10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended March 29, 2014

OR

o 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	77-0560433
(State or other jurisdiction of incorporation or organization)	(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)

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.    YesxNo¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YesxNo¨

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

Large accelerated filerx	Accelerated filer o		Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes¨ Nox

As of April 23, 2014, 122,490,560 shares of the registrant’s Common Stock, $0.001 par value, were issued and outstanding.

INFINERA CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE FISCAL QUARTER ENDED MARCH 29, 2014

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets – As of March 29, 2014 and December 28, 2013	3
	Condensed Consolidated Statements of Operations – Three months ended March 29, 2014 and March 30, 2013	4
	Condensed Consolidated Statements of Comprehensive Loss – Three months ended March 29, 2014 and March 30, 2013	5
	Condensed Consolidated Statements of Cash Flows – Three months ended March 29, 2014 and March 30, 2013	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	28
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	31
Item 6.	Exhibits	48
	Signature Page	49

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

INFINERA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)

(Unaudited)

	March 29, 2014			December 28, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	85,249		$	124,330
Short-term investments	226,705			172,660
Accounts receivable, net of allowance for doubtful accounts of $41 in 2014 and $43 in 2013	107,405			100,643
Inventory	126,465			123,685
Prepaid expenses and other current assets	20,537			17,752
Total current assets	566,361			539,070
Property, plant and equipment, net	78,801			79,668
Long-term investments	32,756			64,419
Cost-method investment	9,000			9,000
Long-term restricted cash	4,392			3,904
Other non-current assets	5,776			4,865
Total assets	$	697,086		$	700,926
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	37,843		$	39,843
Accrued expenses	20,244			22,431
Accrued compensation and related benefits	21,377			33,899
Accrued warranty	14,351			12,374
Deferred revenue	31,496			32,402
Total current liabilities	125,311			140,949
Long-term debt, net	111,024			109,164
Accrued warranty, non-current	12,034			10,534
Deferred revenue, non-current	4,886			4,888
Other long-term liabilities	17,563			17,581
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 as of March 29, 2014 and December 28, 2013 Issued and outstanding shares – 122,485 as of March 29, 2014 and 119,887 as of December 28, 2013	123			120
Additional paid-in capital	1,038,216			1,025,661
Accumulated other comprehensive loss	(3,212		)	(3,486		)
Accumulated deficit	(608,859		)	(604,485		)
Total stockholders’ equity	426,268			417,810
Total liabilities and stockholders’ equity	$	697,086		$	700,926

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

INFINERA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended
	March 29, 2014			March 30, 2013
Revenue:
Product	$	124,242		$	108,343
Services	18,573			16,282
Total revenue	142,815			124,625
Cost of revenue:
Cost of product	78,438			75,447
Cost of services	5,971			6,476
Total cost of revenue	84,409			81,923
Gross profit	58,406			42,702
Operating expenses:
Research and development	29,346			29,726
Sales and marketing	17,862			18,046
General and administrative	12,254			9,872
Total operating expenses	59,462			57,644
Loss from operations	(1,056		)	(14,942		)
Other income (expense), net:
Interest income	336			197
Interest expense	(2,677		)	—
Other gain (loss), net:	(729		)	(203		)
Total other income (expense), net	(3,070		)	(6		)
Loss before income taxes	(4,126		)	(14,948		)
Provision for income taxes	248			331
Net loss	$	(4,374	)	$	(15,279	)
Net loss per common share
Basic	$	(0.04	)	$	(0.13	)
Diluted	$	(0.04	)	$	(0.13	)
Weighted average shares used in computing net loss per common share
Basic	121,352			114,308
Diluted	121,352			114,308

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

INFINERA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

	Three Months Ended
	March 29, 2014			March 30, 2013
Net loss	$	(4,374	)	$	(15,279	)
Other comprehensive loss:
Reclassification of realized gain on auction rate securities	—			(166		)
Unrealized gain (loss) on all other available-for-sale investments	50			(9		)
Foreign currency translation adjustment	244			(117		)
Tax related to available-for-sale investment	(20		)	—
Net change in accumulated other comprehensive loss	274			(292		)
Comprehensive loss	$	(4,100	)	$	(15,571	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

INFINERA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	March 29, 2014			March 30, 2013
Cash Flows from Operating Activities:
Net loss	$	(4,374	)	$	(15,279	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	6,314			6,334
(Recovery of) provision for other receivables	—			(88		)
Amortization of debt discount and issuance costs	2,020			—
Amortization of premium on investments	828			314
Stock-based compensation expense	6,672			7,975
Other gain	(20		)	(243		)
Changes in assets and liabilities:
Accounts receivable	(6,762		)	(5,094		)
Inventory	(3,354		)	(5,041		)
Prepaid expenses and other assets	(3,797		)	(361		)
Accounts payable	(2,080		)	(8,045		)
Accrued liabilities and other expenses	(13,448		)	(6,301		)
Deferred revenue	(909		)	4,340
Accrued warranty	3,477			190
Net cash used in operating activities	(15,433		)	(21,299		)
Cash Flows from Investing Activities:
Purchase of available-for-sale investments	(80,223		)	(20,023		)
Proceeds from sale of available-for-sale investments	—			2,850
Proceeds from maturities and calls of investments	57,063			33,835
Purchase of property and equipment	(5,608		)	(4,936		)
Change in restricted cash	(479		)	44
Net cash provided by (used in) investing activities	(29,247		)	11,770
Cash Flows from Financing Activities:
Proceeds from issuance of common stock	7,054			5,560
Minimum tax withholding paid on behalf of employees for net share settlement	(1,619		)	(1,493		)
Net cash provided by financing activities	5,435			4,067
Effect of exchange rate changes on cash	164			(206		)
Net change in cash and cash equivalents	(39,081		)	(5,668		)
Cash and cash equivalents at beginning of period	124,330			104,666
Cash and cash equivalents at end of period	$	85,249		$	98,998
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds	$	303		$	210
Supplemental schedule of non-cash financing activities:
Transfer of inventory to fixed assets	$	603		$	1,522

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

INFINERA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Infinera Corporation (the “Company”) prepared its interim condensed consolidated financial statements that accompany these notes in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013.

The Company has made 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 condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Significant estimates, assumptions and judgments made by management include revenue recognition, stock-based compensation, inventory valuation, allowances for sales returns, allowances for doubtful accounts, accrued warranty, fair value measurement of the liability component of the convertible senior notes, fair value measurement of cash equivalents, investments and derivative instruments, other-than-temporary impairments and accounting for income taxes. Management believes that the estimates and judgments upon which they rely are reasonable based upon information available to them at the time that these estimates and judgments are made. To the extent there are material differences between these estimates and actual results, the Company’s consolidated financial statements will be affected.

The interim financial information is unaudited, but reflects all adjustments that are, in management’s opinion, necessary to provide a fair presentation of results for the interim periods presented. All adjustments are of a normal recurring nature. The Company reclassified certain amounts reported in previous periods to conform to the current presentation. This interim information should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013.

There have been no material changes in the Company’s significant accounting policies for the three months ended March 29, 2014 as compared to those disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013.

2. Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update 2013-11, "Income Taxes - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry Forward, a Similar Tax Loss, or a Tax Credit Carry Forwards Exists" (“ASU 2013-11”). ASU 2013-11 requires entities to present the unrecognized tax benefits in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. ASU 2013-11 is effective for annual and interim periods for fiscal years beginning on or after December 15, 2013. The Company's adoption of ASU 2013-11 during the first quarter of 2014 had no impact on the Company’s financial position, results of operations or cash flow.

3. Fair Value Measurements and Other-Than-Temporary Impairments

Fair Value Measurements

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

7

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, derivative instruments and debt securities at fair value and classifies its securities in accordance with the fair value hierarchy. The Company’s money market funds and U.S. treasuries are classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets for identical securities.

The Company classifies its certificates of deposit, commercial paper, corporate bonds and foreign currency exchange forward contracts within Level 2 of the fair value hierarchy as follows:

Certificates of Deposit

The Company reviews market pricing and other observable market inputs for the same or similar securities obtained from a number of industry standard data providers. In the event that a transaction is observed for the same or similar security in the marketplace, the price on that transaction reflects the market price and fair value on that day. In the absence of any observable market transactions for a particular security, the fair market value at period end would be equal to the par value. These inputs represent quoted prices for similar assets or these inputs have been derived from observable market data.

Commercial Paper

The Company reviews market pricing and other observable market inputs for the same or similar securities obtained from a number of industry standard data providers. In the event that a transaction is observed for the same or similar security in the marketplace, the price on that transaction reflects the market price and fair value on that day and then follows a revised accretion schedule to determine the fair market value at period end. In the absence of any observable market transactions for a particular security, the fair market value at period end is derived by accreting from the last observable market price. These inputs represent quoted prices for similar assets or these inputs have been derived from observable market data accreted mathematically to par.

Corporate Bonds

The Company reviews trading activity and pricing for each of the corporate bond securities in its portfolio as of the measurement date and determines if pricing data of sufficient frequency and volume in an active market exists in order to support Level 1 classification of these securities. If sufficient quoted pricing for identical securities is not available, the Company obtains market pricing and other observable market inputs for similar securities from a number of industry standard data providers. In instances where multiple prices exist for similar securities, these prices are used as inputs into a distribution-curve to determine the fair market value at period end.

Foreign Currency Exchange Forward Contracts

As discussed in Note 5, “Derivative Instruments,” to the Notes to Condensed Consolidated Financial Statements, the Company mainly holds non-speculative foreign exchange forward contracts to hedge certain foreign currency exchange exposures. The Company estimates the fair values of derivatives based on quoted market prices or pricing models using current market rates. Where applicable, these models project future cash

8

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.

As of March 29, 2014, none of the Company’s existing securities were classified as Level 3 securities.

The following tables represent the Company’s fair value hierarchy for its assets and liabilities measured at fair value on a recurring basis (in thousands):

	As of March 29, 2014								As of December 28, 2013
	Fair Value Measured Using								Fair Value Measured Using
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	33,005	$	—	$	—	$	33,005	$	51,749	$	—	$	—	$	51,749
Certificates of deposit	—		3,600		—		3,600		—		3,840		—		3,840
Commercial paper	—		77,640		—		77,640		—		85,860		—		85,860
Corporate bonds	—		178,908		—		178,908		—		150,595		—		150,595
U.S. treasuries	4,805		—		—		4,805		4,804		—		—		4,804
Foreign currency exchange forward contracts	—		—		—		—		—		29		—		29
Total assets	$	37,810	$	260,148	$	—	$	297,958	$	56,553	$	240,324	$	—	$	296,877
Liabilities
Foreign currency exchange forward contracts	$	—	$	80	$	—	$	80	$	—	$	26	$	—	$	26

During the first quarter of 2014, there were no transfers of assets or liabilities between Level 1 and Level 2.

Investments at fair value were as follows (in thousands):

	March 29, 2014
	Adjusted    Amortized     Cost		Gross  Unrealized     Gains		Gross   Unrealized     Losses			Fair Value
Money market funds	$	33,005	$	—	$	—		$	33,005
Certificates of deposit	3,600		—		—			3,600
Commercial paper	77,645		3		(8		)	77,640
Corporate bonds	178,981		44		(117		)	178,908
U.S. treasuries	4,801		4		—			4,805
Total available-for-sale investments	$	298,032	$	51	$	(125	)	$	297,958

	December 28, 2013
	Adjusted   Amortized     Cost		Gross   Unrealized     Gains		Gross   Unrealized     Losses			Fair Value
Money market funds	$	51,749	$	—	$	—		$	51,749
Certificates of deposit	3,840		—		—			3,840
Commercial paper	85,870		2		(12		)	85,860
Corporate bonds	150,711		27		(143		)	150,595
U.S. treasuries	4,802		2		—			4,804
Total available-for-sale investments	$	296,972	$	31	$	(155	)	$	296,848

As of March 29, 2014, the Company’s available-for-sale investments in certificates of deposit, commercial paper, corporate bonds, and U.S. treasuries have a contractual maturity term of no more than 16 months. Proceeds from sales and maturities of available-for-sale investments were $57.1 million for the first quarter of 2014. The Company had no net realized gains (losses) on short-term and long-term investments for the first quarter of 2014. The specific identification method is used to account for gains and losses on available-for-sale investments.

9

As of March 29, 2014 and December 28, 2013, the Company held $46.8 million and $64.6 million of cash in banks, respectively.

Other-Than-Temporary Impairments

As a result of the Company’s disposal of $3.1 million auction rate securities (par value) during the three months ended March 30, 2013, it recorded an approximately $0.2 million gain, which was recognized as Other gain (loss) in the Company’s condensed consolidated statements of operations.

A roll-forward of amortized cost, cumulative other-than-temporary impairments ("OTTI") recognized in earnings and Accumulated other comprehensive loss is as follows (in thousands):

	Amortized Cost			Cumulative OTTI in Earnings			Unrealized Gain			OTTI Loss in Accumulated Other Comprehensive Loss			Accumulated Other Comprehensive Income (Loss)
Balance at December 29, 2012	$	2,707		$	(394	)	$	784		$	(618	)	$	166
Call on investments	(87		)	13			(25		)	20			(5		)
Investments sold	(2,620		)	381			(759		)	598			(161		)
Balance at March 30, 2013	$	—		$	—		$	—		$	—		$	—

4. Cost-method Investment

As of March 29, 2014, the Company’s investment in a privately-held company was $9.0 million. This investment is accounted for as a cost-method investment, as the Company owns less than 20% of the voting securities and does not have the ability to exercise significant influence over operating and financial policies of the entity. The Company’s cost-method investment is carried at historical cost in its condensed consolidated financial statements and measured at fair value on a nonrecurring basis. If the Company believes that the carrying value of the cost basis investment is in excess of estimated fair value, the Company’s policy is to record an impairment charge in Other income (expense), net in the accompanying condensed consolidated statements of operations to adjust the carrying value to estimated fair value, when the impairment is deemed other-than-temporary. The Company regularly evaluates the carrying value of this cost-method investment for impairment. As of March 29, 2014, no event had occurred that would adversely affect the carrying value of this investment, therefore, the fair value of the cost-method investment is not estimated. The Company did not record any impairment charges for this cost-method investment during the three months ended March 29, 2014 and March 30, 2013.

5. Derivative Instruments

Foreign Currency Exchange Forward Contracts

The Company enters into foreign currency exchange forward contracts to manage its exposure to fluctuations in foreign exchange rates that arise primarily from its euro and British pound denominated receivables and euro denominated restricted cash balance amounts that are pledged as collateral for certain stand-by and commercial letters of credit. Gains and losses on these contracts are intended to offset the impact of foreign exchange rate fluctuations on the underlying foreign currency denominated accounts receivables and restricted cash, and therefore, do not subject the Company to material balance sheet risk. The forward contracts are with one high-quality institution and the Company consistently monitors the creditworthiness of the counterparty. The forward contracts entered into during the first quarter of 2014 were denominated in euros and British pound, and had maturities of no more than 35 days. The contracts are settled for U.S. dollars at maturity at rates agreed to at inception of the contracts.

As of March 29, 2014, the Company did not designate foreign currency exchange forward contracts as hedges for accounting purposes, and accordingly changes in the fair value of these instruments are included in Other gain (loss), net in the accompanying condensed consolidated statements of operations. For the first quarter of 2014, the before-tax effect of foreign currency exchange forward contracts not designated as hedging instruments was a loss of $0.4 million included in Other gain (loss), net in the condensed consolidated statements of operations.

The fair value of derivative instruments not designated as hedging instruments in the Company’s condensed consolidated balance sheets was as follows (in thousands):

10

	As of March 29, 2014							As of December 28, 2013
	Gross Notional(1)		Prepaid Expenses and Other Assets		Other Accrued    Liabilities			Gross    Notional(1)		Prepaid Expenses and Other Assets		Other Accrued    Liabilities
Foreign currency exchange forward contracts
Related to euro denominated receivables	$	20,609	—		$	(72	)	$	16,867	27		$	—
Related to British pound denominated receivables	912		—		(3		)	—		—		(26		)
Related to restricted cash	1,392		—		(5		)	1,391		2		—
	$	22,913	$	—	$	(80	)	$	18,258	$	29	$	(26	)

 _________________

⁽¹⁾  Represents the face amounts of forward contracts that were outstanding as of the period noted.

6. Balance Sheet Details

The following table provides details of selected balance sheet items (in thousands):

	March 29, 2014			December 28, 2013
Inventory:
Raw materials	$	13,199		$	14,311
Work in process	47,746			49,172
Finished goods (1)	65,520			60,202
Total inventory	$	126,465		$	123,685
Property, plant and equipment, net:
Computer hardware	$	10,053		$	9,692
Computer software(2)	17,236			16,988
Laboratory and manufacturing equipment	151,132			146,834
Furniture and fixtures	1,346			1,347
Leasehold improvements	36,006			35,913
Construction in progress	9,218			8,950
Subtotal	$	224,991		$	219,724
Less accumulated depreciation and amortization	(146,190		)	(140,056		)
Total property, plant and equipment, net	$	78,801		$	79,668
Accrued expenses:
Loss contingency related to non-cancelable purchase commitments	$	3,454		$	5,120
Professional and other consulting fees	1,534			1,411
Taxes payable	2,693			2,372
Royalties	1,503			1,540
Accrued rebate and customer prepay liability	644			3,807
Accrued interest on convertible senior notes	875			219
Other accrued expenses	9,541			7,962
Total accrued expenses	$	20,244		$	22,431

 _________________

⁽¹⁾  Included in finished goods inventory at March 29, 2014 and December 28, 2013 were $8.0 million and $9.2 million, respectively, of inventory at customer locations for which product acceptance had not occurred.

⁽²⁾  Included in computer software at March 29, 2014 and December 28, 2013 were $7.9 million and $7.9 million, respectively, related to an enterprise resource planning ("ERP") system that the Company implemented

11

during 2012. The unamortized ERP costs at March 29, 2014 and December 28, 2013 were $6.0 million and $6.3 million, respectively.

Restricted Cash

The Company’s long-term restricted cash balance is primarily comprised of certificates of deposit, of which the majority is not insured by the Federal Deposit Insurance Corporation. These amounts primarily collateralize the Company’s issuances of stand-by and commercial letters of credit. Additionally, the Company’s restricted cash balance includes a leave encashment fund for India employees and a corporate bank card deposit for employees in the United Kingdom.

The following table sets forth the Company's outstanding standby letters of credit (in thousands):

	March 29,		December 28,
	2014		2013
Value added tax license	$	1,463	$	1,430
Customer proposal guarantee	1,876		1,446
Property leases	699		699
Total standby letters of credit	$	4,038	$	3,575

7. Comprehensive Loss

Other comprehensive loss includes certain changes in equity that are excluded from net loss. The following table sets forth the changes in accumulated other comprehensive loss by component for the first quarter of 2014 (in thousands):

	Unrealized Gain on Other Available-for-Sale Securities			Foreign Currency Translation			Accumulated      Tax Effect			Total
Balance at December 28, 2013	$	(124	)	$	(2,602	)	$	(760	)	$	(3,486	)
Net current-period other comprehensive loss	50			244			(20		)	274
Balance at March 29, 2014	$	(74	)	$	(2,358	)	$	(780	)	$	(3,212	)

8. 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 vesting of outstanding restricted stock units (“RSUs”) and performance stock units (“PSUs”), assumed conversion of convertible senior notes, and assumed issuance of stock under the Company’s employee stock purchase plan (“ESPP”) using the treasury stock method. The Company includes the common shares underlying PSUs in the calculation of diluted net income per share when they become contingently issuable and excludes such shares when they are not contingently issuable. In net loss periods, these potentially diluted common shares are anti-dilutive and therefore, excluded from the diluted net loss calculation.

12

The following table sets forth the computation of loss per common share – basic and diluted (in thousands, except per share amounts):

	Three Months Ended
	March 29, 2014			March 30, 2013
Net loss	$	(4,374	)	$	(15,279	)
Weighted average common shares outstanding - basic and diluted	121,352			114,308
Net loss per common share - basic and diluted	$	(0.04	)	$	(0.13	)

The Company had the following equity awards outstanding that could potentially dilute basic net loss per common share in the future, but were excluded from the computation of diluted loss per common share in the periods presented as their effect would have been anti-dilutive under the treasury stock method (in thousands):

	Three Months Ended
	March 29, 2014	March 30, 2013
Stock options	6,135	8,591
Restricted stock units	5,386	5,407
Performance stock units	763	553
Employee stock purchase plan shares	431	601
Total	12,715	15,152

In the first quarter of 2014, the Company excluded the potential shares issued upon early conversion of the convertible senior notes in the calculation of diluted earnings per share because the market price was below the conversion price. In the future, the Company would include these dilutive effects of the convertible senior notes in the calculation of diluted net income per common share if the market price is above the conversion price. Upon conversion of the convertible senior notes, it is the Company’s intention to pay cash equal to the lesser of the aggregate principal amount or the conversion value of the Notes being converted, therefore, only the conversion spread relating to the notes would be included in the Company’s diluted earnings per share calculation unless their effect is anti-dilutive.

9. Convertible Senior Notes

In May 2013, the Company issued $150.0 million of 1.75% convertible senior notes due June 1, 2018 (the “Notes”). The Notes will mature on June 1, 2018, unless earlier purchased by the Company or converted. Interest is payable semi-annually in arrears on June 1 and December 1 of each year, commencing December 1, 2013. The net proceeds to the Company were approximately $144.5 million.

The Notes are governed by an indenture dated as of May 30, 2013 (the “Indenture”), between the Company, as issuer, and U.S. Bank National Association, as trustee. The Notes are unsecured and do not contain any financial covenants or any restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of securities by the Company.

Upon conversion, it is the Company’s intention to pay cash equal to the lesser of the aggregate principal amount and the conversion value of the Notes being converted and cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, for any remaining conversion obligation. The initial conversion rate is 79.4834 shares of common stock per $1,000 principal amount of Notes, subject to anti-dilution adjustments. The initial conversion price is approximately $12.58 per share of common stock.

Throughout the term of the Notes, the conversion rate may be adjusted upon the occurrence of certain events, including for any cash dividends. Holders of the Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a Note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than canceled, extinguished or forfeited. Holders may convert their Notes under the following circumstances:

• during any fiscal quarter commencing after the fiscal quarter ending on September 28, 2013 (and only during such fiscal quarter) if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last

13

trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

• during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

• upon the occurrence of specified corporate events described under the Indenture, such as a consolidation, merger or binding share exchange; or

• at any time on or after December 1, 2017 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the foregoing circumstances.

If the Company undergoes a fundamental change as defined in the Indenture governing the Notes, holders may require the Company to repurchase for cash all or any portion of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, upon the occurrence of a “make-whole fundamental change” (as defined in the Indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change.

The amounts recorded in connection with the issuance of the Notes consisted of the following (in thousands):

	Other Non-     Current Assets			Long-term      Debt			Additional Paid- in Capital
Principal amount	$	—		$	150,000		$	—
Debt discount	—			(45,000		)	—
Equity component	—			—			45,000
Debt issuance cost	3,872			—			(1,659		)
Initial transaction amounts	$	3,872		$	105,000		$	43,341
Amortization of debt issuance cost	(518		)	—			—
Amortization of debt discount	—			6,024			—
Net carrying amount at March 29, 2014	$	3,354		$	111,024		$	43,341

In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the Notes. The remaining debt discount amount to be amortized over the remaining five years until maturity of the Notes was $39.0 million as of March 29, 2014.

In accounting for the issuance costs of $5.5 million related to the Notes, the Company allocated the total amount incurred to the liability and equity components of the Notes based on their relative values. Issuance costs attributable to the liability component were recorded as Other non-current assets and will be amortized to interest expense over the term of the Notes. The issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity. Additionally, the Company initially recorded a deferred tax liability of $17.0 million in connection with the issuance of the Notes, and a corresponding reduction in valuation allowance. The impact of both was recorded to stockholders’ equity.

The Company determined that the embedded conversion option in the Notes does not require separate accounting treatment as a derivative instrument because it is both indexed to the Company’s own stock and would be classified in stockholder’s equity if freestanding.

