511 patent”) and
8,913,898 (the “’898 patent”). Collectively, the asserted patents are referred to herein as the “Oyster Optics patents
in suit.” The complaint seeks unspecified damages and a permanent injunction. We filed our answer to Oyster
Optics’ complaint on February 3, 2017. We filed two petitions for Inter Partes Review (“IPR”) of the ‘898 patent with
the U.S. Patent and Trademark Office (“USPTO”). Other defendants have filed IPR petitions in connection with the
remaining Oyster Optics patents in suit. The USPTO instituted two IPRs of the ‘511 patent and two IPRs of the ‘898
patent but denied IPR petitions in connection with the ‘327 patent.
A first Markman decision issued on December 5, 2017 and fact discovery closed on December 22, 2017.
Oyster Optics dropped the ‘511 and ‘898 patents, leaving only a few claims in the ‘327 patent at issue in the case.
Oyster Optics LLC II
On May 15, 2018, Oyster Optics filed a new patent infringement complaint in the United States District
Court for the Eastern District of Texas, naming us as a defendant. In its new complaint, Oyster Optics alleges
infringement of the ‘327 patent, ‘898 patent and U.S. Patent No. 9,749,040. On June 8, 2018, the court granted the
parties’ joint motion to sever and consolidate the first-filed lawsuit with the later filed case. We filed our answer to
the new complaint on July 16, 2018. On October 26, 2018, we filed an amended answer to include a license defense
based on a license agreement dated June 28, 2018 by and between Oyster Optics and several subsidiaries of
Coriant (now one of our affiliated subsidiaries). We also filed a motion for summary judgment based on the license
defense on November 29, 2018. On June 25, 2019, the Court granted our motion for summary judgment and on
June 28, 2019, the court entered a final judgment for us. On July 22, 2019, Oyster Optics filed an appeal of the
court’s decision with the Court of Appeals for the Federal Circuit. We believe that we do not infringe any valid and
enforceable claim of the Oyster Optics patents in suit and intend to defend this action vigorously. We are currently
unable to predict the outcome of this litigation at this time and therefore cannot determine the likelihood of loss nor
estimate a range of possible loss.
Oyster Optics LLC III
On July 29, 2019, Oyster Optics filed a third complaint against us, Coriant (USA) Inc., Coriant North America,
LLC and Coriant Operations, Inc. in the United States District Court for the Eastern District of Texas. The complaint
asserts infringement of U.S. Patent No. 6,665,500 (the “Oyster III patent in suit”). The complaint seeks unspecified
36
damages and a permanent injunction. On October 7, 2019, we filed our answer to the complaint asserting among
other things, counterclaims and defenses based on non-infringement, invalidity, and a license to the Oyster III patent
in suit. On October 28, 2019, Oyster filed an amended complaint. On December 3, 2019, we filed a motion to dismiss
certain claims based on certain allegations made by Oyster in their amended complaint. On December 27, 2019,
we filed IPR petitions with the USPTO, in which we requested the USPTO to invalidate the asserted claims of the
Oyster III patent in suit. We believe that we do not infringe any valid and enforceable claim of the Oyster III patent
in suit and intend to defend this action vigorously. We are unable to predict the outcome of this litigation at this time
and therefore cannot reasonably estimate the possible loss or range of loss, if any, arising from this matter.
Oyster Optics LLC IV
On August 26, 2019, Oyster Optics filed a fourth complaint against us in the Superior Court of California,
Santa Clara County (“Oyster IV”). On November 5, 2019, the Oyster IV lawsuit was dismissed.
Civil Investigative Demand
On June 8, 2017, a Civil Investigative Demand was issued to Coriant pursuant to a False Claims Act
investigation by the U.S. government as to whether there has been any violation of 31 U.S.C. §3729. Coriant
provided documents and other responses to the U.S. government, and we will continue to cooperate in the
ongoing investigation.
In addition to the matters described above, we are subject to various legal proceedings, claims and
litigation arising in the ordinary course of business. While the outcome of these matters is currently not
determinable, we do not expect that the ultimate costs to resolve these matters will have a material effect on our
consolidated financial position, results of operations or cash flows.
ITEM 4.
MINE SAFETY DISCLOSURES
Not Applicable.
37
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.” As of
February 19, 2020, there were 91 registered holders of record of our common stock. A substantially greater
number of holders of our 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 our common stock in the near future.
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 27, 2014 and its relative performance
is tracked through December 28, 2019. 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 us
under the Securities Act of 1933, as amended, or the Exchange Act.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
Among Infinera Corporation, the Nasdaq Composite Index,
and the Nasdaq Telecommunications Index
(cid:22)(cid:24)(cid:19)
(cid:22)(cid:19)(cid:19)
(cid:21)(cid:24)(cid:19)
(cid:21)(cid:19)(cid:19)
(cid:20)(cid:24)(cid:19)
(cid:20)(cid:19)(cid:19)
(cid:24)(cid:19)
(cid:19)
(cid:20)(cid:21)(cid:18)(cid:21)(cid:26)(cid:18)(cid:20)(cid:23)
(cid:20)(cid:21)(cid:18)(cid:21)(cid:25)(cid:18)(cid:20)(cid:24)
(cid:20)(cid:21)(cid:18)(cid:22)(cid:20)(cid:18)(cid:20)(cid:25)
(cid:20)(cid:21)(cid:18)(cid:22)(cid:19)(cid:18)(cid:20)(cid:26)
(cid:20)(cid:21)(cid:18)(cid:21)(cid:28)(cid:18)(cid:20)(cid:27)
(cid:20)(cid:21)(cid:18)(cid:21)(cid:27)(cid:18)(cid:20)(cid:28)
(cid:44)(cid:81)(cid:73)(cid:76)(cid:81)(cid:72)(cid:85)(cid:68)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
(cid:49)(cid:68)(cid:86)(cid:71)(cid:68)(cid:84)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:72)
(cid:49)(cid:68)(cid:86)(cid:71)(cid:68)(cid:84)(cid:3)(cid:55)(cid:72)(cid:79)(cid:72)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)
*Assumes $100 invested on December 27, 2014 in our common stock or December 31, 2014 in the Nasdaq
Composite Index and the Nasdaq Telecommunications Index, with reinvestment of all dividends, if any. Indexes
calculated on month-end basis.
38
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 28, 2019, December 29,
2018 and December 30, 2017 and the balance sheet data as of December 28, 2019 and December 29, 2018
from our audited consolidated financial statements and related notes, which are included elsewhere in this
Annual Report on Form 10-K. We derived the statements of operations data for the years ended December 31,
2016 and December 26, 2015 and the balance sheet data as of December 30, 2017, December 31, 2016, and
December 26, 2015 from our audited consolidated financial statements and related notes, which are not included
in this Annual Report on Form 10-K. We have not declared or distributed any cash dividends.
December 28,
2019 (1)
December 29,
2018(2)
December 30,
2017
December 31,
2016
December 26,
2015
Years Ended
Revenue
Gross profit
Net income (loss)
Net income (loss) attributable
to Infinera Corporation
Net income (loss) per
common share attributable to
Infinera Corporation:
Basic
Diluted
Weighted average number of
shares used in computing
basic and diluted net income
(loss) per common share:
Basic
Diluted
Total cash and cash
equivalents, investments and
restricted cash
Intangible assets, net
Goodwill
Total assets
Short-term debt
Long-term debt, net
Long-term financing lease
obligation
Common stock and
additional paid-in capital
Infinera stockholders' equity
Noncontrolling interest
Total stockholders’ equity
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(In thousands, except per share data)
1,298,865
325,923
$
$
943,379
321,156
$
$
740,739
244,000
$
$
870,135
393,718
$
$
(386,618) $
(214,295) $
(194,506) $
(24,430) $
886,714
403,477
50,950
(386,618) $
(214,295) $
(194,506) $
(23,927) $
51,413
(2.16) $
(2.16) $
(1.36) $
(1.36) $
(1.32) $
(1.32) $
(0.17) $
(0.17) $
0.39
0.36
178,984
178,984
157,748
157,748
147,878
147,878
142,989
142,989
133,259
143,171
132,797
170,346
249,848
1,628,338
31,673
323,678
2,394
1,741,065
386,535
$
$
$
$
$
$
$
$
$
268,848
233,119
227,231
1,801,270
$
$
$
$
305,211
92,188
195,615
1,117,670
— $
144,928
$
$
$
$
$
367,056
108,475
176,760
1,198,583
$
$
$
$
370,979
156,319
191,560
1,226,294
— $
—
— $
133,586
$
125,440
— $
— $
—
266,929
193,538
1,686,091
703,821
$
$
$
$
— $
— $
— $
— $
1,417,192
665,365
$
$
1,354,227
762,328
$
$
1,300,441
762,151
14,910
386,535
$
703,821
$
665,365
$
762,328
$
777,061
39
(1) Effective December 30, 2018, we adopted Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (“Topic 842”),
using the alternative modified transition method. Results for the reporting periods beginning December 30, 2018 are
presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with
our historical accounting under Accounting Standards Codification (“ASC”) Topic 840, “Leases.”
(2) Effective December 31, 2017, we adopted Accounting Standards Update No. 2014-09, "Revenue from Contracts with
Customers (Topic 606)” (“Topic 606”), using the modified retrospective method applied to those contracts that were not
completed as of December 31, 2017. Results for the reporting periods after December 31, 2017 are presented under
Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical
accounting under ASC Topic 605, “Revenue Recognition” (“Topic 605”).
40
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; expectations related to the Acquisition; factors that may affect our future operating results; anticipated
customer activity; statements about the benefits of our products and product features; statements concerning
new products or services, including new product features and delivery dates; statements related to capital
expenditures; statements related to future economic conditions, performance, market growth or our sales cycle;
statements related to the 2024 Notes or our credit facility; statements related to the effects of the coronavirus on
our supply chain and ability to meet customer demand; 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 regarding the Tax Act; statements regarding our
restructuring plans; 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 Part I, 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 Part II, 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 are a global supplier of networking solutions comprised of networking equipment, software and
services. Our portfolio of solutions includes optical transport platforms, converged packet-optical transport
platforms, optical line systems, disaggregated router platforms, and a suite of networking and automation
software offerings, and support and professional services.
Our customers include telecommunications service providers, ICPs, cable providers, wholesale
carriers, research and education institutions, large enterprises and government entities. Our networking solutions
enable our customers to deliver business and consumer communications services. Our comprehensive portfolio
of networking solutions also enables our customers to scale their transport networks as end-user services and
applications continue to drive growth in demand for network bandwidth. These end-user services and
applications include, but are not limited to, high-speed internet access, business Ethernet services, 4G/5G
mobile broadband, cloud-based services, high-definition video streaming services, virtual and augmented reality
and the Internet of Things (“IoT”).
Our systems are highly scalable, flexible and designed with open networking principles for ease of
deployment. We build our systems using a combination of internally manufactured and third-party components.
Our portfolio includes systems that leverage our innovative optical engine technology, comprised of large-scale
PICs and digital signal processors DSPs. We optimize the manufacturing process by using indium phosphide to
build our PICs, which enables the integration of hundreds of optical functions onto a set of semiconductor chips.
This large-scale integration of our PICs and advanced DSPs allows us to deliver high-performance transport
networking platforms with features that customers care about the most, including cost per bit, low power
consumption and space savings. In addition, we design our optical engines to increase the capacity and reach
performance of our products by leveraging coherent optical transmission. We believe our vertical integration
strategy becomes increasingly more valuable as our customers transition to 800 Gb/s per wavelength
transmission speeds and beyond, as the combination of our optical integration, DSP, and tightly integrated
41
packaging enables a leading optical performance at higher optical speeds. Over time, we plan to integrate our
optical engine technology into a broader set of transport platforms in order to enhance customer value and lower
production costs.
Over the past several years, we expanded our portfolio of solutions, evolving from our initial focus on
the long-haul and subsea optical transport markets to offering a more complete suite of packet-optical networking
solutions that address multiple markets within the end-to-end transport infrastructure. These markets include
metro access, metro aggregation and switching, and DCI, and long-haul and subsea transport.
We have grown our portfolio through internal development as well as acquisitions. In 2014, we
introduced the Infinera Cloud Xpress to address the emerging DCI market opportunity. In 2015, we entered the
metro market with the acquisition of Transmode. In October 2018, we expanded our product portfolio and
customer base through the Acquisition. The Acquisition has helped position us as one of the largest providers of
vertically integrated transport networking solutions in the world and enhanced our ability to serve a global
customer base and accelerated the delivery of the innovative solutions our customers demand. The Acquisition
has also enabled us to expand the breadth of customer applications we can address, including metro
aggregation and switching, disaggregated routing, and software-enabled multi-layer network management and
control.
Our high-speed optical transport platforms are differentiated by the Infinite Capacity Engine (ICE), our
optical engine technology. ICE enables different subsystems that can be customized for a variety of network
applications in different transport markets, including metro, DCI, long-haul and subsea. Our latest generation of
available optical engine technology delivers multi-terabit opto-electronic subsystems powered by our fourth-
generation PIC and latest generation FlexCoherent DSP (the combination of which we market as “ICE4”).
As part of the Acquisition, we expanded our high-speed optical transport portfolio with 600 Gb/s
transmission capabilities powered by our CloudWave T technology, which enabled us to expand the high-speed
transmission applications we can address.
Our products are designed to be managed by a suite of software solutions that enable end-to-end
common network management, multi-layer service orchestration, and automated operations. We also provide
software-enabled programmability that offers differentiated capabilities such as Instant Bandwidth. Combined
with our differentiated hardware solutions, Instant Bandwidth enables our customers to purchase and activate
bandwidth as needed through our unique software licensing feature set. This, in turn, allows our customers to
accomplish two key objectives: (1) limit their initial network startup costs and investments; and (2) instantly
activate new bandwidth as their customers’ and their own network needs evolve.
We believe our end-to-end portfolio of solutions benefits our customers by providing a unique
combination of highly scalable capacity and features that address various applications and ultimately simplify and
automate packet-optical network operations.
Financial and Business Highlights
Total revenue was $1,298.9 million in 2019 as compared to $943.4 million in 2018, a 38% increase. The
key driver of this increase was the addition of Coriant for the full fiscal year of 2019. In 2019, we benefitted from
the addition of the Coriant portfolio and customer base and enjoyed continued traction from our ICE4 products.
Also supporting revenue growth in 2019 was an uptick in spending from a large ICP customer, particularly in the
second half of the year. In 2020, we see several prospective opportunities to grow revenue whether by
expanding relationships at existing customers or winning new customers by continuing to drive adoption of our
products. Our results will depend on overall market conditions and, as is typical, quarter-over-quarter revenue
could be volatile, affected by customer buying patterns, supply chain disruptions and the timing of customer
network deployments.
Gross margin declined to 25% in 2019 from 34% in 2018. This decline was largely the result of lower
margins from the acquired Coriant business, general product and customer mix, increased integration costs and
increased amortization of intangible assets. Over the course of 2019, gross margins steadily increased, driven by
improved pricing discipline on products acquired in the Acquisition and reductions of our fixed cost structure,
which included headcount reductions and out-sourcing of certain service and manufacturing capabilities. In
42
addition, increased revenue in the second half of 2019, coupled with our improved cost structure helped to drive
higher gross margins in the second half of 2019. In 2020, we intend to continue to make improvements to our
fixed cost structure and continue to drive pricing discipline. With our ICE6 platform expected in the second half of
2020, we intend to expand our vertical integration capabilities across more of our product portfolio, which we
expect will lower our cost structure and drive continued margin improvement over time.
Operating expenses in 2019 grew to $676.2 million from $506.8 million, a 33% increase. This increase
was primarily due to the Acquisition and higher costs associated with our integration and restructuring efforts in
2019. Over the course of 2019, operating expenses as a percentage of revenue dropped significantly as we
started to benefit from synergies related to reducing headcount, combining systems and decreasing our real
estate footprint. In 2020, we intend to continue to optimize our cost structure, balancing the need to manage
costs with investing sufficiently in technology innovation and operations.
One customer accounted for approximately 13% of our revenue in each of 2019 and 2018. This same
customer completed a merger with another customer in 2017, and these two customers accounted for
approximately 6% and 12% of our revenue in 2017, respectively. One other customer accounted for
approximately 15% of our revenue in 2018. No other customers accounted for over 10% of our revenue in 2019,
2018 or 2017.
We primarily sell our products through our direct sales force, with the remainder sold indirectly through
channel partners. We derived 79%, 89% and 94% of our revenue from direct sales to customers in 2019, 2018
and 2017, respectively. We expect to continue generating the substantial majority of our revenue from direct
sales in the future.
We are headquartered in Sunnyvale, California, with employees located throughout North America,
LATAM, EMEA and APAC (including China).
Results of Operations
The results of operations for 2019 reflect the inclusion of the Coriant business, which was acquired on
October 1, 2018, for the full fiscal year. The following sets forth, for the periods presented, certain consolidated
statements of operations information (in thousands, except percentages):
Years Ended
December 28,
2019
% of total
revenue
December 29,
2018
% of total
revenue
Change
% Change
Revenue:
Product
Services
$ 1,011,488
78% $
763,555
81% $ 247,933
287,377
22%
179,824
19%
107,553
Total revenue
$ 1,298,865
100% $
943,379
100% $ 355,486
Cost of revenue:
Product
Services
Amortization of
intangible assets
Acquisition and
integration costs
Restructuring and
related
Total cost of
revenue
Gross profit
*NMF - not meaningful
$
735,059
57% $
517,765
55% $ 217,294
146,916
11%
78,353
23,475
8%
2%
68,563
9,108
32,583
28,449
29,935
3%
2%
2%
—
—%
28,449
NMF *
2,630
—%
27,305
1,038%
$
$
972,942
325,923
75% $
622,223
66% $ 350,719
25.0% $
321,156
34.0% $
4,767
56%
1%
43
32%
60%
38%
42%
88%
39%
Years Ended
December 29,
2018
% of total
revenue
December 30,
2017
% of total
revenue
Change
% Change
$
$
$
763,555
179,824
943,379
517,765
78,353
23,475
—
2,630
81% $
610,535
82% $ 153,020
19%
130,204
18%
49,620
100% $
740,739
100% $ 202,640
55% $
406,644
55% $ 111,121
8%
2%
—%
—%
50,480
20,474
—
7%
3%
—%
27,873
3,001
—
NMF*
19,141
3%
(16,511)
(86)%
25 %
38 %
27 %
27 %
55 %
15 %
$
$
622,223
321,156
66% $
496,739
67% $ 125,484
34.0% $
244,000
32.9% $ 77,156
25 %
32 %
Revenue:
Product
Services
Total revenue
Cost of revenue:
Product
Services
Amortization of
intangible assets
Acquisition and
integration costs
Restructuring and
related
Total cost of
revenue
Gross profit
*NMF - not meaningful
Revenue
2019 Compared to 2018. Product revenue increased by $247.9 million, or 32%, in 2019 from 2018,
primarily attributable to the inclusion of Coriant’s revenue for all of 2019 as compared to only the fourth quarter of
2018. Revenue growth was also driven by strong year over year growth from a large ICP, a large domestic Tier 1
and a large Tier 1 in Europe. Overall growth was partially offset by a decline from our largest cable customer,
compared to a very strong 2018.
Services revenue increased by $107.6 million, or 60%, in 2019 from 2018, primarily attributable to the
inclusion of Coriant's services revenue for all of 2019 as compared to only the fourth quarter of 2018. Services
revenue was slightly offset by lower revenue from our largest cable customer.
2018 Compared to 2017. Product revenue increased by $153.0 million, or 25%, in 2018 from 2017,
primarily attributable to the inclusion of Coriant’s revenue for the fourth quarter of 2018, increased demand for
our next-generation ICE4 products and strong spending from our largest cable customer. In 2018, we
experienced growth from all of our major customer verticals: Tier-1s, ICPs and cable. Additionally, our product
revenue benefited by $10.7 million from the adoption of Topic 606 during 2018.
Services revenue increased by $49.6 million, or 38%, in 2018 from 2017, primarily attributable to the
inclusion of Coriant's services revenue for the fourth quarter of 2018, and partially offset by the negative impact
of $3.9 million from the adoption of Topic 606 during 2018. In 2018, we continued to experience growth in on-
going maintenance services due to our growing installed base in customer networks.
We currently expect that revenue in the first quarter of 2020 will decline relative to the fourth quarter of
2019. The first quarter in our industry tends to be negatively impacted by seasonality as it takes time for
customers to finalize their annual plans for capital expenditures. Revenue could potentially be further impacted in
particular due to the uncertainty surrounding the evolving coronavirus situation.
Revenue by geographic region is based on the shipping address of the customer. The following table
summarizes our revenue by geography and sales channel for the periods presented (in thousands, except
percentages):
44
Total revenue by geography
Domestic
International
Total revenue by sales channel
Direct
Indirect
Years Ended
December 28,
2019
% of total
revenue
December 29,
2018
% of total
revenue
Change
% Change
$
628,075
48% $
476,784
51% $ 151,291
670,790
52%
466,595
49% 204,195
$ 1,298,865
100% $
943,379
100% $ 355,486
$ 1,032,527
79% $
838,931
89% $ 193,596
266,338
21%
104,448
11% 161,890
$ 1,298,865
100% $
943,379
100% $ 355,486
32%
44%
38%
23%
155%
38%
Years Ended
December 29,
2018
% of total
revenue
December 30,
2017
% of total
revenue
Change
% Change
Total revenue by geography
Domestic
International
Total revenue by sales channel
Direct
Indirect
$
$
$
$
476,784
466,595
943,379
838,931
104,448
943,379
51% $
428,592
58% $ 48,192
49%
312,147
42% 154,448
100% $
740,739
100% $ 202,640
89% $
693,472
94% $ 145,459
11%
47,267
6%
57,181
100% $
740,739
100% $ 202,640
11%
49%
27%
21%
121%
27%
2019 Compared to 2018. Domestic revenue increased by $151.3 million, or 32%, in 2019 compared to
2018, primarily attributable to the inclusion of Coriant’s revenue for all of 2019 as compared to only the fourth
quarter of 2018. In 2019 we saw a significant increase in spending from a large ICP, which has adopted our
Groove platform, and a large Tier 1, which has been a long-term customer. Growth was partially offset by lower
spending from cable operators in 2019, compared to a very strong 2018.
International revenue increased by $204.2 million, or 44%, in 2019 compared to 2018, primarily
attributable to the inclusion of Coriant’s revenue for all of 2019 as compared to only the fourth quarter of 2018.
Additionally, we also benefited from increased ICE4 sales to a large European Tier 1.
2018 Compared to 2017. Domestic revenue increased by $48.2 million, or 11%, in 2018 compared to
2017, primarily due to a significant increase in spending from cable operators for the first half of 2018, success
with our ICE4 platform and the inclusion of Coriant's revenue since the Acquisition.
International revenue increased by $154.4 million, or 49%, in 2018 compared to 2017, primarily due to
the inclusion of Coriant's revenue. Additionally, we also benefited from increased ICE4 sales and U.S.-based
ICPs network deployments in both EMEA and APAC regions.
Cost of Revenue and Gross Margin
2019 Compared to 2018. Gross margin decreased to 25% in 2019 from 34% in 2018. This decline was
primarily due to the mix of products acquired from the Acquisition, as Coriant products historically had a lower
margin. As the time of the Acquisition, Coriant carried a higher cost structure largely due to not being vertically
integrated. Integration and restructuring expenses also contributed to the gross margin decline. Over the course
of 2019, we were able to improve margins by improving pricing discipline and executing on our integration
strategy of lowering our cost structure by reducing headcount and transitioning costs to lower cost regions and
variable cost models.
45
2018 Compared to 2017. Gross margin increased to 34% in 2018 from 32.9% in 2017. This
improvement was primarily attributable to benefits of our vertically-integrated operating model, driven by higher
revenue spread across our largely fixed cost structure and improved cost structure of our new ICE4 technology
due to the increased levels of integration. Additionally, in 2018, we incurred substantially less costs related to
bridging customers to our new ICE4 technology and from initially higher costs of early production units from our
new ICE4 products. The increased gross margin in 2018 was offset by lower margins from the Coriant business
and increased amortization of intangible assets.
In any given quarter, gross margins can fluctuate based on a number of factors, including the mix of
footprint versus fill, product mix, customer mix and overall volume.
We currently expect that gross margin in the first quarter of 2020 will decline slightly versus the fourth
quarter of 2019 largely due to customer and product mix, and lower revenue expectations relative to our fixed
cost structure for costs of goods sold. We intend to continue to take steps to lower our cost structure, and thus
improve gross margin, over the course of 2020.
Amortization of Intangible Assets
2019 Compared to 2018. Amortization of intangible assets increased by $9.1 million in 2019 from 2018
primarily due to a full year of amortization expense on intangible assets acquired from Coriant.
2018 Compared to 2017. Amortization of intangible assets increased by $3.0 million in 2018 from 2017
as a result of the Acquisition.
