SOURCE: Infinera

October 21, 2008 16:10 ET

Infinera Corporation Reports Third Quarter Financial Results

Adjusted GAAP Revenue of $80.9 Million, Cash From Operations of $9.9 Million; Five New Customers Added

SUNNYVALE, CA--(Marketwire - October 21, 2008) - Infinera Corporation (NASDAQ: INFN), a leading provider of digital optical communications systems, today released financial results for the third quarter ended September 27, 2008.

GAAP Results:

--  GAAP revenues for the third quarter of 2008 were $120.5 million
    compared to $62.2 million in the third quarter of 2007.
--  GAAP gross margins were 45% in the third quarter of 2008 compared to
    34% in the third quarter of 2007.
--  Including non-cash stock-based compensation, GAAP net income was $14.9
    million, or $0.15 per diluted share, in the third quarter of 2008 compared
    to a GAAP net loss of $5.5 million, or $0.07 per share, in the third
    quarter of 2007.
    

Adjusted GAAP / Invoiced Shipment Results:

--  Adjusted GAAP revenue for the third quarter of 2008 was $80.9 million
    compared to $80.3 million of invoiced shipments in the third quarter of
    2007.
--  Gross margins on an adjusted GAAP basis, excluding non-cash stock-
    based compensation, were 42% in the third quarter of 2008 compared to 43%
    in the third quarter of 2007.
--  Excluding non-cash stock-based compensation, net income on an adjusted
    GAAP basis was $0.0 million, or $0.00 per diluted share, for the third
    quarter of 2008 compared to $10.9 million, or $0.12 per diluted share on an
    invoiced shipment basis, in the third quarter of 2007.
    

Footnote: For an explanation of our use of Adjusted GAAP and Invoiced Shipments measures and a full reconciliation of these measures to our GAAP results, please see the section of the accompanying tables titled "GAAP to Non-GAAP Invoiced Shipment and Adjusted GAAP Reconciliation."

Management Commentary

"Our third quarter results came in ahead of guidance we provided in July, showing solid revenue performance and good cash generation," said Jagdeep Singh, president and chief executive officer. "Both existing and new customers continue to turn to Infinera's PIC-based solution to build out their networks as they address their bandwidth growth needs. We added five new customers in the quarter -- including our fifth of the top five major cable MSOs in North America and two additional European customers. We saw strong reception from the installed base and new customers to the new Infinera Line System 2 (ILS2), which began shipping in August. We are pleased with the resumption in new customer-win momentum and we believe that this will continue into Q4 with the addition of at least another four new customers."

"During the quarter, we also completed the migration of the Deutsche Telekom (DT) Western European network to Infinera equipment in a five-week timeline, highlighting the speed of service advantage that our architecture provides," said Singh. "DT is now running live traffic on the new network. This represents a significant achievement for the Infinera and DT teams and it is serving as a strong reference account for our new business efforts."

During the quarter, the Company also achieved these two key milestones:

--  Infinera's photonic integrated circuits (PICs) surpassed a cumulative
    total of 100 million hours of operation in live networks worldwide without
    any PIC failures, evidence of the high reliability of the company's
    photonic integration technology.
    
--  More than 10,000 Infinera DLM line cards shipped since the company
    began commercial shipments in late 2004. This equates to a total DWDM
    network capacity of 1Petabit per second.
    


Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its third quarter results today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). A live webcast of the conference call will also be accessible from the "Investor Relations" section of the company's website at www.infinera.com. Following the webcast, an archived version will be available on the website for 30 days. To hear the replay, parties in the United States and Canada should call 1-866-395-1648. International parties can access the replay at +1-203-369-0468.

About Infinera

Infinera provides Digital Optical Networking systems to telecommunications carriers worldwide. Infinera's systems are unique in their use of a breakthrough semiconductor technology: the Photonic Integrated Circuit (PIC). Infinera's systems and PIC technology are designed to provide optical networks with simpler and more flexible engineering and operations, faster time-to-service, and the ability to rapidly deliver differentiated services without reengineering their optical infrastructure. For more information, please visit www.infinera.com.

