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

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

Minor deviations in the PIC manufacturing process can cause substantial decreases in yields and, in some cases, cause production to be suspended. In the past, we have had significant variances in our PIC yields, including production interruptions and suspensions and may have continued yield variances, including additional interruptions or suspensions in the future. Lower than expected yields from our PIC manufacturing process or defects, integration issues or other performance problems in our products could limit our ability to satisfy customer demand requirements, and could damage customer relations and cause business reputation problems, harming our business and operating results.

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

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

Many of our customers are large service providers that have substantial purchasing power and leverage in negotiating contractual arrangements with us. In addition, customer consolidation in the past few years has created combined companies that are even larger and have greater negotiating leverage. Our customers have and may continue to seek advantageous pricing, payment and other commercial terms. We have and may continue to agree to unfavorable commercial terms with these customers, including the potential of reducing the average selling price of our products, increasing cost of sales or agreeing to extended payment terms in response to these commercial requirements or competitive pricing pressures. To maintain acceptable operating results, we will need to comply with these commercial terms, develop and introduce new products and product enhancements on a timely basis, and continue to reduce our costs.

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

We currently purchase several key components for our products from sole or limited sources. In particular, we rely on our own production of certain components of our products, such as PICs, and on third parties, including sole source and limited source suppliers, for certain of the components of our products, including ASICs, field-programmable gate arrays, processors, and other semiconductor and optical components. We have increased our reliance on third parties to develop and manufacture components for certain products, some of which require custom development. We purchase most of these components on a purchase order basis and only have long-term contracts with these sole source or limited source suppliers. If any of our sole source or limited source suppliers suffer from capacity constraints, lower than expected yields, deployment delays, work stoppages or any other reduction or disruption in output, they may be unable to meet our delivery schedule which could result in lost revenue, additional product costs and deployment delays that could harm our business and customer relationships. Further, our suppliers could enter into exclusive arrangements with our competitors, refuse to sell their products or components to us at commercially reasonable prices or at all, go out of business or discontinue their relationships with us. We may be unable to develop alternative sources for these components.

The loss of a source of supply, or lack of sufficient availability of key components, could require us to redesign products that use such components, which could result in lost revenue, additional product costs and deployment delays that could harm our business and customer relationships. In addition, if our contract

manufacturers do not receive critical components in a timely manner to build our products, then we would not be able to ship in a timely manner and would, therefore, be unable to meet our prospective customers’ product delivery requirements. In the past, we have experienced delivery delays because of lack of availability of components or reliability issues with components that we were purchasing. In addition, some of our suppliers have gone out of business, merged with another supplier, or limited their supply of components to us, which may cause us to experience longer than normal lead times, supply delays and increased prices. We may in the future experience a shortage of certain components as a result of our own manufacturing issues, manufacturing issues at our suppliers or contract manufacturers, capacity problems experienced by our suppliers or contract manufacturers, strong demand in the industry for such components, or other disruptions in our supply chain. In addition, global macroeconomic conditions are likely to continue to create pressure on us and our suppliers to accurately project overall component demand and manufacturing capacity. These supplier disruptions may continue to occur in the future, which could limit our ability to produce our products and cause us to fail to meet a customer’s delivery requirements. Any failure to meet our customers’ product delivery requirements could harm our reputation and our customer relationships, either of which would harm our business and operating results.

If we fail to accurately forecast our manufacturing requirements or customer demand, we could incur additional costs, including inventory write-downs or equipment write-offs, which would adversely affect our business and results of operations.

We generate forecasts of future demand for our products several months prior to the scheduled delivery to our prospective customers. This requires us to make significant investments before we know if corresponding revenue will be recognized. Lead times vary significantly for materials and components, including ASICs, that we need to order for the manufacture of our products ~~vary significantly~~ and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. In the past, we have experienced ~~lengthening in~~lengthened lead times for certain ~~components. If the~~components, and we continue to see long lead times for certain components ~~are lengthened, we~~due to industry-wide supply chain challenges, which makes forecasting more challenging. We may be required to purchase increased levels of such components to satisfy our delivery commitments to our ~~customers.~~customers as a result of longer lead times for components. In addition, we must manage our inventory to ensure we continue to meet our commitments as we introduce new products or make enhancements to our existing products.

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

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

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

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

~~reliance on the quality assurance procedures of third parties;~~

~~potential uncertainty regarding manufacturing yields and costs;~~

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

~~limited warranties on components;~~

~~potential misappropriation of our intellectual property; and~~

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

~~Any of these risks could impair our ability to fulfill orders. Any delays by our contract manufacturers~~substantial negotiating leverage, which may cause us to ~~be unable~~agree to ~~meet the delivery requirements~~terms and conditions that result in lower average selling prices and potentially increased cost of sales leading to lower gross margin, each of which would harm our results of operations.

Many of our customers ~~which could decrease customer satisfaction~~are large service providers and ~~harm our product sales.~~ICPs that have substantial purchasing power and leverage in negotiating contractual arrangements with us. In addition, customer consolidation in the past few years has created combined companies that are even larger and have greater negotiating leverage. Our customers have sought and may continue to seek advantageous pricing, payment and other commercial terms. This may further impact our profitability if ~~our contract manufacturers~~we are unable to recover through price increases passed along to these customers additional costs we have incurred from inflationary pressures to the supply chain or ~~unwilling~~shipping and freight. We have also occasionally agreed and may continue to ~~continue manufacturing our products or components~~agree to unfavorable commercial terms with these customers, including the potential of reducing the average selling price of our products, increasing cost of sales or agreeing to extended payment terms in ~~required volumes~~response to these commercial requirements or ~~our relationship~~competitive pricing pressures. Continued inflation could decrease the profitability of customer contracts, particularly those with ~~any of our contract manufacturers is discontinued for any reason,~~extended payment terms, that are not indexed to inflation. If we ~~would be required~~are compelled to ~~identify~~agree to disadvantageous terms and ~~qualify alternative manufacturers, which could cause us to be~~conditions, unable to ~~meet~~comply with such terms and conditions, or adapt our ~~supply requirements~~business model and operations to such terms and conditions, then our customers and result in the breach of our customer agreements. Qualifying a new contract manufacturer and commencing volume production is expensive and time-consuming and if we are required to change or qualify a new contract manufacturer, we could lose revenue and damage our customer relationships.operating results will be negatively impacted.

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

Our products can have a lengthy sales cycle, which can extend from six to twelve months and may take even longer for larger prospective customers. Our prospective customers conduct significant evaluation, testing, implementation and acceptance procedures before they purchase our products. We incur substantial sales and marketing expenses and expend significant management effort during this time, regardless of whether we make a sale. Supply chain disruptions have also at times lengthened, and may in the future lengthen, our sales cycle due to delays in the customer certification process for our products.

Because our sales cycle is long, we are likely to recognize higher inflation-related costs before recognizing the benefits of any price increases that we implement for our products. Moreover, the costs associated with our sales cycle may increase faster than our ability to increase prices. In addition, changes in regulatory requirements or uncertainty associated with the regulatory environment could delay or impede

investment in network infrastructures and adversely affect our business, financial condition and results of operations.

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

~~Product~~Any acquisitions or strategic transactions that we undertake could disrupt our business and harm our financial condition and results of operations.

We have made strategic acquisitions of businesses, technologies and other assets in the past, including most recently the Acquisition. We may engage in acquisitions, divestitures or other strategic transactions in the future. In order to undertake certain of these transactions, we may use cash, issue equity that could dilute our current stockholders, or incur debt or assume indebtedness. If we are unable to achieve the anticipated efficiencies and strategic benefits of such transactions, it could adversely affect our business, financial condition and results of operations. In addition, the market price of our common stock could be adversely affected if investors and securities analysts react unfavorably to a strategic transaction or if the integration or the anticipated financial and strategic benefits of such transactions are not realized as rapidly as or to the extent anticipated by investors and securities analysts.

Acquisitions, divestitures or other strategic transactions can also result in adverse tax consequences, warranty or product liability exposure related to acquired assets, additional stock-based compensation expense, and write-up of acquired inventory to fair value. Divestitures can also result in contractual, employment or intellectual property liability related to divested assets. In addition, we may record goodwill and other purchased intangible assets in connection with an acquisition and incur impairment charges in the future. If our actual results, or the plans and estimates used in future impairment analyses, are less favorable than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges.

Acquisitions, divestitures or other strategic transactions also involve numerous risks that could disrupt our ongoing business and distract our management team, including:

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

•challenges in divesting assets and intellectual property without negatively affecting our retained business;

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

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

•risks associated with entering new markets or exiting existing markets; and

•loss of key employees.

Our failure to adequately manage the risks associated with an acquisition, divestment or strategic transaction could have an adverse effect on our business, financial condition and results of operations.

Actions that we are taking or may in the future take to restructure our business to cut costs and align our operating structure with current or future opportunities may not be as effective as anticipated and may have negative consequences.

We have incurred, and may in the future incur, substantial costs in connection with restructuring plans. Although these restructuring initiatives may be taken to improve our operating efficiency and to reallocate resources to align more closely with our evolving business model and current and future opportunities, they may not result in the benefits we anticipate. We incur substantial costs to implement restructuring plans, and our restructuring activities may subject us to reputational and litigation risks. Our past restructuring plans do not provide any assurance that we will realize anticipated cost savings or other benefits from any restructuring plans

we implement. In addition, restructuring plans may have other consequences, such as attrition beyond any planned reductions in workforce, a negative effect on employee morale and productivity or our ability to attract highly skilled employees. Restructuring presents other significant potential risks such as the actual or perceived disruption of service or reduction in service standards to customers, loss of sales, the failure to preserve supplier relationships and diversion of management attention. In addition, as a result of these restructuring actions, our ability to execute on product development, address key market opportunities or meet customer demand could be materially and adversely affected. Further, any anticipated benefits from these restructuring initiatives may be realized later than expected or not at all, and the ongoing costs of implementing these measures may be greater than anticipated. As a result, current or future restructuring plans may affect our revenue and other operating results.

Financial and Macroeconomic Risk Factors

We may be unable to generate the cash flow necessary to make anticipated capital expenditures, service our debt or grow our business.

We may not be able to generate sufficient cash flow from operations to make anticipated capital expenditures, service our debt or grow our business. Our ability to pay our expenses, service our debt and fund planned capital expenditures will depend on our future performance, ~~problems,~~which will be affected by general economic, competitive, legislative, political, regulatory, public health issues and other factors beyond our control, and our ability to continue to realize synergies and anticipated cost savings. If we are unable to generate sufficient cash flow from operations to service our debt or to make anticipated capital expenditures, we may be required to sell assets, reduce capital expenditures, borrow additional funds or evaluate alternatives for efficiently funding our capital expenditures and ongoing operations, including ~~undetected errors~~the issuance of equity, equity-linked and debt securities.

Inflation may adversely affect us by increasing costs beyond what we can recover through price increases.

Inflation, which has continued in the U.S. and globally, can adversely affect us by increasing the costs of labor, supplies and other costs of doing business, and price increases within our ~~hardware~~supply chain have negatively affected our gross margin. In an inflationary environment, our ability to raise prices or ~~software,~~add additional cost-recovery surcharges of a magnitude sufficient to match the rate of inflation, on a timely basis, may be constrained by customer resistance and competitive concerns, as well as industry-specific and other economic conditions, which would reduce our profit margins. Moreover, even if we seek to implement price increases in response to inflationary pressures, because of our long sales cycle, we may recognize increased costs as a result of inflation before we are able to recognize the benefits of any such price increases. We have experienced increases in the prices of labor, supplies and other costs of doing business and continued inflationary pressures could continue to adversely impact our profitability.

Unfavorable macroeconomic and market conditions may adversely affect our industry, business and financial results.

In the past, unfavorable macroeconomic and market conditions have resulted in sustained periods of decreased demand for optical communications products and slowdowns in the telecommunications industry in which we operate. Such slowdowns may result in:

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

•increased price competition for our products, not only from our competitors, but also as a result of the utilization of inventoried or ~~deployment~~underutilized products by our customers or potential customers, which could put additional downward pressure on our near-term gross profits;

•risk of excess or obsolete inventories;

•our customers facing financial difficulties, including bankruptcy;

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

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

The COVID-19 pandemic created significant uncertainty in global macroeconomic conditions and capital markets, credit markets, and, in particular, supply chains continue to experience high levels of disruption, volatility and uncertainty. High inflation, along with other signs of economic disruption, has also contributed to adverse global macroeconomic conditions. These conditions may also result in the tightening of credit markets, which could limit or delay our customers’ ability to obtain necessary financing for their purchases of our products.

Our customers may delay or cancel their purchases or increase the time they take to pay or default on their payment obligations due to a lack of liquidity in the capital markets, the continued uncertainty in the global economic environment or inflationary concerns, which could result in a higher level of bad debt expense and would negatively affect our business and operating results. In addition, currency fluctuations could negatively affect our international customers’ ability or desire to purchase our products.

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

The development and production of products with high technology content is complicated and often involves problems with software, components and manufacturing methods. Complex hardware and software systems, such as our products, can often contain undetected errors when first introduced or as new versions are released. In addition, errors associated with components we purchase from third parties, including customized components, may be difficult to resolve. We have experienced issues in the past in connection with our products, including failures due to the receipt of faulty components from our suppliers. In addition, performance issues can be heightened during periods where we are developing and introducing multiple new products to the market, as any performance issues we encounter in one technology or product could impact the performance or timing of delivery of other products. Our products may suffer degradation of performance and reliability over time.

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

~~reduced orders from existing customers;~~

~~declining interest from potential customers;~~

~~delays in our ability to recognize revenue or in collecting accounts receivables;~~

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

~~high service and warranty expenses;~~

~~delays in shipments;~~

~~high inventory excess and obsolescence expense;~~

~~high levels of product returns;~~

~~diversion of our engineering personnel from our product development efforts; and~~

~~payment of liquidated damages, performance guarantees or similar penalties.~~

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

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

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

Our business requires significant capital. We have historically relied on outside debt or equity financing as well as cash flow from operations to fund our operations, capital expenditures and expansion. For example, in September 2018, we issued convertible senior notes due September 1, 2024 (the “2024 Notes”) to pay the cost of the Capped Calls, as discussed below, to fund the cash portion of the purchase price of the Acquisition, and for general corporate purposes. In August 2019 and as amended thereafter, we entered into the Prior Credit Agreement to provide additional working capital flexibility to manage our business. In addition, in March 2020, we issued convertible senior notes due March 1, 2027 (the “2027 Notes”) to raise additional funds for general corporate purposes, including working capital to fund growth and potential strategic projects. On August 12, 2020, we entered into an Open Market Sales Agreement with Jefferies LLC ("Jefferies") under which we issued and sold through Jefferies, acting as agent or principal, shares of our common stock having an aggregate offering price of $96.3 million, to raise funds for general corporate purposes, including working capital and capital expenditures. In June 2022, we terminated the Prior Credit Agreement and entered into the Loan Agreement to repay existing debt (including amounts outstanding under the Prior Credit Agreement) and for working capital and general corporate purposes, including to fund growth. In August 2022, we issued convertible senior notes due August 1, 2028 (the “2028 Notes” and, together with the 2024 Notes and the 2027 Notes, the “convertible senior notes”) to repurchase a portion of the 2024 Notes, for general corporate purposes, including working capital and to fund growth and potential strategic projects. We may require additional capital from equity or equity-linked financing, debt financing or other financings in the future to fund our operations, respond to competitive pressures or strategic opportunities or to refinance our existing debt obligations. In the event that we require additional capital, we may not be able to secure timely additional financing, or restructure existing debt, on favorable terms, or at ~~all.~~all, and may be affected by the impacts on capital markets of global economic uncertainty and inflationary pressures. The terms of any additional ~~financing~~financings or restructurings may place limits on our financial and operating flexibility. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer dilution in their percentage ownership of our company, and any new securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, if and when we require it, our ability to grow or support our business and to respond to business challenges could be limited and our business will be harmed.

Our Loan Agreement and any other credit or similar agreements into which we may enter in the future may restrict our operations, particularly our ability to respond to changes or to take certain actions regarding our business.

Our Loan Agreement contains a number of restrictive covenants that may impose operating and financial restrictions on us and limit our ability to engage in acts that may be in our long-term interest, including restrictions on our ability to incur debt, create liens and encumbrances, engage in certain fundamental changes, dispose of assets, prepay certain indebtedness, make restricted payments, make investments, and engage in

transactions with affiliates, in each case subject to limitations and exceptions set forth in the Loan Agreement.The Loan Agreement also contains a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio.

The Loan Agreement also contains customary events of default, such as the failure to pay obligations when due, a material breach of representations and warranties or covenants, the entry of material judgments against certain of our subsidiaries, the initiation of bankruptcy or insolvency proceedings of certain of our subsidiaries, defaults on certain other indebtedness, a change of control, the failure of the guaranty of certain of our subsidiaries to be in effect or the failure of the security documents to create valid and perfected liens or the loan documents to be valid and enforceable, which could have a material adverse effect on our business, operations, and financial results. Upon an event of default, the lenders may, subject to customary cure rights, require the immediate payment of all amounts outstanding and foreclose on collateral, which could force us into bankruptcy or liquidation. In the event that our lenders accelerated the repayment of the borrowings, we may not have sufficient assets to repay that indebtedness. Any acceleration of amounts due under the Loan Agreement would likely have a material adverse effect on us. As a result of these restrictions, we may be limited in how we conduct business, unable to raise additional debt or equity financing to operate during general economic or business downturns, or unable to compete effectively or to take advantage of new business opportunities.

In addition, we may enter into other credit agreements or other debt arrangements from time to time which contain similar or more extensive restrictive covenants and events of default, in which case we may face similar or additional limitations as a result of the terms of those credit agreements or other debt arrangements.

Our debt obligations may adversely affect our ability to raise additional capital and will be a burden on our future cash resources, particularly if we elect to settle these obligations in cash upon ~~settlement of any conversions of the Notes~~conversion or upon maturity or required ~~repurchase~~repurchase.

As of December 31, 2022, the outstanding aggregate principal amount of the 2024 Notes,.

~~In May 2013, we issued~~ the ~~$150.0~~2027 Notes and the 2028 Notes was $102.7 million, ~~of 1.75% convertible senior notes due June 1, 2018 (the “Notes”), which will mature on June 1, 2018.~~$200.0 million and $373.8 million, respectively. The degree to which we are leveraged could have important consequences, including, but not limited to, the following:

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

•a substantial portion of our future cash balance may be dedicated to the payment of the principal of our indebtedness as we have stated the intention to pay the principal amount of ~~the Notes~~each series of convertible senior notes in cash upon conversion or when otherwise due, such that we would not have those funds available for use in our ~~business~~.

business.

Our ability to meet our payment obligations under our debt instruments, including the ~~Notes, which mature on June 1, 2018 and require cash to be paid upon conversion, maturity or required repurchase thereof,~~convertible senior notes, depends on our future cash flow performance. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors, as well as other factors that may be beyond our control. There can be no assurance that our business will generate positive cash flow from operations, or that additional capital will be available to us, in an amount sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we ~~were~~are unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations. As a result, we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions.

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

Sales of our products into international markets continue to be an important part of our business. During 2022, 2021 and 2020, we derived approximately 45%, 53% and 54%, respectively, of our revenue from customers outside of the United States. We expect that significant management attention and financial resources will be required for our international activities over the foreseeable future as we continue to operate in international markets. In some countries, our success in selling our products and growing revenue will depend in part on our ability to form relationships with local partners. Our inability to identify appropriate partners or reach mutually satisfactory arrangements for international sales of our products could impact our ability to maintain or

increase international market demand for our products. In addition, many of the companies we compete against internationally have greater name recognition and a more substantial sales and marketing presence.

We have sales and support personnel in the Americas, EMEA (with offices in the Middle East) and APAC (including China). In addition, we have established development centers in Canada, China, Finland, Germany, India, Portugal and Sweden. There is no assurance that our reliance upon development resources in international locations will enable us to achieve meaningful cost reductions or greater resource efficiency. We are also aggressively pursuing opportunities with customers in additional geographies, including EMEA, APAC and Latin America. Our efforts to increase our sales and capture market share in international markets may ultimately be unsuccessful and may limit our growth and adversely impact our business, financial condition and results of operations.

New or continuing disruptions of the global supply chain or the manufacture of our customer’s components caused by events outside of our control could impact our results of operations by impairing our ability to timely and efficiently deliver our products or provide installation and maintenance services to our customers.

In addition, our operations in Russia have been impacted by sanctions and other trade controls imposed by the United States and other governments in response to Russia's military operations in Ukraine which started in February 2022. The imposition of these sanctions and controls have prevented us from performing existing contracts. For the year ended December 31, 2022, less than 1% of our revenue was derived from customers in Russia, and for the year ended December 25, 2021, approximately 1% of our revenue was derived from customers based in Russia. A de minimis percentage of our revenue is derived from Russian customers including channel partners and customers in other countries whose contracts with us may involve Russian entities.

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

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

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

•political, social and economic instability, including wars, terrorism, political unrest, boycotts, curtailment of trade and other business restrictions;

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

•less effective protection of intellectual property than is afforded to us in the United States or other developed countries;

•potentially adverse tax consequences;

•natural disasters, acts of war or terrorism, and health crises, including the COVID-19 pandemic;

•changes to free trade agreements, trade protection measures, tariffs, export compliance, domestic preference procurement requirements, qualification to transact business and additional regulatory requirements, including changes related to policy and other changes made by the federal government in the United States, other national governments or multinational bodies; and

•effects of changes in currency exchange rates, particularly relative increases in the exchange rate of the U.S. dollar compared to other currencies that could negatively affect our financial results and cash flows.

The concentration of the storage and distribution of our inventory primarily in one location in southeastern Asia increases the risks of our global operations. As a result, our operations are susceptible to local and regional factors in that area, such as accidents, system failures and weather conditions, natural disasters (including floods and earthquakes and related fires), and other unforeseen events and circumstances. Any significant interruption in the operations or availability of the storage and distribution facilities in which our

inventory is held could lead to logistical and fulfillment issues or increased costs, which could have a material adverse effect on our results of operations, financial condition and cash flows.

International customers may also require that we comply with certain testing or customization of our products to conform to local standards. The product development costs to test or customize our products could be extensive and a material expense for us.

Our international operations are also subject to increasingly complex foreign and U.S. laws and regulations, including, but not limited to, anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended (the "FCPA"), and the United Kingdom Bribery Act 2010, as amended (the “UK Bribery Act”), antitrust or competition laws, anti-money laundering laws, various trade controls, national security related regulations, and data privacy laws, among others. Violations of these laws and regulations could result in fines and penalties, criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business and on our ability to offer our products and services in one or more countries, and could also materially affect our reputation, our international expansion efforts, our ability to attract and retain employees, our business, and our operating results. Although we have implemented policies, procedures and training designed to ensure compliance with these laws and regulations, there can be no complete assurance that any individual employee, contractor or agent will not violate our policies. Additionally, the costs of complying with these laws (including the costs of investigations, auditing and monitoring) could also adversely affect our current or future business.

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

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

A portion of our sales and expenses stem from countries outside of the United States, and are in currencies other than U.S. dollars, and therefore subject to foreign currency fluctuation. Accordingly, fluctuations in foreign currency rates could have a material impact on our financial results in future periods. We have from time to time entered into foreign currency exchange forward contracts to reduce the impact of foreign currency fluctuations on certain non-functional currency account balances. Even if we have forward contracts in place, while they may reduce some of the impact of currency exchange rate movements on certain transactions, they would not cover all foreign-denominated transactions and therefore may not entirely eliminate the impact of fluctuations in exchange rates on our results of operations and financial condition.

Our effective tax rate may increase or fluctuate, which could increase our income tax expense and reduce our net income.

Our effective tax rate can be adversely affected by several factors, many of which are outside of our control, including:

•changes in the valuation of our deferred tax assets and liabilities, and in deferred tax valuation allowances;

•changes in the relative proportions of revenue and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;

•changing tax laws, regulations, rates and interpretations in multiple jurisdictions in which we operate;

•changes to the financial accounting rules for income taxes;

•the tax effects of acquisitions; and

•the resolution of issues arising from tax audits.

The United States recently enacted the Inflation Reduction Act of 2022, which, among other changes, implements a 1% excise tax on certain stock buybacks, which would generally apply to repurchases of stock by U.S. corporations, including certain transactions with the Capped Calls. Many countries and organizations such

as the Organization for Economic Cooperation and Development are actively considering changes to existing tax laws or have proposed or enacted new laws, including an agreement to implement a 15% global minimum tax, that could increase our tax obligations in countries where we do business or cause us to change the way we operate our business. The Council of the European Union has adopted this initiative for enactment by European Union member states by December 31, 2022, with implementation into the domestic laws of those states by the end of 2023. Any changes in U.S. federal, state or international tax laws or tax rulings could adversely affect our effective tax rate and our results of operations.

Beginning January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminated the right to deduct research and development expenditures for tax purposes in the period the expenses were incurred and instead requires all U.S. and foreign research and development expenditures to be amortized over five and fifteen tax years, respectively. This provision may materially increase our effective tax rate and reduce our operating cash flows over time as we continue to utilize available net operating losses and tax credits.

We may issue additional shares of our common stock in connection with conversions of the 2024 Notes, the 2027 Notes or the 2028 Notes, and thereby dilute our existing stockholders and potentially adversely affect the market price of our common stock.

In the event that some or all of each series of convertible senior notes are converted and we elect to deliver shares of common stock to the extent permitted, the ownership interests of existing stockholders will be diluted, and any sales in the public market of any shares of our common stock issuable upon such conversion could adversely affect the prevailing market price of our common stock. In addition, the anticipated conversion of any series of convertible senior notes we have issued could depress the market price of our common stock.

The fundamental change provisions of the 2024 Notes, the 2027 Notes and the 2028 Notes may delay or prevent an otherwise beneficial takeover attempt of us.

If a fundamental change,, such as an acquisition of our company,, occurs prior to the maturity of the 2024 Notes, the 2027 Notes or the 2028 Notes, holders of the ~~Notes~~applicable series of convertible senior notes will have the right, at their option, to require us to repurchase all or a portion of their ~~Notes.~~convertible senior notes of such series. In addition, if such fundamental change also constitutes a make-whole fundamental change, the conversion rate for the ~~Notes~~applicable series of convertible senior notes may be increased upon conversion of the ~~Notes~~such series of convertible senior notes in connection with such make-whole fundamental change. Any increase in the conversion rate will be determined based on the date on which the make-whole fundamental change occurs or becomes effective and the price paid (or deemed paid) per share of our common stock in such transaction. Any such increase will be dilutive to our existing stockholders. Our obligation to repurchase ~~Notes~~any series of convertible senior notes or increase the conversion rate upon the occurrence of a make-whole fundamental change may, in certain circumstances, delay or prevent a takeover of us that might otherwise be beneficial to our stockholders.

The Capped Calls may affect the value of the 2024 Notes and our common stock.

~~Changes~~In connection with the issuance of the 2024 Notes, we entered into capped call transactions (the "Capped Calls") with certain financial institutions who are the option counterparties. The Capped Calls are expected generally to reduce or offset the potential dilution upon conversion of the 2024 Notes or offset any cash payments we are required to make in ~~accounting principles~~excess of the principal amount of converted 2024 Notes, as the case may be, with such reduction or offset subject to a cap.

From time to time, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 2024 Notes. This activity could also cause ~~previously unanticipated fluctuations~~an increase or a decrease in the market price of our ~~financial results, and the implementation of such changes may impact our ability to meet our financial reporting obligations.~~common stock.

We ~~prepare our financial statements in accordance with U.S. GAAP, which~~ are subject to ~~interpretation~~counterparty risk with respect to the Capped Calls.

The option counterparties to the Capped Calls are financial institutions, and we will be subject to the risk that any or ~~changes~~all of them might default under the Capped Calls. Our exposure to the credit risk of the counterparties will not be secured by the Financial Accounting Standards Board (the “FASB”), the SEC, and other various bodies formed to promulgate and interpret appropriate accounting principles. New accounting pronouncements and changes in accounting principlesany collateral. Past global economic conditions have ~~occurred~~resulted in the ~~past and are expected~~actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to ~~occur~~insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our

exposure at the time under the Capped Calls with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the ~~future, which~~market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may ~~have a significant effect on~~suffer adverse tax consequences and more dilution than we currently anticipate with respect to our financial results. For example, in May 2014, the FASB issued Accounting Standards Update 2014-09, “Revenue from Contracts from Customers (Topic 606),” which supersedes most current revenue recognition guidance, including industry-specific guidance.common stock. We ~~will be required to implement this new revenue standard for our fiscal year beginning December 31, 2017. Please see Note 2, “Recent Accounting Pronouncements”~~can provide no assurance as to the ~~Notes to Consolidated Financial Statements for more information. We are continuing to evaluate~~financial stability or viability of the ~~effect that the new standard will have on our consolidated financial statements~~option counterparties.