The following table sets forth total interest expense recognized related to the Notes (in thousands):

14

	Three Months Ended
	March 29, 2014
Contractual interest expense	$	657
Amortization of debt issuance costs	160
Amortization of debt discount	1,860
Total interest expense	$	2,677

The effective interest rate of the liability component was 1.75%. The excess of the principal amount of the liability component over its carrying amount is amortized, using an effective interest rate of 5.12%, to interest expense over the term of the Notes.

As of March 29, 2014, the fair value of the Notes was $155.4 million. The fair value was determined based on the quoted bid price of the Notes in an over-the-counter market on March 28, 2014. The Notes are classified as Level 2 of the fair value hierarchy. Based on the closing price of the Company’s common stock of $8.76 on March 28, 2014, the if-converted value of the Notes was less than their principal amount.

10. Stockholders’ Equity

Stock-based Compensation Plans

The Company has stock-based compensation plans pursuant to which the Company has granted stock options, RSUs and PSUs. The Company also has an ESPP for all eligible employees. As of March 29, 2014, there were a total of 19.2 million shares of common stock available for grant under the Company’s 2007 Equity Incentive Plan ("2007 Plan"). The following tables summarize the Company’s equity award activity and related information (in thousands, except per share data):

	Number of Options		Weighted-Average Exercise Price   Per Share		Aggregate   Intrinsic Value
Outstanding at December 28, 2013	6,367		$	7.26	$	17,452
Options granted	25		$	9.02
Options exercised	(227	)	$	5.85	$	649
Options canceled	(30	)	$	10.30
Outstanding at March 29, 2014	6,135		$	7.30	$	10,841
Vested and expected to vest as of March 29, 2014	6,130				$	10,835
Exercisable at March 29, 2014	5,976		$	7.29	$	10,636

	Number of Restricted Stock Units		Weighted- Average  Grant Date  Fair Value Per Share		Aggregate   Intrinsic Value
Outstanding at December 28, 2013	6,583		$	7.72	$	64,443
RSUs granted	490		$	8.64
RSUs released	(1,541	)	$	7.91	$	12,981
RSUs canceled	(146	)	$	7.02
Outstanding at March 29, 2014	5,386		$	7.77	$	47,181
Expected to vest at March 29, 2014	5,198				$	45,539

15

	Number of Performance Stock Units		Weighted- Average  Grant Date  Fair Value Per Share		Aggregate   Intrinsic Value
Outstanding at December 28, 2013	721		$	7.04	$	7,054
PSUs granted	338		$	6.62
PSUs released	(255	)	$	6.36	$	2,097
PSUs canceled	(41	)	$	7.25
Outstanding at March 29, 2014	763		$	7.04	$	6,684
Expected to vest at March 29, 2014	541				$	4,738

The aggregate intrinsic value of unexercised options, unreleased RSUs and unreleased PSUs is calculated as the difference between the closing price of the Company’s common stock of $8.76 at March 28, 2014 and the exercise prices of the underlying equity awards. The aggregate intrinsic value of the options that have been exercised and RSUs released is calculated as the difference between the fair market value of the common stock at the date of exercise or release and the exercise price of the underlying equity awards.

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 March 29, 2014. These costs are expected to be amortized on a straight-line basis over the following weighted-average periods (in thousands, except for weighted-average period):

	Unrecognized Compensation Expense, Net	Weighted- Average Period (in years)
Stock options	543	1.7
RSUs	28,289	2.3
PSUs	2,759	1.8

Employee Stock Options

The estimated values of stock options, as well as assumptions used in calculating these values were based on estimates as follows (expense amounts in thousands):

	Three Months Ended
Employee and Director Stock Options	March 29, 2014	March 30, 2013
Volatility	52%	N/A
Risk-free interest rate	1.30%	N/A
Expected life	4.3 years	N/A
Estimated fair value	$3.85	N/A
Total stock-based compensation expense	$388	$803

_________________

N/A Not applicable because the Company did not grant any options to employees for the periods presented.

16

Employee Stock Purchase Plan

The fair value of the ESPP shares was estimated at the date of grant using the following assumptions (expense amounts in thousands):

	Three Months Ended
Employee Stock Purchase Plan	March 29, 2014	March 30, 2013
Volatility	51%	46%
Risk-free interest rate	0.11%	0.14%
Expected life	0.5 years	0.5 years
Estimated fair value	$2.57	$1.87
Total stock-based compensation expense	$791	$708

Restricted Stock Units

During the first quarter of 2014, the Company granted RSUs to employees and members of the Company’s board of directors to receive an aggregate of 0.5 million shares of the Company’s common stock. 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 related to RSUs in the three months ended March 29, 2014 and March 30, 2013 was approximately $5.1 million and $6.9 million, respectively.

Performance Stock Units

Pursuant to the Company’s 2007 Plan, during fiscal 2012, the Company granted 0.5 million shares of PSUs to certain of its executive officers. These PSUs will only vest upon the achievement of certain specific revenue and operating profit criteria and are subject to each named executive officer’s continued service to the Company. If the financial performance metrics are not met within the time limits specified in the award agreements, the PSUs will be canceled. During the first quarter of 2014, the Company did not release any shares subject to the PSUs upon achievement of the performance goals.

Pursuant to the Company’s 2007 Plan, during fiscal 2013, the Company granted 0.6 million shares of PSUs to certain of its executive officers. The number of shares to be issued upon vesting of PSUs range from 0 to 1.5 times the number of PSUs granted depending on the relative performance of the Company’s common stock price compared to the NASDAQ Telecom Composite Index over the span of one, two and three years of total shareholder returns. During the first quarter of 2014, the Company released 0.3 million shares of PSUs based on a payout of 1.5 times of the target number of PSUs.

The ranges of estimated values of the PSUs granted, as well as assumptions used in calculating these values were based on estimates as follows:

	Year Ended
	December 28, 2013
Infinera Volatility	55%
NASDAQ Telecom Composite Index Volatility	23%
Risk-free interest rate	0.42%
Correlation with NASDAQ Telecom Composite Index	0.56
Estimated fair value	$6.27 - $7.06

Pursuant to the Company's 2007 Plan, during the first quarter of 2014, the Company granted 0.3 million shares of PSUs to certain of its executive officers. The number of shares to be issued upon vesting of PSUs range from 0 to 1.5 times the number of PSUs granted depending on the relative performance of the Company's common stock price compared to the iShares North American Tech-Multimedia Networking ("IGN") Index over the span of one, two and three years of total shareholder returns.

17

The ranges of estimated values of the PSUs granted, as well as assumptions used in calculating these values were based on estimates as follows:

	Three Months Ended
	March 29, 2014
Infinera Volatility	49%
IGN Index Volatility	25%
Risk-free interest rate	0.66%
Correlation with IGN Index	0.60
Estimated fair value	$6.61 - $7.60

Amortization of stock-based compensation related to PSUs in the first quarter of 2014 was approximately $0.4 million. Amortization of stock-based compensation related to PSUs in the first quarter of 2013 was a credit of approximately $0.8 million, including $0.6 million of expense offset by a $1.4 million decrease in fair value for one award classified as a liability award, in accordance with Accounting Standard Codification 718, "Compensation - Stock Compensation."

Stock-Based Compensation

The following tables summarize the effects of stock-based compensation on the Company’s condensed consolidated balance sheets and statements of operations for the periods presented (in thousands):

	March 29, 2014		December 28, 2013
Stock-based compensation effects in inventory	$	3,219	$	3,189
Stock-based compensation effects in deferred inventory cost	$	14	$	15
Stock-based compensation effects in fixed assets	$	139	$	145

	Three Months Ended
	March 29, 2014		March 30, 2013
Stock-based compensation effects included in net loss before income taxes
Cost of revenue	$	452	$	486
Research and development	2,138		3,119
Sales and marketing	1,720		1,999
General and administration	1,530		769
	5,840		6,373
Cost of revenue – amortization from balance sheet (1)	832		1,602
Total stock-based compensation expense	$	6,672	$	7,975

_________________

⁽¹⁾  Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.

11. Income Taxes

Provision for income taxes for the three months ended March 29, 2014 was $0.2 million, or negative 6.0%, on a pre-tax loss of $4.1 million. This compared to a tax provision of $0.3 million, or negative 2.2%, on a pre-tax loss of $14.9 million for the three months ended March 30, 2013. The difference between the Company’s effective tax rates and the federal statutory rate of 35% is primarily attributable to U.S. losses, foreign taxes provided on the income of the Company’s foreign subsidiaries, non-deductible stock-based compensation expense and various discrete items. The release of transfer pricing reserves in the future will have a beneficial impact to tax expense, but the timing of the impact depends on factors such as expiration of the statute of limitations or settlements with tax authorities. No significant releases are expected in the near future based on information available at this time.

18

The realization of tax benefits of deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are scheduled to be deductible or taxable. Based on the available objective evidence, management believes it is more likely than not that the domestic net deferred tax assets will not be realizable. Accordingly, the Company has provided a full valuation allowance against its domestic deferred tax assets, net of deferred tax liabilities, as of March 29, 2014 and December 28, 2013. In determining future taxable income, the Company makes assumptions to forecast federal, state and international operating income, the reversal of taxable temporary differences, and the implementation of any feasible and prudent tax planning strategies. The assumptions require judgment regarding the forecasts of future taxable income and are consistent with the Company’s forecasts used to manage its business. The Company intends to maintain the remaining valuation allowance until sufficient positive evidence exists to support a reversal of, or decrease, in the valuation allowance.

12. 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, and there are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level. Accordingly, the Company is considered to be in a single reporting segment and operating unit structure.

Revenue by geographic region is based on the shipping address of the customer. The following tables set forth revenue and long-lived assets by geographic region (in thousands):

Revenue

	Three Months Ended
	March 29, 2014		March 30, 2013
Americas:
United States	$	110,691	$	79,073
Other Americas	3,536		718
	114,227		79,791
Europe, Middle East and Africa	25,613		38,806
Asia Pacific and Japan	2,975		6,028
Total revenue	$	142,815	$	124,625

Property, plant and equipment, net

	March 29, 2014		December 28, 2013
United States	$	76,029	$	76,850
Other Americas	275		319
Europe, Middle East and Africa	1,027		1,451
Asia Pacific and Japan	1,470		1,048
Total property, plant and equipment, net	$	78,801	$	79,668

13. Guarantees

Product Warranties

Upon delivery of products, the Company provides for the estimated cost to repair or replace products including the related components that may be returned under hardware warranties. In general, hardware warranty periods range from one to five years. Hardware warranties provide the purchaser with protection in the event that the product does not perform to product specifications. During the warranty period, the purchaser’s sole and exclusive remedy in the event of such defect or failure to perform is limited to the correction of the defect or failure by repair or replacement. The Company estimates its hardware warranty obligations based on the Company’s historical

19

experience of known product failure rates, use of materials and labor to repair or replace defective products, and service delivery costs incurred in correcting product failures. In addition, from time to time, specific hardware warranty accruals may be made if unforeseen technical problems arise with specific products. Management periodically assesses the adequacy of the Company’s recorded warranty liabilities and adjusts the amounts as necessary.

Activity related to product warranty was as follows (in thousands):

	Three Months Ended
	March 29, 2014			March 30, 2013
Beginning balance	$	22,908		$	16,482
Charges to operations	5,561			4,168
Utilization	(3,242		)	(2,083		)
Change in estimate (1)	1,158			(1,895		)
Balance at the end of the period	$	26,385		$	16,672

⁽¹⁾  The Company records hardware warranty liabilities based on the latest quality and cost information available as of that date. The changes in estimate shown here are due to changes in overall actual failure rates and the resulting impact of these changes on the Company’s estimate of expected future returns, as well aschanges in the estimated cost of replacing failed units with either repaired or new units.

14. Litigation and Contingencies

Legal Matters

From time to time, 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.

Cambrian Science Patent Infringement Litigation

On July 12, 2011, the Company was notified by Level 3 that Cambrian Science Corporation (“Cambrian”) filed suit against Level 3 and six other defendants, including Cox Communications, Inc., XO Communications, LLC, Global Crossing Limited, 360Networks (USA), Inc., Integra Telecom, Inc. and IXC, Inc. dba Telekenex (collectively, the “Defendants”) in the U.S. District Court for the Central District of California alleging infringement of patent no. 6,775,312 (the “’312 Patent”) and requesting damages for such alleged infringement (the “Cambrian Claim”). The nature of the Cambrian Claim involves allegations of infringement of the ’312 Patent resulting from the Defendants’ use of certain products and systems in the Defendants’ networks, including our DTN platform. On August 24, 2011, Cambrian amended the complaint to name the Company as a defendant. The Company assumed the defense of the Cambrian Claim and filed an answer to Cambrian’s complaint on September 21, 2011, in which the Company denied infringement of the ‘312 Patent and raised other defenses. Cambrian filed a second amended complaint on October 6, 2011, which included many of the same allegations as in the original complaint. The Company filed its answer to the second amended complaint on October 21, 2011, in which the Company maintained the same denials and defenses as in the Company’s initial answer. On December 23, 2011, the Company filed a motion requesting that the court stay the case with respect to each of the above-noted customer Defendants. Cambrian filed its opposition to the Company’s motion on December 30, 2011. The Company’s request was denied in the court’s decision on March 7, 2012. The Company presented evidence on the appropriate meanings of relevant key words used in the patent claims during a claim construction hearing on November 20, 2012.

On June 17, 2013, the court issued an order regarding claim construction, in which the court agreed with almost all of the Company’s proposed claim constructions. On October 17, 2013, the parties met for a court-mandated mediation. On April 14, 2014, the Company filed three motions for summary judgment relating to non-infringement and damages. The court scheduled a hearing on the summary judgment motions for June 9, 2014. The court also scheduled a pretrial conference for July 7, 2014, and the jury trial is set to begin on July 22, 2014. 

Based on the information available at this time, the Company concluded that the likelihood of a loss with respect to this suit is reasonably possible. The Company has further concluded that the range of the reasonably

20

possible loss is an insignificant amount and will not have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or cash flows. Accordingly, the Company accrued an insignificant amount during 2013, which did not have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or cash flows. Factors that the Company considered in the determination of the likelihood of a loss and the estimate of that loss in respect to this matter included the merits of the case, the nature of the litigation (including the complex and technical nature of patent litigation), the length of time the matter has been pending, the status of the plaintiff as a non-operating entity and the likelihood of the plaintiff accepting the estimated amount. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties.

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 March 29, 2014, the Company has not accrued or recorded any such material liabilities.

21

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

This quarterly report on Form 10-Q contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include our expectations regarding earnings, revenue, gross margins, expenses and other financial items; any statements of the plans, strategies and objectives of management for future operations and personnel; factors that may affect our operating results; statements concerning new products or services, including future PIC capacity and new product costs, delivery dates and revenues; statements related to capital expenditures; statements related to future economic conditions, performance, market growth or our sales cycle; statements related to our convertible senior notes issued in May 2013; statements related to the effects of litigation on our financial position, results of operations, or cash flows; 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 elsewhere in this Form 10-Q and in our other SEC filings, including our annual report on Form 10-K for the fiscal year ended December 28, 2013 filed on February 21, 2014. 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 condensed consolidated financial statements and notes thereto included elsewhere in this quarterly report on Form 10-Q.

Overview

We were founded in December 2000 with a unique vision for optical networking. Prior to us, communications service provider optical networks were built from fairly commoditized products, broadly known as wavelength division multiplexing (“WDM”) systems. Recent growth in bandwidth demand has increased the need for the delivery of high-capacity low-cost bandwidth throughout the network. We believe that traditional point-to-point network architectures do not provide the required flexibility to meet this demand. It takes large amounts of low-cost bandwidth, pervasive Optical Transport Network (“OTN”) switching, and the intelligence of bandwidth management to manage these larger networks and deliver high-capacity services quickly and cost-effectively. We believe this can best be achieved with photonic integrated circuits (“PICs”) and that only through photonic integration can network operators efficiently scale their network bandwidth without significant increases in space, power or operational workload.

We provide optical transport networking equipment, software and services to communications service providers, internet content providers, cable operators and subsea network operators (collectively, “Service Providers”) across the globe. Optical transport networks are deployed by Service Providers facing significant demands for transmission capacity prompted by increased use of high-speed Internet access, mobile broadband, high-definition video streaming services, business Ethernet services, cloud-based services and wholesale bandwidth services.

We call our solution for Service Providers the Infinera Intelligent Transport Network. The Infinera Intelligent Transport Network is an architecture for Service Providers to address the increasing demand for cloud-based services and data center connectivity. In addition, this helps Service Providers use time as a weapon to increase revenues with reliable, differentiated services while reducing operating costs through scale, multi-layer convergence and automation. The Infinera Intelligent Transport Network is based on platforms built with our unique PICs.

Traffic patterns in the optical network continue to grow to accommodate increased demands for transmission capacity prompted by increased use of high-speed Internet access, mobile broadband, streaming high-definition video services, business Ethernet services, cloud-based services and wholesale bandwidth services. We believe that the Infinera Intelligent Transport Network architecture is uniquely enabled to deliver improvements in these areas compared to competitive WDM systems that still rely on discrete optical components rather than PICs. We also believe that this enables Service Providers to deploy reliable, high-capacity, efficient optical network solutions

22

that are easy to use and to improve the integration between the layers of Service Provider networks with the lowest total cost of ownership.

Our DTN platform currently supports 10 Gigabits per second ("Gbps") and 40 Gbps WDM transmission capacity combined with integrated switching capabilities. Our DTN-X platform supports 100 Gbps WDM transmission capacity with 500 Gbps super-channels and also integrates 5 Terabits per second of OTN switching capacity in a single bay. The DTN-X platform leverages the unique capabilities of our 500 Gbps PICs to deliver high-capacity Intelligent Transport Networks that reduce power, cooling and space, while simplifying transport network operations. The ATN platform supports direct wavelength connectivity to DTN and DTN-X nodes, reducing equipment costs and providing unique network management capabilities across our Intelligent Transport Network.

As of March 29, 2014, we have sold our network systems for deployment in the optical networks of 131 customers worldwide, including CenturyLink, Colt, Cox Communications, DANTE, Deutsche Telekom, Equinix, Interoute, KDDI, Level 3, NTT, OTE, Pacnet, Rostelecom, Telefonica, TeliaSonera International and Vodafone. Since the commencement of shipping our DTN-X platform in the second quarter of 2012, we have 42 customers who have purchased our DTN-X platform.

We do not have long-term sales commitments from our customers. To date, a few of our customers have accounted for a significant portion of our revenue. Two customers accounted for over 10% of our revenue in the first quarter of 2014, and one of these customers accounted for over 10% of our revenue in the corresponding period in 2013.

We are headquartered in Sunnyvale, California, with employees located throughout the Americas, Europe and the Asia Pacific region. We expect to continue to add personnel in the United States and internationally to develop our products and provide additional geographic sales and technical support coverage. We primarily sell our products through our direct sales force, with a small portion sold indirectly through resellers. We derived 98% and 97% of our revenue from direct sales to customers in the three months ended March 29, 2014 and March 30, 2013, respectively. Our strategy is to leverage reseller channels where appropriate to expand our presence in certain geographies; however, we expect to continue generating a substantial majority of our revenue from direct sales.

In 2014, we intend to continue to leverage the DTN-X platform to increase revenue and expand our market share as customers extend deployments of 100 Gbps transport solutions in their networks. This focus on revenue growth will be balanced with overall prudent financial management and continued efforts to drive cost improvements across all of our products and services. We believe that with sustained revenue growth, we can leverage our vertically-integrated manufacturing model, which combined with selling bandwidth capacity into deployed networks, can result in improved future profitability and cash flow.

Our near-term year-over-year and quarter-over-quarter revenue will likely be volatile and may be impacted by several factors including general economic and market conditions, time-to-market development of new products, acquisitions of new customers and the timing of large product deployments.

We will continue to make significant investments in the business as we develop new capabilities in the long-haul optical transport market and adjacent markets.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which we have prepared in accordance with the United States generally accepted accounting principles ("U.S. GAAP"). The preparation of these financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. Management believes that there have been no significant changes during the three months ended March 29, 2014 to the items that we disclosed as our critical accounting policies and estimates in

23

Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 28, 2013.

Results of Operations

The following sets forth, for the periods presented, certain unaudited condensed consolidated statements of operations information (in thousands, except percentages):

	Three Months Ended
	March 29, 2014				March 30, 2013
	Amount		% of total   revenue		Amount		% of total   revenue		Change			% Change
Revenue:
Product	$	124,242	87	%	$	108,343	87	%	$	15,899		15	%
Services	18,573		13	%	16,282		13	%	2,291			14	%
Total revenue	$	142,815	100	%	$	124,625	100	%	$	18,190		15	%
Cost of revenue:
Product	$	78,438	55	%	$	75,447	61	%	$	2,991		4	%
Services	5,971		4	%	6,476		5	%	(505		)	(8	)%
Total cost of revenue	$	84,409	59	%	$	81,923	66	%	$	2,486		3	%
Gross profit	$	58,406	41	%	$	42,702	34	%	$	15,704		37	%

The following table summarizes our revenue by geography and sales channel for the periods presented (in thousands, except percentages):

	Three Months Ended
	March 29, 2014				March 30, 2013
	Amount		% of total revenue		Amount		% of total revenue		Change			% Change
Total revenue by geography
Domestic	$	110,691	78	%	$	79,073	63	%	$	31,618		40	%
International	32,124		22	%	45,552		37	%	(13,428		)	(29	)%
	$	142,815	100	%	$	124,625	100	%	$	18,190		15	%
Total revenue by sales channel
Direct	$	140,474	98	%	$	120,848	97	%	$	19,626		16	%
Indirect	2,341		2	%	3,777		3	%	(1,436		)	(38	)%
	$	142,815	100	%	$	124,625	100	%	$	18,190		15	%

Revenue

Total revenue increased by $18.2 million, or 15%, during the first quarter of 2014 compared to the corresponding period in 2013. We continued to experience sales growth in our DTN-X platform during the first quarter of 2014 as demand for 100 Gbps network deployments continued to increase. This increase in DTN-X platform revenue was partially offset by a reduction in sales of our DTN platform.

Total product revenue increased by $15.9 million, or 15%, during the first quarter of 2014 compared to the corresponding period in 2013. This increase was primarily due to higher sales of our DTN-X platform to an expanded customer base during the first quarter of 2014 reflecting the benefits from the continued investment cycle in 100 Gbps network deployments.

Total services revenue increased by $2.3 million, or 14%, during the first quarter of 2014 compared to the corresponding period in 2013. This increase was due to the higher levels of deployment services revenue as we continue to expand our customer base and incremental recognition of ongoing maintenance services revenue. As our installed customer base grows, we expect to continue to grow our services revenue in future periods.

24

International revenue decreased by $13.4 million and decreased to 22% of total revenue for the first quarter of 2014 from 37% of total revenue in the corresponding period in 2013. As a percentage of total revenue, international revenue decreased during the first quarter of 2014  due to strong demand within North America. In absolute dollars, international revenue decreased as a result of the timing of new deployments in Europe, Asia Pacific and Japan. While we expect international revenue to grow in absolute dollars on a long-term basis as we increase our sales activities in Europe, Asia Pacific, Japan and other regions, international revenue may fluctuate as a percentage of total revenue depending on the size and timing of deployments both internationally and in the United States.

We believe that our DTN-X platform is well positioned as existing customers continue to build out their routes and as we gain new opportunities to increase network footprint in the long-haul optical transport and adjacent markets. We currently expect that these dynamics will drive our revenue growth moderately higher in the second quarter of 2014 as compared to the first quarter of 2014.

Cost of Revenue and Gross Margin

Gross margin increased to 41% in the first quarter of 2014 from 34% in the corresponding period of 2013. This increase was primarily due to improvements in revenue mix, including an increased level of higher margin network fill revenue to an expanded customer base for the first quarter of 2014. In addition, we experienced ongoing improvements in manufacturing yields and product costs that added to the overall improvement in gross margin.

Based on our current outlook, we expect that gross margin in 2014 will remain constrained in a period when we expect to deploy significant amounts of new network footprint and expanding our share in existing accounts.

