SOURCE: Infinera

July 22, 2008 16:10 ET

Infinera Corporation Reports Second Quarter Financial Results

Adjusted GAAP Revenue of $90.8 Million Compared With $69.0 Million in the Year Ago Quarter; Adjusted GAAP Net Income of $10.7 Million, or $0.11 per Diluted Share, Compared With $2.7 Million and $0.04 per Share in the Year Ago Quarter

SUNNYVALE, CA--(Marketwire - July 22, 2008) - Infinera Corporation (NASDAQ: INFN), a leading provider of digital optical communications systems, today released financial results for the second quarter ended June 28, 2008.

GAAP Results:

--  GAAP revenues for the second quarter of 2008 were $161.1 million
    compared to $138.3 million in the first quarter of 2008 and $58.4
    million in the second quarter of 2007.
--  GAAP gross margins were 50% in the second quarter of 2008 compared to
    45% in the first quarter of 2008 and 28% in the second quarter of 2007.
--  Including non-cash stock-based compensation and warrant valuation
    expenses, GAAP net income was $42.9 million, or $0.44 per diluted
    share, in the second quarter of 2008 compared to $27.6 million, or
    $0.29 per share, in the first quarter of 2008 and a GAAP net loss of
    $26.1 million, or $1.10 per share, in the second quarter of 2007.

Adjusted GAAP / Invoiced Shipment Results:

--  Adjusted GAAP revenue for the second quarter of 2008 was $90.8 million
    compared to $95.5 million of invoiced shipments in the first quarter of
    2008 and $69.0 million of invoiced shipments in the second quarter
    of 2007.
--  Gross margins on an adjusted GAAP basis, excluding non-cash stock-based
    compensation, were 47% in the second quarter of 2008 compared to 45%
    in the first quarter of 2008 and 37% in the second quarter of 2007.
--  Excluding non-cash stock-based compensation and warrant valuation
    expenses, the net income on an adjusted GAAP basis was $10.7 million,
    or $0.11 per diluted share, for the second quarter of 2008 compared to
    net income on an invoiced shipments basis of $12.6 million, or $0.13
    per diluted share, in the first quarter of 2008 and $2.7 million, or
    $0.04 per share, in the second 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 second quarter results reflect strong shipments of both our chassis and tributary adapter modules," said Jagdeep Singh, president and chief executive officer of Infinera. "We grew revenues from international customers to 22 percent and added two new customers in the quarter to bring our total roster to 44. We generated operating profits and cash from operations while maintaining our investments to expand our technology lead as the world's leading optical network based on photonic integration.

"We are committed to growing our business within markets where we have established a beach-head and to continue expanding our customer base in both existing and new markets. We have identified our highest growth opportunities -- international markets, global tier 1 carriers, new adjacent markets including metro access and ultra long haul, and under-penetrated North American markets. We are implementing strategic initiatives to expand share in each of these market segments."

Singh noted several second quarter performance highlights:

--  Deutsche Telekom selected Infinera for its long haul DWDM Pan
    European network, representing a major Tier one incumbent win
    for Infinera.
--  Three customers -- Level 3, Cox Communications and Global
    Crossing -- were each 10 percent or greater of revenue, versus
    four such customers in Q1.
--  Infinera announced several important technology advances, including:
    --  The new next-generation Infinera ILS2 line system with up to 160
        DWDM channels in the C-band and future scalability of
        8 Terabits/second of total capacity.
    --  Two new passive photonic integrated circuits (PICs) that integrate
        passive devices such as multiplexers, interleavers, variable
        optical attenuators and waveguides, and play key roles in routing
        and filtering DWDM wavelengths in the ILS2 system.
    --  A 100 Gigabit Ethernet (100 GbE) demonstration, in collaboration
        with XO Communications, Avago Technologies and Ixia, that sent
        100 GbE traffic over a long-haul network and demonstrated  progress
        towards making 100 GbE products and services a commercial
        reality in the future.

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its second 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 1-866-503-3213. International parties can access the replay at +1-203-369-1862.