Legal and our preliminary assessments remain subject to change. Any difficulties in implementation of changes in accounting principles, including the ability to modify our accounting systems, could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and damage our reputation with investors.Regulatory Risk Factors

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

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

Protecting against the unauthorized use of our products, trademarks and other proprietary rights is expensive, difficult, time consuming and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity or scope of the proprietary rights of others. Such litigation could result in substantial cost and diversion of management resources, either of which could harm our business, financial condition and ~~operating results.~~results of operations. Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property.

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

Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights. In particular, many leading companies in the optical transport networking industry, including our competitors, have extensive patent portfolios with respect to optical transport networking technology. In addition, non-practicing patent holding companies seek to monetize patents they have purchased or otherwise obtained. We expect that infringement claims may increase as the number of products and competitors in our market increases and overlaps in technology implementation occur. From time to time, third parties may assert exclusive patent, copyright, trademark and other intellectual property rights to technologies and related standards that are important to our business or seek to invalidate the proprietary rights that we hold. Competitors or other third parties have asserted, and may continue to assert, claims or initiate litigation or other proceedings against us or our manufacturers, suppliers or customers alleging infringement of their proprietary rights, or seeking to invalidate our proprietary rights, with respect to our products and technology. In addition, in the past we have had certain patent licenses with third parties that have not been renewed, and if we cannot successfully renew these licenses, we could face claims of infringement. In the event that we are unsuccessful in defending against any such claims, or any resulting ~~lawsuit~~lawsuits or proceedings, we could incur liability for damages ~~and/~~or have valuable proprietary rights invalidated. For additional information regarding certain of the legal proceedings in which we are involved, see Part II, Item ~~3, "Legal Proceedings," contained in Part I of this report.~~8, Note 13 under the heading “Legal Matters.”

Any claim of infringement from a third party, even one without merit, could cause us to incur substantial costs defending against the claim, and could distract our management from running our business. Furthermore, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages or could include an injunction or other court order that could prevent us from offering our products. In addition, we might be required to seek a license for the use of such intellectual property, which may not be available on

commercially reasonable terms or at all. Alternatively, we may be required to develop non-infringing technology, which would require significant effort and expense and may ultimately not be successful. Any of these events could harm our business, financial condition and ~~operating results.~~ results of operations.

Competitors and other third parties have and may continue to assert infringement claims against our customers and sales partners. Any of these claims ~~would~~may require us to initiate or defend potentially protracted and costly litigation on their behalf, regardless of the merits of these claims, because we generally indemnify our customers and sales partners from claims of infringement of proprietary rights of third parties. If any of these claims succeed, we may be forced to pay damages on behalf of our customers or sales partners, which could have an adverse effect on our business, financial condition and ~~operating results.~~

~~We may also be required to indemnify some customers under our contracts if a third party alleges, or a court finds, that our products have infringed upon the proprietary rights~~results of other parties. From time to time, we have agreed to indemnify certain customers for claims made against our products, where such claims allege infringement of third party intellectual property rights, including, but not limited to, patents, registered trademarks and/or copyrights. If we are required to make a significant payment under any of our indemnification obligations, our result of operations may be harmed.operations.

We also incorporate free and open source licensed software into our products. Although we monitor our use of such open source software closely, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. In addition, non-compliance with open source software license terms and conditions could subject us to potential liability, including intellectual property infringement ~~and/~~or contract claims. In such events, we may be required to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished in a timely manner, any of which could adversely affect our business, ~~operating~~financial condition and results of operations.

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

~~The trading price~~

In the ordinary course of our ~~common stock has been volatile~~business, we maintain sensitive data on our networks and ~~is likely~~systems, including data related to our intellectual property and data related to our business, customers and business partners, which may be ~~volatile~~considered proprietary or confidential information. This sensitive data includes certain personal information and other data relating to our employees and others. We also utilize third-party service providers to host, transmit, or otherwise process data in connection with our business activities, including our supply chain processes, operations, and communications. Companies, especially in the ~~future.~~

~~The trading prices~~technology industry, have been increasingly subject to a wide variety of ~~our common stock~~security incidents, cyber-attacks, malicious activity, including ransomware, malware and viruses, and other attempts to gain unauthorized access and disrupt systems and the ~~securities~~confidentiality, security, and integrity of ~~other technology companies~~information, and we and our third-party service providers and suppliers have ~~been~~faced and may continue to ~~be highly volatile. Factors affecting the trading price~~face security threats and attacks from a variety of sources. In accordance with our flexible approach to work arrangements, many of our ~~common stock include:~~

~~variations~~employees are working from home and accessing our corporate network via remote devices, which may be less secure than those used in our ~~operating results;~~offices and thus could increase the potential for such events to occur.

~~changes in~~While the ~~estimates~~secure maintenance of ~~our future operating results or external guidance on those results or changes in recommendations or business expectations by any securities analysts that elect to follow our common stock;~~

~~announcements~~this information and the security of ~~technological innovations, new services or service enhancements,~~ the ~~gain or loss of customers, strategic alliances or agreements by us or by our competitors;~~

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

~~mergers and acquisitions by us, by our competitors or by our customers;~~

~~recruitment or departure of key personnel; and~~

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

~~In addition, if the market for technology stocks or the broader stock market experience a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated~~business are critical to our business ~~financial condition~~and reputation, our network and storage applications, and those systems and other business applications maintained by our third-party providers, may be subject to unauthorized access by hackers or ~~operating results. The trading price~~breached or otherwise compromised due to operator error, malfeasance or other system disruptions. It may be difficult to anticipate or immediately detect such security incidents or breaches and to prevent or mitigate damage caused as a result. Accordingly, a data breach, security incident, cyber-attack, attack using ransomware or other malware, or any other unauthorized access to systems used in our business or unauthorized acquisition, disclosure, or other processing of our ~~common stock might also decline~~information or other information that we or our third-party vendors maintain or otherwise process could compromise our intellectual property, disrupt our operations, or result in ~~reaction~~loss of or unauthorized access to ~~events~~or acquisition, disclosure, modification, misuse, corruption, unavailability, or destruction of proprietary or confidential information. While we work to safeguard our internal networks and systems and validate the security of our third-party suppliers and providers to mitigate these potential risks, including through information security policies and employee awareness and training, there is no assurance that ~~affect other companies in~~such actions will be sufficient to prevent cyber-attacks or security breaches or incidents, and we cannot guarantee that our ~~industry even if these events~~systems and networks or our third-party service providers’ systems and networks have not been breached or that they or any components of our supply chain do not ~~directly affect us. Each of these factors, among others, could harm the value of your investment in our common stock. Some companies~~contain exploitable defects or bugs, including defects or bugs that have had volatile market prices for their securities have had securities class action lawsuits filed against them. If a suit were filed against us, regardless of its merits or outcome, it could result in substantial costs and divert management’s attention and resources.

~~Unfavorable macroeconomic and market conditions may adversely affect our industry, business and financial results.~~

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

In the past, unfavorable macroeconomic and market conditions have resulted in sustained periods of decreased demand for optical communications products. These conditions may also result in the tightening of credit markets, which may limit or delay our customers’ ability to obtain necessary financing for their purchases of our products. A lack of liquidity in the capital markets or the continued uncertainty in the global economic environment may cause our customers to delay or cancel their purchases, increase the time they take to pay or default on their payment obligations, each of which would negatively affect our business and operating results. Weakness and uncertainty in the global economy could cause some of our customers to become illiquid, delay payments or adversely affect our collection of their accounts, which could result in a ~~higher level~~breach of ~~bad debt expense. In addition, currency fluctuations could negatively affect~~or disruption to our ~~international customers’ ability~~systems and networks or ~~desire~~the systems and networks of third parties that support our operations. We and third-party service providers also may face difficulties or delays in identifying or responding to ~~purchase our products.~~

~~Challenging economic conditions~~security breaches and other security-related incidents. We have ~~from time to time contributed to slowdowns~~been subjected in the ~~telecommunications industry~~past to a range of incidents including phishing, emails purporting to come from an executive or vendor seeking payment requests, malware and communications from look-alike corporate domains. For example, in ~~which~~

2021, we ~~operate. Such slowdowns may result in:~~

~~reduced demand for~~experienced a phishing attack that resulted in an immaterial loss. While they have not had a material effect on our ~~products as a result of constraints on capital spending by~~business or our ~~customers;~~

~~increased price competition for our products, not only from our competitors, but also as a result~~network security to date, security breaches or incidents involving access to or improper use of our ~~customer’s~~systems, networks or ~~potential customer’s utilization~~products, or those of ~~inventoried~~third-party service providers, could compromise confidential or ~~underutilized products,~~otherwise protected information, result in unauthorized acquisition, disclosure, modification, misuse, corruption, unavailability, or destruction of data, cause payments to be diverted to fraudulent accounts, or otherwise disrupt our operations. Security breaches or incidents, or any reports or perceptions that they have occurred, could cause us to incur significant costs and expenses to remediate and otherwise respond to any actual or suspected breach or incident, subject us to regulatory actions and investigations, disrupt key business operations, result in claims, demands, and liability, and divert attention of management and key information technology resources, any of which could ~~put additional downward pressure on our near term gross profits;~~

~~risk of excess or obsolete inventories;~~

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

~~more limited ability~~cause significant harm to ~~accurately forecast~~ our business and ~~future financial performance.~~

~~A lack~~reputation. Even the perception of ~~liquidity and economic uncertainty~~inadequate security may adversely affect our suppliers or the terms on which we purchase products from these suppliers. It may also cause some of our suppliers to become illiquid. Any of these impacts could limit our ability to obtain components for our products from these suppliers and could adversely impact our supply chain or the delivery schedule to our customers. This also could require us to purchase more expensive components, or re-design our products, which could cause increases in the cost of our products and delays in the manufacturing and delivery of our products. Such events could harm our gross margin and harmdamage our reputation and negatively impact our ~~customer relationships, either of which~~business. Further, we could ~~harm our business~~be required to expend significant capital and ~~operating results.~~other resources to address any security incident or breach and to attempt to prevent future security incidents and breaches.

~~Our international sales and operations subject us to additional risks~~Although we maintain insurance coverage that may ~~harm~~cover certain liabilities in connection with some security breaches and other security incidents, we cannot be certain our ~~operating results.~~

Sales of our products into international markets are an important part of our business. During fiscal year 2017, fiscal year 2016 and fiscal year 2015, we derived approximately 42%, 38% and 32%, respectively, of our revenue from customers outside of the United States. We expect that significant management attention and financial resourcesinsurance coverage will be ~~required~~adequate for ~~our international activities over the foreseeable future as we~~liabilities actually incurred, including any consequential damages that may arise from such security incidents, that insurance will continue to operate in international markets. In some countries, our success in selling our products and growing revenue will depend in part on our ability to form relationships with local partners. Our inability to identify appropriate partners or reach mutually satisfactory arrangements for international sales of our products could impact our ability to maintain or increase international market demand for our products. In addition, many of the companies we compete against internationally have greater name recognition and a more substantial sales and marketing presence.

We have sales and support personnel in numerous countries worldwide. In addition, we have established development centers in Canada, India and Sweden. There is no assurance that our reliance upon development resources in international locations will enable us to achieve meaningful cost reductions or greater resource efficiency.

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

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

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

~~political, social and economic instability, including wars, terrorism, political unrest, boycotts, curtailment of trade and other business restrictions;~~

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

~~less effective protection of intellectual property than is afforded~~available to us inon commercially reasonable terms (if at all) or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, the ~~United States or other developed countries;~~

local laws and practices that favor local companies, including business practices that we are prohibited from engaging in by the Foreign Corrupt Practices Act and other anti-corruption laws and regulations;

~~potentially adverse tax consequences; and~~

~~effects~~occurrence of changes in ~~currency exchange rates, particularly relative~~our insurance policies, including premium increases inor the ~~exchange rate~~imposition of ~~the U.S. dollar versus other currencies that could negatively affect our financial results and cash flows.~~

~~International customers may also require that we comply with certain testing~~large deductible or ~~customization~~co-insurance requirements, or denials of ~~our products to conform to local standards. The product development costs to test or customize our products could be extensive and a material expense for us.~~

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

As we continue to expand our business globally, our success will depend, in large part, on our ability to effectively anticipate and manage these and other risks and expenses associated with our international operations. For example, political instability and uncertainty in the European Union and, in particular, the United Kingdom's pending exit from the E.U. (Brexit) as well as other countries potentially choosing to exit the E.U., could slow economic growth in the region, affect foreign exchange rates, and could further discourage near-term economic activity, including our customers delaying purchases of our products. Our failure to manage any of these risks successfully could harm our international operations and reduce our international sales, and business generally, adversely affecting our business, operating results and financial condition.

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

A portion of our sales and expenses stem from countries outside of the United States, and are in currencies other than U.S. dollars, and therefore subject to foreign currency fluctuation. Accordingly, fluctuations in foreign currency ratescoverage could have a material ~~impact~~adverse effect on our business, including our financial results in future periods. We may enter into other financial contracts to reduce the impact of foreign currency fluctuations. We currently enter into foreign currency exchange forward contracts to reduce the impact of foreign currency fluctuations on accounts receivable, and also to reduce the volatility of cash flows primarily related to forecasted foreign currency revenue and expenses. These forward contracts reduce the impact of currency exchange rate movements on certain transactions, but do not cover all foreign-denominated transactions and therefore do not entirely eliminate the impact of fluctuations in exchange rates that could negatively affect ourcondition, results of operations and ~~financial condition.~~

~~Our effective tax rate may increase or fluctuate, which could increase our income tax expense and reduce our net income.~~

~~Our effective tax rate can be adversely affected by several factors, many of which are outside of our control, including:~~

~~changes in the valuation of our deferred tax assets and liabilities, and in deferred tax valuation allowances;~~

~~changes in the relative proportions of revenue and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;~~

~~changing tax laws, regulations, rates and interpretations in multiple jurisdictions in which we operate;~~

~~changes in accounting and tax treatment of equity-based compensation;~~

~~changes to the financial accounting rules for income taxes; and~~

~~the resolution of issues arising from tax audits.~~

The international tax environment continues to change as a result of both coordinated actions by governments and unilateral measures designed by individual countries, both intended to tackle concerns over base erosion and profit shifting (“BEPS”) and perceived international tax avoidance techniques. The recommendations of the BEPS Project led by the Organization for Economic Cooperation and Development are involved in much of the coordinated activity, although the timing and methods of implementation vary. In addition, on December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was signed into law, which significantly revises the U.S. corporate income tax regime by, among other things, lowering corporate income tax rate from 35% to 21% effective January 1, 2018, imposing a repatriation tax on deemed repatriated earnings of our foreign subsidiaries in 2017, and implementing a quasi-territorial tax system on future foreign earnings. Such changes in tax laws or their interpretation could adversely affect our effective tax rates and our results.

reputation.

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

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

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

~~We may make strategic acquisitions of businesses, technologies and other assets.~~ If we are ~~not able~~unable to ~~achieve~~implement effective key operational controls around financial processes and successfully manage and monitor manual processes, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the ~~anticipated strategic benefits~~accuracy and completeness of ~~such acquisitions, it could adversely affect~~ our ~~business,~~ financial ~~condition~~reports and ~~results of operations. In addition,~~ the market price of our common stock could be adversely affected if the integration or the anticipated financial and strategic benefits of such acquisitions are not realized as rapidly as, or to the extent anticipated by investors and securities ~~analysts.~~

~~The expansion of our business through acquisitions allows us to complement our technological capabilities and address new markets. In the event of any future acquisitions, we~~ may ~~not ultimately strengthen our competitive position or achieve our goals, or they may be viewed negatively by customers, financial markets or investors and we could:~~

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

~~incur debt and assume other liabilities;~~

~~use a substantial portion of our cash resources; or~~

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

Acquisitions can result in adverse tax consequences, warranty or product liability exposure related to acquired assets, additional stock-based compensation expense, and write-up of acquired inventory to fair value. In addition, we may record goodwill and other purchased intangible assets in connection with an acquisition and incur impairment charges in the future. If our actual results, or the plans and estimates used in future impairment analyses, are less favorable than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges.

~~Acquisitions also involve numerous risks that could disrupt our ongoing business and distract our management team, including:~~

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

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

~~adverse impact on overall company operating results;~~

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

~~risks associated with entering new markets; and~~

~~loss of key employees.~~

~~Our failure to adequately manage the risks associated with an acquisition could have an adverse effect on our business, financial condition and operating results.~~

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

Our manufacturing operations use substances that are regulated by various federal, state and international laws governing health, safety and the environment, including the Waste Electrical and Electronic Equipment Directive, Directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment, and the Registration, Evaluation, Authorization, and Restriction of Chemicals regulations adopted by the European Union. If we experience a problem with complying with these regulations, it could cause an interruption or delay in our manufacturing operations or could cause us to incur liabilities for any costs related to health, safety or environmental remediation. We could also be subject to liability if we do not handle

these substances in compliance with safety standards for storage and transportation and applicable laws. If we experience a problem or fail to comply with such safety standards, our business, financial condition and operating results may be harmed.decline.

We are subject to various governmental export control, trade sanctions, and import laws and regulations that could ~~adversely affect~~impair our ~~business.~~ability to compete in international markets or subject us to liability if we violate these controls.

WeIn some cases, our products are subject to U.S. and foreign ~~trade~~export control laws and regulations that may limit where and to whom we are permitted to sell our ~~products. These~~products, including the Export Administration Regulations administered by the U.S. Department of Commerce, and our activities may be subject to trade ~~control laws also limit~~and economic sanctions, including those administered by the United States Department of the Treasury’s Office of Foreign Assets Control (collectively, “Trade Controls”). As such, a license may be required to export or re-export our ~~ability~~products, or provide related services, to ~~conduct product development activities in~~ certain countries and ~~restrict the handling~~end-users, and for certain end-uses. Further, our products incorporating encryption functionality may be subject to special controls applying to encryption items or certain reporting requirements.

We have procedures in place designed to ensure our compliance with Trade Controls, with which failure to comply could subject us to both civil and criminal penalties, including substantial fines, possible incarceration of responsible individuals for willful violations, possible loss of our ~~U.S.~~ export ~~controlled technology.~~ or import privileges, or reputational harm. Further, the process for obtaining necessary licenses may be time-consuming or unsuccessful, potentially causing delays in sales or losses of sales opportunities. Trade Controls are complex and dynamic regimes, and monitoring and ensuring compliance can be challenging, particularly given that our products are widely distributed throughout the world. Although we have no knowledge that our activities have resulted in material violations of Trade Controls, any failure by us or our partners to comply with applicable laws and regulations

would have negative consequences for us, including reputational harm, government investigations, and penalties.

In addition, various countries regulate the import of certain technologies and have enacted laws that could limit our ability to distribute our products and certain product features or could limit our customers’ ability to implement our products in those countries. Changes in our products or changes in U.S. and foreign import and export regulations may create delays in the introduction of our products in international markets, prevent our customers with international operations from deploying our products throughout their global systems or, in some cases, prevent the import and export of our products to certain countries altogether. For example, the United States has imposed tariffs on a large variety of products originating from China, including some on components that are supplied to us from China. Depending upon the duration and implementation of these and future tariffs, as well as our ability to mitigate their impact, these tariffs could materially affect our business, including in the form of increased cost of goods sold, increased pricing for customers, and reduced sales. Additionally, the U.S. government has levied controls affecting the ability to send certain products and technology related to semiconductors, semiconductor manufacturing and supercomputing to China without an export license and adding additional entities to restricted party lists. It remains unclear what additional actions, if any, will be taken by the governments of the United States or China with respect to such trade and tariff matters. Any change in import and export regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the countries, persons or technologies impacted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. Failure to comply with these and similar laws on a timely basis, or at all, ~~decreased use of our products~~ or any limitation on our ability to develop, export or sell our products would adversely affect our business, financial condition and ~~operating results.~~results of operations.

~~Our product or manufacturing standards~~We are subject to environmental regulations that could ~~also be impacted by new or revised~~adversely affect our business.

We are subject to complex U.S. and foreign environmental rules and regulations or other social ~~initiatives.~~initiatives that impact how and where we manufacture our products. In particular, our manufacturing operations use substances that are regulated by various federal, state, local, foreign and international laws and regulations governing health, safety and the environment, including U.S. Environmental Protection Agency regulations and WEEE, RoHS and REACH regulations adopted by the E.U. From time to time, the E.U. restricts or considers restricting certain substances under these directives. For ~~instance,~~example, InP has been considered for restriction under RoHS. Any restriction of InP or any other substance integral to our systems could materially adversely affect our business, financial condition and operating results. In addition, if we experience a problem complying with these laws and regulations, it could cause an interruption or delay in our manufacturing operations or it could cause us to incur liabilities or costs related to health, safety or environmental remediation or compliance. We could also be subject to liability if we do not handle these substances in compliance with safety standards for handling, storage and transportation and applicable laws and regulations. If we experience a problem or fail to comply with such safety standards or laws and regulations, our business, financial condition and operating results may be harmed.

Regulations relating to environmental, social and governance matters, as well as customer and investor demands, may add operational complexity for us and may adversely affect our relationships with our customers, suppliers and investors.

There has been an increased focus on environmental, social and governance ("ESG") matters that affect companies globally, including by the ~~SEC~~SEC. A number of our customers have adopted, ~~new disclosure~~or may adopt, procurement policies that include environmental or social responsibility provisions or requirements that their suppliers should comply with, or they may seek to include such provisions or requirements in ~~2012 relating~~their procurement terms and conditions. An increasing number of investors are also requiring companies to disclose corporate ESG policies, practices and metrics. In addition, various jurisdictions are developing climate change-based laws or regulations that could cause us to incur additional direct costs for compliance, as well as indirect costs resulting from our customers, suppliers, or both, incurring additional compliance costs that are passed on to us. These legal and regulatory requirements, as well as investor expectations, on corporate ESG responsibility practices and disclosure, are subject to change, can be unpredictable, and may be difficult and expensive for us to comply with, given the ~~sourcing~~complexity of ~~certain minerals~~our supply chain. If we are unable to comply with, or are unable to cause our suppliers or contract manufacturers to comply with such policies or provisions, or meet the requirements of our customers and investors, a customer may stop purchasing products from ~~the Democratic Republic~~us or an investor may sell their shares, and may take legal action against us, which could harm our reputation, revenue and results of ~~Congo~~operations.

We are subject to global laws and ~~certain other adjoining countries. Those rules, which required reporting for the first time in calendar 2014,~~regulations governing privacy, data protection, and cybersecurity that could adversely affect our ~~costs,~~business or subject us to liability.

Data privacy, data protection, and cybersecurity are areas of increasing focus for our customers, governmental regulators and privacy advocates, and many jurisdictions, including the ~~availability of minerals used in our products~~E.U., the United States, China and ~~our relationships with customers and suppliers.~~

The Federal Communications Commission (“FCC”) has jurisdiction over the entire U.S. communications industry and, as a result, our products and our U.S. customers are subject to FCC rules and regulations. Current and future FCC regulations, including regulations on net neutrality or generally affecting communications services, our products or our customers’ businesses could negatively affect our business. In addition, international regulatory standards could impair our ability to develop products for international customers in the future. Moreover, many jurisdictionsother regions, are evaluating or ~~implementing~~have implemented laws and regulations relating to cybersecurity, privacy and data protection, which can affect the market and requirements for networking and communications equipment. For example, ~~in April 2016, the European Parliament approved~~ the General Data Protection Regulation ~~(the “GDPR”~~(“GDPR”)~~, which will come into~~ in effect in ~~May 2018~~the E.U., and ~~supersede current EU~~similar regulatory standards in effect in the United Kingdom, the Personal Information Protection Law ("PIPL") in China, the California Consumer Privacy Act (“CCPA”) and the California Privacy Rights Act (“CPRA”), other enacted or proposed legislation in the United States, and enacted or proposed legislation in other jurisdictions have created new compliance obligations with respect to data processing, privacy, data protection, ~~regulations.~~ and cybersecurity.

The ~~GDPR~~laws, rules, regulations, standards and other actual and asserted obligations relating to privacy, data protection and cybersecurity to which we may be subject, or that otherwise apply to our business, are constantly evolving, and we expect that there will ~~impose stringent data handling requirements on companies that receive or process personal data of residents~~continue to be new proposed laws, regulations and industry standards concerning these matters in the United States, the E.U. and other jurisdictions. We cannot fully predict the impact of the ~~EU,~~GDPR, the PIPL, the CCPA, the CPRA or other laws or regulations, including those that may be modified or enacted in the future, or new or evolving industry standards or actual or asserted obligations, relating to cybersecurity, privacy, or data protection or processing on our business or operations. These laws, regulations, and ~~non-compliance~~standards have required us to modify our practices and policies relating to privacy, data protection, cybersecurity, and data processing, and to incur substantial costs and expenses in an effort to comply, and we expect to continue to incur such costs and expenses in the future and may find it necessary or appropriate to further modify our relevant practices and policies. Any actual or perceived failure by us or our customers, partners or vendors to comply with ~~the GDPR~~laws, regulations, or other actual or asserted obligations to which we are or are alleged to be subject relating to cybersecurity, privacy or data protection could result in ~~significant penalties, including data protection audits~~claims, litigation, and ~~heavy fines. Any failure to obtain the required approvals or comply with such laws and regulations could harm our business and operating results.~~

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

~~Our headquarters and the majority of our infrastructure, including our PIC fabrication manufacturing facility, are located in Northern California, an area that is susceptible to earthquakes, floods~~regulatory investigations and other ~~natural disasters. Further, a terrorist attack aimed at Northern California or at the United States energy or telecommunications infrastructure~~proceedings, as well as damage to our reputation. These could ~~hinder or delay the development~~result in substantial costs, diversion of resources, fines, penalties, and ~~sale~~other damages, and harm to our customer relationships, our market position, and our ability to attract new customers. Any of our products. In the event that an earthquake, terrorist attack or other man-made or natural catastrophe were to destroy any part of our facilities, or certain of our contract manufacturers’ facilities, destroy or disrupt vital infrastructure systems or interrupt our operations for any extended period of time,these could harm our business, financial condition and ~~operating~~ results ~~would be harmed.~~of operations.

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

~~In the ordinary course~~A portion of our ~~business, we maintain sensitive data on our networks, including data related~~revenue is generated by sales to ~~our intellectual property and data related to our business, customers and business partners,~~government entities, which ~~is considered proprietary or confidential information. We believe that companies in the technology industry have been increasingly~~are subject to a ~~wide variety~~number of ~~security incidents, cyber-attacks~~uncertainties, challenges, and ~~other attempts~~risks.

We currently sell many of our solutions to ~~gain unauthorized access. While~~various government entities, and we may in the ~~secure maintenance~~future increase sales to government entities. Sales to government entities are subject to a number of ~~this information is critical~~risks, including risks related to ~~our business~~a highly competitive, expensive, and ~~reputation, our network~~time consuming sales process, which often requires significant upfront time and ~~storage applications~~expense without any assurance that we will complete a sale. If we are successfully awarded a government contract, such award may be subject to ~~unauthorized access~~appeals, disputes, or litigation, including, but not limited to, bid protests by ~~hackers~~unsuccessful bidders. Government demand and payment for our solutions may be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or ~~breached~~delays adversely affecting public sector demand for our solutions. Government entities may also have statutory, contractual, or other legal rights to terminate contracts for convenience or due to ~~operator error, malfeasance~~a default. For purchases by the U.S. federal government, the government may require certain products to be made in, or be products of, the United States or other ~~system disruptions. It~~high-cost manufacturing locations, and all of our products may not be made in or products of jurisdictions that meet government requirements, and as a result, our business and results of operations may suffer. Contracts with government entities may also include preferential pricing terms, including, but not limited to, “most favored customer” pricing.

Additionally, we may be required to obtain special certifications to sell some or all of our solutions to government or quasi-government entities. Such certification requirements for our solutions may change, thereby restricting our ability to sell into the federal government sector until we have attained the revised certification. If our products and subscriptions are late in achieving or fail to achieve compliance with these certifications and standards, or our competitors achieve compliance with these certifications and standards before us, we may be disqualified from selling our products to such governmental entities, or be at a competitive disadvantage, which would harm our business, financial condition and results of operations. There are no assurances that we will find the terms for obtaining such certifications to be acceptable or that we will be successful in obtaining or maintaining the certifications.