Acquisition and Integration Costs
2019 Compared to 2018. Acquisition and integration costs increased by $28.4 million in 2019 from 2018
as a result of the Acquisition. Costs in 2019 were predominantly integration related, which included the transition
of our Berlin manufacturing activities to a contract manufacturer, start-up costs around a new European
distribution center, and contractors and employees focused on integration-specific activities.
See Note 7, “Business Combination” to the Notes to Consolidated Financial Statements for more
information on the Acquisition.
Restructuring and Related
2019 Compared to 2018. In 2019, within cost of revenue, we incurred $29.9 million in restructuring and
other related costs, including $26.6 million of severance and related costs and $2.2 million of asset impairment
charges and $1.2 million of impaired facilities charges. These charges were primarily associated with the closure
of our Berlin, Germany site and the reduction of headcount at our Munich, Germany site.
2018 Compared to 2017. In 2018, within cost of revenue, we incurred $2.6 million in restructuring and
other related costs and it includes all of severance-related costs.
See Note 10, “Restructuring and Other Related Costs” to the Notes to Consolidated Financial
Statements for more information on our restructuring plans.
46
18 %
22 %
56 %
172 %
226 %
33 %
9 %
13 %
15 %
NMF*
(22)%
19 %
Operating Expenses
The following table summarizes our operating expenses for the periods presented (in thousands, except
percentages):
Years Ended
December 28,
2019
% of total
revenue
December 29,
2018
% of total
revenue
Change
% Change
Research and development
$
287,977
22% $
244,302
26% $ 43,675
Sales and marketing
General and administrative
Amortization of intangible
assets
Acquisition and integration
costs
Restructuring and related
151,423
126,351
27,280
42,271
40,851
12%
10%
2%
3%
3%
124,238
80,957
13%
9%
27,185
45,394
29,296
3%
(2,016)
(7)%
15,530
12,512
2%
1%
26,741
28,339
Total operating expenses
$
676,153
52% $
506,835
54% $ 169,318
Years Ended
December 29,
2018
% of total
revenue
December 30,
2017
% of total
revenue
Change
% Change
Research and development
$
244,302
26% $
224,368
30% $ 19,934
Sales and marketing
General and administrative
Amortization of intangible
assets
Acquisition and integration
costs
Restructuring and related
124,238
80,957
29,296
15,530
12,512
13%
9%
3%
2%
1%
109,511
70,620
15%
10%
14,727
10,337
6,160
1%
23,136
NMF*
322
16,106
—%
2%
15,208
(3,594)
Total operating expenses
$
506,835
54% $
427,087
58% $ 79,748
*NMF - not meaningful
The following table summarizes the stock-based compensation expense included in our operating
expenses for the periods presented (in thousands):
Research and development
Sales and marketing
General and administration
Total
Years Ended
December 28,
2019
December 29,
2018
December 30,
2017
$
$
17,457
$
16,270
$
8,413
10,460
10,869
9,649
36,330
$
36,788
$
15,845
11,288
10,776
37,909
Research and Development Expenses
2019 Compared to 2018. Research and development expenses increased by $43.7 million, or 18%, in
2019 from 2018, primarily due to increased headcount as a result of the Acquisition. Over the course of 2019,
R&D expenses grew at a slower rate than revenue, largely due to reducing headcount and lower spending in
equipment and materials as we started to benefit from company-wide cost reduction and integration efforts.
47
2018 Compared to 2017. Research and development expenses increased by $19.9 million, or 9%, in
2018 from 2017, primarily due to increased headcount as a result of the Acquisition. Excluding the additional
expenses from the Coriant business, research and development costs would have decreased due to lower
headcount costs and lower spending in equipment and materials, in conjunction with company-wide cost
reduction efforts.
Sales and Marketing Expenses
2019 Compared to 2018. Sales and marketing expenses increased by $27.2 million, or 22%, in 2019
from 2018, primarily due to the inclusion of the Coriant business and higher commission expense as a result of
higher revenue. Sales and marketing expenses grew at a slower rate than revenue due to reducing headcount
and lower demo and trial spend in conjunction with company-wide cost reduction and integration efforts.
2018 Compared to 2017. Sales and marketing expenses increased by $14.7 million, or 13%, in 2018
from 2017, primarily due to the inclusion of the Coriant business and an increase in recruiting and relocation
expenses. Excluding the additional expenses from the Coriant business, sales expenses would have been
slightly higher due to increased commissions expenses relative to revenue growth in 2018. Marketing expenses
would have been a slight decrease as a result of a reduction in personnel-related costs due to reduced
headcount and lower program spend in conjunction with company-wide cost reduction efforts.
General and Administrative Expenses
2019 Compared to 2018. General and administrative expenses increased by $45.4 million, or 56%, in
2019 from 2018, primarily due to the inclusion of headcount associated expenses from the Coriant business and
higher outside professional services. General and administrative expenses grew faster than revenue to ensure
we had sufficient infrastructure and operations to support the larger company.
2018 Compared to 2017. General and administrative expenses increased by $10.3 million, or 15%, in
2018 from 2017, primarily due to the inclusion of the Coriant business offset by a decrease in personnel-related
costs due to lower headcount attributable to company-wide cost reduction efforts.
Amortization of Intangible Assets
2019 Compared to 2018. Amortization of intangible assets decreased by $2.0 million in 2019 from 2018,
primarily due to higher amortization of backlog in 2018 compared to 2019 offset by higher amortization of
customer relationship intangible assets in 2019 as a result of the Acquisition.
2018 Compared to 2017. Amortization of intangible assets increased by $23.1 million in 2018 from 2017
as a result of the Acquisition.
Acquisition and Integration Costs
2019 Compared to 2018. Acquisition and integration costs increased by $26.7 million in 2019 from 2018
as a result of the Acquisition. Costs in 2019 were predominantly integration-related including the convergence of
three ERP systems into one new corporate ERP system, other systems-related integration activities, and costs
related to contractors and headcount focused on integration-specific activities.
See Note 7, “Business Combination” to the Notes to Consolidated Financial Statements for more
information on the Acquisition.
2018 Compared to 2017. Acquisition and integration costs increased by $15.2 million in 2018 from 2017
as a result of the Acquisition. Acquisition and integration costs consist of legal, financial, employee-related costs
and other professional fees.
Restructuring and Related
2019 Compared to 2018. In 2019, within operating expenses, we incurred $40.9 million in restructuring
and other related costs, including $25.3 million of severance and related costs and $14.7 million of impaired
facilities charges. These charges were primarily associated with the closure of our Berlin, Germany site, the
reduction of headcount at our Munich, Germany site and impairment of a facility in Naperville, Illinois.
48
2018 Compared to 2017. In 2018, within operating expenses, we incurred $12.5 million in restructuring
and other related costs, including $10.4 million of severance and related costs and $2.6 million of an impairment
for a software license, offset by a credit of $0.5 million to adjust the sublease of impaired facilities. We expect to
complete the majority of the actions related to the 2018 Restructuring Plan by the end of 2019.
See Note 10, “Restructuring and Other Related Costs” to the Notes to Consolidated Financial
Statements for more information on our restructuring plans.
Other Income (Expense), Net
Interest income
Interest expense
Other gain (loss), net
Total other income (expense), net
December 28,
2019
December 29,
2018
December 30,
2017
(In thousands)
$
$
1,139
$
2,428
$
3,328
(31,657)
(2,907)
(22,049)
(9,650)
(14,017)
(2,160)
(33,425) $
(29,271) $
(12,849)
2019 Compared to 2018. Interest income decreased $1.3 million in 2019 from 2018, primarily due to a
lower average investment balance during the year. Interest expense for 2019 increased by $9.6 million due to
$18.6 million of additional interest and amortization related to the 2024 Notes issued in September 2018, $0.3
million of interest on cash collateral obtained in March 2019, $0.5 million of interest on a financing assistance
arrangement obtained in May 2019, $1.1 million of interest and other related charges related to the Credit Facility
(as defined under “Liquidity and Capital Resources-Liquidity” below) obtained in August 2019, and $1.7 million of
other interest charges. The increase to interest expense was offset by a reduction of $6.5 million related to
financing lease obligations, which we assumed in connection with the Acquisition and were reclassified in 2019
on adoption of the new leasing standard, and $6.2 million interest on 2018 Notes that matured in 2018. Other
gain (loss), net, primarily consisted of a $3.7 million loss primarily related to foreign exchange related
transactions and a $1.1 million gain on the sale of non-marketable equity investments.
2018 Compared to 2017. Interest income decreased $0.9 million in 2018 from 2017, primarily due to a
lower average investment balance, partially offset by a higher return on investments. Interest expense for 2018
increased $8.0 million due to $6.6 million related to financing lease obligations, which we assumed in connection
with the Acquisition, $0.5 million of interest accrual on cash collateral from a third-party institution and $0.9
million of higher amortization related to the 2024 Notes. Other gain (loss), net, primarily consisted of a $5.1
million impairment charge related to our non-marketable equity investment, $3.0 million loss primarily related to
foreign exchange related transactions and a $2.5 million acquisition funding commitment fee related to the
Acquisition. This was offset by a $1.1 million gain on the sale of non-marketable equity investments.
Provision for/(Benefit From) Income Taxes
We recognized an income tax expense of $(3.0) million on a loss before income taxes of $383.7 million,
an income tax benefit of $0.7 million on a loss before income taxes of $215.0 million, and an income tax benefit
of $1.4 million on a loss before income taxes of $195.9 million in 2019, 2018 and 2017, respectively. The
resulting effective tax rates were (0.8)%, 0.3% and 0.7% for 2019, 2018 and 2017, respectively. The 2019 and
2018 effective tax rates differ from the expected statutory rate of 21% based on our ability to benefit from our
U.S. loss carryforwards, offset by state income taxes, non-deductible stock-based compensation expenses and
foreign taxes provided on foreign subsidiary earnings. The increase in 2019 income tax provision compared to
2018 is due to additional foreign earnings from the Acquisition. The lower 2018 income tax benefit compared to
2017 primarily relates to lower corporate income tax rate due to the Tax Act and lower stock-based
compensations as a result of the Acquisition.
Because of our U.S. operating loss in 2019, significant loss carryforward position, and corresponding
valuation allowance in all years, we have not been subject to federal or state tax on our U.S. income because of
the availability of loss carryforwards. 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
49
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.
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.
Liquidity and Capital Resources
Net cash flow provided by (used in):
Operating activities
Investing activities
Financing activities
Cash and cash equivalents
Investments
Restricted cash
Years Ended
December 28,
2019
December 29,
2018
December 30,
2017
(In thousands)
$
$
$
(167,350) $
(99,083) $
(12,609) $
12,624
71,910
$
207,889
$
$
(21,925)
(54,849)
16,486
Years Ended
December 28,
2019
December 29,
2018
(In thousands)
109,201
$
202,954
—
23,596
26,511
39,383
132,797
$
268,848
$
$
All short term and long term investments were liquidated as of December 28, 2019. Cash and cash
equivalents and short term investments as of December 28, 2018 consisted of highly-liquid investments in
certificates of deposits, money market funds, commercial paper, U.S. agency notes, corporate bonds and U.S.
treasuries. Our restricted cash balance amounts are primarily pledged as collateral for certain standby letters of
credit related to customer performance guarantees, value added tax licenses and property leases. Additionally,
our restricted cash balance as of December 29, 2018 also included funds in escrow related to the cash
consideration associated with the Acquisition.
Operating Activities
Net cash used in operating activities was $167.4 million for 2019, as compared to net cash used in
operating activities of $99.1 million for 2018 and net cash used in operating activities of $21.9 million for 2017.
Net loss for 2019 was $386.6 million, which included non-cash charges of $227.5 million, compared to a
net loss for 2018 of $214.3 million, which included non-cash charges of $172.4 million. Net loss for 2017 was
$194.5 million, which included non-cash charges of $154.9 million. Net cash used in working capital was $8.3
million for 2019. Accounts receivables increased by $35.4 million attributable to higher revenue levels during
2019 and the timing of invoicing and collections. Inventory levels increased by $42.8 million to address strong
customer demand for our ICE4 products, and additional inventory to support our manufacturing transition and
integration efforts. Prepaid and other assets increased by $93.6 million primarily due to timing of tax payments,
and increase in customer contract assets. Accounts payable increased by $83.3 million primarily to support
integration initiatives and the increase in inventory. Accrued liabilities and other expenses increased by $54.7
million primarily due to increased compensation-related expenses and timing of tax payments. Deferred revenue
50
increased by $25.7 million due to maintenance renewals on our growing installed base, which are typically
contracted on an annual or multi-year basis.
Net cash used in working capital was $57.2 million for 2018. Accounts receivables increased by $21.1
million attributable to higher revenue levels during 2018 and timing of invoicing and collections. Inventory levels
increased by $8.6 million to address strong customer demand for our next-generation ICE4 products, while
inventory levels of our prior generation products decreased. Accounts payable decreased by $0.5 million
primarily due to the timing of payments and inventory purchases. Accrued liabilities and other expenses
decreased by $21.5 million primarily due to reduced levels of compensation-related accruals. Additionally, this
decrease was attributable to the reduction of customer right of returns, net of an increase in customer
prepayments due to our adoption of Topic 606. Deferred revenue increased by $8.0 million due to maintenance
renewals on our growing installed base, which are typically contracted on an annual or multi-year basis, net of
adjustments related to our adoption of Topic 606.
Net cash provided by working capital was $17.6 million for 2017. Accounts receivables decreased by
$25.8 million attributable to lower revenue levels during 2017. Inventory levels decreased by $2.7 million
reflecting inventory reduction and product rationalization efforts. Accounts payable decreased by $4.8 million
primarily due to reduced inventory purchases and timing of payments. Accrued liabilities and other expenses
decreased $14.4 million primarily due to reduced levels of compensation-related accruals and decreased
accrued warranty primarily due to changes in estimated repair and replacement costs, along with improved
failure rates. Deferred revenue increased $16.4 million attributable to commercial arrangements with customers
to transition to new products and continued growth in on-going support services for our installed base, which are
typically contracted on an annual or multi-year basis.
Investing Activities
Net cash used in investing activities for 2019 was $12.6 million. Investing activities during 2019 included
the net escrow payment of $10.0 million in connection with the Acquisition, and net proceeds of $26.6 million
associated with sales, maturities and purchases of investments during the year. In addition, we spent $30.2
million on capital expenditures and received additional proceeds on the sale of our non-marketable equity
investments of $1.0 million.
Net cash provided by investing activities for 2018 was $12.6 million. Investing activities during 2018
included the net payment of $102.9 million in connection with the Acquisition, and net proceeds of $152.2 million
associated with sales, maturities and purchases of investments during the year. In addition, we spent $37.7
million on capital expenditures and received additional proceeds on the sale of our non-marketable equity
investments of $1.1 million.
Net cash used in investing activities for 2017 was $54.8 million, including $58.0 million of capital
expenditures, of which $12.4 million was due to our purchase of our module manufacturing facility in
Pennsylvania in May 2017. Partially offsetting those spend activities were net proceeds of $3.2 million associated
with purchases, sales, maturities and calls of investments during the year.
Financing Activities
Net cash provided by financing activities was $71.9 million and $207.9 million for 2019 and 2018,
respectively, and net cash provided by financing activities was $16.5 million for 2017. Financing activities in 2019
included proceeds of $8.6 million from issuance of debt associated with mortgaging one of our facilities, $48.1
million from a new revolving line of credit obtained in August 2019 and subsequently amended in December
2019 (as described under “Liquidity and Capital Resources-Liquidity” below) and $24.3 million under a financing
assistance arrangement with third-party contract manufacturer. Financing activities during 2019 also included
$20.0 million for the repayment of the revolving line of credit. The period also included net proceeds from the
issuance of shares under our 2007 Employee Stock Purchase Plan (the “ESPP”) and the exercise of stock
options. These proceeds were offset by the minimum tax withholdings paid on behalf of certain employees for net
share settlements of restricted stock units (“RSUs”).
Net cash provided by financing activities was $207.9 million and $16.5 million for 2018 and 2017,
respectively. Financing activities in 2018 included proceeds from the issuance of the 2024 Notes of $391.4
million, offset by the payment for capped call transactions related to the 2024 Notes of $48.9 million. Financing
activities during 2018 also included $150.0 million for the repayment of the 2018 Notes, which matured on June
1, 2018. Additionally, we made principal payments on capital lease obligations of $1.2 million during the period.
The period also included net proceeds from the issuance of shares under the ESPP and the exercise of stock
51
options. These proceeds were offset by the minimum tax withholdings paid on behalf of certain employees for net
share settlements of restricted stock units RSUs.
Financing activities in 2017 included $18.0 million in net proceeds from the issuance of shares under
our ESPP and the exercise of stock options. Proceeds were offset by the minimum tax withholdings paid on
behalf of certain employees for net share settlements of RSUs. Additionally, during 2017, in association with the
compulsory acquisition proceedings in accordance with Swedish law, we paid $0.5 million to the minority
shareholders of Transmode based on the final determination of the arbitration tribunal.
Liquidity
We believe that our current cash, cash equivalents, along with the Credit Facility (as defined and
described below) we entered into with Wells Fargo Bank, National Association, and BMO Harris Bank N.A. will
be sufficient to meet our anticipated cash needs for working capital and capital expenditures, payments under
the financing assistance arrangement with third-party contract manufacturer, and the interest payments on the
2024 Notes and Credit Facility for at least 12 months. If these sources of cash are insufficient to satisfy our
liquidity requirements, we may require additional capital from equity or debt financings to fund our operations, to
respond to competitive pressures or strategic opportunities, or otherwise. In addition, we are continuously
evaluating alternatives for efficiently funding our capital expenditures and ongoing operations. We may, from time
to time engage in a variety of financing transactions for such purposes. We may not be able to secure timely
additional financing on favorable terms, or at all. The terms of any additional financings may place limits on our
financial and operating flexibility. If we raise additional funds through further issuances of equity or equity-linked
securities, 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.
On August 1, 2019, we entered into a Credit Agreement (the "Credit Agreement") with Wells Fargo
Bank. The Credit Agreement provides for a senior secured asset-based revolving credit facility of up to $100
million (the "Credit Facility"), which we may draw upon from time to time. We may increase the total
commitments under the Credit Facility by up to an additional $50 million, subject to certain conditions. The Credit
Agreement provides for a $50 million letter of credit sub-facility and a $10 million swing loan sub-facility.
On December 23, 2019, we exercised our option to increase the total commitments under the Credit
Facility and entered into an Increase Joinder and Amendment Number One to Credit Agreement (the
“Amendment”), with BMO Harris Bank N.A. and Wells Fargo Bank, as administrative agent. The amendment
increased the total commitments under the Credit Facility to $150 million.
The proceeds of the loans under the Credit Agreement, as amended by the Amendment (the “Amended
Credit Agreement”) may be used to pay the fees, costs and expenses incurred in connection with the Amended
Credit Agreement and for working capital and general corporate purposes. The Credit Facility matures, and all
outstanding loans become due and payable, on March 5, 2024. Availability under the Credit Facility is based
upon periodic borrowing base certifications valuing certain inventory and accounts receivable, as reduced by
certain reserves. The Credit Facility is secured by first-priority security interest (subject to certain exceptions) in
inventory, certain related assets, specified deposit accounts, and certain other accounts in certain domestic
subsidiaries.
Loans under the Amended Credit Agreement bear interest, at our option, at either a rate based on the
London Interbank Offered Rate (“LIBOR”) for the applicable interest period or a base rate, in each case plus a
margin. The margin ranges from 2.00% to 2.50% for LIBOR rate loans and 1.00% to 1.50% for base rate loans,
depending on the utilization of the Credit Facility. The commitment fee payable on the unused portion of the
Credit Facility ranges from 0.375% to 0.625% per annum, also based on the current utilization of the Credit
Facility. Letters of credit issued pursuant to the Credit Facility will accrue a fee at a per annum rate equal to the
applicable LIBOR rate margin times the average amount of the letter of credit usage during the immediately
preceding quarter in addition to the fronting fees, commissions and other fees.
As of December 28, 2019, we have outstanding borrowings of $30 million due in March 2024 and
related interest due monthly. For more information regarding the Credit Facility, see Note 13, “Debt” to the Notes
to Consolidated Financial Statements.
In September 2018, we issued the 2024 Notes, which will mature on September 1, 2024, unless earlier
repurchased, redeemed or converted. Interest is payable semi-annually in arrears on March 1 and September 1
of each year, which commenced on March 1, 2019. The net proceeds from the 2024 Notes issuance were
approximately $391.4 million, of which approximately $48.9 million was used to pay the cost of the capped call
52
transactions. We also used a portion of the remaining net proceeds to fund the cash portion of the purchase
price of the Acquisition, including fees and expenses relating thereto, and intend to use the remaining net
proceeds for general corporate purposes.
Upon conversion, it is our intention to pay cash equal to the lesser of the aggregate principal amount or
the conversion value of the 2024 Notes. For any remaining conversion obligation, we intend to 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 28, 2019, long-term debt, net, was $285.7 million, which represents the liability
component of the $402.5 million principal balance, net of $116.8 million of unamortized debt discount and debt
issuance costs. The debt discount and debt issuance costs are currently being amortized over the remaining
term until maturity of the 2024 Notes on September 1, 2024. To the extent that the holders of the 2024 Notes
request conversion during an early conversion window, we may require funds for repayment of such 2024 Notes
prior to their maturity date.
As of December 28, 2019, contractual obligations related to the 2024 Notes are payments of $8.6
million due each year from 2020 through 2023 and $411.1 million due in 2024. These amounts represent
principal and interest cash payments over the term of the 2024 Notes. Any future redemption or conversion of the
Notes could impact the amount or timing of our cash payments. For more information regarding the 2024 Notes,
see Note 13, “Debt” to the Notes to Consolidated Financial Statements.
As of December 28, 2019, we had $109.2 million of cash, cash equivalents including $68.7 million of
cash and cash equivalents held by our foreign subsidiaries. Our policy with respect to undistributed foreign
subsidiaries' earnings is to consider those earnings to be indefinitely reinvested. As a result of the Tax Act, if and
when funds are actually distributed in the form of dividends or otherwise, we expect minimal tax consequences,
except for foreign withholding taxes, which would be applicable in some jurisdictions.
Contractual Obligations
The following is a summary of our contractual obligations as of December 28, 2019:
Purchase obligations(1)
Operating leases(2)
Convertible senior notes, including interest
Financing lease obligations(3)
Asset backed loan
Financing assistance agreement, including
interest
Mortgage Payable, including interest
Total contractual obligations(4)(5)
Payments Due by Period
Total
Less than
1 year
1 - 3
years
3 - 5
years
More than
5 years
$ 258,177
$ 255,427
$
2,707
$
43
$
—
(In thousands)
22,420
36,124
117,014
445,265
4,109
30,525
31,809
24,717
8,553
1,563
525
31,809
33,753
17,106
2,140
—
—
419,606
406
30,000
—
10,090
841
1,683
7,566
$ 896,989
$ 323,435
$
57,389
$ 480,041
$
36,124
—
—
—
—
—
(1)
(2)
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 that range from
one to 11 years, and contain leasehold improvement incentives, rent holidays and escalation clauses. 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 11 years. See Note 14, "Commitments and Contingencies" to the Notes to Consolidated
Financial Statements for more information.
53
(3)
(4)
(5)
We have two finance leases for manufacturing and other equipment. The financing lease assets will continue to be
amortized and payments due will be made over the lease terms, which range from 3 to 5 years. See Note 9, "Balance
Sheet Details" to the Notes to Consolidated Financial Statements for more information.
Tax liabilities of $4.1 million related to uncertain tax positions are not included in the table because we cannot reliably
estimate the timing and amount of future payments, if any.
In 2020, we expect to make contributions of $3.5 million to cover benefit payments to plan participants. Expected future
payments to our pension and post-employment plan are excluded from the contractual obligation table because they do
not represent contractual cash outflow as they are dependent on various factors. See Note 19, "Employee Benefit and
Pension Plans" to the Notes to Consolidated Financial Statements for more information.
We had $27.9 million of standby letters of credit and bank guarantees outstanding as of December 28,
2019. These consisted of $14.2 million related to customer performance guarantees, $5.9 million related to
property leases, $6.8 million related to Coriant pre-acquisition restructuring plans, $0.4 million of value-added tax
and customs' licenses, $0.5 million related to credit cards and $0.1 million for other liabilities. Of the
aforementioned standby letters of credit and bank guarantees outstanding, $4.1 million was backed by cash
collateral from a third-party institution, and the Company accrues 2.25% annual fee and 0.13% annual fronting
fee on the average LOC balances outstanding on the cash collateral.
We had $30.0 million of standby letters of credit and bank guarantees outstanding as of December 29,
2018. These consisted of $23.4 million related to customer performance guarantees, $2.9 million related to
property leases, $1.8 million related to Coriant pre-acquisition restructuring plans, $1.4 million of value-added tax
and customs' licenses and $0.5 million related to credit cards. Of the aforementioned standby letters of credit and
bank guarantees outstanding, $13.4 million was backed by cash collateral from a third-party institution, and we
accrued 5% annual interest on the outstanding cash collateral.