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 Infinera's ability to change the economics of optical communications networks and design products that are flexible and economical for our customers, our belief that we will be able to expand our technology lead as the world's leading optical network based on photonic integration, our belief we will be able to grow our business within existing markets and to continue expanding our customer base in both existing and new markets, future benefits and scalability of our products, including the future scalability of 8 Terabits/second of total capacity for our ILS2 system, and our belief that our recent demonstration shows progress towards making 100 GbE products and services a commercial reality in the future. 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 and warrant valuation expenses. 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 second quarter of 2008 results, including an estimate of adjusted GAAP earnings for the third 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 share data)
(Unaudited)

                                 Three Months Ended     Six Months Ended
                                --------------------- --------------------
                                June 28,   June 30,   June 28,   June 30,
                                  2008       2007       2008       2007
                                ---------- ---------  ---------  ---------

Revenue:
   Ratable product and related
    support and services        $   69,581 $  54,411  $ 141,967  $ 100,358
   Product                          86,505     4,005    150,633      7,250
   Services                          5,023         -      6,762          -
                                ---------- ---------  ---------  ---------
       Total revenue               161,109    58,416    299,362    107,608

Cost of revenue (1):
   Cost of ratable product and
    related support and services    32,169    39,748     68,000     75,658
   Cost of product                  47,124     2,488     86,789      3,851
   Cost of services                  2,032         -      3,222          -
                                ---------- ---------  ---------  ---------
       Total cost of revenue        81,325    42,236    158,011     79,509

Gross profit                        79,784    16,180    141,351     28,099

Operating expenses (1):
   Sales and marketing              10,860     6,401     21,106     14,037
   Research and development         17,787    14,079     36,080     30,137
   General and administrative        8,502     5,358     16,919     10,915
   Amortization of intangible
    assets                              37        37         74         74
                                ---------- ---------  ---------  ---------
       Total operating expenses     37,186    25,875     74,179     55,163

Income (loss) from operations       42,598    (9,695)    67,172    (27,064)

Other income (expense), net:
   Interest income                   2,258       729      5,561        914
   Interest expense                      0    (1,119)        (3)    (2,182)
   Other gain (loss), net (2):         296   (15,978)     1,176    (17,515)
                                ---------- ---------  ---------  ---------
       Total other income
        (expense), net               2,554   (16,368)     6,734    (18,783)

Income (loss) before provision
 for income taxes                   45,152   (26,063)    73,906    (45,847)
Provision for income taxes           2,267        33      3,427         62
                                ---------- ---------  ---------  ---------
Net income (loss)               $   42,885 $ (26,096) $  70,479  $ (45,909)
                                ========== =========  =========  =========

Net income (loss) per common
 share
  Basic                         $     0.47 $   (1.10) $    0.77  $   (2.94)
                                ========== =========  =========  =========
  Diluted                       $     0.44 $   (1.10) $    0.73  $   (2.94)
                                ========== =========  =========  =========

Weighted average shares used in
 computing net income (loss) per
 common share
   Basic                            92,124    23,678     91,687     15,620
                                ========== =========  =========  =========
   Diluted                          97,284    23,678     96,988     15,620
                                ========== =========  =========  =========

(1)  The following table summarizes the effects of stock-based compensation
     related to employees, non-recourse notes and non-employees for the
     three months ended June 28, 2008 and June 30, 2007:


                                 Three Months Ended     Six Months Ended
                                --------------------- --------------------
                                 June 28,  June 30,   June 28,   June 30,
                                   2008      2007       2008       2007
                                ---------- ---------  ---------  ---------
   Cost of revenue              $      271 $      94  $     479  $     111
   Research and development          1,629     1,014      2,852      1,323
   Sales and marketing               1,164       346      2,014        433
   General and administration        2,072       685      3,574        903
                                ---------- ---------  ---------  ---------
                                     5,136     2,139      8,919      2,770
   Cost of revenue -
    amortization from balance
    sheet*                           1,219        27      2,369         40
                                ---------- ---------  ---------  ---------
   Total stock-based
    compensation expense        $    6,355 $   2,166  $  11,288  $   2,810
                                ========== =========  =========  =========