As a government contractor or subcontractor, we must comply with laws, regulations, and contractual provisions relating to the formation, administration, and performance of government contracts and inclusion on government contract vehicles, which affect how we and our partners do business with government agencies. As a result of actual or perceived noncompliance with government contracting laws, regulations, or contractual provisions, we may be subject to non-ordinary course audits and internal investigations which may prove costly to our business financially, divert management time, or limit our ability to continue selling our products and services to our government customers. These laws and regulations may impose other added costs on our business, and failure to comply with these or other applicable regulations and requirements, including non-compliance in the past, could lead to claims for damages from our channel partners, downward contract price adjustments or refund obligations, civil or criminal penalties, termination of contracts or suspension or debarment from government contracting for a period of time with government agencies. Any such damages, penalties, disruption, or limitation in our ability to do business with a government would adversely impact, and could have a material adverse effect on, our business, financial condition, results of operations, reputation and growth prospects.

Our business could be adversely affected if our employees cannot obtain and maintain required security clearances or we cannot maintain a required facility security clearance, or we do not comply with legal and regulatory obligations regarding the safeguarding of classified information.

Our U.S. government contract revenue includes income derived from contracts that require our employees to maintain various levels of security clearances and may require us to maintain a facility security clearance, to comply with Department of Defense (“DoD”) requirements. The DoD has strict security clearance requirements for personnel who perform work in support of classified programs. In general, access to classified information, technology, facilities, or programs are subject to additional contract oversight and potential liability. In the event of a security incident involving classified information, technology, facilities, programs, or personnel holding clearances, we may be subject to legal, financial, operational, and reputational harm. We are limited in our ability to provide specific information about these classified programs, their risks, or any disputes or claims relating to such programs. As a result, investors have less insight into our classified programs than our other businesses and therefore less ability to fully evaluate the risks related to our classified business or our business overall. Obtaining and maintaining security clearances for employees involves a lengthy process, and it is difficult to ~~anticipate~~identify, recruit, and retain employees who already hold security clearances. If our employees are unable to obtain security clearances in a timely manner, or ~~immediately detect such~~at all, or if our employees who hold security ~~incidents~~clearances are unable to maintain their clearances or ~~data breaches~~terminate employment with us, then a customer requiring classified work could terminate an existing contract or decide not to renew the contract upon its expiration. To the extent we are not able to obtain or maintain a facility security clearance, we may not be able to bid on or win new classified contracts, and ~~the damage caused as~~existing contracts requiring a ~~result. Accordingly, a data breach, cyber-attack, or unauthorized access or disclosure of our information,~~facility security clearance could ~~compromise our intellectual property~~be terminated.

Failure to comply with anti-bribery, anti-corruption, anti-money laundering laws, and ~~reveal proprietary or confidential business information. In addition, these security incidents~~similar laws, could ~~also cause us to incur significant remediation costs and expenses, disrupt key business operations,~~ subject us to ~~liability~~penalties and ~~divert attention~~other adverse consequences.

We are subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the UK Bribery Act, and possibly other anti-bribery and anti-money laundering laws in the United States and in countries outside of ~~management~~the United States in which we conduct our activities. Anti-corruption and ~~key information technology resources,~~anti-bribery laws have been enforced aggressively and are interpreted broadly to generally prohibit companies, their employees, agents, representatives, business partners, and third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector.

We sometimes leverage third parties to sell our products and conduct our business abroad. We or our employees, agents, representatives, business partners or third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held liable for the corrupt or other illegal activities of these employees, agents, representatives, business partners or third-party intermediaries even if we do not explicitly authorize such activities. We cannot assure you that all of our employees and agents will refrain from taking actions in violation of applicable law for which we may be ultimately held responsible. As we increase our international sales and business, our risks under these laws may increase.

These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions. While we have policies and procedures to address compliance with such laws, we cannot assure you that none of our employees, agents, representatives, business

partners or third-party intermediaries will take actions in violation of our policies and applicable law, for which we may be ultimately held responsible.

Any allegations or violation of the FCPA or other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, sanctions, settlements, prosecution, enforcement actions, fines, damages, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, all of which may have an adverse effect on our reputation, business, results of operations, and prospects. Responding to any investigation or action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.

General Risk Factors

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

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

•variations in our operating results;

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

•the gain or loss of customers;

•recruitment or departure of key personnel;

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

•mergers and acquisitions by us, by our competitors or by our customers or suppliers;

•market conditions in our industry, the industries of our customers and the economy as a whole, including global trade tariffs, supply chain disruptions, and fluctuations in currency exchange rates, interest rates or inflation rates;

•social, geopolitical, environmental or health factors, including pandemics or widespread health epidemics such as the COVID-19 pandemic; and

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

An economic downturn, negative financial news, continued inflation, high interest rates, declines in income or asset values, market conditions, changes to fuel and other energy costs, and other economic factors, may lead to market volatility and associated uncertainty. In addition, if the market for technology stocks or the broader stock market experiences a loss of investor confidence, the trading price of our common stock could ~~cause significant harm~~decline for reasons unrelated to our business, financial condition or results of operations. Each of these factors, among others, could harm the value of your investment in our common stock. Some companies that have had volatile market prices for their securities have had securities class action lawsuits filed against them. If a suit were filed against us, regardless of its merits or outcome, it could result in substantial costs and ~~reputation.~~divert management’s attention and resources.

Future sales of our common stock could cause our stock price to fall.

We have sold, and plan in the future to sell, shares of our common stock in underwritten offerings and have established, and may in the future establish, “at-the-market” offering programs pursuant to which we may offer and sell shares of our common stock. Sales of securities have resulted and will continue to result in dilution of our existing stockholders, and such sales could cause our stock price to fall.

In addition, if our existing stockholders sell, or indicate an intent to sell, a large number of shares of our common stock in the public market, it could cause our stock price to fall. We may also issue shares of common stock or securities convertible into our common stock from time to time in connection with financings, acquisitions, investments or otherwise. Any such issuance would result in dilution to our existing stockholders and could cause our stock price to fall.

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

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

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

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

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

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

•prevent stockholders from calling special meetings; and

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

Our amended and restated bylaws designate the Court of Chancery of the State of Delaware and the federal district courts of the United States of America as the exclusive forums for substantially all disputes between us and our stockholders, which will restrict our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware or, if such court lacks jurisdiction, any other state or federal court located in the State of Delaware, is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim governed by the internal affairs doctrine. However, such exclusive forum provisions would not apply to any such claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within 10 days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than such court or for which such court does not have subject matter jurisdiction.

These provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. Our stockholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may

nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated bylaws. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.

These exclusive choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court were to find such exclusive-forum provisions to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could harm our business.

Events that are outside our control, such as natural disasters, violence or other catastrophic events, could harm our operations.

Our headquarters and the majority of our infrastructure, including our PIC fabrication manufacturing facility, are located in Northern California, an area that is susceptible to earthquakes, fires, floods and other natural disasters. Further, attacks and violence aimed at Northern California or at the United States energy or telecommunications infrastructure could hinder or delay the development and sale of our products. In the event that an earthquake, targeted attack or other man-made or natural catastrophe were to destroy any part of our or our contract manufacturers’ or suppliers' facilities, destroy or disrupt vital infrastructure systems, or interrupt our operations or supply chain for any extended period of time, our business, financial condition and results of operations would be harmed. For related risks concerning the operations and availability of the storage facilities in which our inventory is held, see also the Risk Factor titled "Our international sales and operations subject us to additional risks that may harm our operating results."

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

Our headquarters are located in ~~Sunnyvale, California. We lease facilities in North America, Europe and Asia. The following is a summary~~San Jose, California, which consist of ~~the locations, functions and approximate~~approximately 82,000 square ~~footage of those facilities as~~feet under lease. As of December ~~30, 2017:~~31, 2022, we leased approximately 57,000 square feet for research and development and manufacturing in Sunnyvale, California.

In addition to the leased buildings in San Jose and Sunnyvale, California, we also lease approximately 483,000 square feet of office spaces for research and development centers and for sales, service and support in various countries within (i) North America; (ii) LATAM; (iii) EMEA; and (iv) APAC.



~~Location~~	~~Function~~	~~Square Footage~~
~~Sunnyvale, CA~~	~~Corporate headquarters and manufacturing~~	~~321,000~~
~~Annapolis Junction, MD~~	~~Research and development, service and support~~	~~12,000~~
~~Carrollton, TX~~	~~Sales, service and support (currently vacated)~~	~~3,000~~
~~Kanata, Canada~~	~~Research and development~~	~~19,000~~
~~Stockholm, Sweden~~	~~Research and development, sales, service and support~~	~~78,000~~
~~London, United Kingdom~~	~~Sales, service and support~~	~~6,000~~
~~Bangalore, India~~	~~Software development~~	~~122,000~~
~~Beijing, China~~	~~Research and development~~	~~22,000~~
~~Hong Kong, China~~	~~Sales, service and support~~	~~2,000~~
~~Tokyo, Japan~~	~~Sales and support~~	~~2,000~~

~~The above~~All of these leases expire between ~~2018~~2023 and 2023. In the fourth quarter of 2017, we implemented the 2017 Restructuring Plan. Included above are certain facilities located in Sunnyvale, CA, Carrollton, TX and Stockholm, Sweden, which we have vacated as part of this restructuring. See Note 8, "Restructuring and Other Related Costs," to the Notes to Consolidated Financial Statements for more information on the 2017 Restructuring Plan.

~~In May 2017, we purchased~~2031. We also own a ~~60,000 square-foot module manufacturing~~ facility ~~and the associated land that we had previously leased~~ in Allentown, Pennsylvania. We intend to adjust our facility space to meet our requirements and we believe that suitable additional or substitute space will be available as needed to accommodate our business needs for our operations. We believe that our existing facilities are adequate to meet our business needs through the next 12 ~~months, and that suitable additional or substitute space will be available as needed to accommodate any expansion of our operations.~~months.

ITEM 3. LEGAL PROCEEDINGS

~~On November 23, 2016, Oyster Optics, LLC (“Oyster Optics”) filed a complaint against us~~The information set forth under the heading “Legal Matters” in ~~the United States District Court for the Eastern District of Texas. The complaint asserts U.S. Patent Nos. 6,469,816, 6,476,952, 6,594,055, 7,099,592, 7,620,327, 8,374,511~~Note 13, Commitments and ~~8,913,898 (collectively, the “Oyster Optics patents~~Contingencies, in suit”). The complaint seeks unspecified damages and a permanent injunction. We believe that we do not infringe any valid and enforceable claim of the Oyster Optics patents in suit, and intend to defend this action vigorously. We filed our answer to Oyster Optics' complaint on February 3, 2017. On October 23, 2017, we filed a petition for Inter Partes Review (“IPR”) of one of the Oyster Optics patents in suit, U.S. Patent No. 8,913,898 (the “'898 patent”), with the U.S. Patent and Trademark Office, and, on December 1, 2017, we filed a second petition for IPR of the '898 patent. Other defendants have filed IPR petitions in connection with the Oyster Optics patents in suit. The Court has set a trial for June 2018. We are currently unable to predict the outcomePart II, Item 8 of this ~~litigation and therefore cannot reasonably estimate the possible loss or range of loss, if any, arising from this matter.~~Annual Report on Form 10-K is incorporated herein by reference.

On March 24, 2017, Core Optical Technologies, LLC (“Core Optical”) filed a complaint against us in the United States District Court for the Central District of California. The complaint asserts U.S. Patent No. 6,782,211 (the “Core Optical patent in suit”). The complaint seeks unspecified damages and a permanent injunction. We believe that we do not infringe any valid and enforceable claim of the Core Optical patent in suit, and intend to defend this action vigorously. We filed our answer to Core Optical's complaint on September 25, 2017. Because this action is in the early stages, we are unable to predict the outcome of this litigation at this time and therefore cannot reasonably estimate the possible loss or range of loss, if any, arising from this matter.

In addition to the matters described above, we are subject to various legal proceedings, claims and litigation arising in the ordinary course of business. While the outcome of these matters is currently not

~~determinable, we do not expect that the ultimate costs to resolve these matters will have a material effect on our consolidated financial position, results of operations or cash flows.~~

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

PART II


~~ITEM 5.~~	~~MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES~~

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the Nasdaq Global Select Market under the symbol “INFN.” ~~The following table sets forth, for the time periods indicated, the high and low sales prices of our common stock as reported on the Nasdaq Global Select Market.~~

High Low
Fourth Quarter 2017 $ 9.09
$ 6.27
Third Quarter 2017 $ 12.38
$ 8.12
Second Quarter 2017 $ 12.27
$ 9.09
First Quarter 2017 $ 12.50
$ 8.35
Fourth Quarter 2016 $ 9.62
$ 7.23
Third Quarter 2016 $ 13.24
$ 8.20
Second Quarter 2016 $ 16.25
$ 10.95
First Quarter 2016 $ 19.16
$ 13.02

As of February ~~13, 2018,~~14, 2023, there were 9370 registered holders of record of ~~Infinera’s~~our common stock. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares are held by banks, brokers and other financial institutions.

We have not paid any cash dividends on our common stock and do not intend to pay any cash dividends on our common stock in the near future.

STOCK PERFORMANCE GRAPH

The following graph compares the cumulative five-year total return provided stockholders on our common stock relative to the cumulative total returns of the Nasdaq Composite Index and the Nasdaq Telecommunications Index. An investment of $100 (with reinvestment of all dividends, if any) is assumed to have been made in our common stock and in each of the indexes on December ~~29, 2012~~30, 2017 and its relative performance is tracked through December ~~30, 2017.~~31, 2022. The Nasdaq Telecommunications Index contains securities of Nasdaq-listed companies classified according to the Industry Classification Benchmark as Telecommunications and Telecommunications Equipment. They include providers of fixed-line and mobile telephone services, and makers and distributors of high-technology communication products. This graph is not deemed to be “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the graph shall not be deemed to be incorporated by reference into any prior or subsequent filing by ~~Infinera~~us under the Securities Act of 1933, as amended, or the Exchange Act.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*RETURN*

Among Infinera Corporation, the ~~NASDAQ~~Nasdaq Composite Index,

and the ~~NASDAQ~~Nasdaq Telecommunications Index

*~~$100~~Assumes $100 invested on December ~~29, 2012~~30, 2017 in our common stock, ~~or December 31, 2012~~ in the Nasdaq Composite Index and the Nasdaq Telecommunications Index, with reinvestment of all dividends, if any. Indexes calculated on month-end basis.

ITEM 6. ~~SELECTED FINANCIAL DATA~~[RESERVED]

You should read the following selected consolidated historical financial data below in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, related notes and other financial information included elsewhere in this Annual Report on Form 10-K.

We derived the statements of operations data for the years ended December 30, 2017, December 31, 2016 and December 26, 2015 and the balance sheet data as of December 30, 2017 and December 31, 2016 from our audited consolidated financial statements and related notes, which are included elsewhere in this Annual Report on Form 10-K. We derived the statements of operations data for the years ended December 27, 2014 and December 28, 2013 and the balance sheet data as of December 26, 2015, December 27, 2014, and December 28, 2013 from our audited consolidated financial statements and related notes which are not included in this Annual Report on Form 10-K. We have not declared or distributed any cash dividends.

Years Ended

December 30,
2017
December 31,
2016 December 26,
2015 December 27,
2014 December 28,
2013

(In thousands, except per share data)
Revenue $ 740,739
$ 870,135
$ 886,714
$ 668,079
$ 544,122
Gross profit $ 244,000
$ 393,718
$ 403,477
$ 288,304
$ 218,639
Net income (loss) $ (194,506 ) $ (24,430 ) $ 50,950
$ 13,659
$ (32,119 )
Net income (loss) attributable to Infinera Corporation $ (194,506 ) $ (23,927 ) $ 51,413
$ 13,659
$ (32,119 )
Net income (loss) per common share attributable to Infinera Corporation:
Basic $ (1.32 ) $ (0.17 ) $ 0.39
$ 0.11
$ (0.27 )
Diluted $ (1.32 ) $ (0.17 ) $ 0.36
$ 0.11
$ (0.27 )
Weighted average number of shares used in computing basic and diluted net income (loss) per common share:
Basic 147,878
142,989
133,259
123,672
117,425
Diluted 147,878
142,989
143,171
128,565
117,425
Total cash and cash equivalents, investments and restricted cash $ 300,101
$ 360,056
$ 356,479
$ 390,816
$ 365,313
Cost-method investments $ 5,110
$ 7,000
$ 14,500
$ 14,500
$ 9,000
Intangible assets, net $ 92,188
$ 108,475
$ 156,319
$ 361
$ 416
Goodwill $ 195,615
$ 176,760
$ 191,560
$ —
$ —
Total assets $ 1,117,670
$ 1,198,583
$ 1,226,294
$ 818,016
$ 700,926
Short-term debt $ 144,928
$ —
$ —
$ —
$ —
Long-term debt, net $ —
$ 133,586
$ 125,440
$ 116,894
$ 109,164
Common stock and additional paid-in capital $ 1,417,192
$ 1,354,227
$ 1,300,441
$ 1,077,351
$ 1,025,781
Infinera stockholders' equity $ 665,365
$ 762,328
$ 762,151
$ 481,907
$ 417,810
Noncontrolling interest $ —
$ —
$ 14,910
$ —
$ —
Total stockholders’ equity $ 665,365
$ 762,328
$ 777,061
$ 481,907
$ 417,810


~~ITEM 7.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Annual Report on Form 10-K contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include, but are not limited to, our expectations regarding revenue, gross margin, operating expenses, cash flows and other financial items; the severity, magnitude, duration and effects of supply chain challenges and logistics issues; the extent to which the COVID-19 pandemic or other public health concerns and related impacts will materially and adversely affect our business operations, financial performance, results of operations, financial position, stock price and personnel; achievement of strategic objectives; any statements ~~of the~~regarding our plans, strategies and ~~objectives~~objectives; the impact of new customer network footprint on our gross margin; our anticipated diversified customer base; our opportunities to grow revenue by driving adoption of new and existing solutions; expansion of our vertical integration capabilities across more of our product portfolio utilizing our ICE6 optical engine and related impacts on gross margin; cost management ~~for~~with investments in technology innovation; our go-to-market efforts globally to expand our customer reach and drive additional market share gains in the long term; future ~~operations and personnel;~~investments in our direct sales force; the portion of our future revenue attributable to direct sales; the effects of seasonal patterns in our business; the variable length of our sales cycle; factors that may affect our operating results; investments in research and development to support our strategy of expanding our vertically integrated product portfolio, including bringing new products to market quickly; anticipated customer ~~activity;~~acceptance of our solutions; statements concerning new products or services, including new product ~~features~~features; our beliefs about who we may compete with and ~~delivery dates;~~how we are differentiated from those competitors; statements regarding our production capacity and facilities requirements; statements related to capital expenditures; statements related to working capital and liquidity; our ability to realize deferred tax assets; statements related to future economic conditions, performance, market growth, competitor, supplier or customer consolidation, or our sales cycle; our ability to identify, attract and retain highly skilled personnel; statements regarding our corporate culture; our ability to protect our technology and intellectual property, the frequency of claims related to our intellectual property and the value of our intellectual property; statements regarding restructuring of our business, acquisitions, or other strategic transactions; statements related to our convertible senior notes and credit facility; statements related to the ~~Notes;~~impact of tax regulations; statements related to the proliferation and impact of environmental regulation; statements related to the effects of litigation on our financial position, results of operations or cash flows; statements related to ~~the timing~~factors beyond our control, such as natural disasters, acts of war or terrorism, epidemics and ~~impact of transfer pricing reserves or our effective tax rate;~~pandemics; statements ~~regarding the Tax Act; statements as~~related to ~~our 2017 Restructuring Plan;~~new accounting standards; statements as to industry trends and other matters that do not relate strictly to historical ~~facts or~~facts; and statements of assumptions underlying any of the foregoing. These statements are often identified ~~by the use of~~using words such as “anticipate,” “believe,” ~~“continue,”~~ “could,” “estimate,” “expect,"” “intend,” “may,” "should," "will," or ~~“will,”~~"would," and similar expressions or variations. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K. You should review these risk factors for a more complete understanding of the risks associated with an investment in our securities. Such forward-looking statements speak only as of the date of this report. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The following discussion and analysis should be read in conjunction with our ~~“Selected Financial Data” included in Item 6 of this Annual Report on Form 10-K and~~ consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

Overview

We are a ~~leader in~~semiconductor manufacturer and global supplier of networking solutions comprised of networking equipment, optical semiconductors, software and services. Our portfolio of solutions includes optical transport platforms, converged packet-optical transport platforms, compact modular platforms, optical line systems, coherent optical engines and subsystems, a suite of networking ~~solutions, providing equipment,~~and automation software offerings, and ~~services to~~support and professional services. Leveraging our U.S.-based compound semiconductor fab and in-house packaging capabilities, we design, develop, and manufacture industry-leading indium phosphide-based PICs for use in our vertically integrated, high-capacity optical communications products.

Our customers include operators of fixed and mobile networks, including telecommunications service providers, ICPs, cable providers, wholesale ~~and enterprise~~ carriers, research and ~~education~~educational institutions, ~~enterprise customers,~~large enterprises, utilities and government ~~entities across the globe. Optical~~entities. Our networking solutions enable our customers to deliver high-bandwidth business and consumer communications services. Our comprehensive portfolio of networking solutions also enables our customers to scale their transport networks ~~are deployed by customers facing significant~~as end-user services and applications continue to drive growth in demand for ~~optical bandwidth prompted by increased use of~~network bandwidth. These end-user services and applications include, but are not limited to, high-speed internet access, business ~~Ethernet~~ethernet services, 4G/5G mobile broadband, cloud-based services, high-definition video streaming services, virtual and augmented reality, IoT, business Ethernet services and DCI.

As an optical semiconductor manufacturer, we specialize in the ~~Internet~~manufacturing of ~~Things (IoT).~~

~~Our~~ optical ~~transport systems are highly scalable, flexible~~compound semiconductors using InP. This technology is used in telecommunications networks to transmit massive amounts of data and ~~open, built using a combination of internally manufactured~~power, critical communications services like 5G, enhanced broadband, and ~~third-party components. Technologically, a key element of~~high-capacity data center connectivity. We have made significant investments in our ~~systems are~~unique research, development, fabrication, and packaging facilities, including our optical ~~engines, which comprise large-scale PICs and DSPs.~~compound semiconductor fab in Silicon Valley. We optimize the manufacturing process by using ~~indium phosphide~~InP to build our PICs, which enables the integration of ~~a large amount~~hundreds of optical functions onto a ~~set~~onto a single, monolithic optical semiconductor chip. The unique capabilities of our optical semiconductor ~~chips. This large scale~~fab, which has provided our customers with a critical and secure source of U.S.-produced optical semiconductors and strengthened the supply chain, have enabled us to consistently pioneer critical technology advancements. For example, our latest generation of technology has made it possible to transmit information at a rate of 800 Gb/s using a single laser.

We support U.S. government efforts to advance and increase the domestic manufacturing base for semiconductors as a matter of economic and national security. Compound semiconductors – including those based in InP – are an important part of the domestic semiconductor industry and will enable the next-generation of leading-edge technologies. Domestic manufacturing is critical in order to reduce our reliance on foreign sources of compound semiconductor materials and components, which is essential to economic growth and to the security of our domestic communications infrastructure.

The large-scale integration of our PICs and advanced DSPs ~~allow~~enables us to ~~deliver on~~develop and manufacture high-performance optical engines that are used in our coherent optical networking system and subsystem solutions. These solutions include features that customers care about the most, including reduced cost per bit, ~~power and space. In addition, our optical engines are designed to increase the capacity and reach performance of our products leveraging coherent optical transmission.~~

Over the past few years, we have significantly increased the number of products we offer, evolving from focusing entirely on the long-haul and subsea markets to offering a more complete portfolio of solutions that span the long-haul, subsea, DCI and metro markets. In late 2014, we expanded our addressable market by introducing the Cloud Xpress platform for the DCI market to meet a growing need for metro-reach optical interconnections between data centers. We introduced the Cloud Xpress 2 in mid-2017, which further optimizes capacity, spacelower footprint and power ~~all key elements~~consumption, and improved performance, reliability and security. Coherent optical solutions are becoming increasingly important across the network as our ~~ICP~~ customers ~~value.~~

Intransition to 800 Gb/s per wavelength transmission speeds and beyond in the ~~second half of 2015, we entered~~core, 400 Gb/s in the metro, and 100 Gb/s in the access market segment. We believe our vertical integration strategy provides a competitive advantage by enabling leading optical performance at higher optical speeds with increased spectral efficiency, greater control over our supply chain, and a lower cost structure.

We have grown our solutions portfolio through internal development as well as acquisitions, including the acquisition of ~~Transmode,~~Coriant, a ~~leader in metro packet-optical applications, based in Stockholm, Sweden. Entering into~~privately held global supplier of open network solutions for the ~~metro market expanded our addressable market and enabled~~largest global network operators. These developments positioned us to ~~offer~~be one of the leading providers of vertically integrated optical networking solutions in the world with the ability to serve a ~~more complete~~global customer base with accelerated delivery of the innovative solutions our customers demand. In 2021, we announced an expansion of our portfolio with the introduction of ~~solutions, particularly to existing long-haul customers that also build metro networks. We have expanded our~~a suite of ~~metro~~coherent optical pluggables designed to seamlessly address the rapidly growing market for point-to-point solutions ~~by both~~

~~enhancing our XTM Series platforms but also utilizing our optical engines to deliver Cloud Xpress, XT and XTC Series platforms.~~

~~In 2017, we began shipping two~~as well as create a new ~~platforms based~~category of point-to-multipoint solutions that can enable a dramatically more cost-efficient network architecture. Based on our new generation technology. First, we introduced a series of new products powered by the Infinite Capacity Engine (ICE), a technology which delivers multi-terabit opto-electronic subsystems powered by our fourth-generation PIC and next-generation FlexCoherent DSP (the combination of which we refer to as “ICE4”). The Infinite Capacity Engine enables different subsystems that can be customized for a variety of network applications across our product portfolio, spanning the long-haul, subsea, DCI and metro markets. Second, we released our next-generation XTM Series platform, which leverages 16QAM modulationvertically integrated optical semiconductor technology and ~~is optimized for bandwidth-intensive applications at the metro edge.~~supporting a range of high-speed transport rates that include 800 Gb/s, 400 Gb/s and 100 Gb/s, this suite of coherent optical pluggables builds on our history of delivering innovative, highly differentiated, and vertically integrated coherent optical engines.

Our ~~optical portfolio is~~products are designed to be managed by a ~~single~~suite of software solutions that enable simplified network management ~~system.~~and automated operations. We also provide ~~capabilities to enable~~software-enabled programmability ~~of our Intelligent Transport Networks with our technologies,~~that offers differentiated capabilities such as Instant ~~Bandwidth, which when combined~~Bandwidth. Combined with our differentiated hardware solutions, ~~enable~~Instant Bandwidth enables our customers to ~~turn on~~purchase and activate bandwidth as needed through our unique software licensing feature set. This, in turn, allows our customers to accomplish two key objectives: (1) limit their initial network startup costs and investments; and (2) instantly activate new bandwidth as their customers’ and their own network needs evolve.

We sell our products to end-user customers and third-party network equipment manufacturers via a direct sales force and through indirect channel partners.

We believe our systems and subsystems portfolios benefit our customers by ~~activating~~providing a ~~software license. Additionally,~~unique combination of highly scalable capacity and features that address access to core transport network applications and ultimately simplify and automate network operations. Our high-performance optical transport solutions leverage the industry shift to open optical network architectures and enable our ~~Xceed Software Suite is a multi-layer management~~customers to efficiently and ~~control platform that simplifies~~cost-effectively meet bandwidth demand, which continues to grow 30% or more year-over-year.

Impact of COVID-19 Pandemic

We continue to monitor the COVID-19 pandemic and actively assess potential implications to our business, supply chain, customer fulfillment sites, support operations and ~~enables customers~~customer demand. We are also continuing to ~~leverage~~take appropriate measures to protect the ~~scalability, flexibility~~health and ~~openness~~safety of our ~~Intelligent Transport Networks~~employees and to ~~deliver services while efficiently using their network resources.~~create and maintain a safe working environment. While the effects of the COVID-19 pandemic have been decreasing, if the COVID-19 pandemic or its adverse effects become more severe or prevalent in the future or are prolonged in the locations where we, our customers, suppliers or contract manufacturers conduct business, or we experience more pronounced disruptions in our operations, or in economic activity and demand generally, our business and results of operations in future periods could be materially adversely affected.