Off-Balance Sheet Arrangements
As of December 28, 2019, 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.
See Note 2, “Significant Accounting Policies” to the Notes to Consolidated Financial Statements, which is
included in Part II, Item 8 of this Annual Report on Form 10-K. Financial Statements and Supplementary Data,
which describes our significant accounting policies and methods used in preparation of our consolidated financial
statements. 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.
We believe our critical accounting policies and estimates are those related to revenue recognition,
stock-based compensation, employee benefit and pension plans, accounting for income taxes, inventory
valuation, accrued warranty, business combination, amortization of intangible assets, and impairment of
intangibles and goodwill. Management considers these policies critical because they are both important to the
portrayal of our financial condition and results of operations, and they require management to make judgments
and estimates about inherently uncertain matters.
54
Revenue Recognition
Effective December 31, 2017, we adopted Topic 606, using the modified retrospective method applied
to those contracts that were not completed as of December 31, 2017. Results for the reporting periods after
December 31, 2017 are presented under Topic 606, while prior period amounts are not adjusted and continue to
be reported in accordance with our historical accounting under Topic 605.
We recognize revenue when control of the promised goods or services is transferred to our customers,
in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition by applying the following five-step approach:
•
•
•
•
•
identification of the contract, or contracts, with a customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when, or as, we satisfy a performance obligation.
Many of our product sales are sold in combination with installation and deployment services along with
initial hardware and software support. Our product sales are also sold at times with spares management, on-site
hardware replacement services, network operations management, software subscription services, extended
hardware warranty and training. Initial software and hardware support services are generally delivered over a
one-year period in connection with the initial purchase. Software warranty provides customers with maintenance
releases during the warranty support period and hardware warranty provides replacement or repair of equipment
that fails to perform in line with specifications. Software subscription services include 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. Network operations management
includes the day-to-day operation of a customer's network. These services are generally delivered on an annual
basis. We evaluate each promised good and service in a contract to determine whether it represents a distinct
performance obligation or should be accounted for as a combined performance obligation.
Services revenue includes software subscription services, installation and deployment services, spares
management, on-site hardware replacement services, network operations management, extended hardware
warranty and training. Revenue from software subscription services, spares management, on-site hardware
replacement services, network operations management and extended hardware warranty contracts is deferred
and is recognized ratably over the contractual support period, which is generally one year, as services are
provided over the course of the entire period. Revenue related to training and installation and deployment
services is recognized upon completion of the services.
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. We typically satisfy our performance obligations upon shipment or delivery of
product depending on the contractual terms. Payment terms to customers generally range from net 30 to 120
days from invoice, which are considered to be standard payment terms. We assess our ability to collect from our
customers based primarily on the creditworthiness and past payment history of the customer.
Customer product returns are generally 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
recorded as a reduction to revenue.
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.
55
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.
Customer Purchase Commitments
We sell software licenses that provide customers the ability to purchase incremental bandwidth capacity
on an already-deployed piece of hardware. Instant Bandwidth-enabled systems generally include a specific initial
capacity and incremental capacity can be added by the purchase of Instant Bandwidth licenses. Instant
Bandwidth licenses are considered distinct performance obligations because customers can provision additional
transmission capacity on demand without the deployment of any incremental equipment.
Some contracts commit the customer to purchase incremental Instant Bandwidth licenses within a
specified time frame from the initial shipment of the Instant Bandwidth-enabled hardware. The time frame varies
by customer and generally ranges between 12 to 24 months. If the customer does not purchase the additional
capacity within the time frame as stated in the contract, we have the right to deliver and invoice such Instant
Bandwidth licenses to the customer. Under Topic 605, the additional incremental licenses were not included as
an element of the initial arrangement because fees for the future purchases were not fixed. Under Topic 606,
future committed licenses are considered to be additional performance obligations when a minimum purchase
obligation is present, as evidenced by enforceable rights and obligations. As such, we are required to estimate
the variable consideration for future Instant Bandwidth licenses as part of determining the contract transaction
price.
Contract Termination Rights
The contract term is determined on the basis of the period over which the parties to the contract have
present enforceable rights and obligations. Certain customer contracts include a termination for convenience clause
that allows the customer to terminate services without penalty, upon advance notification. For such contracts, the
service duration is limited to the non-cancelable portion of the contract.
Variable Consideration
The consideration associated with customer contracts is generally fixed. Variable consideration includes
discounts, rebates, refunds, credits, incentives, penalties, or other similar items. The amount of consideration
that can vary is not a substantial portion of total consideration.
Variable consideration estimates are re-assessed at each reporting period until a final outcome is
determined. The changes to the original transaction price due to a change in estimated variable consideration will
be applied on a retrospective basis, with the adjustment recorded in the period in which the change occurs.
Stand-alone Selling Price
Stand-alone selling price is the price at which an entity would sell a good or service on a stand-alone (or
separate) basis at contract inception. Under this model, the observable price of a good or service sold separately
provides the best evidence of stand-alone selling price. However, in certain situations, stand-alone selling prices
will not be readily observable and the entity must estimate the stand-alone selling price.
When allocating on a relative stand-alone selling price basis, any discount provided in the contract is
generally allocated proportionately to all of the performance obligations in the contract.
The majority of products and services offered by us have readily observable selling prices. For products
and services that do not, we generally estimate stand-alone selling price using the market assessment approach
based on expected selling price and adjust those prices as necessary to reflect our costs and margins. As part of
our stand-alone selling price policy, we review product pricing on a periodic basis to identify any significant changes
and revise our expected stand-alone selling price assumptions as appropriate.
Capitalization of Costs to Obtain a Contract
We have assessed the treatment of costs to obtain or fulfill a contract with a customer. Sales
commissions have historically been expensed as incurred. Under Topic 606, we capitalize sales commissions
56
related to multi-year service contracts, which are paid for upfront and amortize the asset over the period of
benefit, which is the service period. Sales commissions paid on service contract renewals, are commensurate
with the sales commissions paid on the initial contracts.
Transaction Price Allocated to the Remaining Performance Obligation
Our remaining performance obligations represent the transaction price allocated to performance
obligations that are unsatisfied or partially satisfied, as of period end, consisting of deferred revenue and
backlog. Our backlog represents purchase orders received from customers for future product shipments and
services that are unsatisfied or partially satisfied as of period end. 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.
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. During the third fiscal quarter beginning on June 26, 2016, we elected to early adopt ASU
2016-09 and elected to change our accounting policy to account for forfeitures when they occur on a modified
retrospective basis.
We estimate the fair value of the rights to acquire stock under the ESPP using the Black-Scholes option
pricing formula. The ESPP provides for consecutive six-month offering periods and we use our own historical
volatility data in the valuation of shares that are purchased under the ESPP.
We account for the fair value of 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 two, three or four years.
We granted performance shares (“PSUs”) to our executive officers and senior management in 2017 and
2018. The PSUs granted during 2017 and 2018 to our executive officers and senior management are based on
total stockholder return (“TSR”) of our common stock price relative to the TSR of the individual companies listed
in the S&P North American Technology Multimedia Networking Index (SPGIIPTR) (the “S&P Networking 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 zero to two times the target number of PSUs granted depending on our performance against
the individual companies listed in the SPGIIPTR. This performance metric is classified as a market condition.
PSUs granted to our executive officers and senior management during 2019 are based on performance
criteria related to a specific financial target over the span of a three-year performance period. These PSUs may
become eligible for vesting to begin before the end of the three year performance period, if the applicable
financial target is met. The number of shares to be issued upon vesting of these PSUs is capped at the target
number of PSUs granted. We assess the achievement status of these PSUs on a quarterly basis and record the
related stock-based compensation expenses based on the estimated achievement payout.
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 a 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 the
target composite index is based on the historical and implied 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. Our expected
dividend yield is zero 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.
57
In addition, we have granted other PSUs to certain employees that only vest upon the achievement of
specific operational performance criteria. We assess the achievement status of these PSUs on a quarterly basis
and record the related stock-based compensation expenses based on the estimated achievement payout.
Employee Benefit and Pension Plans
We operate a number of post-employment plans in Germany, as well as smaller post-employment plans
in other countries, including both defined contribution and defined benefit plans. Benefit cost obligations
pertaining to these plans are based on assumptions for the discount rate, expected return on plan assets,
mortality rates, expected salary increases, health care cost trend rates and attrition rates. The discount rate
assumption is based on current investment yields of high-quality fixed-income securities with maturities similar to
the expected benefits payment period. Mortality rates help predict the expected life of plan participants. The
expected increase in the compensation levels assumption reflects our actual experience and future expectations.
The expected long-term return on plan assets is determined based on asset allocations, historical portfolio
results, historical asset correlations and management’s expected returns for each asset class. We evaluate our
expected return assumptions annually including reviewing current capital market assumptions to assess the
reasonableness of the expected long-term return on plan assets. We update the expected long-term return on
assets when we observe a sufficient level of evidence that would suggest the long-term expected return has
changed.
Accounting for Income Taxes
As part of the process of preparing our consolidated financial statements, we are required to estimate
our taxes in each of the jurisdictions in which we operate. We estimate actual current tax expense together with
assessing temporary differences resulting from different treatment of items, such as accruals and allowances not
currently deductible for tax purposes. These differences result in deferred tax assets and liabilities, which are
included in our consolidated balance sheets. In general, deferred tax assets represent future tax benefits to be
received when certain expenses previously recognized in our consolidated statements of operations become
deductible expenses under applicable income tax laws or loss, or credit carryforwards are utilized. Accordingly,
realization of our deferred tax assets is dependent on future taxable income within the respective jurisdictions
against which these deductions, losses and credits can be utilized within the applicable future periods.
We must assess the likelihood that some portion or all of our deferred tax assets will be recovered from
future taxable income within the respective jurisdictions, and to the extent we believe that recovery does not
meet the “more-likely-than-not” standard, it 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 its provision for
income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against our net
deferred tax assets. In evaluating the need for a full or partial valuation allowance, all positive and negative
evidence must be considered, including our forecast of taxable income over the applicable carryforward periods,
its current financial performance, its market environment, and other factors. Based on the available objective
evidence, at December 28, 2019, management believes it is not more likely than not that the domestic net
deferred tax assets will be realizable in the foreseeable future. Accordingly, the domestic net deferred tax assets
are subject to a full valuation allowance. To the extent that we determine that deferred tax assets are realizable
on a more likely than not basis, and an adjustment is needed, that adjustment will be recorded in the period that
the determination is made.
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 net realizable value. Costs are recognized utilizing the first-in,
first-out method. Net realizable 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 net realizable value of inventory
delivered or expected to be delivered at less than cost, primarily comprised of common equipment, had declined.
58
We concluded that, in the instances where the net realizable value of inventory 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 net realizable value, whichever is lower, thereby recognizing the cost of the reduction in net realizable value of
inventory 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 actual
cost or net realizable value.
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 contractual 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
In our contracts with our customers, we warrant that our 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 our sole option and expense. Our hardware warranty periods
generally range from one to five years from date of acceptance for hardware and our software warranty is 90
days. Upon delivery of our products, we provide for the estimated cost to repair or replace products that may be
returned under warranty. The hardware warranty accrual is based on actual estimated future returns and cost of
repair rates and the application of those estimated 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, as well as our ability to utilize used units to fulfill
warranty obligations. In the event that actual product failure rates and costs to repair differ from our 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. We regularly assess the
adequacy of our recorded warranty liabilities and adjust the amounts as necessary.
Business Combination
Accounting for acquisitions requires management to estimate the fair value of the assets and liabilities
assumed, which requires management to make significant estimates, judgments, and assumptions that could
materially affect the timing or amounts recognized in our financial statements. These assumptions and estimates
include our use of the asset and the appropriate discount rates. Our significant estimates can include, but are not
limited to, the future cash flows, the appropriate weighted cost of capital, and discount rates, as well as the
estimated useful life of intangible assets, deferred tax assets and liabilities, uncertain tax positions, and tax-
related valuation allowance, 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,
the estimates are inherently uncertain and subject to refinement. In addition, unanticipated events and
circumstances may occur that may affect the accuracy or validity of such estimates. As a result, during the
measurement period, which may be up to one year following the acquisition date, if new information is obtained
about facts and circumstances that existed as of the acquisition date, we may record adjustments to the fair
value of these assets and liabilities, 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
59
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the
identifiable assets acquired and liabilities assumed. We test for impairment of goodwill on an annual basis in the
fourth quarter and at any other time when events occur or circumstances indicate that the carrying amount of
goodwill may not be recoverable. We have the option to first assess qualitative factors to determine whether it is
necessary to perform the quantitative goodwill impairment test. If we determine that as a result of the qualitative
assessment that it is more likely than not (i.e., greater than 50% likelihood) that the fair value of a reporting unit is
less than its carrying amount, then the quantitative test is required or it can directly perform the quantitative
analysis. Beginning the first quarter of 2019, we adopted Accounting Standards Update No. 2017-04, “Simplifying
the Test for Goodwill Impairment”, which eliminated Step 2 of the goodwill impairment test, which requires a
hypothetical purchase price allocation. As a result of adoption of this new standard an entity should recognize an
impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however,
the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
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.
60
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
are the euro and Swedish kronor (“SEK”). 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 and SEK.
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, the euro, the SEK and the British
pound. As a result of the Acquisition, we have increased our exposure to a broader set of currencies. 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 currently enter into foreign currency exchange forward contracts to 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.
We enter into foreign currency exchange forward contracts to reduce the impact of foreign currency
fluctuations on accounts receivable and restricted cash denominated in euros and British pounds. 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 and restricted cash in the near-term. 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. Accordingly, the effect of an immediate 10% adverse
change in foreign exchange rates on these transactions during 2019 would not be material to our results of
operations.
During 2019, we also entered into foreign currency exchange contracts to reduce the volatility of cash
flows primarily related to forecasted revenues and expenses denominated in euros, British pounds. The
contracts are generally settled for U.S. dollars, euros and British pounds at maturity under an average rate
method agreed to at inception of the contracts. The gains and losses on these foreign currency derivatives are
recorded to the consolidated statement of operations line item, in the current period, to which the item that is
being economically hedged is recorded. The effect of an immediate 10% adverse change in foreign exchange
rates on these transactions during 2019 would not be material to our results of operations.
Interest Rate Sensitivity
We had cash and cash equivalents, investments, and restricted cash totaling $132.8 million and $268.8
million as of December 28, 2019 and December 29, 2018, respectively. As of December 28, 2019, we have
liquidated all our investments. The unrestricted cash and cash equivalents are held for working capital purposes.
We do not enter into investments for speculative purposes. We are also exposed to interest rate risk in
connection with our variable interest rate borrowings. The effect of an immediate 10% adverse change in interest
rates would not be material to our results of operations.
Market Risk and Market Interest Risk
Holders may convert the 2024 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. If our common stock price is above the initial
conversion price of $9.87 upon conversion or at maturity, the amount of cash or shares of common stock
required to pay the conversion premium is not fixed and would increase if our common stock price increases.
As of December 28, 2019, the fair value of the 2024 Notes was $417.2 million. The fair value was
determined based on the quoted bid price of the 2024 Notes in an over-the-counter market on December 27,
2019. The 2024 Notes are classified as Level 2 of the fair value hierarchy. The fair value of the 2024 Notes is
subject to interest rate risk, market risk and other factors due to the convertible feature. The fair value of the
2024 Notes will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair
value of the 2024 Notes will generally increase as our common stock price increases and will generally decrease
61
as our common stock price declines in value. The interest and market value changes affect the fair value of the
2024 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 2024 Notes at fair value. We present the fair value of the
2024 Notes for required disclosure purposes only.
See Note 13, “Debt” to the Notes to Consolidated Financial Statements for further information.
62
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
64
66
67
68
69
70
72
63
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Infinera Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Infinera Corporation (the Company) as of
December 28, 2019 and December 29, 2018, 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 28,
2019, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company at December 28, 2019 and
December 29, 2018, and the results of its operations and its cash flows for each of the three years in the period
ended December 28, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of December 28, 2019,
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 March 4, 2020 expressed an
unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Notes 2 and 4 to the consolidated financial statements, the Company changed its method of
accounting for revenue recognition in the year ended December 29, 2018 due to the adoption of
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express
an opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2001.
San Jose, California
March 4, 2020
/s/ Ernst & Young LLP
64
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Infinera Corporation
Opinion on Internal Control over Financial Reporting
We have audited Infinera Corporation’s internal control over financial reporting as of December 28, 2019, 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). In our opinion, Infinera
Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting
as of December 28, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated balance sheets as of December 28, 2019 and December 29, 2018,
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 28, 2019, and the related notes and the financial
statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial
statements”) and our report dated March 4, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’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 are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
San Jose, California
March 4, 2020
65
INFINERA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Short-term restricted cash
Accounts receivable, net of allowance for doubtful accounts of $4,005 in
2019 and $1,821 in 2018
Inventory
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Intangible assets, net
Goodwill
Long-term restricted cash
Other non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Accrued compensation and related benefits
Short-term debt, net
Accrued warranty
Deferred revenue
Total current liabilities
Long-term debt, net
Long-term financing lease obligation
Accrued warranty, non-current
Deferred revenue, non-current
Deferred tax liability
Operating lease liabilities
Other long-term liabilities
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $0.001 par value
Authorized shares—25,000 and no shares issued and outstanding
Common stock, $0.001 par value
Authorized shares—500,000 in 2019 and 500,000 in 2018
Issued and outstanding shares—181,134 in 2019 and 175,452 in 2018
December 28,
2019
December 29,
2018
$
$
$
$
109,201
—
4,339
349,645
$
$
340,429
139,217
942,831
150,793
68,081
170,346
249,848
19,257
27,182
1,628,338
273,397
193,168
92,221
31,673
21,107
103,753
715,319
323,678
2,394
22,241
36,067
8,700
64,210
69,194
—
181
202,954
26,511
13,229
317,115
311,888
85,400
957,097
342,820
—
233,119
227,231
26,154
14,849
1,801,270
191,187
131,891
71,152
—
20,103
88,534
502,867
266,929
193,538
20,918
31,768
13,347
—
68,082
—
175
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders’ equity
1,740,884
(34,639)
(1,319,891)
386,535
1,628,338
$
1,685,916
(25,300)
(956,970)
703,821
1,801,270
$
The accompanying notes are an integral part of these consolidated financial statements.
66
INFINERA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Revenue:
Product
Services
Total revenue
Cost of revenue:
Cost of product
Cost of services
Amortization of intangible assets
Acquisition and integration costs
Restructuring and related
Total cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Amortization of intangible assets
Acquisition and integration costs
Restructuring and related
Total operating expenses
Loss from operations
Other income (expense), net:
Interest income
Interest expense
Other gain (loss), net
Total other income (expense), net
Loss before income taxes
Provision for/(benefit) from income taxes
Net loss
Net loss per common share:
Years Ended
December 28,
2019
December 29,
2018
December 30,
2017
$
1,011,488
$
763,555
$
610,535
287,377
1,298,865
179,824
943,379
130,204
740,739
735,059
146,916
32,583
28,449
29,935
972,942
325,923
287,977
151,423
126,351
27,280
42,271
40,851
676,153
(350,230)
1,139
(31,657)
(2,907)
(33,425)
(383,655)
2,963
(386,618)
517,765
406,644
78,353
23,475
—
2,630
622,223
321,156
244,302
124,238
80,957
29,296
15,530
12,512
506,835
(185,679)
2,428
(22,049)
(9,650)
(29,271)
(214,950)
(655)
(214,295)
50,480
20,474
—
19,141
496,739
244,000
224,368
109,511
70,620
6,160
322
16,106
427,087
(183,087)
3,328
(14,017)
(2,160)
(12,849)
(195,936)
(1,430)
(194,506)
Basic
Diluted
$
$
(2.16) $
)
(
(2.16) $
(1.36) $
)
(
(1.36) $
(1.32)
)
(
(1.32)
Weighted average shares used in computing net loss per
common share:
Basic
Diluted
178,984
178,984
157,748
157,748
147,878
147,878
The accompanying notes are an integral part of these consolidated financial statements.
67
INFINERA CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net loss
Other comprehensive income (loss):
Net unrealized gain (loss) on investments
Foreign currency translation adjustment
Tax effect on items related to available-for-sale
investments
Actuarial loss on pension liabilities
Net change in accumulated other comprehensive income (loss)
Years Ended
December 28,
2019
December 29,
2018
December 30,
2017
$
(386,618) $
(214,295) $
(194,506)
91
327
(9,376)
(26,483)
—
(54)
(9,339)
(85)
(5,313)
(31,554)
(209)
34,787
—
—
34,578
Comprehensive loss
$
(395,957) $
(245,849) $
(159,928)
The accompanying notes are an integral part of these consolidated financial statements.
68
INFINERA CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 28, 2019, December 29, 2018 and December 30, 2017
(In thousands)
Balance at December 31, 2016
Stock options exercised
ESPP shares issued
Shares withheld for tax obligations
Restricted stock units released
Stock-based compensation
Other comprehensive income
Net loss
Shares
Amount
145,021
$
145
196
2,140
(110)
2,224
—
—
—
—
2
—
2
—
—
—
Balance at December 30, 2017
149,471
$
149
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
Conversion option related to
convertible senior notes, net of
allocated costs
Capped call
Cumulative-effect adjustment from
adoption of ASU 2016-09
Other comprehensive loss
Net loss
Balance at December 29, 2018
ESPP shares issued
Shares withheld for tax obligations
Restricted stock units released
Stock-based compensation
Cumulative-effect adjustment from
adoption of Topic 842
Other comprehensive loss
Net loss
229
2,189
(109)
2,697
20,975
—
—
—
—
—
—
175,452
2,897
(98)
2,883
—
—
—
—
—
2
—
3
21
—
—
—
—
—
—
$
175
3
—
3
—
—
—
—
Balance at December 28, 2019
181,134
$
181
Additional
Paid-in
Capital
$1,354,082
1,525
16,409
(1,034)
(2)
46,063
—
—
$1,417,043
1,701
15,990
$
(1,144)
(3)
129,607
42,905
128,726
(48,909)
—
—
—
$1,685,916
12,049
(425)
(3)
43,347
—
—
—
$1,740,884
Accumulated
Other
Comprehensi
ve
Accumulated
Deficit
Total
Stockholders
' Equity
$ (28,324) $ (563,575) $ 762,328
1,525
—
—
—
—
—
—
34,578
—
6,254
—
—
—
—
—
—
—
—
—
—
—
—
—
16,411
(1,034)
—
46,063
—
(194,506)
34,578
(194,506)
$ (758,081) $ 665,365
1,701
—
—
—
—
—
—
—
15,992
(1,144)
—
129,628
42,905
128,726
—
15,406
(48,909)
15,406
—
(31,554)
—
(214,295)
(31,554)
(214,295)
$ (25,300) $ (956,970) $ 703,821
12,052
(425)
—
43,347
—
—
—
—
—
—
—
—
23,697
—
23,697
(9,339)
—
(386,618)
$ (34,639) $ (1,319,89
111
—
(9,339)
(386,618)
) $ 386,535
The accompanying notes are an integral part of these consolidated financial statements.
69
INFINERA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash Flows from Operating Activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization
Non-cash restructuring and other related
Amortization of debt discount and issuance costs
Interest accretion related to financing lease obligation
Operating lease expense
Impairment of non-marketable equity investment
Stock-based compensation expense
Other, net
Changes in assets and liabilities:
Accounts receivable
Inventory
Prepaid expenses and other assets
Accounts payable
Accrued liabilities and other expenses
Deferred revenue
Net cash used in operating activities
Cash Flows from Investing Activities:
Purchase of available-for-sale investments
Proceeds from sales of available-for-sale investments
Proceeds from maturities of investments
Acquisition of business, net of cash acquired
Proceeds from sale of non-marketable equity investments
Purchase of property and equipment, net
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Proceeds from issuance of 2024 Notes
Proceeds from mortgage payable
Proceeds from short-term borrowings
Proceeds from revolving line of credit
Purchase of capped call transactions
Repayment of revolving line of credit
Repayment of mortgage payable
Payment of debt issuance cost
Principal payments on financing lease obligations
Acquisition of non-controlling interest
Proceeds from issuance of common stock
Minimum tax withholding paid on behalf of employees for net
share settlement
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net change in cash and cash equivalents
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period(1)
$
70
December 28,
2019
Years Ended
December 29,
2018
December 30,
2017
$
(386,618) $
(214,295) $
(194,506)
119,824
13,937
19,162
—
31,141
—
43,294
178
(35,395)
(42,840)
(93,621)
83,272
54,658
25,658
(167,350)
—
1,499
25,085
(10,000)
1,009
(30,202)
(12,609)
—
8,584
24,310
48,125
—
(20,000)
(300)
(273)
(163)
—
12,053
(426)
71,910
(1,491)
(109,540)
242,337
132,797
$
100,494
7,291
11,161
4,694
—
5,110
43,410
254
(21,111)
(8,617)
(13,458)
(520)
(21,490)
7,994
(99,083)
(2,986)
53,039
102,112
(102,899)
1,050
(37,692)
12,624
391,431
—
—
—
(48,880)
—
(150,000)
—
(1,211)
—
17,693
(1,144)
207,889
(579)
120,851
121,486
242,337
$
65,997
29,237
11,342
—
—
1,890
45,720
755
25,849
2,727
(8,194)
(4,763)
(14,395)
16,416
(21,925)
(160,215)
10,531
152,876
—
—
(58,041)
(54,849)
—
—
—
—
—
—
—
—
—
(471)
17,991
(1,034)
16,486
4,194
(56,094)
177,580
121,486
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds
Cash paid for interest
Supplemental schedule of non-cash investing and financing
activities:
Transfer of inventory to fixed assets
Common stock issued in connection with acquisition
Third-party manufacturer funding for transfer expenses incurred
Unpaid debt issuance cost
$
$
$
$
$
$
16,944
9,564
$
$
6,692
3,554
$
$
2,961
$
— $
$
$
6,960
2,493
3,787
129,628
$
$
— $
— $
5,690
2,639
4,950
—
—
—
(1)
Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets:
Cash and cash equivalents
Short-term restricted cash
Long-term restricted cash
Total cash, cash equivalents and restricted cash
December 29,
2019
December 29,
2018
December 30,
2017
(In thousands)
$
$
109,201
$
202,954
$
116,345
4,339
19,257
13,229
26,154
544
4,597
132,797
$
242,337
$
121,486
The accompanying notes are an integral part of these consolidated financial statements.