* 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    Six Months Ended
                                --------------------- --------------------
                                 June 28,  June 30,   June 28,   June 30,
                                   2008      2007       2008       2007
                                ---------- ---------  ---------  ---------
   Other gain (loss)            $        - $ (17,261) $       -  $ (19,761)




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

                               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)(a) $ 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)(c)   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
                    ========                                      ========


                                Three Months Ended March 29, 2008
                    ------------------------------------------------------

                                                                  Non-GAAP
                                                                  Invoiced
                                                                  Shipments
                                                     Non-GAAP     Excluding
                              Deferral    Invoiced     Stock       Stock
                      GAAP   Adjustments  Shipments    Comp         Comp
                    --------  --------     --------  --------     --------
Revenue
  Product and
   ratable revenue  $136,514  $(42,747)(b) $ 93,767  $      -     $ 93,767
  Services
   revenue             1,739                  1,739         -        1,739
                    --------  --------     --------  --------     --------
Total revenue        138,253   (42,747)      95,506         -       95,506
Cost of revenue       76,686   (23,022)(d)   53,664    (1,141)(e)   52,523
                    --------  --------     --------  --------     --------
Gross profit          61,567   (19,725)      41,842     1,141       42,983
Gross margin              45%                                           45%
Operating expenses    36,993         -       36,993    (3,575)(e)   33,418
                    --------  --------     --------  --------     --------
Income (loss) from
 operations           24,574   (19,725)       4,849     4,716        9,565
Other income
 (expense), net        4,180         -        4,180         -        4,180
                    --------  --------     --------  --------     --------
Income (loss)
 before provision
 for income taxes     28,754   (19,725)       9,029     4,716       13,745
Provision for
 income taxes          1,160         -        1,160         -        1,160
                    --------  --------     --------  --------     --------
Net income (loss)   $ 27,594  $(19,725)    $  7,869  $  4,716     $ 12,585
                    ========  ========     ========  ========     ========
Net income (loss)
 per common share:
  Basic             $   0.30                                      $   0.14
                    ========                                      ========
  Diluted           $   0.29                                      $   0.13
                    ========                                      ========
Weighted average
 shares used in
 computing net
 income (loss) per
 common share:
  Basic               91,250                                        91,250
                    ========                                      ========
  Diluted             96,692                                        96,692
                    --------                                      --------




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


                              Three Months Ended June 30, 2007
                    ------------------------------------------------------
                                                                 Non-GAAP
                                                                 Invoiced
                                                                 Shipments
                                                                 Excluding
                                                       Stock       Stock
                                                      Comp/        Comp/
                             Deferral     Invoiced    Warrant      Warrant
                      GAAP  Adjustments   Shipments  Valuation    Valuation
                    --------  --------     --------  --------     --------

Revenue             $ 58,416  $ 10,535 (b) $ 68,951  $      -     $ 68,951
Cost of revenue       42,236     1,248 (d)   43,484      (169)(e)   43,315
                    --------  --------     --------  --------     --------
Gross profit          16,180     9,287       25,467       169       25,636
Gross margin              28%                                           37%
Operating expenses    25,875         -       25,875    (2,045)(e)   23,830
                    --------  --------     --------  --------     --------
Income (Loss) from
 operations           (9,695)    9,287         (408)    2,214        1,806
Other income
 (expense), net      (16,368)        -      (16,368)   17,261 (f)      893
                    --------  --------     --------  --------     --------
Income (Loss)
 before provision
 for income taxes    (26,063)    9,287      (16,776)   19,475        2,699
Provision for
 income taxes             33         -           33         -           33
                    --------  --------     --------  --------     --------
Net income (loss)   $(26,096) $  9,287     $(16,809) $ 19,475     $  2,666
                    ========  ========     ========  ========     ========
Net income (loss)
 per common share:
  Basic             $  (1.10)                                     $   0.11
                    ========                                      ========
  Diluted           $  (1.10)                                     $   0.04
                    ========                                      ========
Shares used in
 computing net
 income (loss) per
 common share:
  Basic               23,678                                        23,678
                    ========                                      ========
  Diluted             23,678                                        59,284
                    ========                                      ========