Operating Expenses

The following tables summarize our operating expenses for the periods presented (in thousands, except percentages):

	Three Months Ended
	March 29, 2014				March 30, 2013
	Amount		% of total   revenue		Amount		% of total   revenue		Change			% Change
Operating expenses:
Research and development	$	29,346	21	%	$	29,726	24	%	$	(380	)	(1)	%
Sales and marketing	17,862		13	%	18,046		14	%	(184		)	(1)	%
General and administrative	12,254		9	%	9,872		8	%	2,382			24	%
Total operating expenses	$	59,462	43	%	$	57,644	46	%	$	1,818		3	%

Research and Development Expenses

Research and development expenses decreased by $0.4 million, or 1%, in the first quarter of 2014 compared to the corresponding period in 2013 primarily due to a $1.9 million decrease in prototype and non-recurring engineering expense due to timing of projects, offset by $1.5 million of increased compensation and personnel-related costs due to an increase in headcount to support continued development both within the long-haul optical transport market and also adjacent markets.  

Sales and Marketing Expenses

Sales and marketing expenses decreased by $0.2 million, or 1%, during the first quarter of 2014 compared to the corresponding period in 2013 primarily due to lower costs of customer lab trials and decreased commission expenses. These decreases were partially offset by increased marketing related expenses of $0.5 million due to higher headcount to support continued expansion of our business.

General and Administrative Expenses

General and administrative expenses increased by $2.4 million, or 24%, during the first quarter of 2014 compared to the corresponding period in 2013 primarily due to higher compensation and personnel-related costs of $1.5 million due to an increase in headcount along with increased costs for professional outside services of $0.8 million.  

25

Other Income (Expense), Net

	Three Months Ended
	March 29, 2014			March 30, 2013			Change			% Change
	(In thousands)
Interest income	$	336		$	197		$	139		71	%
Interest expense	(2,677		)	—			(2,677		)	(100	)%
Other gain (loss), net	(729		)	(203		)	(526		)	259	%
Total other income (expense), net	$	(3,070	)	$	(6	)	$	(3,064	)	51,067	%

Interest income increased by $0.1 million in the first quarter of 2014 compared to the corresponding period in 2013. This small increase was primarily driven by a higher investment balance as a result of both our cash generated from operations over the past year and the proceeds from the issuance in May 2013 of $150.0 million aggregate principal amount of 1.75% convertible senior notes due June 1, 2018 (the "Notes"), partially offset by lower investment returns.

Interest expense for the first quarter of 2014 consisted of cash interest payments and amortization of discount and issuance costs related to the Notes.

Other gain (loss), net for the first quarter of 2014 consisted of $0.7 million of realized and unrealized foreign currency transaction loss, as compared to the first quarter of 2013, which consisted of $0.4 million realized and unrealized foreign currency transaction loss partially offset by $0.2 million gain from the disposal of our remaining auction rate securities.

Income Tax Provision

Provision for income taxes for the three months ended March 29, 2014 was $0.2 million on a pre-tax loss of $4.1 million. This compared to a tax provision of $0.3 million on a pre-tax loss of $14.9 million for the three months ended March 30, 2013. The difference between our effective tax rates and the federal statutory rate of 35% is primarily attributable to U.S. losses, foreign taxes provided on the income of our foreign subsidiaries, non-deductible stock-based compensation expense and various discrete items. The release of transfer pricing reserves in the future will have a beneficial impact to tax expense, but the timing of the impact depends on factors such as expiration of the statute of limitations or settlements with tax authorities. No significant releases are expected in the near future based on information available at this time.

Liquidity and Capital Resources

	Three Months Ended
	March 29 2014			March 30, 2013
	(In thousands)
Net cash flow provided by (used in):
Operating activities	$	(15,433	)	$	(21,299	)
Investing activities	$	(29,247	)	$	11,770
Financing activities	$	5,435		$	4,067

	March 29, 2014		December 28, 2013
	(In thousands)
Cash and cash equivalents	$	85,249	$	124,330
Short-term and long-term investments	259,461		237,079
Long-term restricted cash	4,392		3,904
	$	349,102	$	365,313

Cash, cash equivalents and short-term investments consist of highly-liquid investments in certificates of deposits, money market funds, commercial paper, corporate bonds and U.S. treasuries. Long-term investments primarily consist of corporate bonds. The restricted cash balance amounts are primarily pledged as collateral for

26

certain stand-by and commercial letters of credit related to customer proposal guarantees, value added tax licenses and property leases.

Operating Activities

Net cash used in operating activities for the first quarter of 2014 was $15.4 million as compared to $21.3 million for the corresponding period in 2013.

Net loss for the first quarter of 2014 was $4.4 million, as compared to a net loss of $15.3 million for the corresponding period in 2013. Non-cash charges were $15.8 million in the first quarter of 2014 as compared to $14.3 million in the corresponding period in 2013 driven largely by the amortization of debt discount on the Notes we issued during fiscal year 2013.

Net cash used to fund working capital was $26.9 million for the first quarter of 2014. Accounts receivables increased by $6.8 million primarily due to timing of acceptance and invoicing of DTN-X deployments during the period. Inventory increased due to increased levels of DTN-X inventory in anticipation of higher customer shipments in the second quarter of 2014. Accounts payable decreased by $2.1 million primarily reflecting timing of purchases and payments of purchases during the period. Accrued liabilities decreased $13.4 million primarily due to reduced levels of compensation related accruals and the corporate bonus payout in the first quarter of 2014.

Net cash used to fund working capital was $20.3 million for the first quarter of 2013. Inventory increased by $5.0 million primarily due to increased levels of DTN-X inventory. Accounts receivables increased $5.1 million primarily due to the timing of acceptance and invoicing of DTN-X deployments during the period. Accounts payable decreased by $8.0 million due to the timing of purchases and payments of purchases during the period. Accrued liabilities decreased by $6.3 million primarily due to timing of compensation payments.

Investing Activities

Net cash used in investing activities in the first quarter of 2014 was $29.2 million compared to net cash provided by investing activities of $11.8 million in the corresponding period of 2013. Investing activities for the first quarter of 2014 included $23.2 million of net cash used from purchases, maturities and sales of investments in the period and $5.6 million of capital expenditures. In the first quarter of 2014, we purchased more investments with longer maturities compared to the corresponding period in 2013. This was due to the proceeds from the issuance of debt in May 2013 and net cash provided by operating activities throughout 2013. Investing activities for the first quarter of 2013 included net proceeds of $16.6 million from purchases, maturities, calls and sales of investments in the period partially offset by $4.9 million of capital expenditures.

Financing Activities

Net cash provided by financing activities in the first quarter of 2014 was $5.4 million compared to $4.1 million in the corresponding period of 2013. Financing activities for the first quarter of 2014 and the corresponding period in 2013 included net proceeds from the exercise of stock options and issuance of shares under the employee stock purchase plan ("ESPP"). These proceeds were offset by the minimum tax withholdings paid on behalf of employees for net share settlements of restricted stock units.

Liquidity

We believe that our current cash, cash equivalents and investments, together with cash generated from operations, exercise of employee stock options and purchases under our ESPP will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. If these sources of cash are insufficient to satisfy our liquidity requirements beyond 12 months, we may require additional capital from equity or debt financings to fund our operations, to respond to competitive pressures or strategic opportunities, or otherwise. We may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financing may place limits on our financial and operating flexibility. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer dilution in their percentage ownership of us, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock.

In May 2013, we issued the convertible senior notes. The Notes will mature on June 1, 2018, unless earlier purchased by us or converted. Interest is payable semi-annually in arrears on June 1 and December 1 of each year, commencing December 1, 2013. The net proceeds from the Notes issuance were approximately $144.5 million and intended to be used for working capital and other general corporate purposes.

27

Upon conversion, it is our intention to pay cash equal to the lesser of the aggregate principal amount and the conversion value of the Notes as cash, shares of common stock or a combination of cash and shares of common stock, at our election, for any remaining conversion obligation. The carrying value of the Notes was $111.0 million as of March 29, 2014, which represents the liability component of the $150.0 million principal balance, net of $39.0 million debt discount. The debt discount is currently being amortized over the remaining term until maturity of the Notes on June 1, 2018. Any future redemption or conversion of the Notes could impact the timing of the repayment of these Notes.

As of March 29, 2014, contractual obligations related to the Notes are payments of $2.6 million due each year from 2014 through 2017 and $151.3 million due in 2018. These amounts represent principal and interest cash payments over the term of the Notes. Any future redemption or conversion of the Notes could impact the amount or timing of our cash payments. For more information regarding the Notes, see Note 9, “Convertible Senior Notes,” to the Notes to Condensed Consolidated Financial Statements.

As of March 29, 2014, we had $312.0 million of cash, cash equivalents, and short-term investments, including $13.5 million of cash and cash equivalents held by our foreign subsidiaries. Our cash in foreign locations is used for operational and investing activities in those locations, and we do not currently have the need or the intent to repatriate those funds to the United States. Our policy with respect to undistributed foreign subsidiaries’ earnings is to consider those earnings to be indefinitely reinvested. If we were to repatriate these funds, we would be required to accrue and pay U.S. taxes on such amounts, however, due to our significant net operating loss carryforward position for both federal and state tax purposes, as well as the full valuation allowance provided against our U.S. and state net deferred tax assets, we would currently be able to offset any such tax obligations in their entirety. However, foreign withholding taxes may be applicable.

Off-Balance Sheet Arrangements

As of March 29, 2014, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For quantitative and qualitative disclosures about market risk affecting us, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A. of Part II of our Annual Report on Form 10-K for the fiscal year ended December 28, 2013, which is incorporated herein by reference. Our exposure to market risk has not changed materially since December 28, 2013.

Market Risk and Market Interest Risk

Holders may convert the Notes prior to maturity upon the occurrence of certain circumstances. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

As of March 29, 2014, the fair value of the Notes was $155.4 million. The fair value was determined based on the quoted bid price of the Notes in an over-the-counter market on March 28, 2014. The fair value the Notes is subject to interest rate risk, market risk and other factors due to the convertible feature. The fair value of the Notes will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of the Notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value. The interest and market value changes affect the fair value of the Notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, we do not carry the Notes at fair value. We present the fair value of the Notes for required disclosure purposes only. 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation was performed by management, with the participation of our chief executive officer (“CEO”) and our chief financial officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d -15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports

28

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. Based on this evaluation, our CEO and CFO have concluded that, as of the end of the fiscal period covered by this quarterly report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations of Internal Controls

Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within us have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

29

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, 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.

Cambrian Science Patent Infringement Litigation

On July 12, 2011, we were notified by Level 3 that Cambrian Science Corporation (“Cambrian”) filed suit against Level 3 and six other defendants, including Cox Communications, Inc., XO Communications, LLC, Global Crossing Limited, 360Networks (USA), Inc., Integra Telecom, Inc. and IXC, Inc. dba Telekenex (collectively, the “Defendants”) in the U.S. District Court for the Central District of California alleging infringement of patent no. 6,775,312 (the “’312 Patent”) and requesting damages for such alleged infringement (the “Cambrian Claim”). The nature of the Cambrian Claim involves allegations of infringement of the ’312 Patent resulting from the Defendants’ use of certain products and systems in the Defendants’ networks, including our DTN platform. On August 24, 2011, Cambrian amended the complaint to name us as a defendant. We assumed the defense of the Cambrian Claim and filed an answer to Cambrian’s complaint on September 21, 2011, in which we denied infringement of the ‘312 Patent and raised other defenses. Cambrian filed a second amended complaint on October 6, 2011, which included many of the same allegations as in the original complaint. We filed our answer to the second amended complaint on October 21, 2011, in which we maintained the same denials and defenses as in our initial answer. On December 23, 2011, we filed a motion requesting that the court stay the case with respect to each of the above-noted customer Defendants. Cambrian filed its opposition to our motion on December 30, 2011. Our request was denied in the court’s decision on March 7, 2012. We presented evidence on the appropriate meanings of relevant key words used in the patent claims during a claim construction hearing on November 20, 2012.

On June 17, 2013, the court issued an order regarding claim construction, in which the court agreed with almost all of our proposed claim constructions. On October 17, 2013, the parties met for a court-mandated mediation. On April 14, 2014, we filed three motions for summary judgment relating to non-infringement and damages. The court scheduled a hearing on the summary judgment motions for June 9, 2014. The court also scheduled a pretrial conference for July 7, 2014, and the jury trial is set to begin on July 22, 2014. 

Based on the information available at this time, we concluded that the likelihood of a loss with respect to this suit is reasonably possible. We have further concluded that the range of the reasonably possible loss is an insignificant amount and will not have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. Accordingly, we accrued an insignificant amount during 2013, which did not have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. Factors that we considered in the determination of the likelihood of a loss and the estimate of that loss in respect to this matter included the merits of the case, the nature of the litigation (including the complex and technical nature of patent litigation), the length of time the matter has been pending, the status of the plaintiff as a non-operating entity and the likelihood of the plaintiff accepting the estimated amount. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties.

30

Item 1A. Risk Factors

A description of the risks and uncertainties associated with our business is set forth below. This description includes any material changes to and supersedes the description of the risks and uncertainties associated with our business previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 28, 2013. You should carefully consider such risks and uncertainties, together with the other information contained in this report, our Annual Report on Form 10-K for the fiscal year ended December 28, 2013 and in our other public filings. 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 report and in our other public filings. In addition, if any of the following risks and uncertainties, or if any other risks and uncertainties, actually occurs, our business, financial condition or operating results could be harmed substantially, which could cause the market price of our stock to decline, perhaps significantly.

We have a history of significant operating losses and may not achieve profitability on an annual basis in the future.

For the fiscal year ended December 28, 2013, we recorded a net loss of $32.1 million, and for the quarter ended March 29, 2014, we recorded a net loss of $4.4 million. As of December 28, 2013, our accumulated deficit was $604.5 million. As of March 29, 2014, our accumulated deficit was $608.9 million. We expect to continue to make significant expenditures related to the continued development of our business. These expenditures may include the addition of personnel related to the sales, marketing and research and development of our products and other costs related to the maintenance and expansion of our manufacturing facilities and research and development operations. We may therefore sustain significant operating losses and negative cash flows in the future. We will require increased revenue and product gross margins to achieve profitability on an annual basis.

Our revenue and operating results may fluctuate significantly, which could make our future results difficult to predict and could cause our operating results to fall below investor or analyst expectations.

Our revenue and operating results may fluctuate due to a variety of factors, many of which are outside of our control. Over the past four fiscal quarters, our revenue has ranged from $138.4 million to $142.8 million and our operating income (loss) has ranged from income of $6.4 million to a loss of $8.6 million. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Our budgeted expense levels are based, in large part, on our expectations of long-term future revenue and the development efforts associated with these future revenues. As a result, fluctuations in our revenue and gross margins will have a significant impact on our operating results. Given the relatively fixed nature of our operating costs including those relating to our personnel and facilities, particularly for our engineering personnel, any substantial adjustment to our expenses to account for lower levels of revenue will be difficult and may take time. Consequently, if our revenue does not meet projected levels in the short-term, our inventory levels and operating expenses would be high relative to revenue, resulting in additional operating losses.

In addition to other risks discussed in this section, factors that may contribute to fluctuations in our revenue and our operating results include:

• fluctuations in demand, sales cycles and prices for products and services, including discounts given in response to competitive pricing pressures;

• fluctuations in our product mix, including the mix of higher and lower margin products and significant mix changes resulting from new customer deployments;

• changes in customers’ budgets for optical transport network equipment purchases and changes in their purchasing cycles;

• order cancellations or reductions or delays in delivery schedules by our customers;

• the payment terms offered to our customers;

• our ability to control costs, including our operating expenses and the costs of components we purchase for our products;

31

• readiness of customer sites for installation of our products;

• the timing of product releases or upgrades by us or by our competitors. In particular, if we fail to achieve targeted release dates for our future products, or convert lab trials and field evaluations by potential customers into purchase orders, our revenue and operating results may be negatively impacted;

• any significant changes in the competitive dynamics of our market, including any new entrants, technological advances or substantial discounting of products;

• availability of third-party suppliers to provide contract engineering and installation services for us;

• the timing of recognizing revenue in any given quarter, including the impact of revenue recognition standards and any future changes in U.S. GAAP or new interpretations of existing accounting rules; and

• general economic conditions in domestic and international markets.

Many factors affecting our results of operations are beyond our control and make it difficult to predict our results for a particular quarter or to accurately predict future revenue beyond a one-quarter time horizon. If our revenue or operating results fall below the expectations of investors or securities analysts or below any guidance we may in the future provide to the market, the price of our common stock may decline substantially.

Our gross margins may fluctuate from quarter-to-quarter and may be adversely affected by a number of factors, some of which are beyond our control.

Our gross margins fluctuate from period-to-period and vary by customer and by product specification. Over the past four fiscal quarters, our gross margins have ranged from 37% to 48%. Our gross margins are likely to continue to fluctuate and will be affected by a number of factors, including:

• the mix in any period of the customers purchasing our products and the product mix, including the relative mix of higher and lower margin products and services;

• significant new customer deployments, often with a higher portion of lower margin common equipment;

• price discounts negotiated by our customers;

• introduction of new products, such as the DTN-X platform, with initial sales at relatively small volumes and higher product costs;

• sales volume from each customer during the period;

• the amount of equipment we sell in any given quarter;

• increased price competition;

• charges for excess or obsolete inventory;

• changes in the price or availability of components for our products;

• changes in our manufacturing costs, including fluctuations in yields and production volumes; and

• increased warranty or repair costs.

It is likely that the average unit prices of our products will decrease over time in response to competitive pricing pressures, increased negotiated sales discounts, new product introductions by us or our competitors or other factors. In addition, some of our customer contracts contain annual technology discounts that require us to decrease the sales price of our products to these customers. In response, we will need to reduce the cost of our products through manufacturing efficiencies, design improvements and cost reductions. If these efforts are not

32

successful or if we are unable to reduce our costs to a greater extent than the reduction in the price of our products, our revenue and gross margin will decline, causing our operating results to decline. Fluctuations in gross margin may make it difficult to manage our business and achieve or maintain profitability.

Aggressive business tactics by our competitors may harm our business.

The markets in which we compete are extremely competitive and have resulted in aggressive business tactics by our competitors, including:

• aggressively pricing their optical transport products and other portfolio products, including offering significant one-time discounts and guaranteed future price decreases;

• providing financing, marketing and advertising assistance to customers;

• announcing competing products prior to market availability combined with extensive marketing efforts;

• influencing customer requirements to emphasize different product capabilities, such as greater minimum bandwidth requirements or higher transport speeds;

• offering to repurchase our equipment from existing customers; and

• asserting intellectual property rights.

The level of competition and pricing pressure tend to increase when competing for larger high-profile opportunities or during periods of economic weakness when there are fewer network build-out projects. If we fail to compete successfully against our current and future competitors, or if our current or future competitors continue or expand aggressive business tactics, including those described above, demand for our products could decline, we could experience delays or cancellations of customer orders, or we could be required to reduce our prices or increase our expenses.

Our ability to increase our revenue will depend upon continued growth of demand by consumers and businesses for additional network capacity.

Our future success depends on factors that increase the amount of data transmitted over communications networks and the growth of optical transport networks to meet the increased demand for optical capacity. These factors include the growth of mobility, video, cloud-based services, increased broadband connectivity and the continuing adoption of high-capacity, revenue-generating services. If demand for such bandwidth does not continue, or slows down, the need for increased bandwidth across networks and the market for optical communications network products may not continue to grow and our product sales would be negatively impacted. In addition, if general economic conditions weaken, our customers and potential customers may slow or delay their purchase decisions, which would have an adverse effect on our business and financial condition.

Any delays in the development and introduction of our products, and any future delays in releasing new products or in releasing enhancements to our existing products may harm our business.

Because our products are based on complex technology, including, in some cases, the development of next-generation PICs and specialized ASICs, we may experience unanticipated delays in developing, improving, manufacturing or deploying these products. The development process for our PICs is lengthy, and any modifications to our PICs, including the development of our next-generation PICs, entail significant development cost and risks.

At any given time, various new product introductions and enhancements to our existing products, such as future products based on our next-generation PICs, are in the development phase and are not yet ready for commercial manufacturing or deployment. We rely on third parties, some of which are relatively early stage companies, to develop and manufacture components for our next-generation products, which can require custom development. The maturing process from laboratory prototype to customer trials, and subsequently to general availability, involves a significant number of simultaneous development efforts. These efforts often must be completed in a timely manner so that they may be introduced into the product development cycle for our systems, and include:

33

• completion of product development, including the completion of any associated PIC development, such as our next-generation PICs, and the completion of associated module development, including modules developed by third parties;

• the qualification and multiple sourcing of critical components;

• validation of manufacturing methods and processes;

• extensive quality assurance and reliability testing and staffing of testing infrastructure;

• validation of software; and

• establishment of systems integration and systems test validation requirements.

Each of these steps, in turn, presents risks of failure, rework or delay, any one of which could decrease the speed and scope of product introduction and marketplace acceptance of our products. New generations of our PICs, specialized ASICs and intensive software testing are important to the timely introduction of new products and enhancements to our existing products, and are subject to these development risks. In addition, unexpected intellectual property disputes, failure of critical design elements, and a host of other development execution risks may delay, or even prevent, the introduction of new products or enhancements to our existing products. If we do not develop and successfully introduce or enhance products in a timely manner, our competitive position will suffer. In addition, if we do not develop and successfully introduce or enhance products in sufficient time so as to satisfy our customer’s expectations, we may lose future business from such customers and harm our reputation and our customer relationships, either of which would harm our business and operating results.

The markets in which we compete are highly competitive and dominated by large corporations, and we may not be able to compete effectively.

Competition in the optical transport equipment market is intense, and we expect such competition to increase. A number of very large companies have historically dominated the optical transport network equipment industry. Our competitors include current WDM suppliers, such as Alcatel-Lucent, Ciena Corporation, Cisco Systems, Inc., Coriant, Huawei Technologies Co. Ltd. and ZTE Corporation. Competition in these markets is based on price, commercial terms, functionality, manufacturing capability, pre-existing installations, services, existing business and customer relationships, scalability and the ability of products and breadth and quality of services to meet our customers’ immediate and future network requirements. Other companies have, or may in the future develop, products that are or could be competitive with our products. In particular, if a competitor develops a photonic integrated circuit with similar functionality to our PICs, our business could be harmed. Recent mergers from our competitors and any future acquisitions or combinations between or among our competitors may adversely affect our competitive position by strengthening our competitors.

Many of our competitors have substantially greater name recognition and technical, financial and marketing resources and better established relationships with incumbent carriers and other potential customers than we have. Many of our competitors have more resources to develop or acquire, and more experience in developing or acquiring, new products and technologies and in creating market awareness for those products and technologies. In addition, many of our competitors have the financial resources to offer competitive products at aggressive pricing levels that could prevent us from competing effectively. Further, many of our competitors have built long-standing relationships with some of our prospective customers and have the ability to provide financing to customers and could, therefore, have an inherent advantage in selling products to those customers.

We compete with low-cost producers from China that can increase pricing pressure on us and a number of smaller companies that provide competition for a specific product, customer segment or geographic market. These competitors often base their products on the latest available technologies. Due to the narrower focus of their efforts, these competitors may achieve commercial availability of their products more quickly than we can and may provide attractive alternatives to our customers.

34

Our large customers have substantial negotiating leverage, which may require that we agree to terms and conditions that result in decreased revenue due to lower average selling prices and potentially higher cost of sales leading to lower gross margins, all of which would harm our operating results.

Substantial changes in the optical transport networking industry have occurred over the last few years. Many potential customers have confronted static or declining revenue. Many of our customers have substantial debt burdens, many have experienced financial distress, and some have gone out of business, been acquired by other service providers, or announced their withdrawal from segments of the business. Consolidation in the markets in which we compete has resulted in changes in the structure of the communications networking industry, with greater concentration of purchasing power in a small number of large service providers, cable operators, internet content providers and government agencies. The increased concentration among our customer base may also lead to increased competition for new network deployments and increased negotiating power for our customers. This may require us to decrease our average selling prices, which would have an adverse impact on our operating results.