~~2017~~ Financial and Business ~~Performance~~Highlights

Total revenue was ~~$740.7~~$1,573.2 million in ~~2017~~2022 as compared to ~~$870.1~~$1,425.2 million in ~~2016. This decrease~~2021, representing a 10% increase. The year-over-year increase in revenue was ~~due to a combination~~driven by the ramp of ~~factors that included customer consolidation, transition to our next-generation~~new products, particularly ICE6, and shifts in network spend, including weak overall market spending for long-haul solutions. In the second half of 2017, business began to gradually recover as we started shipping our first ICE4 products. This product upgrade helped our DCI business as ICPs demonstrated interest revenue growth in our upgraded Cloud Xpress and XT platforms, and also in subsea, a technically demanding market, where ICE4 products showed early traction based on advances in spectral efficiency. During 2017, we continued to expand our installed baseICP vertical in the ~~metro market as~~United States and our other service provider vertical in the United States and APAC. This growth was partially offset by lower revenue from certain Tier 1 customers and each of our other service provider and ICP verticals in EMEA and in our cable vertical in the United States. In 2023, we ~~made progress selling the XTM platform~~anticipate benefiting from a diversified customer base and see several prospective opportunities to both traditional long-haul customers as well as our new customers. Gross margin decreased to 32.9% in 2017 from 45.2% in 2016. The decline in gross margin was primarily attributable to making strategic investments, amidst our product transition, to secure future business with existing and prospective customers across our end markets and the high cost of early production units from our ICE4 products that started to ship during the second half of the year. In addition, as ourgrow revenue declined, we continued to maintain consistent levels of manufacturing and services staffing, thus requiring us to absorb those fixed costs of a smaller revenue base, which put pressure on gross margin over the year.

~~Exiting a challenging 2017, we expect revenue will grow in 2018. Growth will be largely dependent on completing our new product introductions, continued customer~~by driving adoption of ~~our~~ new ~~products, our ability to expand our number of customers~~ and ~~addressable revenue opportunities, and the recovery of spend with our major consolidated customers. It~~existing solutions. Our results will ~~also~~ depend on overall market ~~conditions. Our near-term~~conditions and, as is typical, quarter-over-quarter revenue could be volatile, ~~and impacted~~affected by, ~~the same~~among other factors, ~~and also affected by~~ customer buying patterns, supply chain disruptions and the timing of customer network deployments.

~~In 2018, while difficult~~Gross margin decreased to ~~predict margins on a quarterly basis, having made significant investments~~34% in ~~2017 and having endured a majority of the early high costs of production units associated with our product transition, we expect less overall variability~~2022 from 35% in ~~margins over the course of 2018. We expect a steady increase~~2021. The year-over-year decrease in gross margin ~~levels as mix shifts~~was primarily driven by higher costs related to ~~the next-generation products, as we increase~~component price increases, higher logistics and freight costs, and supply constrained manufacturing volumes, ~~in the fab,~~partially offset by quality initiatives and as we improve the yields on the next-generation products. We expect operating expenses in 2018 should be lower as a percentage of overall revenue compared to 2017, given the substantial investments we made in prior years to drive a faster technology cadence and deliver our next-generation products to market. In addition, we reduced our ongoing cost structure as part of the 2017 Restructuring Plan. See Note 8, “Restructuring and Other Related Costs,” to the Notes to Consolidated Financial Statements for more information on the 2017 Restructuring Plan.

~~Over a longer~~improvements. In this period, ~~of time,~~our margins benefited from improved product mix including increased revenue from vertically integrated products. In 2023, we ~~believe that we can further leverage our vertically-integrated manufacturing model, which combined with a faster cadence of introducing new products, the ability~~intend to continue to ~~sell incremental bandwidth capacity into deployed networks,~~expand our vertical integration capabilities across more of our product portfolio utilizing our ICE6 optical engine and ~~expense~~expect to benefit from the partial relief of elevated supply chain costs, both of which should help drive continued gross margin improvement over time.

Operating expenses increased to $595.9 million in 2022 from $585.5 million in 2021, representing a 2% increase. This increase was primarily attributable to higher employee-related costs, costs related to bringing our new technologies to market and investments in future technologies. These increases were partially offset by lower restructuring costs and amortization of our acquired intangibles. In 2023, we intend to continue to balance prudent cost management ~~can result~~with investments in ~~improved profitability~~technology innovation and ~~cash flow.~~our go-to-market efforts globally to expand our customer reach and drive additional market share gains in the long term.

One customer ~~which completed a merger in late 2017, was a combination of two of our historically~~

~~larger customers who merged in 2017 and~~ accounted for approximately ~~18%~~11% of our revenue in 2017. These two historically larger customers each individually accounted for approximately 16% and 8% of our revenue in 2016, respectively, and approximately 17% and 13% of our revenue in 2015, respectively.2022. No ~~other customers~~customer accounted for over 10% of our revenue ~~for these periods.~~in 2021.

We primarily sell our products through our direct sales force, with ~~a small portion~~the remainder sold indirectly through ~~resellers.~~channel partners. We derived ~~94%, 93%~~76% and ~~93%~~77% of our revenue from direct sales to customers ~~for 2017, 2016~~in 2022 and ~~2015,~~2021, respectively. WeIn the future, we expect to continue generating a ~~substantial~~ majority of our revenue from direct ~~sales in the future.~~sales.

We are headquartered in ~~Sunnyvale,~~San Jose, California, with employees located throughout ~~the Americas, Europe~~North America, LATAM, EMEA and ~~the Asia Pacific region.~~APAC.

Results of Operations

~~Revenue~~A discussion regarding our financial condition and results of operations for the fiscal year ended December 31, 2022 compared to 2021 is presented below. A discussion regarding our financial condition and results of operations for our fiscal year ended December 25, 2021 compared to our fiscal year ended December 26, 2020 can be found under Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 25, 2021, filed with the SEC on February 23, 2022.

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


	Years Ended
	December 31, 2022		% of total revenue		December 25, 2021		% of total revenue		Change		% Change
Revenue:
Product	$	1,268,624	81	%	$	1,099,376	77	%	$	169,248	15	%
Services	304,618		19	%	325,829		23	%	(21,211)		(7)	%
Total revenue	$	1,573,242	100	%	$	1,425,205	100	%	$	148,037	10	%
Cost of revenue:
Product	$	852,476	54	%	$	732,071	51	%	$	120,405	16	%
Services	161,630		10	%	174,008		12	%	(12,378)		(7)	%
Amortization of intangible assets	23,138		1	%	19,621		1	%	3,517		18	%
Restructuring and other related costs	222		—	%	1,531		—	%	(1,309)		(85)	%
Total cost of revenue	$	1,037,466	66	%	$	927,231	65	%	$	110,235	12	%
Gross profit	$	535,776	34	%	$	497,974	35	%	$	37,802	8	%


	Years Ended														Years Ended
	December 30, 2017		% of total revenue		December 31, 2016		% of total revenue		Change			% Change			December 25, 2021		% of total revenue		December 26, 2020		% of total revenue		Change		% Change
Revenue:														Revenue:
Product	$	610,535	82	%	$	751,167	86	%	$	(140,632	)	(19	)%	Product	$	1,099,376	77	%	$	1,045,551	77	%	$	53,825	5	%
Services	130,204		18	%	118,968		14	%	11,236			9	%	Services	325,829		23	%	310,045		23	%	15,784		5	%
Total revenue	$	740,739	100	%	$	870,135	100	%	$	(129,396	)	(15	)%	Total revenue	$	1,425,205	100	%	$	1,355,596	100	%	$	69,609	5	%
Cost of revenue:														Cost of revenue:
Product	$	427,118	58	%	$	433,266	50	%	$	(6,148	)	(1	)%	Product	$	732,071	51	%	$	751,465	55	%	$	(19,394)	(3)	%
Services	50,480		7	%	43,151		5	%	7,329			17	%	Services	174,008		12	%	160,118		12	%	13,890		9	%
Amortization of intangible assets														Amortization of intangible assets	19,621		1	%	29,247		2	%	(9,626)		(33)	%
Acquisition and integration costs														Acquisition and integration costs	—		—	%	1,828		—	%	(1,828)		(100)	%
Restructuring and other related costs	19,141		2	%	—		—	%	19,141			100	%	Restructuring and other related costs	1,531		—	%	4,146		—	%	(2,615)		(63)	%
Total cost of revenue	$	496,739	67	%	$	476,417	55	%	$	20,322		4	%	Total cost of revenue	$	927,231	65	%	$	946,804	69	%	$	(19,573)	(2)	%
Gross profit	$	244,000	32.9	%	$	393,718	45.2	%	$	(149,718	)	(38	)%	Gross profit	$	497,974	35	%	$	408,792	31	%	$	89,182	22	%

Revenue

Years Ended
December 31,
2016
% of total
revenue
December 26,
2015
% of total
revenue
Change % Change
Revenue:
Product $ 751,167
86 % $ 769,230
87 % $ (18,063 ) (2 )%
Services 118,968
14 % 117,484
13 % 1,484
1 %
Total revenue $ 870,135
100 % $ 886,714
100 % $ (16,579 ) (2 )%
Cost of revenue:
Product $ 433,266
50 % $ 436,916
49 % $ (3,650 ) (1 )%
Services 43,151
5 % 46,321
5 % (3,170 ) (7 )%
Total cost of revenue $ 476,417
55 % $ 483,237
54 % $ (6,820 ) (1 )%
Gross profit $ 393,718
45.2 % $ 403,477
45.5 % $ (9,759 ) (2 )%

~~2017~~2022 Compared to ~~2016.~~ ~~Total~~2021. Product revenue ~~decreased~~increased by ~~$129.4~~$169.2 million, or 15%, in ~~2017~~2022 from ~~2016,~~2021. This increase was driven by ~~significantly lower product sales over~~ the ~~course~~ramp of ~~2017. Product revenue decreased by $140.6 million, or~~

~~19%, in 2017 from 2016, primarily attributable to effects of customer consolidation, impacts from our product transition as well as customers shifting spend to other parts of their networks.~~

~~Services revenue increased by $11.2 million, or 9%, in 2017 from 2016,~~ ~~primarily attributable to continued~~new products, particularly ICE6, and growth in ~~on-going support services as a result~~each of our ~~growing installed base of customer networks.~~ICP and other

~~2016 Compared to 2015.~~ Product revenue decreased by $18.1 million, or 2%, in 2016 from 2015. We experienced a slowdown in spending from multiple key customers primarily due to the effects of significant consolidation amongst our customers during the second half of 2016.

service provider verticals. This ~~decrease~~increase was partially offset by ~~increased revenue due to the inclusion of a full year's worth of~~lower revenue from ~~new metro products from the Transmode business, which was acquired on August 20, 2015.~~certain Tier 1 customers and continued supply constraints.

Services revenue ~~increased~~decreased by ~~$1.5~~$21.2 million, or 1%7%, in ~~2016~~2022 from ~~2015, primarily~~2021. This decrease was attributable to ~~higher on-going support~~a decline in professional services asrevenue. This decline was primarily related to network installation delays, which were driven by customer readiness and supply constraints.

In line with typical seasonality in our industry, we ~~grew our installed base over the course of 2016.~~

~~Looking ahead, we anticipate increased revenue from our next-generation products across our customer verticals and~~ expect our ~~cable vertical, in particular, to~~total revenue will be ~~strong in early 2018. We currently expect total revenue~~lower in the first quarter of ~~2018 will be slightly higher on a sequential basis~~2023 as compared to the ~~prior quarter.~~fourth quarter of 2022.

Revenue by geographic region is based on the shipping address of the customer. The following ~~table summarizes~~tables summarize our revenue by geography and sales channel for the periods presented (in thousands, except percentages):


	Years Ended
	December 31, 2022		% of total revenue		December 25, 2021		% of total revenue		Change		% Change
Total revenue by geography
Domestic	$	870,282	55	%	$	663,808	47	%	$	206,474	31	%
International	702,960		45	%	761,397		53	%	(58,437)		(8)	%
	$	1,573,242	100	%	$	1,425,205	100	%	$	148,037	10	%
Total revenue by sales channel
Direct	$	1,191,584	76	%	$	1,099,632	77	%	$	91,952	8	%
Indirect	381,658		24	%	325,573		23	%	56,085		17	%
	$	1,573,242	100	%	$	1,425,205	100	%	$	148,037	10	%

Years Ended

December 30,
2017
% of total revenue December 31,
2016 % of total revenue Change % Change
Total revenue by geography
Domestic $ 428,592
58 % $ 541,889
62 % $ (113,297 ) (21 )%
International 312,147
42 % 328,246
38 % (16,099 ) (5 )%
$ 740,739
100 % $ 870,135
100 % $ (129,396 ) (15 )%
Total revenue by sales channel
Direct $ 693,472
94 % $ 809,681
93 % $ (116,209 ) (14 )%
Indirect 47,267
6 % 60,454
7 % (13,187 ) (22 )%
$ 740,739
100 % $ 870,135
100 % $ (129,396 ) (15 )%


	Years Ended
	December 25, 2021		% of total revenue		December 26, 2020		% of total revenue		Change		% Change
Total revenue by geography
Domestic	$	663,808	47	%	$	630,422	47	%	$	33,386	5	%
International	761,397		53	%	725,174		53	%	36,223		5	%
	$	1,425,205	100	%	$	1,355,596	100	%	$	69,609	5	%
Total revenue by sales channel
Direct	$	1,099,632	77	%	$	1,039,976	77	%	$	59,656	6	%
Indirect	325,573		23	%	315,620		23	%	9,953		3	%
	$	1,425,205	100	%	$	1,355,596	100	%	$	69,609	5	%

Years Ended
December 31,
2016 % of total revenue December 26,
2015 % of total revenue Change % Change
Total revenue by geography
Domestic $ 541,889
62 % $ 602,433
68 % $ (60,544 ) (10 )%
International 328,246
38 % 284,281
32 % 43,965
15 %
$ 870,135
100 % $ 886,714
100 % $ (16,579 ) (2 )%
Total revenue by sales channel
Direct $ 809,681
93 % $ 825,952
93 % $ (16,271 ) (2 )%
Indirect 60,454
7 % 60,762
7 % (308 ) (1 )%
$ 870,135
100 % $ 886,714
100 % $ (16,579 ) (2 )%

~~2017~~2022 Compared to ~~2016.~~D~~omestic~~2021. Domestic revenue ~~decreased~~increased by ~~$113.3~~$206.5 million, or ~~21%~~31%, ~~during 2017~~in 2022 compared to ~~2016,~~2021, driven primarily ~~attributable to the effects~~by increased revenue from each of ~~customer consolidation,~~our ICP and ~~changes in~~other service provider verticals, which was partially offset by decreased revenue from certain ~~large customers’ buying patterns as we transition to~~Tier 1 customers and our ~~next-generation of products. The majority of the decrease in~~

~~2017 occurred in the first half of the year, as the revenue during the second half of the year was up by 8% as compared to the corresponding period in 2016, primarily driven by improved spending from~~ cable ~~customers.~~vertical.

International revenue decreased by ~~$16.1~~$58.4 million, or 5%8%, ~~during 2017~~in 2022 compared to ~~2016, primarily attributable to lower sales~~2021. In this period, EMEA revenue decreased in each of our other service provider and cable verticals and from certain Tier 1 customers, including from our suspension of operations in Russia. Our Other Americas ~~region, where we continued to be challenged by slower spending from our largest customer in the region due to political conditions. We had a small decline~~revenue also decreased in our ~~Europe, Middle East and Africa (“EMEA”) region attributable to product transitions and a challenging pricing environment.~~other service provider vertical during this period. This decline was partially offset by increased revenue in APAC in our other service provider vertical.

~~2016 Compared to 2015.~~ Domestic revenue decreased by $60.5 million, or 10%, during 2016 compared to 2015, primarily driven by customers across multiple end markets slowing spend due to a variety of factors, including shifts of spending to other parts of customer networks, the build-up of inventory at customer sites, along with customer consolidation and competitive challenges in certain markets.

~~International~~Direct revenue increased by ~~$44.0~~$92.0 million, or ~~15%~~8%, ~~during 2016~~in 2022 compared to ~~2015,~~2021, driven primarily ~~led~~ by ~~the EMEA region due to the inclusion of~~increased revenue from ~~Transmode,~~each of our ICP and other service provider verticals which ~~generates most of its~~was partially offset by decreased revenue from ~~the EMEA region.~~certain Tier 1 customers.

Indirect revenue increased $56.1 million, or 17%, driven primarily by increased revenue from customers in each of our ICP and other service provider verticals who purchased through our indirect sales channel.

Cost of Revenue and Gross Margin

~~2017~~2022 Compared to ~~2016.~~2021. Gross profit increased by $37.8 million, with gross margin ~~decreased~~decreasing to ~~32.9%~~34% in ~~2017~~2022 from ~~45.2%~~35% in ~~2016. This decline~~2021. The gross margin decrease was primarily driven ~~primarily~~ by ~~the high early~~higher costs related to component price increases, higher logistics and freight costs, and supply constrained manufacturing ~~costs~~volumes, partially offset by ongoing cost improvement and quality initiatives. In this period, our margins benefited from ~~initial units~~improved product mix including increased revenue from vertically integrated products as well as reductions in restructuring costs. In 2023, we intend to continue to expand our vertical integration capabilities across more of our ~~new ICE-based products,~~product portfolio utilizing our ICE6 optical engine and ~~with changes in~~expect to benefit from the partial relief of elevated supply chain costs, both of which should help drive continued gross margin improvement over time.

In any given quarter, gross margins can fluctuate based on a number of factors, including the mix of line system footprint versus capacity utilization, product mix, customer mix and ~~strategic investments~~overall volume.

Amortization of Intangible Assets

2022 Compared to ~~win~~2021. Amortization of intangible assets increased by $3.5 million, or 18%, in 2022 from 2021. The increase was due to the shortened life of certain developed technologies resulting from us having exited certain product lines in the fourth quarter of 2021.

Restructuring and ~~preserve business as we brought our new products~~Other Related Costs

2022 Compared to ~~market. Lower overall manufacturing levels during 2017 compared to 2016 also reduced the benefits of our vertically-integrated operating model. Gross margin in 2017 was also impacted by restructuring~~2021. Restructuring and other related costs ~~of $19.1~~decreased $1.3 million, ~~which consisted of $13.6 million of inventory write-downs and $4.0 million of manufacturing asset impairments as a result~~or 85%, in 2022 from 2021 reflecting the substantial completion of our ~~product rationalization efforts, and $1.5 million~~2021 Restructuring Plan as well as the completion of ~~employee-related costs for eliminated roles.~~

our 2020 Restructuring Plan in 2022. See Note 8,9, “Restructuring and Other Related ~~Costs,”~~Costs” to the Notes to Consolidated Financial Statements for more information on ~~the 2017 Restructuring Plan.~~our restructuring plans.

~~2016 Compared to 2015.~~ Gross margin decreased to 45.2% in 2016 from 45.5% in 2015, primarily driven by the impact of reduced volumes on our manufacturing infrastructure. We also experienced downward pressure on gross margin throughout the year as we made strategic pricing decisions to secure future business with existing and prospective customers across our end markets. Additionally, 2015 included a full year of purchase accounting costs, primarily related to amortization of intangibles associated with the Transmode acquisition.

We currently expect that gross margin in the first quarter of 2018 will be higher than the fourth quarter of 2017 due to our expectation that restructuring-related costs in the first quarter will be much lower. In addition, we have substantially incurred the impact of the high costs of the early production units of ICE4 as well as additional costs to bridge customers to our new products.

As we seek to grow our footprint with both existing and new customers, we expect to deploy large amounts of network infrastructure, which initially carries low gross margins but establishes the groundwork for growth at higher gross margins. Over time as our new ICE-based products, which carry lower costs at increased volumes, grow as a percentage of our overall mix, our gross margins should gradually improve.

Operating Expenses

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


	Years Ended
	December 31, 2022		% of total revenue		December 25, 2021		% of total revenue		Change		% Change
Research and development	$	306,188	19	%	$	299,894	21	%	$	6,294	2	%
Sales and marketing	146,445		9	%	138,829		10	%	7,616		5	%
General and administrative	118,602		8	%	115,415		8	%	3,187		3	%
Amortization of intangible assets	14,576		1	%	17,455		1	%	(2,879)		(16)	%
Acquisition and integration costs	—		—	%	614		—	%	(614)		(100)	%
Restructuring and other related costs	10,122		1	%	13,246		1	%	(3,124)		(24)	%
Total operating expenses	$	595,933	38	%	$	585,453	41	%	$	10,480	2	%


	Years Ended														Years Ended
	December 30, 2017		% of total revenue		December 31, 2016		% of total revenue		Change			% Change			December 25, 2021		% of total revenue		December 26, 2020		% of total revenue		Change		% Change
Research and development	$	224,299	30	%	$	232,291	27	%	$	(7,992	)	(3	)%	Research and development	$	299,894	21	%	$	265,634	20	%	$	34,260	13	%
Sales and marketing	116,057		16	%	118,858		14	%	(2,801		)	(2	)%	Sales and marketing	138,829		10	%	129,604		10	%	9,225		7	%
General and administrative	70,625		10	%	68,343		8	%	2,282			3	%	General and administrative	115,415		8	%	112,240		8	%	3,175		3	%
Amortization of intangible assets														Amortization of intangible assets	17,455		1	%	18,581		1	%	(1,126)		(6)	%
Acquisition and integration costs														Acquisition and integration costs	614		—	%	13,346		1	%	(12,732)		(95)	%
Restructuring and other related costs	16,106		2	%	—		—	%	16,106			100	%	Restructuring and other related costs	13,246		1	%	24,586		2	%	(11,340)		(46)	%
Total operating expenses	$	427,087	58	%	$	419,492	49	%	$	7,595		2	%	Total operating expenses	$	585,453	41	%	$	563,991	42	%	$	21,462	4	%

Years Ended
December 31,
2016
% of total
revenue
December 26,
2015
% of total
revenue
Change % Change
Research and development $ 232,291
27 % $ 180,703
20 % $ 51,588
29 %
Sales and marketing 118,858
14 % 101,398
11 % 17,460
17 %
General and administrative 68,343
8 % 61,640
7 % 6,703
11 %
Total operating expenses $ 419,492
49 % $ 343,741
38 % $ 75,751
22 %

The following table summarizes the stock-based compensation expense included in our operating expenses for the periods presented (in thousands):


	Years Ended
	December 31, 2022		December 25, 2021		December 26, 2020
Research and development	$	23,553	$	18,554	$	16,863
Sales and marketing	13,311		12,345		10,907
General and administration	14,666		12,985		13,906
Total	$	51,530	$	43,884	$	41,676

Years Ended

December 30,
2017
December 31,
2016 December 26,
2015
Research and development $ 15,845
$ 13,732
$ 11,055
Sales and marketing 11,288
11,043
8,081
General and administration 10,776
9,295
7,354
Total $ 37,909
$ 34,070
$ 26,490

Research and Development Expenses

~~2017~~2022 Compared to ~~2016.~~ Research and development expenses decreased by $8.0 million, or 3%, in 2017 from 2016, with the biggest driver being an $11.3 million impairment charge recorded in 2016, resulting from our decision to stop development on certain technologies that were in-process at the time of the Transmode acquisition. We also incurred lower spending in development and manufacturing expenses of $8.6 million, as we drove efficiencies in our development and manufacturing business over the course of the year. These decreases were offset by an increase of $10.9 million in personnel expenses. During the year, we balanced investments around bringing our next-generation solutions to market and enacting a faster technology development cadence, with prudent expense management, particularly given our overall revenue decrease.

~~2016 Compared to 2015.~~ 2021. Research and development expenses increased by ~~$51.6~~$6.3 million, or ~~29%~~2%, in ~~2016~~2022 from ~~2015~~2021. The increase was primarily attributable to higher employee-related expenses, material costs, and equipment costs related to bringing our new technologies to market and investments in future technologies. These costs were offset by lower facility costs due to ~~increased personnel costs of $34.5 million as a result of incremental headcount primarily from the acquisition of Transmode~~site optimization and ~~an $11.3 million impairment on acquired in-process technology~~lower depreciation related to ~~Transmode. Additionally,~~legacy technologies. In 2023, we ~~had increased spending on prototype~~expect to make additional targeted innovation investments in research and ~~other engineering materials of $7.4 million, incremental outside professional services costs of $2.1 million and other engineering expenses of $1.0 million~~

development to support ~~the development~~our strategy of expanding our ~~next generation of products. These increases were partially offset by a decrease in management bonuses of $4.7 million.~~vertically integrated product portfolio, including bringing new products to market quickly.

Sales and Marketing Expenses

~~2017~~2022 Compared to ~~2016.~~ Sales and marketing expenses decreased by $2.8 million, or 2%, in 2017 from 2016 as we tightly managed expenses, such as outside professional services and travel during the year. In 2017, outside professional services declined by $1.6 million, and travel and entertainment declined by $1.1 million. Overall personnel costs were effectively flat in 2017.

~~2016 Compared to 2015.~~ 2021. Sales and marketing expenses increased by ~~$17.5~~$7.6 million, or ~~17%~~5%, in ~~2016~~2022 from ~~2015 primarily due~~2021. This increase was driven by higher employee-related expenses including higher commissions and other costs, increased travel as COVID-related restrictions eased, and higher marketing costs related to ~~increased personnel costs~~the resumption of $14.5 million as a result of incremental headcount primarily from the acquisition of Transmode and to support the expansion of our business into new markets and customer verticals. In addition, the increase also included amortization of intangible assets of $3.9 million, higher professional services costs of $1.3 million and an increase in discretionary spending of $0.2 million. These increases werein-person trade shows partially offset by ~~a decrease~~lower facility costs and spending on trial equipment. In 2023, we plan to increase investments in ~~management bonuses of $2.4 million.~~our go-to-market efforts globally to expand our customer reach and drive additional market share gains in the long term.

General and Administrative Expenses

~~2017~~2022 Compared to ~~2016~~. 2021. General and administrative expenses increased by ~~$2.3~~$3.2 million, or 3%, in ~~2017~~2022 from ~~2016~~2021. The increase was attributable to higher employee-related expenses, outside professional fees, and indirect tax expenses partially offset by lower litigation settlement costs.

Amortization of Intangible Assets

2022 Compared to 2021. Amortization of intangible assets decreased by $2.9 million in 2022 from 2021. The decreases were largely due to lower amortization of the value of customer relationships and backlog intangibles. Customer relationships and backlog intangibles are amortized over the expected customer lives.

Acquisition and Integration Costs

2022 Compared to 2021. Acquisition and integration costs decreased by $0.6 million in 2022 from 2021 primarily due to ~~increased depreciation expenses~~the completion of ~~$1.6 million and personnel costs~~our integration efforts related to the Acquisition in the first quarter of ~~$1.5 million. These expenses were offset by a $1.6 million decrease in travel, equipment and facilities, and lower consulting services of $0.5 million.~~

~~2016 Compared to 2015~~. General and administrative expenses increased by $6.7 million, or 11%, in 2016 from 2015 primarily due to increased personnel costs of $9.3 million as a result of incremental headcount from the acquisition of Transmode and to a lesser extent, to scale our infrastructure to support the business. In addition, during 2016, we incurred increased facilities and related costs of $1.3 million and higher depreciation expense of $1.2 million. These increases were partially offset by a decrease in management bonuses of $2.6 million and professional services costs of $2.5 million.2021.

Restructuring and Other Related Costs

~~2017~~2022 Compared to ~~2016. In 2017, within operating expenses, we incurred $16.1 million in restructuring~~2021. Restructuring and other related costs ~~including $7.9~~decreased by $3.1 million ofin 2022 compared to 2021. The decrease was primarily due to lower severance and other related ~~costs, $7.3 million of facilities~~expenses and asset impairment ~~costs and test equipment impairments of $0.9 million. We have implemented the majority of these actions with some remaining payments in the first half of 2018.~~charges, partially offset by lease-related impairment charges incurred for various sites. See Note 8,9, “Restructuring and Other Related ~~Costs,”~~Costs” to the Notes to Consolidated Financial Statements for more information on ~~the 2017 Restructuring Plan.~~our restructuring plans.