Forward Looking Statements -

This press release contains forward-looking statements, including statements relating to the strong reception for our installed base and new customers to our products, including our ILS2, our belief that we will continue to add at least another four new customers in Q4, our belief that our PIC's performance is evidence of the high reliability of our photonic integrated circuit technology, our belief in the economic benefits of our system, and our belief that DT serves as a strong reference account for us. These forward-looking statements involve risks and uncertainties, as well as assumptions that if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include our ability to react to trends and challenges in our business and the markets in which we operate; our ability to anticipate market needs and develop new or enhanced products to meet those needs; the adoption rate of our products; our ability to establish and maintain successful relationships with our customers; our ability to reduce customer concentration; our ability to compete in our industry; fluctuations in demand, sales cycles and prices for our products and services; shortages or price fluctuations in our supply chain; our ability to protect our intellectual property rights; general political, economic and market conditions and events; and other risks and uncertainties described more fully in our documents filed with or furnished to the Securities and Exchange Commission (SEC). More information about these and other risks that may impact Infinera's business are set forth in our annual report on Form 10-K, which was filed with the SEC on February 19, 2008, as well as subsequent reports filed with the SEC. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

Non-GAAP and other Financial Measures

In addition to disclosing financial measures prepared in accordance with United States Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain certain non-GAAP and other financial measures that reflect invoiced shipments, adjusted GAAP revenue and exclude non-GAAP non-cash stock-based compensation. For a description of these non-GAAP financial measures, including the reasons why management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled "GAAP to Non-GAAP Invoiced Shipment and Adjusted GAAP Reconciliation" as well as the accompanying notes on the use of certain non-GAAP measures. We anticipate disclosing forward-looking non-GAAP and other financial information in our conference call to discuss our third quarter of 2008 results, including an estimate of adjusted GAAP earnings for the fourth quarter of 2008 that excludes revenues and costs previously recognized on an invoiced shipments basis and non-GAAP non-cash stock-based compensation expenses related to our equity awards and the right to purchase common stock under our Employee Stock Purchase Plan in the period.

A copy of this press release can be found on the investor relations page of Infinera's website at www.infinera.com.

Infinera Corporation and the Infinera logo are trademarks or registered trademarks of Infinera Corporation. All other trademarks used or mentioned herein belong to their respective owners.

Infinera Corporation
GAAP Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)


                              Three Months Ended      Nine Months Ended
                            ----------------------- ----------------------
                              September  September   September   September
                                 27,        29,         27,         29,
                                2008       2007        2008        2007
                            ----------- ----------  ----------  ----------

Revenue:
  Product                   $    76,130 $       25  $  226,763  $    7,275
  Ratable product and
   related support and
   services                      39,495     62,130     181,462     162,488
  Services                        4,881          -      11,643           -
                            ----------- ----------  ----------  ----------
    Total revenue               120,506     62,155     419,868     169,763

Cost of revenue (1):
  Cost of product                45,139         18     131,928       3,869
  Cost of ratable product
   and related support and
   services                      18,537     40,804      86,537     116,462
  Cost of services                2,592          -       5,814           -
                            ----------- ----------  ----------  ----------
    Total cost of revenue        66,268     40,822     224,279     120,331

Gross profit                     54,238     21,333     195,589      49,432
Operating expenses (1):
  Sales and marketing            11,171      7,995      32,277      22,032
  Research and development       21,092     14,621      57,172      44,758
  General and administrative      8,713      7,069      25,632      17,984
  Amortization of intangible
   assets                            37         37         111         111
                            ----------- ----------  ----------  ----------
    Total operating expenses     41,013     29,722     115,192      84,885

Income (loss) from operations    13,225     (8,389)     80,397     (35,453)

Other income (expense), net:
  Interest income                 1,675      2,459       7,236       3,373
  Interest expense                    -        (67)         (3)     (2,249)
  Other gain (loss), net(2):         37        533       1,213     (16,982)
                            ----------- ----------  ----------  ----------
    Total other income
     (expense), net               1,712      2,925       8,446     (15,858)