71
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and Basis of Presentation
Infinera Corporation (“Infinera” or the “Company”), headquartered in Sunnyvale, California, was founded
in December 2000 and incorporated in the State of Delaware. Infinera is a global supplier of networking solutions
comprised of networking equipment, software and services. The Company's portfolio of solutions includes optical
transport platforms, converged packet-optical transport platforms, optical line systems and disaggregated router
platforms, and a suite of networking and automation software offerings.
During the fourth quarter of 2018, the Company completed the acquisition of all the outstanding limited
liability company interests (the “Units”) of Telecom Holding Parent LLC (“Coriant”), a Delaware limited liability
company and wholly-owned subsidiary of Coriant Investor LLC, a Delaware limited liability company (“Seller”),
pursuant to the Unit Purchase Agreement (the “Purchase Agreement”) by and among the Company, Seller and
Oaktree Optical Holdings, L.P., a Delaware limited partnership (“Lender”) (the “Acquisition”). The Acquisition was
accounted for as a business combination, and accordingly, the Company's consolidated financial statements
include the operating results of Coriant from October 1, 2018, the date the acquisition closed (the “Acquisition
Date”).
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 2019, 2018 and 2017 were 52-week years that
ended on December 28, 2019, December 29, 2018 and December 30, 2017 respectively. The next 53-week year
will end on December 31, 2022.
The accompanying consolidated financial statements have been prepared in conformity with U.S.
generally accepted accounting principles (“GAAP”). The consolidated financial statements include all
adjustments necessary for a fair presentation of the Company's annual results. All adjustments are of a normal
recurring nature. Certain prior period amounts have been reclassified to conform to the Company's current period
presentation.
The consolidated financial statements include the accounts for the Company and its subsidiaries and
affiliates in the Company which the Company has a controlling financial interest or is the primary beneficiary. All
inter-company balances and transactions have been eliminated.
2.
Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management 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 reporting periods. Such management estimates
include, but not limited to the stand-alone selling price for the Company's products and services, stock-based
compensation, inventory valuation, accrued warranty, fair value of assets acquired and liabilities assumed in a
business combinations and accounting for income taxes. Other estimates, assumptions and judgments made by
management include restructuring and other related costs, manufacturing partner and supplier liabilities,
allowances for sales returns, allowances for doubtful accounts, pension benefit cost and obligations, useful life of
acquired intangibles and recoverability of property, plant and equipment, cease-use loss related to facility exit,
fair value measurement of the debt component of the convertible senior notes, and loss contingencies. The
Company bases its assumptions on historical experience and also on assumptions that it believes are
reasonable. Actual results could differ materially from those estimates.
72
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Revenue Recognition
Effective December 31, 2017, the Company adopted Accounting Standards Update No. 2014-09,
"Revenue from Contracts with Customers (Topic 606)” (“Topic 606”), using the modified retrospective method
applied to those contracts that were not completed as of December 31, 2017. Results for the reporting periods
after December 31, 2017 are presented under Topic 606, while prior period amounts are not adjusted and
continue to be reported in accordance with the Company’s historical accounting under Accounting Standards
Codification (“ASC”) Topic 605, “Revenue Recognition” (“Topic 605”).
The Company recognizes revenue when control of the promised goods or services is transferred to its
customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for
those goods or services.
The Company determines revenue recognition by applying the following five-step approach:
•
•
•
•
•
identification of the contract, or contracts, with a customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when, or as, the Company satisfies a performance obligation.
Many of the Company's product sales are sold in combination with installation and deployment services
along with initial hardware and software support. The Company's product sales are also sold at times with spares
management, on-site hardware replacement services, network operations management, software subscription
services, extended hardware warranty and training. Initial software and hardware support services are generally
delivered over a one-year period in connection with the initial purchase. Software warranty provides customers
with maintenance releases during the warranty support period and hardware warranty provides replacement or
repair of equipment that fails to perform in line with specifications. Software subscription services include
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. Network operations management
includes the day-to-day operation of a customer's network. These services are generally delivered on an annual
basis. The Company evaluates each promised good and service in a contract to determine whether it represents
a distinct performance obligation or should be accounted for as a combined performance obligation.
Services revenue includes software subscription services, installation and deployment services, spares
management, on-site hardware replacement services, network operations management, extended hardware
warranty and training. Revenue from software subscription services, spares management, on-site hardware
replacement services, network operations management and extended hardware warranty contracts is deferred
and is recognized ratably over the contractual support period, which is generally one year, as services are
provided over the course of the entire period. Revenue related to training and installation and deployment
services is recognized upon completion of the services.
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. The Company typically satisfies its performance obligations upon shipment or
delivery of product depending on the contractual terms. Payment terms to customers generally range from net 30
to 120 days from invoice, which are considered to be standard payment terms. The Company assesses its ability
to collect from its customers based primarily on the creditworthiness and past payment history of the customer.
Customer product returns are generally 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
recorded as a reduction to revenue.
73
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
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.
Customer Purchase Commitments
The Company sells software licenses that provide customers the ability to purchase incremental
bandwidth capacity on an already-deployed piece of hardware. Infinera Instant Bandwidth-enabled systems
generally include a specific initial capacity and incremental capacity can be added by the purchase of Instant
Bandwidth licenses. Instant Bandwidth licenses are considered distinct performance obligations because
customers can provision additional transmission capacity on demand without the deployment of any incremental
equipment.
Some contracts commit the customer to purchase incremental Instant Bandwidth licenses within a
specified time frame from the initial shipment of the Instant Bandwidth-enabled hardware. The time frame varies
by customer and generally ranges between 12 to 24 months. If the customer does not purchase the additional
capacity within the time frame as stated in the contract, the Company has the right to deliver and invoice such
Instant Bandwidth licenses to the customer. Under ASC 605, the additional incremental licenses were not
included as an element of the initial arrangement because fees for the future purchases were not fixed. Under
Topic 606, future committed licenses are considered to be additional performance obligations when a minimum
purchase obligation is present, as evidenced by enforceable rights and obligations. As such, the Company is
required to estimate the variable consideration for future Instant Bandwidth licenses as part of determining the
contract transaction price.
Contract Termination Rights
The contract term is determined on the basis of the period over which the parties to the contract have
present enforceable rights and obligations. Certain customer contracts include a termination for convenience clause
that allows the customer to terminate services without penalty, upon advance notification. For such contracts, the
service duration is limited to the non-cancelable portion of the contract.
Variable Consideration
The consideration associated with customer contracts is generally fixed. Variable consideration includes
discounts, rebates, refunds, credits, incentives, penalties, or other similar items. The amount of consideration
that can vary is not a substantial portion of total consideration.
Variable consideration estimates are re-assessed at each reporting period until a final outcome is
determined. The changes to the original transaction price due to a change in estimated variable consideration will
be applied on a retrospective basis, with the adjustment recorded in the period in which the change occurs.
Stand-alone Selling Price
Stand-alone selling price is the price at which an entity would sell a good or service on a stand-alone (or
separate) basis at contract inception. Under this model, the observable price of a good or service sold separately
provides the best evidence of stand-alone selling price. However, in certain situations, stand-alone selling prices
will not be readily observable and the entity must estimate the stand-alone selling price.
When allocating on a relative stand-alone selling price basis, any discount provided in the contract is
generally allocated proportionately to all of the performance obligations in the contract.
The majority of products and services offered by the Company have readily observable selling prices. For
products and services that do not, the Company generally estimates stand-alone selling price using the market
assessment approach based on expected selling price and adjust those prices as necessary to reflect the Company’s
costs and margins. As part of its stand-alone selling price policy, the Company reviews product pricing on a periodic
basis to identify any significant changes and revise its expected stand-alone selling price assumptions as appropriate.
74
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Shipping and Handling
The Company treats shipping and handling activities as costs to fulfill the Company's promise to
transfer products. Shipping and handling fees billed to customers are recorded as a reduction to cost of product.
Capitalization of Costs to Obtain a Contract
The Company has assessed the treatment of costs to obtain or fulfill a contract with a customer. Sales
commissions have historically been expensed as incurred. Under Topic 606, the Company capitalizes sales
commissions related to multi-year service contracts, which are paid for upfront, and amortizes the asset over the
period of benefit, which is the service period. Sales commissions paid on service contract renewals, are
commensurate with the sales commissions paid on the initial contracts.
Transaction Price Allocated to the Remaining Performance Obligation
The Company’s remaining performance obligations represent the transaction price allocated to
performance obligations that are unsatisfied or partially satisfied as of period end, consisting of deferred revenue
and backlog. The Company’s backlog represents purchase orders received from customers for future product
shipments and services that are unsatisfied or partially satisfied as of period end. The Company’s 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.
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. During the third fiscal quarter beginning on June 26, 2016, the Company elected to early
adopt ASU 2016-09 and elected to change its accounting policy to account for forfeitures when they occur on a
modified retrospective basis.
The Company estimates the fair value of the rights to acquire stock under its 2007 Employee Stock
Purchase Plan (the “ESPP”) using the Black-Scholes option pricing formula. The ESPP provides for consecutive
six-month offering periods and the Company uses its own historical volatility data in the valuation of shares that
are purchased under the ESPP.
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
two, three or four years.
The Company granted performance shares (“PSUs”) to its executive officers and senior management in
2017 and 2018. The PSUs granted during 2017 and 2018 to the Company’s executive officers and senior
management are based on total stockholder return (“TSR”) of the Company’s common stock price relative to the
TSR of the individual companies listed in the S&P North American Technology Multimedia Networking Index
(SPGIIPTR) (the “S&P Networking 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 zero to two times the target number of PSUs
granted depending on the Company’s performance against the individual companies listed in the SPGIIPTR. This
performance metric is classified as a market condition.
PSUs granted to the Company's executive officers and senior management during 2019 are based on
performance criteria related to a specific financial target over the span of a three-year performance period. These
PSUs may become eligible for vesting to begin before the end of the three year performance period, if the
applicable financial target is met. The number of shares to be issued upon vesting of these PSUs is capped at
the target number of PSUs granted. The Company assesses the achievement status of these PSUs on a
quarterly basis and records the related stock-based compensation expenses based on the estimated
achievement payout.
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
75
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 a 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 the 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, the Company granted other PSUs to certain employees that only vest upon the achievement
of specific operational performance criteria. The Company assesses the achievement status of these PSUs on a
quarterly basis and records the related stock-based compensation expenses based on the estimated
achievement payout.
Employee Benefit and Pension Plans
The Company operates a number of post-employment plans in Germany, as well as smaller post-
employment plans in other countries, including both defined contribution and defined benefit plans. Benefit cost
and obligations pertaining to these plans are based on assumptions for the discount rate, expected return on
plan assets, mortality rates, expected salary increases, health care cost trend rates and attrition rates. The
discount rate assumption is based on current investment yields of high-quality fixed-income securities with
maturities similar to the expected benefits payment period. Mortality rates help predict the expected life of plan
participants. The expected increase in the compensation levels assumption reflects the Company's actual
experience and future expectations. The expected long-term return on plan assets is determined based on asset
allocations, historical portfolio results, historical asset correlations and management’s expected returns for each
asset class. The Company evaluates its expected return assumptions annually including reviewing current
capital market assumptions to assess the reasonableness of the expected long-term return on plan assets. The
Company updates the expected long-term return on assets when the Company observes a sufficient level of
evidence that would suggest the long-term expected return has changed.
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 2019, 2018 and 2017 were $1.5
million, $0.9 million and $1.8 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 its consolidated balance sheets. In general, deferred tax assets
represent future tax benefits to be received when certain expenses previously recognized in its 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.
76
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company must assess the likelihood that some portion or all of its deferred tax assets will be
recovered from future taxable income within the respective jurisdictions, and to the extent the Company believes
that recovery does not meet the “more-likely-than-not” standard, it 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 the Company’s net deferred tax assets. In evaluating the need for a full
or partial valuation allowance, all positive and negative evidence must be considered, including the Company's
forecast of taxable income over the applicable carryforward periods, its current financial performance, its market
environment, and other factors. Based on the available objective evidence, at December 28, 2019, the Company
believes it is not more likely than not that the domestic net deferred tax assets will be realizable in the
foreseeable future. Accordingly, the domestic net deferred tax assets are subject to a full valuation allowance. To
the extent that the Company determines that deferred tax assets are realizable on a more likely than not basis,
and an adjustment is needed, that adjustment will be recorded in the period that the determination is made.
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
recorded in 2019, 2018 and 2017 were losses of $3.7 million, $2.5 million and $0.3 million, respectively.
The Company enters 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.
The Company also enters into foreign currency exchange contracts to reduce the volatility of cash flows
primarily related to forecasted revenues and expenses denominated in Euros, British pounds. The contracts are
generally settled for U.S. dollars, Euros and British pounds at maturity under an average rate method agreed to
at inception of the contracts. The gains and losses on these foreign currency derivatives are recorded to the
consolidated statement of operations line item, in the current period, to which the item that is being economically
hedged is recorded.
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 also maintains a portion of 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, commercial paper, U.S. agency notes,
corporate bonds and U.S. treasuries. 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
77
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
As of December 28, 2019 all short-term and long-term investments were liquidated.
Fair Value Measurement
Pursuant to the accounting guidance for fair value measurements and its subsequent updates, fair
value is defined as the price that would be received from selling an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. When determining the fair value
measurements for assets and liabilities required or permitted to be recorded at fair value, the Company
considers the principal or most advantageous market in which it would transact and it considers assumptions that
market participants would use when pricing the asset or liability.
Valuation techniques used by the Company are based upon observable and unobservable inputs.
Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs
reflect the Company’s assumptions about market participant assumptions based on the best information
available. Observable inputs are the preferred source of values. These two types of inputs create the following
fair value hierarchy:
Level 1
– Quoted prices in active markets for identical assets or liabilities.
Level 2
– Quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-based valuation techniques for which all
significant assumptions are observable in the market or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
Level 3
–
Prices or valuations that require management inputs that are both significant to the fair value
measurement and unobservable.
The Company measures its cash equivalents, foreign currency exchange forward contracts, and debt
securities at fair value and classifies its securities in accordance with the fair value hierarchy on a recurring
basis. 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 the following assets within Level 2 of the fair value hierarchy as follows:
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.
As of December 28, 2019 all short-term and long-term investments were liquidated.
78
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Foreign Currency Exchange Forward Contracts
As discussed in Note 6, “Derivative Instruments" to the Notes to 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.
Pension
As a result of the Acquisition, the Company acquired a number of post-employment plans in Germany,
as well as a number of smaller post-employment plans in other countries, including both defined contribution and
defined benefit plans. The defined benefit plans expose the Company to actuarial risks such as investment risk,
interest rate risk, life expectancy risk and salary risk. The characteristics of the defined benefit plans and the
risks associated with them vary depending on legal, fiscal, and economic requirements.
The Company classifies the following assets and liabilities within Level 3 of the fair value hierarchy and
applies fair value accounting on a non-recurring basis, only if impairment is indicated:
Facilities-related Charges
The Company estimates the fair value of its facilities-related charges associated with the 2017
Restructuring Plan and 2018 Restructuring Plan (each as defined in Note 10, “Restructuring and Other Related
Costs” to the Notes to Consolidated Financial Statements), based on estimated future discounted cash flows and
unobservable inputs, which included the amount and timing of estimated sublease rental receipts that the
Company could reasonably obtain over the remaining lease term and the discount rate.
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 and when receivables are
determined to be uncollectible, amounts are written off.
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 28, 2019, December 29, 2018 and December 30, 2017, revenue was
reduced for estimated sales returns by $3.5 million, $4.3 million and $0.9 million, respectively.
Concentration of Risk
Financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash
and cash equivalents, restricted cash and accounts receivable.
The risk with respect to accounts receivable is mitigated by ongoing credit evaluations that the
Company performs on its customers. As the Company continues to expand 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 28, 2019, one customer accounted for over 10% of the Company's net accounts
receivable balance. As of December 29, 2018, no customers accounted for over 10% of the Company's net
accounts receivable balance.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
To date, a few of the Company’s customers have accounted for a significant portion of its revenue. One
customer accounted for approximately 13% of the Company's revenue in each of 2019 and 2018. This same
customer completed a merger with another customer in 2017, and these two customers accounted for
approximately 6% and 12% of the Company's revenue in 2017, respectively. One other customer accounted for
approximately 15% of the Company's revenue in 2018. No other customers accounted for over 10% of the
Company's revenue in 2019, 2018 or 2017.
The Company depends on sole source or limited source suppliers for several key components and raw
materials. The Company generally purchases these sole source or limited source components and raw 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 raw materials,
the Company’s business and results of operations could be adversely affected if any of its 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.
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 one
high-quality institution 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
standby 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 Company also enters into
foreign currency exchange contracts to reduce the volatility of cash flows primarily related to forecasted revenues
and expenses denominated in Euros and British pounds. These contracts are generally settled for U.S. dollars,
euros and British pounds at maturity under an average rate method agreed to at inception of the contracts. The
forward contracts are with one high-quality institution and the Company consistently monitors the
creditworthiness of the counterparty.
The Company has entered into factoring agreements, to sell certain receivables to unrelated third-party
financial institutions. These transactions are accounted for in accordance with ASC Topic 860, “Transfers and
Servicing” (“ASC 860”). ASC 860 and result in a reduction in accounts receivable because the agreements
transfer effective control over and risk related to the receivables to the buyers. The Company's factoring
agreements do not allow for recourse in the event of uncollectability, and the Company does not retain any
interest in the underlying accounts receivable once sold.
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 net realizable value. Costs are recognized utilizing the first-in,
first-out method. Net realizable 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 net realizable
value of inventory 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 net realizable value of
80
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
inventory 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 net realizable value, whichever is lower, thereby recognizing the
cost of the reduction in net realizable value of inventory 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 actual cost or net realizable value.
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.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. This includes enterprise-level business software that
the Company customizes to meet 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 certain. Repair and maintenance costs are expensed as incurred. The estimated useful life for each
asset category is as follows:
Building
Laboratory and manufacturing equipment
Furniture and fixtures
Computer hardware and software
Leasehold and building improvements
Estimated Useful Lives
20 to 41 years
1.5 to 10 years
3 to 10 years
1.5 to 7 years
1 to 11 years
The Company 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
In the Company's contracts with its customers, 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.
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INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Business Combination
Accounting for acquisitions requires the Company's management to estimate the fair value of the assets
and liabilities assumed, which requires management to make significant estimates, judgments, and assumptions
that could materially affect the timing or amounts recognized in its financial statements. These assumptions and
estimates include the Company’s use of the asset and the appropriate discount rates. The Company’s significant
estimates can include, but are not limited to, the future cash flows, the appropriate weighted cost of capital, and
discount rates, as well as the estimated useful life of intangible assets, deferred tax assets and liabilities,
uncertain tax positions, and tax-related valuation allowance, which are initially estimated as of the acquisition
date. 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. In
addition, unanticipated events and circumstances may occur that may affect the accuracy or validity of such
estimates. As a result, during the measurement period, which may be up to one year following the acquisition
date, if new information is obtained about facts and circumstances that existed as of the acquisition date, the
Company may record adjustments to the fair value of these assets and liabilities, 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 represents the excess of the purchase price of an acquired business over the fair value of the
identifiable assets acquired and liabilities assumed. The Company tests for impairment of goodwill on an annual
basis in the fourth quarter and at any other time when events occur or circumstances indicate that the carrying
amount of goodwill may not be recoverable. The Company has the option to first assess qualitative factors to
determine whether it is necessary to perform the quantitative goodwill impairment test. If the Company
determines that as a result of the qualitative assessment that it is more likely than not (i.e., greater than 50%
likelihood) that the fair value of a reporting unit is less than its carrying amount, then the quantitative test is
required or it can directly perform the quantitative analysis. Beginning the first quarter of 2019, the Company
adopted Accounting Standards Update No. 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-
04”), which eliminated Step 2 of the goodwill impairment test, which requires a hypothetical purchase price
allocation. As a result of adoption of this new standard an entity should recognize an impairment charge for the
amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized
should not exceed the total amount of goodwill allocated to that reporting unit.
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.
Leases
Effective December 30, 2018, the Company adopted Accounting Standards Update No. 2016-02,
“Leases (Topic 842)” (“Topic 842”) utilizing the modified retrospective transition method, which requires a
cumulative-effect adjustment, if any, to the opening balance of retained earnings to be recognized on the date of
adoption with prior periods not restated.
The Company leases facilities under non-cancelable operating lease agreements. These leases have
varying terms that range from one to 11 years and contain leasehold improvement incentives, rent holidays and
escalation clauses. In addition, some of these leases have renewal options for up to five years.
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INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company determines if an arrangement contains a lease at inception. Operating leases are
included in operating lease ROU assets, accrued expenses and operating lease liabilities on the Company's
consolidated balance sheets. Finance leases are included in property, plant and equipment, accrued expenses
and finance lease liabilities on the Company's consolidated balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value
of the future minimum lease payments over the lease term at commencement date. As most of the Company's
leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information
available at commencement date in determining the present value of future payments. Operating lease ROU
assets also include any lease payments made and exclude lease incentives and initial direct costs incurred.
Variable lease payments are expensed as incurred and are not included within the ROU asset and lease liability
calculation. Variable lease payments primarily include reimbursements of costs incurred by lessors for common
area maintenance and utilities. The Company's lease terms may include options to extend or terminate the lease
when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease
payments is recognized on a straight-line basis over the lease term. The Company rents or subleases certain
real estate under agreements that are classified as operating leases.
Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company
recognizes lease expense for these leases on a straight-line basis over the lease term. The Company does not
account for lease components (e.g., fixed payments including rent) separately from the non-lease components
(e.g., common-area maintenance costs).
Upon abandoning or committing to a plan to abandon a leased property in the short term before the
lease term expires, the Company assesses the fair value of its remaining obligation under the lease and records
an impairment of the ROU asset, if needed. The impairment loss is calculated as the present value of the amount
by which the remaining lease obligation, adjusted for the effects of any one-time costs to sublease, exceeds the
estimated sublease rentals that could be reasonably obtained. The estimated sublease rentals consider
Company's ability and intent to sublease the space. The significant assumptions used in the Company's
discounted cash flow model include the amount and timing of estimated sublease rental receipts and the
discount rate which involve a number of risks and uncertainties, some of which are beyond control, including
future real estate market conditions and the Company's ability to successfully enter into subleases or termination
agreements with terms as favorable as those assumed when arriving at its estimates. The Company monitors
these estimates and assumptions on at least a quarterly basis for changes in circumstances and any
corresponding adjustments to the accrual are recorded in its statement of operations in the period when such
changes are known.
The loss recorded or to be recorded may change significantly as a result of the re-measurement of the
liability, if the timing or amount of estimated cash flows change.
Restructuring and Other Related Costs
The Company records costs associated with exit activities related to restructuring plans in accordance
with ASC 420, “Exit or Disposal Cost Obligations.” Liabilities for costs associated with an exit or disposal activity
are recognized in the period in which the liability is incurred. The timing of the associated cash payments is
dependent upon the type of exit cost and extends over an approximately four-year period. The Company records
restructuring cost liabilities in “Accrued Expenses” and "Other Long-term Liabilities" in the Consolidated Balance
Sheet.