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 and warrant valuation 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 June 28, 2008
                            -----------------------------------  ---------
                            Pre Mar 29,    Post Mar
                                2008       29, 2008
                            Ratable and  Ratable and
                              Product      Product
Deferred Revenue              Revenue      Revenue    Services     Total
                            -----------  -----------  ---------  ---------
(In thousands)
Beginning balance           $   131,689  $         -  $   3,805  $ 135,494
Additions to deferred
 revenue                              -        4,979      3,651  $   8,630
Amortization to revenue         (70,349)      (1,866)    (2,000) $ (74,215)
                            -----------  -----------  ---------  ---------
Ending balance              $    61,340  $     3,113  $   5,456  $  69,909
                            ===========  ===========  =========  =========

                            -----------  -----------  ---------  ---------
Change in deferred revenue
 balance                    $   (70,349) $     3,113  $   1,651  $ (65,585)
                            ===========  ===========  =========  =========


(b)  Adjustment amount represents the change in the ratable and product
     deferred revenue balance for the period as reported on our balance
     sheet.  No adjustment has been made for changes in services deferred
     revenue as these amounts relate to future service deliverables and are
     appropriately deferred on an invoiced shipment basis.  We believe
     investors want to see the statement of operations data with the
     change in the ratable and product deferred revenue balances included
     in order to understand the gross margin profile of the underlying
     invoiced shipments.

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



                                                              Three Months
                               Three Months Ended March 29,    Ended June
                                           2008                 30, 2007
                             -------------------------------  ------------
                              Ratable
                                and
                              Product   Services
Deferred Revenue              Revenue    Revenue     Total        Total
                             ---------  ---------  ---------  ------------
(In thousands)
Beginning balance            $ 174,437  $       -  $ 174,437  $    128,420
Additions to deferred
 revenue                        29,639      4,561     34,200        64,946
Amortization to revenue        (72,386)      (756)   (73,142)      (54,411)
                             ---------  ---------  ---------  ------------
Ending balance               $ 131,690  $   3,805  $ 135,495  $    138,955
                             =========  =========  =========  ============

                             ---------  ---------  ---------  ------------
Change in deferred revenue
 balance                     $ (42,747) $   3,805  $ (38,942) $     10,535
                             ---------  ---------  ---------  ------------


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



                                       Three Months Ended June 28, 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                    $     58,600  $          -  $  58,600
Additions to deferred cost of
 revenue                                        -           459        459
Amortized to cost of revenue              (32,090)           (9)   (32,099)
                                     ------------  ------------  ---------
Ending balance                       $     26,510  $        450  $  26,960
                                     ============  ============  =========

                                     ------------  ------------  ---------
Change in deferred inventory cost
 balance                             $    (32,090) $        450  $ (31,640)
                                     ------------  ------------  ---------



(d)  Adjustment amount represents the change in the deferred cost of
     inventory balance for the period as reported on our balance sheet.
     We believe investors want to see the statement of operations data with
     the change in the deferral balance included in order to understand the
     gross margin profile of the underlying invoiced shipments and in order
     to compare our financial performance with that of other companies and
     between periods.