Income (loss) before
 provision for income taxes      14,937     (5,464)     88,843     (51,311)
Provision for income taxes            -         62       3,427         124
                            ----------- ----------  ----------  ----------
Net income (loss)           $    14,937 $   (5,526) $   85,416  $  (51,435)
                            =========== ==========  ==========  ==========

Net income (loss) per
 common share:
  Basic                     $      0.16 $    (0.07) $     0.93  $    (1.34)
                            =========== ==========  ==========  ==========
  Diluted                   $      0.15 $    (0.07) $     0.88  $    (1.34)
                            =========== ==========  ==========  ==========

Weighted average shares used
 in computing net income
 (loss) per common share:
  Basic                          92,888     84,017      92,087      38,419
                            =========== ==========  ==========  ==========
  Diluted                        97,208     84,017      97,061      38,419
                            =========== ==========  ==========  ==========

(1)  The following table summarizes the effects of stock-based compensation
     related to employees, non-recourse notes and non-employees for the
     three and nine months ended September 27, 2008 and September 29, 2007:


                              Three Months Ended      Nine Months Ended
                            ----------------------- ----------------------
                              September  September   September   September
                                 27,        29,         27,         29,
                                2008       2007        2008        2007
                            ----------- ----------  ----------  ----------
  Cost of revenue           $       299 $      143  $      778  $      254
  Research and development        1,870      1,113       4,722       2,436
  Sales and marketing             1,250        689       3,264       1,122
  General and administration      1,956      1,129       5,530       2,032
                            ----------- ----------  ----------  ----------
                                  5,375      3,074      14,294       5,844
  Cost of revenue -
   amortization from balance
   sheet*                         1,180         89       3,549         129
                            ----------- ----------  ----------  ----------
  Total stock-based
   compensation expense     $     6,555 $    3,163  $   17,843  $    5,973
                            =========== ==========  ==========  ==========

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

(2) The following table summarizes the remeasurement of our freestanding
    preferred stock warrants under FAS 150:


                              Three Months Ended      Nine Months Ended
                            ----------------------- ----------------------
                              September  September   September   September
                                 27,        29,         27,         29,
                                2008       2007        2008        2007
                            ----------- ----------  ----------  ----------
  Other loss                $         - $        -  $        -  $  (19,761)





Infinera Corporation
GAAP to Non-GAAP Invoiced Shipment and Adjusted GAAP Reconciliation
(In thousands, except per share data)
(Unaudited)

                              Three Months Ended September 27, 2008
                       ===================================================
                                                                  Adjusted
                                                      Adjusted      GAAP
                                             Adjusted   GAAP     Excluding
                                 Deferral       GAAP   Stock       Stock
                         GAAP   Adjustments   Results   Comp        Comp
                       --------  --------     -------  ------     --------
Revenue
  Product and ratable
   revenue             $115,625  $(39,588)(a) $76,037  $    -     $ 76,037
  Services revenue        4,881         -       4,881       -        4,881
                       --------  --------     -------  ------     --------
Total revenue           120,506   (39,588)     80,918       -       80,918
Cost of revenue          66,268   (18,338)(c)  47,930  (1,270)(e)   46,660
                       --------  --------     -------  ------     --------
Gross profit             54,238   (21,250)     32,988   1,270       34,258
Gross margin                 45%                                        42%
Operating expenses       41,013         -      41,013  (5,076)(e)   35,937
                       --------  --------     -------  ------     --------
Income (loss) from
 operations              13,225   (21,250)     (8,025)  6,346       (1,679)
Other income (expense),
 net                      1,712         -       1,712       -        1,712
                       --------  --------     -------  ------     --------
Income (loss) before
 provision for income
 taxes                   14,937   (21,250)     (6,313)  6,346           33
Provision for income
 taxes                        -         -           -       -            -
                       --------  --------     -------  ------     --------
Net income (loss)      $ 14,937  $(21,250)    $(6,313) $6,346     $     33
                       ========  ========     =======  ======     ========
Net income (loss) per
 common share:
    Basic              $   0.16                                   $   0.00
                       ========                                   ========
    Diluted            $   0.15                                   $   0.00
                       ========                                   ========
Weighted average shares
 used in computing net
 income (loss) per
 common share:
    Basic                92,888                                     92,888
                       ========                                   ========
    Diluted              97,208                                     97,208
                       ========                                   ========