Restructuring costs include employee and contract termination costs, facility consolidation and closure
costs, equipment write-downs and inventory write-downs. One-time termination benefits are recognized as a
liability at estimated fair value when the approved plan of termination has been communicated to employees,
unless employees must provide future service, in which case the benefits are recognized ratably over the future
service period. Ongoing termination benefits arrangements are recognized as a liability at estimated fair value
when the amount of such benefits becomes estimable and payment is probable.
Restructuring charges require significant estimates and assumptions, including estimates made for
employee separation costs and other contract termination charges. Management estimates involve a number of
risks and uncertainties, some of which are beyond control, including the Company's ability to successfully enter
into termination agreements with employees and others with terms as favorable as those assumed when arriving
83
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
at its estimates. The Company monitors these estimates and assumptions on at least a quarterly basis for
changes in circumstances and any corresponding adjustments to the accrual are recorded in its statement of
operations in the period when such changes are known.
Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In July 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards
Update No. 2019-07, "Codification Updates to SEC Sections" (“ASU 2019-07”). This update amends various
SEC paragraphs pursuant to the issuance of SEC Final Rule Releases No. 33-10532, Disclosure Update and
Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization. One of the
changes that ASU 2019-07 requires is a presentation of changes in stockholders’ equity in the form of a
reconciliation, either as a separate financial statement or in the notes to the financial statements, for the current
and comparative year-to-date interim periods. The Company presented changes in stockholders' equity as
separate financial statements for the current and comparative year-to-date interim periods beginning on
December 30, 2018. The additional elements of ASU 2019-07 did not have a material impact on the Company's
Consolidated Financial Statements. This guidance was effective immediately upon issuance.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15, “Customer's Accounting
for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU
2018-15”). This update provides guidance for determining if a cloud computing arrangement is within the scope
of internal-use software guidance, and would require capitalization of certain implementation costs. The
Company adopted ASU 2018-15 on a prospective basis in the first quarter of 2019. The Company's adoption of
ASU 2018-15 during its first quarter of 2019 did not have a significant impact on its consolidated financial
statements.
In June 2018, the FASB issued Accounting Standards Update No. 2018-07, “Improvements to Non-
employee Share-Based Payment Accounting” (“ASU 2018-07”), which simplifies the accounting for share-based
payments granted to non-employees for goods and services. Under ASU 2018-07, certain guidance on such
payments to non-employees is aligned with the requirements for share-based payments granted to employees.
The Company's adoption of ASU 2017-09 during its first quarter of 2019 did not have a significant impact on its
consolidated financial statements.
In February 2018, the FASB issued an accounting standard update No. 2018-02 that allows a
reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act (“TCJA”). This accounting standard update eliminates the stranded tax
effects from the TCJA and improves the usefulness of information reported to users of the Company’s financial
statements. This standard is effective for public companies for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. The adoption of this guidance does not have a material impact
on the Company’s financial statements.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, “Simplifying the Test for
Goodwill Impairment” (“ASU 2017-04”). This update eliminates Step 2 of the goodwill impairment test, which
requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a
reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The same
one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative
carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or
negative carrying amounts. The Company elected to early adopt the standard prospectively during its first
quarter of 2019 and the adoption of the standard did not have any impact on its consolidated financial
statements.
In February 2016, the FASB issued Topic 842, which amends the existing accounting standards for
leases. This new standard requires lessees to record a right-of-use asset and a corresponding lease liability on
the balance sheet (with the exception of short-term leases). For lessees, leases will continue to be classified as
either operating or financing in the income statement. The Company adopted Topic 842 in the first quarter of
2019 utilizing the modified retrospective transition method through a cumulative-effect adjustment at the
beginning of the first quarter of 2019. The Company elected the package of practical expedients permitted under
the transition guidance, which allowed the Company to carryforward its historical lease classification,
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INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
assessment on whether a contract was or contains a lease, and initial direct costs for leases that existed prior to
December 30, 2018. The Company also elected to combine its lease and non-lease components and not
recognize right-of-use (“ROU”) assets and lease liabilities for leases with an initial term of 12 months or less. The
Company did not elect to apply the hindsight practical expedient when determining lease terms and assessing
impairment of ROU assets.
Accounting Pronouncements Not Yet Effective
In December 2019, FASB issued Accounting Standards Update No. 2019-12, Simplifying the
Accounting for Income Taxes (“ASU 2019-12”), as part of its simplification initiative. ASU 2019-12 removes
certain exceptions from ASC 740, Income Taxes, including (i) the exception to the incremental approach for intra
period tax allocation when there is a loss from continuing operations and income or a gain from other items such
as discontinued operations or other comprehensive income., (ii) the exception to accounting for outside basis
differences of equity method investments and foreign subsidiaries, and (iii) the exception to limit tax benefit
recognized in interim period in cases when the year-to-date losses exceeds anticipated losses. ASU 2019-12
also simplifies GAAP in several other areas of ASC 740 such as (i) franchise taxes and other taxes partially
based on income, (ii) step-up in tax basis goodwill considered part of a business combination in which the book
goodwill was originally recognized or should be considered a separate transaction, (iii) separate financial
statements of entities not subject to tax, and (iv) interim recognition of enactment of tax laws or rate changes.
ASU 2019-12 is effective for the Company for fiscal years (and interim periods within those fiscal years)
beginning after December 15, 2020, with early adoption permitted. The Company has elected to not early adopt
ASU 2019-12 as of December 28, 2019. . The Company is currently evaluating the impact the adoption of ASU
2019-12 would have on its consolidated financial statements.
In August 2018, the FASB issued Accounting Standards Update No. 2018-14, “Compensation -
Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to
the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”). This update eliminates, adds and
modifies certain disclosure requirements for employers that sponsor defined benefit pension or other post-
retirement plans. ASU 2018-14 is effective for the Company in its first quarter of 2021, with early adoption
permitted. The Company is currently evaluating the impact the adoption of ASU 2018-14 would have on its
consolidated financial statements.
In August 2018, the FASB issued Accounting Standards Update No. 2018-13, “Fair Value Measurement
(Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value
Measurement” (“ASU 2018-13”). This update eliminates, adds and modifies certain disclosure requirements for
fair value measurements. ASU 2018-13 is effective for the Company in its first quarter of 2020. The Company
does not expect the adoption of ASU 2018-13 to have a material impact on its consolidated financial statements.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) further
amended by Accounting Standards Update No. 2019-04 issued in April 2019, Accounting Standards Update No.
2019-05 issued in May 2019, Accounting Standards Update No. 2019-10 issued in November 2019 and
Accounting Standards Update No. 2019-11 issued in November 2019 which require measurement and
recognition of expected credit losses for financial assets held. This guidance is effective for the Company in its
first quarter of fiscal 2020 and early adoption is permitted. This standard impacts the Company’s accounting for
allowances for doubtful accounts and other assets that may be subject to credit risk. In preparation for the
adoption of this standard, the Company will update its credit loss models as needed. The Company is currently
evaluating the impact the adoption of ASU 2016-13 would have on its consolidated financial statements.
3.
Leases
Adoption of Topic 842
Effective December 30, 2018, the Company adopted Topic 842 utilizing the modified retrospective
transition method, which requires a cumulative-effect adjustment, if any, to the opening balance of retained
earnings to be recognized on the date of adoption with prior periods not restated.
85
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The primary impact for the Company was the balance sheet recognition of operating lease ROU assets
and operating lease liabilities. In addition, the Company's financing lease obligations that historically did not
qualify for sale leaseback accounting under ASC 840-40, “Leases - Sale-Leaseback Transactions” (“ASC
840-40”) now meet the criteria for sale under Topic 842 and are recorded as operating leases. As a result, the
Company reclassified financing liabilities of $198.3 million from accrued expenses and long-term financing lease
obligations and assets of $174.6 million from property, plant and equipment, net, to $23.7 million accumulated
deficit adjustment reflecting the cumulative effect of an accounting change related to the sale-leasebacks.
f
balance sheet as of December 29, 2018 (in thousands):
)
(
f
f
The following table summarizes the impacts of adopting Topic 842 on the Company's consolidated
C
Assets
Property, plant and equipment, net
Operating lease right-of-use assets
Other non-current assets
Liabilities
Accrued expenses and other current
liabilities
Long-term financing lease obligation
Other long-term liabilities
Operating lease liabilities - short-term
Operating lease liabilities - long-term
Equity
Accumulated deficit
$
$
$
$
$
$
$
$
$
As Reported
Balance as of
December 29,
2018
Adjustments due
to Topic 842
As Adjusted
Balance as of
December 29,
2018
342,820
$
(174,386) $
— $
14,849
$
78,855
$
(4,884) $
168,434
78,855
9,965
131,891
193,538
68,082
$
$
$
— $
— $
(7,343) $
124,548
(193,538) $
(4,907) $
19,209
62,467
$
$
—
63,175
19,209
62,467
956,970
$
(23,697) $
933,273
The Company has operating leases for real estate and automobiles. During the year ended December
28, 2019, operating lease expense was approximately $41.5 million (including $15.9 million of accelerated rent
expense due to restructuring resulting in abandonment of lease facilities). Variable lease cost, short-term lease
cost and sublease income were immaterial during the year ended December 28, 2019. As of December 28,
2019, $18.1 million was included in accrued expenses and other current liabilities and $64.2 million as long term
operating lease liabilities.
The following table presents maturity of lease liabilities under the Company's non-cancelable operating
leases as of December 28, 2019 (in thousands):
86
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: interest(1)
Present value of lease liabilities
(1)
Calculated using the interest rate for each lease.
$
$
$
24,717
18,265
15,488
12,208
10,212
36,124
117,014
34,698
82,316
The following table presents supplemental information for the year ended December 28, 2019 (in
thousands, except for weighted average and percentage data):
Weighted average remaining lease term
Weighted average discount rate
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flow from operating leases
Leased assets obtained in exchange for new operating lease liabilities
7.38
9.10%
27,027
21,847
$
$
ASC 840-40 Disclosures
The following table presents future minimum lease payments related to the non-cancelable portion of
operating leases as of December 29, 2018 (in thousands):
Operating lease payments
$
18,352
$
14,047
$
7,888
$
5,926
$
4,905
$
18,303
$
69,421
2019
2020
2021
2022
2023
Thereafter
Total
Financing Lease Obligations
During the year ended December 28, 2019, the Company entered into finance lease arrangements for
manufacturing and facility related equipments. The lease term ranged from 3 to 5 years with option to purchase
at the end of the term. Finance lease cost was approximately $0.5 million for the twelve months ended
December 28, 2019 out of which $0.4 million was amortization of right of use asset and $0.1 million was interest
cost. As of December 28, 2019, $1.4 million was included in accrued expenses and other current liabilities and
$2.4 million as long term finance lease obligation related to these equipment finance lease arrangements.
The following table presents maturity of lease liability under the Company's finance leases as of
December 28, 2019 (in thousands):
2020
2021
2022
2023
Thereafter
Total lease payments
Less: interest
Present value of lease liabilities
87
$
$
$
1,563
1,204
936
406
—
4,109
335
3,774
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents supplemental information for the twelve months ended December 28, 2019
(in thousands, except for weighted average and percentage data):
Weighted average remaining lease term
Weighted average discount rate
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flow from operating leases
Leased assets obtained in exchange for new finance lease liabilities
3.03
7.00%
163
4,258
$
$
The Company evaluated two sale-leaseback transactions that were assumed by the Company in the
Acquisition (as defined in Note 7, "Business Combination" to the Notes to Consolidated Financial Statements). It
was determined that these transactions did not qualify for sale-leaseback accounting under ASC 840-40.
The Company leases a facility (land and all attached real property) in Naperville, Illinois that was sold to
a third party and subsequently leased back. This was determined to be a failed sale-leaseback due to a $31.5
million imposition reimbursement payment to be made over 10 years, which was linked to the total building
income generated each year. As a result of purchase accounting, the financing lease obligation was recorded at
the present value of the remaining lease payments and expected value of the facility at the end of the occupancy
period. The financing lease obligation will continue to be amortized over the remaining period of the lease term
under ASC 840-40. The assets will continue to be depreciated over their remaining useful lives under ASC
840-40.
Additionally, the Company leases a facility (land and all attached real property) in Espoo, Finland, which
was sold to a third party and subsequently leased back. The lease was determined to be a failed sale-leaseback
due to the deposit being considered a form of collateral. The amount of the deposit was equal to one year of
rental payments, whereas typical deposits are approximately two to three months of rental payments. As a
result of purchase accounting, the financing lease obligation was recorded at the present value of the
remaining lease payments and expected value of the facility at the end of the occupancy period. The
financing lease obligation will continue to be amortized over the remaining period of the lease term
under ASC 840-40. The assets will continue to be depreciated over their remaining useful lives.
In conjunction with the adoption of the new lease accounting standard in the first quarter of 2019, the
transactions qualified for sale-leaseback accounting under Topic 842, as control of the underlying assets was
transferred to the lessor. As such, the balances of fixed assets, accrued expenses and other long-term liabilities
as of the transition date related to the Naperville, Illinois and Espoo, Finland leases were reclassified to
accumulated deficit as a cumulative effect of an accounting change.
4. Revenue Recognition
Effective December 31, 2017, the Company adopted Topic 606, using the modified retrospective method
applied to those contracts that were not completed as of December 31, 2017. Results for the reporting periods
after December 31, 2017 are presented under Topic 606, while prior period amounts are not adjusted and
continue to be reported in accordance with the Company's historical accounting under Topic 605.
Capitalization of Costs to Obtain a Contract
The ending balance of the Company’s capitalized costs to obtain a contract as of December 28, 2019
and December 29, 2018 were $0.2 million and $0.4 million, respectively. The Company's amortization expense
was not material for the year ended December 28, 2019 and December 29, 2018, respectively.
88
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Disaggregation of Revenue
The following table presents the Company's revenue disaggregated by revenue source (in thousands):
Product
Services
Total revenue
Years Ended
December 28,
2019
December 29,
2018
December 30,
2017(1)
$
$
1,011,488
$
763,555
$
287,377
179,824
1,298,865
$
943,379
$
610,535
130,204
740,739
(1)
Prior period amounts have not been adjusted under the modified retrospective method of adopting Topic
606.
The Company sells its products directly to customers who are predominantly service providers and to
channel partners that sell on its behalf. The following tables present the Company's revenue disaggregated by
geography, based on the shipping address of the customer and by sales channel (in thousands):
United States
Other Americas
Europe, Middle East and Africa
Asia Pacific
Total revenue
Direct
Indirect
Total revenue
Years Ended
December 28,
2019
December 29,
2018
December 30,
2017(1)
$
628,075
$
476,784
$
428,592
93,251
418,333
159,206
44,581
309,989
112,025
20,070
234,972
57,105
$
1,298,865
$
943,379
$
740,739
December 28,
2019
Years Ended
December 29,
2018
December 30,
2017(1)
$
$
1,032,527
$
838,931
$
693,472
266,338
104,448
47,267
1,298,865
$
943,379
$
740,739
(1) Prior period amounts have not been adjusted under the modified retrospective method of adopting Topic 606.
Contract Balances
The following table provides information about receivables, contract assets and contract liabilities from
contracts with customers (in thousands):
Accounts receivable, net
Contract assets
Deferred revenue
December 28,
2019
December 29,
2018
$
$
$
349,645
22,814
139,820
$
$
$
317,115
24,981
120,302
Revenue recognized for the year ended December 28, 2019 and December 29, 2018 that was included
in the deferred revenue balance at the beginning of the reporting period was $119.9 million and $44.4 million,
respectively. Changes in the contract asset and liability balances during year ended December 28, 2019 were
not materially impacted by other factors. Changes in the contract asset and liability balances during the year
ended December 29, 2018 were primarily impacted by the Acquisition during the fourth quarter of 2018.
89
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Transaction Price Allocated to the Remaining Performance Obligation
The following table includes estimated revenue expected to be recognized in the future related to
performance obligations that are unsatisfied (or partially satisfied) at the end of the reporting period (in
thousands):
2020
2021
2022
2023
2024
Thereafter
Total
Revenue expected to be
recognized in the future
as of December 28, 2019
$ 488,149
$ 37,579
$ 12,449
$
6,361
$ 1,596
$
811
$546,945
Impacts on Financial Statements
The following tables summarize the impact of adopting Topic 606 on the Company's consolidated
statement of operations for the year ended December 29, 2018 and the Company's consolidated balance sheet
as of December 31, 2017 (in thousands):
Income Statement
Revenue
Product
Services
Costs and expenses
Cost of revenue
Net loss
Net loss per share - basic and diluted
Year Ended December 29, 2018
As Reported
Adjustments
Balances Without
Adoption of Topic
606
$
$
$
$
$
763,555
$
(10,680) $
179,824
943,379
$
622,223
$
(214,295) $
(1.36) $
3,946
(6,734) $
1,687
$
(8,421) $
(0.05) $
752,875
183,770
936,645
623,910
(222,716)
(1.41)
The increase in revenue from the adoption of Topic 606 was primarily related to an increase in product
revenue for certain customers as a result of recognition upon transfer of control in advance of milestone
invoicing. The adoption of Topic 606 did not have a material impact to the Company's consolidated financial
statements for the year ended December 29, 2018.
5.
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):
Assets
Money market funds
Corporate bonds
U.S. agency notes
U.S. treasuries
Total assets
Liabilities
Foreign currency exchange forward
contracts
As of December 28, 2019
As of December 29, 2018
Fair Value Measured Using
Fair Value Measured Using
Level 1
Level 2
Total
Level 1
Level 2
Total
$
— $
— $
— $10,347
$
— $ 10,347
—
—
—
—
—
—
—
—
—
—
— 23,987
23,512
2,999
—
23,512
2,999
23,987
— $
— $
— $34,334
$ 26,511
$ 60,845
— $
(159) $
(159) $
— $
(91) $
(91)
90
$
$
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During 2019 and 2018, there were no transfers of assets or liabilities between Level 1 and Level 2. As
of December 29, 2018, none of the Company’s existing securities were classified as Level 3 securities.
The Company classifies certain facilities-related charges within Level 3 of the fair value hierarchy and
applies fair value accounting on a nonrecurring basis when impairment indicators exist or upon the existence of
observable fair values. The fair values are classified as Level 3 measurements due to the significance of
unobservable inputs. These analysis require management to make assumptions and estimates regarding
industry and economic factors, future operating results and discount rates.
Facilities-related Charges
In connection with the 2018 Restructuring Plan (as defined in Note 10, “Restructuring and Other
Related Costs” to the Notes to Consolidated Financial Statements), the Company calculated the fair value of the
$15.9 million in facilities-related charges based on estimated future discounted cash flows and classified the fair
value as a Level 3 measurement due to the significance of unobservable inputs, which included the amount and
timing of estimated sublease rental receipts that the Company could reasonably obtain over the remaining lease
term and the discount rate. See Note 10, “Restructuring and Other Related Costs” to the Notes to Consolidated
Financial Statements for more information on the 2018 Restructuring Plan.
Cash and Cash Equivalents
Cash, cash equivalents and investments were as follows (in thousands):
Cash
Total cash
Cash
Money market funds
U.S. treasuries
Total cash and cash equivalents
U.S. agency notes
Corporate bonds
Total short-term investments
Total cash, cash equivalents and
investments
$
$
$
$
$
$
December 28, 2019
Adjusted
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
109,201
109,201
$
$
— $
— $
— $
— $
109,201
109,201
Adjusted
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
168,620
$
— $
— $
168,620
10,347
23,986
202,953
$
3,000
23,603
26,603
229,556
$
$
—
1
1
—
—
—
—
10,347
23,987
$
— $
202,954
(1)
(91)
2,999
23,512
26,511
— $
(92) $
1
$
(92) $
229,465
As of December 28, 2019, the Company has liquidated all its investments. Gross realized gains and
losses on short-term and long-term investments were insignificant for all periods. The specific identification
method is used to account for gains and losses on available-for-sale investments.
As of December 28, 2019, the Company had $109.2 million of cash including $68.7 million of cash 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.
91
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
6.
Derivative Instruments
Foreign Currency Exchange Forward Contracts
The Company transacts business in various foreign currencies and has international sales, cost of
sales, and expenses denominated in foreign currencies, and carries foreign-currency-denominated monetary
assets and liabilities, subjecting the Company to foreign currency risk. The Company’s primary foreign currency
risk management objective is to protect the U.S. dollar value of future cash flows and minimize the volatility of
reported earnings. The Company utilizes foreign currency forward contracts, primarily short term in nature.
Historically, the Company enters into foreign currency exchange forward contracts to manage its
exposure to fluctuation in foreign exchange rates that arise from its euro and British pound denominated
receivables and restricted cash balances. 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.
The Company also enters into foreign currency exchange contracts to reduce the volatility of cash flows
primarily related to forecasted revenues and expenses denominated in euros, British pounds. The contracts are
generally settled for U.S. dollars, euros and British pounds at maturity under an average rate method agreed to
at inception of the contracts. The gains and losses on these foreign currency derivatives are recorded to the
consolidated statement of operations line item, in the current period, to which the item that is being economically
hedged is recorded.
As of December 28, 2019 and December 29, 2018, the Company posted $0.9 million and 0.9 million,
respectively of collateral on its derivative instruments to cover potential credit risk exposure. This amount is
classified as other long-term restricted cash on the accompanying consolidated balance sheets.
The before-tax effect of foreign currency exchange forward contracts was a gain of $0.5 million and 0.7
million for 2019 and 2018 respectively, and a loss of $3.5 million in 2017, 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.
As of December 29, 2018, 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 the accompanying
consolidated statements of operations. These contracts were with one high-quality institution 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):
As of December 28, 2019
As of December 29, 2018
Gross
Notional
(1)
Prepaid
Expenses
and Other
Assets
Other
Accrued
Liabilities
Gross
Notional
(1)
Prepaid
Expenses
and Other
Assets
Other
Accrued
Liabilities
Foreign currency exchange
forward contracts
Related to euro
denominated
receivables
Related to British pound
denominated
receivables
Related to euro
denominated restricted
cash
$
27,566
$
— $
(159) $
40,068
$
— $
(52)
—
—
—
—
—
—
6,412
240
—
—
(38)
(1)
(91)
Total
$
27,566
$
— $
(159) $
46,720
$
— $
(1) Represents the face amounts of forward contracts that were outstanding as of the period noted.
92
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accounts Receivable Factoring
The Company sells certain designated trade account receivables based on factoring arrangements to a
large international banking institution. Pursuant to the terms of the arrangements, the Company accounts for
these transactions in accordance with ASC 860. The Company's factor purchases trade accounts receivables on
a non-recourse basis and without any further obligations. Trade accounts receivables balances sold are removed
from the consolidated balance sheets and cash received are reflected as cash provided by operating activities in
the consolidated statements of cash flow. The difference between the fair value of the Company's trade
receivables and the proceeds received is recorded as interest expense in the Company's consolidated
statements of operations, and for the year ended December 28, 2019 and December 29, 2018, the Company's
recognized factoring related interest expense was approximately $0.6 million and $0.1 million, respectively. The
gross amount of trade accounts receivables sold totaled approximately $84.8 million and $12.6 million for the
year ended December 28, 2019 and December 29, 2018 respectively. Prior to the Acquisition, the Company had
not entered into any factoring arrangements.
7.
Business Combination
On the Acquisition Date, the Company acquired 100% ownership of Coriant. The Acquisition positions
the Company as one of the largest providers of vertically integrated transport networking solutions in the world,
enhances the Company's ability to serve a global customer base and accelerates delivery of the innovative
solutions its customers demand. This Acquisition also positions the Company to expand the breadth of customer
applications it can address, including metro aggregation and switching, disaggregated transport and routing, and
software-enabled multi-layer network management and control. The Acquisition was accounted for under the
acquisition method of accounting in accordance with ASC Topic 805, “Business Combinations” and consisted of
the following (in thousands, except shares):
Cash
Equity consideration(1)
Total
$
$
154,192
129,628
283,820
(1) Based on the closing price of the Company's common stock of $6.18 on October 1, 2018, the $129.6 million
equity consideration represents the fair value of 21 million shares of the Company's common stock issued to
Coriant shareholders in accordance with the Purchase Agreement.
The Company financed the cash portion of the purchase price of the Acquisition with the net proceeds
from its offering of the $402.5 million of 2.125% convertible senior notes due September 1, 2024 (the “2024
Notes”). See Note 13, “Debt” to the Notes to Consolidated Financial Statements for more information.
In 2018, the Company expensed acquisition-related costs in the amount of $8.3 million in operating
expenses.
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 Topic 805, during the
measurement period an acquirer retrospectively adjusts 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. The
Company has recognized measurement period adjustments during the fiscal year 2019 to the fair value of certain
assets acquired and liabilities assumed with the acquisition of Coriant, which resulted in a $30.9 million increase
to goodwill. The adjustments were recorded as a result of additional information obtained during the year ended
December 28, 2019 about facts and circumstances that existed as of the date of acquisition. The measurement
period adjustments were primarily related to adjustments to income taxes, inventory, acquired liabilities, deferred
revenue, accounts receivable and others. The measurement period adjustments included tax adjustments
related to uncertain tax positions, realization of certain income taxes receivable, tax attributes and deferred tax
93
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
asset valuation allowances. This resulted from additional information collected and analysis performed including
preparation, filing and assessment of tax returns in certain jurisdictions. The Company also recorded
adjustments to fair value of inventory as the Company received additional information and performed analysis to
finalize the estimated values.