Other Income (Expense), Net


	Years Ended
	December 31, 2022		December 25, 2021		December 26, 2020

	(In thousands)
Interest income	$	893	$	455	$	118
Interest expense	(26,015)		(49,099)		(46,728)
Gain on extinguishment of debt	15,521		—		—
Other gain (loss), net	14,247		(22,667)		1,121
Total other income (expense), net	$	4,646	$	(71,311)	$	(45,489)

Years Ended

December 30,
2017
December 31,
2016 December 26,
2015

(In thousands)
Interest income $ 3,328
$ 2,478
$ 1,837
Interest expense (14,017 ) (12,887 ) (11,941 )
Other gain (loss), net (2,160 ) 7,002
2,399
Total other income (expense), net $ (12,849 ) $ (3,407 ) $ (7,705 )

~~2017~~2022 Compared to ~~2016~~.2021. Interest income ~~increased $0.8~~was immaterial.

Interest expense decreased by $23.1 million in 2022 compared to 2021, primarily due to ~~a higher return on investments. Interest~~the adoption of ASU 2020-06, which resulted in the elimination of the debt discounts for our convertible senior notes that were amortized to interest expense ~~for 2017 increased $1.1 million due~~over their contractual terms prior to ~~an increase in amortization~~its adoption, offset by the write off of ~~discount and~~unamortized deferred debt issuance costs related to the ~~Notes.~~ asset-based revolving credit facility under the Prior Credit Agreement. See Note 12, “Debt” to the Notes to Condensed Consolidated Financial Statements for more information.

Gain on extinguishment of debt was $15.5 million in 2022 due to the partial repurchase of our 2024 Notes at a price that was below their par value. The gain includes and was reduced by the write-off of related deferred issuance costs of $3.5 million.

The change in other gain (loss), net, ~~was primarily due to a $1.9 million~~

~~impairment charge on our cost-method investment in 2017~~2022 compared to ~~a $9.0 million gain on the sale of a cost-method investment in 2016.~~

~~2016 Compared to 2015. Interest income increased $0.6~~2021, was $36.9 million primarily due to ~~a higher return on investments. Interest expense for 2016 increased $0.9 million due to~~ an increase ~~of amortization of discount and issuance costs related to the Notes. The change~~ in ~~other gain (loss), net, during 2016 was primarily due to a $9.0 million gain on the sale of a cost-method investment, partially offset~~unrealized foreign exchange gains driven by ~~losses due to foreign currency exchange. Other gain (loss), net, for 2015 mainly comprised of $1.3 million of gains due to~~ foreign currency exchange rate ~~changes and a $1.1 million gain primarily from foreign currency forward contracts that we entered into to hedge currency exposures associated with the cash portion of the offer to acquire Transmode.~~changes.

~~Benefit From~~Provision for Income Taxes

On December 22, 2017, the Tax Act was signed into law. The Tax Act significantly revises the U.S. corporate income tax regime by, among other things, lowering corporate income tax rate from 35% to 21% effective January 1, 2018, while also imposing a repatriation tax on deemed repatriated earnings of our foreign subsidiaries in 2017, and implementing a quasi-territorial tax system on future foreign earnings.

We have calculated our best estimate of the impact of the Tax Act in our year-end income tax provision in accordance with our understanding of the Tax Act and guidance available as of the date of this filing. While the reduction of the federal corporate income tax rate from 35% to 21% requires the re-measurement of our net U.S. deferred tax assets, there is also a corresponding and equal adjustment to the associated valuation allowance, and therefore no net impact to our statements of operations in 2017. Additionally, due to net tax losses on an aggregate basis of our foreign subsidiaries, there is no repatriation tax accruable in 2017.

We currently estimate that the tax impact of the Tax Act to be fairly negligible in the near-term, while sufficient net operating loss carryforwards generated prior to the Tax Act are available to fully offset future taxable income. Notwithstanding this, the Tax Act also introduces a Base Erosion Anti-Abuse Tax (“BEAT”), which is a minimum tax potentially accruable on certain intercompany payments to our foreign subsidiaries. Uncertainty regarding these provisions remain and are subject to further technical guidance. However, we believe that any tax accruable for the BEAT will be nominal in the near-term, based upon our current estimates and our corporate structure.

We recognized an income tax ~~benefit~~expense of ~~$1.4~~$20.5 million on a loss before income taxes of ~~$195.9~~$55.5 million, ~~income tax benefit of $4.8~~$12.0 million on a loss before income taxes of ~~$29.2~~$158.8 million, and ~~income tax expense of $1.1~~$6.0 million on ~~income~~a loss before income taxes of ~~$52.0~~$200.7 million in ~~fiscal years 2017, 2016~~2022, 2021 and ~~2015,~~2020, respectively. The resulting effective tax rates were ~~(0.7)~~(37.1)%, ~~(16.3)~~(7.5)% and ~~2.1%~~(3.0)% for ~~2017, 2016~~2022, 2021 and ~~2015,~~2020, respectively. The ~~2017~~2022 and ~~2016~~2021 effective tax rates differ from the expected statutory rate of ~~35%~~21% based on our ability to benefit from our U.S. loss carryforwards, offset by state income taxes, non-deductible stock-based compensation expenses and foreign taxes provided on foreign subsidiary earnings. The ~~lower 2017~~increase in 2022 income tax ~~benefit~~provision compared to ~~2016 primarily relates to lower acquisition related amortization expenses and lower state income taxes offset~~2021 is mainly driven by an increase in ~~tax reserves,~~income taxes and ~~an increase in taxable foreign profits~~withholding taxes in certain ~~jurisdictions.~~non-U.S. jurisdictions where our local subsidiaries do not have carryforward losses to offset income.

During 2022, we implemented a realignment of our internal supply chain and customer facing entities. The new structure aligned and consolidated our intellectual property and the associated commercial risk and reward among the customer-facing entities in their internal supply chain and improved operational efficiency. The impact of this internal realignment is reflected in our tax ~~benefit~~provision for 2016 compared to tax expense in 2015 was primarily due to acquisition related amortization expenses and charges, lower state taxes, and a reduction in tax reserves, offset by an increase in taxable foreign profits.the year ended December 31, 2022.

Because of our U.S. operating loss in ~~2017,~~2022, significant loss carryforward position, and corresponding ~~full~~ valuation allowance in all years, other than separate filing state taxes, a few combined states and minimum taxes, we have not been subject to federal or state tax on our U.S. income because of the availability of loss carryforwards, with the exception of amounts for certain states’ taxes for which the losses were limited by statute or amount in 2016 and more significantly in 2015, and federal and state taxes associated with a discontinued U.S. subsidiary.carryforwards. If these losses and other tax attributes become fully utilized, our taxes will increase significantly to a more normalized, expected rate on U.S. earnings. The release of transfer pricing reserves in the future ~~will~~may have a beneficial impact to tax expense, but the timing of the impact depends on factors such as expiration of the statute of limitations or settlements with tax authorities. No significant releases are expected in the near future based on information available at this time.

In determining future taxable income, we make assumptions to forecast federal, state and international operating income, the reversal of temporary differences, and the implementation of any feasible and prudent tax planning strategies. The assumptions require significant judgment regarding the forecasts of future taxable income, and are consistent with our income forecasts used to manage our business.

Liquidity and Capital Resources


	Years Ended										Years Ended
	December 30, 2017			December 31, 2016			December 26, 2015				December 31, 2022		December 25, 2021		December 26, 2020
											(In thousands)
	(In thousands)
Net cash flow provided by (used in):										Net cash flow provided by (used in):
Operating activities	$	(21,925	)	$	38,377		$	133,176		Operating activities	$	(37,560)	$	28,128	$	(112,300)
Investing activities	$	(50,553	)	$	(12,115	)	$	(91,475	)	Investing activities	$	(46,053)	$	(41,379)	$	(39,009)
Financing activities	$	22,082		$	(8,866	)	$	20,983		Financing activities	$	82,346	$	(101,544)	$	334,162

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~balance. As of December 31, 2016, two customers accounted for approximately 17% and 15% of the Company’s net accounts receivable balance, respectively.~~

~~To date, a few of the Company’s customers have accounted for a significant portion of its revenue.~~ One customer which completed a merger in late 2017 as mentioned above, was a combination of two of the Company's historically larger customers who merged in 2017 and accounted for approximately 18% of the Company's revenue in 2017. These two historically larger customers each individually accounted for approximately 16% and 8% of the of the Company's revenue in 2016, respectively, and approximately 17% and 13% of the Company's revenue in 2015, respectively. No other customers accounted for over 10% of the Company's accounts receivable balance, net on the consolidated balance sheets as of December 31, 2022. No customer accounted for over 10% of the Company's accounts receivable balance, net on the consolidated balance sheets as of December 25, 2021.

One customer accounted for approximately 11% of the Company's revenue in 2022 and 2020. No customer accounted for ~~these periods.~~10% or more of the Company's revenue in 2021.

The Company depends on sole source or limited source suppliers for several key components and raw materials. The Company generally purchases these sole source or limited source components and raw materials through standard purchase orders and does not have long-term contracts with many of these limited-source suppliers. While the Company seeks to maintain sufficient reserve stock of such components and raw materials, the Company’s business and results of operations could be adversely affected if any of ~~our~~its sole source or limited source suppliers suffer from capacity constraints, lower than expected yields, deployment delays, work stoppages or any other reduction or disruption in output.

Derivative Instruments

The Company is exposed to foreign currency exchange rate fluctuations in the normal course of its business. As part of its risk management strategy, the Company uses derivative instruments, specifically forward contracts, to reduce the impact of foreign exchange fluctuations on earnings. The forward contracts are with ~~one~~ high-quality ~~institution~~institutions and the Company monitors the creditworthiness of the ~~counter parties~~counterparties consistently. The Company’s objective is to offset gains and losses resulting from these exposures with gains and losses on the derivative contracts used to hedge them, thereby reducing volatility of earnings or protecting fair values of assets. None of the Company’s derivative instruments contain credit-risk related contingent features, any rights to reclaim cash collateral or any obligation to return cash collateral. The Company does not have any leveraged derivatives. The Company does not use derivative contracts for trading or speculative purposes.

The Company enters into foreign currency exchange forward contracts to manage its exposure to fluctuations in foreign exchange rates that arise primarily from ~~its~~ euro and British ~~pound denominated receivables and euro denominated restricted cash balance amounts that are pledged as collateral for certain stand-by letters of credit.~~pounds. Gains and losses on these contracts are intended to offset the impact of foreign exchange rate changes on the underlying ~~foreign currency denominated accounts receivables and restricted cash,~~account balances, and therefore, do not subject the Company to material balance sheet risk.

The Company ~~also~~has entered into ~~foreign currency exchange contracts~~factoring agreements, to ~~reduce~~sell certain receivables to unrelated third-party financial institutions. These transactions are accounted for in accordance with ASC 860, Transfers and Servicing (“ASC 860”). ASC 860 and result in a reduction in accounts receivable because the ~~volatility of cash flows primarily~~agreements transfer effective control over and risk related to ~~forecasted revenues and expenses denominated~~the receivables to the buyers. The Company's factoring agreements do not allow for recourse in ~~euros, British pounds and SEK. These contracts are generally settled for U.S. dollars, euros and British pound at maturity under an average rate method agreed to at inception~~the event of ~~the contracts. The forward contracts are with one high-quality institution~~uncollectability, and the Company ~~consistently monitors~~does not retain any interest in the ~~creditworthiness of the counterparty.~~underlying accounts receivable once sold.

Inventory Valuation

Inventories consist of raw materials, work-in-process and finished goods and are stated at standard cost adjusted to approximate the lower of actual cost or ~~market.~~net realizable value. Costs are recognized utilizing the first-in, first-out method. ~~Market~~Net realizable value is based upon an estimated selling price reduced by the estimated cost of disposal. The determination of market value involves numerous judgments including estimated average selling prices based upon recent sales volumes, industry trends, existing customer orders, current contract price, future demand and pricing and technological obsolescence of the Company’s products.

Inventory that is obsolete or in excess of the Company’s forecasted demand or is anticipated to be sold at a loss is written down to its estimated net realizable value based on historical usage and expected demand. In valuing its inventory costs and deferred inventory costs, the Company considered whether the ~~utility~~net realizable value of ~~the products~~inventory delivered or expected to be delivered at less than cost, primarily comprised of common equipment, had declined. The Company concluded that, in the instances where the ~~utility~~net realizable value of ~~the products~~inventory delivered or expected to be delivered was less than cost, it was appropriate to value the inventory costs and deferred inventory costs at

~~INFINERA CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

cost or ~~market,~~net realizable value, whichever is lower, thereby recognizing the cost of the reduction in ~~utility~~net realizable value of inventory in the period in which the reduction occurred or can be reasonably estimated. The Company has, therefore, recognized inventory write-downs as necessary in each period in order to reflect inventory at the lower of actual cost or ~~market.~~net realizable value.

The Company considers whether it should accrue losses on firm purchase commitments related to inventory items. Given that the net realizable value of common equipment is below contractual purchase price, the Company has also recorded losses on these firm purchase commitments in the period in which the commitment is made. When the inventory parts related to these firm purchase commitments are received, that inventory is recorded at the purchase price less the accrual for the loss on the purchase commitment.

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Property, Plant and Equipment

Property, plant and equipment are stated at cost. This includes enterprise-level business software that the Company customizes to ~~meets~~meet its specific operational ~~needs.~~needs and certain software licenses. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. An assumption of lease renewal where a renewal option exists is used only when the renewal has been determined to be reasonably ~~assured.~~certain. Repair and maintenance costs are expensed as incurred. The estimated useful life for each asset category is as follows:



			Estimated Useful Lives
Building			20 years
Laboratory and manufacturing equipment			1.5 to 10 years
Furniture and fixtures			3 to 5 years
Computer hardware ~~and software~~			~~1.5~~3 to 75 years
Computer software			3 years
Leasehold and building improvements			1 to 1011 years

The Company ~~regularly~~ reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable or that the useful life is shorter than originally estimated. If impairment indicators are present and the projected future undiscounted cash flows are less than the carrying value of the assets, the carrying values are reduced to the estimated fair value. If assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the carrying value of the assets is depreciated over the newly determined remaining useful lives.

Accrued Warranty

~~The~~In the Company's contracts with its customers, the Company warrants that its products will operate substantially in conformity with product specifications. Hardware warranties provide the purchaser with protection in the event that the product does not perform to product specifications. During the warranty period, the purchaser’s sole and exclusive remedy in the event of such defect or failure to perform is limited to the correction of the defect or failure by repair, refurbishment or replacement, at the Company’s sole option and expense. The Company's hardware warranty periods generally range from one to five years from date of acceptance for hardware and the Company's software warranty is 90 days. Upon delivery of the Company's products, the Company provides for the estimated cost to repair or replace products that may be returned under warranty. The hardware warranty accrual is based on actual historical returns and cost of repair experience and the application of those historical rates to the Company's in-warranty installed base. The provision for warranty claims fluctuates depending upon the installed base of products and the failure rates and costs of repair associated with these products under warranty. Furthermore, the Company's costs of repair vary based on repair volume and its ability to repair, rather than replace, defective units. In the event that actual product failure rates and costs to repair differ from the Company's estimates, revisions to the warranty provision are required. In addition, from time to time, specific hardware warranty accruals may be made if unforeseen technical problems arise with specific products. The Company regularly assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

~~INFINERA CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Amortization of Intangible Assets

Intangible assets with finite lives are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets. In-process research and development ~~represents~~represent the fair value of incomplete research and development projects that have not reached technological feasibility as of the date of acquisition. Initially, these assets are not subject to ~~amortization. Once~~amortization, but once projects have been completed, ~~they~~these assets are transferred to developed technology, which are subject to amortization, while assets related to projects that have been abandoned are impaired and expensed to research and development.

Impairment of Goodwill and Intangible Assets ~~and Goodwill~~

Goodwill ~~is evaluated~~represents the excess of the purchase price of an acquired business over the fair value of the identifiable assets acquired and liabilities assumed. The Company tests for impairment of goodwill on an annual

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

basis in the fourth quarter ~~of the Company's fiscal year,~~ and ~~whenever~~at any other time when events occur or ~~changes in~~ circumstances indicate that the carrying amount of goodwill may not be recoverable. The Company has ~~elected~~the option to first assess qualitative factors to determine whether it is ~~more likely than not that~~necessary to perform the ~~fair value of its single reporting unit is less than its carrying amount.~~quantitative goodwill impairment test. If the Company determines that as a result of the qualitative assessment that it is more likely than not (i.e., greater than 50% likelihood) that the fair value of ~~its single~~a reporting unit is less than its carrying amount, then the ~~two-step goodwill~~quantitative test is required or it can directly perform the quantitative analysis. The Company recognizes an impairment ~~test will be performed. The first step, identifying a potential impairment, compares~~charge for the ~~fair value of its single reporting unit with its carrying amount. If~~amount by which the carrying amount exceeds ~~its~~the reporting unit’s fair ~~value,~~value; however, the ~~second step will be performed; otherwise, no further step is required. The second step, measuring~~loss recognized does not exceed the ~~impairment loss, compares the implied fair value of the goodwill with the carrying~~total amount of ~~the goodwill. Any excess of the~~ goodwill ~~carrying amount over the implied fair value is recognized as an impairment loss.~~ allocated to that reporting unit.

The Company evaluates events and changes in circumstances that could indicate carrying amounts of purchased intangible assets may not be recoverable. When such events or changes in circumstances occur, the Company assesses the recoverability of these assets by determining whether or not the carrying amount will be recovered through undiscounted expected future cash flows. If the total of the future undiscounted cash flows is less than the carrying amount of an asset, the Company records an impairment loss for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

~~Restructuring and Other Related Costs~~Leases

The Company ~~records~~has operating leases primarily for real estate (facilities) and automobiles. The Company has finance leases primarily for computer hardware, laboratory and manufacturing equipment and leasehold and building improvements.

The Company leases facilities under non-cancelable operating lease agreements. These leases have varying terms that range from one to 11 years and contain leasehold improvement incentives, rent holidays and escalation clauses. In addition, some of these leases have renewal options for up to six years.

The Company determines if an arrangement contains a lease at inception. Operating leases are included in operating lease right of use ("ROU") assets, accrued expenses and other current liabilities and operating lease liabilities on the Company's consolidated balance sheets. Finance leases are included in property, plant and equipment, net, accrued expenses and other current liabilities and other long-term liabilities on the Company's consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Operating lease ROU assets also include any lease payments made and exclude lease incentives and initial direct costs ~~associated with exit activities related~~incurred. Variable lease payments are expensed as incurred and are not included within the ROU asset and lease liability calculation. Variable lease payments primarily include reimbursements of costs incurred by lessors for common area maintenance and utilities. The Company's lease terms may include options to ~~restructuring plans in accordance with ASC 420, “Exit~~extend or ~~Disposal Cost Obligations.” Liabilities~~terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for ~~costs associated~~minimum lease payments is recognized on a straight-line basis over the lease term. The Company rents or subleases certain real estate under agreements that are classified as operating leases.

Leases with an ~~exit~~initial term of 12 months or ~~disposal activity~~less are ~~recognized~~not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company does not account for lease components (e.g., fixed payments including rent) separately from the non-lease components (e.g., common-area maintenance costs).

Upon abandoning or committing to a plan to abandon a leased property in the ~~period in which~~short term before the liability is incurred. The timing of the associated cash payments is dependent upon the type of exit cost and extend over an approximately four-year period. The Company records restructuring cost liabilities in “Accrued Expenses” and "Other Long-term Liabilities" in the Consolidated Balance Sheet.

Restructuring costs include termination costs, facility consolidation and closure costs, equipment write-downs and inventory write-downs. One-time termination benefits are recognized as a liability at estimated fair value when the approved plan of termination has been communicated to employees, unless employees must provide future service, in which case the benefits are recognized ratably over the future service period. Ongoing termination benefits arrangements are recognized as a liability at estimated fair value when the amount of such benefits becomes estimable and payment is probable. For the facility-related restructuring costs,lease term expires, the Company ~~recognizes a liability upon exiting all or a portion of a leased facility and meeting cease-use and other requirements. The amount of restructuring costs is based on~~assesses the fair value of its remaining obligation under the lease and records an impairment of the ROU asset, if needed. The impairment loss is calculated as the present value of the amount by which the remaining lease obligation, adjusted for the ~~abandoned space, which includes a~~effects of any one-time costs to sublease, ~~assumption~~exceeds the estimated sublease rentals that could be reasonably obtained.

~~Restructuring charges require~~ The estimated sublease rentals consider Company's ability and intent to sublease the space. The significant ~~estimates~~assumptions used in the Company's discounted cash flow model include the amount and ~~assumptions, including~~timing of estimated sublease ~~income~~rental receipts and ~~expenses for severance and other employee separation costs. Management estimates~~the discount rate which involve a number of risks and uncertainties, some of which are beyond control, including future real estate market conditions and the Company's ability to successfully enter into subleases or termination agreements with terms as favorable as those assumed when arriving at its estimates. The Company monitors these estimates and assumptions on at least a quarterly basis for changes in circumstances and any corresponding adjustments to the accrual are recorded in its statement of operations in the period when such changes are known.

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The loss recorded or to be recorded may change significantly as a result of the re-measurement of the liability, if the timing or amount of estimated cash flows change.

Restructuring and Other Related Costs

The Company records costs associated with exit activities related to restructuring plans in accordance with ASC 420, Exit or Disposal Cost Obligations, or ASC 712, Compensation — Nonretirement Postemployment Benefits. Liabilities for costs associated with an exit or disposal activity are recognized in the period in which the liability is incurred. The timing of the associated cash payments is dependent upon the type of exit cost and extends over an approximately four-year period. The Company records restructuring cost liabilities in “accrued expenses and other current liabilities” and "other long-term liabilities" in the consolidated balance sheet.

Restructuring costs include employee and contract termination costs, facility consolidation and closure costs, lease related impairment charges, equipment write-downs and inventory write-downs. One-time termination benefits are recognized as a liability at estimated fair value when the approved plan of termination has been communicated to employees, unless employees must provide future service, in which case the benefits are recognized ratably over the future service period. Ongoing termination benefits arrangements are recognized as a liability at estimated fair value when the amount of such benefits becomes estimable and payment is probable.

Restructuring charges require significant estimates and assumptions, including estimates made for employee separation costs and other contract termination charges. Management estimates involve a number of risks and uncertainties, some of which are beyond control, including the Company's ability to successfully enter into termination agreements with employees and others with terms as favorable as those assumed when arriving at its estimates. The Company monitors these estimates and assumptions on at least a quarterly basis for changes in circumstances and any corresponding adjustments to the accrual are recorded in its statement of operations in the period when such changes are known.

Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In May 2017, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”), which amends the scope of modification accounting for share-based payment arrangements, and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Topic 718. This guidance is effective for the Company in its first quarter of fiscal 2018, with early adoption permitted. The Company does not expect the new guidance to have any material impact on its consolidated financial statements.

~~In January 2017,~~August 2020, the FASB issued ASU 2020-06, Accounting ~~Standards Update 2017-04, “Simplifying the Test~~ for Goodwill Impairment” (“ASU 2017-04”). The guidance eliminates Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. ASU 2017-04 will be effective for the Company's annual or any interim goodwill impairment tests in its first quarter of fiscal 2020. The Company is currently evaluating the impact the adoption of ASU 2017-04 will have on its consolidated financial statements.

In November 2016, the FASB issued Accounting Standards Update 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalentsConvertible Instruments and amounts generally described as restricted cash or restricted cash equivalents. As such, restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and ending-of-period total amounts shown on the statement of cash flows. The Company is required to adopt ASU 2016-18 on a retrospective basis for fiscal years, and for interim periods within those fiscal years, beginning with its first quarter of fiscal 2018. Early adoption is permitted, including adoptionContracts in an ~~interim period. Subsequent to~~Entity’s Own Equity ("ASU 2020-06"). ASU 2020-06 simplifies the adoption of ASU 2016-18, the change in restricted cash would be excluded from the change in cash flows from investing and financing activities and included in the change in total cash, restricted cash and cash equivalents as reported in the statement of cash flows. Upon adoption of ASU 2016-18, the Company will amend the presentation in its consolidated statements of cash flows to include restricted cash with cash and cash equivalents and it will retrospectively reclassify all periods presented.

In August 2016, the FASB issued Accounting Standards Update 2016-15, “Statement of Cash Flows (Topic 320): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain transactions are presented and classified in the statement of cash flows. The Company early adopted ASU 2016-15 on a retrospective basis during the third quarter of fiscal 2017. The Company's adoption of 2016-15 had no impact on its consolidated statements of cash flows.

In June 2016, the FASB issued Accounting Standards Update 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. This guidance is effective for the Company in its first quarter of fiscal 2020 and early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements.

In May 2016, the FASB issued Accounting Standards Update 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (SEC Update)” (“ASU 2016-11”), which rescinds various standards codified as part of Topic 605, Revenue Recognition in relation to the future adoption of Topic 606. These rescissions include changes to topics pertaining to revenue and expense recognition for freight services in process, accounting for ~~shipping~~convertible instruments by removing certain separation models in ASC 470-20, Debt—Debt with Conversion and ~~handling fees and costs, and accounting~~Other Options, for ~~consideration given by a vendor to a customer. This guidance is effective for~~convertible instruments. On December 26, 2021, the Company in its first quarter of fiscal 2018 and early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2016-11 will have on its consolidated financial statements.

~~INFINERA CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

In February 2016, the FASB issued Accounting Standards Update 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which amends the existing accounting standards for leases. The new standard requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet (with the exception of short-term leases). For lessees, leases will continue to be classified as either operating or financing in the income statement. This guidance is effective for the Company in its first quarter of fiscal 2019 and early adoption is permitted. ASU 2016-02 is required to be applied with a modified retrospective approach and requires application of the new standard at the beginning of the earliest comparative period presented. The Company is currently evaluating the impact the adoption of ASU 2016-02 will have on its consolidated financial statements and expects to have increases in the assets and liabilities of its consolidated balance sheets.

In July 2015, the FASB issued Accounting Standards Update 2015-11, “Simplifying the Measurement of Inventory” (“ASU 2015-11”), to simplify the guidance on the subsequent measurement of inventory, excluding inventory measured using last-in, first-out or the retail inventory method. Under ASU 2015-11, inventory should be at the lower of cost and net realizable value. The Company adopted ASU ~~2015-11 during the first quarter of fiscal 2017. The Company's adoption of 2015-11 had no impact on the Company's financial position, results of operations or cash flows.~~

In May 2014, the FASB issued Accounting Standards Update 2014-09, “Revenue from Contracts from Customers (Topic 606)” (“ASU 2014-09”), which creates a single, joint revenue standard that is consistent across all industries and markets for companies that prepare their financial statements in accordance with U.S. GAAP. Under ASU 2014-09, an entity is required to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for those goods or services. In August 2015, the FASB issued Accounting Standards update 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which deferred the effective date of ASU 2014-09 by one year with early adoption permitted beginning after December 15, 2016. The updated standard is effective for interim and annual periods beginning after December 15, 2017. In April 2016, the FASB issued Accounting Standards Update 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” which clarifies the implementation guidance on identifying performance obligations and licensing. In May 2016, the FASB issued Accounting Standards Update 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” which amends the guidance on collectability, noncash consideration, presentation of sales tax and transition. In December 2016, the FASB issued Accounting Standards Update 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” to increase stakeholders' awareness of the proposals and to expedite improvements to ASU 2014-09. ASU 20140-09 also includes Subtopic 340-40, "Other Assets and Deferred Costs - Contracts with Customers," which requires the deferral of incremental costs of obtaining a contract with a customer. Collectively, the Company refers to ASU 2014-09 and Subtopic 340-40 as the new standard.”

~~These standards will be effective for the Company's first quarter of 2018. The Company has determined that it will elect to adopt the standard~~2020-06 using the modified retrospective ~~method~~method. Applying the transition guidance, the Company was required to apply the guidance to all impacted financial instruments that were outstanding as of December 26, 2021 with the cumulative effect recognized as an adjustment to the opening balance of ~~its~~ accumulated ~~deficit~~deficit.

The adoption of ASU 2020-06 required the Company to record a $196.5 million reduction of additional paid in capital, on December 26, 2021, due to the recombination of the equity conversion component of convertible debt remaining outstanding, which was initially separated and recorded in equity. The $122.0 million increase in debt represented the removal of the remaining debt discounts recorded for this previous separation. The Company recognized a $74.5 million cumulative effect decrease of initially applying ASU 2020-06 as an adjustment to the December 26, 2021 opening balance of ~~December 31, 2017. Prior~~accumulated deficit. Interest expense recognized in future periods will be reduced as a result of accounting for the convertible senior notes as a liability instrument. Since the Company had a net loss in 2022, the convertible senior notes were determined to be anti-dilutive and therefore had no impact to basic or diluted net loss per share in 2022 as a result of adopting ASU 2020-06. The prior period consolidated financial statements have not bebeen retrospectively adjusted and ~~will~~ continue to be reported under the accounting standards in effect for those periods. However, the Company will include additional disclosures of the amount by which each financial statement line item is affected in the current reporting period during 2018, as compared to the guidance that was in effect before the change.