                                 Three Months Ended June 28, 2008
                       ===================================================
                                                                  Adjusted
                                                      Adjusted      GAAP
                                             Adjusted   GAAP     Excluding
                                 Deferral       GAAP   Stock       Stock
                         GAAP   Adjustments   Results   Comp        Comp
                       --------  --------     -------  ------     --------
Revenue
  Product and ratable
   revenue             $156,086  $(70,349)(b) $85,737  $    -     $ 85,737
  Services revenue        5,023         -       5,023       -        5,023
                       --------  --------     -------  ------     --------
Total revenue           161,109   (70,349)     90,760       -       90,760
Cost of revenue          81,325   (32,090)(d)  49,235  (1,176)(e)   48,059
                       --------  --------     -------  ------     --------
Gross profit             79,784   (38,259)     41,525   1,176       42,701
Gross margin                 50%                                        47%
Operating expenses       37,186         -      37,186  (4,865)(e)   32,321
                       --------  --------     -------  ------     --------
Income (loss) from
 operations              42,598   (38,259)      4,339   6,041       10,380
Other income (expense),
 net                      2,554         -       2,554       -        2,554
                       --------  --------     -------  ------     --------
Income (loss) before
 provision for income
 taxes                   45,152   (38,259)      6,893   6,041       12,934
Provision for income
 taxes                    2,267         -       2,267       -        2,267
                       --------  --------     -------  ------     --------
Net income (loss)      $ 42,885  $(38,259)    $ 4,626  $6,041     $ 10,667
                       ========  ========     =======  ======     ========
Net income (loss) per
 common share:
    Basic              $   0.47                                   $   0.12
                       ========                                   ========
    Diluted            $   0.44                                   $   0.11
                       ========                                   ========
Weighted average shares
 used in computing net
 income (loss) per
 common share:
    Basic                92,124                                     92,124
                       ========                                   ========
    Diluted              97,284                                     97,284
                       ========                                   ========





Infinera Corporation
GAAP to Non-GAAP Invoiced Shipment and Adjusted GAAP Reconciliation
(In thousands, except per share data)
(Unaudited)


                              Three Months Ended September 29, 2007
                       ===================================================
                                                                  Non-GAAP
                                                                  Invoiced
                                                                 Shipments
                                                      Non-GAAP   Excluding
                                 Deferral    Invoiced  Stock       Stock
                         GAAP   Adjustments  Shipments  Comp        Comp
                       --------  --------     -------  ------     --------
Revenue                $ 62,155  $ 18,195 (b) $80,350  $    -     $ 80,350
Cost of revenue          40,822     5,181 (d)  46,003    (470)(e)   45,533
                       --------  --------     -------  ------     --------
Gross profit             21,333    13,014      34,347     470       34,817
Gross margin                 34%                                        43%
Operating expenses       29,722         -      29,722  (2,931)(e)   26,791
                       --------  --------     -------  ------     --------
Income (Loss) from
 operations              (8,389)   13,014       4,625   3,401        8,026
Other income (expense),
 net                      2,925         -       2,925       -        2,925
                       --------  --------     -------  ------     --------
Income (Loss) before
 provision for income
 taxes                   (5,464)   13,014       7,550   3,401       10,951
Provision for income
 taxes                       62         -          62       -           62
                       --------  --------     -------  ------     --------
Net income (loss)      $ (5,526) $ 13,014     $ 7,488  $3,401     $ 10,889
                       ========  ========     =======  ======     ========
Net income (loss) per
 common share:
    Basic              $  (0.07)                                  $   0.13
                       ========                                   ========
    Diluted            $  (0.07)                                  $   0.12
                       ========                                   ========
Shares used in computing
 net income (loss) per
 common share:
    Basic                84,017                                     84,017
                       ========                                   ========
    Diluted              84,017                                     92,007
                       ========                                   ========