The Company does not believe that the measurement period adjustments had a material impact on its
consolidated statements of operations, balance sheets or cash flows in any periods previously reported.
The following table summarizes the Company’s allocation of the purchase consideration based on the
fair value of assets acquired and liabilities assumed at the Acquisition Date (in thousands):
Amounts
Recognized as of
Acquisition Date
Measurement Period
Adjustments
Total
Cash and cash equivalents
$
15,549
$
Restricted cash
Accounts receivable
Inventory
Property, plant and equipment, net
Other assets
Intangible assets, net
Goodwill
Financing lease obligation
Deferred revenue
Other liabilities
Total net assets
25,743
170,466
96,067
217,991
39,145
200,700
48,235
(194,700)
(43,502)
(291,874)
283,820
$
$
— $
—
(2,153)
(10,433)
—
(5,083)
—
30,916
—
5,264
(18,511)
— $
15,549
25,743
168,313
85,634
217,991
34,062
200,700
79,151
(194,700)
(38,238)
(310,385)
283,820
The following table presents details of the identifiable assets acquired at the Acquisition Date (in
thousands):
Customer relationships and backlog
Developed technology
In-process technology
Trade name
Total
Fair Value
Estimated Useful Life
(Years)
$
$
111,400
70,550
17,750
1,000
200,700
8
5
n/a
1
Goodwill generated from this business combination is primarily attributable to the synergies from
combining
the operations of Coriant with that of the Company, which resulted in strengthening the Company's ability to
serve a global customer base and accelerate delivery of product solutions. The goodwill recorded in the
Acquisition is not expected to be deductible for income tax purposes.
8.
Goodwill and Intangible Assets
Goodwill
Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net tangible
and identified intangible assets acquired.
94
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents details of the Company’s goodwill for the year ended December 28, 2019
(in thousands):
Balance as of December 29, 2018
Foreign currency translation adjustments
Measurement period adjustments
Balance as of December 28, 2019
$
$
227,231
(8,299)
30,916
249,848
The gross carrying amount of goodwill may change due to the effects of foreign currency fluctuations as
a portion of these assets are denominated in foreign currency. To date, the Company has zero accumulated
impairment loss on goodwill.
Intangible Assets
The following table presents details of the Company’s intangible assets as of December 28, 2019 and
December 29, 2018 (in thousands):
Intangible assets with finite lives:
Trade names
Customer relationships and backlog
Developed technology
Total intangible assets
*NMF = Not meaningful
Intangible assets with finite lives:
Trade names
Customer relationships and backlog
Developed technology
Total intangible assets with finite lives
Acquired in-process technology
Total intangible assets
*NMF = Not meaningful
December 28, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Weighted
Average
Remaining
Useful Life
(In Years)
$
1,000
$
(1,000) $
—
NMF*
155,942
179,593
(68,119)
(97,070)
87,823
82,523
5.8
3.5
$ 336,535
$
(166,189) $ 170,346
December 29, 2018
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Weighted
Average
Remaining
Useful Life
(In Years)
$
1,000
$
(250) $
750
NMF*
158,110
166,355
(42,478)
115,632
(67,368)
98,987
6.5
3.8
$ 325,465
$
(110,096) $ 215,369
17,750
—
17,750
$ 343,215
$
(110,096) $ 233,119
In connection with the Acquisition, the Company acquired intangible assets for a total of $200.7 million,
which is included in the gross carrying amount of intangible assets as of each of the periods ended December
28, 2019 and December 29, 2018. See Note 7, "Business Combination" to the Notes to Consolidated Financial
Statements for more information.
The gross carrying amount of intangible assets and the related amortization expense of intangible
assets may change due to the effects of foreign currency fluctuations as a portion of these assets are
denominated in foreign currency. Amortization expense was $59.9 million and $52.8 million for the years ended
December 28, 2019 and December 29, 2018, respectively.
95
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. During the year ended December 28, 2019, the
Company transferred $17.8 million of its in-process technology to developed technology, which is being
amortized over a useful life of five years.
The following table summarizes the Company’s estimated future amortization expense of intangible
assets with finite lives as of December 28, 2019 (in thousands):
Total
2020
2021
2022
2023
2024 and
Thereafter
Fiscal Years
Total future amortization expense
$ 170,346
$ 47,681
$ 35,275
$ 32,755
$ 26,876
$
27,759
9.
Balance Sheet Details
Restricted Cash
The Company’s restricted cash balance is held in deposit accounts at various banks globally. These
amounts primarily collateralize the Company’s issuances of standby letters of credit and bank guarantees.
96
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table provides details of selected balance sheet items (in thousands):
Inventory:
Raw materials
Work in process
Finished goods
Total
Property, plant and equipment, net:
Computer hardware
Computer software(1)
Laboratory and manufacturing equipment(2)
Land and building
Furniture and fixtures
Leasehold and building improvements(3)
Construction in progress
Subtotal
Less accumulated depreciation and amortization(4)
Total
Accrued expenses:
Loss contingency related to non-cancelable purchase commitments
Professional and other consulting fees
Taxes payable
Accrued rebate and customer prepay liability
Restructuring accrual
Acquisition-related funds in escrow
Short-term financing lease obligation
Short-term operating lease liability
Other accrued expenses and other current liabilities
December 28,
2019
December 29,
2018
$
$
$
$
$
$
47,474
$
48,842
244,113
340,429
$
36,086
$
45,428
313,081
12,349
2,845
52,263
27,946
74,435
57,232
180,221
311,888
15,633
40,923
304,889
187,184
2,587
46,038
32,997
489,998
$
630,251
(339,205)
(287,431)
150,793
$
342,820
24,812
$
12,296
65,815
4,390
26,076
—
1,380
18,106
40,293
26,042
10,442
23,249
14,301
13,097
10,000
4,718
—
30,042
Total accrued expenses
$
193,168
$
131,891
(1)
(2)
(3)
Included in computer software at December 28, 2019 and December 29, 2018 were $23.3 million and $13.1 million,
respectively, related to enterprise resource planning (“ERP”) systems that the Company implemented. The unamortized
ERP costs at December 28, 2019 and December 29, 2018 were $11.3 million and $3.9 million, respectively.
Included in laboratory and manufacturing equipment at December 28, 2019 was $2 million related to an equipment
finance lease entered by the Company for a term of three years with an option to purchase at the end of the three year
term. The finance lease was recorded at $2 million using a discount rate of 8.2% and was included in property, plant and
equipment, net. As of December 28, 2019, $1 million was included in accrued expenses and other current liabilities and
$1.0 million as long term finance lease obligation.
Included in leasehold improvements at December 28, 2019 was equipment finance lease entered by the Company for a
term of five years with an option to purchase at the end of five year term. The finance lease was recorded at $2.3 million
using a discount rate of 5% and was included in property, plant and equipment, net. As of December 28, 2019, $0.4
million was included in accrued expenses and other current liabilities and $1.3 million as long term finance lease
obligation.
(4) Depreciation expense was $60.0 million, $47.7 million and $39.4 million (which includes depreciation of capitalized ERP
costs of $2.4 million, $2.2 million and $1.7 million, respectively) for 2019, 2018 and 2017, respectively.
97
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
10.
Restructuring and Other Related Costs
In December of 2018, the Company implemented a restructuring initiative (the “2018 Restructuring
Plan”) as part of a comprehensive review of the Company's operations and ongoing integration activities in order
to optimize resources for future growth, improve efficiencies and address redundancies following the Acquisition.
As part of the 2018 Restructuring Plan, the Company has made several changes it believes will help its research
and development efficiency, with consolidation of its manufacturing and development sites, including closure of
its Berlin, Germany site, reduction of headcount at its Munich, Germany site, process changes to leverage the
Company's engineering and product line development resources across regions and prioritization of research
and development initiatives. As of December 28, 2019, the Berlin and Munich initiatives have been substantially
completed, with some remaining payments to be made in 2020. Additional restructuring initiatives may continue
as the Company shifts to transformation initiatives.
In connection with the Acquisition, the Company assumed restructuring liabilities associated with
Coriant's previous restructuring and reorganization plans consisting of termination benefits primarily comprised of
severance payments. These costs are recorded at estimated fair value.
The following table presents restructuring and other related costs included in cost of revenue and
operating expenses in the accompanying consolidated statements of operations under the 2018 Restructuring
Plan, Coriant's previous restructuring and reorganization plans, and the 2017 Restructuring Plan (in thousands):
Severance and related expenses
Lease related impairment charges
Asset impairment
Others
Total
Severance and related expenses
Lease related impairment charges
Asset impairment
Total
Year Ended
December 28, 2019
Cost of
Revenue
Operating
Expenses
$
26,576
$
1,158
2,201
—
25,303
14,703
7
838
$
29,935
$
40,851
Year Ended
December 29, 2018
Cost of
Revenue
Operating
Expenses
$
$
2,630
$
10,413
—
—
2,630
$
(544)
2,643
12,512
98
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Restructuring liabilities are reported within accrued expenses and other long-term liabilities in the
accompanying consolidated balance sheets (in thousands):
December 29,
2018
$
19,842
4,266
243
—
Assumed
Liabilities
from the
Acquisition
Charges
Cash
Other
and Non-cash
Settlements
December 28,
2019
—
—
—
—
51,879
$
(43,136) $
(20) $
28,565
15,861
2,208
838
(8,418)
(243)
—
(11,709)
(2,208)
—
—
—
838
$
24,351
$
— $
70,786
$
(51,797) $
(13,937) $
29,403
Severance and
related expenses
Lease related
impairment charges
Asset impairment
Others
Total
As of December 28, 2019, the Company's restructuring liability was comprised of $28.6 million of
severance and related expenses, of which $7.4 million is related to assumed restructuring liabilities associated
with Coriant's previous restructuring and reorganization plans and is expected to be paid by 2022. The remaining
$21.2 million is primarily related to the 2018 Restructuring Plan and is expected to be substantially paid by the
end of 2020. The Company's restructuring liability as of December 28, 2019 also comprised of $0.8 million
related to service agreements that were determined to have no future use. The Company expects the payments
related to the service agreements to be fully paid by the second quarter of 2021. Other and Non-cash
settlements primarily include foreign exchange impact on settlement of restructuring liability and impairment of
right of use asset.
99
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
11.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) includes certain changes in equity that are excluded
from net income (loss). The following table sets forth the changes by component for the periods presented (in
thousands):
Unrealized
Gain (Loss)
on
Available-
for-Sale
Securities
Foreign
Currency
Translation
Accumulated
Tax Effect
Actuarial
Gain
(Loss) on
Pension
Total
Balance at December 31, 2016
$
(209) $ (27,236) $
(879) $
— $ (28,324)
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated
other comprehensive loss
Net current-period other comprehensive
income (loss)
(209)
34,787
—
—
(209)
34,787
—
—
—
—
—
—
34,578
—
34,578
Balance at December 30, 2017
$
(418) $
7,551
$
(879) $
— $ 6,254
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated
other comprehensive loss
Net current-period other comprehensive
income (loss)
327
(26,483)
(85)
(5,547)
(31,788)
—
—
—
234
234
327
(26,483)
(85)
(5,313)
(31,554)
Balance at December 29, 2018
$
(91) $ (18,932) $
(964) $
(5,313) $ (25,300)
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated
other comprehensive loss
Net current-period other comprehensive
income (loss)
91
—
91
(9,376)
—
(9,376)
—
—
—
(1,692)
(10,977)
1,638
1,638
(54)
(9,339)
Balance at December 28, 2019
$
— $ (28,308) $
(964) $
(5,367) $ (34,639)
12.
Basic and Diluted Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss by the weighted average number of
common shares outstanding during the period. Diluted net loss per common share is computed using net loss
and the weighted average number of common shares outstanding plus potentially dilutive common shares
outstanding during the period. Potentially dilutive common shares include the assumed exercise of outstanding
stock options, assumed release of outstanding RSUs and PSUs, and assumed issuance of common stock under
the ESPP using the treasury stock method. Potentially dilutive common shares also include the assumed
conversion of the 2024 Notes from the conversion spread (as further discussed in Note 13, “Debt” to the Notes to
Consolidated Financial Statements), and $150.0 million in aggregate principal amount of its 1.75% convertible
senior notes due June 1, 2018 (the “2018 Notes”) from the conversion spread (as further discussed in Note 11,
“Convertible Senior Notes” to the Notes to Consolidated Financial Statements disclosed in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 30, 2017). The Company would include the
dilutive effects of the 2024 Notes in the calculation of diluted net income per common share if the average
market price is above the conversion price. Upon conversion of the 2024 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 2024 Notes being
converted, therefore, only the conversion spread relating to the 2024 Notes would be included in the Company’s
diluted earnings per share calculation unless their effect is anti-dilutive. The Company includes the common
shares underlying PSUs in the calculation of diluted net income per common share only when they become
contingently issuable.
100
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table sets forth the computation of net loss per common share (in thousands, except per
share amounts):
Net loss
Weighted average common shares outstanding - basic and
diluted
Net loss per common share - basic and diluted
Years Ended
December 28,
2019
December 29,
2018
December 30,
2017
$
$
(386,618) $
(214,295) $
(194,506)
178,984
157,748
147,878
(2.16) $
(1.36) $
(1.32)
The Company incurred net losses during 2019, 2018 and 2017, and as a result, potential common
shares from stock options, RSUs, PSUs and the assumed release of outstanding shares under the ESPP were
not included in the diluted shares used to calculate net loss per share, as their inclusion would have been anti-
dilutive. Additionally, due to the net loss position during these periods, the Company excluded the potential
shares issuable upon conversion of the 2024 Notes and the 2018 Notes in the calculation of diluted earnings per
share, as their inclusion would have been anti-dilutive.
The following table sets forth the potentially dilutive shares excluded from the computation of the diluted
net loss per share because their effect was anti-dilutive (in thousands):
Stock options outstanding
Restricted stock units
Performance stock units
Employee stock purchase plan shares
Total
13.
Debt
Asset-based revolving credit facility
As of
December 28,
2019
December 29,
2018
December 30,
2017
873
11,776
2,389
569
15,607
1,134
7,792
1,284
940
1,461
6,856
1,420
810
11,150
10,547
On August 1, 2019, the Company entered into a Credit Agreement (the "Credit Agreement") with Wells
Fargo Bank, National Association. The Credit Agreement provides for a senior secured asset-based revolving
credit facility of up to $100 million (the "Credit Facility"), which the Company may draw upon from time to time.
The Company may increase the total commitments under the Credit Facility by up to an additional $50 million,
subject to certain conditions. The Credit Agreement provides for a $50 million letter of credit sub-facility and a
$10 million swing loan sub-facility.
On December 23, 2019, the Company exercised its option to increase the total commitments under
the Credit Facility and entered into an Increase Joinder and Amendment Number One to Credit Agreement (the
“Amendment”), with BMO Harris Bank N.A. and Wells Fargo Bank, National Association, as administrative agent.
The amendment increased the total commitments under the Credit Facility to $150 million.
The proceeds of the loans under the Credit Agreement, as amended by the Amendment (the
“Amended Credit Agreement”) may be used to pay the fees, costs and expenses incurred in connection with the
Amended Credit Agreement and for working capital and general corporate purposes. The Credit Facility matures,
and all outstanding loans become due and payable, on March 5, 2024. Availability under the Credit Facility is
based upon periodic borrowing base certifications valuing certain inventory and accounts receivable, as reduced
by certain reserves. The Credit Facility is secured by first-priority security interest (subject to certain exceptions)
in inventory, certain related assets, specified deposit accounts, and certain other accounts in certain domestic
subsidiaries.
Loans under the Amended Credit Agreement bear interest, at the Company's option, at either a rate based
on the London Interbank Offered Rate (“LIBOR”) for the applicable interest period or a base rate, in each case
101
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
plus a margin. The margin ranges from 2.00% to 2.50% for LIBOR rate loans and 1.00% to 1.50% for base rate
loans, depending on the utilization of the Credit Facility. The commitment fee payable on the unused portion of
the Credit Facility ranges from 0.375% to 0.625% per annum, also based on the current utilization of the Credit
Facility. Letters of credit issued pursuant to the Credit Facility will accrue a fee at a per annum rate equal to the
applicable LIBOR rate margin times the average amount of the letter of credit usage during the immediately
preceding quarter in addition to the fronting fees, commissions and other fees.
The Amended Credit Agreement contains customary affirmative covenants, such as financial statement
reporting requirements and delivery of borrowing base certificates. The Amended Credit Agreement also contains
customary covenants that limit the ability of the Company and its subsidiaries to, among other things, incur debt,
create liens and encumbrances, engage in certain fundamental changes, dispose of assets, prepay certain
indebtedness, make restricted payments, make investments, and engage in transactions with affiliates. The
Amended Credit Agreement also contains a financial covenant that requires the Company to maintain a minimum
amount of liquidity and customary events of default.
In connection with the Credit Facility, the Company incurred lender and other third-party costs of
approximately $4.9 million for the period ended December 28, 2019, which are recorded as a deferred asset and
are amortized to interest expense using a straight-line method over the term of the Credit Facility. During the
year ended December 28, 2019, the Company recorded $0.3 million as amortization of deferred debt issuance
cost, $0.8 million as contractual interest expense and related charges.
As of December 28, 2019, the Company had availability of $115.9 million under the Credit Facility and
had letters of credit outstanding of approximately $4.1 million.
Finance Assistance Agreement
During March 2019, the Company signed an agreement with a third-party contract manufacturer that
governs the transfer of the activities from the legacy Coriant manufacturing facility in Berlin, Germany to a third-
party contract manufacturer. Subsequently in May 2019, the Company entered into a financing assistance
agreement with the contract manufacturer whereby the contract manufacturer agreed to provide funding of up to
$40 million to cover severance, retention and other costs associated with the transfer. The funding is secured
against certain foreign assets, carries a fixed interest rate of 6% and is repayable in 12 months from the date of
each draw down. As of December 28, 2019, $31.3 million was outstanding, which was included in short-term
debt.
Mortgage Payable
In March 2019, the Company mortgaged a property it owns. The Company received proceeds of $8.7
million in connection with the loan. The loan carries a fixed interest rate of 5.25% and is repayable in 59 equal
monthly installments of approximately $0.1 million each with the remaining unpaid principal balance plus accrued
unpaid interest due five years from the date of the loan. As of December 28, 2019, $8.4 million remained
outstanding, of which $0.4 million was included in short-term debt and $8 million was included in long-term debt
2.125% Convertible Senior Notes due September 1, 2024
In September 2018, the Company issued the 2024 Notes due on September 1, 2024, unless earlier
repurchased, redeemed or converted. The 2024 Notes are governed by a base indenture dated as of September
11, 2018 and a first supplemental indenture dated as of September 11, 2018 (together, the “Indenture”), between
the Company and U.S. Bank National Association, as trustee. The 2024 Notes are unsecured, and the Indenture
does 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 the Company's other securities by the Company.
Interest is payable semi-annually in arrears on March 1 and September 1 of each year, commencing
March 1, 2019. The net proceeds to the Company were approximately $391.4 million, of which approximately
$48.9 million was used to pay the cost of the capped call transactions with certain financial institutions (“Capped
Calls”). The Company also used a portion of the remaining net proceeds to fund the cash portion of the purchase
price of the Acquisition (as discussed in Note 7, “Business Combination” to the Notes to Consolidated Financial
Statements), including fees and expenses relating thereto, and intends to use the remaining net proceeds for
general corporate purposes.
102
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Capped Calls have an initial strike price of $9.87 per share, subject to certain adjustments, which
corresponds to the initial conversion price of the 2024 Notes. The Capped Calls have initial cap prices of $15.19
per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, 40.8
million shares of common stock. The capped call transactions are expected generally to reduce or offset potential
dilution to the Company's common stock upon any conversion of the 2024 Notes and/or offset any cash
payments the Company is required to make in excess of the principal amount of converted 2024 Notes, as the
case may be, with such reduction and/or offset subject to a cap. The Capped Calls expire on various dates
between July 5, 2024 and August 29, 2024. The Capped Calls were recorded as a reduction of the Company’s
stockholders' equity in the accompanying consolidated balance sheets.
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 2024 Notes. For any remaining conversion obligation, the Company
intends to pay or deliver, as the case may be, either cash, shares of its common stock, or a combination of cash
and shares of its common stock, at the Company’s election. The initial conversion rate is 101.2812 shares of
common stock per $1,000 principal amount of 2024 Notes, subject to anti-dilution adjustments, which is
equivalent to a conversion price of approximately $9.87 per share of common stock.
Throughout the term of the 2024 Notes, the conversion rate may be adjusted upon the occurrence of
certain events, including for any cash dividends. Holders of the 2024 Notes will not receive any cash payment
representing accrued and unpaid interest upon conversion of a 2024 Note. Accrued but unpaid interest will be
deemed to be paid in full upon conversion rather than canceled, extinguished or forfeited. Prior to June 1, 2024,
holders may convert their 2024 Notes under the following circumstances:
•
•
•
•
•
during any fiscal quarter commencing after the fiscal quarter ended on December 29, 2018 (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 2024 Notes for
each trading day of the measurement period was less than 98% of the product of the last reported
sale price of the Company’s common stock and the conversion rate on each such trading day;
if the Company calls the 2024 Notes for redemption, at any time prior to the close of business on
the scheduled trading day immediately preceding the redemption date;
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 June 1, 2024 until the close of business on the second scheduled trading
day immediately preceding the maturity date, holders may convert their 2024 Notes at any time,
regardless of the foregoing circumstances.
If the Company undergoes a fundamental change as defined in the Indenture governing the 2024
Notes, holders may require the Company to repurchase for cash all or any portion of their 2024 Notes at a
repurchase price equal to 100% of the principal amount of the 2024 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 may, in certain circumstances, be
required to increase the conversion rate by a number of additional shares for a holder that elects to convert its
2024 Notes in connection with such make-whole fundamental change.
103
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The net carrying amounts of the debt obligation were as follows (in thousands):
Principal
Unamortized discount (1)
Unamortized issuance cost (1)
Net carrying amount
December 28,
2019
December 29,
2018
$
$
402,500
$
402,500
(109,652)
(7,158)
(127,264)
(8,307)
285,690
$
266,929
(1)
Unamortized debt conversion discount and issuance costs will be amortized over the remaining life of the 2024 Notes,
which is approximately 57 months.
As of December 28, 2019, the carrying amount of the equity component of the 2024 Notes was $128.7
million.
In accounting for the issuance of the 2024 Notes, the Company separated the 2024 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 2024 Notes. The equity component is not re-measured 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 2024
Notes.
The Company allocated the total issuance costs incurred to the liability and equity components of the
2024 Notes based on their relative values. Issuance costs attributable to the liability component were recorded
as a reduction to the liability portion of the Notes and will be amortized as interest expense over the term of the
2024 Notes. The issuance costs attributable to the equity component were netted with the equity component in
stockholders’ equity.
The Company recorded a deferred tax liability of $30.9 million in connection with the issuance of the
2024 Notes, and a corresponding reduction in valuation allowance. The impact of both was recorded to
stockholders' equity.
The Company determined that the embedded conversion option in the 2024 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 2024 Notes (in
thousands):
Contractual interest expense
Amortization of debt issuance costs
Amortization of debt discount
Total interest expense
Year Ended
December 28,
2019
December 29,
2018
$
$
8,553
$
1,149
17,612
27,314
$
2,613
373
5,716
8,702
For the year ended December 28, 2019, the debt discount and debt issuance costs were amortized,
using an annual effective interest rate of 10.07%, to interest expense over the term of the 2024 Notes.
As of December 28, 2019, the fair value of the 2024 Notes was $417.2 million. The fair value was
determined based on the quoted bid price of the 2024 Notes in an over-the-counter market on December 27,
2019. The 2024 Notes are classified as Level 2 of the fair value hierarchy.
Based on the closing price of the Company’s common stock of $7.78 on December 27, 2019, the if-
converted value of the Notes did not exceed their principal amount.
104
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
1.75% Convertible Senior Notes due June 1, 2018
In May 2013, the Company issued the 2018 Notes, which matured on June 1, 2018. Upon maturity of
the 2018 Notes, the Company repaid in full all $150.0 million in aggregate principal amount and the final coupon
interest of $1.3 million.
The following table sets forth total interest expense recognized related to the 2018 Notes (in
thousands):
Contractual interest expense
Amortization of debt issuance costs
Amortization of debt discount
Total interest expense
Year ended
December 29,
2018
$
$
1,094
402
4,671
6,167
The coupon rate was 1.75%. For the year ended December 28, 2019 and the year ended December 29,
2018, 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 2018 Notes.
14.
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 11 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
$4.7 million and $5.4 million as of December 28, 2019 and December 29, 2018, respectively. These obligations
are classified as other long-term liabilities on the accompanying consolidated balance sheets.