Further, many of our customers are large communications service providers that have substantial purchasing power and leverage in negotiating contractual arrangements with us. Our customers have and may continue to seek advantageous pricing, payment and other commercial terms and may require us to develop additional features in the products we sell to them. If we are required to develop additional features for our product for a customer, we may be required to defer some of our revenue for such a customer until we have developed and delivered such additional features. We have and may continue to be required to agree to unfavorable commercial terms with these customers, including reducing the average selling price of our products or agreeing to extended payment terms in response to these commercial requirements or competitive pricing pressures. To maintain acceptable operating results, we will need to comply with these commercial terms, develop and introduce new products and product enhancements on a timely basis and continue to reduce our costs.

We expect the factors described above to continue to affect our business and operating results for an indeterminate period, in several ways, including:

• overall capital expenditures by many of our customers or potential customers may be flat or reduced;

• we will continue to have only limited ability to forecast the volume and product mix of our sales;

• managing expenditures and inventory will be difficult in light of the uncertainties surrounding our business; and

• increased competition will enable customers to insist on more favorable terms and conditions for sales, including product discounts, extended payment terms or financing assistance, as a condition of procuring their business.

If we are unable to offset any reductions in our average selling prices with increased sales volumes and reduced production costs, or if we fail to develop and introduce new products and enhancements on a timely basis, or if we disagree on our interpretation and compliance with the commercial terms of our customer agreements, our relationships with our customers and our operating results would be harmed.

We must respond to rapid technological change and comply with evolving industry standards and requirements for our products to be successful.

The optical transport networking equipment market is characterized by rapid technological change, changes in customer requirements and evolving industry standards. We continually invest in research and development to sustain or enhance our existing products, but the introduction of new communications technologies and the emergence of new industry standards or requirements could render our products obsolete. Further, in developing our products, we have made, and will continue to make, assumptions with respect to which standards or requirements will be adopted by our customers and competitors. If the standards or requirements adopted by our prospective customers are different from those on which we have focused our efforts, market acceptance of our products would be reduced or delayed and our business would be harmed.

We are continuing to invest a significant portion of our research and development efforts in the development of our next-generation products. We expect our competitors to continue to improve the performance of their existing products and to introduce new products and technologies and to influence customers’ buying criteria so as to emphasize product capabilities that we do not, or may not, possess. To be competitive, we must properly anticipate future customer requirements and we must continue to invest significant resources in research and development,

35

sales and marketing and customer support. If we do not anticipate these future customer requirements and invest in the technologies necessary to enable us to have and to sell the appropriate solutions, it may limit our competitive position and future sales, which would have an adverse effect on our business and financial condition. We may not have sufficient resources to make these investments and we may not be able to make the technological advances necessary to be competitive.

We are dependent on sole source and limited source suppliers for several key components, and if we fail to obtain these components on a timely basis, we will not meet our customers’ product delivery requirements.

We currently purchase several key components for our products from single or limited sources. In particular, we rely on our own production of certain components of our products, such as PICs, and on third parties as sole source suppliers for certain of the components of our products, including ASICs, field-programmable gate arrays, processors, and other semiconductor and optical components. We purchase these items on a purchase order basis and have no long-term contracts with many of these sole source suppliers. We have increased our reliance on third parties to develop and manufacture components for certain products, some of which require custom development. If any of our sole or limited source suppliers suffer from capacity constraints, lower than expected yields, deployment delays, work stoppages or any other reduction or disruption in output, they may be unable to meet our delivery schedule which could result in lost revenue, additional product costs and deployment delays that could harm our business and customer relationships. Further, our suppliers could enter into exclusive arrangements with our competitors, refuse to sell their products or components to us at commercially reasonable prices or at all, go out of business or discontinue their relationships with us. We may be unable to develop alternative sources for these components.

The loss of a source of supply, or lack of sufficient availability of key components, could require us to redesign products that use such components, which could result in lost revenue, additional product costs and deployment delays that could harm our business and customer relationships. If we do not receive critical components for our products in a timely manner, we will be unable to deliver those components to our contract manufacturer in a timely manner and would, therefore, be unable to meet our prospective customers’ product delivery requirements. In addition, the sourcing from new suppliers may require us to re-design our products, which could cause delays in the manufacturing and delivery of our products. In the past, we have experienced delivery delays because of lack of availability of components or reliability issues with components that we were purchasing. In addition, some of our suppliers have gone out of business, limited their supply of components to us, or indicated that they may be going out of business. Historically, we have seen a tightening of supply with a number of our suppliers and we have experienced longer than normal lead times and supply delays. We may in the future experience a shortage of certain components as a result of our own manufacturing issues, manufacturing issues at our suppliers or contract manufacturers, capacity problem experiences by our suppliers or contract manufacturers, or strong demand in the industry for such components. A return to growth in the economy is likely to continue to create pressure on us and our suppliers to accurately project overall component demand and manufacturing capacity. These supplier disruptions may continue to occur in the future, which could limit our ability to produce our products and cause us to fail to meet a customer’s delivery requirements. Such events could harm our reputation and our customer relationships, either of which would harm our business and operating results.

If we fail to accurately forecast demand for our products, we may have excess or insufficient inventory, which may increase our operating costs, decrease our revenue and harm our business.

We are required to generate forecasts of future demands for our products several months prior to the scheduled delivery to our prospective customers. This requires us to make significant investments before we know if corresponding revenue will be recognized. Lead times for materials and components, including ASICs, that we need to order for the manufacture of our products vary significantly and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. In the past, we have experienced lengthening in lead times for certain components. If the lead times for components are lengthened, we may be required to purchase increased levels of such components to satisfy our delivery commitments to our customers.

If we overestimate market demand for our products and, as a result, increase our inventory in anticipation of customer orders that do not materialize, we will have excess inventory, which could result in increased risk of obsolescence and significant inventory write-downs. Furthermore, this will result in reduced production volumes and our fixed costs will be spread across fewer units, increasing our per unit costs. If we underestimate demand for our products, we will have inadequate inventory, which could slow down or interrupt the manufacturing of our products and result in delays in shipments and our ability to recognize revenue. In addition, we may be unable to meet our

36

supply commitments to customers, which could result in a loss of certain customer opportunities or a breach of our customer agreements resulting in payment of damages.

If our contract manufacturers do not perform as we expect, our business may be harmed.

We rely on third-party contract manufacturers to perform a significant portion of the manufacturing of our products, and our future success will depend on our ability to have sufficient volumes of our products manufactured in a cost-effective and quality-controlled manner. We have engaged third parties to manufacture certain elements of our products at multiple contract manufacturing sites located around the world but do not have long-term agreements in place with some of our manufacturers and suppliers. There are a number of risks associated with our dependence on contract manufacturers, including:

• reduced control over delivery schedules, particularly for international contract manufacturing sites;

• reliance on the quality assurance procedures of third parties;

• potential uncertainty regarding manufacturing yields and costs;

• potential lack of adequate capacity during periods of high demand;

• potential uncertainty related to the use of international contract manufacturing sites;

• limited warranties on components supplied to us;

• potential misappropriation of our intellectual property; and

• potential manufacturing disruptions (including disruptions caused by geopolitical events, military actions or natural disasters).

Any of these risks could impair our ability to fulfill orders. Our contract manufacturers may not be able to meet the delivery requirements of our customers, which could decrease customer satisfaction and harm our product sales. We do not have long-term contracts or arrangements with our contract manufacturers that will guarantee product availability, or the continuation of particular pricing or payment terms. If our contract manufacturers are unable or unwilling to continue manufacturing our products or components of our products in required volumes or our relationship with any of our contract manufacturers is discontinued for any reason, we would be required to identify and qualify alternative manufacturers, which could cause us to be unable to meet our supply requirements to our customers and result in the breach of our customer agreements. Qualifying a new contract manufacturer and commencing volume production is expensive and time-consuming and if we are required to change or qualify a new contract manufacturer, we would likely lose sales revenue and damage our existing customer relationships.

We are dependent on a small number of key customers for a significant portion of our revenue and the loss of, or a significant reduction in, orders from one or more of our key customers would reduce our revenue and harm our operating results.

A relatively small number of customers account for a large percentage of our revenue. As a result, our business will be harmed if any of our key customers do not generate as much revenue as we forecast, stop purchasing from us, or substantially reduce their orders to us. In addition, our business will be harmed if we fail to maintain our competitive advantage with our key customers.

Our ability to continue to generate revenue from our key customers will depend on our ability to maintain strong relationships with these customers and introduce new products that are desirable to these customers at competitive prices, and we may not be successful at doing so. In most cases, our sales are made to these customers pursuant to standard purchase agreements rather than long-term purchase commitments, and orders may be canceled or reduced readily. In the event of a cancellation or reduction of an order, we may not have enough time to reduce operating expenses to minimize the effect of the lost revenue on our business. Our operating results will continue to depend on our ability to sell our products to our key customers.

37

If we fail to expand sales of our products into international markets or to sell our products to new types of customers, such as U.S. regional Bell operating companies and international postal, telephone and telegraph companies, our revenue will be harmed.

We believe that, in order to grow our revenue and business and to build a large and diverse customer base, we must successfully sell our products in international markets and to new types of customers, such as U.S. regional Bell operating companies and international postal, telephone and telegraph companies. We have limited experience selling our products internationally and to U.S. regional Bell operating companies and international postal, telephone and telegraph companies. Sales cycles for these customers are often very lengthy and competition for these customers is intense. To succeed in these sales efforts, we believe we must hire additional sales personnel to develop our relationships with these potential customers and develop and manage new sales channels through resellers, distributors and systems integrators. If we do not succeed in our efforts to sell to these customers, the size of our total addressable market will be limited. This, in turn, would harm our ability to grow our customer base and revenue.

Our manufacturing process is very complex and the partial or complete loss of our manufacturing facility, or a reduction in yields or an inability to scale capacity to meet customer demands could harm our business.

The manufacturing process for certain components of our products, including our PICs, is technically challenging. In the event that any of these manufacturing facilities were fully or partially destroyed, as a result of fire, water damage, or otherwise, it would limit our ability to produce our products. Because of the complex nature of our manufacturing facilities, such loss would take a considerable amount of time to repair or rebuild. The partial or complete loss of any of our manufacturing facilities, or an event causing the interruption in our use of such facility for any extended period of time would cause our business, financial condition and operating results to be harmed.

Minor deviations in the PIC manufacturing process can cause substantial decreases in yields and, in some cases, cause production to be suspended. In the past, we have had significant variances in our PIC yields, including production interruptions and suspensions and may have continued yield variances, including additional interruptions or suspensions in the future. We expect our manufacturing yield for our next-generation PICs to be lower initially and increase as we achieve full production. Poor yields from our PIC manufacturing process or defects, integration issues or other performance problems in our products could limit our ability to satisfy customer demand requirements, and could cause us customer relations and business reputation problems, harming our business and operating results.

Our inability to obtain sufficient manufacturing capacity to meet demand, either in our own facilities or through foundry or similar arrangements with third parties, could harm our relationships with our customers, our business and our operating results.

If we fail to protect our intellectual property rights, our competitive position could be harmed or we could incur significant expense to enforce our rights.

We depend on our ability to protect our proprietary technology. We rely on a combination of methods to protect our intellectual property, including limiting access to certain information, and utilizing trade secret, patent, copyright and trademark laws and confidentiality agreements with employees and third parties, all of which offer only limited protection. The steps we have taken to protect our proprietary rights may be inadequate to preclude misappropriation or unauthorized disclosure of our proprietary information or infringement of our intellectual property rights, and our ability to police such misappropriation, unauthorized disclosure or infringement is uncertain, particularly in countries outside of the United States. This is likely to become an increasingly important issue as we expand our operations and product development into countries that provide a lower level of intellectual property protection. We do not know whether any of our pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims, and even if patents are issued, they may be contested, circumvented or invalidated. Moreover, the rights granted under any issued patents may not provide us with a competitive advantage, and, as with any technology, competitors may be able to develop similar or superior technologies to our own now or in the future.

Protecting against the unauthorized use of our products, trademarks and other proprietary rights is expensive, difficult, time consuming and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity or scope of the proprietary rights of others. Such litigation could result in substantial cost and diversion of management resources, either of which could harm our business, financial condition and operating results. Furthermore, many of our current

38

and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property.

Claims by others that we infringe their intellectual property could harm our business.

Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights. In particular, many leading companies in the optical transport networking industry, including our competitors, have extensive patent portfolios with respect to optical transport networking technology. We expect that infringement claims may increase as the number of products and competitors in our market increases and overlaps occur. From time to time, third parties may assert exclusive patent, copyright, trademark and other intellectual property rights to technologies and related standards that are important to our business or seek to invalidate the proprietary rights that we hold. Competitors or other third parties have, and may continue to assert claims or initiate litigation or other proceedings against us or our manufacturers, suppliers or customers alleging infringement of their proprietary rights, or seeking to invalidate our proprietary rights, with respect to our products and technology. In the event that we are unsuccessful in defending against any such claims, or any resulting lawsuit or proceedings, we could incur liability for damages and/or have valuable proprietary rights invalidated.

Any claim of infringement from a third party, even one without merit, could cause us to incur substantial costs defending against the claim, and could distract our management from running our business. Furthermore, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages. A judgment could also include an injunction or other court order that could prevent us from offering our products. In addition, we might be required to seek a license for the use of such intellectual property, which may not be available on commercially reasonable terms or at all. Alternatively, we may be required to develop non-infringing technology, which would require significant effort and expense and may ultimately not be successful. Any of these events could harm our business, financial condition and operating results. Competitors and other third parties have and may continue to assert infringement claims against our customers and sales partners. Any of these claims would require us to initiate or defend potentially protracted and costly litigation on their behalf, regardless of the merits of these claims, because we generally indemnify our customers and sales partners from claims of infringement of proprietary rights of third parties. If any of these claims succeed, we may be forced to pay damages on behalf of our customers or sales partners, which could have an adverse effect on our business, financial condition and operating results.

We incorporate open source software into our products. Although we monitor our use of open source software closely, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. In such event, we could be required to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis, any of which could adversely affect our business, operating results and financial condition.

We are involved in litigation with Cambrian whereby Cambrian alleged that we and seven of our customers infringe one of Cambrian's patents. Information regarding this matter is set forth in Part II, Item 1. “Legal Proceedings,” and is incorporated herein by reference.

Unfavorable macroeconomic and market conditions may adversely affect our industry, business and gross margins.

Our business depends on the overall demand for additional bandwidth capacity and on the economic health and willingness of our customers and potential customers to make capital commitments to purchase our products and services. As a result of macroeconomic or market uncertainty, we may face new risks that we have not yet identified. In addition, a number of the risks associated with our business, which are disclosed in these risk factors, may increase in likelihood, magnitude or duration.

In the past, unfavorable macroeconomic and market conditions have resulted in sustained periods of decreased demand for optical communications products. These conditions may also result in the tightening of credit markets, which may limit or delay our customers’ ability to obtain necessary financing for their purchases of our products. A lack of liquidity in the capital markets or the continued uncertainty in the global economic environment may cause our customers to delay or cancel their purchases, increase the time they take to pay or default on their payment obligations, each of which would negatively affect our business and operating results. Continued

39

weakness and uncertainty in the global economy could cause some of our customers to become illiquid, delay payments or adversely affect our collection of their accounts, which could result in a higher level of bad debt expense. In addition, currency fluctuations could negatively affect our international customers’ ability or desire to purchase our products.

Challenging economic conditions have from time to time contributed to slowdowns in the telecommunications industry in which we operate. Such slowdowns may result in:

• reduced demand for our products as a result of constraints on capital spending by our customers, particularly service providers;

• increased price competition for our products, not only from our competitors, but also as a result of our customer’s or potential customer’s utilization of inventoried or underutilized products, which could put additional downward pressure on our near term gross profits;

• risk of excess or obsolete inventories;

• excess manufacturing capacity and higher associated overhead costs as a percentage of revenue; and

• more limited ability to accurately forecast our business and future financial performance.

A lack of liquidity and economic uncertainty may adversely affect our suppliers or the terms on which we purchase products from these suppliers. It may also cause some of our suppliers to become illiquid. Any of these impacts could limit our ability to obtain components for our products from these suppliers and could adversely impact our supply chain or the delivery schedule to our customers. This also could require us to purchase more expensive components, or re-design our products, which could cause increases in the cost of our products and delays in the manufacturing and delivery of our products. Such events could harm our gross margins and harm our reputation and our customer relationships, either of which could harm our business and operating results.

Product performance problems, including undetected errors in our hardware or software, or deployment delays could harm our business and reputation.

The development and production of new products with high technology content is complicated and often involves problems with software, components and manufacturing methods. Complex hardware and software systems, such as our products, can often contain undetected errors when first introduced or as new versions are released. In addition, errors associated with components we purchase from third parties, including customized components, may be difficult to resolve. We have experienced errors in the past in connection with our DTN platform, including failures due to the receipt of faulty components from our suppliers. We suspect that errors, including potentially serious errors, will be found from time to time in our products. Our products may suffer degradation of performance and reliability over time.

If reliability, quality or network monitoring problems develop, a number of negative effects on our business could result, including:

• delays in our ability to recognize revenue;

• costs associated with fixing software or hardware defects or replacing products;

• high service and warranty expenses;

• delays in shipments;

• high inventory excess and obsolescence expense;

• high levels of product returns;

• diversion of our engineering personnel from our product development efforts;

• delays in collecting accounts receivable;

40

• payment of damages for performance failures;

• reduced orders from existing customers; and

• declining interest from potential customers.

Because we outsource the manufacturing of certain components of our products, we may also be subject to product performance problems as a result of the acts or omissions of third parties.

From time to time, we encounter interruptions or delays in the activation of our products at a customer’s site. These interruptions or delays may result from product performance problems or from issues with installation and activation, some of which are outside our control. If we experience significant interruptions or delays that we cannot promptly resolve, the associated revenue for these installations may be delayed or confidence in our products could be undermined, which could cause us to lose customers and fail to add new customers.

If we lose key personnel or fail to attract and retain additional qualified personnel when needed, our business may be harmed.

Our success depends to a significant degree upon the continued contributions of our key management, engineering, sales and marketing, and finance personnel, many of whom would be difficult to replace. For example, senior members of our engineering team have unique technical experience that would be difficult to replace. We do not have long-term employment contracts or key person life insurance covering any of our key personnel. Because our products are complex, we must hire and retain a large number of highly trained customer service and support personnel to ensure that the deployment of our products do not result in network disruption for our customers. We believe our future success will depend in large part upon our ability to identify, attract and retain highly skilled managerial, engineering, sales, marketing, finance and customer service and support personnel. Competition for these individuals is intense in our industry, especially in the San Francisco Bay Area where we are headquartered. We may not succeed in identifying, attracting and retaining appropriate personnel. The loss of the services of any of our key personnel, the inability to identify, attract or retain qualified personnel in the future or delays in hiring qualified personnel, particularly engineers and sales personnel, could make it difficult for us to manage our business and meet key objectives, such as timely product introductions.

Our debt obligations may adversely affect our ability to raise additional capital and will be a burden on our future cash flows and cash resources, particularly if these obligations are settled in cash upon maturity or sooner upon an event of default.

In May 2013, we issued the Notes. The degree to which we are leveraged could have important consequences, including, but not limited to, the following:

• our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, litigation, general corporate or other purposes may be limited;

• a substantial portion of our future cash balance may be dedicated to the payment of the principal of our indebtedness as we have the intention to pay the principal amount of the Notes in cash upon conversion if specified conditions are met or when due, such that we would not have those funds available for use in our business; and

• if upon any conversion of the Notes we are required to satisfy our conversion obligation with shares of our common stock or if a make-whole fundamental change occurs, our existing stockholders’ interest in us would be diluted.

Our ability to meet our payment obligations under our debt instruments depends on our future cash flow performance. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors, as well as other factors that may be beyond our control. There can be no assurance that our business will generate positive cash flow from operations, or that additional capital will be available to us, in an amount sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we were unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations. As a result, we may be more

41

vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions.

We may issue additional shares of our common stock in connection with the conversion of the Notes, and thereby dilute our existing stockholders and potentially adversely affect the market price of our common stock.

In the event that some or all of the Notes are converted into common stock, the ownership interests of existing stockholders will be diluted, and any sales in the public market of any shares of our common stock issuable upon such conversion of the Notes could adversely affect the prevailing market price of our common stock. In addition, the anticipated conversion of the Notes could depress the market price of our common stock.

The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financial results.

Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options ("ASC 470-20"), an entity must separately account for the liability and equity components of the convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet at the issuance date and the value of the equity component would be treated as debt discount for purposes of accounting for the debt component of the Notes. As a result, we will be required to record a greater amount of non-cash interest expense as a result of the amortization of the discounted carrying value of the Notes to their face amount over the term of the Notes.

The make-whole fundamental change provisions of the Notes may delay or prevent an otherwise beneficial takeover attempt of us.

If a make-whole fundamental change such as an acquisition of our company occurs prior to the maturity of the Notes, under certain circumstances, the conversion rate for the Notes will increase such that additional shares of our common stock will be issued upon conversion of the Notes in connection with such make-whole fundamental change. The increase in the conversion rate will be determined based on the date on which the make-whole fundamental change occurs or becomes effective and the price paid (or deemed paid) per share of our common stock in such transaction. This increase will be dilutive to our existing stockholders. Our obligation to increase the conversion rate upon the occurrence of a make-whole fundamental change may, in certain circumstances, delay or prevent a takeover of us that might otherwise be beneficial to our stockholders.

If we need additional capital in the future, it may not be available to us on favorable terms, or at all.

Our business requires significant capital. We have historically relied on significant outside debt or equity financing as well as cash flow from operations to fund our operations, capital expenditures and expansion. We may require additional capital from equity or debt financings in the future to fund our operations or respond to competitive pressures or strategic opportunities. We have a history of significant operating losses. For 2013, we had a net loss of $32.1 million. 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.

42

Our sales cycle can be long and unpredictable, which could result in an unexpected revenue shortfall in any given quarter.

Our products have a lengthy sales cycle, which can extend from six to twelve months and may take even longer for larger prospective customers such as U.S. regional Bell operating companies, international postal, telephone and telegraph companies and U.S. competitive local exchange carriers. Our prospective customers conduct significant evaluation, testing, implementation and acceptance procedures before they purchase our products. We incur substantial sales and marketing expenses and expend significant management effort during this time, regardless of whether we make a sale.

Because the purchase of our equipment involves substantial cost, most of our customers wait to purchase our equipment until they are ready to deploy it in their network. As a result, it is difficult for us to accurately predict the timing of future purchases by our customers. In addition, product purchases are often subject to budget constraints, multiple approvals and unplanned administrative processing and other delays. If sales expected from customers for a particular quarter are not realized in that quarter or at all, our revenue will be negatively impacted.

Our international sales and operations subject us to additional risks that may harm our operating results.

We market, sell and service our products globally. During the first quarter of 2014 and in the years 2013 and 2012, we derived approximately 22%, 36% and 32%, respectively, of our revenue from customers outside of the United States. We have sales and support personnel in numerous countries worldwide. In addition, we have a large group of development personnel located in Bangalore, India; Beijing, China; and Kanata, Canada. We expect that significant management attention and financial resources will be required for our international activities over the foreseeable future as we continue to expand our international presence. In some countries, our successes in selling our products 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.

Our international operations are subject to inherent risks, and our future results could be adversely affected by a variety of factors, many of which are outside of our control, including:

• greater difficulty in collecting accounts receivable and longer collection periods;

• difficulties of managing and staffing international offices, and the increased travel, infrastructure and legal compliance costs associated with multiple international locations;

• the impact of recessions in economies outside the United States;

• tariff and trade barriers and other regulatory requirements or contractual limitations on our ability to sell or develop our products in certain foreign markets;

• certification requirements;

• greater difficulty documenting and testing our internal controls;

• reduced protection for intellectual property rights in some countries;

• potentially adverse tax consequences;

• political and economic instability;

• effects of changes in currency exchange rates that could negatively affect our financial results and cash flows; and

• service provider and government spending patterns.