Use of Non-GAAP Invoiced Shipments / Adjusted GAAP Information:

Prior to the second quarter of 2008, in order to supplement our condensed consolidated financial statements presented on a GAAP basis, Infinera used invoiced shipment measures of operating results and net income. Invoiced shipment measures reflected GAAP results adjusted for changes in our deferred revenue and deferred cost of inventory balances from the prior period. We further presented non-GAAP measures of operating results, net income and net income per share, which included invoiced shipments and excluded non-GAAP stock-based compensation expense. These adjustments to our GAAP results were made to provide both management and investors with an understanding of Infinera's underlying operating results and trends as they would have been reflected had we established vendor specific objective evidence ("VSOE") of fair value for our service offerings and not been required to recognize revenue ratably.

Effective April 2008, we had established VSOE of fair value for most of our service offerings. Therefore, beginning in the second quarter of 2008, we have used adjusted GAAP measures of operating results and net income. Adjusted GAAP results reflect our GAAP results reduced for amounts released from deferred revenue and deferred cost of inventory balances recorded prior to the second quarter of 2008 and previously reported in our invoiced shipment results. Deferred services and deferred ratable and product revenue and cost amounts recorded after March 29, 2008 have not been adjusted and are recognized on a GAAP basis in arriving at the adjusted GAAP results. We have continued to present non-GAAP measures of operating results, net income and net income per share, which include adjusted GAAP results and exclude non-GAAP stock-based compensation expense.

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

Infinera Corporation
GAAP to Non-GAAP Invoiced Shipment and Adjusted GAAP Reconciliation
(In thousands)

Use of Non-GAAP Financial Measures (Continued)

(a) Adjustment amount represents the release of ratable and product
    deferred revenue amounts related to periods prior to March 29, 2008 as
    these amounts have been previously reported as invoiced shipments.
    No adjustment has been made for changes in services deferred revenue as
    these amounts relate to future service deliverables and are
    appropriately deferred.  Deferred ratable and product amounts recorded
    after March 29, 2008 have not been adjusted as these amounts are
    recognized on a GAAP basis in arriving at the adjusted GAAP results.

    The deferred revenue adjustments recorded above are reconciled to the
    deferred revenue balance on our balance sheet in the table below:


                                  Three Months Ended September 27, 2008
                              --------------------------------------------
                                Pre Mar    Post Mar
                               29, 2008    29, 2008
                                Ratable     Ratable
                                  and         and
                                Product     Product
Deferred Revenue                Revenue     Revenue   Services     Total
                              ----------  ----------  ---------  ---------
(In thousands)
Beginning balance             $   61,340  $    3,113  $   5,456  $  69,909
Additions to deferred revenue          -       2,075      3,567      5,642
Amortization to revenue          (39,588)       (891)    (2,616)   (43,095)
                              ----------  ----------  ---------  ---------
Ending balance                $   21,752  $    4,297  $   6,407  $  32,456
                              ==========  ==========  =========  =========
Change in deferred revenue
 balance                      $  (39,588) $    1,184  $     951  $ (37,453)
                              ==========  ==========  =========  =========


(b) Adjustment amount represents the release of ratable and product
    deferred revenue amounts related to periods prior to March 29, 2008 as
    these amounts have been previously reported as invoiced shipments.
    No adjustment has been made for changes in services deferred revenue as
    these amounts relate to future service deliverables and are
    appropriately deferred.  Deferred ratable and product amounts recorded
    after March 29, 2008 have not been adjusted as these amounts are
    recognized on a GAAP basis in arriving at the adjusted GAAP results.