Future annual minimum operating lease payments at December 28, 2019 were as follows (in
thousands):
Operating lease
payments
2020
2021
2022
2023
2024
Thereafter
Total
$
24,717
$
18,265
$
15,488
$
12,208
$
10,212
$
36,124
$ 117,014
In the fourth quarter of 2017, the Company implemented the 2017 Restructuring Plan, which included
cease-use of certain leased facilities. See Note 10, "Restructuring and Other Related Costs" to the Notes to
Consolidated Financial Statements for more information.
In the fourth quarter of 2018, the Company implemented the 2018 Restructuring Plan, which included
vacating certain leased facilities. See Note 10, "Restructuring and Other Related Costs" to the Notes to
Consolidated Financial Statements for more information.
Financing Lease Obligations
The Company has two finance leases for manufacturing and other equipment. See Note 9, "Balance
Sheet Details" to the Notes to Consolidated Financial Statements for more information.
Future annual minimum financing lease payments at December 28, 2019 were as follows (in
thousands):
Financing lease obligations $
1,563
$
1,204
$
936
$
406
$
— $
— $
4,109
2020
2021
2022
2023
2024
Thereafter
Total
Purchase Commitments
105
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company has agreements with its major production suppliers, where the Company is committed to
purchase certain parts. As of December 28, 2019, December 29, 2018 and December 30, 2017, these non-
cancelable purchase commitments were $258.2 million, $203.5 million and $96.1 million, respectively. The
significant increase of purchase commitments in 2018 was due to the Acquisition.
Future purchase commitments at December 29, 2018 were as follows (in thousands):
Purchase obligations
$ 255,427
$
1,553
$
1,154
$
43
$
— $
— $ 258,177
2020
2021
2022
2023
2024
Thereafter
Total
The contractual obligation tables above exclude tax liabilities of $4.1 million related to uncertain tax
positions because the Company cannot reliably estimate the timing and amount of future payments, if any.
Convertible Senior Notes 2024
The future interest and principal payments related to the 2024 Notes are as follows as of December 28,
2019:
Convertible senior notes,
including interest
Mortgage Payable
2020
2021
2022
2023
2024
Thereafter
Total
$
8,553
$
8,553
$
8,553
$
8,553
$ 411,053
$
— $ 445,265
The future interest and principal payments related to the Mortgage are as follows as of December 28,
2019:
Mortgage payable,
including interest
2020
2021
2022
2023
2024
Thereafter
Total
$
841
$
842
$
841
$
841
$
6,725
$
— $
10,090
Finance Assistance Agreement
The future interest and principal payments related to the Financing assistance agreement are as follows
2020
2021
2022
2023
2024
Thereafter
Total
$
31,809
$
— $
— $
— $
— $
— $
31,809
as of December 28, 2019:
Finance assistance
agreement
Asset-backed Loan
The future interest and principal payments related to the Credit Facility are as follows as of December
28, 2019:
Asset backed loan
$
525
$
— $
— $
— $
30,000
$
— $
30,525
2020
2021
2022
2023
2024
Thereafter
Total
Legal Matters
Oyster Optics LLC I
106
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
On November 23, 2016, Oyster Optics, LLP (“Oyster Optics”) filed a complaint against the Company in
the United States District Court for the Eastern District of Texas. The complaint asserts infringement of U.S.
Patent Nos. 6,469,816, 6,476,952, 6,594,055, 7,099,592, 7,620,327 (the “’327 patent”), 8,374,511 (the “’511
patent”) and 8,913,898 (the “’898 patent”). Collectively, the asserted patents are referred to herein as the “Oyster
Optics patents in suit.” The complaint seeks unspecified damages and a permanent injunction. The Company
filed its answer to Oyster Optics’ complaint on February 3, 2017. The Company filed two petitions for Inter Partes
Review (“IPR”) of the ‘898 patent with the U.S. Patent and Trademark Office (“USPTO”). Other defendants have
filed IPR petitions in connection with the remaining Oyster Optics patents in suit. The USPTO instituted two IPRs
of the ‘511 patent and two IPRs of the ‘898 patent but denied IPR petitions in connection with the ‘327 patent.
A first Markman decision issued on December 5, 2017 and fact discovery closed on December 22, 2017.
Oyster Optics dropped the ‘511 and ‘898 patents, leaving only a few claims in the ‘327 patent at issue in the
case.
Oyster Optics LLC II
On May 15, 2018, Oyster Optics filed a new patent infringement complaint in the United States District
Court for the Eastern District of Texas, naming the Company as a defendant. In its new complaint, Oyster Optics
alleges infringement of the ‘327 patent, ‘898 patent and U.S. Patent No. 9,749,040. On June 8, 2018, the court
granted the parties’ joint motion to sever and consolidate the first-filed lawsuit with the later filed case. The
Company filed its answer to the new complaint on July 16, 2018. On October 26, 2018, the Company filed an
amended answer to include a license defense based on a license agreement dated June 28, 2018 by and
between Oyster Optics and several subsidiaries of Coriant (now one of the Company’s affiliated subsidiaries).
The Company also filed a motion for summary judgment based on the license defense on November 29, 2018.
On June 25, 2019, the Court granted the Company’s motion for summary judgment and on June 28, 2019, the
court entered a final judgment for the Company. On July 22, 2019, Oyster Optics filed an appeal of the court’s
decision with the Court of Appeals for the Federal Circuit. The Company believes that it does not infringe any
valid and enforceable claim of the Oyster Optics patents in suit and intend to defend this action vigorously. The
Company is currently unable to predict the outcome of this litigation at this time and therefore cannot determine
the likelihood of loss nor estimate a range of possible loss.
Oyster Optics LLC III
On July 29, 2019, Oyster Optics filed a third complaint against the Company, Coriant (USA) Inc., Coriant
North America, LLC and Coriant Operations, Inc. in the United States District Court for the Eastern District of
Texas. The complaint asserts infringement of U.S. Patent No. 6,665,500 (the “Oyster III patent in suit”). The
complaint seeks unspecified damages and a permanent injunction. On October 7, 2019, the Company filed its
answer to the complaint asserting among other things, counterclaims and defenses based on non-infringement,
invalidity, and a license to the Oyster III patent in suit. On October 28, 2019, Oyster filed an amended complaint.
On December 3, 2019, the Company filed a motion to dismiss certain claims based on certain allegations made
by Oyster in their amended complaint. On December 27, 2019, the Company filed petitions IPR petitions with the
USPTO, in which the Company requested the USPTO to invalidate the asserted claims of the Oyster III patent in
suit. The Company believes that it does not infringe any valid and enforceable claim of the Oyster III patent in
suit and intend to defend this action vigorously. The Company is unable to predict the outcome of this litigation at
this time and therefore cannot reasonably estimate the possible loss or range of loss, if any, arising from this
matter.
Oyster Optics LLC IV
On August 26, 2019, Oyster Optics filed a fourth complaint against the Company in the Superior Court of
California, Santa Clara County (“Oyster IV”). On November 5, 2019, the Oyster IV lawsuit was dismissed.
Civil Investigative Demand
On June 8, 2017, a Civil Investigative Demand was issued to Coriant pursuant to a False Claims Act
investigation by the U.S. government as to whether there has been any violation of 31 U.S.C. §3729. Coriant
provided documents and other responses to the U.S. government, and the Company will continue to cooperate
in the ongoing investigation.
107
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In addition to the matters described above, the Company is subject to various legal proceedings, claims
and litigation arising in the ordinary course of business. While the outcome of these matters is currently not
determinable, the Company does not expect that the ultimate costs to resolve these matters will have a material
effect on its consolidated financial position, results of operations or cash flows.
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 28, 2019 and
December 29, 2018, the Company has accrued the estimated liabilities associated with certain loss
contingencies.
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. The terms of such indemnification obligations vary. These contracts
may 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; and (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.
In addition, the Company has agreed to indemnify certain customers for claims made against the
Company’s products, where such claims allege infringement of third-party intellectual property rights, including,
but not limited to, patents, registered trademarks, and/or copyrights. Under the aforementioned intellectual
property indemnification clauses, the Company may be obligated to defend the customer and pay for the
damages awarded against the customer under an infringement claim as well as the customer’s attorneys’ fees
and costs. These indemnification obligations generally do not expire after termination or expiration of the
agreement containing the indemnification obligation. In certain cases, there are limits on and exceptions to the
Company’s potential liability for indemnification. The Company cannot estimate the amount of potential future
payments, if any, that it might be required to make as a result of these agreements. The maximum potential
amount of any future payments that the Company could be required to make under these indemnification
obligations could be significant.
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 could be significant; 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.
108
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
15.
Guarantees
Product Warranties
Activity related to product warranty was as follows (in thousands):
Beginning balance
Charges to operations
Utilization
Change in estimate(1)
Balance at the end of the period
December 28,
2019
December 29,
2018
$
$
41,021
$
23,874
(25,070)
3,523
30,909
28,685
(18,028)
(545)
43,348
$
41,021
(1) The Company records product warranty liabilities based on the latest quality and cost information available as of the date
the revenue is recorded. 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 $27.9 million of standby letters of credit and bank guarantees outstanding as of
December 28, 2019. These consisted of $14.2 million related to customer performance guarantees, $0.4 million
of value-added tax and customs' licenses, $5.9 million related to property leases, $6.8 million related to Coriant
pre-acquisition restructuring plans, $0.5 million related to credit cards and $0.1 million for other liabilities.
Of the aforementioned standby letters of credit and bank guarantees outstanding, $4.1 million was
backed by cash collateral from a third-party institution, and the Company accrues 2.25% annual fee and 0.13%
annual fronting fee on the average LOC balances outstanding on the cash collateral.
The Company had $30.0 million of standby letters of credit and bank guarantees outstanding as of
December 29, 2018. These consisted of $2.9 million related to property leases, $23.4 million related to customer
performance guarantees, $1.4 million related to a value added tax and customs authorities' licenses and $1.8
million related to Coriant pre-acquisition restructuring plans and $0.5 million related to credit cards.
As of December 28, 2019 and December 29, 2018, the Company has a line of credit for approximately
$150.0 million and $1.6 million, respectively to support the issuance of letters of credit, of which $4.1 million and
zero had been issued and outstanding, respectively. The Company has pledged approximately $180.9 million
and $4.9 million of assets of a subsidiary to secure this line of credit and other obligations as of December 28,
2019 and December 29, 2018, respectively.
109
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
16. Stockholders’ Equity
2007 Equity Incentive Plan, 2016 Equity Incentive Plan, 2019 Inducement Equity Incentive Plan and
Employee Stock Purchase Plan
In February 2007, the Company’s board of directors adopted the 2007 Equity Incentive Plan (the “2007
Plan”) and the Company’s stockholders approved the 2007 Plan in May 2007. The Company reserved a total of
46.8 million shares of common stock for issuance under the 2007 Plan. Upon stockholder approval of the 2016
Equity Incentive Plan (the “2016 Plan”), the Company has ceased granting equity awards under the 2007 Plan,
however the 2007 Plan will continue to govern the terms and conditions of the outstanding options and awards
previously granted under the 2007 Plan. As of December 28, 2019, options to purchase 0.7 million shares of the
Company's common stock were outstanding and 0.3 million RSUs were outstanding under the 2007 Plan.
In February 2016, the Company's board of directors adopted the 2016 Plan and the Company's
stockholders approved the 2016 Plan in May 2016. In May 2018 and May 2019 respectively, the Company's
stockholders approved an amendment to the 2016 Plan to increase the number of shares authorized for
issuance under the 2016 Plan by 1.5 million shares and 7.3 million shares. As of December 28, 2019, the
Company reserved a total of 22.7 million shares of common stock for the award of stock options, RSUs and
PSUs to employees, non-employees, consultants and members of the Company's board of directors, pursuant to
the 2016 Plan, plus any shares subject to awards granted under the 2007 Plan that, after the effective date of the
2016 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 2007 Plan that, after the
effective date of the 2016 Plan, are forfeited to or repurchased by the Company due to failure to vest. The 2016
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 stockholders in
May 2007. The ESPP was last amended by the stockholders in May 2019 to increase the shares authorized
under the ESPP to a total of approximately 31.6 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 3,000 shares per purchase period and $25,000 of stock during any
calendar year.
Shares Reserved for Future Issuances
Common stock reserved for future issuance was as follows (in thousands):
Outstanding stock options and awards
Reserved for future option and award grants
Reserved for future ESPP
Total common stock reserved for stock options and awards
December 28,
2019
14,835
8,149
12,438
35,422
110
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):
Outstanding at December 31, 2016
Options granted
Options exercised
Options canceled
Outstanding at December 30, 2017
Options granted
Options exercised
Options canceled
Outstanding at December 29, 2018
Options granted
Options exercised
Options canceled
Outstanding at December 28, 2019
Exercisable at December 28, 2019
Outstanding at December 31, 2016
RSUs granted
RSUs released
RSUs canceled
Outstanding at December 30, 2017
RSUs granted
RSUs released
RSUs canceled
Outstanding at December 29, 2018
RSUs granted
RSUs released
RSUs canceled
Outstanding at December 28, 2019
Number of
Options
Weighted-Average
Exercise Price
Per Share
Aggregate
Intrinsic
Value
1,655
$
— $
(196) $
(62) $
1,397
$
— $
(229) $
(53) $
1,115
$
— $
— $
(385) $
730
730
$
$
8.30
$
—
7.78
$
14.11
8.11
$
—
965
373
1
7.43
$
496
11.57
8.09
$
—
— $
7.47
8.41
8.41
$
$
—
—
—
—
Number of
Restricted
Stock Units
Weighted-Average
Grant Date
Fair Value
Per Share
Aggregate
Intrinsic
Value
5,293
4,281
$
$
(2,198) $
(585) $
6,791
3,756
$
$
(2,642) $
(1,159) $
6,746
8,950
$
$
(2,784) $
(1,312) $
11,600
$
14.10
$
44,939
9.66
13.56
$
20,791
13.24
11.55
$
42,988
10.52
12.12
$
26,457
11.12
10.83
$
26,446
4.36
10.48
$
12,901
8.37
6.20
$
90,254
111
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Outstanding at December 31, 2016
PSUs granted
PSUs released
PSUs canceled
Outstanding at December 30, 2017
PSUs granted
PSUs released
PSUs canceled
Outstanding at December 29, 2018
PSUs granted
PSUs released
PSUs canceled
Outstanding at December 28, 2019
Expected to vest as of December 28, 2019
Number of
Performance
Stock Units
Weighted-Average
Grant Date
Fair Value Per Share
Aggregate
Intrinsic
Value
904
916
$
$
(26) $
(427) $
1,367
521
$
$
(55) $
(704) $
1,129
2,202
$
$
(99) $
(727) $
2,505
$
2,392
14.13
$
7,672
10.88
11.83
$
12.20
225
16.28
$
8,651
9.79
15.93
$
16.01
411
16.10
$
4,425
4.63
11.11
$
472
14.42
6.48
$
$
19,485
18,613
The aggregate intrinsic value of unexercised options is calculated as the difference between the closing
price of the Company’s common stock of $7.78 at December 27, 2019 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 $7.78 at December 27, 2019. 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.
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 28, 2019.
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):
RSUs
PSUs
Unrecognized
Compensation
Expense, Net
Weighted-
Average Period
(in years)
$
$
50,418
7,458
2.10
1.99
The following table summarizes information about options outstanding at December 28, 2019.
Exercise Price
$6.99 - $ 7.25
$ 7.53
$ 8.01
$ 8.58
$9.02 - $9.28
Options Outstanding
Number of
Shares
Weighted-
Average
Remaining
Contractual Life
Weighted-
Average
Exercise
Price
(In thousands)
(In years)
Vested and Exercisable
Options
Weighted-
Average
Exercise
Price
Number of
Shares
(In thousands)
48
35
93
485
69
730
7.03
7.53
8.01
8.58
9.19
1.40
1.34
0.87
1.05
0.01
$
$
$
$
$
112
$
$
$
$
$
48
35
93
485
69
730
7.03
7.53
8.01
8.58
9.19
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Employee Stock Options
The Company did not grant any stock options during 2019, 2018 or 2017. Stock option exercises are
settled with newly issued shares of common stock approved by stockholders for inclusion under the 2007 Plan.
Amortization of stock-based compensation expense related to stock options in 2019, 2018 and 2017 was
insignificant.
Employee Stock Purchase Plan
The fair value of the ESPP shares was estimated at the date of grant using the following assumptions:
Volatility
Risk-free interest rate
Expected life
Estimated fair value
December 28,
2019
Years Ended
December 29,
2018
December 30,
2017
70% - 72%
48% - 62%
47% - 51%
1.76% - 2.48%
1.90% - 2.31%
0.81% - 1.16%
0.5 years
0.5 years
0.5 years
$1.64 - $1.77
$2.47 - $3.13
$2.44 - $3.46
The Company’s ESPP activity for the following periods was as follows (in thousands):
Stock-based compensation expense
Employee contributions
Shares purchased
Restricted Stock Units
Years Ended
December 28,
2019
December 29,
2018
December 30,
2017
$
$
$
$
4,873
12,052
2,897
$
$
5,478
15,992
2,189
6,049
16,410
2,140
The Company granted RSUs to employees and members of the Company’s board of directors to
receive shares of the Company’s common stock. All RSUs awarded are subject to each individual's continued
service to the Company through each applicable vesting date. 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 2019, 2018 and 2017 was approximately $32.3 million, $29.2
million and $30.5 million, respectively.
Performance Stock Units
Pursuant to the 2016 Plan, the Company has granted PSUs to certain of the Company’s executive
officers, senior management and certain 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.
PSUs granted to the Company’s executive officers and senior management under the 2016 Plan during
2017 and the first half of 2018 are based on the TSR of the Company's common stock price relative to the TSR
of the individual companies listed in the SPGIIPTR 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 zero to two times the target number of
PSUs granted depending on the Company’s performance against the individual companies listed in the
SPGIIPTR.
113
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The ranges of estimated values of the PSUs granted that are compared to the SPGIIPTR, as well as the
assumptions used in calculating these values were based on estimates as follows:
Index volatility
Infinera volatility
Risk-free interest rate
Correlation with index
Estimated fair value
2018
33%
58% - 59%
2017
33% - 34%
55% - 56%
2.37% - 2.40% 1.41% - 1.63%
0.04 - 0.48
0.10 - 0.49
$14.99 - $19.46
$15.23 - $17.35
PSUs granted to the Company's executive officers and senior management under the 2016 Plan during
the first, second and third quarter of 2019 are based on performance criteria related to a specific financial target
over the span of a three-year performance period. These PSUs may become eligible for vesting to begin before
the end of the three year performance period, if the applicable financial target is met. The number of shares to be
issued upon vesting of these PSUs is capped at the target number of PSUs granted. Certain other employees
were awarded PSUs that will only vest upon the achievement of specific financial and operational performance
criteria.
In addition, one of the Company's executive officers was awarded a PSU that will be eligible to vest if the
market price condition is met. The assumptions used in calculating the estimated values of this award granted in
fiscal 2019 were based upon Monte Carlo Model Assumptions and estimates as follows:
Index volatility
Infinera volatility
Risk-free interest rate
Correlation with index/index component
Estimated fair value
2019
N/A
64% - 68%
2.17% - 2.48%
N/A
$2.08 - $2.89
The following table summarizes by grant year, the Company’s PSU activity for the year ended
December 28, 2019 (in thousands):
Outstanding at December 29, 2018
PSUs granted
PSUs released
PSUs canceled
Outstanding at December 28, 2019
Total Number of
Performance Stock
Units
2016
2017
2018
2019
Grant Year
1,129
2,202
(99)
(727)
2,505
156
—
—
(156)
—
481
—
(26)
(256)
199
492
—
(25)
(197)
270
—
2,202
(48)
(118)
2,036
Amortization of stock-based compensation expense related to PSUs in 2019, 2018 and 2017 was
approximately $6.1 million, $8.2 million and $9.5 million, respectively.
114
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Stock-based Compensation Expense
The following tables summarize the effects of stock-based compensation on the Company’s
consolidated balance sheets and statements of operations for the periods presented (in thousands):
Years Ended
December 28,
2019
December 29,
2018
December 30,
2017
Stock-based compensation effects in inventory
$
4,798
$
4,750
$
5,255
Stock-based compensation effects in net loss before
income taxes
Cost of revenue
Research and development
Sales and marketing
General and administrative
Cost of revenue—amortization from balance sheet (1)
Total stock-based compensation expense
$
$
$
1,743
$
1,635
$
17,457
8,413
10,460
16,270
10,869
9,649
38,073
$
38,423
$
4,706
4,986
42,779
$
43,409
$
3,065
15,845
11,288
10,776
40,974
4,746
45,720
(1) Represents stock-based compensation expense deferred to inventory in prior periods and recognized in the
current period.
17.
Income Taxes
The following is a geographic breakdown of the provision for/(benefit from) income taxes (in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
-
Total provision for/(benefit from) income taxes
Years Ended
December 28,
2019
December 29,
2018
December 30,
2017
$
$
$
$
$
— $
— $
288
3,046
186
6,832
3,334
$
7,018
$
369
$
(546) $
—
(740)
(371) $
2,963
$
—
(7,127)
(7,673) $
(655) $
—
69
4,679
4,748
—
—
(6,178)
(6,178)
(1,430)
Loss before provision for income taxes from international operations was $202.2 million, $135.5 million
and $22.6 million for the years ended December 28, 2019, December 29, 2018 and December 30, 2017,
respectively.
The provisions for (benefit from) income taxes differ from the amount computed by applying the
statutory federal income tax rates as follows:
115
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Expected tax at federal statutory rate
State taxes, net of federal benefit
Research credits
Stock-based compensation
Change in valuation allowance
Foreign rate differential
Other
Effective tax rate
Years Ended
December 28,
2019
December 29,
2018
December 30,
2017
21.0 %
(0.1)%
1.0 %
(2.0)%
(19.7)%
(0.2)%
(0.8)%
(0.8)%
21.0 %
(0.1)%
1.8 %
(0.8)%
(18.1)%
(2.9)%
(0.6)%
0.3 %
35.0 %
— %
1.8 %
(6.0)%
(26.8)%
(3.3)%
— %
0.7 %
For 2019, the Company's income tax expense was $3.0 million with effective tax rate of (0.8)%. The
difference between the effective income tax rate and the U.S federal statutory rate of 21% to income before
income taxes is primarily the result of foreign income taxed at different rates and valuation allowances. The
Company recognized an income tax benefit of $0.7 million and $1.4 million in fiscal years 2018 and 2017. The
resulting effective tax rates were 0.3% and 0.7% for 2018 and 2017. The 2018 and 2017 effective tax rates differ
from the expected statutory rate of 21% and 35%, respectively, based on the Company's ability to benefit from its
U.S. loss carryforwards, offset by state income taxes, non-deductible stock-based compensation expenses and
foreign taxes provided on foreign subsidiary earnings.
116
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Deferred tax assets and liabilities are recognized for the future tax consequences of differences
between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in
effect for the year in which the differences are expected to reverse. Significant deferred tax assets and liabilities
consist of the following (in thousands):
Deferred tax assets:
Net operating losses
Research and foreign tax credits
Nondeductible accruals
Inventory valuation
Property, plant and equipment
Leasing Liabilities
Stock-based compensation
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Accrual and reverse - lease
Depreciation
Accruals, reserves and prepaid expenses
Right of use asset
Acquired intangible assets
Convertible senior notes
Total deferred tax liabilities
Net deferred tax liabilities
Years Ended
December 29,
2019
December 29,
2018
$
301,929
$
121,065
72,094
31,982
4,601
19,265
3,998
257,928
221,943
50,312
39,430
2,591
—
4,825
$
$
$
$
554,934
$
577,029
(484,834)
(493,157)
70,100
$
83,872
—
—
(830)
(16,261)
(34,542)
(25,417)
(77,050) $
(6,950) $
(16,802)
(199)
(784)
—
(49,406)
(29,419)
(96,610)
(12,738)
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. The Company must
consider all 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. Based on the
available objective evidence, management believes it is not more likely than not that the domestic net deferred
tax assets will be realizable in the foreseeable future. Accordingly, the Company has provided a full valuation
allowance against its domestic deferred tax assets, net of deferred tax liabilities, as of December 28, 2019 and
December 29, 2018.
To the extent that the Company determines that deferred tax assets are realizable on a more likely than
not basis, and an 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 28, 2019, the Company had net operating loss carryforwards of approximately $576.1
million for federal income tax purposes which will begin to expire in 2027 if unused. The Company had net
operating loss carryforwards of approximately $442.5 million for state income tax purposes which will begin to
expire in the year 2020 if unused. The Company also had foreign net operating loss carryforwards of
approximately $605.5 million.
As of December 28, 2019, the Company also had R&D credit carryforwards of approximately $52.1
million for federal income tax and $52.9 million for state income tax purposes. The federal R&D tax credit will
begin to expire in 2023 if unused. State R&D tax credits will carry forward indefinitely.