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.

43

Our international operations are subject to increasingly complex foreign and U.S. laws and regulations, including but not limited to anti-corruption laws, such as the Foreign Corrupt Practices Act and the UK Bribery Act and equivalent laws in other jurisdictions, antitrust or competition laws, and data privacy laws, among others. Violations of these laws and regulations could result in fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business and on our ability to offer our products and services in one or more countries, and could also materially affect our reputation, our international expansion efforts, our ability to attract and retain employees, our business, and our operating results. Although we have implemented policies, procedures and training designed to ensure compliance with these laws and regulations, there can be no complete assurance that any individual employee, contractor, or agent will not violate our policies. Additionally, the costs of complying with these laws (including the costs of investigations, auditing and monitoring) could also adversely affect our current or future business.

As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. Our failure to manage any of these risks could harm our international operations and reduce our international sales.

We may be adversely affected by fluctuations in currency exchange rates.

A portion of our sales are to countries outside of the United States, and are in currencies other than U.S. dollars, and therefore subject to foreign currency fluctuation. Accordingly, fluctuations in foreign currency rates could have a material impact on our revenue in future periods. We also have exposure to currency exchange rates as a result of the growth in our non-U.S. dollar denominated operating expense in Europe, Asia and Canada. We currently enter into foreign currency exchange forward contracts to reduce the impact of foreign currency fluctuations on accounts receivable denominated in euro and the British pound. These hedging programs reduce the impact of currency exchange rate movements on certain transactions, but do not cover all foreign-denominated transactions and therefore do not entirely eliminate the impact of fluctuations in exchange rates that could negatively affect our results of operations and financial condition.

If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.

We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. The provisions of the act require, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. Preparing our financial statements involves a number of complex processes, many of which are done manually and are dependent upon individual data input or review. These processes include, but are not limited to, calculating revenue, deferred revenue and inventory costs. While we continue to automate our processes and enhance our review and put in place controls to reduce the likelihood for errors, we expect that for the foreseeable future, many of our processes will remain manually intensive and thus subject to human error.

Any acquisitions we make could disrupt our business and harm our financial condition and operations.

We have made strategic acquisitions of businesses, technologies and other assets in the past. While we have no current agreements or commitments, we may in the future acquire businesses, product lines or technologies. In the event of any future acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, or they may be viewed negatively by customers, financial markets or investors and we could:

• issue stock that would dilute our current stockholders’ percentage ownership;

• incur debt and assume other liabilities; or

• incur amortization expenses related to goodwill and other intangible assets and/or incur large and immediate write-offs.

Acquisitions also involve numerous risks, including:

• problems integrating the acquired operations, technologies or products with our own;

• diversion of management’s attention from our core business;

• assumption of unknown liabilities;

44

• adverse effects on existing business relationships with suppliers and customers;

• increased accounting compliance risk;

• risks associated with entering new markets; and

• potential loss of key employees.

We may not be able to successfully integrate any businesses, products, technologies or personnel that we might acquire in the future. Our failure to do so could have an adverse effect on our business, financial condition and operating results.

Our use and reliance upon development resources in India, China and Canada may expose us to unanticipated costs or liabilities.

We have established development centers in India, China and Canada and expect to continue to increase hiring of personnel for these facilities. There is no assurance that our reliance upon development resources in India, China or Canada will enable us to achieve meaningful cost reductions or greater resource efficiency. Further, our development efforts and other operations in these countries involve significant risks, including:

• difficulty hiring and retaining appropriate engineering resources due to intense competition for such resources and resulting wage inflation;

• the knowledge transfer related to our technology and exposure to misappropriation of intellectual property or confidential information, including information that is proprietary to us, our customers and other third parties;

• heightened exposure to changes in the economic, security and political conditions of India, China and Canada;

• fluctuation in currency exchange rates and tax risks associated with international operations; and

• development efforts that do not meet our requirements because of language, cultural or other differences associated with international operations, resulting in errors or delays.

Difficulties resulting from the factors above and other risks related to our operations in these countries could expose us to increased expense, impair our development efforts, harm our competitive position and damage our reputation.

Unforeseen health, safety and environmental costs could harm our business.

Our manufacturing operations use substances that are regulated by various federal, state and international laws governing health, safety and the environment, including the Waste Electrical and Electronic Equipment and Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment regulations adopted by the European Union. If we experience a problem with these substances, it could cause an interruption or delay in our manufacturing operations or could cause us to incur liabilities for any costs related to health, safety or environmental remediation. We could also be subject to liability if we do not handle these substances in compliance with safety standards for storage and transportation and applicable laws. If we experience a problem or fail to comply with such safety standards, our business, financial condition and operating results may be harmed.

We are subject to governmental regulations that could adversely affect our business.

We are subject to export control laws that limit which products we sell and where and to whom we sell our products. U.S. export control laws also limit our ability to conduct product development activities in certain countries. In addition, various countries regulate the import of certain technologies and have enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to implement our products in those countries. Changes in our products or changes in import and export regulations may create delays in the introduction of our products in international markets, prevent our customers with international operations from deploying our products throughout their global systems or, in some cases, prevent the import and export of our

45

products to certain countries altogether. Any change in import and export regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the countries, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. Failure to comply with these and similar laws on a timely basis, or at all, decreased use of our products or any limitation on our ability to export or sell our products would adversely affect our business, financial condition and operating results.

Our product or manufacturing standards could also be impacted by new or revised environmental rules and regulations or other social initiatives. For instance, the SEC adopted new disclosure requirements in 2012 relating to the sourcing of certain minerals from the Democratic Republic of Congo and certain other adjoining countries. Those rules, which will require reporting in calendar 2014, could adversely affect our costs, the availability of minerals used in our products and our relationships with customers and suppliers.

The Federal Communications Commission (“FCC”) has jurisdiction over the entire U.S. communications industry and, as a result, our products and our U.S. customers are subject to FCC rules and regulations. Current and future FCC regulations affecting communications services, our products or our customers’ businesses could negatively affect our business. In addition, international regulatory standards could impair our ability to develop products for international customers in the future. Moreover, many jurisdictions are evaluating or implementing regulations relating to cyber security, privacy and data protection, which can affect the market and requirements for networking and communications equipment. Delays caused by our compliance with regulatory requirements could result in postponements or cancellations of product orders. Further, we may not be successful in obtaining or maintaining any regulatory approvals that may, in the future, be required to operate our business. Any failure to obtain such approvals could harm our business and operating results.

Natural disasters, terrorist attacks or other catastrophic events could harm our operations.

Our headquarters and the majority of our infrastructure, including our PIC fabrication manufacturing facility, are located in Northern California, an area that is susceptible to earthquakes and other natural disasters. Further, a terrorist attack aimed at Northern California or at our nation’s energy or telecommunications infrastructure could hinder or delay the development and sale of our products. In the event that an earthquake, terrorist attack or other man-made or natural catastrophe were to destroy any part of our facilities, or certain of our contract manufacturers’ facilities, destroy or disrupt vital infrastructure systems or interrupt our operations for any extended period of time, our business, financial condition and operating results would be harmed.

Security incidents, such as data breaches and cyber-attacks, could compromise our intellectual property and proprietary or confidential information and cause significant damage to our business and reputation.

In the ordinary course of our business, we maintain sensitive data on our networks, including data related to our intellectual property and data related to our business and that of our customers and business partners that is considered proprietary or confidential information. We believe that companies in the technology industry have been increasingly subject to a wide variety of security incidents, cyber-attacks and other attempts to gain unauthorized access. While the secure maintenance of this information is critical to our business and reputation, our network and storage applications may be subject to unauthorized access by hackers or breached due to operator error, malfeasance or other system disruptions. It may be difficult to anticipate or immediately detect such security incidents or data breaches and the damage caused as a result. Accordingly, a data breach, cyber-attack, or unauthorized access or disclosure of our information, could compromise our intellectual property and reveal proprietary or confidential business information. In addition, these security incidents could also cause us to incur significant remediation costs and expenses, disrupt key business operations, subject us to liability and divert attention of management and key information technology resources, any of which could cause significant harm to our business and reputation.

The trading price of our common stock has been volatile and is likely to be volatile in the future.

The trading prices of our common stock and the securities of other technology companies have been and may continue to be highly volatile. Further, our common stock has limited prior trading history. Factors affecting the trading price of our common stock include:

• variations in our operating results;

46

• announcements of technological innovations, new services or service enhancements, strategic alliances or agreements by us or by our competitors;

• the gain or loss of customers;

• recruitment or departure of key personnel;

• changes in the estimates of our future operating results or external guidance on those results or changes in recommendations by any securities analysts that elect to follow our common stock;

• market conditions in our industry, the industries of our customers and the economy as a whole; and

• adoption or modification of regulations, policies, procedures or programs applicable to our business.

In addition, if the market for technology stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or operating results. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our common stock. Some companies that have had volatile market prices for their securities have had securities class action lawsuits filed against them. If a suit were filed against us, regardless of its merits or outcome, it could result in substantial costs and divert management’s attention and resources.

Anti-takeover provisions in our charter documents and Delaware law could discourage delay or prevent a change in control of our company and may affect the trading price of our common stock.

We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law, which apply to us, may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our amended and restated certificate of incorporation and amended and restated bylaws:

• authorize the issuance of “blank check” convertible preferred stock that could be issued by our board of directors to thwart a takeover attempt;

• establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election;

• require that directors only be removed from office for cause and only upon a supermajority stockholder vote;

• provide that vacancies on the board of directors, including newly-created directorships, may be filled only by a majority vote of directors then in office rather than by stockholders;

• prevent stockholders from calling special meetings; and

• prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders.

47

Item 6. Exhibits

Exhibit No.	Description
10.1	Consulting Agreement between Ita Brennan and the Company dated February 28, 2014, incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K as filed on March 3, 2014
31.1	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.
31.2	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.
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the SEC and is not to be incorporated by reference into any of our filings 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 this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

48

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Infinera Corporation
By:	/s/    BRAD FELLER
	Brad Feller Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)
Date:	April 30, 2014

49

EX-31.1

Exhibit 31.1

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

I, Thomas J. Fallon, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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: April 30, 2014

By:	/s/    THOMAS J. FALLON
	Thomas J. Fallon
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

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

I, Brad Feller, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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: April 30, 2014

By:	/s/    BRAD FELLER
	Brad Feller
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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, that the Quarterly Report on Form 10-Q of Infinera Corporation for the quarterly period ended March 29, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Infinera Corporation.

Date:	April 30, 2014	/s/    THOMAS J. FALLON
		Thomas J. Fallon
		Chief Executive Officer
		(Principal Executive Officer)

I, Brad Feller, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Infinera Corporation for the quarterly period ended March 29, 2014 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 Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Infinera Corporation.

Date:	April 30, 2014	/s/    BRAD FELLER
		Brad Feller
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Infinera Corporation and will be retained by Infinera Corporation and furnished to the U.S. Securities and Exchange Commission or its staff upon request.

This certification “accompanies” the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the U.S. 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 Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

XML

Balance Sheet Details - Selected Balance Sheet Items (Details) (USD $) In Thousands, unless otherwise specified	Mar. 29, 2014		Dec. 28, 2013
Inventory:
Raw materials	$ 13,199		$ 14,311
Work in process	47,746		49,172
Finished goods	65,520	[1]	60,202	[1]
Total	126,465		123,685
Property, plant and equipment, net:
Property, plant and equipment, gross	224,991		219,724
Less accumulated depreciation and amortization	(146,190)		(140,056)
Total	78,801		79,668
Accrued expenses:
Loss contingency related to non-cancelable purchase commitments	3,454		5,120
Professional and other consulting fees	1,534		1,411
Taxes payable	2,693		2,372
Royalties	1,503		1,540
Accrued rebate and customer prepay liability	644		3,807
Accrued interest on convertible senior notes	875		219
Other accrued expenses	9,541		7,962
Total	20,244		22,431
Computer Hardware [Member]
Property, plant and equipment, net:
Property, plant and equipment, gross	10,053		9,692
Computer Software [Member]
Property, plant and equipment, net:
Property, plant and equipment, gross	17,236	[2]	16,988	[2]
Laboratory and Manufacturing Equipment [Member]
Property, plant and equipment, net:
Property, plant and equipment, gross	151,132		146,834
Furniture and Fixtures [Member]
Property, plant and equipment, net:
Property, plant and equipment, gross	1,346		1,347
Leasehold Improvements [Member]
Property, plant and equipment, net:
Property, plant and equipment, gross	36,006		35,913
Construction in Progress [Member]
Property, plant and equipment, net:
Property, plant and equipment, gross	$ 9,218		$ 8,950

[1] Included in finished goods inventory at March 29, 2014 and December 28, 2013 were $8.0 million and $9.2 million, respectively, of inventory at customer locations for which product acceptance had not occurred.

[2] Included in computer software at March 29, 2014 and December 28, 2013 were $7.9 million and $7.9 million, respectively, related to an enterprise resource planning ("ERP") system that the Company implemented during 2012. The unamortized ERP costs at March 29, 2014 and December 28, 2013 were $6.0 million and $6.3 million, respectively.

XML

Stockholders' Equity - Estimated Fair Value of ESPP Shares (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended			12 Months Ended	3 Months Ended			12 Months Ended	3 Months Ended	12 Months Ended
	Mar. 29, 2014	Mar. 30, 2013	Mar. 29, 2014 PSUs [Member]	Dec. 28, 2013 PSUs [Member]	Mar. 29, 2014 Employee Stock Purchase Plans [Member]	Mar. 30, 2013 Employee Stock Purchase Plans [Member]	Mar. 29, 2014 Minimum [Member] PSUs [Member]	Dec. 28, 2013 Minimum [Member] PSUs [Member]	Mar. 29, 2014 Maximum [Member] PSUs [Member]	Dec. 28, 2013 Maximum [Member] PSUs [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted-Average Grant Date Fair Value Per Share, granted			$ 6.62				$ 6.61	$ 6.27	$ 7.60	$ 7.06
Volatility			49.00%	55.00%	51.00%	46.00%
Risk-free interest rate			0.66%	0.42%	0.11%	0.14%
Expected life					6 months	6 months
Estimated fair value					$ 2.57	$ 1.87
Stock-based compensation expense	$ 6,672	$ 7,975			$ 791	$ 708

XML

Stockholders' Equity - Additional Information (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended					12 Months Ended			3 Months Ended
	Mar. 29, 2014	Mar. 29, 2014 NASDAQ Telecom Composite Index [Member]	Mar. 29, 2014 IGN Index [Member]	Mar. 29, 2014 Performance Stock Units Grants [Member]	Mar. 30, 2013 Performance Stock Units Grants [Member]	Dec. 29, 2012 Performance Stock Units Grants [Member]	Dec. 28, 2013 PSUs [Member] Minimum [Member]	Dec. 28, 2013 PSUs [Member] Maximum [Member]	Mar. 29, 2014 Restricted Stock Units [Member]	Mar. 30, 2013 Restricted Stock Units [Member]	Mar. 29, 2014 2007 Equity Incentive Plan [Member] NASDAQ Telecom Composite Index [Member] Minimum [Member]	Mar. 29, 2014 2007 Equity Incentive Plan [Member] NASDAQ Telecom Composite Index [Member] Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted options to employees to purchase shares of common stock	19.2
Closing price of common stock	$ 8.76
Number of shares available for grant cost	0.5
Amortization of stock-based compensation				$ 0.4	$ 0.8				$ 5.1	$ 6.9
Ranges of number of shares issued on vesting of PSUs							0	1.5			0	1.5
Shares of PSUs to executive officers		0.6	0.3			0.5
Amortization of stock based compensation expense offset					0.6
Decrease in fair value					$ 1.4

XML

Stockholders' Equity - Summary of Effects of Stock-Based Compensation on Company's Balance Sheets (Details) (USD $) In Thousands, unless otherwise specified	Mar. 29, 2014	Dec. 28, 2013
Stock-Based Compensation Effects in Inventory [Member]
Effects Of Stock Based Compensation [Line Items]
Effects Of Stock Based Compensation	$ 3,219	$ 3,189
Stock-Based Compensation Effects in Deferred Inventory Cost [Member]
Effects Of Stock Based Compensation [Line Items]
Effects Of Stock Based Compensation	14	15
Stock-Based Compensation Effects in Fixed Assets [Member]
Effects Of Stock Based Compensation [Line Items]
Effects Of Stock Based Compensation	$ 139	$ 145

XML

Convertible Senior Notes - Components of Convertible Senior Notes (Details) (USD $)	3 Months Ended
	Mar. 29, 2014	May 30, 2013 1.75% Convertible Senior Notes Due June 1, 2018 [Member]	Mar. 29, 2014 1.75% Convertible Senior Notes Due June 1, 2018 [Member] Additional Paid-in Capital [Member]	Mar. 29, 2014 1.75% Convertible Senior Notes Due June 1, 2018 [Member] Other Noncurrent Assets [Member]	Mar. 29, 2014 1.75% Convertible Senior Notes Due June 1, 2018 [Member] Long-term Debt [Member]
Debt Instrument [Line Items]
Debt instrument, convertible, if-converted value in excess of principal	$ 1,000
Principal amount		150,000,000.0			150,000,000
Debt discount					(45,000,000)
Equity component			45,000,000
Initial transaction amounts and debt issuance cost				3,872,000
Debt issuance cost			(1,659,000)
Initial transaction amounts, long-term debt					105,000,000
Contractual interest expense	657,000
Initial transaction amount and net carrying amount, APIC			43,341,000
Amortization of debt issuance cost				(518,000)
Amortization of debt discount					6,024,000
Net carrying amount, other non-current assets				3,354,000
Net carrying amount, long-term debt					$ 111,024,000

XML

Fair Value Measurements and Other-Than-Temporary Impairments - Reconciliation of All Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) (USD $)	3 Months Ended
	Mar. 29, 2014	Mar. 30, 2013
Fair Value Disclosures [Abstract]
Realized gains on these calls	$ 0	$ 200,000

XML

Income Taxes - Additional Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 29, 2014	Mar. 30, 2013
Income Tax Disclosure [Abstract]
Provision for income taxes	$ 248	$ 331
Provision for income tax percentage	(6.00%)	(2.20%)
Pre-tax income (loss)	$ 4,126	$ 14,948
Federal statutory rate	35.00%

XML

Comprehensive Loss (Tables)

3 Months Ended

Mar. 29, 2014

Equity [Abstract]

Summary of Changes in Accumulated Other Comprehensive Loss

Other comprehensive loss includes certain changes in equity that are excluded from net loss. The following table sets forth the changes in accumulated other comprehensive loss by component for the first quarter of 2014 (in thousands):

	Unrealized Gain on Other Available-for-Sale Securities			Foreign Currency Translation			Accumulated      Tax Effect			Total
Balance at December 28, 2013	$	(124	)	$	(2,602	)	$	(760	)	$	(3,486	)
Net current-period other comprehensive loss	50			244			(20		)	274
Balance at March 29, 2014	$	(74	)	$	(2,358	)	$	(780	)	$	(3,212	)

XML

Stockholders' Equity - Summary of Company's Equity Award Activity - RSUs (Details) (Restricted Stock Units [Member], USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 29, 2014
Restricted Stock Units [Member]
Number of Restricted Stock Units
Number of Restricted/Performance Stock Units, beginning balance	6,583
Number of Restricted Stock Units, granted	490
Number of Restricted Stock Units, released	(1,541)
Number of Restricted Stock Units, canceled	(146)
Number of Restricted/Performance Stock Units, ending balance	5,386
Number of Restricted Stock Units, Expected to vest	5,198
Weighted- Average Grant Date Fair Value Per Share
Weighted-Average Grant Date Fair Value Per Share, beginning balance	$ 7.72
Weighted-Average Grant Date Fair Value Per Share, granted	$ 8.64
Weighted-Average Grant Date Fair Value Per Share, released	$ 7.91
Weighted-Average Grant Date Fair Value Per Share, canceled	$ 7.02
Weighted-Average Grant Date Fair Value Per Share, ending balance	$ 7.77
Aggregate Intrinsic Value
Aggregate Intrinsic Value, beginning balance	$ 64,443
Aggregate Intrinsic Value, RSUs released	12,981
Aggregate Intrinsic Value, ending balance	47,181
Aggregate Intrinsic Value, Expected to vest	$ 45,539

XML

Comprehensive Loss - Summary of Changes in Accumulated Other Comprehensive Loss (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 29, 2014	Mar. 30, 2013
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Beginning balance	$ (3,486)
Net change in accumulated other comprehensive loss	274	(292)
Ending balance	(3,212)
Unrealized Gain on Other Available-for-Sale Securities [Member]
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Beginning balance	(124)
Net change in accumulated other comprehensive loss	50
Ending balance	(74)
Foreign Currency Translation [Member]
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Beginning balance	(2,602)
Net change in accumulated other comprehensive loss	244
Ending balance	(2,358)
Accumulated Tax Effect [Member]
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Beginning balance	(760)
Net change in accumulated other comprehensive loss	(20)
Ending balance	$ (780)

XML

Derivative Instruments - Additional Information (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 29, 2014
Investments, Debt and Equity Securities [Abstract]
Euro denominated forward contracts maturity period	35 days
British pound denominated receivables and typically maturities period	35 days
Before-tax effect of foreign currency exchange forward contracts not designated as hedging instruments, gain (loss)	$ 0.4

XML

Stockholders' Equity - Total Stock Based Compensation Cost for Instruments Granted but Not Yet Amortized (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 29, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options, Unrecognized Compensation Expense, Net	$ 543
Stock options, Weighted-Average Period (in years)	1 year 7 months 28 days
Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized Compensation Expense, Net	28,289
Weighted-Average Period (in years)	2 years 3 months 15 days
PSUs [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized Compensation Expense, Net	$ 2,759
Weighted-Average Period (in years)	1 year 9 months 18 days

XML

Guarantees - Activity Related to Product Warranty (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 29, 2014		Mar. 30, 2013
Movement in Standard Product Warranty Accrual [Roll Forward]
Beginning balance	$ 22,908		$ 16,482
Charges to operations	5,561		4,168
Utilization	(3,242)		(2,083)
Change in estimate	1,158	[1]	(1,895)	[1]
Balance at the end of the period	$ 26,385		$ 16,672

[1] The Company records hardware warranty liabilities based on the latest quality and cost information available as of that date. The changes in estimate shown here are due to changes in overall actual failure rates and the resulting impact of these changes on the Company’s estimate of expected future returns, as well as changes in the estimated cost of replacing failed units with either repaired or new units.

XML

Convertible Senior Notes - Interest Expense Recognized Related to Notes Prior to Capitalization of Interest (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 29, 2014
Debt Disclosure [Abstract]
Contractual interest expense	$ 657
Amortization of debt issuance costs	160
Amortization of debt discount	1,860
Total interest expense recognized related to notes prior to capitalization of interest	$ 2,677

XML

Fair Value Measurements and Other-Than-Temporary Impairments

3 Months Ended

Mar. 29, 2014

Text Block [Abstract]

Fair Value Measurements and Other-Than-Temporary Impairments

Fair Value Measurements and Other-Than-Temporary Impairments

Fair Value Measurements

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, derivative instruments and debt securities at fair value and classifies its securities in accordance with the fair value hierarchy. The Company’s money market funds and U.S. treasuries are classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets for identical securities.

The Company classifies its certificates of deposit, commercial paper, corporate bonds and foreign currency exchange forward contracts within Level 2 of the fair value hierarchy as follows:

Certificates of Deposit

The Company reviews market pricing and other observable market inputs for the same or similar securities obtained from a number of industry standard data providers. In the event that a transaction is observed for the same or similar security in the marketplace, the price on that transaction reflects the market price and fair value on that day. In the absence of any observable market transactions for a particular security, the fair market value at period end would be equal to the par value. These inputs represent quoted prices for similar assets or these inputs have been derived from observable market data.