    The deferred revenue adjustments recorded above are reconciled to the
    deferred revenue balance on our balance sheet in the table below:


                                                               Three Months
                                                                   Ended
                                                                 September
                          Three Months Ended June 28, 2008       29, 2007
                     ------------------------------------------  ---------
                      Pre Mar   Post Mar
                     29, 2008   29, 2008
                      Ratable    Ratable
                        and        and
                      Product    Product
Deferred Revenue      Revenue    Revenue   Services     Total      Total
                     ---------  ---------  ---------  ---------  ---------
(In thousands)
Beginning balance    $ 131,689  $       -  $   3,805  $ 135,494  $ 138,955
Additions to
 deferred revenue            -      4,979      3,651      8,630     80,325
Amortization to
 revenue               (70,349)    (1,866)    (2,000)   (74,215)   (62,130)
                     ---------  ---------  ---------  ---------  ---------
Ending balance       $  61,340  $   3,113  $   5,456  $  69,909  $ 157,150
                     =========  =========  =========  =========  =========
Change in deferred
 revenue balance     $ (70,349) $   3,113  $   1,651  $ (65,585) $  18,195
                     =========  =========  =========  =========  =========


(c) Adjustment amount represents the release of ratable and product
    deferred cost amounts related to periods prior to March 29, 2008 as
    these amounts have been previously included as invoiced shipments.
    Deferred ratable and product amounts recorded after March 29, 2008 have
    not been adjusted as these amounts are recognized on a GAAP basis in
    arriving at the adjusted GAAP results.

    The deferred cost of inventory adjustments recorded above are
    reconciled to the deferred cost of inventory balance on our balance
    sheet in the table below:


                                     Three Months Ended September 27, 2008
                                     -------------------------------------
                                     Pre Mar 29,   Post Mar 29,
                                     2008 Ratable  2008 Ratable
                                     and Product   and Product
Deferred Inventory Cost                  Cost          Cost        Total
                                     ------------  ------------  ---------
(In thousands)
Beginning balance                    $     26,510  $        450  $  26,960
Additions to deferred cost of
 revenue                                        -           710        710
Amortized to cost of revenue              (18,338)          (40)   (18,378)
                                     ------------  ------------  ---------
Ending balance                       $      8,172  $      1,120  $   9,292
                                     ============  ============  =========
Change in deferred inventory cost
 balance                             $    (18,338) $        670  $ (17,668)
                                     ============  ============  =========


(d) Adjustment amount represents the release of ratable and product
    deferred cost amounts related to periods prior to March 29, 2008 as
    these amounts have been previously included as invoiced shipments.
    Deferred ratable and product amounts recorded after March 29, 2008 have
    not been adjusted as these amounts are recognized on a GAAP basis in
    arriving at the adjusted GAAP results.

    The deferred cost of inventory adjustments recorded above are
    reconciled to the deferred cost of inventory balance on our balance
    sheet in the table below:


                                                               Three Months
                                                                   Ended
                                  Three Months Ended June 28,    September
                                              2008               29, 2007
                                -------------------------------  ---------
                                 Pre Mar   Post Mar
                                29, 2008   29, 2008
                                 Ratable    Ratable
                                   and        and
                                 Product    Product
Deferred Inventory Cost           Cost       Cost       Total      Total
                                ---------  ---------  ---------  ---------
(In thousands)
Beginning balance               $  58,600  $       -  $  58,600  $  74,706
Additions to deferred cost of
 revenue                                -        459        459     38,830
Amortized to cost of revenue      (32,090)        (9)   (32,099)   (33,649)
                                ---------  ---------  ---------  ---------
Ending balance                  $  26,510  $     450  $  26,960  $  79,887
                                =========  =========  =========  =========
Change in deferred inventory
 cost balance                   $ (32,090) $     450  $ (31,640) $   5,181
                                =========  =========  =========  =========


(e) Excluded amount represents stock-based compensation expense on a
    non-GAAP basis. Stock-based compensation is a non-cash expense
    accounted for in accordance with the fair value recognition provisions
    of Statement of Financial Accounting Standards No. 123(R). While this
    is a large component of our expense, we believe investors want to
    evaluate our financial results  both including and excluding the
    effects of stock-based compensation expense in order to compare our
    financial performance with that of other companies and between time
    periods.