117
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 28, 2019, the Company also had Foreign Tax credit carryforwards of approximately
$39.5 million for federal income tax. The foreign R&D tax credit will begin to expire in 2023 if unused.
Infinera Canada Inc., an indirect wholly owned subsidiary, has Scientific Research and Experimental
Development Expenditures (“SRED”) credits available of $2.5 million to offset future Canadian income tax
payable as of December 28, 2019. The Company's Portugal subsidiary has a SIFIDE Credit of $5.0 million to
offset future income tax in Portugal payable as of December 28, 2019. Canadian SRED credits will begin to
expire in the year 2032 if not fully utilized. The Portugal SIFIDE credits will begin to expire in the year 2021.
At December 28, 2019, the Company had federal capital loss carryforwards of $7.8 million. If not
utilized, the federal capital loss will expire in 2023.
The federal and state net operating loss carryforwards may be subject to significant limitations under
Section 382 and Section 383 of the Internal Revenue Code of 1986 and similar provisions under state law. The
Tax Reform Act of 1986 contains provisions that limit the federal net operating loss carryforwards that may be
used in any given year in the event of special occurrences, including significant ownership changes. The
Company has completed a Section 382 review and has determined that none of its operating losses will expire
solely due to Section 382 limitation(s).
The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in
thousands):
Beginning balance
Tax position related to current year
Additions
Tax positions related to prior years
Additions
Reductions
Lapses of statute of limitations
Ending balance
December 29,
2019
December 29,
2018
December 30,
2017
$
24,617
$
19,786
$
22,282
1,965
2,296
2,234
18,212
(542)
(160)
2,981
(40)
(406)
—
(4,728)
(2)
$
44,092
$
24,617
$
19,786
As of December 28, 2019, the cumulative unrecognized tax benefit was $44.1 million, of which $40.8
million was netted against deferred tax assets that would have otherwise been subjected with a full valuation
allowance. Of the total unrecognized tax benefit as of December 28, 2019, approximately $3.1 million, if
recognized, would impact the Company’s effective tax rate. Prior year addition of $18.2 million is related to
reserve on Federal and California R&D credits acquired from Coriant Operations, Inc. As the Company
determined that it is more likely than not that 100% of the Federal and California R&D credit will not be sustained
in the event of an audit. As such the Company recorded a 100% reserve on these acquired R&D credits in 2019.
As of December 28, 2019, December 29, 2018 and December 30, 2017, the Company had $1.4 million,
$1.2 million and $0.7 million, respectively, of accrued interest or penalties related to unrecognized tax benefits, of
which less than $0.8 million was included in the Company’s provision for income taxes in each of the years
ended December 28, 2019, December 29, 2018 and December 30, 2017, respectively. The Company’s policy is
to include interest and penalties related to unrecognized tax benefits within the Company’s provision for income
taxes.
The Company files income tax returns in the United States, various state jurisdictions and various
foreign jurisdictions. As of December 28, 2019, the Company is potentially subject to examination by the Internal
Revenue Service and the relevant state income taxing authorities and other major foreign jurisdictions where the
Company conducts business, under the statute of limitations for years 2002 and forward.
With these jurisdictions and in the United States, it is reasonably possible that there could be significant
changes to the Company's unrecognized tax benefits in the next twelve months due to either the expiration of a
statute of limitation or a tax audit settlement that will be partially offset by an anticipated tax liability related to
unremitted foreign earnings, where applicable. Given the number of years and numerous matters that remain
118
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
subject to examination in various tax jurisdictions, management is unable to estimate the range of possible
changes to the balance of the Company's unrecognized tax benefits.
The Company has received assessments of tax resulting from transfer pricing examinations in India for
most years in the range of fiscal years ending March 2005 through March 2015. 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 its financial statements.
Included in the balance of income tax liabilities, accrued interest and penalties at December 28, 2019 is
an immaterial amount related to tax positions for which it is reasonably possible that the statute of limitations will
expire in various jurisdictions within the next twelve months.
18.
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 as a provider of optical transport networking equipment, software and services. 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 long-lived assets by geographic region (in thousands):
Property, plant and equipment, net
United States
Other Americas
Europe, Middle East and Africa
Asia Pacific and Japan
December 28,
2019
December 29,
2018
$
118,656
$
288,614
2,798
21,536
7,803
2,370
38,273
13,563
Total property, plant and equipment, net
$
150,793
$
342,820
19.
Employee Benefit and Pension Plans
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. The Company made voluntary cash
contributions and matched a portion of employee contributions of $2.7 million, $2.3 million and $2.2 million for
2019, 2018 and 2017, respectively. Expenses related to the 401(k) Plan were insignificant for each of the years
2019, 2018 and 2017.
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 $2.6 million for 2019, $2.8 million for 2018 and $3.3 million for 2017.
119
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company also provides defined contribution plans in certain foreign countries where required by
local statute or at the Company's discretion. For the year ended December 28, 2019, the Company had $3.9
million related to post-retirement costs.
Pension Plans
Pension and Post-Retirement Benefit Plans
As a result of the Acquisition during the fourth quarter of 2018, the Company acquired a number of post-
employment plans in Germany, as well as a number of smaller post-employment plans in other countries,
including both defined contribution and defined benefit plans. The defined benefit plans expose the Company to
actuarial risks such as, investment risk, interest rate risk, life expectancy risk and salary risk. The characteristics
of the defined benefit plans and the risks associated with them vary depending on legal, fiscal, and economic
requirements.
Obligations and Funded Status
The following table sets forth the changes in benefits obligations and the fair value of plan assets of the
Company's benefit plans (in thousands):
Benefit obligation at beginning of year
Service cost
Interest cost
Benefits paid
Actuarial loss
Foreign currency exchange rate changes
Benefit obligation at end of year(1)
Fair value of plan assets at beginning of year
Actual return on plan assets
Payments
Employee contributions
Employer contributions
Actuarial gain/(loss)
Foreign currency exchange rate changes
Fair value of plan assets at end of year
Net liability recognized
December 28,
2019
December 29,
2018
$
104,624
$
106,474
2,061
2,075
(1,925)
9,134
(2,735)
$
$
113,234
63,064
2,371
(1,397)
715
53
6,672
(1,701)
69,777
43,457
$
$
466
512
(194)
236
(2,870)
104,624
69,614
653
—
—
—
(5,319)
(1,884)
63,064
41,560
$
$
$
$
(1) The Company's accumulated benefit obligation was $110.8 million and $100.2 million at December 28, 2019 and
December 29, 2018, respectively.
The net liability is included in the line item other long-term liabilities in the Company's consolidated
balance sheets.
120
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents net amounts of non-current assets and current and non-current liabilities
for the Company's pension and other post-retirement benefit plans recognized on its consolidated balance sheet
(in thousands):
Other non-current assets
Current liabilities
Other long-term liabilities
Net liability recognized
December 29,
2018
December 29,
2018
$
$
69,777
$
63,064
—
(901)
(113,234)
(103,723)
(43,457) $
(41,560)
Components of Net Periodic Benefit Cost
Net periodic benefit cost for the Company's pension and other post-retirement benefit plans consisted of
the following (in thousands):
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Total net periodic benefit cost
Years ended
December 28,
2019
December 29,
2018 (1)
$
$
2,061
$
2,075
(2,371)
1,638
3,403
$
466
512
(653)
234
559
(1) Acquisition date through December 29, 2018.
Actuarial gains and losses are amortized using a corridor approach. The gain/loss corridor is equal to
10% of the greater of the pension benefit obligation and the market-related value of assets. Gains and losses in
excess of the corridor are generally amortized over the average future working lifetime of the pension plan
participants. All components of net periodic benefit cost are recorded in operating expense of the Company's
consolidated statements of operations as the impact of the amounts to be recorded in other income and expense
is immaterial.
The following table sets forth the changes in accumulated other comprehensive income for the
Company's benefit plans (pre-tax) (in thousands):
Beginning balance
Net actuarial loss arising in current year
Amortization of net actuarial loss(1)
Foreign currency translation gain/(loss)
Ending balance
December 28,
2019
December 29,
2018
$
$
(5,313) $
(1,680)
1,638
(12)
—
(5,562)
234
15
(5,367) $
(5,313)
(1) The actuarial loss for the year ended December 29, 2018 was caused primarily by the change in the discount rate.
Amounts in accumulated other comprehensive income expected to be recognized as components of net periodic pension
cost during fiscal year 2020 is $1.6 million (pre-tax).
121
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Assumptions
Certain weighted-average assumptions used in computing the benefit obligations are as follows:
Discount rate
Salary growth rate
Pension growth rate
December 28,
2019
December 29,
2018
1.35%
2.25%
2.00%
2.07%
2.25%
2.00%
Assumptions regarding future mortality are set based on actuarial advice in accordance with published
German statistics and experience. These assumptions translate into an average remaining life expectancy in
years for a pensioner retiring at age 65:
Retiring at the end of the reporting period
Male
Female
Investment Policy
2020 Life Expectancy
20.5
20.0
23.6
The financial position of the Company’s funded status is the difference between the fair value of plan
assets and projected benefit obligations. Volatility in funded status occurs when asset values change differently
from liability values and can result in fluctuations in costs in financial reporting. The Company’s investment
policies and strategies are designed to increase the rate of assets to plan liabilities at an appropriate level of
funded status volatility. Asset allocation decisions are recommended by the trustees for the specific plan and
agreed to by the Company's management. Investment objectives are designed to generate returns that will
enable the plan to meet its future obligations. The Company's management reviews the investment strategy and
performance semi-annually and discuss alternatives to manage volatility.
Basis for Expected Long-Term Rate of Return on Plan Assets
The expected long-term rate of return on plan assets reflects the expected returns for each major asset
class in which the plan invests and the weight of each asset class in the target mix. Expected asset returns
reflect the current yield on government bonds, risk premiums for each asset class and expected real returns
which considers each country’s specific inflation outlook. The expected return is set using a low to medium risk
profile and to meet the market expectations over a longer period of time to meet the obligations in the future.
Fair Value of Plan Assets
The following tables present the fair value of plan assets for pension and other benefit plans by major
asset category (in thousands):
Cash
Equity fund
Insurance contracts
Mixed fund
Pension fund
Total plan assets at fair value
As of December 28, 2019
Fair Value Measured Using
Level 1
Level 2
Total
$
$
895
$
— $
—
—
—
—
43,540
15,149
615
9,578
895
43,540
15,149
615
9,578
895
$
68,882
$
69,777
122
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Cash
Equity fund
Insurance contracts
Mixed fund
Pension fund
Total plan assets at fair value
Valuation Techniques
As of December 29, 2018
Fair Value Measured Using
Level 1
Level 2
Total
$
$
686
$
— $
—
—
—
—
32,513
24,852
4,114
899
686
32,513
24,852
4,114
899
686
$
62,378
$
63,064
The following describes the valuation techniques used to measure the fair value of the assets shown in
the table above. Equity funds are invested in traded securities and are recorded at market value as of the
balance sheet date. Insurance contracts are recorded at cash surrender value of the policies. Mixed fund and
pension fund are valued at the amounts as provided by the insurance companies who manage the funds and
represent fair market value at the date of the balance sheet.
Transfers Between Levels
Any transfers between levels in the fair value hierarchy are recognized as of the end of the reporting
period. No material transfers between levels occurred during the year ended December 28, 2019.
Future Contributions
In fiscal 2020, the Company expects to make contributions of $3.5 million to cover benefit payments to
plan participants.
Cash Flows
Estimated future benefit payments under the Company's pension plans as of December 28, 2019 are as
follows (in thousands):
2020
2021
2022
2023
2024
2025 to 2029
$
$
$
$
$
$
3,485
3,982
3,995
3,435
3,605
20,060
123
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
20.
Financial Information by Quarter (Unaudited)
The following table sets forth the Company’s unaudited quarterly consolidated statements of operations
data for 2019 and 2018. The data has been prepared on the same basis as the audited consolidated financial
statements and related notes included in this report. The table includes all necessary adjustments, consisting
only of normal recurring adjustments that the Company considers necessary for a fair presentation of this data.
For the Three Months Ended (Unaudited)
2019
2018
Dec. 28
Sep. 28
Jun. 29
Mar. 30
Dec. 29
Sep. 29
Jun. 30
Mar. 31
(In thousands, except per share data)
$ 307,861
$253,754
$226,866
$223,007
$249,608
$167,030
$175,288
$171,629
76,706
71,587
69,384
69,700
82,450
33,383
32,939
31,052
384,567
325,341
296,250
292,707
332,058
200,413
208,227
202,681
213,536
186,205
177,501
157,817
197,251
112,276
105,914
102,324
38,543
34,866
36,831
36,676
39,408
13,075
13,039
12,831
8,437
7,796
8,098
8,252
8,315
4,876
4,943
5,341
7,238
5,407
8,447
1,198
10,700
2,064
—
1,864
21,466
2,580
—
7
—
26
—
17
Revenue:
Product
Services
Total revenue
Cost of revenue:
Cost of product
Cost of services
Amortization of intangible
assets
Acquisition and
integration costs
Restructuring and related
Total cost of revenue
273,161
238,512
234,994
226,275
247,554
130,234
123,922
120,513
Gross profit
111,406
86,829
61,256
66,432
84,504
70,179
84,305
82,168
Amortization of intangible
assets
Acquisition and
integration costs
Restructuring and related
Other operating
expenses
6,617
6,861
6,745
7,057
24,735
1,467
1,487
1,607
11,011
18,024
11,962
12,164
7,134
2,168
3,471
17,188
13,463
10,804
2,067
191
—
1,680
—
(163)
136,625
135,125
147,260
146,741
149,726
91,612
102,757
105,402
Total operating expenses
172,277
156,116
169,640
178,120
198,728
95,337
105,924
106,846
Loss from operations
Other income (expense), net
(5,886)
(13,932)
(3,887)
(9,720)
(19,231)
(7,317)
(443)
(2,280)
(60,871)
(69,287)
(108,384)
(111,688)
(114,224)
(25,158)
(21,619)
(24,678)
Loss before income taxes
Provision for (benefit from)
income taxes
(66,757)
(83,219)
(112,271)
(121,408)
(133,455)
(32,475)
(22,062)
(26,958)
(163)
1,548
1,385
193
12
135
(124)
(678)
Net loss
$ (66,594) $ (84,767) $(113,656) $(121,601) $(133,467) $(32,610) $ (21,938) $ (26,280)
Net loss per common share
Basic
Diluted
$
$
(0.37) $
(0.47) $
(0.64) $
(0.69) $
(0.76) $
(0.21) $
(0.14) $
(0.17)
(0.37) $
(0.47) $
(0.64) $
(0.69) $
(0.76) $
(0.21) $
(0.14) $
(0.17)
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 2019 and 2018 were 52-week years that ended
on December 28, 2019, and December 29, 2018 respectively. The quarters for fiscal years 2019, and 2018 were
13-week quarters.
During the fourth quarter of 2018, the Company completed the Coriant Acquisition, which was
accounted for as a business combination, and accordingly, the Company has consolidated the financial results of
Coriant with its financial results for the period from the Acquisition Date through December 28, 2019. For more
information, see Note 7, “Business Combination” to the Notes to Consolidated Financial Statements.
124
INFINERA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In December of 2018, the Company implemented a restructuring initiative (the “2018 Restructuring
Plan”) as part of a comprehensive review of the Company's operations and ongoing integration activities in order
to optimize resources for future growth, improve efficiencies and address redundancies following the Acquisition.
These integration initiatives and restructuring initiatives continued through 2019. For more information on the
Company's restructuring plans, see Note 10, “Restructuring and Other Related Costs” to the Notes to
Consolidated Financial Statements.
Effective December 30, 2018, the Company adopted Topic 842, using the alternative modified transition
method. Results for the reporting periods beginning December 30, 2018 are presented under Topic 842, while
prior period amounts are not adjusted and continue to be reported in accordance with the Company's historical
accounting under Accounting Standards Codification (“ASC”) Topic 840, “Leases.” The company incurred lease
impairment costs included in restructuring expenses.
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 28,
2019, our disclosure controls and procedures are effective.
Inherent Limitations on Effectiveness of Controls
Our management, including the CEO and CFO, does not expect that our disclosure controls or our
internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter
how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s
objectives will be met. The design of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error
or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of
any system of controls is based in part on certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks.
Over time, controls may become inadequate because of changes in business conditions or deterioration in the
degree of compliance with policies or procedures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of 2019,
which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15
and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
125
Management’s Report on Internal Control Over Financial Reporting
Our management, with the participation of our CEO and CFO, is responsible for establishing and
maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. GAAP.
Management assessed the effectiveness of our internal control over financial reporting as of December
28, 2019, 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.
k
Based on our assessment, management has concluded that our internal control over financial reporting
was effective as of the end of our fiscal year 2019 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. GAAP.
The effectiveness of our internal control over financial reporting as of the end of fiscal year 2019 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.
126
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information responsive to this item is incorporated herein by reference to our definitive proxy statement
with respect to our 2020 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 “Information about our 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.
ITEM 11.
EXECUTIVE COMPENSATION
Information responsive to this item is incorporated herein by reference to our definitive proxy statement
with respect to our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of
the fiscal year covered by this Annual Report on Form 10-K.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information responsive to this item is incorporated herein by reference to our definitive proxy statement
with respect to our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of
the fiscal year covered by this Annual Report on Form 10-K.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information responsive to this item is incorporated herein by reference to our definitive proxy statement
with respect to our 2020 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of
the fiscal year covered by this Annual Report on Form 10-K.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Information responsive to this item is incorporated herein by reference to our definitive proxy statement
with respect to our 2020 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.
127
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Consolidated Financial Statements
PART IV
This Annual Report on Form 10-K contains the following financial statements which appear under Part
II, Item 8 of this Form 10-K on the pages noted below:
Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statement of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedule
Schedule II: Valuation and Qualifying Accounts
Page
64
66
67
68
69
70
72
Deferred tax asset, valuation allowance
Beginning balance
Additions
Reductions
Ending balance
Allowance for doubtful accounts
Beginning balance
Additions
Reductions
Ending balance
Years Ended
December 28,
2019
December 29,
2018
December 30,
2017
(In thousands)
$
$
$
$
493,157
$
205,241
$
200,476
122,878
(131,201)
355,166
(67,250)
31,759
(26,994)
484,834
$
493,157
$
205,241
1,821
$
892
$
2,184
—
929
—
4,005
$
1,821
$
772
138
(18)
892
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.
ITEM 16.
FORM 10-K SUMMARY
None.
128
Exhibit No.
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
INDEX TO EXHIBITS
Description
Unit Purchase Agreement by and among Infinera Corporation, Coriant Investor LLC and
Oaktree Optical Holdings, L.P., dated July 23, 2018, incorporated by reference to Exhibit 2.1 of
the Registrant’s Current Report on Form 8-K/A (No. 001-33486), filed with the SEC on July 27,
2018.
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 29,
2016.
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.
Base Indenture, dated as of September 11, 2018, by and between Infinera Corporation and
U.S. Bank National Association, 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 September 12,
2018.
First Supplemental Indenture, dated as of September 11, 2018, by and between Infinera
Corporation and U.S. Bank National Association, incorporated herein by reference to Exhibit 4.2
of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on
September 12, 2018.
Form of 2.125% Convertible Senior Notes due 2024 (included in Exhibit 4.3 incorporated by
reference hereto).
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities
Exchange Act of 1934.
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.
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 Amended and Restated 2007 Employee Stock Purchase Plan.
Form of 2007 Employee Stock Purchase Plan Global Subscription Agreement.
Bonus Plan, incorporated herein by reference 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 Notice of Grant of Restricted Stock Units 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 Notice of Grant of Stock Option 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 Chief Executive Officer Amended and Restated Change of Control Severance
Agreement, 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 February 22, 2018.
Form of Section 16 Officer Amended and Restated Change of Control Severance 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 February 22, 2018.
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.
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.
Infinera Corporation Amended and Restated 2016 Equity Incentive 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 23, 2019.
129
Exhibit No.
10.13*
10.14*
10.15*
10.16
10.17
10.18
10.19*
10.20*
10.21*
10.22*
10.23*
10.24
10.25
10.26
Description
Form of Notice of Grant of Restricted Stock Units under the Amended and Restated 2016
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 9, 2019.
Form of Notice of Grant of Restricted Stock Units for Directors under the Amended and
Restated 2016 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.3 of the
Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on May 17, 2016.
Form of Notice of Grant of Performance Shares under the Amended and Restated 2016 Equity
Incentive Plan, incorporated herein by reference to Exhibit 10.2 of the Registrant’s Quarterly
Report on Form 10-Q (No. 001-33486), filed with the SEC on May 9, 2019.
Underwriting Agreement, dated as of September 6, 2018, by and between Infinera Corporation
and Morgan Stanley & Co. LLC, as manager of the underwriter named therein, 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 September 12, 2018.
Form of Capped Call Confirmation, 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 September 12,
2018.
First Amendment to Unit Purchase Agreement, dated as of March 4, 2019, by and among
Infinera Corporation, Coriant Investor LLC and Oaktree Optical Holdings, L.P., incorporated
herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (No.
001-33486), filed with the SEC on March 4, 2019.
Offer Letter between Infinera Corporation and David L. Teichmann dated March 18, 2019,
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 August 8, 2019.
Offer Letter between Infinera Corporation and Nancy Erba dated July 8, 2019, 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 November 12, 2019.
Infinera Corporation 2019 Inducement Equity Incentive Plan, incorporated herein by reference
to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-8 (No. 333-233150), filed
with the SEC on August 8, 2019.
Form of Notice of Grant of Restricted Stock Units (Inducement Plan), incorporated herein by
reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-8 (No.
333-233150), filed with the SEC on August 8, 2019.
Form of Notice of Grant of Performance Shares (Inducement Plan), incorporated herein by
reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-8 (No.
333-233150), filed with the SEC on August 8, 2019.
Credit Agreement, dated as of August 1, 2019, by and among Infinera Corporation, Coriant
Operations, Inc., Coriant North America, LLC, Coriant America Inc., Coriant (USA) Inc., and
Wells Fargo Bank, National Association, as administrative agent, 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 August 2, 2019.
Guaranty and Security Agreement, dated as of August 1, 2019, by and among Infinera
Corporation, the lenders party thereto, and Wells Fargo Bank, National Association, as
administrative agent, 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 August 2, 2019.
Increase Joinder and Amendment Number One to Credit Agreement, dated as of December 23,
2019, by and among Infinera Corporation, Wells Fargo Bank, National Association and BMO
Harris Bank N.A., 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 December 26, 2019.
10.27*
Offer Letter between Infinera Corporation and Nicholas Walden dated January 3, 2020.
21.1
23.1
Subsidiaries.
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
130
INDEX TO EXHIBITS
Description
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (embedded within the Inline XBRL document)
Exhibit No.
31.1
31.2
32.1**
32.2**
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
*
**
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 Exchange Act 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, as amended, or the Exchange Act, whether made before or after the
date hereof and irrespective of any general incorporation language in any filings.
131
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: March 04, 2020
Infinera Corporation
By:
/s/ NANCY ERBA
Nancy Erba
Chief Financial Officer
Principal Financial Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Fallon and Nancy Erba, and each of them individually, his or her attorneys-
in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to
this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
132
Name and Signature
Title
Date
/s/ THOMAS J. FALLON
Thomas J. Fallon
Chief Executive Officer, Principal
Executive Officer and Director
March 4, 2020
/s/ NANCY ERBA
Nancy Erba
/s/ MICHAEL FERNICOLA
Michael Fernicola
/s/ KAMBIZ Y. HOOSHMAND
Kambiz Y. Hooshmand
/s/ SHARON HOLT
Sharon Holt
Chief Financial Officer, Principal
Financial Officer
March 4, 2020
Chief Accounting Officer and Principal
Accounting Officer
March 4, 2020
Chairman of the Board
March 4, 2020
Director
March 4, 2020
/s/ GREG P. DOUGHERTY
Director
March 4, 2020
Greg P. Dougherty
/s/ MARCEL GANI
Marcel Gani
/s/ PAUL J. MILBURY
Paul J. Milbury
/s/ RAJAL M. PATEL
Rajal M. Patel
Director
March 4, 2020
Director
March 4, 2020
Director
March 4, 2020
/s/ MARK A. WEGLEITNER
Mark A. Wegleitner
Director
March 4, 2020
/s/ DAVID F. WELCH, PH.D. Co-founder, Chief Innovation Officer
March 4, 2020
and Director
David F. Welch, Ph.D.
133
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: March 04, 2020
By:
/s/ THOMAS J. FALLON
Thomas J. Fallon
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, Nancy Erba, 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: March 04, 2020
By:
/s/ NANCY ERBA
Nancy Erba
Chief Financial Officer
(Principal Financial 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 28,
2019 (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: March 04, 2020
/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, Nancy Erba, 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 28,
2019 (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: March 04, 2020
/s/ NANCY ERBA
Nancy Erba
Chief Financial Officer
(Principal Financial 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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