3. Leases

The Company has ~~substantially completed its assessment~~operating leases for real estate (facilities) and automobiles. For the fiscal years ended December 31, 2022, December 25, 2021 and December 26, 2020, operating lease expense was $21.1 million, $25.7 million and $34.0 million, respectively. Included in operating lease expense were rent expense and impairment charges due to restructuring resulting in abandonment of certain lease facilities, amounting to $8.1 million, $6.5 million and $9.9 million for the impact of the new standard but is still evaluating the adjustment to the opening balance of its accumulated deficit. The Company’s assessment will be finalized during the first quarter of 2018. The Company has performed an assessment of nearly all of its open customer contracts under the new guidance. The new standard will impact the Company's operations, policiesfiscal years ended December 31, 2022, December 25, 2021 and ~~accounting in the areas of customer purchase commitments, contract termination rights, variable consideration, stand-alone selling price~~December 26, 2020, respectively. Variable lease cost, short-term lease cost and ~~capitalization of costs to obtain a contract.~~

To evaluate the impact of the new revenue standards on its accounting policies, internal controls, processes and system requirements, the Company assigned internal resources in addition to the engagement of third party service providers to assist in this evaluation. The Company has completed the implementation of a new IT solution as part of the adoption of the new standard. In addition, the Company has made and will continue to make investments in systems and processes to enable timely and accurate reporting under the new

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

sublease income were immaterial during the fiscal years ended December 31, 2022, December 25, 2021 and December 26, 2020, respectively.

~~revenue standard.~~ The following table presents current and long-term portion of operating lease liabilities as classified in the consolidated balance sheets (in thousands):


	December 31, 2022		December 25, 2021
Accrued expenses and other current liabilities	$	10,948	$	16,542
Long-term operating lease liabilities	45,862		54,326
Total operating lease liability	$	56,810	$	70,868

The Company also has finance leases. The lease term for these arrangements range from three to five years with option to purchase at the end of the term.

As of December 31, 2022 and December 25, 2021, finance leases included in property, plant, and equipment, net in the consolidated balance sheets were $1.9 million and $3.5 million, respectively. Finance lease expense includes amortization of the right-of-use assets and interest expense. Total finance lease expense during the fiscal years ended December 31, 2022 and December 25, 2021 was not material.

The following table presents maturity of lease liabilities under the Company's non-cancelable leases as of December 31, 2022 (in thousands):


	Operating Lease		Finance Lease

Total lease payments	$	71,903	$	966
Less: interest(1)	15,093		37
Present value of lease liabilities	$	56,810	$	929

(1)Calculated using the interest rate for each lease.

The following table presents supplemental information for the Company's non-cancelable leases for the fiscal year ended December 31, 2022 (in thousands, except for weighted average and percentage data):


	Operating Lease			Finance Lease
Weighted average remaining lease term	5.42 years			1.00 year
Weighted average discount rate	9.25		%	7.02		%
Cash paid for amounts included in the measurement of lease liabilities	$	23,398		$	1,310
Leased assets obtained in exchange for new lease liabilities	$	5,748		$	—

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. Revenue Recognition

Disaggregation of Revenue

The following table presents the Company's revenue disaggregated by revenue source (in thousands):


	Years Ended
	December 31, 2022		December 25, 2021		December 26, 2020
Product	$	1,268,624	$	1,099,376	$	1,045,551
Services	304,618		325,829		310,045
Total revenue	$	1,573,242	$	1,425,205	$	1,355,596

The Company sells its products directly to customers who are predominantly service providers and to channel partners that sell on its behalf. The following tables present the Company's revenue disaggregated by geography, based on the shipping address of the customer and by sales channel (in thousands):


	Years Ended
	December 31, 2022		December 25, 2021		December 26, 2020
United States	$	870,282	$	663,808	$	630,422
Other Americas	101,600		107,963		99,158
Europe, Middle East and Africa	405,328		477,787		424,411
Asia Pacific	196,032		175,647		201,605
Total revenue	$	1,573,242	$	1,425,205	$	1,355,596


	Years Ended
	December 31, 2022		December 25, 2021		December 26, 2020
Direct	$	1,191,584	$	1,099,632	$	1,039,976
Indirect	381,658		325,573		315,620
Total revenue	$	1,573,242	$	1,425,205	$	1,355,596

Contract Balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):


Assets (Liabilities)	December 31, 2022		December 25, 2021
Accounts receivable, net	$	419,735	$	358,954
Contract assets	$	60,172	$	49,052
Deferred revenue	$	(181,679)	$	(168,909)

Revenue recognized for the fiscal year ended December 31, 2022 and December 25, 2021 that was included in the deferred revenue balance at the beginning of the reporting period was $106.8 million and $88.1 million, respectively. Changes in the contract asset and liability balances during the fiscal year ended December 31, 2022 and December 25, 2021 were not materially impacted by other factors.

Transaction Price Allocated to the Remaining Performance Obligation

The Company’s remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied or partially satisfied, consisting of deferred revenue and backlog. The Company’s backlog represents purchase orders received from customers for future product shipments and

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

services. The Company’s backlog is ~~currently implementing~~subject to future events that could cause the ~~necessary operational~~amount or timing of the related revenue to change, and, ~~internal control structural changes.~~in certain cases, may be canceled without penalty. Orders in backlog may be fulfilled several quarters following receipt or may relate to multi-year support service obligations.

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) pursuant to contracts that are not subject to cancellation without penalty at the end of the reporting period (in thousands):


	2023		2024		2025		2026		2027		Thereafter		Total
Revenue expected to be recognized in the future as of December 31, 2022	$	827,410	$	106,100	$	29,108	$	9,043	$	5,227	$	6,066	$	982,954

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5. Fair Value Measurements

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


	As of December 31, 2022						As of December 25, 2021
	Fair Value Measured Using						Fair Value Measured Using
	Level 1		Level 2		Total		Level 1		Level 2		Total
Assets (Liabilities)
Foreign currency exchange forward contracts	$	—	$	—	$	—	$	—	$	(221)	$	(221)

As of December 30, 2017 As of December 31, 2016
Fair Value Measured Using Fair Value Measured Using
Level 1 Level 2 Total Level 1 Level 2 Total
Assets
Money market funds $ 20,371
$ —
$ 20,371
$ 41,773
$ —
$ 41,773
Certificates of deposit —
240
240
—
1,881
1,881
Commercial paper —
26,912
26,912
—
39,310
39,310
Corporate bonds —
118,558
118,558
—
88,324
88,324
U.S. agency notes —
5,480
5,480
—
11,759
11,759
U.S. treasuries 35,408
—
35,408
52,092
—
52,092
Foreign currency exchange forward contracts —
—
—
—
187
187
Total assets $ 55,779
$ 151,190
$ 206,969
$ 93,865
$ 141,461
$ 235,326
Liabilities
Foreign currency exchange forward contracts $ —
$ (204 ) $ (204 ) $ —
$ (71 ) $ (71 )
Disclosure of Fair Values

Financial instruments that are not re-measured at fair value include accounts receivable, accounts payable, accrued liabilities, and debt. The carrying values of these financial instruments other than the Company's 2024 Notes, 2027 Notes and 2028 Notes (collectively referred to as "convertible senior notes" below) approximate their fair values. The fair value of each series of convertible senior notes was determined based on the quoted bid price of the applicable series of convertible senior notes in an over-the-counter market on December 30, 2022 (the last trading day of the fiscal quarter).

The following table presents the estimated fair values of the convertible senior notes (in thousands):


	As of December 31, 2022						As of December 25, 2021
	Fair Value Measured Using						Fair Value Measured Using
	Level 1		Level 2		Total		Level 1		Level 2		Total
Convertible senior notes	$	—	$	785,364	$	785,364	$	—	$	765,412	$	765,412

Cash equivalents are measured and reported at fair value on a recurring basis. The following table presents the fair value of these financial assets and their levels within the fair value hierarchy (in thousands):


	As of December 31, 2022						As of December 25, 2021
	Fair Value Measured Using						Fair Value Measured Using
	Level 1		Level 2		Total		Level 1		Level 2		Total
Money market funds	$	95,000	$	—	$	95,000	$	—	$	—	$	—

During ~~2017~~2022 and ~~2016,~~2021, there were no transfers of assets or liabilities between Level 1 and Level 2.2 of the fair value hierarchy. As of December ~~30, 2017~~31, 2022 and December ~~31, 2016,~~25, 2021, none of the Company’s existing securities were classified as Level 3 securities.

~~In connection with the 2017 Restructuring Plan, the~~The Company ~~calculated~~measures goodwill and intangible assets at fair value on a nonrecurring basis when there are identifiable events or changes in circumstances that may have a significant adverse impact on the fair value of ~~the $7.3 million in~~these assets. The Company performed an analysis of impairment indicators of these assets and noted no adverse impact to their fair values as of December 31, 2022.

Facilities-related Charges

The Company classifies certain facilities-related charges ~~based on estimated future discounted cash flows and classified~~within Level 3 of the fair value hierarchy and applies fair value accounting on a nonrecurring basis when impairment indicators exist or upon the existence of observable fair values. The fair values are classified as a Level 3 ~~measurement~~measurements due to the significance of unobservable inputs, which included the amount and timing of estimated sublease rental receipts that the Company could reasonably obtain over the remaining lease term and the discount rate. See Note 8, “Restructuring and Other Related Costs,” to the Notes to Consolidated Financial Statements for more information on the 2017 Restructuring Plan.

As of December 30, 2017, the Company determined that its cost-method investment was impaired, resulting in an impairment charge of $1.9 million to adjust the carrying value to estimated fair value. The Company classified the fair value as a Level 3 measurement due to the significance of unobservable inputs. ~~The Company used the guideline public company method and the guideline transaction method of the market approach to determine the implied total equity value on a minority interest basis.~~ These analyses require management to make assumptions and estimates regarding industry and economic factors, future operating results and discount rates. ~~See~~

In connection with its Restructuring Plans (as defined in Note ~~4, “Cost-method Investment,”~~9, “Restructuring and Other Related Costs” to the Notes to Consolidated Financial ~~Statements for more information.~~Statements), the Company incurred facilities related charges of

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

$8.1 million and $6.5 million for the years ended December 31, 2022 and December 25, 2021, respectively. These charges primarily consisted of impairment charges incurred for operating lease right-of-use assets and were calculated at fair value based on estimated future sublease rental receipts that the Company could reasonably obtain over the remaining lease term at the discount rate. Facilities-related charges are classified as Level 3 measurement due to the significance of these unobservable inputs.

Cash ~~cash equivalents~~ and ~~investments were as follows (in thousands):~~

December 30, 2017

Adjusted
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
Cash $ 87,991
$ —
$ —
$ 87,991
Money market funds 20,371
—
—
20,371
U.S. treasuries 7,984
—
(1 ) 7,983
Total cash and cash equivalents $ 116,346
$ —
$ (1 ) $ 116,345
Certificates of deposit 240
—
—
240
Commercial paper 26,924
—
(12 ) 26,912
Corporate bonds 90,685
—
(155 ) 90,530
U.S. agency notes 2,500
—
(11 ) 2,489
U.S. treasuries 27,495
—
(70 ) 27,425
Total short-term investments $ 147,844
$ —
$ (248 ) $ 147,596
Corporate bonds 28,186
—
(158 ) 28,028
U.S. agency notes 3,002
—
(11 ) 2,991
Total long-term investments $ 31,188
$ —
$ (169 ) $ 31,019
Total cash, cash equivalents and investments $ 295,378
$ —
$ (418 ) $ 294,960

December 31, 2016

Adjusted
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
Cash $ 109,978
$ —
$ —
$ 109,978
Money market funds 41,773
—
—
41,773
Commercial paper 8,892
—
(1 ) 8,891
U.S. agency notes 1,999
—
—
1,999
Total cash and cash equivalents $ 162,642
$ —
$ (1 ) $ 162,641
Certificates of deposit 1,881
—
—
1,881
Commercial paper 30,425
—
(6 ) 30,419
Corporate bonds 63,097
1
(59 ) 63,039
U.S. agency notes 7,285
—
(8 ) 7,277
U.S. treasuries 39,093
9
(21 ) 39,081
Total short-term investments $ 141,781
$ 10
$ (94 ) $ 141,697
Corporate bonds 25,374
—
(89 ) 25,285
U.S. agency notes 2,499
—
(16 ) 2,483
U.S. treasuries 13,032
2
(23 ) 13,011
Total long-term investments $ 40,905
$ 2
$ (128 ) $ 40,779
Total cash, cash equivalents and investments $ 345,328
$ 12
$ (223 ) $ 345,117

As of December 30, 2017, the Company’s available-for-sale investments have a contractual maturity term of up to 21 months. Gross realized gains and losses on short-term and long-term investments were

~~INFINERA CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~insignificant for all periods. The specific identification method is used to account for gains and losses on available-for-sale investments.~~Cash Equivalents

As of December ~~30, 2017,~~31, 2022, the Company had ~~$263.9~~$189.2 million of cash, cash equivalents and ~~short-term investments,~~restricted cash, including ~~$62.1~~$65.9 million held by its foreign subsidiaries. As of December 25, 2021, the Company had $202.5 million of cash, ~~and~~ cash equivalents and restricted cash including $77.6 million held by its foreign subsidiaries. The Company's cash inheld by its foreign ~~locations~~subsidiaries is used for ~~operational~~operating and investing activities in those locations, and the Company does not currently have the need or the intent to repatriate those funds to the United States.


4.	~~Cost-method Investments~~

In 2016, the Company invested $7.0 million in a privately-held company. In addition, this investment included a customer supply agreement and warrants to purchase up to $10.0 million of additional shares of preferred stock. The warrants vest and become exercisable upon certain conditions being met. Additionally, in 2016, the Company recognized a gain of $9.0 million from the sale of an existing cost-method investment. As of December 30, 2017 and December 31, 2016, the Company's cost-method investment balance was $5.1 million and $7.0 million, respectively.

This investment is accounted for as cost-basis investments as the Company owns less than 20% of the voting securities and does not have the ability to exercise significant influence over operating and financial policies of the entity. The Company regularly evaluates the carrying value of its cost-method investment for impairment. If the Company believes that the carrying value of the cost basis investment is in excess of estimated fair value, the Company’s policy is to record an impairment charge in other income (expense), net, in the accompanying consolidated statements of operations.

Based on the Company's review during the fourth quarter of 2017, it determined that the carrying amount of its cost-method investment exceeded its fair value and the decline in value was determined to be other-than-temporary. As a result, the Company recorded an impairment charge of $1.9 million to adjust the carrying value to estimated fair value.

During 2016 and 2015, no impairment charges were recorded as there had not been any events or changes in circumstances that the Company believed would have a significant adverse effect on the fair value of its investment.

5.6. Derivative Instruments

Foreign Currency Exchange Forward Contracts

The Company transacts business in various foreign currencies and has international sales, cost of sales, and expenses denominated in foreign currencies, and carries foreign-currency-denominated ~~monetary assets and liabilities,~~account balances, subjecting the Company to foreign currency risk. The Company’s primary foreign currency risk management objective is to protect the U.S. dollar value of future cash flows and minimize the volatility of reported earnings. The Company utilizes foreign currency forward contracts, primarily short term in nature.

Historically, the Company enters into foreign currency exchange forward contracts to manage its exposure to fluctuation in foreign exchange rates that arise from its euro and British pound denominated ~~receivables and restricted cash~~account balances. Gains and losses on these contracts are intended to offset the impact of foreign exchange rate fluctuations on the underlying foreign currency denominated ~~accounts receivables and restricted cash, and therefore,~~account balances, do not subject the Company to material balance sheet risk.

~~During 2017, the~~The Company ~~also entered into~~had no outstanding foreign currency exchange forward contracts ~~to reduce the volatility~~as of cash flows primarily related to forecasted revenues and expenses denominated in euros, British pound and SEK. The contracts are generally settled for U.S. dollars, euros and British pounds at maturity under an average rate method agreed to at inceptionDecember 31, 2022. As of the contracts. The gains and losses on these foreign currency derivatives are recorded to the consolidated statement of operations line item, in the current period, to which the item that is being economically hedged is recorded.

~~In April 2015,~~December 25, 2021, the Company ~~entered into a~~had $29.5 million outstanding foreign currency exchange forward contract ~~with a notional~~and posted collateral of $0.9 million to cover associated potential credit risk exposure. This collateral amount ~~of SEK 831 million ($95.3 million) to hedge currency exposures associated with the~~was classified as other long-term restricted cash ~~consideration of the offer to acquire Transmode. In July 2015, the Company entered into a series of additional foreign currency~~

~~INFINERA CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

exchange option contracts to purchase up to an additional SEK 1.3 billion ($153.8 million) and to sell up to SEK 650 million ($76.9 million), which achieves the economic equivalent of a “participating forward” in order to hedge the anticipated foreign currency cash outflows associated with the additional cash consideration related to the enhanced offer to acquire the shares of Transmode. As these contracts are not formally designated as hedges, the gains and losses were recognized in the statement of operations. For 2015, the Company recorded a realized gain of $1.6 million, which was included in other gain (loss), net, inon the accompanying consolidated ~~statements of operations.~~balance sheets.

The before-tax effect of foreign currency exchange forward contracts was a ~~loss~~gain of ~~$3.5~~$0.6 million, $0.9 million and $0.3 million for ~~2017, a loss of $0.9 million for 2016~~2022, 2021 and ~~a gain of $3.8 million in 2015,~~2020, respectively, included in other ~~gain (loss)~~income (expense), net, in the consolidated statements of operations. In each of these periods, the impact of the gross gains and losses were offset by foreign exchange rate fluctuations on the underlying foreign currency denominated amounts.

~~As of December 30, 2017, the~~The Company ~~did~~does not designate foreign currency exchange forward contracts as hedges for accounting purposes and accordingly, changes in the fair value are recorded in the accompanying consolidated statements of operations. These contracts were with one high-quality institution and the Company consistently monitors the creditworthiness of the counterparties.

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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


	As of December 31, 2022				As of December 25, 2021
	Gross Notional(1)		Accrued expenses and other current liabilities		Gross Notional(1)		Accrued expenses and other current liabilities
Foreign currency exchange forward contracts
Related to euro denominated receivables	$	—	$	—	$	21,981	$	(139)
Related to British pound denominated receivables	—		—		7,566		(82)
Total	$	—	$	—	$	29,547	$	(221)

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

Accounts Receivable Factoring

The Company sells certain designated trade account receivables based on factoring arrangements with well-established factoring companies. Pursuant to the terms of the arrangements, the Company accounts for these transactions in accordance with ASC 860. The Company's factor purchases trade accounts receivables on a non-recourse basis and without any further obligations. Trade accounts receivables balances sold are removed from the consolidated balance sheets and cash received are reflected as cash provided by operating activities in the consolidated statements of cash flow. The difference between the fair value of the Company's trade receivables and the proceeds received is recorded as interest expense in the Company's consolidated statements of operations. For the years ended December 31, 2022, December 25, 2021 and December 26, 2020, the Company's recognized factoring related interest expense was approximately $0.9 million, $0.4 million and $0.4 million, respectively. The gross amount of trade accounts receivables sold totaled approximately $101.0 million and $121.3 million for the fiscal years ended December 31, 2022 and December 25, 2021 respectively.

7. Goodwill and Intangible Assets

As of December 30, 2017 As of December 31, 2016

Gross
Notional⁽¹⁾
Prepaid Expenses and Other Assets
Other
Accrued
Liabilities

Gross
Notional⁽¹⁾
Prepaid Expenses and Other Assets
Other
Accrued
Liabilities
Foreign currency exchange forward contracts
Related to euro denominated receivables $ 24,794
$ —
$ (202 ) $ 23,887
$ 137
$ (71 )
Related to British pound denominated receivables $ —
$ —
$ —
$ 6,353
$ 48
$ —
Related to euro denominated restricted cash $ 252
$ —
$ (2 ) $ 242
$ 2
$ —
Total $ —
$ (204 ) $ 187
$ (71 )


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


6.	~~Goodwill and Intangible Assets~~

Goodwill

Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net tangible and identified intangible assets acquired.

The following table presents details of the Company’s goodwill for the fiscal year ended December ~~30, 2017~~31, 2022 (in thousands):

Balance as of December 31, 2016 $ 176,760
Foreign currency translation adjustments 18,855
Accumulated impairment loss —
Balance as of December 30, 2017 $ 195,615

~~INFINERA CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~


Balance as of December 25, 2021	$	255,788

Foreign currency translation adjustments	(23,125)
Balance as of December 31, 2022	$	232,663

The gross carrying amount of goodwill may change due to the effects of foreign currency fluctuations as a portion of these assets are denominated in ~~SEK.~~foreign currency. To date, the Company has zero accumulated impairment loss on goodwill.

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Intangible Assets

The following ~~table presents~~tables present details of the Company’s intangible assets as of December ~~30, 2017~~31, 2022 and December ~~31, 2016~~25, 2021 (in thousands):


	December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Remaining Useful Life (In Years)
Intangible assets with finite lives:

Customer relationships and backlog	151,461		(114,294)		37,167		3.5
Developed technology	170,467		(159,847)		10,620		0.7

Total intangible assets	$	321,928	$	(274,141)	$	47,787

December 30, 2017
Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Remaining Useful Life (In Years)
Intangible assets with finite lives:
Customer relationships $ 51,050
$ (15,007 ) $ 36,043
5.6
Developed technology 104,708
(48,563 ) 56,145
2.7
Total intangible assets $ 155,758
$ (63,570 ) $ 92,188
3.9

December 31, 2016
Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Remaining Useful Life (In Years)
Intangible assets with finite lives:
Trade names $ 220
$ (220 ) $ —
0.0
Customer relationships 46,125
(7,793 ) 38,332
6.6
Developed technology 94,320
(24,715 ) 69,605
3.7
Other intangible assets 819
(567 ) 252
4.6
Total intangible assets with finite lives $ 141,484
$ (33,295 ) $ 108,189
4.7
Acquired in-process technology 286
—
286
��
Total intangible assets $ 141,770
$ (33,295 ) $ 108,475


	December 25, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Remaining Useful Life (In Years)
Intangible assets with finite lives:

Customer relationships and backlog	157,495		(104,701)		52,794		4.2
Developed technology	182,844		(149,064)		33,780		1.5

Total intangible assets	$	340,339	$	(253,765)	$	86,574

The gross carrying amount of intangible assets and the related amortization expense of intangible assets may change due to the effects of foreign currency fluctuations as a portion of these assets are denominated in ~~SEK.~~foreign currency. Amortization expense was ~~$26.6~~$37.7 million, $37.1 million and ~~$26.0~~$47.8 million for the years ended December ~~30, 2017~~31, 2022, December 25, 2021 and December ~~31, 2016,~~26, 2020, respectively.

Intangible assets are carried at cost less accumulated amortization. Amortization expenses are recorded to the appropriate cost and expense categories. During 2017, the Company recorded an impairment charge to research and development expenses of $0.3 million related to other intangible assets, which the Company has determined that the carrying value will not be recoverable. During the first quarter of 2017, the Company transferred $0.3 million of its in-process technology to developed technology, which is being amortized over a useful life of five years.

During 2016, the Company transferred $3.8 million of its in-process technology to developed technology, which is being amortized over a maximum useful life of seven years. Additionally, during 2016, the Company recorded an impairment charge of $11.3 million related to in-process research and development, resulting from the Company's decision to abandon previously acquired in-process technologies.

~~INFINERA CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of December ~~30, 2017~~31, 2022 (in thousands):


	Total		2023		2024		2025		2026		2027		Thereafter
Total future amortization expense	$	47,787	$	22,968	$	9,025	$	9,025	$	6,769	$	—	$	—

Fiscal Years
Total 2018 2019 2020 2021 2022 and Thereafter
Total future amortization expense $ 92,188
$ 27,591
$ 26,968
$ 19,681
$ 7,194
$ 10,754

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

8. Balance Sheet Details


7.	~~Balance Sheet Details~~

Restricted Cash

The Company’s restricted cash balance is ~~primarily comprised of certificates of~~held in deposit ~~and money market funds, of which the majority is not insured by the Federal Deposit Insurance Corporation.~~accounts at various banks globally. These amounts primarily collateralize the Company’s issuances of ~~stand-by~~standby letters of credit and bank guarantees.

Allowance for Credit Losses

The following table provides a rollforward of the allowance for credit losses for accounts receivable for the fiscal year ended December 31, 2022 (in thousands):


Balance as of December 25, 2021	$	1,304

Additions(1)	1,397
Write offs(2)	(1,279)


Balance as of December 31, 2022	$	1,422

(1)The new additions during the fiscal year ended December 31, 2022 are primarily due to specific reserves.

(2)The write offs during the fiscal year ended December 31, 2022 are primarily amounts fully reserved previously.

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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


	December 31, 2022		December 25, 2021
Inventory
Raw materials	$	48,688	$	39,379
Work in process	66,591		53,924
Finished goods	259,576		198,064
Total	$	374,855	$	291,367
Property, plant and equipment, net
Computer hardware	$	46,454	$	45,824
Computer software(1)	62,102		56,820
Laboratory and manufacturing equipment	297,261		287,875
Land and building	12,369		12,369
Furniture and fixtures	2,828		2,164
Leasehold and building improvements	50,360		51,471
Construction in progress	42,418		18,807
Subtotal	$	513,792	$	475,330
Less accumulated depreciation and amortization(2)	(340,863)		(315,112)
Total	$	172,929	$	160,218
Accrued expenses and other current liabilities
Loss contingency related to non-cancelable purchase commitments	$	28,796	$	19,405
Taxes payable	42,757		43,308
Restructuring accrual	941		8,610
Short-term operating and finance lease liability	11,701		17,792
Other accrued expenses and other current liabilities	57,255		57,914
Total accrued expenses and other current liabilities	$	141,450	$	147,029

(1)Included in computer software at December 31, 2022 and December 25, 2021 were $29.3 million and $25.9 million, respectively, related to enterprise resource planning (“ERP”) systems that the Company implemented in prior years. The unamortized ERP costs at December 31, 2022 and December 25, 2021 were $9.0 million and $8.9 million, respectively. Also included in computer software at December 31, 2022 and December 25, 2021 was $24.2 million and $20.9 million, respectively, related to term licenses. The unamortized term license costs at December 31, 2022 and December 25, 2021 was $9.1 million and $9.2 million, respectively.

(2)Depreciation expense was $46.1 million, $47.1 million and $52.3 million (which includes depreciation of capitalized ERP costs of $3.5 million, $2.8 million and $2.6 million) for 2022, 2021 and 2020, respectively. Also included in depreciation expense for 2022 and 2021 was $7.6 million and $6.7 million, respectively, related to term licenses.

9. Restructuring and Other Related Costs

December 30,
2017
December 31,
2016
Inventory:
Raw materials $ 27,568
$ 33,158
Work in process 59,662
74,533
Finished goods 127,474
125,264
Total $ 214,704
$ 232,955
Property, plant and equipment, net:
Computer hardware $ 13,881
$ 12,775
Computer software⁽¹⁾
32,521
26,779
Laboratory and manufacturing equipment 246,380
222,311
Land and building 12,347
—
Furniture and fixtures 2,474
2,075
Leasehold and building improvements 43,475
42,267
Construction in progress 34,816
33,633
Subtotal $ 385,894
$ 339,840
Less accumulated depreciation and amortization⁽²⁾
(249,952 ) (215,040 )
Total $ 135,942
$ 124,800
Accrued expenses:
Loss contingency related to non-cancelable purchase commitments $ 6,379
$ 5,555
Professional and other consulting fees 5,305
4,955
Taxes payable 3,707
2,384
Royalties 5,404
5,375
Restructuring accrual 5,490
—
Other accrued expenses 13,497
13,311
Total $ 39,782
$ 31,580
In 2020, the Company implemented a restructuring initiative (the "2020 Restructuring Plan") that was primarily intended to reduce costs and consolidate its operations. The identified cost reduction initiatives under the 2020 Restructuring Plan were substantially completed, with the majority of associated payments made in 2020 and the remaining amounts substantially paid during 2021.