    The stock-based compensation expense excluded from cost of revenue is a
    non-GAAP financial measure and is reconciled to the corresponding GAAP
    amount in the table below:


                                             Three Months Ended
                                  ----------------------------------------
                                  September 27,   June 28,   September 29,
                                      2008          2008          2007
                                  ------------  ------------  ------------
(In thousands)
GAAP stock-based compensation in
 cost of revenue                  $        299  $        271  $        143
GAAP stock-based compensation in
 cost of revenue - amortization
 from balance sheet                      1,180         1,219            89
  Stock-based compensation not
   deferred to deferred inventory
   cost                                      -             -           308
  Stock-based compensation
   previously recognized on
   invoiced shipment basis                (209)         (314)          (70)
                                  ------------  ------------  ------------
Non-GAAP stock-based compensation
 in cost of revenue               $      1,270  $      1,176  $        470
                                  ============  ============  ============



Infinera Corporation
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)


                                               September 27,  December 29,
                                                    2008          2007
                                                ------------  ------------
ASSETS

Current assets:
   Cash and cash equivalents                    $    169,439  $     91,209
   Short-term investments                             78,551       181,168
   Short-term restricted cash                            840           743
   Accounts receivable                                48,571        39,216
   Other receivables                                     250         1,127
   Inventory                                          58,620        58,579
   Deferred inventory costs                            6,505        78,362
   Prepaid expenses and other current assets           7,016         3,941
                                                ------------  ------------
      Total current assets                           369,792       454,345

Property, plant and equipment, net                    42,860        36,973
Intangible assets                                      1,342         1,541
Deferred inventory costs, non-current                  2,787         3,260
Long-term investments                                 73,803        30,116
Long-term restricted cash                              1,959         2,594
Other non-current assets                               2,297           359
                                                ------------  ------------
      Total assets                              $    494,840  $    529,188
                                                ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                             $     24,834  $     17,504
   Accrued expenses                                   10,160         9,497
   Accrued compensation and related benefits           9,078        17,749
   Accrued warranty                                    5,814         4,974
   Deferred revenue                                   25,444       167,031
                                                ------------  ------------
      Total current liabilities                       75,330       216,755

   Accrued warranty, non-current                       4,862         5,018
   Deferred revenue, non-current                       7,012         7,406
   Long-term exercised unvested options                  318           825
   Other long-term liabilities                         3,747         4,610

Commitments and contingencies

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
       September 27, 2008 and December 29, 2007
      Issued and outstanding shares - 93,773
       as of September 27, 2008 and 91,580 as of
       December 29, 2007                                  94            92
   Additional paid-in capital                        695,158       663,870
   Accumulated other comprehensive income
    (loss)                                            (7,631)           78
   Accumulated deficit                              (284,050)     (369,466)
                                                ------------  ------------
   Total stockholders' equity                        403,571       294,574
                                                ------------  ------------
   Total liabilities and stockholders' equity   $    494,840  $    529,188
                                                ============  ============


Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)


                                                    Nine Months Ended
                                                --------------------------
                                                September 27, September 29,
                                                    2008          2007
                                                ------------  ------------
Cash Flows from Operating Activities:
Net income (loss)                               $     85,416  $    (51,435)
Adjustments to reconcile net loss to net cash
 used in operating activities:
   Depreciation and amortization                       8,877         7,150
   Amortization of debt discount                           -           282
   Accretion of investment discount                     (881)            -
   Asset impairment charges                                -           393
   Stock-based compensation expense                   17,843         5,973
   Excess tax benefit from stock option
    transactions                                      (2,588)            -
   Tax benefit from stock option transactions          2,588             -
   Revaluation of warrant liabilities                      -        19,761
   Gain on disposal of assets                         (1,006)       (2,409)
   Other loss (gain)                                       7           (73)
   Changes in assets and liabilities:
      Accounts receivable                             (8,478)        1,147
      Inventory                                         (701)        3,215
      Prepaid expenses and other current assets       (3,142)       (1,234)
      Deferred inventory costs                        71,626       (12,764)
      Other non-current assets                        (1,964)       (1,266)
      Accounts payable                                 7,777       (14,692)
      Accrued liabilities and other expenses          (8,723)       (2,694)
      Deferred revenue                              (141,981)       46,197
      Accrued warranty                                   684         6,653
                                                ------------  ------------
        Net cash provided by operating
         activities                                   25,354         4,204