Commercial Paper

The Company reviews market pricing and other observable market inputs for the same or similar securities obtained from a number of industry standard data providers. In the event that a transaction is observed for the same or similar security in the marketplace, the price on that transaction reflects the market price and fair value on that day and then follows a revised accretion schedule to determine the fair market value at period end. In the absence of any observable market transactions for a particular security, the fair market value at period end is derived by accreting from the last observable market price. These inputs represent quoted prices for similar assets or these inputs have been derived from observable market data accreted mathematically to par.

Corporate Bonds

The Company reviews trading activity and pricing for each of the corporate bond securities in its portfolio as of the measurement date and determines if pricing data of sufficient frequency and volume in an active market exists in order to support Level 1 classification of these securities. If sufficient quoted pricing for identical securities is not available, the Company obtains market pricing and other observable market inputs for similar securities from a number of industry standard data providers. In instances where multiple prices exist for similar securities, these prices are used as inputs into a distribution-curve to determine the fair market value at period end.

Foreign Currency Exchange Forward Contracts

As discussed in Note 5, “Derivative Instruments,” to the Notes to Condensed Consolidated Financial Statements, the Company mainly holds non-speculative foreign exchange forward contracts to hedge certain foreign currency exchange exposures. The Company estimates the fair values of derivatives based on quoted market prices or pricing models using current market rates. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit risk, foreign exchange rates, and forward and spot prices for currencies.

As of March 29, 2014, none of the Company’s existing securities were classified as Level 3 securities.

The following tables represent the Company’s fair value hierarchy for its assets and liabilities measured at fair value on a recurring basis (in thousands):

	As of March 29, 2014								As of December 28, 2013
	Fair Value Measured Using								Fair Value Measured Using
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	33,005	$	—	$	—	$	33,005	$	51,749	$	—	$	—	$	51,749
Certificates of deposit	—		3,600		—		3,600		—		3,840		—		3,840
Commercial paper	—		77,640		—		77,640		—		85,860		—		85,860
Corporate bonds	—		178,908		—		178,908		—		150,595		—		150,595
U.S. treasuries	4,805		—		—		4,805		4,804		—		—		4,804
Foreign currency exchange forward contracts	—		—		—		—		—		29		—		29
Total assets	$	37,810	$	260,148	$	—	$	297,958	$	56,553	$	240,324	$	—	$	296,877
Liabilities
Foreign currency exchange forward contracts	$	—	$	80	$	—	$	80	$	—	$	26	$	—	$	26

During the first quarter of 2014, there were no transfers of assets or liabilities between Level 1 and Level 2.

Investments at fair value were as follows (in thousands):

	March 29, 2014
	Adjusted    Amortized     Cost		Gross  Unrealized     Gains		Gross   Unrealized     Losses			Fair Value
Money market funds	$	33,005	$	—	$	—		$	33,005
Certificates of deposit	3,600		—		—			3,600
Commercial paper	77,645		3		(8		)	77,640
Corporate bonds	178,981		44		(117		)	178,908
U.S. treasuries	4,801		4		—			4,805
Total available-for-sale investments	$	298,032	$	51	$	(125	)	$	297,958

	December 28, 2013
	Adjusted   Amortized     Cost		Gross   Unrealized     Gains		Gross   Unrealized     Losses			Fair Value
Money market funds	$	51,749	$	—	$	—		$	51,749
Certificates of deposit	3,840		—		—			3,840
Commercial paper	85,870		2		(12		)	85,860
Corporate bonds	150,711		27		(143		)	150,595
U.S. treasuries	4,802		2		—			4,804
Total available-for-sale investments	$	296,972	$	31	$	(155	)	$	296,848

As of March 29, 2014, the Company’s available-for-sale investments in certificates of deposit, commercial paper, corporate bonds, and U.S. treasuries have a contractual maturity term of no more than 16 months. Proceeds from sales and maturities of available-for-sale investments were $57.1 million for the first quarter of 2014. The Company had no net realized gains (losses) on short-term and long-term investments for the first quarter of 2014. The specific identification method is used to account for gains and losses on available-for-sale investments.

As of March 29, 2014 and December 28, 2013, the Company held $46.8 million and $64.6 million of cash in banks, respectively.

Other-Than-Temporary Impairments

As a result of the Company’s disposal of $3.1 million auction rate securities (par value) during the three months ended March 30, 2013, it recorded an approximately $0.2 million gain, which was recognized as Other gain (loss) in the Company’s condensed consolidated statements of operations.

A roll-forward of amortized cost, cumulative other-than-temporary impairments ("OTTI") recognized in earnings and Accumulated other comprehensive loss is as follows (in thousands):

	Amortized Cost			Cumulative OTTI in Earnings			Unrealized Gain			OTTI Loss in Accumulated Other Comprehensive Loss			Accumulated Other Comprehensive Income (Loss)
Balance at December 29, 2012	$	2,707		$	(394	)	$	784		$	(618	)	$	166
Call on investments	(87		)	13			(25		)	20			(5		)
Investments sold	(2,620		)	381			(759		)	598			(161		)
Balance at March 30, 2013	$	—		$	—		$	—		$	—		$	—

XML

Basic and Diluted Net Income (Loss) Per Common Share Basic and Diluted Net Income (Loss) Per Common Share - Computation of Net Loss Per Common Share Basic and Diluted (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 29, 2014	Mar. 30, 2013
Earnings Per Share [Abstract]
Net loss	$ (4,374)	$ (15,279)
Weighted average common shares outstanding - basic and diluted	121,352	114,308
Earnings Per Share, Basic and Diluted	$ (0.04)	$ (0.13)

XML

Segment Information (Tables)

3 Months Ended

Mar. 29, 2014

Segment Reporting [Abstract]

Revenue and Long-Lived Assets by Geographic Region

Revenue by geographic region is based on the shipping address of the customer. The following tables set forth revenue and long-lived assets by geographic region (in thousands):

Revenue

	Three Months Ended
	March 29, 2014		March 30, 2013
Americas:
United States	$	110,691	$	79,073
Other Americas	3,536		718
	114,227		79,791
Europe, Middle East and Africa	25,613		38,806
Asia Pacific and Japan	2,975		6,028
Total revenue	$	142,815	$	124,625

Property, Plant and Equipment, Net

Property, plant and equipment, net

	March 29, 2014		December 28, 2013
United States	$	76,029	$	76,850
Other Americas	275		319
Europe, Middle East and Africa	1,027		1,451
Asia Pacific and Japan	1,470		1,048
Total property, plant and equipment, net	$	78,801	$	79,668

XML

Stockholders' Equity (Tables)

3 Months Ended

Mar. 29, 2014

Equity [Abstract]

Summary of Company's Equity Award Activity - Options

The following tables summarize the Company’s equity award activity and related information (in thousands, except per share data):

	Number of Options		Weighted-Average Exercise Price   Per Share		Aggregate   Intrinsic Value
Outstanding at December 28, 2013	6,367		$	7.26	$	17,452
Options granted	25		$	9.02
Options exercised	(227	)	$	5.85	$	649
Options canceled	(30	)	$	10.30
Outstanding at March 29, 2014	6,135		$	7.30	$	10,841
Vested and expected to vest as of March 29, 2014	6,130				$	10,835
Exercisable at March 29, 2014	5,976		$	7.29	$	10,636

Summary of Company's Equity Award Activity - RSUs

	Number of Restricted Stock Units		Weighted- Average  Grant Date  Fair Value Per Share		Aggregate   Intrinsic Value
Outstanding at December 28, 2013	6,583		$	7.72	$	64,443
RSUs granted	490		$	8.64
RSUs released	(1,541	)	$	7.91	$	12,981
RSUs canceled	(146	)	$	7.02
Outstanding at March 29, 2014	5,386		$	7.77	$	47,181
Expected to vest at March 29, 2014	5,198				$	45,539

Summary of Company's Equity Award Activity - PSUs

	Number of Performance Stock Units		Weighted- Average  Grant Date  Fair Value Per Share		Aggregate   Intrinsic Value
Outstanding at December 28, 2013	721		$	7.04	$	7,054
PSUs granted	338		$	6.62
PSUs released	(255	)	$	6.36	$	2,097
PSUs canceled	(41	)	$	7.25
Outstanding at March 29, 2014	763		$	7.04	$	6,684
Expected to vest at March 29, 2014	541				$	4,738

Total Stock Based Compensation Cost for Instruments Granted but Not Yet Amortized

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 March 29, 2014. These costs are expected to be amortized on a straight-line basis over the following weighted-average periods (in thousands, except for weighted-average period):

	Unrecognized Compensation Expense, Net	Weighted- Average Period (in years)
Stock options	543	1.7
RSUs	28,289	2.3
PSUs	2,759	1.8

Ranges of Estimated Values of Stock Options and Performance-Based Stock Options Granted

The estimated values of stock options, as well as assumptions used in calculating these values were based on estimates as follows (expense amounts in thousands):

	Three Months Ended
Employee and Director Stock Options	March 29, 2014	March 30, 2013
Volatility	52%	N/A
Risk-free interest rate	1.30%	N/A
Expected life	4.3 years	N/A
Estimated fair value	$3.85	N/A
Total stock-based compensation expense	$388	$803

_________________

N/A Not applicable because the Company did not grant any options to employees for the periods presented.

Estimated Fair Value of ESPP Shares

The fair value of the ESPP shares was estimated at the date of grant using the following assumptions (expense amounts in thousands):

	Three Months Ended
Employee Stock Purchase Plan	March 29, 2014	March 30, 2013
Volatility	51%	46%
Risk-free interest rate	0.11%	0.14%
Expected life	0.5 years	0.5 years
Estimated fair value	$2.57	$1.87
Total stock-based compensation expense	$791	$708

Schedule of Share-based Payment Award, Valuation Assumptions

The ranges of estimated values of the PSUs granted, as well as assumptions used in calculating these values were based on estimates as follows:

	Year Ended
	December 28, 2013
Infinera Volatility	55%
NASDAQ Telecom Composite Index Volatility	23%
Risk-free interest rate	0.42%
Correlation with NASDAQ Telecom Composite Index	0.56
Estimated fair value	$6.27 - $7.06

Schedule of Additional Share-based Payment Award, Valuation Assumptions

The ranges of estimated values of the PSUs granted, as well as assumptions used in calculating these values were based on estimates as follows:

	Three Months Ended
	March 29, 2014
Infinera Volatility	49%
IGN Index Volatility	25%
Risk-free interest rate	0.66%
Correlation with IGN Index	0.60
Estimated fair value	$6.61 - $7.60

Summary of Effects of Stock-Based Compensation on Company's Balance Sheets and Statements of Operations

The following tables summarize the effects of stock-based compensation on the Company’s condensed consolidated balance sheets and statements of operations for the periods presented (in thousands):

	March 29, 2014		December 28, 2013
Stock-based compensation effects in inventory	$	3,219	$	3,189
Stock-based compensation effects in deferred inventory cost	$	14	$	15
Stock-based compensation effects in fixed assets	$	139	$	145

	Three Months Ended
	March 29, 2014		March 30, 2013
Stock-based compensation effects included in net loss before income taxes
Cost of revenue	$	452	$	486
Research and development	2,138		3,119
Sales and marketing	1,720		1,999
General and administration	1,530		769
	5,840		6,373
Cost of revenue – amortization from balance sheet (1)	832		1,602
Total stock-based compensation expense	$	6,672	$	7,975

_________________

⁽¹⁾  Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.

XML

Stockholders' Equity - Summary of Effects of Stock-Based Compensation on Company's Statements of Operations (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 29, 2014		Mar. 30, 2013
Effects Of Stock Based Compensation [Line Items]
Stock-based compensation effects included in net loss before income taxes	$ 5,840		$ 6,373
Cost of revenue - amortization from balance sheet	832	[1]	1,602	[1]
Allocated Share-based Compensation Expense	6,672		7,975
Cost of Sales [Member]
Effects Of Stock Based Compensation [Line Items]
Stock-based compensation effects included in net loss before income taxes	452		486
Research and Development Expense [Member]
Effects Of Stock Based Compensation [Line Items]
Stock-based compensation effects included in net loss before income taxes	2,138		3,119
Selling and Marketing Expense [Member]
Effects Of Stock Based Compensation [Line Items]
Stock-based compensation effects included in net loss before income taxes	1,720		1,999
General and Administrative Expense [Member]
Effects Of Stock Based Compensation [Line Items]
Stock-based compensation effects included in net loss before income taxes	$ 1,530		$ 769

[1] Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.

XML

Basic and Diluted Net Income (Loss) Per Common Share Basic and Diluted Net Income (Loss) Per Common Share - Antidilutive Shares Excluded from Computation of Diluted Net Loss Per Share (Details) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 29, 2014	Mar. 30, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, amount	12,715	15,152
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, amount	6,135	8,591
RSUs [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, amount	5,386	5,407
PSUs [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, amount	763	553
ESPP [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, amount	431	601

XML

Guarantees (Tables)

3 Months Ended

Mar. 29, 2014

Guarantees [Abstract]

Activity Related to Product Warranty

Activity related to product warranty was as follows (in thousands):

	Three Months Ended
	March 29, 2014			March 30, 2013
Beginning balance	$	22,908		$	16,482
Charges to operations	5,561			4,168
Utilization	(3,242		)	(2,083		)
Change in estimate (1)	1,158			(1,895		)
Balance at the end of the period	$	26,385		$	16,672

⁽¹⁾  The Company records hardware warranty liabilities based on the latest quality and cost information available as of that date. The changes in estimate shown here are due to changes in overall actual failure rates and the resulting impact of these changes on the Company’s estimate of expected future returns, as well aschanges in the estimated cost of replacing failed units with either repaired or new units.

XML

Fair Value Measurements and Other-Than-Temporary Impairments - Additional Information (Details) (USD $)	3 Months Ended
	Mar. 29, 2014	Mar. 30, 2013	Dec. 28, 2013
Receivables [Abstract]
Available-for-sale investments	16 months
Proceeds from sales, maturities and calls of available-for-sale investments	$ 57,100,000
Realized gains on these calls	0	200,000
Cash	46,800,000		64,600,000
Disposal of auction rate securities par value		$ 3,100,000

XML

Recent Accounting Pronouncements

3 Months Ended

Mar. 29, 2014

Accounting Changes and Error Corrections [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update 2013-11, "Income Taxes - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry Forward, a Similar Tax Loss, or a Tax Credit Carry Forwards Exists" (“ASU 2013-11”). ASU 2013-11 requires entities to present the unrecognized tax benefits in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. ASU 2013-11 is effective for annual and interim periods for fiscal years beginning on or after December 15, 2013. The Company's adoption of ASU 2013-11 during the first quarter of 2014 had no impact on the Company’s financial position, results of operations or cash flow.

XML

Fair Value Measurements and Other-Than-Temporary Impairments - Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Thousands, unless otherwise specified	Mar. 29, 2014	Dec. 28, 2013
Assets
Total Assets	$ 297,958	$ 296,877
Money Market Funds [Member]
Assets
Total Assets	33,005	51,749
Certificates of Deposit [Member]
Assets
Total Assets	3,600	3,840
Commercial Paper [Member]
Assets
Total Assets	77,640	85,860
Corporate Bonds [Member]
Assets
Total Assets	178,908	150,595
U.S. Treasuries [Member]
Assets
Total Assets	4,805	4,804
Foreign Currency Exchange Forward Contracts [Member]
Assets
Total Assets	0	29
Liabilities
Total Liabilities	80	26
Level 1 [Member]
Assets
Total Assets	37,810	56,553
Level 1 [Member] | Money Market Funds [Member]
Assets
Total Assets	33,005	51,749
Level 1 [Member] | Certificates of Deposit [Member]
Assets
Total Assets	0	0
Level 1 [Member] | Commercial Paper [Member]
Assets
Total Assets	0	0
Level 1 [Member] | Corporate Bonds [Member]
Assets
Total Assets	0	0
Level 1 [Member] | U.S. Treasuries [Member]
Assets
Total Assets	4,805	4,804
Level 1 [Member] | Foreign Currency Exchange Forward Contracts [Member]
Assets
Total Assets	0	0
Liabilities
Total Liabilities	0	0
Level 2 [Member]
Assets
Total Assets	260,148	240,324
Level 2 [Member] | Money Market Funds [Member]
Assets
Total Assets	0	0
Level 2 [Member] | Certificates of Deposit [Member]
Assets
Total Assets	3,600	3,840
Level 2 [Member] | Commercial Paper [Member]
Assets
Total Assets	77,640	85,860
Level 2 [Member] | Corporate Bonds [Member]
Assets
Total Assets	178,908	150,595
Level 2 [Member] | U.S. Treasuries [Member]
Assets
Total Assets	0	0
Level 2 [Member] | Foreign Currency Exchange Forward Contracts [Member]
Assets
Total Assets	0	29
Liabilities
Total Liabilities	80	26
Level 3 [Member]
Assets
Total Assets	0	0
Level 3 [Member] | Money Market Funds [Member]
Assets
Total Assets	0	0
Level 3 [Member] | Certificates of Deposit [Member]
Assets
Total Assets	0	0
Level 3 [Member] | Commercial Paper [Member]
Assets
Total Assets	0	0
Level 3 [Member] | Corporate Bonds [Member]
Assets
Total Assets	0	0
Level 3 [Member] | U.S. Treasuries [Member]
Assets
Total Assets	0	0
Level 3 [Member] | Foreign Currency Exchange Forward Contracts [Member]
Assets
Total Assets	0	0
Liabilities
Total Liabilities	$ 0	$ 0

XML

Balance Sheet Details - Details of Selected Balance Sheet Items (Details) (USD $)	Mar. 29, 2014	Dec. 28, 2013
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 224,991,000	$ 219,724,000
Property, plant and equipment, net	78,801,000	79,668,000
Customer Locations [Member]
Property, Plant and Equipment [Line Items]
Inventory awaiting customer acceptance	8,000,000	9,200,000
Enterprise Resource Planning Systems [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	7,900,000	7,900,000
Property, plant and equipment, net	$ 6,000,000	$ 6,300,000

XML

Stockholders' Equity - Ranges of Estimated Values of Stock Options and Performance-Based Stock Options Granted (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended			12 Months Ended	3 Months Ended	12 Months Ended	3 Months Ended	12 Months Ended	3 Months Ended
	Mar. 29, 2014	Mar. 30, 2013	Mar. 29, 2014 PSUs [Member]	Dec. 28, 2013 PSUs [Member]	Mar. 29, 2014 PSUs [Member] Minimum [Member]	Dec. 28, 2013 PSUs [Member] Minimum [Member]	Mar. 29, 2014 PSUs [Member] Maximum [Member]	Dec. 28, 2013 PSUs [Member] Maximum [Member]	Mar. 29, 2014 Stock Compensation Plan [Member]	Mar. 30, 2013 Stock Compensation Plan [Member]	Mar. 29, 2014 Stock Compensation Plan [Member] Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted-Average Grant Date Fair Value Per Share, granted			$ 6.62		$ 6.61	$ 6.27	$ 7.60	$ 7.06
Volatility			49.00%	55.00%							52.00%
Risk-free interest rate			0.66%	0.42%							1.30%
Expected life											4 years 3 months 18 days
Estimated fair value											$ 3.85
Stock-based compensation expense	$ 6,672	$ 7,975							$ 388	$ 803
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, NASDAQ Telecom Composite Index, Expected Volatility Rate			25.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Correction with NASDAQ Telecom Composite Index			60.00%

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Mar. 29, 2014	Dec. 28, 2013
Current assets:
Cash and cash equivalents	$ 85,249	$ 124,330
Short-term investments	226,705	172,660
Accounts receivable, net of allowance for doubtful accounts of $41 in 2014 and $43 in 2013	107,405	100,643
Inventory	126,465	123,685
Prepaid expenses and other current assets	20,537	17,752
Total current assets	566,361	539,070
Property, plant and equipment, net	78,801	79,668
Long-term investments	32,756	64,419
Cost-method investment	9,000	9,000
Long-term restricted cash	4,392	3,904
Other non-current assets	5,776	4,865
Total assets	697,086	700,926
Current liabilities:
Accounts payable	37,843	39,843
Accrued expenses	20,244	22,431
Accrued compensation and related benefits	21,377	33,899
Accrued warranty	14,351	12,374
Deferred revenue	31,496	32,402
Total current liabilities	125,311	140,949
Long-term debt, net	111,024	109,164
Accrued warranty, non-current	12,034	10,534
Deferred revenue, non-current	4,886	4,888
Other long-term liabilities	17,563	17,581
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $0.001 par value Authorized shares – 25,000 and no shares issued and outstanding	0	0
Common stock, $0.001 par value Authorized shares – 500,000 as of March 29, 2014 and December 28, 2013 Issued and outstanding shares – 122,485 as of March 29, 2014 and 119,887 as of December 28, 2013	123	120
Additional paid-in capital	1,038,216	1,025,661
Accumulated other comprehensive loss	(3,212)	(3,486)
Accumulated deficit	(608,859)	(604,485)
Total stockholders’ equity	426,268	417,810
Total liabilities and stockholders’ equity	$ 697,086	$ 700,926

XML

Convertible Senior Notes - Additional Information (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 29, 2014	Dec. 28, 2013	May 30, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Debt instrument interest percentage	1.75%
Initial conversion rate per $1,000 principal amount of Notes	0.0794834
Initial conversion price	$ 12.58
Convertible threshold trading days	20 days
Convertible threshold consecutive trading days	30 days
Convertible threshold minimum percentage	130.00%
Debt instrument, convertible, if-converted value in excess of principal	$ 1,000
Convertible, threshold maximum percentage	98.00%
Purchase price as a percentage on principal amount of the notes upon the occurrence of a fundamental change	100.00%
Additional effective rate of interest to be used on amortized carrying value	5.12%
Total estimated fair value of the notes	155,400,000
Closing price of common stock	$ 8.76
1.75% Convertible Senior Notes Due June 1, 2018 [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Debt instrument issued			150,000,000.0
Debt instrument interest percentage			1.75%
Net proceeds from issuance of debt		144,500,000
Remaining contractual life of senior notes	5 years
Debt instrument discount to be amortized	39,000,000
Debt issuance cost	5,500,000
Deferred tax liability	$ 17,000,000

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 29, 2014	Mar. 30, 2013
Cash Flows from Operating Activities:
Net loss	$ (4,374)	$ (15,279)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	6,314	6,334
(Recovery of) provision for other receivables	0	(88)
Amortization of debt discount and issuance costs	2,020	0
Amortization of premium on investments	828	314
Stock-based compensation expense	6,672	7,975
Other gain	(20)	(243)
Changes in assets and liabilities:
Accounts receivable	(6,762)	(5,094)
Inventory	(3,354)	(5,041)
Prepaid expenses and other assets	(3,797)	(361)
Accounts payable	(2,080)	(8,045)
Accrued liabilities and other expenses	(13,448)	(6,301)
Deferred revenue	(909)	4,340
Accrued Warranty	3,477	190
Net cash used in operating activities	(15,433)	(21,299)
Cash Flows from Investing Activities:
Purchase of available-for-sale investments	(80,223)	(20,023)
Proceeds from sale of available-for-sale investments	0	2,850
Proceeds from maturities and calls of investments	57,063	33,835
Purchase of property and equipment	(5,608)	(4,936)
Change in restricted cash	(479)	44
Net cash provided by (used in) investing activities	(29,247)	11,770
Cash Flows from Financing Activities:
Proceeds from issuance of common stock	7,054	5,560
Minimum tax withholding paid on behalf of employees for net share settlement	(1,619)	(1,493)
Net cash provided by financing activities	5,435	4,067
Effect of exchange rate changes on cash	164	(206)
Net change in cash and cash equivalents	(39,081)	(5,668)
Cash and cash equivalents at beginning of period	124,330	104,666
Cash and cash equivalents at end of period	85,249	98,998
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds	303	210
Supplemental schedule of non-cash financing activities:
Transfer of inventory to fixed assets	$ 603	$ 1,522