In 2021, the Company announced a plan to restructure certain international research & development operations (the "2021 Restructuring Plan"). The Company estimates it will incur total costs related to the restructuring ranging from $15.0 million to $17.0 million, of which $6.1 million and $8.5 million was recorded in


⁽¹⁾	Included in computer software at December 30. 2017 and December 31, 2016 were $11.4 million and $9.1 million, respectively, related to enterprise resource planning (“ERP”) systems that the Company implemented. The unamortized ERP costs at December 30, 2017 and December 31, 2016 were $4.7 million and $4.0 million, respectively.


₍₂₎	Depreciation expense was $39.4 million, $35.5 million and $26.8 million (which includes depreciation of capitalized ERP costs of $1.7 million, $1.2 million and $1.2 million, respectively) for 2017, 2016 and 2015, respectively.

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


8.	~~Restructuring and Other Related Costs~~

In the ~~fourth quarter of 2017, the Company implemented a plan to restructure its worldwide operations (the “2017 Restructuring Plan”) in order to reduce expenses~~fiscal years ended December 31, 2022 and ~~establish a more cost-effective structure that better aligns the Company's operations with its long-term strategies. As part of the 2017~~December 25, 2021, respectively. The 2021 Restructuring Plan is substantially completed with the Company is making several changes it believes will help its research and development efficiency, with consolidation of its development sites, including closure of its Beijing, China design center, process changes to more broadly leverage the Company's engineering resources across regions and product line development, and prioritization of research and development initiatives. Outside of engineering, the Company has alsoassociated payments made ~~changes to allow it to operate more efficiently as it scales the business, including reducing the Company's facilities footprint and writing off certain equipment that will not be utilized~~in 2022. Additional restructuring activities may occur in the ~~future. Finally,~~future in connection with the Company realigned its inventory levels to match its new technology cadence and go to market strategies. As of December 30, 2017, the 2017 Restructuring Plan had been substantially completed and we do not expect to record significant future charges under this plan in 2018.Company’s ongoing transformation initiatives.

The following table presents restructuring and other related costs included in cost of revenue and operating expenses in the accompanying consolidated statements of operations under the ~~2017~~2021 Restructuring Plan, 2020 Restructuring Plan, and Coriant's previous restructuring and reorganization plans (in thousands):

Year Ended
December 30, 2017
Cost of Revenue Operating Expenses

Severance and related expenses $ 1,510
$ 7,931
Facilities —
7,300
Asset impairment 4,004
875
Inventory write-downs 13,627
—
Total $ 19,141
$ 16,106


	Years Ended
	December 31, 2022				December 25, 2021				December 26, 2020
	Cost of Revenue		Operating Expenses		Cost of Revenue		Operating Expenses		Cost of Revenue		Operating Expenses

Severance and related expenses	$	203	$	1,834	$	335	$	4,615	$	4,042	$	14,054
Lease related impairment charges	—		8,059		—		6,534		88		9,932
Asset impairment	—		35		—		1,552		14		387

Others	19		194		1,196		545		2		213
Total	$	222	$	10,122	$	1,531	$	13,246	$	4,146	$	24,586

Restructuring liabilities are reported within accrued expenses and other long-term liabilities in the accompanying consolidated balance sheets (in thousands):

December 31, 2016 Charges Cash Non-cash Settlements and Other December 30, 2017

Severance and related expenses $ —
$ 9,441
$ (5,769 ) $ —
$ 3,672
Facilities —
7,300
(180 ) (173 ) 6,947
Asset impairment —
4,879
—
(4,879 ) —
Inventory write-downs —
13,627
—
(13,627 ) —
Total $ —
$ 35,247
$ (5,949 ) $ (18,679 ) $ 10,619


	Severance and related expenses		Lease related impairment charges		Asset impairment		Others		Total
Balance as of December 26, 2020	$	10,241	$	—	$	—	$	230	$	10,471
Charges	4,951		6,534		1,552		1,740		14,777
Cash payments	(7,091)		(2,089)		—		(381)		(9,561)
Non-cash Settlements and Other	(565)		(4,445)		(1,552)		(243)		(6,805)
Balance as of December 25, 2021	$	7,536	$	—	$	—	$	1,346	$	8,882
Charges	2,033		8,059		35		204		10,331
Cash payments	(8,503)		(2,267)		—		(1,436)		(12,206)
Non-cash Settlements and Other	(274)		(5,792)		(35)		35		(6,066)
Balance as of December 31, 2022	$	792	$	—	$	—	$	149	$	941

As of December ~~30, 2017,~~31, 2022, the Company's restructuring liability was primarily comprised of ~~$6.9~~$0.7 million related to ~~facility closures,~~the 2021 Restructuring Plan and $0.2 million is related to assumed restructuring liabilities associated with ~~leases through January 2022,~~Coriant's previous restructuring and ~~$3.7 million of severance and~~reorganization plans, which was substantially completed in previous years. The liability related ~~expenses, which are~~to the 2021 Restructuring Plan is expected to be ~~substantially~~ paid ~~in 2018.~~by the end of 2023.

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

10. Accumulated Other Comprehensive Income (Loss)


9.	~~Comprehensive Income (Loss)~~

~~Other~~Accumulated other comprehensive income (loss) includes certain changes in equity that are excluded from net income (loss). The following table sets forth the changes ~~in accumulated other comprehensive income (loss)~~ by component for the periods presented (in thousands):


	Foreign Currency Translation		Actuarial Gain (Loss) on Pension		Accumulated Tax Effect		Total
Balance at December 28, 2019	$	(28,308)	$	(5,367)	$	(964)	$	(34,639)
Other comprehensive income (loss) before reclassifications	29,040		(8,183)		—		20,857
Amounts reclassified from accumulated other comprehensive income	—		1,884		—		1,884
Net current-period other comprehensive income (loss)	29,040		(6,299)		—		22,741
Balance at December 26, 2020	$	732	$	(11,666)	$	(964)	$	(11,898)
Other comprehensive income (loss) before reclassifications	(8,561)		12,580		—		4,019
Amounts reclassified from accumulated other comprehensive income	—		3,383		—		3,383
Net current-period other comprehensive income (loss)	(8,561)		15,963		—		7,402
Balance at December 25, 2021	$	(7,829)	$	4,297	$	(964)	$	(4,496)
Other comprehensive income (loss) before reclassifications	(41,803)		22,538		—		(19,265)
Amounts reclassified from accumulated other comprehensive loss	—		326		964		1,290
Net current-period other comprehensive income (loss)	(41,803)		22,864		964		(17,975)
Balance at December 31, 2022	$	(49,632)	$	27,161	$	—	$	(22,471)

11. Basic and Diluted Net Loss Per Common Share

Unrealized Gain (Loss) on Available-for-Sale Securities Foreign Currency Translation Accumulated Tax Effect Total
Balance at December 27, 2014 $ (444 ) $ (3,414 ) $ (760 ) $ (4,618 )
Other comprehensive loss before reclassifications (62 ) 5,803
—
5,741
Amounts reclassified from accumulated other comprehensive loss —
—
—
—
Net current-period other comprehensive income (62 ) 5,803
—
5,741
Balance at December 26, 2015 $ (506 ) $ 2,389
$ (760 ) $ 1,123
Other comprehensive income before reclassifications 297
(29,625 ) (119 ) (29,447 )
Amounts reclassified from accumulated other comprehensive loss —
—
—
—
Net current-period other comprehensive loss 297
(29,625 ) (119 ) (29,447 )
Balance at December 31, 2016 $ (209 ) $ (27,236 ) $ (879 ) $ (28,324 )
Other comprehensive loss before reclassifications (209 ) 34,787
—
34,578
Amounts reclassified from accumulated other comprehensive loss —
—
—
—
Net current-period other comprehensive income (209 ) 34,787
—
34,578
Balance at December 30, 2017 $ (418 ) $ 7,551
$ (879 ) $ 6,254


~~10.~~	~~Basic and Diluted Net Income (Loss) Per Common Share~~

Basic net ~~income (loss)~~loss per common share is computed by dividing net ~~income (loss) attributable to Infinera Corporation~~loss by the weighted average number of common shares outstanding during the period. Diluted net ~~income (loss) attributable to Infinera Corporation~~loss per common share is computed using net ~~income (loss) attributable to Infinera Corporation~~loss and the weighted average number of common shares outstanding plus potentially dilutive common shares outstanding during the period. Potentially dilutive common shares include the assumed exercise of outstanding in-the-money stock options, assumed release of outstanding ~~RSU~~RSUs and PSUs, and assumed issuance of common stock under the ESPP using the treasury stock method. Potentially dilutive common shares also include the ~~assumed~~shares of common stock issuable upon conversion of the ~~Notes from~~convertible senior notes using the ~~conversion spread (as defined and~~if-converted method, as further discussed in Note ~~11, “Convertible Senior Notes”~~12, “Debt” to the Notes to Consolidated Financial ~~Statements).~~Statements. The Company includes the common shares underlying PSUs in the calculation of diluted net income per common share only when they become contingently issuable. ~~In net loss periods, these potentially diluted common shares have been excluded from the diluted net loss calculation.~~

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table sets forth the computation of net ~~income (loss)~~loss per common share ~~attributable to Infinera Corporation - basic and diluted~~ (in thousands, except per share amounts):


	Years Ended
	December 31, 2022		December 25, 2021		December 26, 2020

Net loss	$	(76,043)	$	(170,778)	$	(206,723)

Weighted average common shares outstanding - basic and diluted	216,376		207,377		188,216





Net loss per common share - basic and diluted	$	(0.35)	$	(0.82)	$	(1.10)

Years Ended

December 30,
2017
December 31,
2016 December 26,
2015
Numerator:
Net income (loss) attributable to Infinera Corporation $ (194,506 ) $ (23,927 ) $ 51,413
Denominator:
Basic weighted average common shares outstanding 147,878
142,989
133,259
Effect of dilutive securities:
Employee equity plans —
—
5,686
Assumed conversion of convertible senior notes from conversion spread —
—
4,226
Dilutive weighted average common shares outstanding 147,878
142,989
143,171

Net income (loss) per common share attributable to Infinera Corporation
Basic $ (1.32 ) $ (0.17 ) $ 0.39
Diluted $ (1.32 ) $ (0.17 ) $ 0.36

The Company incurred net losses during ~~2017~~2022, 2021 and ~~2016,~~2020, and as a result, potential common shares from stock options, RSUs, PSUs and the assumed release of outstanding ~~stock~~shares under the ESPP ~~and assumed conversion of the Notes from the conversion spread~~ were not included in the diluted shares used to calculate net loss per share, as their inclusion would have been anti-dilutive.

~~During 2015,~~ Additionally, due to the net loss position during these periods, the Company ~~included~~excluded the ~~dilutive effects~~potential shares issuable upon conversion of the 2028 Notes, the 2027 Notes and the 2024 Notes in the calculation of diluted ~~net income~~earnings per ~~common~~ share, as the applicable average market price was above the conversion price of the Notes. The effects of other potentially dilutive common shares from stock options, RSUs, PSUs and assumed release of outstanding stock under the ESPP were not included in the calculation of diluted net income per share for 2015 because their ~~effect were anti-dilutive under the treasury stock method or the performance condition of the award had not~~inclusion would have been ~~met.~~

Prior to the fourth quarter of 2017, upon conversion of the Notes, the Company intended to pay cash equal to the lesser of the aggregate principal amount or the conversion value of the Notes being converted, therefore, only the conversion spread relating to the Notes were included in the Company's diluted net income per share calculation. In November 2017, the Company made an election to settle any remaining conversion obligation in cash. See Note 11, ”Convertible Senior Notes” to the Notes to Consolidated Financial Statements for more information.anti-dilutive.

The following table sets forth the potentially dilutive shares excluded from the computation of the diluted net ~~income (loss)~~loss per share because their effect was anti-dilutive (in thousands):


	As of
	December 31, 2022	December 25, 2021	December 26, 2020
Convertible senior notes(1)	55,800	4,448	8
Stock options outstanding	—	—	451
Restricted stock units	14,836	12,860	13,947
Performance stock units	2,685	2,751	3,668
Employee stock purchase plan shares	360	1,157	1,713
Total	73,681	21,216	19,787

(1) The convertible senior notes were calculated under the if-converted method for 2022 due to the adoption of ASU 2020-06 and under the treasury stock method for 2021 and 2020.

Prior to the adoption of ASU 2020-06, the Company used the treasury stock method for calculating any potential dilutive effect of the conversion spread of its convertible senior notes. The conversion spread had a dilutive impact for the 2027 Notes during the fiscal year ended December 25, 2021 since the average market price of the Company’s common stock during the periods exceeded the initial conversion price of $7.66 per share. However, the potential shares of common stock issuable upon the conversion of the convertible senior notes were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive.

After the adoption of ASU 2020-06, the Company used the if-converted method for calculating any potential dilutive effect of the convertible senior notes for fiscal year ended December 31, 2022. The Company calculates diluted earnings per share assuming that all of the convertible senior notes permitted to be share settled were converted solely into shares of common stock at the beginning of the reporting period. The potential impact upon the conversion of the convertible senior notes was excluded from the calculation of diluted net loss per share for the fiscal year ended December 31, 2022 because the effect would have been anti-dilutive.

As of

December 30,
2017
December 31,
2016 December 26,
2015
Stock options outstanding 1,461
2,042
8
Restricted stock units 6,856
5,302
415
Performance stock units 1,420
896
73
Employee stock purchase plan shares 810
1,010
225
Total 10,547
9,250
721

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

12. Debt


~~11.~~	~~Convertible Senior Notes~~

The following is a summary of our debt as of December 31, 2022 (in millions):


	Net Carrying Value				Unpaid Principal Balance		Contractual Maturity Date
	Current		Long-Term
2024 Notes	$	—	$	101.7	$	102.7	September 2024
2027 Notes	—		195.9		200.0		March 2027
2028 Notes	—		363.3		373.8		August 2028
Asset-based Revolving Credit Facility	—		—		—		June 2027

Mortgage	0.5		6.8		7.3		March 2024
Total Debt	$	0.5	$	667.7	$	683.8

The following is a summary of our debt as of December 25, 2021 (in millions):


	Net Carrying Value				Unpaid Principal Balance		Contractual Maturity Date
	Current		Long-Term
2024 Notes	$	—	$	329.2	$	402.5	September 2024
2027 Notes	—		140.3		200.0		March 2027
Asset-based Revolving Credit Facility	—		—		—		March 2024

Mortgage	0.5		7.3		7.8		March 2024
Total Debt	$	0.5	$	476.8	$	610.3

Convertible Senior Notes

In ~~May 2013,~~September 2018, the Company issued ~~the $150.0~~$402.5 million aggregate principal amount of ~~1.75% convertible senior notes~~2.125% Convertible Senior Notes due ~~June 1, 2018~~2024 (the ~~“Notes”~~"2024 Notes")~~, which will mature on June 1, 2018, unless earlier purchased by~~. In March 2020, the Company ~~or converted. Interest is~~issued $200.0 million aggregate principal amount of 2.5%Convertible Senior Notes due 2027 (the “2027 Notes"). In August 2022, the Company issued $373.8 million aggregate principal amount of 3.75% Convertible Senior Notes due 2028 (the "2028 Notes," and, together with the 2024 Notes and 2027 Notes, the “convertible senior notes”). The 2024 Notes bear interest at a fixed rate of 2.125% per year, payable semi-annually in arrears on ~~June~~March 1 and ~~December~~September 1 of each year, ~~commencing December~~beginning on March 1, ~~2013.~~2019. The ~~net proceeds to~~2027 Notes bear interest at a fixed rate of 2.5% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2020. The 2028 Notes bear interest at a fixed rate of 3.75% per year, payable semi-annually in arrears on February 1 and August 1 of each year, beginning on February 1, 2023. Each series of the Company were approximately $144.5 million and were intended to be used for working capital and other general corporate purposes. To date, the Company has not utilized the net proceeds due to its sufficient cash position.

~~The Notes are~~convertible senior notes is governed by an indenture ~~dated as of May 30, 2013 (the “Indenture”),~~ between the Company, as the issuer, and U.S. Bank National Association, as ~~trustee.~~Trustee (individually, each an “Indenture,” and together, the “Indentures”). The ~~Notes~~convertible senior notes of each series are unsecured and dorank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the convertible senior notes; equal in right of payment to any of the Company's existing and future liabilities that are not so subordinated, effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s current or future subsidiaries. The applicable Indenture governing each series of the convertible senior notes does not contain any financial covenants or any restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of the Company's other securities by the Company.

~~Upon~~

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The net proceeds to the Company from the issuance of 2024 Notes were approximately $391.4 million, of which approximately $48.9 million was used to pay the cost of the capped call transactions with certain financial institutions (“Capped Calls”). The Company also used a portion of the remaining net proceeds to fund the cash portion of the purchase price of the Acquisition, including fees and expenses relating thereto, and used the remaining net proceeds for general corporate purposes.

The Capped Calls have an initial strike price of $9.87 per share, subject to certain adjustments, which corresponds to the initial conversion ~~it is~~price of the 2024 Notes. The Capped Calls have initial cap prices of $15.19 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, 40.8 million shares of common stock. The Capped Calls transactions are expected generally to reduce or offset potential dilution to the Company's ~~intention~~common stock upon any conversion of the 2024 Notes and/or offset any cash payments the Company is required to ~~pay cash equal~~make in excess of the principal amount of converted 2024 Notes, as the case may be, with such reduction and/or offset subject to a cap. The Capped Calls expire on various dates between July 5, 2024 and August 29, 2024. The Capped Calls were recorded as a reduction of the Company’s stockholders’ equity in the accompanying consolidated balance sheets.

The net proceeds to the ~~lesser~~Company from the issuance of 2027 Notes were approximately $193.3 million after deducting initial purchasers' fee and other debt issuance costs. The Company used the remaining net proceeds for general corporate purposes, including working capital to fund growth and potential strategic projects.

The net proceeds to the Company from the issuance of 2028 Notes were approximately $362.4 million after deducting the initial purchasers' fee and other debt issuance costs. The Company used approximately $283.6 million, which included accrued and unpaid interest, of the net proceeds from this issuance to repurchase approximately $299.8 million in aggregate principal amount of its 2024 Notes concurrently with the issuance. This transaction involved a contemporaneous exchange of cash between the Company and holders of the 2024 Notes participating in the issuance of the 2028 Notes. Accordingly, the transaction was evaluated for modification or extinguishment accounting in accordance with ASC 470-50, Debt – Modifications and Extinguishments on a creditor-by creditor basis depending on whether the ~~conversion~~exchange was determined to have substantially different terms. The repurchase of the 2024 Notes and issuance of the 2028 Notes were deemed to have substantially different terms based on the present value of the ~~Notes. For any~~cash flows or significant difference between the value of the conversion option immediately prior to and after the exchange. Therefore, the repurchase of the 2024 Notes was accounted for as a debt extinguishment. The Company recorded a $15.5 million gain on extinguishment of debt on its consolidated statements of operations during the fiscal year ended December 31, 2022, which includes the write-off of related deferred issuance costs of $3.5 million. After giving effect to the repurchase, the total remaining ~~conversion obligation,~~principal amount outstanding under the 2024 Notes as of December 31, 2022 was $102.7 million.

The Company intends to ~~pay cash. For~~use the remaining net proceeds from the issuance of 2028 Notes for general corporate purposes, including working capital and to fund growth and potential strategic projects.

The 2024 Notes, the 2027 Notes and the 2028 Notes mature on September 1, 2024, March 1, 2027 and August 1, 2028, respectively. The Company did not have the right to redeem the 2024 Notes prior to September 5, 2021, and may not redeem the 2027 Notes prior to March 5, 2024 or the 2028 Notes prior to August 5, 2025. The Company may redeem for cash all ~~conversions that occur~~or any portion of the 2024 Notes at its option, on or after ~~December 1, 2017,~~September 5, 2021, the 2027 Notes, at its option, on or after March 5, 2024, and the 2028 Notes, at its option, on or after August 5, 2025, if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including the trading day immediately preceding the date on which the Company ~~has elected~~provides notice of redemption at a ~~cash settlement method. The current conversion rate is 79.4834 shares~~redemption price equal to 100% of ~~common stock per $1,000~~the principal amount of ~~Notes, subject~~the convertible senior notes to ~~anti-dilution adjustments. The initial conversion price~~be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. No sinking fund is ~~approximately $12.58 per share~~provided for the convertible senior notes.

Conversion Rate and Initial Conversion Price for each series of ~~common stock.~~convertible senior notes are presented in the following table:

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Conversion Rate per $1,000 Principal	Initial Conversion Price
2024 Notes	101.2812	$	9.87
2027 Notes	130.5995	$	7.66
2028 Notes	147.1183	$	6.80

Throughout the term of the ~~Notes,~~convertible senior notes, the conversion rate may be adjusted upon the occurrence of certain events, including for any cash dividends. Holders of the ~~Notes~~convertible senior notes will not receive any cash payment representing accrued and unpaid interest upon ~~conversion of a Note.~~conversion. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than canceled, extinguished or forfeited. ~~Holders~~Prior to the close of business on the business day immediately preceding June 1, 2024 for the 2024 Notes, December 1, 2026 for the 2027 Notes and May 1, 2028 for the 2028 Notes (the convertible dates), holders may convert their ~~Notes~~convertible senior notes under the following circumstances:

•during any fiscal quarter commencing after the fiscal ~~quarter ending~~quarters ended on December 29, 2018 for the 2024 Notes, June 27, 2020 for the 2027 Notes and September ~~28, 2013~~24, 2022 for the 2028 Notes (and only during such fiscal quarter) if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading ~~day (the “Stock Price Conversion Trigger”);~~day;

•during the five business day period after any 5five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of ~~Notes~~the convertible senior notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

•if the Company calls any or all of the convertible senior notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date;

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

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

Upon the receipt of conversion requests, the settlement of the convertible senior notes will be paid pursuant to the terms of the respective governing Indentures. In the event that any of the 2024 Notes and 2027 Notes are converted, the Company would be required to repay the principal amount and any conversion premium in any combination of cash and shares of its common stock at the Company’s option. In the event that any of the 2028 Notes are converted, the Company would be required to repay the principal amount in cash and the conversion premium in any combination of cash and shares of its common stock at the Company’s option.

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

There have been no changes to the initial conversion price of the convertible senior notes since issuance. None of the conditions allowing holders of the convertible senior notes to convert early were met. The convertible senior notes were therefore not convertible during 2022.

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Interest Expense

The ~~net carrying amounts~~following table presents the interest expense related to the contractual interest coupon, the amortization of debt issuance costs, and the amortization of debt ~~obligation were as follows~~discounts on our convertible senior notes (in thousands):

December 30, 2017 December 31, 2016
Principal $ 150,000
$ 150,000
Unamortized discount ⁽¹⁾
(4,670 ) (15,114 )
Unamortized issuance cost ⁽¹⁾
(402 ) (1,300 )
Net carrying amount $ 144,928
$ 133,586


	Year Ended
	December 31, 2022		December 25, 2021		December 26, 2020
Contractual interest expense	$	16,589	$	13,553	$	12,577
Amortization of debt issuance costs	3,404		1,892		1,634
Amortization of debt discount	—		29,411		25,349
Total interest expense	$	19,993	$	44,856	$	39,560


⁽¹⁾	~~Unamortized debt conversion discount and issuance costs will be amortized over the remaining life of the Notes, which is approximately 5 months.~~

Adoption of ASU 2020-06

AsPrior to the adoption of ASU 2020-06 on December ~~30, 2017~~26, 2021 and ~~December 31, 2016, the carrying amount of the equity component of the Notes was $43.3 million.~~

Inin accounting for the issuance of the ~~Notes,~~convertible senior notes, the ~~Company~~convertible senior notes were separated ~~the Notes~~ into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated ~~convertible~~conversion feature. The carrying ~~amount~~amounts of the equity component representing the conversion option related to the 2024 Notes and 2027 Notes were $128.7 million and $67.8 million, respectively. This was determined by deducting the fair value of the liability component from ~~the~~its par ~~value of the Notes.~~value. The equity component iswas recorded in additional paid-in-capital and was not ~~remeasured~~re-measured as long as it ~~continues~~continued to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount ~~(“debt~~(the “debt discount”) iswas amortized to interest expense over the respective contractual term of the ~~Notes.~~convertible senior notes at an effective interest rate of 9.92%.

InPrior to the adoption of ASU 2020-06 on December 26, 2021 and in accounting for the debt issuance costs ~~of $5.5~~of $12.9 million ~~related~~and $6.7 million related to the 2024 Notes and 2027 Notes, respectively, the Company allocated the total amount incurred to the liability and equity components of the ~~Notes~~convertible senior notes based on their relative values. Issuance costs attributable to the liability component were ~~recorded as other non-current assets~~ $8.7 million and ~~will be~~$4.3 million, related to the 2024 Notes and 2027 Notes, respectively, and were amortized to interest expense using the effective interest method over the contractual term of the Notes. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. The Company adopted ASU 2015-03 during the first quarter of 2016. The December 26, 2015 balance sheet was retrospectively adjusted to reclassify $2.1 million from other non-current assets to a reduction of the Notes payable liability.

~~The issuance~~convertible senior notes. Issuance costs attributable to the equity component were netted with the equity component in ~~stockholders’ equity. Additionally,~~additional paid-in-capital.

On December 26, 2021, the Company ~~initially recorded~~adopted ASU 2020-06 based on a ~~deferred tax liability~~modified retrospective transition method. Under such transition, prior-period information has not been retrospectively adjusted.

In accounting for the convertible senior notes after adoption of ~~$17.0 million in connection with~~ASU 2020-06, the ~~issuance of the Notes, and a corresponding reduction in valuation allowance. The impact of both was recorded to stockholders’ equity.~~

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

single liability. The ~~following table sets forth total interest expense recognized~~issuance cost related to the 2024 Notes, ~~(in thousands):~~

Years Ended
December 30, 2017 December 31, 2016 December 26, 2015
Contractual interest expense $ 2,625
$ 2,625
$ 2,625
Amortization of debt issuance costs 898
813
735
Amortization of debt discount 10,444
9,447
8,546
Total interest expense $ 13,967
$ 12,885
$ 11,906

~~The coupon rate was 1.75%. For~~ the ~~years ended December 30, 2017~~2027 Notes and ~~December 31, 2016,~~ the ~~debt discount and debt issuance costs were~~2028 Notes are being amortized ~~using an annual effective interest rate of 10.23%,~~ to interest expense over the respective contractual term, at effective interest rates of 2.7%, 3.0% and 4.3%, respectively. Unamortized debt issuance costs will be amortized over the remaining life of the ~~Notes.~~

2024 Notes, the 2027 Notes and the 2028 Notes which is approximately 20 months, 50 months, and 67 months, respectively.

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~As a result of the Notes maturing on June 1, 2018, the~~The net carrying amount of the convertible senior notes as of December 31, 2022 (post-ASU 2020-06 adoption) and as of December 25, 2021 (pre-ASU 2020-06 adoption) was ~~reclassified~~as follows (in thousands):


	2024 Notes				2027 Notes				2028 Notes
	December 31, 2022		December 25, 2021		December 31, 2022		December 25, 2021		December 31, 2022
Principal	$	102,652	$	402,500	$	200,000	$	200,000	$	373,750
Unamortized debt discount	—		(68,755)		—		(56,270)		—
Unamortized issuance costs	(926)		(4,488)		(4,121)		(3,472)		(10,401)
Net carrying amount	$	101,726	$	329,257	$	195,879	$	140,258	$	363,349

Asset-based revolving credit facility

On June 24, 2022, the Company entered into a Loan, Guaranty and Security Agreement (the “Loan Agreement”) with the lenders party thereto, and Bank of America, N.A., as agent. The Loan Agreement provides for a senior secured asset-based revolving credit facility of up to $200 million (the "Credit Facility"), which the Company may draw upon from ~~long-term~~time to time. The Company may increase the total commitments under the revolving credit facility by up to an additional $100 million, subject to certain conditions. In addition, the Loan Agreement provides for a $50 million letter of credit subfacility and a $20 million swingline loan facility.

The proceeds of the loans under the Loan Agreement may be used to pay the fees, costs, and expenses incurred in connection with the Loan Agreement, repay existing debt and for working capital and general corporate purposes, including to ~~short-term~~fund growth. The Credit Facility has a stated maturity date of June 24, 2027. Availability under the Credit Facility will be based upon periodic borrowing base certifications valuing certain inventory and accounts receivable, as reduced by certain reserves. The Credit Facility is secured by a first-priority security interest (subject to certain exceptions) in inventory, certain related assets, specified deposit accounts, and certain other accounts.