Cash Flows from Investing Activities:
   Purchase of available-for-sale investments       (172,875)     (111,294)
   Proceeds from sale of investments                 103,190        12,000
   Proceeds from maturities of investments and
    restricted cash                                  122,899             -
   Proceeds from disposal of assets                    1,080         2,781
   Purchase of property and equipment                (15,152)      (11,710)
                                                ------------  ------------
        Net cash (used in) investing activities       39,142      (108,223)

Cash Flows from Financing Activities:
   Principal payments on loan obligation                   -       (35,401)
   Proceeds from loans                                     -         7,119
   Proceeds from initial public offering, net
    of issuance costs                                      -       190,078
   Proceeds from issuance of common stock             11,242         2,097
   Proceeds from exercise of warrants                      -            45
   Excess tax benefit from stock option
    transactions                                       2,588             -
   Repurchase of common stock                            (30)          (50)
                                                ------------  ------------
        Net cash provided by financing
         activities                                   13,800       163,888
                                                ------------  ------------

Effect of exchange rate changes                          (66)           70

Net change in cash and cash equivalents               78,230        59,939
Cash and cash equivalents at beginning of
 period                                               91,209        28,884
                                                ------------  ------------
Cash and cash equivalents at end of period      $    169,439  $     88,823
                                                ============  ============

Supplemental disclosures of cash flow information:
   Cash paid for interest                       $          3  $      2,473
   Cash paid for income taxes                   $        858  $         62



 Infinera Corporation
 Supplemental Financial Information


                    Q1'07   Q2'07   Q3'07   Q4'07   Q1'08   Q2'08   Q3'08
                    ------  ------  ------  ------  ------  ------  ------
 Invoiced Shipments $ 66.7  $ 69.0  $ 80.4  $ 93.4  $ 95.5  $ 90.8  $ 80.9
 Gross Margin %         35%     37%     43%     47%     45%     47%     42%
                    ------  ------  ------  ------  ------  ------  ------
 Invoiced Shipment
  Composition:
 Domestic %             89%     84%     81%     81%     82%     78%     81%
 International %        11%     16%     19%     19%     18%     22%     19%
 Largest Customer %     57%     48%     28%     18%     31%     21%     27%
                    ------  ------  ------  ------  ------  ------  ------
 Cash Related
  Information:
 Cash from
  Operations        $  6.9 ($ 0.8) ($ 2.0)  $ 18.9  $  9.8  $  5.6  $  9.9
 Capital
  Expenditures      $  5.2  $  3.6  $  3.0  $  8.5  $  4.5  $  4.8  $  5.9
 Depreciation &
  Amortization      $  2.1  $  2.0  $  2.7  $  2.7  $  2.6  $  2.9  $  3.4
 DSO's                  27      36      47      39      42      57      55
                    ------  ------  ------  ------  ------  ------  ------
 Inventory Metrics:
 Raw Materials      $  7.4  $  8.8  $  7.5  $ 10.5  $  7.9  $  9.2  $ 10.0
 Work in Process    $ 31.6  $ 36.0  $ 34.8  $ 35.1  $ 40.6  $ 34.6  $ 35.8
 Finished Goods     $ 18.4  $ 13.7  $ 14.8  $ 13.0  $ 10.7  $ 13.8  $ 12.8
                    ------  ------  ------  ------  ------  ------  ------
 Total Inventory    $ 57.3  $ 58.5  $ 57.1  $ 58.6  $ 59.2  $ 57.6  $ 58.6
 Inventory Turns       3.0     3.0     3.2     3.4     3.5     3.3     3.2
                    ------  ------  ------  ------  ------  ------  ------
 Worldwide
  Headcount            617     646     668     711     799     853     889
                    ------  ------  ------  ------  ------  ------  ------

Contact Information