XML

Segment Information - Property, Plant and Equipment, Net (Details) (USD $) In Thousands, unless otherwise specified	Mar. 29, 2014	Dec. 28, 2013
Geographic Information For Property Plant And Equipment [Line Items]
Total property, plant and equipment, net	$ 78,801	$ 79,668
Operating Segments [Member] | United States [Member]
Geographic Information For Property Plant And Equipment [Line Items]
Total property, plant and equipment, net	76,029	76,850
Operating Segments [Member] | Other Americas [Member]
Geographic Information For Property Plant And Equipment [Line Items]
Total property, plant and equipment, net	275	319
Operating Segments [Member] | Europe, Middle East and Africa [Member]
Geographic Information For Property Plant And Equipment [Line Items]
Total property, plant and equipment, net	1,027	1,451
Operating Segments [Member] | Asia Pacific [Member]
Geographic Information For Property Plant And Equipment [Line Items]
Total property, plant and equipment, net	$ 1,470	$ 1,048

XML

Fair Value Measurements and Other-Than-Temporary Impairments - Roll-Forward of Amortized Cost, Cumulative OTTI Recognized in Earnings and Accumulated Other Comprehensive Loss (Details) (USD $) In Thousands, unless otherwise specified			3 Months Ended
	Mar. 29, 2014	Dec. 28, 2013	Mar. 30, 2013 OTTI Recognized in Earnings and Accumulated Other Comprehensive Loss [Member]
Amortized Cost
Amortized Cost, Beginning balance	$ 298,032	$ 296,972	$ 2,707
Amortized Cost, Call on investments			(87)
Amortized Cost, Investments sold			(2,620)
Amortized Cost, Ending balance	298,032	296,972	0
Cumulative OTTI in Earnings
Cumulative OTTI in Earnings, Beginning balance			(394)
Cumulative OTTI in Earnings, Call on investments			(13)
Cumulative OTTI in Earnings, Investments sold			(381)
Cumulative OTTI in Earnings, Ending balance			0
Unrealized Gain
Unrealized Gain, Beginning balance			784
Unrealized Gain, Call on investments			(25)
Unrealized Gain (Loss) on Investments			(759)
Unrealized Gain, Ending balance			0
OTTI Loss in Accumulated Other Comprehensive Loss
OTTI Loss in Accumulated Other Comprehensive Loss, Beginning balance			(618)
OTTI Loss in Accumulated Other Comprehensive Loss, Call on investments			(20)
OTTI Loss in Accumulated Other Comprehensive Loss, Investments sold			(598)
OTTI Loss in Accumulated Other Comprehensive Loss, Ending balance			0
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss), Beginning balance			166
Accumulated Other Comprehensive Income (Loss), Call on investments			(5)
Accumulated Other Comprehensive Income (Loss), Investments sold			(161)
Accumulated Other Comprehensive Income (Loss), Ending balance			$ 0

XML

Fair Value Measurements and Other-Than-Temporary Impairments (Tables)

3 Months Ended

Mar. 29, 2014

Text Block [Abstract]

Assets and Liabilities Measured at Fair Value on Recurring Basis

The following tables represent the Company’s fair value hierarchy for its assets and liabilities measured at fair value on a recurring basis (in thousands):

	As of March 29, 2014								As of December 28, 2013
	Fair Value Measured Using								Fair Value Measured Using
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	33,005	$	—	$	—	$	33,005	$	51,749	$	—	$	—	$	51,749
Certificates of deposit	—		3,600		—		3,600		—		3,840		—		3,840
Commercial paper	—		77,640		—		77,640		—		85,860		—		85,860
Corporate bonds	—		178,908		—		178,908		—		150,595		—		150,595
U.S. treasuries	4,805		—		—		4,805		4,804		—		—		4,804
Foreign currency exchange forward contracts	—		—		—		—		—		29		—		29
Total assets	$	37,810	$	260,148	$	—	$	297,958	$	56,553	$	240,324	$	—	$	296,877
Liabilities
Foreign currency exchange forward contracts	$	—	$	80	$	—	$	80	$	—	$	26	$	—	$	26

Investments at Fair Value

Investments at fair value were as follows (in thousands):

	March 29, 2014
	Adjusted    Amortized     Cost		Gross  Unrealized     Gains		Gross   Unrealized     Losses			Fair Value
Money market funds	$	33,005	$	—	$	—		$	33,005
Certificates of deposit	3,600		—		—			3,600
Commercial paper	77,645		3		(8		)	77,640
Corporate bonds	178,981		44		(117		)	178,908
U.S. treasuries	4,801		4		—			4,805
Total available-for-sale investments	$	298,032	$	51	$	(125	)	$	297,958

	December 28, 2013
	Adjusted   Amortized     Cost		Gross   Unrealized     Gains		Gross   Unrealized     Losses			Fair Value
Money market funds	$	51,749	$	—	$	—		$	51,749
Certificates of deposit	3,840		—		—			3,840
Commercial paper	85,870		2		(12		)	85,860
Corporate bonds	150,711		27		(143		)	150,595
U.S. treasuries	4,802		2		—			4,804
Total available-for-sale investments	$	296,972	$	31	$	(155	)	$	296,848

Schedule Of Amortized Cost Cumulative Other Than Temporary Impairment Recognized In Earnings And Accumulated Other Comprehensive Loss

A roll-forward of amortized cost, cumulative other-than-temporary impairments ("OTTI") recognized in earnings and Accumulated other comprehensive loss is as follows (in thousands):

	Amortized Cost			Cumulative OTTI in Earnings			Unrealized Gain			OTTI Loss in Accumulated Other Comprehensive Loss			Accumulated Other Comprehensive Income (Loss)
Balance at December 29, 2012	$	2,707		$	(394	)	$	784		$	(618	)	$	166
Call on investments	(87		)	13			(25		)	20			(5		)
Investments sold	(2,620		)	381			(759		)	598			(161		)
Balance at March 30, 2013	$	—		$	—		$	—		$	—		$	—

XML

Cost-method Investment - Additional Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 29, 2014	Dec. 28, 2013
Statement of Financial Position [Abstract]
Cost of company investment	$ 9,000	$ 9,000
Less than percent of voting securities	20.00%

XML

Balance Sheet Details (Tables)

3 Months Ended

Mar. 29, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Details of Selected Balance Sheet Items

The following table provides details of selected balance sheet items (in thousands):

	March 29, 2014			December 28, 2013
Inventory:
Raw materials	$	13,199		$	14,311
Work in process	47,746			49,172
Finished goods (1)	65,520			60,202
Total inventory	$	126,465		$	123,685
Property, plant and equipment, net:
Computer hardware	$	10,053		$	9,692
Computer software(2)	17,236			16,988
Laboratory and manufacturing equipment	151,132			146,834
Furniture and fixtures	1,346			1,347
Leasehold improvements	36,006			35,913
Construction in progress	9,218			8,950
Subtotal	$	224,991		$	219,724
Less accumulated depreciation and amortization	(146,190		)	(140,056		)
Total property, plant and equipment, net	$	78,801		$	79,668
Accrued expenses:
Loss contingency related to non-cancelable purchase commitments	$	3,454		$	5,120
Professional and other consulting fees	1,534			1,411
Taxes payable	2,693			2,372
Royalties	1,503			1,540
Accrued rebate and customer prepay liability	644			3,807
Accrued interest on convertible senior notes	875			219
Other accrued expenses	9,541			7,962
Total accrued expenses	$	20,244		$	22,431

 _________________

⁽¹⁾  Included in finished goods inventory at March 29, 2014 and December 28, 2013 were $8.0 million and $9.2 million, respectively, of inventory at customer locations for which product acceptance had not occurred.

⁽²⁾  Included in computer software at March 29, 2014 and December 28, 2013 were $7.9 million and $7.9 million, respectively, related to an enterprise resource planning ("ERP") system that the Company implemented during 2012. The unamortized ERP costs at March 29, 2014 and December 28, 2013 were $6.0 million and $6.3 million, respectively.

Schedule of Components of Letters of Credit

The following table sets forth the Company's outstanding standby letters of credit (in thousands):

	March 29,		December 28,
	2014		2013
Value added tax license	$	1,463	$	1,430
Customer proposal guarantee	1,876		1,446
Property leases	699		699
Total standby letters of credit	$	4,038	$	3,575

XML

Basis of Presentation and Significant Accounting Policies

3 Months Ended

Mar. 29, 2014

Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies

Basis of Presentation and Significant Accounting Policies

Infinera Corporation (the “Company”) prepared its interim condensed consolidated financial statements that accompany these notes in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013.

The Company has made 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 condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Significant estimates, assumptions and judgments made by management include revenue recognition, stock-based compensation, inventory valuation, allowances for sales returns, allowances for doubtful accounts, accrued warranty, fair value measurement of the liability component of the convertible senior notes, fair value measurement of cash equivalents, investments and derivative instruments, other-than-temporary impairments and accounting for income taxes. Management believes that the estimates and judgments upon which they rely are reasonable based upon information available to them at the time that these estimates and judgments are made. To the extent there are material differences between these estimates and actual results, the Company’s consolidated financial statements will be affected.

The interim financial information is unaudited, but reflects all adjustments that are, in management’s opinion, necessary to provide a fair presentation of results for the interim periods presented. All adjustments are of a normal recurring nature. The Company reclassified certain amounts reported in previous periods to conform to the current presentation. This interim information should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013.

There have been no material changes in the Company’s significant accounting policies for the three months ended March 29, 2014 as compared to those disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2013.

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 29, 2014	Dec. 28, 2013
Statement of Financial Position [Abstract]
Net of allowance for doubtful accounts	$ 41	$ 43
Preferred stock, par value (USD per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	25,000,000	25,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (USD per share)	$ 0.001	$ 0.001
Common stock, authorized shares	500,000,000	500,000,000
Common stock, shares issued	122,485,000	119,887,000
Common stock, shares outstanding	122,485,000	119,887,000

XML

Income Taxes

3 Months Ended

Mar. 29, 2014

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Provision for income taxes for the three months ended March 29, 2014 was $0.2 million, or negative 6.0%, on a pre-tax loss of $4.1 million. This compared to a tax provision of $0.3 million, or negative 2.2%, on a pre-tax loss of $14.9 million for the three months ended March 30, 2013. The difference between the Company’s effective tax rates and the federal statutory rate of 35% is primarily attributable to U.S. losses, foreign taxes provided on the income of the Company’s foreign subsidiaries, non-deductible stock-based compensation expense and various discrete items. The release of transfer pricing reserves in the future will have a beneficial impact to tax expense, but the timing of the impact depends on factors such as expiration of the statute of limitations or settlements with tax authorities. No significant releases are expected in the near future based on information available at this time.

The realization of tax benefits of deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are scheduled to be deductible or taxable. Based on the available objective evidence, management believes it is more likely than not that the domestic net deferred tax assets will not be realizable. Accordingly, the Company has provided a full valuation allowance against its domestic deferred tax assets, net of deferred tax liabilities, as of March 29, 2014 and December 28, 2013. In determining future taxable income, the Company makes assumptions to forecast federal, state and international operating income, the reversal of taxable temporary differences, and the implementation of any feasible and prudent tax planning strategies. The assumptions require judgment regarding the forecasts of future taxable income and are consistent with the Company’s forecasts used to manage its business. The Company intends to maintain the remaining valuation allowance until sufficient positive evidence exists to support a reversal of, or decrease, in the valuation allowance.

XML

Document and Entity Information	3 Months Ended
	Mar. 29, 2014	Apr. 23, 2014
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 29, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Trading Symbol	INFN
Entity Registrant Name	INFINERA CORP
Entity Central Index Key	0001138639
Current Fiscal Year End Date	--12-27
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		122,490,560

XML

Segment Information

3 Months Ended

Mar. 29, 2014

Segment Reporting [Abstract]

Segment Information

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, and there are no segment managers who are held accountable for operations, operating results and plans for levels or components below the consolidated unit level. Accordingly, the Company is considered to be in a single reporting segment and operating unit structure.

Revenue by geographic region is based on the shipping address of the customer. The following tables set forth revenue and long-lived assets by geographic region (in thousands):

Revenue

	Three Months Ended
	March 29, 2014		March 30, 2013
Americas:
United States	$	110,691	$	79,073
Other Americas	3,536		718
	114,227		79,791
Europe, Middle East and Africa	25,613		38,806
Asia Pacific and Japan	2,975		6,028
Total revenue	$	142,815	$	124,625

Property, plant and equipment, net

	March 29, 2014		December 28, 2013
United States	$	76,029	$	76,850
Other Americas	275		319
Europe, Middle East and Africa	1,027		1,451
Asia Pacific and Japan	1,470		1,048
Total property, plant and equipment, net	$	78,801	$	79,668

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 29, 2014	Mar. 30, 2013
Revenue:
Product	$ 124,242	$ 108,343
Services	18,573	16,282
Total revenue	142,815	124,625
Cost of revenue:
Cost of product	78,438	75,447
Cost of services	5,971	6,476
Total cost of revenue	84,409	81,923
Gross profit	58,406	42,702
Operating expenses:
Research and development	29,346	29,726
Sales and marketing	17,862	18,046
General and administrative	12,254	9,872
Total operating expenses	59,462	57,644
Loss from operations	(1,056)	(14,942)
Other income (expense), net:
Interest income	336	197
Interest expense	(2,677)	0
Other gain (loss), net:	(729)	(203)
Total other income (expense), net	(3,070)	(6)
Loss before income taxes	(4,126)	(14,948)
Provision for income taxes	248	331
Net loss	$ (4,374)	$ (15,279)
Net loss per common share
Basic (USD per share)	$ (0.04)	$ (0.13)
Diluted (USD per share)	$ (0.04)	$ (0.13)
Weighted average shares used in computing net loss per common share
Basic (in shares)	121,352	114,308
Diluted (in shares)	121,352	114,308

XML

Balance Sheet Details

3 Months Ended

Mar. 29, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Balance Sheet Details

Balance Sheet Details

The following table provides details of selected balance sheet items (in thousands):

	March 29, 2014			December 28, 2013
Inventory:
Raw materials	$	13,199		$	14,311
Work in process	47,746			49,172
Finished goods (1)	65,520			60,202
Total inventory	$	126,465		$	123,685
Property, plant and equipment, net:
Computer hardware	$	10,053		$	9,692
Computer software(2)	17,236			16,988
Laboratory and manufacturing equipment	151,132			146,834
Furniture and fixtures	1,346			1,347
Leasehold improvements	36,006			35,913
Construction in progress	9,218			8,950
Subtotal	$	224,991		$	219,724
Less accumulated depreciation and amortization	(146,190		)	(140,056		)
Total property, plant and equipment, net	$	78,801		$	79,668
Accrued expenses:
Loss contingency related to non-cancelable purchase commitments	$	3,454		$	5,120
Professional and other consulting fees	1,534			1,411
Taxes payable	2,693			2,372
Royalties	1,503			1,540
Accrued rebate and customer prepay liability	644			3,807
Accrued interest on convertible senior notes	875			219
Other accrued expenses	9,541			7,962
Total accrued expenses	$	20,244		$	22,431

 _________________

⁽¹⁾  Included in finished goods inventory at March 29, 2014 and December 28, 2013 were $8.0 million and $9.2 million, respectively, of inventory at customer locations for which product acceptance had not occurred.

⁽²⁾  Included in computer software at March 29, 2014 and December 28, 2013 were $7.9 million and $7.9 million, respectively, related to an enterprise resource planning ("ERP") system that the Company implemented during 2012. The unamortized ERP costs at March 29, 2014 and December 28, 2013 were $6.0 million and $6.3 million, respectively.

Restricted Cash

The Company’s long-term restricted cash balance is primarily comprised of certificates of deposit, of which the majority is not insured by the Federal Deposit Insurance Corporation. These amounts primarily collateralize the Company’s issuances of stand-by and commercial letters of credit. Additionally, the Company’s restricted cash balance includes a leave encashment fund for India employees and a corporate bank card deposit for employees in the United Kingdom.

The following table sets forth the Company's outstanding standby letters of credit (in thousands):

	March 29,		December 28,
	2014		2013
Value added tax license	$	1,463	$	1,430
Customer proposal guarantee	1,876		1,446
Property leases	699		699
Total standby letters of credit	$	4,038	$	3,575

XML

Derivative Instruments

3 Months Ended

Mar. 29, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

Foreign Currency Exchange Forward Contracts

The Company enters into foreign currency exchange forward contracts to manage its exposure to fluctuations in foreign exchange rates that arise primarily from its euro and British pound denominated receivables and euro denominated restricted cash balance amounts that are pledged as collateral for certain stand-by and commercial letters of credit. Gains and losses on these contracts are intended to offset the impact of foreign exchange rate fluctuations on the underlying foreign currency denominated accounts receivables and restricted cash, and therefore, do not subject the Company to material balance sheet risk. The forward contracts are with one high-quality institution and the Company consistently monitors the creditworthiness of the counterparty. The forward contracts entered into during the first quarter of 2014 were denominated in euros and British pound, and had maturities of no more than 35 days. The contracts are settled for U.S. dollars at maturity at rates agreed to at inception of the contracts.

As of March 29, 2014, the Company did not designate foreign currency exchange forward contracts as hedges for accounting purposes, and accordingly changes in the fair value of these instruments are included in Other gain (loss), net in the accompanying condensed consolidated statements of operations. For the first quarter of 2014, the before-tax effect of foreign currency exchange forward contracts not designated as hedging instruments was a loss of $0.4 million included in Other gain (loss), net in the condensed consolidated statements of operations.

The fair value of derivative instruments not designated as hedging instruments in the Company’s condensed consolidated balance sheets was as follows (in thousands):

	As of March 29, 2014							As of December 28, 2013
	Gross Notional(1)		Prepaid Expenses and Other Assets		Other Accrued    Liabilities			Gross    Notional(1)		Prepaid Expenses and Other Assets		Other Accrued    Liabilities
Foreign currency exchange forward contracts
Related to euro denominated receivables	$	20,609	—		$	(72	)	$	16,867	27		$	—
Related to British pound denominated receivables	912		—		(3		)	—		—		(26		)
Related to restricted cash	1,392		—		(5		)	1,391		2		—
	$	22,913	$	—	$	(80	)	$	18,258	$	29	$	(26	)

 _________________

⁽¹⁾  Represents the face amounts of forward contracts that were outstanding as of the period noted.

XML

Derivative Instruments (Tables)

3 Months Ended

Mar. 29, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Fair Value of Derivative Instruments not Designated as Hedging Instruments

The fair value of derivative instruments not designated as hedging instruments in the Company’s condensed consolidated balance sheets was as follows (in thousands):

	As of March 29, 2014							As of December 28, 2013
	Gross Notional(1)		Prepaid Expenses and Other Assets		Other Accrued    Liabilities			Gross    Notional(1)		Prepaid Expenses and Other Assets		Other Accrued    Liabilities
Foreign currency exchange forward contracts
Related to euro denominated receivables	$	20,609	—		$	(72	)	$	16,867	27		$	—
Related to British pound denominated receivables	912		—		(3		)	—		—		(26		)
Related to restricted cash	1,392		—		(5		)	1,391		2		—
	$	22,913	$	—	$	(80	)	$	18,258	$	29	$	(26	)

 _________________

⁽¹⁾  Represents the face amounts of forward contracts that were outstanding as of the period noted.

XML

Guarantees

3 Months Ended

Mar. 29, 2014

Guarantees [Abstract]

Guarantees

Guarantees

Product Warranties

Upon delivery of products, the Company provides for the estimated cost to repair or replace products including the related components that may be returned under hardware warranties. In general, hardware warranty periods range from one to five years. Hardware warranties provide the purchaser with protection in the event that the product does not perform to product specifications. During the warranty period, the purchaser’s sole and exclusive remedy in the event of such defect or failure to perform is limited to the correction of the defect or failure by repair or replacement. The Company estimates its hardware warranty obligations based on the Company’s historical experience of known product failure rates, use of materials and labor to repair or replace defective products, and service delivery costs incurred in correcting product failures. In addition, from time to time, specific hardware warranty accruals may be made if unforeseen technical problems arise with specific products. Management periodically assesses the adequacy of the Company’s recorded warranty liabilities and adjusts the amounts as necessary.

Activity related to product warranty was as follows (in thousands):

	Three Months Ended
	March 29, 2014			March 30, 2013
Beginning balance	$	22,908		$	16,482
Charges to operations	5,561			4,168
Utilization	(3,242		)	(2,083		)
Change in estimate (1)	1,158			(1,895		)
Balance at the end of the period	$	26,385		$	16,672

⁽¹⁾  The Company records hardware warranty liabilities based on the latest quality and cost information available as of that date. The changes in estimate shown here are due to changes in overall actual failure rates and the resulting impact of these changes on the Company’s estimate of expected future returns, as well aschanges in the estimated cost of replacing failed units with either repaired or new units.

XML

Convertible Senior Notes

3 Months Ended

Mar. 29, 2014

Debt Disclosure [Abstract]

Convertible Senior Notes

Convertible Senior Notes

In May 2013, the Company issued $150.0 million of 1.75% convertible senior notes due June 1, 2018 (the “Notes”). The Notes will mature on June 1, 2018, unless earlier purchased by the Company or converted. Interest is payable semi-annually in arrears on June 1 and December 1 of each year, commencing December 1, 2013. The net proceeds to the Company were approximately $144.5 million.

The Notes are governed by an indenture dated as of May 30, 2013 (the “Indenture”), between the Company, as issuer, and U.S. Bank National Association, as trustee. The Notes are unsecured and do not contain any financial covenants or any restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of securities by the Company.

Upon conversion, it is the Company’s intention to pay cash equal to the lesser of the aggregate principal amount and the conversion value of the Notes being converted and cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election, for any remaining conversion obligation. The initial conversion rate is 79.4834 shares of common stock per $1,000 principal amount of Notes, subject to anti-dilution adjustments. The initial conversion price is approximately $12.58 per share of common stock.

Throughout the term of the Notes, the conversion rate may be adjusted upon the occurrence of certain events, including for any cash dividends. Holders of the Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a Note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than canceled, extinguished or forfeited. Holders may convert their Notes under the following circumstances:

• during any fiscal quarter commencing after the fiscal quarter ending on September 28, 2013 (and only during such fiscal quarter) if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

• during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

• upon the occurrence of specified corporate events described under the Indenture, such as a consolidation, merger or binding share exchange; or

• at any time on or after December 1, 2017 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the foregoing circumstances.

If the Company undergoes a fundamental change as defined in the Indenture governing the Notes, holders may require the Company to repurchase for cash all or any portion of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, upon the occurrence of a “make-whole fundamental change” (as defined in the Indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change.

The amounts recorded in connection with the issuance of the Notes consisted of the following (in thousands):

	Other Non-     Current Assets			Long-term      Debt			Additional Paid- in Capital
Principal amount	$	—		$	150,000		$	—
Debt discount	—			(45,000		)	—
Equity component	—			—			45,000
Debt issuance cost	3,872			—			(1,659		)
Initial transaction amounts	$	3,872		$	105,000		$	43,341
Amortization of debt issuance cost	(518		)	—			—
Amortization of debt discount	—			6,024			—
Net carrying amount at March 29, 2014	$	3,354		$	111,024		$	43,341

In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the Notes. The remaining debt discount amount to be amortized over the remaining five years until maturity of the Notes was $39.0 million as of March 29, 2014.

In accounting for the issuance costs of $5.5 million related to the Notes, the Company allocated the total amount incurred to the liability and equity components of the Notes based on their relative values. Issuance costs attributable to the liability component were recorded as Other non-current assets and will be amortized to interest expense over the term of the Notes. The issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity. Additionally, the Company initially recorded a deferred tax liability of $17.0 million in connection with the issuance of the Notes, and a corresponding reduction in valuation allowance. The impact of both was recorded to stockholders’ equity.

The Company determined that the embedded conversion option in the Notes does not require separate accounting treatment as a derivative instrument because it is both indexed to the Company’s own stock and would be classified in stockholder’s equity if freestanding.

The following table sets forth total interest expense recognized related to the Notes (in thousands):

	Three Months Ended
	March 29, 2014
Contractual interest expense	$	657
Amortization of debt issuance costs	160
Amortization of debt discount	1,860
Total interest expense	$	2,677

The effective interest rate of the liability component was 1.75%. The excess of the principal amount of the liability component over its carrying amount is amortized, using an effective interest rate of 5.12%, to interest expense over the term of the Notes.