     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
                                                      --------------------
                                                       Mar. 29    June 30
Deferred Inventory Cost                                 2008       2007
                                                      ---------  ---------
(In thousands)
Beginning balance                                     $  81,622  $  73,458
Additions to deferred cost of revenue                    11,162     32,800
Amortized to cost of revenue                            (34,184)   (31,552)
                                                      ---------  ---------
Ending balance                                        $  58,600  $  74,706
                                                      =========  =========

                                                      ---------  ---------
Change in deferred inventory cost balance             $ (23,022) $   1,248
                                                      ---------  ---------


(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 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
                                                 -------------------------
                                                   June    March     June
                                                   28,      29,      30,
                                                   2008     2008     2007
                                                 -------  -------  -------

GAAP stock-based compensation in cost of revenue $   271  $   208  $    94
GAAP stock-based compensation in cost of revenue
 - amortization from balance sheet                 1,219    1,150       26
 Stock-based compensation not deferred to
  deferred inventory cost                              0      215       71
 Stock-based compensation previously recognized
  on invoiced shipment basis                        (314)    (432)     (22)
                                                 -------  -------  -------
Non-GAAP stock-based compensation in cost of
 revenue                                         $ 1,176  $ 1,141  $   169
                                                 -------  -------  -------


(f)  Excluded amount represents the adjustment to revalue our convertible
     preferred warrants to fair value as required by FAS 150.  Subsequent
     to our IPO, we are no longer required to revalue these warrants and,
     therefore, we believe investors want to evaluate our financial results
     both including and excluding the effect of this revaluation expense
     in order to compare our financial performance with that of other
     companies and between periods.



Infinera Corporation
Condensed Consolidated Balance Sheets
(In thousands)


                                                    June 28,   December 29,
                                                      2008         2007
                                                  -----------  -----------
ASSETS                                            (Unaudited)   (Audited)

Current assets:
   Cash and cash equivalents                      $   135,963  $    91,209
   Short-term investments                              74,203      181,168
   Short-term restricted cash                             873          743
   Accounts receivable                                 56,804       39,216
   Other receivables                                      487        1,127
   Inventory                                           57,643       58,579
   Deferred inventory costs                            24,114       78,362
   Prepaid expenses and other current assets            5,704        3,941
                                                  -----------  -----------
      Total current assets                            355,791      454,345

Property, plant and equipment, net                     40,651       36,973
Intangible assets                                       1,408        1,541
Deferred inventory costs, non-current                   2,846        3,260
Long-term investments                                 105,132       30,116
Long-term restricted cash                               2,046        2,594
Other non-current assets                                  665          359
                                                  -----------  -----------
      Total assets                                $   508,539  $   529,188
                                                  ===========  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                               $    24,154  $    17,504
   Accrued expenses                                     9,829        9,497
   Accrued compensation and related benefits           11,431       17,749
   Accrued warranty                                     5,529        4,974
   Deferred revenue                                    63,028      167,031
                                                  -----------  -----------
      Total current liabilities                       113,971      216,755

   Accrued warranty, non-current                        5,031        5,018
   Deferred revenue, non-current                        6,881        7,406
   Long-term exercised unvested options                   453          825
   Other long-term liabilities                          3,537        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 June 28,
    2008 and  December 29, 2007 Issued and
    outstanding shares - 93,077 as of June 28,
    2008 and 91,580 as of December 29, 2007                93           92
   Additional paid-in capital                         682,695      663,870
   Accumulated other comprehensive income (loss)       (5,135)          78
   Accumulated deficit                               (298,987)    (369,466)
                                                  -----------  -----------
   Total stockholders' equity                         378,666      294,574
                                                  -----------  -----------
   Total liabilities and stockholders' equity     $   508,539  $   529,188
                                                  ===========  ===========

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




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

                                                        Six Months Ended
                                                      --------------------
                                                      June 28,   June 30,
                                                        2008       2007
                                                      ---------  ---------
Cash Flows from Operating Activities:
Net income (loss)                                     $  70,479  $ (45,909)
Adjustments to reconcile net loss to net cash used in
 operating activities:
   Depreciation and amortization                          5,469      4,423
   Amortization of debt discount                                       282
   Accretion of investment discount                        (725)         -
   Asset impairment charges                                            393
   Stock-based compensation expense                      11,288      2,810
   Excess tax benefit from stock option transactions       (559)         -
   Tax benefit from stock option transactions               623          -
   Revaluation of warrant liablities                                19,761
   Gain on disposal of assets                              (770)    (2,021)
   Other gain                                               (15)       (25)
   Changes in assets and liabilities:
       Accounts receivable                              (16,949)    14,732
       Inventory                                            479      1,661
       Prepaid expenses and other current assets         (1,782)        39
       Deferred inventory costs                          54,143     (7,493)
       Other non-current assets                            (314)       599
       Accounts payable                                   4,901    (12,761)
       Accrued liabilities and other expenses            (6,902)    (5,603)
       Deferred revenue                                (104,528)    28,002
       Accrued warranty                                     568      7,318
                                                      ---------  ---------
         Net cash provided by operating activities       15,406      6,208

Cash Flows from Investing Activities:
   Purchase of available-for-sale investments          (123,624)         -
   Proceeds from sale of investments                     69,543          -
   Proceeds from maturities of investments and
    restricted cash                                      82,304          -
   Proceeds from disposal of assets                         771      2,537
   Purchase of property and equipment                    (7,283)    (8,723)
                                                      ---------  ---------
         Net cash (used in) investing activities         21,711     (6,186)

Cash Flows from Financing Activities:
   Principal payments on loan obligation                           (30,901)
   Proceeds from loans                                               7,119
   Proceeds from initial public offering, net of
    issuance costs                                                 190,245
   Proceeds from issuance of common stock                 7,164      2,050
   Excess tax benefit from stock option transactions        559          -
   Repurchase of common stock                               (30)       (50)
                                                      ---------  ---------
         Net cash provided by financing activities        7,693    168,463
                                                      ---------  ---------

Effect of exchange rate changes                             (56)        49

Net change in cash and cash equivalents                  44,754    168,534
Cash and cash equivalents at beginning of period         91,209     28,884
                                                      ---------  ---------
Cash and cash equivalents at end of period            $ 135,963  $ 197,418
                                                      =========  =========

Supplemental disclosures of cash flow information:
   Cash paid for interest                             $       3  $   2,203
   Cash paid for income taxes                         $     593  $      81

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



Infinera Corporation
Supplemental Financial Information



                       Q1'07    Q2'07    Q3'07    Q4'07    Q1'08    Q2'08
                      -------  -------  -------  -------  -------  -------
 Invoiced Shipments/
  Adjusted GAAP       $  66.7  $  69.0  $  80.4  $  93.4  $  95.5  $  90.8
 Gross Margin %            35%      37%      43%      47%      45%      47%
                      -------  -------  -------  -------  -------  -------
 Invoiced Shipment
  Composition:
 Domestic %                89%      84%      81%      81%      82%      78%
 International %           11%      16%      19%      19%      18%      22%
 Largest Customer %        57%      48%      28%      18%      31%      21%
                      -------  -------  -------  -------  -------  -------
 Cash Related
  Information:
 Cash from Operations $   6.9 ($   0.8)($   2.0) $  18.9  $   9.8  $   5.6
 Capital Expenditures $   5.2  $   3.6  $   3.0  $   8.5  $   2.5  $   4.8
 Depreciation &
  Amortization        $   2.1  $   2.0  $   2.7  $   2.7  $   2.6  $   2.9
 DSO's                     27       36       47       39       42       57
                      -------  -------  -------  -------  -------  -------
 Inventory Metrics:
 Raw Materials        $   7.4  $   8.8  $   7.5  $  10.5  $   7.9  $   9.2
 Work in Process      $  31.6  $  36.0  $  34.8  $  35.1  $  40.6  $  34.6
 Finished Goods       $  18.4  $  13.7  $  14.8  $  13.0  $  10.7  $  13.8
                      -------  -------  -------  -------  -------  -------
 Total Inventory      $  57.3  $  58.5  $  57.1  $  58.6  $  59.2  $  57.6
 Inventory Turns          3.0      3.0      3.2      3.4      3.5      3.3
                      -------  -------  -------  -------  -------  -------
 Worldwide Headcount      617      646      668      711      799      853
                      -------  -------  -------  -------  -------  -------

Contact Information