As of March 29, 2014, the fair value of the Notes was $155.4 million. The fair value was determined based on the quoted bid price of the Notes in an over-the-counter market on March 28, 2014. The Notes are classified as Level 2 of the fair value hierarchy. Based on the closing price of the Company’s common stock of $8.76 on March 28, 2014, the if-converted value of the Notes was less than their principal amount.

XML

Guarantees - Additional Information (Details)	3 Months Ended
	Mar. 29, 2014
Minimum [Member]
Guarantor Obligations [Line Items]
Product warranty period	1 year
Maximum [Member]
Guarantor Obligations [Line Items]
Product warranty period	5 years

XML

Comprehensive Loss

3 Months Ended

Mar. 29, 2014

Equity [Abstract]

Comprehensive Loss

Comprehensive Loss

Other comprehensive loss includes certain changes in equity that are excluded from net loss. The following table sets forth the changes in accumulated other comprehensive loss by component for the first quarter of 2014 (in thousands):

	Unrealized Gain on Other Available-for-Sale Securities			Foreign Currency Translation			Accumulated      Tax Effect			Total
Balance at December 28, 2013	$	(124	)	$	(2,602	)	$	(760	)	$	(3,486	)
Net current-period other comprehensive loss	50			244			(20		)	274
Balance at March 29, 2014	$	(74	)	$	(2,358	)	$	(780	)	$	(3,212	)

XML

Basic and Diluted Net Income (Loss) Per Common Share

3 Months Ended

Mar. 29, 2014

Earnings Per Share [Abstract]

Basic and Diluted Net Loss Per Common Share

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 vesting of outstanding restricted stock units (“RSUs”) and performance stock units (“PSUs”), assumed conversion of convertible senior notes, and assumed issuance of stock under the Company’s employee stock purchase plan (“ESPP”) using the treasury stock method. The Company includes the common shares underlying PSUs in the calculation of diluted net income per share when they become contingently issuable and excludes such shares when they are not contingently issuable. In net loss periods, these potentially diluted common shares are anti-dilutive and therefore, excluded from the diluted net loss calculation.

The following table sets forth the computation of loss per common share – basic and diluted (in thousands, except per share amounts):

	Three Months Ended
	March 29, 2014			March 30, 2013
Net loss	$	(4,374	)	$	(15,279	)
Weighted average common shares outstanding - basic and diluted	121,352			114,308
Net loss per common share - basic and diluted	$	(0.04	)	$	(0.13	)

The Company had the following equity awards outstanding that could potentially dilute basic net loss per common share in the future, but were excluded from the computation of diluted loss per common share in the periods presented as their effect would have been anti-dilutive under the treasury stock method (in thousands):

	Three Months Ended
	March 29, 2014	March 30, 2013
Stock options	6,135	8,591
Restricted stock units	5,386	5,407
Performance stock units	763	553
Employee stock purchase plan shares	431	601
Total	12,715	15,152

In the first quarter of 2014, the Company excluded the potential shares issued upon early conversion of the convertible senior notes in the calculation of diluted earnings per share because the market price was below the conversion price. In the future, the Company would include these dilutive effects of the convertible senior notes in the calculation of diluted net income per common share if the market price is above the conversion price. Upon conversion of the convertible senior notes, it is the Company’s intention to pay cash equal to the lesser of the aggregate principal amount or the conversion value of the Notes being converted, therefore, only the conversion spread relating to the notes would be included in the Company’s diluted earnings per share calculation unless their effect is anti-dilutive.

XML

Stockholders' Equity

3 Months Ended

Mar. 29, 2014

Equity [Abstract]

Stockholders' Equity

Stockholders’ Equity

Stock-based Compensation Plans

The Company has stock-based compensation plans pursuant to which the Company has granted stock options, RSUs and PSUs. The Company also has an ESPP for all eligible employees. As of March 29, 2014, there were a total of 19.2 million shares of common stock available for grant under the Company’s 2007 Equity Incentive Plan ("2007 Plan"). The following tables summarize the Company’s equity award activity and related information (in thousands, except per share data):

	Number of Options		Weighted-Average Exercise Price   Per Share		Aggregate   Intrinsic Value
Outstanding at December 28, 2013	6,367		$	7.26	$	17,452
Options granted	25		$	9.02
Options exercised	(227	)	$	5.85	$	649
Options canceled	(30	)	$	10.30
Outstanding at March 29, 2014	6,135		$	7.30	$	10,841
Vested and expected to vest as of March 29, 2014	6,130				$	10,835
Exercisable at March 29, 2014	5,976		$	7.29	$	10,636

	Number of Restricted Stock Units		Weighted- Average  Grant Date  Fair Value Per Share		Aggregate   Intrinsic Value
Outstanding at December 28, 2013	6,583		$	7.72	$	64,443
RSUs granted	490		$	8.64
RSUs released	(1,541	)	$	7.91	$	12,981
RSUs canceled	(146	)	$	7.02
Outstanding at March 29, 2014	5,386		$	7.77	$	47,181
Expected to vest at March 29, 2014	5,198				$	45,539

	Number of Performance Stock Units		Weighted- Average  Grant Date  Fair Value Per Share		Aggregate   Intrinsic Value
Outstanding at December 28, 2013	721		$	7.04	$	7,054
PSUs granted	338		$	6.62
PSUs released	(255	)	$	6.36	$	2,097
PSUs canceled	(41	)	$	7.25
Outstanding at March 29, 2014	763		$	7.04	$	6,684
Expected to vest at March 29, 2014	541				$	4,738

The aggregate intrinsic value of unexercised options, unreleased RSUs and unreleased PSUs is calculated as the difference between the closing price of the Company’s common stock of $8.76 at March 28, 2014 and the exercise prices of the underlying equity awards. The aggregate intrinsic value of the options that have been exercised and RSUs released is calculated as the difference between the fair market value of the common stock at the date of exercise or release and the exercise price of the underlying equity awards.

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 March 29, 2014. These costs are expected to be amortized on a straight-line basis over the following weighted-average periods (in thousands, except for weighted-average period):

	Unrecognized Compensation Expense, Net	Weighted- Average Period (in years)
Stock options	543	1.7
RSUs	28,289	2.3
PSUs	2,759	1.8

Employee Stock Options

The estimated values of stock options, as well as assumptions used in calculating these values were based on estimates as follows (expense amounts in thousands):

	Three Months Ended
Employee and Director Stock Options	March 29, 2014	March 30, 2013
Volatility	52%	N/A
Risk-free interest rate	1.30%	N/A
Expected life	4.3 years	N/A
Estimated fair value	$3.85	N/A
Total stock-based compensation expense	$388	$803

_________________

N/A Not applicable because the Company did not grant any options to employees for the periods presented.

Employee Stock Purchase Plan

The fair value of the ESPP shares was estimated at the date of grant using the following assumptions (expense amounts in thousands):

	Three Months Ended
Employee Stock Purchase Plan	March 29, 2014	March 30, 2013
Volatility	51%	46%
Risk-free interest rate	0.11%	0.14%
Expected life	0.5 years	0.5 years
Estimated fair value	$2.57	$1.87
Total stock-based compensation expense	$791	$708

Restricted Stock Units

During the first quarter of 2014, the Company granted RSUs to employees and members of the Company’s board of directors to receive an aggregate of 0.5 million shares of the Company’s common stock. 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 related to RSUs in the three months ended March 29, 2014 and March 30, 2013 was approximately $5.1 million and $6.9 million, respectively.

Performance Stock Units

Pursuant to the Company’s 2007 Plan, during fiscal 2012, the Company granted 0.5 million shares of PSUs to certain of its executive officers. These PSUs will only vest upon the achievement of certain specific revenue and operating profit criteria and are subject to each named executive officer’s continued service to the Company. If the financial performance metrics are not met within the time limits specified in the award agreements, the PSUs will be canceled. During the first quarter of 2014, the Company did not release any shares subject to the PSUs upon achievement of the performance goals.

Pursuant to the Company’s 2007 Plan, during fiscal 2013, the Company granted 0.6 million shares of PSUs to certain of its executive officers. The number of shares to be issued upon vesting of PSUs range from 0 to 1.5 times the number of PSUs granted depending on the relative performance of the Company’s common stock price compared to the NASDAQ Telecom Composite Index over the span of one, two and three years of total shareholder returns. During the first quarter of 2014, the Company released 0.3 million shares of PSUs based on a payout of 1.5 times of the target number of PSUs.

The ranges of estimated values of the PSUs granted, as well as assumptions used in calculating these values were based on estimates as follows:

	Year Ended
	December 28, 2013
Infinera Volatility	55%
NASDAQ Telecom Composite Index Volatility	23%
Risk-free interest rate	0.42%
Correlation with NASDAQ Telecom Composite Index	0.56
Estimated fair value	$6.27 - $7.06

Pursuant to the Company's 2007 Plan, during the first quarter of 2014, the Company granted 0.3 million shares of PSUs to certain of its executive officers. The number of shares to be issued upon vesting of PSUs range from 0 to 1.5 times the number of PSUs granted depending on the relative performance of the Company's common stock price compared to the iShares North American Tech-Multimedia Networking ("IGN") Index over the span of one, two and three years of total shareholder returns.

The ranges of estimated values of the PSUs granted, as well as assumptions used in calculating these values were based on estimates as follows:

	Three Months Ended
	March 29, 2014
Infinera Volatility	49%
IGN Index Volatility	25%
Risk-free interest rate	0.66%
Correlation with IGN Index	0.60
Estimated fair value	$6.61 - $7.60

Amortization of stock-based compensation related to PSUs in the first quarter of 2014 was approximately $0.4 million. Amortization of stock-based compensation related to PSUs in the first quarter of 2013 was a credit of approximately $0.8 million, including $0.6 million of expense offset by a $1.4 million decrease in fair value for one award classified as a liability award, in accordance with Accounting Standard Codification 718, "Compensation - Stock Compensation."

Stock-Based Compensation

The following tables summarize the effects of stock-based compensation on the Company’s condensed consolidated balance sheets and statements of operations for the periods presented (in thousands):

	March 29, 2014		December 28, 2013
Stock-based compensation effects in inventory	$	3,219	$	3,189
Stock-based compensation effects in deferred inventory cost	$	14	$	15
Stock-based compensation effects in fixed assets	$	139	$	145

	Three Months Ended
	March 29, 2014		March 30, 2013
Stock-based compensation effects included in net loss before income taxes
Cost of revenue	$	452	$	486
Research and development	2,138		3,119
Sales and marketing	1,720		1,999
General and administration	1,530		769
	5,840		6,373
Cost of revenue – amortization from balance sheet (1)	832		1,602
Total stock-based compensation expense	$	6,672	$	7,975

_________________

⁽¹⁾  Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.

XML

Fair Value Measurements and Other-Than-Temporary Impairments - Investments at Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Mar. 29, 2014	Dec. 28, 2013
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Adjusted Amortized Cost	$ 298,032	$ 296,972
Gross Unrealized Gains	51	31
Gross Unrealized Losses	(125)	(155)
Fair Value	297,958	296,848
Money Market Funds [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Adjusted Amortized Cost	33,005	51,749
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	33,005	51,749
Certificates of Deposit [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Adjusted Amortized Cost	3,600	3,840
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	3,600	3,840
Commercial Paper [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Adjusted Amortized Cost	77,645	85,870
Gross Unrealized Gains	3	2
Gross Unrealized Losses	(8)	(12)
Fair Value	77,640	85,860
Corporate Bonds [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Adjusted Amortized Cost	178,981	150,711
Gross Unrealized Gains	44	27
Gross Unrealized Losses	(117)	(143)
Fair Value	178,908	150,595
U.S. Treasuries [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Adjusted Amortized Cost	4,801	4,802
Gross Unrealized Gains	4	2
Gross Unrealized Losses	0	0
Fair Value	$ 4,805	$ 4,804

XML

Stockholders' Equity - Summary of Company's Equity Award Activity - PSUs (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 29, 2014	Dec. 28, 2013
PSUs [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate	49.00%	55.00%
Number of Performance Stock Units
Number of Restricted/Performance Stock Units, beginning balance	721
Number of Performance Stock Units, granted	338
Number of Performance Stock Units, released	(255)
Number of Performance Stock Units, canceled	(41)
Number of Restricted/Performance Stock Units, ending balance	763	721
Number of Restricted Stock Units, Expected to vest	541
Weighted- Average Grant Date Fair Value Per Share
Weighted-Average Grant Date Fair Value Per Share, beginning balance	$ 7.04
Weighted-Average Grant Date Fair Value Per Share, granted	$ 6.62
Weighted-Average Grant Date Fair Value Per Share, released	$ 6.36
Weighted-Average Grant Date Fair Value Per Share, canceled	$ 7.25
Weighted-Average Grant Date Fair Value Per Share, ending balance	$ 7.04	$ 7.04
Aggregate Intrinsic Value
Aggregate Intrinsic Value, beginning balance	$ 7,054
Aggregate Intrinsic Value, PSUs released	2,097
Aggregate Intrinsic Value, ending balance	6,684	7,054
Aggregate Intrinsic Value, Expected to vest	$ 4,738
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, NASDAQ Telecom Composite Index, Expected Volatility Rate		23.00%
Risk-free interest rate	0.66%	0.42%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Correction with NASDAQ Telecom Composite Index		56.00%
Minimum [Member] | PSUs [Member]
Weighted- Average Grant Date Fair Value Per Share
Weighted-Average Grant Date Fair Value Per Share, granted	$ 6.61	$ 6.27
Maximum [Member] | PSUs [Member]
Weighted- Average Grant Date Fair Value Per Share
Weighted-Average Grant Date Fair Value Per Share, granted	$ 7.60	$ 7.06
Fiscal Year 2013 Grant [Member]
Number of Performance Stock Units
Number of Performance Stock Units, released	(300)

XML

Recent Accounting Pronouncements Recent Accounting Pronouncements (Policies)

3 Months Ended

Mar. 29, 2014

Accounting Changes and Error Corrections [Abstract]

Income tax

The Company's adoption of ASU 2013-11 during the first quarter of 2014 had no impact on the Company’s financial position, results of operations or cash flow.

XML

Basic and Diluted Net Income (Loss) Per Common Share (Tables)

3 Months Ended

Mar. 29, 2014

Earnings Per Share [Abstract]

Computation of Net Loss Per Common Share Basic and Diluted

The following table sets forth the computation of loss per common share – basic and diluted (in thousands, except per share amounts):

	Three Months Ended
	March 29, 2014			March 30, 2013
Net loss	$	(4,374	)	$	(15,279	)
Weighted average common shares outstanding - basic and diluted	121,352			114,308
Net loss per common share - basic and diluted	$	(0.04	)	$	(0.13	)

Antidilutive Shares Excluded from Computation of Diluted Net Loss Per Share

	Three Months Ended
	March 29, 2014	March 30, 2013
Stock options	6,135	8,591
Restricted stock units	5,386	5,407
Performance stock units	763	553
Employee stock purchase plan shares	431	601
Total	12,715	15,152

XML

Stockholders' Equity - Summary of Company's Equity Award Activity - Options (Details) (USD $) Share data in Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 29, 2014	Mar. 30, 2013
Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Amortization of stock-based compensation	$ 5,100,000	$ 6,900,000
Stock Options [Member]
Number of Options
Number of Options, beginning balance	6,367
Number of options, granted	25
Number of Options, exercised	(227)
Number of Options, canceled	(30)
Number of Options, ending balance	6,135
Number of Options, vested and expected to vest	6,130
Number of Options, exercisable	5,976
Weighted-Average Exercise Price Per Share
Weighted-Average Exercise Price Per Share, beginning balance	$ 7.26
Weighted-Average Exercise Per Share, Options granted	$ 9.02
Weighted-Average Exercise Price Per Share, Options exercised	$ 5.85
Weighted-Average Exercise Price Per Share, Options canceled	$ 10.30
Weighted-Average Exercise Price Per Share, ending balance	$ 7.30
Average Exercise Price Per Share, Exercisable	$ 7.29
Aggregate Intrinsic Value
Aggregate Intrinsic Value, beginning balance	17,452,000
Aggregate Intrinsic Value, Options exercised	649,000
Aggregate Intrinsic Value, ending balance	10,841,000
Aggregate Intrinsic Value, Vested and expected to vest	10,835,000
Aggregate Intrinsic Value, Exercisable	$ 10,636,000

XML

Balance Sheet Details - Letters of Credit (Details) (USD $) In Thousands, unless otherwise specified	Mar. 29, 2014	Dec. 28, 2013
Balance Sheet Related Disclosures [Abstract]
Value added tax license	$ 1,463	$ 1,430
Customer proposal guarantee	1,876	1,446
Property leases	699	699
Letters of credit outstanding	$ 4,038	$ 3,575

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 29, 2014	Mar. 30, 2013
Statement of Comprehensive Income [Abstract]
Net loss	$ (4,374)	$ (15,279)
Other comprehensive loss:
Reclassification of realized gain on auction rate securities	0	(166)
Unrealized gain (loss) on all other available-for-sale investments	50	(9)
Foreign currency translation adjustment	244	(117)
Tax related to available-for-sale investment	(20)	0
Net change in accumulated other comprehensive loss	274	(292)
Comprehensive loss	$ (4,100)	$ (15,571)

XML

Cost-method Investment

3 Months Ended

Mar. 29, 2014

Investments, All Other Investments [Abstract]

Cost-method Investment

Cost-method Investment

As of March 29, 2014, the Company’s investment in a privately-held company was $9.0 million. This investment is accounted for as a cost-method investment, as the Company owns less than 20% of the voting securities and does not have the ability to exercise significant influence over operating and financial policies of the entity. The Company’s cost-method investment is carried at historical cost in its condensed consolidated financial statements and measured at fair value on a nonrecurring basis. If the Company believes that the carrying value of the cost basis investment is in excess of estimated fair value, the Company’s policy is to record an impairment charge in Other income (expense), net in the accompanying condensed consolidated statements of operations to adjust the carrying value to estimated fair value, when the impairment is deemed other-than-temporary. The Company regularly evaluates the carrying value of this cost-method investment for impairment. As of March 29, 2014, no event had occurred that would adversely affect the carrying value of this investment, therefore, the fair value of the cost-method investment is not estimated. The Company did not record any impairment charges for this cost-method investment during the three months ended March 29, 2014 and March 30, 2013.

XML

Segment Information - Revenue and Long-Lived Assets by Geographic Region (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 29, 2014	Mar. 30, 2013
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 142,815	$ 124,625
Operating Segments [Member] | United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	110,691	79,073
Operating Segments [Member] | Other Americas [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	3,536	718
Operating Segments [Member] | Americas [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	114,227	79,791
Operating Segments [Member] | Europe, Middle East and Africa [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	25,613	38,806
Operating Segments [Member] | Asia Pacific [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 2,975	$ 6,028

XML

Convertible Senior Notes (Tables)

3 Months Ended

Mar. 29, 2014

Debt Disclosure [Abstract]

Components of Convertible Senior Notes

The amounts recorded in connection with the issuance of the Notes consisted of the following (in thousands):

	Other Non-     Current Assets			Long-term      Debt			Additional Paid- in Capital
Principal amount	$	—		$	150,000		$	—
Debt discount	—			(45,000		)	—
Equity component	—			—			45,000
Debt issuance cost	3,872			—			(1,659		)
Initial transaction amounts	$	3,872		$	105,000		$	43,341
Amortization of debt issuance cost	(518		)	—			—
Amortization of debt discount	—			6,024			—
Net carrying amount at March 29, 2014	$	3,354		$	111,024		$	43,341

Interest Expense Recognized Related to Notes

The following table sets forth total interest expense recognized related to the Notes (in thousands):

	Three Months Ended
	March 29, 2014
Contractual interest expense	$	657
Amortization of debt issuance costs	160
Amortization of debt discount	1,860
Total interest expense	$	2,677

XML

Derivative Instruments - Fair Value of Derivative Instruments Not Designated as Hedging Activities (Details) (USD $) In Thousands, unless otherwise specified	Mar. 29, 2014		Dec. 28, 2013
Derivative [Line Items]
Gross Notional	$ 22,913	[1]	$ 18,258	[1]
Prepaid Expenses and Other Assets	20,537		17,752
Other Accrued Liabilities	(80)		(26)
Designated as Hedging Instrument [Member]
Derivative [Line Items]
Prepaid Expenses and Other Assets	0		29
Designated as Hedging Instrument [Member] | Euro Denominated Exchange Forward Contracts Receivables [Member]
Derivative [Line Items]
Gross Notional	20,609	[1]	16,867	[1]
Prepaid Expenses and Other Assets	0		27
Other Accrued Liabilities	(72)		0
Designated as Hedging Instrument [Member] | GBP Denominated Exchange Forward Contracts Receivables [Member]
Derivative [Line Items]
Gross Notional	912	[1]	0	[1]
Prepaid Expenses and Other Assets	0		0
Other Accrued Liabilities	(3)		(26)
Designated as Hedging Instrument [Member] | Foreign Currency Exchange Restricted Cash Forward Contracts [Member]
Derivative [Line Items]
Gross Notional	1,392	[1]	1,391	[1]
Prepaid Expenses and Other Assets	0		2
Other Accrued Liabilities	$ (5)		$ 0

[1] Represents the face amounts of forward contracts that were outstanding as of the period noted.

XML

Litigation and Contingencies

3 Months Ended

Mar. 29, 2014

Commitments and Contingencies Disclosure [Abstract]

Litigation and Contingencies

Litigation and Contingencies

Legal Matters

From time to time, 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.

Cambrian Science Patent Infringement Litigation

On July 12, 2011, the Company was notified by Level 3 that Cambrian Science Corporation (“Cambrian”) filed suit against Level 3 and six other defendants, including Cox Communications, Inc., XO Communications, LLC, Global Crossing Limited, 360Networks (USA), Inc., Integra Telecom, Inc. and IXC, Inc. dba Telekenex (collectively, the “Defendants”) in the U.S. District Court for the Central District of California alleging infringement of patent no. 6,775,312 (the “’312 Patent”) and requesting damages for such alleged infringement (the “Cambrian Claim”). The nature of the Cambrian Claim involves allegations of infringement of the ’312 Patent resulting from the Defendants’ use of certain products and systems in the Defendants’ networks, including our DTN platform. On August 24, 2011, Cambrian amended the complaint to name the Company as a defendant. The Company assumed the defense of the Cambrian Claim and filed an answer to Cambrian’s complaint on September 21, 2011, in which the Company denied infringement of the ‘312 Patent and raised other defenses. Cambrian filed a second amended complaint on October 6, 2011, which included many of the same allegations as in the original complaint. The Company filed its answer to the second amended complaint on October 21, 2011, in which the Company maintained the same denials and defenses as in the Company’s initial answer. On December 23, 2011, the Company filed a motion requesting that the court stay the case with respect to each of the above-noted customer Defendants. Cambrian filed its opposition to the Company’s motion on December 30, 2011. The Company’s request was denied in the court’s decision on March 7, 2012. The Company presented evidence on the appropriate meanings of relevant key words used in the patent claims during a claim construction hearing on November 20, 2012.

On June 17, 2013, the court issued an order regarding claim construction, in which the court agreed with almost all of the Company’s proposed claim constructions. On October 17, 2013, the parties met for a court-mandated mediation. On April 14, 2014, the Company filed three motions for summary judgment relating to non-infringement and damages. The court scheduled a hearing on the summary judgment motions for June 9, 2014. The court also scheduled a pretrial conference for July 7, 2014, and the jury trial is set to begin on July 22, 2014. 

Based on the information available at this time, the Company concluded that the likelihood of a loss with respect to this suit is reasonably possible. The Company has further concluded that the range of the reasonably possible loss is an insignificant amount and will not have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or cash flows. Accordingly, the Company accrued an insignificant amount during 2013, which did not have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or cash flows. Factors that the Company considered in the determination of the likelihood of a loss and the estimate of that loss in respect to this matter included the merits of the case, the nature of the litigation (including the complex and technical nature of patent litigation), the length of time the matter has been pending, the status of the plaintiff as a non-operating entity and the likelihood of the plaintiff accepting the estimated amount. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties.

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 March 29, 2014, the Company has not accrued or recorded any such material liabilities.