Outstanding borrowings accrue interest at floating rates plus an applicable margin of 1.25% to 1.75% for Term Secured Overnight Financing Rate ("SOFR") rate loans and 0.25% to 0.75% for base rate loans. The unused line fee rate payable on the unused portion of the Credit Facility is equal to 0.25% per annum based on utilization of the Credit Facility.

The Loan Agreement contains customary affirmative covenants, such as financial statement reporting requirements and delivery of borrowing base certificates. The Loan Agreement also contains customary covenants that limit the ability of the Company to, among other things, incur debt, create liens and encumbrances, engage in certain fundamental changes, dispose of assets, prepay certain indebtedness, make restricted payments, make investments, and engage in transactions with affiliates. The Loan Agreement also contains a financial covenant that requires the ~~Company's consolidated balance sheets during the second quarter of 2017.~~Company to maintain a minimum fixed charge coverage ratio. As of December ~~30, 2017,~~31, 2022, the ~~fair value~~Company was in compliance with all covenants under the Loan Agreement.

In connection with the Credit Facility, the Company incurred lender and other third-party costs of ~~the Notes was $149.1 million. The fair value was determined based on the quoted bid price of the Notes in an over-the-counter market on December 29, 2017. The Notes~~approximately $1.2 million, which are ~~classified~~recorded as ~~Level 2 of the fair value hierarchy.~~

During the third quarter of 2017, the closing price of the Company's common stock did not meet the Stock Price Conversion Trigger; therefore, holders of the Notes could not convert their Notes during the fourth quarter of 2017 pursuant to the Stock Price Conversion Trigger. The Notes became convertible at the option of the holders beginning on December 1, 2017a deferred asset and will be ~~convertible until~~amortized to interest expense using a straight-line method over the ~~close of business on the second scheduled trading day immediately preceding the maturity date. Based on the closing price~~term of the ~~Company’s common stock~~Credit Facility.

As of ~~$6.33~~December 31, 2022, the Company had availability of $161.6 million under the Credit Facility. As of December 31, 2022, the Loan Agreement included a $50.0 million letter of credit subfacility and $15.4 million letters of credit issued and outstanding.

On August 1, 2019, the Company entered into a Credit Agreement with Wells Fargo Bank, N.A., (the "2019 Credit Agreement"), which was subsequently amended on December ~~29, 2017~~23, 2019 (the ~~last trading day~~"Amended Credit Agreement", and together with the 2019 Credit Agreement, the "Prior Credit Agreement"). The Prior Credit Agreement provided for a senior secured asset-based revolving credit facility of up to $150 million, which the ~~fiscal quarter), the if-converted value of the Notes did not exceed their principal amount.~~Company could draw upon from time to time. The credit facility was secured by first-priority security interest

100

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(subject to certain exceptions) in inventory, certain related assets, specified deposit accounts, and certain other accounts in certain domestic subsidiaries. The Prior Credit Agreement also provided for a $50 million letter of credit sub-facility and a $10 million swing loan sub-facility.

~~12.~~Outstanding borrowings under the Prior Credit Agreement accrued interest at floating rates plus and applicable margin from 2.00% to 2.50% for LIBOR rate loans and 1.00% to 1.50% for base rate loans, depending on the utilization of the credit facility. The commitment fee payable on the unused portion of the credit facility ranged from 0.375% to 0.625% per annum, also based on the utilization of the credit facility. The letter of credit accrued fee at a per annum rate equal to the applicable LIBOR rate margin times by the average amount of the letter of credit usage during the immediately preceding quarter, in addition to the fronting fees, commissions and other fees.

Effective January 1, 2022, with the cessation of LIBOR, the Prior Credit Agreement provided for an alternative benchmark rate for LIBOR-based loans, which included SOFR or other prevailing market rate as determined by the agent plus a spread based on prevailing market convention for the applicable interest period plus a margin ranging from 2.00% to 2.50%.

The Prior Credit Agreement contained customary affirmative covenants, such as financial statement reporting requirements and delivery of borrowing base certificates. It also contained customary covenants that limited the ability of the Company and its subsidiaries to, among other things, incur debt, create liens and encumbrances, engage in certain fundamental changes, dispose of assets, prepay certain indebtedness, make restricted payments, make investments, and engage in transactions with affiliates. In addition the Prior Credit Agreement also contained a financial covenant that required the Company to maintain a minimum amount of liquidity and customary events of default.

In connection with the Prior Credit Agreement, the Company incurred lender and other third-party costs of approximately $4.9 million in 2019, which were recorded as a deferred asset and are amortized to interest expense using a straight-line method over the term of the Prior Credit Agreement. As of December 25, 2021, the Prior Credit Agreement included a $50 million letter of credit facility and $11.5 million had been issued and outstanding.

In June 2022, the Company terminated the Prior Credit Agreement and repaid the entire outstanding principal balance of $40.0 million, in addition to accrued interest and other fees of $0.5 million. The Company also recorded $2.0 million in interest expense to write off the unamortized deferred debt issuance costs related to the Prior Credit Agreement.

Mortgage Payable

In March 2019, the Company mortgaged a property it owns. The Company received proceeds of $8.7 million in connection with the loan. The loan carries a fixed interest rate of 5.25% and is repayable in 59 equal monthly installments of principal and interest with the remaining unpaid principal balance plus accrued unpaid interest due five years from the date of the loan.

On September 24, 2021, the loan was amended to reduce the interest rate from 5.25% to 3.80% for the remaining 31 equal monthly installments of approximately $0.1 million, with the remaining principal payment at maturity date.

101

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

13. Commitments and Contingencies

~~Operating Leases~~The following table sets forth commitments and contingencies related to our various obligations (in thousands):


			Payments Due by Period
	Total		2023		2024		2025		2026		2027		Thereafter
Operating leases(1)(2)	$	71,903	$	15,603	$	14,366	$	13,202	$	10,232	$	7,930	$	10,570
Financing lease obligations(3)	966		789		177		—		—		—		—
Purchase obligations (4)	744,777		695,641		41,904		7,232		—		—		—
2028 Notes, including interest(5)	457,572		13,743		14,016		14,016		14,016		14,016		387,765
2027 Notes, including interest(5)	222,500		5,000		5,000		5,000		5,000		202,500		—
2024 Notes, including interest(5)	107,015		2,182		104,833		—		—		—		—
Mortgage Payable, including interest(5)	7,611		781		6,830		—		—		—		—
Total contractual obligations	$	1,612,344	$	733,739	$	187,126	$	39,450	$	29,248	$	224,446	$	398,335

(1)The Company leases facilities under non-cancelable operating lease agreements. These leases have varying terms that range from one to ~~10 years, and contain leasehold improvement incentives, rent holidays and escalation clauses. In addition, some of these leases have renewal options~~11 years. The above payment schedule includes interest. See Note 3, "Leases" to the Notes to Consolidated Financial Statements for ~~up to five years.~~more information.

(2) The Company has contractual commitments to remove leasehold improvements and return certain properties to a specified condition when the leases terminate. At the inception of a lease with such conditions, the Company records an asset retirement obligation liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation. Asset retirement obligations were ~~$3.5~~$4.9 million and ~~$3.6~~$5.1 million as of December ~~30, 2017~~31, 2022 and December 25, 2021, respectively. Of the $4.9 million as of December 31, ~~2016, respectively. These obligations are~~2022, $4.6 million is classified as other long-term liabilities on the accompanying consolidated balance sheets. The remainder is included in accrued expenses and other current liabilities.

(3) The Company ~~recognizes rent expense on a straight-line basis over the lease period factoring in~~has finance leases for computer hardware and leasehold ~~improvement incentives, rent holidays and escalation clauses. Rent expense for all leases was $12.0 million, $8.6 million and $7.2 million for 2017, 2016 and 2015, respectively.~~improvements. The ~~Company did not have any sublease rental income for 2017, 2016 and 2015.~~

~~Future annual minimum operating lease payments at December 30, 2017 were as follows (in thousands):~~

2018 2019 2020 2021 2022 Thereafter Total
Operating lease payments $ 11,319
$ 10,015
$ 8,595
$ 2,306
$ 413
$ 61
$ 32,709

~~In the fourth quarter of 2017, the Company implemented the 2017 Restructuring Plan, which included vacating certain leased facilities.~~above payment schedule includes interest. See Note ~~8, "Restructuring and Other Related Costs,"~~3, "Leases" to the Notes to Consolidated Financial Statements for more information.

~~Purchase Commitments~~

(4)The Company has ~~service~~ agreements with its major production suppliers, where the Company is committed to purchase certain parts. ~~These obligations are typically less than the Company’s purchase needs.~~ As of December ~~30, 2017,~~31, 2022, December ~~31, 2016~~25, 2021 and December 26, ~~2015,~~2020, these non-cancelable purchase commitments were ~~$96.1~~$744.8 million, ~~$111.9~~$591.5 million and ~~$137.4~~$291.4 million, respectively.

~~Future purchase commitments at December 30, 2017 were as follows (in thousands):~~

2018 2019 2020 2021 2022 Thereafter Total
Purchase obligations $ 96,053
$ —
$ —
$ —
$ —
$ —
$ 96,053

~~The contractual obligation tables above exclude tax liabilities of $2.9 million related~~(5) See Note 12, "Debt" to ~~uncertain tax positions because~~ the ~~Company cannot reliably estimate the timing and amount of future payments, if any.~~

~~INFINERA CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Notes to Consolidated Financial Statements for more information.

Legal Matters

NextGen Innovations, LLC

On ~~November 23, 2016, Oyster Optics,~~August 9, 2022, NextGen Innovations, LLC ~~(“Oyster Optics”~~("NextGen") filed a complaint against ~~the Company~~us in the United States District Court for the Eastern District of Texas. The complaint asserts that through certain products we infringe on U.S. Patent Nos. ~~6,469,816, 6,476,952, 6,594,055, 7,099,592, 7,620,327, 8,374,511~~9,887,795, 10,263,723, and ~~8,913,898 (collectively, the “Oyster Optics patents in suit”).~~10,771,181. The complaint ~~seeks~~alleges that NextGen is entitled to unspecified damages, costs, fees, expenses, interest, and a permanent injunction. The Company believes that it does not infringe any valid and enforceable claim of the Oyster Optics patents in suit, and intends to defend this action vigorously. The Company filed its answer to Oyster Optics' complaint on February 3, 2017. On October 23, 2017, the Company filed a petition for Inter Partes Review (“IPR”) of one of the Oyster Optics patents in suit, U.S. Patent No. 8,913,898 (the “'898 patent”), with the U.S. Patent and Trademark Office, and, on December 1, 2017, the Company filed a second petition for IPR of the '898 patent. Other defendants have filed IPR petitions in connection with the Oyster Optics patents in suit. The Court has set a trial date for June 2018. The Company isinjunctive relief. We are currently unable to predict the outcome of this litigation and therefore cannot reasonably estimate the possible loss or range of loss, if any, arising from this matter.

On March 24, 2017, Core Optical Technologies, LLC (“Core Optical”) filed a complaint against the Company in the United States District Court for the Central District of California. The complaint asserts U.S. Patent No. 6,782,211 (the “Core Optical patent in suit”). The complaint seeks unspecified damages and a permanent injunction. The Company believes that it does not infringe any valid and enforceable claim of the Core Optical patent in suit, and intends to defend this action vigorously. The Company filed its answer to Core Optical's complaint on September 25, 2017. Because this action is in the early stages, the Company is unable to predict the outcome of this litigation at this time and therefore cannot reasonably estimate the possible loss or range of loss, if any, arising from this matter.

In addition to the ~~matters~~matter described above, ~~the Company is~~we are subject to various legal proceedings, claims and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, ~~the Company does~~we do not expect that the ultimate costs to resolve these matters will have a material effect on ~~its~~our consolidated financial position, results of operations or cash flows.

102

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Loss Contingencies

The Company is subject to the possibility of various losses arising in the ordinary course of business. These may relate to disputes, litigation and other legal actions. In the preparation of its quarterly and annual financial statements, the Company considers the likelihood of loss or the incurrence of a liability, including whether it is probable, reasonably possible or remote that a liability has been incurred, as well as the Company’s ability to reasonably estimate the amount of loss, in determining loss contingencies. In accordance with U.S. GAAP, an estimated loss contingency is accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company regularly evaluates current information to determine whether any accruals should be adjusted and whether new accruals are required.As of each of December ~~30, 2017,~~31, 2022 and December 25, 2021, the Company has accrued the estimated liabilities associated with certain loss contingencies.

Indemnification Obligations

From time to time, the Company enters into certain types of contracts that contingently require it to indemnify parties against ~~third party~~third-party claims. The terms of such indemnification obligations vary. These contracts may relate to: (i) certain real estate leases under which the Company may be required to indemnify property owners for environmental and other liabilities, and other claims arising from the Company’s use of the applicable premises; and (ii) certain agreements with the Company’s officers, directors and certain key employees, under which the Company may be required to indemnify such persons for liabilities.

In addition, the Company has agreed to indemnify certain customers for claims made against the Company’s products, where such claims allege infringement of ~~third party~~third-party intellectual property rights, including, but not limited to, patents, registered trademarks, and/or copyrights. Under the aforementioned intellectual property indemnification clauses, the Company may be obligated to defend the customer and pay for the damages awarded against the customer under an infringement claim as well as the customer’s attorneys’ fees and costs. These indemnification obligations generally do not expire after termination or expiration of the agreement containing the indemnification obligation. In certain cases, there are limits on and exceptions to the Company’s potential liability for indemnification. ~~Although historically, the Company has not made significant payments under these indemnification obligations, the~~The Company cannot estimate the amount of potential future

~~INFINERA CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

payments, if any, that it might be required to make as a result of these agreements. The maximum potential amount of any future payments that the Company could be required to make under these indemnification obligations could be significant.

As permitted under Delaware law and the Company’s charter and bylaws, the Company has agreements whereby it indemnifies certain of its officers and each of its directors. The term of the indemnification period is for the officer’s or director’s lifetime for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements could be significant; however, the Company has a director and officer insurance policy that may reduce its exposure and enable it to recover all or a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal.

103

~~13.~~

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

14. Guarantees

Product Warranties

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


	December 31, 2022		December 25, 2021
Beginning balance	$	44,310	$	40,708
Charges to operations	27,176		23,061
Utilization	(22,420)		(25,745)
Change in estimate(1)	(12,445)		6,286
Balance at the end of the period	$	36,621	$	44,310

December 30,
2017
December 31,
2016
Beginning balance $ 40,342
$ 38,844
Charges to operations 18,283
25,135
Utilization (14,985 ) (16,884 )
Change in estimate⁽¹⁾
(12,731 ) (6,753 )
Balance at the end of the period $ 30,909
$ 40,342
(1)The Company records product warranty liabilities based on the latest quality and cost information available as of the date the revenue is recorded. The changes in estimate shown here are due to changes in overall actual failure rates, the mix of new versus used units related to replacement of failed units, and changes in the estimated cost of repair and product recalls. As the Company's products mature over time, failure rates and repair costs associated with such products generally decline leading to favorable changes in warranty reserves.

⁽¹⁾

The Company records product warranty liabilities based on the latest quality and cost information available as of the date the revenue is recorded. The changes in estimate shown here are due to changes in overall actual failure rates, the mix of new versus used units related to replacement of failed units, and changes in the estimated cost of repair. As the Company's products mature over time, failure rates and repair costs generally decline leading to favorable changes in warranty reserves. In addition, during 2017, due to product quality improvements, the Company revised certain estimates used in calculating its product warranties that resulted in a one-time reduction to the warranty accrual of $2.2 million.

Letters of Credit and Bank Guarantees

The Company had ~~$4.2~~$24.7 million and $22.5 million of standby letters of credit, bank guarantees and surety bonds outstanding as of December 31, 2022 and December 25, 2021, respectively. Details are sets in below table (in thousands).


	December 31, 2022		December 25, 2021
Customer performance guarantees	$	20,903	$	16,307
Value added tax license	1,434		287
Property leases	2,398		4,684
Pension plans	—		1,004
Credit cards	—		150
Other liabilities	—		68
Total	$	24,735	$	22,500

Of the $20.9 million related to customer performance guarantees, approximately $4.0 million was used to secure surety bonds in the aggregate of $7.5 million as of December 31, 2022. Of the $16.3 million to customer performance guarantees, approximately $4.0 million was used to secure surety bonds in the aggregate of $5.5 million as of December 25, 2021.

As of December 31, 2022, of the aforementioned standby letters of credit and bank guarantees outstanding, ~~as of December 30, 2017. These consisted of $2.2~~$9.2 million related to customer performance guarantees, $1.3 million value added tax and customs' licenses, and $0.7 million related to property leases. The Company had $8.7 million of standby letters of credit and bank guarantees outstanding as of December 31, 2016. These consisted of $4.5 million related to property leases, $3.1 million related to customer performance guarantees and $1.1 million related to a value added tax and customs authorities' licenses.was backed by cash collateral.

As of December 30, 2017 and December 31, 2016, the Company has a line of credit for approximately $1.6 million and $1.1 million, respectively, to support the issuance of letters of credit, of which zero and $0.3 million had been issued and outstanding, respectively. The Company has pledged approximately $5.2 million and $4.5 million of assets of a subsidiary to secure this line of credit and other obligations as of December 30, 2017 and December 31, 2016, respectively.

104

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

15. Stockholders’ Equity


~~14.~~	~~Stockholders’ Equity~~

~~2007~~2016 Equity Incentive Plan, ~~2016~~2019 Inducement Equity Incentive Plan and Employee Stock Purchase Plan

In February 2007, the ~~Company’s~~Company's board of directors adopted the ~~2007 Equity Incentive Plan (the “2007 Plan”)~~ESPP and the ~~Company’s~~Company's stockholders approved the ~~2007 Plan~~ESPP in May 2007. The ~~Company reserved~~ESPP was last amended by the stockholders in May 2019 to increase the shares authorized under the ESPP to a total of ~~46.8~~approximately 31.6 million shares of common stock. The ESPP has a 20-year term. Eligible employees may purchase the Company’s common stock ~~for issuance~~through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the ~~2007 Plan. Upon stockholder approval~~ESPP are limited to a maximum of 15% of the ~~2016 Equity Incentive Plan (the “2016 Plan”), the Company has ceased granting equity awards under the 2007 Plan, however the 2007 Plan will continue to govern the terms~~employee’s compensation and ~~conditions of the outstanding options and awards previously granted under the 2007 Plan. As of December 30, 2017, options to~~an employee may not purchase ~~1.4 million~~more than 3,000 shares ~~of the Company's common stock were outstanding and 2.7 million RSUs were outstanding under the 2007 Plan.~~per purchase period.

In February 2016, the Company's board of directors adopted the 2016 Plan and the Company's stockholders approved the 2016 Plan in May 2016. In May 2017, May 2018, May 2019, May 2020 and May 2021 and May 2022, the Company's stockholders approved ~~an amendment~~amendments to the 2016 Plan to increase the number of shares authorized for issuance under the 2016 Plan by 6.4 million ~~shares.~~shares, 1.5 million shares, 7.3 million shares, 8.1 million shares, 4.4 million shares and 8.5 million shares, respectively. As of December ~~30, 2017,~~31, 2022, the Company reserved a total of ~~13.9~~43.7 million shares of common stock for ~~issuance~~the award of stock options, RSUs and PSUs to employees, non-employees, consultants and members of the Company's board of directors pursuant to the 2016 Plan, plus any shares subject to awards granted under the 2007 Plan that, after the effective date of the 2016 Plan, expire, are forfeited or otherwise terminate without having been exercised in full to the extent such awards were exercisable, and shares issued pursuant to awards granted under the 2007 Plan that, after the effective date of the 2016 Plan, are forfeited to or repurchased by the Company due to failure to vest. The 2016 Plan has a maximum term of 10 years from the date of adoption, or it can be earlier terminated by the Company's board of directors.

The ~~ESPP~~2007 Plan was ~~adopted by the board of directors in February 2007~~cancelled and ~~approved by the stockholders in May 2007. The ESPP was last amended by the stockholders in May 2014 to increase the shares authorized~~there are no outstanding grants under the ESPP to a total of 16.6 million shares of common stock. The ESPP has a 20-year term. Eligible employees may purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the ESPP are limited to 15% of the employee’s compensation and employees may not purchase more than $25,000 of stock during any calendar year.2007 Plan.

Shares Reserved for Future Issuances

Common stock reserved for future issuance was as follows (in thousands):



			December ~~30, 2017~~31, 2022
Outstanding stock ~~options and~~ awards			~~9,555~~15,148
Reserved for future ~~option and~~ award grants			~~9,480~~9,078
Reserved for future ESPP			~~2,524~~4,613
Total common stock reserved for stock options and awards			~~21,559~~28,839

~~INFINERA CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Stock-based Compensation Plans

The Company has stock-based compensation plans pursuant to which the Company has granted stock options, RSUs and PSUs. The Company also has an ESPP for all eligible employees. The following tables summarize the Company’s equity award activity and related information (in thousands, except per share data):

Number of
Options

Weighted-Average
Exercise Price
Per Share

Aggregate
Intrinsic
Value
Outstanding at December 27, 2014 4,298
$ 7.29
$ 32,833
Options granted —
$ —

Options exercised (1,787 ) $ 7.33
$ 21,566
Options canceled —
$ —

Outstanding at December 26, 2015 2,511
$ 7.26
$ 28,288
Options granted —
$ —

Options exercised (825 ) $ 4.97
$ 4,433
Options canceled (31 ) $ 12.46

Outstanding at December 31, 2016 1,655
$ 8.30
$ 965
Options granted —
$ —

Options exercised (196 ) $ 7.78
$ 373
Options canceled (62 ) $ 14.11

Outstanding at December 30, 2017 1,397
$ 8.11
$ 1
Exercisable at December 30, 2017 1,397
$ 8.11
$ 1

105

Number of
Restricted
Stock Units

Weighted-Average
Grant Date
Fair Value
Per Share

Aggregate
Intrinsic
Value
Outstanding at December 27, 2014 6,042
$ 8.14
$ 90,085
RSUs granted 2,202
$ 18.48

RSUs released (3,035 ) $ 7.88
$ 53,892
RSUs canceled (277 ) $ 10.95

Outstanding at December 26, 2015 4,932
$ 12.76
$ 91,285
RSUs granted 2,992
$ 13.94

RSUs released (2,303 ) $ 11.06
$ 26,407
RSUs canceled (328 ) $ 13.90

Outstanding at December 31, 2016 5,293
$ 14.10
$ 44,939
RSUs granted 4,281
$ 9.66

RSUs released (2,198 ) $ 13.56
$ 20,791
RSUs canceled (585 ) $ 13.24

Outstanding at December 30, 2017 6,791
$ 11.55
$ 42,988

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Number of Restricted Stock Units	Weighted-Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value
Outstanding at December 28, 2019	11,600	$	6.20	$	90,254
RSUs granted	7,064	$	5.95
RSUs released	(5,087)	$	6.36	$	30,421
RSUs canceled	(1,109)	$	6.29
Outstanding at December 26, 2020	12,468	$	5.99	$	136,781
RSUs granted	7,377	$	8.68
RSUs released	(7,509)	$	5.96	$	66,317
RSUs canceled	(729)	$	6.92
Outstanding at December 25, 2021	11,607	$	7.66	$	110,849
RSUs granted	8,897	$	8.26
RSUs released	(6,690)	$	7.52	$	46,104
RSUs canceled	(1,226)	$	7.89
Outstanding at December 31, 2022	12,588	$	8.13	$	84,847


								Number of Performance Stock Units	Weighted-Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value
Outstanding at December 28, 2019							Outstanding at December 28, 2019	2,505	$	6.48	$	19,485
PSUs granted							PSUs granted	1,628	$	5.89
	Number of Performance Stock Units		Weighted-Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value
Outstanding at December 27, 2014	876		$	7.49	$	13,067
PSUs granted	332		$	18.23
PSU performance earned⁽¹⁾	129		$	7.32
PSUs released	(413	)	$	7.00	$	7,231	PSUs released	(285)	$	9.02	$	1,702
PSUs canceled	(193	)	$	8.03			PSUs canceled	(382)	$	6.93
Outstanding at December 26, 2015	731		$	12.35	$	13,540
Outstanding at December 26, 2020							Outstanding at December 26, 2020	3,466	$	5.36	$	38,022
PSUs granted	647		$	15.28			PSUs granted	659	$	8.61
PSU performance earned⁽¹⁾	234		$	12.28

PSUs released	(614	)	$	11.34	$	8,077	PSUs released	(964)	$	5.21	$	8,278
PSUs canceled	(94	)	$	15.18			PSUs canceled	(1,047)	$	4.91
Outstanding at December 31, 2016	904		$	14.13	$	7,672
Outstanding at December 25, 2021							Outstanding at December 25, 2021	2,114	$	6.66	$	20,184
PSUs granted	916		$	10.88			PSUs granted	899	$	8.38
PSUs released	(26	)	$	11.83	$	225	PSUs released	(335)	$	5.40	$	2,592
PSUs canceled	(427	)	$	12.20			PSUs canceled	(119)	$	7.19
Outstanding at December 30, 2017	1,367		$	16.28	$	8,651
Expected to vest as of December 30, 2017	55				$	348
Outstanding at December 31, 2022							Outstanding at December 31, 2022	2,559	$	7.40	$	17,251
Expected to vest as of December 31, 2022							Expected to vest as of December 31, 2022	1,701			$	11,464


⁽¹⁾	~~Represents the additional PSUs awarded resulting from the achievement of performance goals above the performance targets established at grant.~~

The aggregate intrinsic value of unexercised options is calculated as the difference between the closing price of the Company’s common stock of $6.33 at December 29, 2017 and the exercise prices of the underlying stock options. The aggregate intrinsic value of the options which have been exercised is calculated as the difference between the fair market value of the common stock at the date of exercise and the exercise price of the underlying stock options. The aggregate intrinsic value of unreleased RSUs and unreleased PSUs is calculated using the closing price of the Company's common stock of ~~$6.33~~$6.74 at December ~~29, 2017.~~30, 2022. The aggregate intrinsic value of RSUs and PSUs released is calculated using the fair market value of the common stock at the date of release.

The following table presents total stock-based compensation cost for instruments granted but not yet ~~amortized,~~recognized, net of ~~estimated~~ forfeitures, of the Company’s equity compensation plans as of December ~~30, 2017.~~31, 2022. These costs are expected to be amortized on a straight-line basis over the following weighted-average periods (in thousands, except for weighted-average period):

106

Unrecognized
Compensation
Expense, Net

Weighted-
Average Period
(in years)
Stock options $ 1
0.04
RSUs $ 56,474
2.5
PSUs $ 9,620
1.5

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Unrecognized Compensation Expense, Net		Weighted- Average Period (in years)

RSUs	$	75,755	2.00
PSUs	$	8,069	1.90

~~The following table summarizes information about options outstanding at December 30, 2017.~~

Options Outstanding
Vested and Exercisable
Options
Exercise Price
Number of
Shares

Weighted-
Average
Remaining
Contractual Life

Weighted-
Average
Exercise
Price

Number of
Shares

Weighted-
Average
Exercise
Price
(In thousands) (In years) (In thousands)
$6.30 - $ 7.25 261
1.65 $ 6.88
261
$ 6.88
$7.45 - $ 7.61 270
1.38 $ 7.51
270
$ 7.51
$7.68 - $ 8.19 235
2.45 $ 8.07
235
$ 8.07
$ 8.58 509
3.12 $ 8.58
509
$ 8.58
$9.02 - $13.54 122
1.54 $ 10.22
122
$ 10.23
1,397
2.26 $ 8.11
1,397
$ 8.11

~~Employee Stock Options~~

The weighted-average remaining contractual term of options outstanding and exercisable was 2.3 years as of December 30, 2017. The Company did not grant any stock options during 2017, 2016 or 2015. Total fair value of stock options granted to employees and directors that vested during 2017 and 2016 was insignificant in both periods and was approximately $0.2 million 2015~~based on the grant date fair value. Amortization of stock-based compensation expense related to stock options in2017 and 2016 was insignificant in both periods, and was $0.2 million in 2015~~.

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



	~~Year Ended~~
~~Employee and Director Stock Options~~	~~December 27,~~ ~~2014~~
~~Volatility~~	~~52%~~
~~Risk-free interest rate~~	~~1.3%~~
~~Expected life~~	~~4.3 years~~
~~Estimated fair value~~	~~3.85~~

Employee Stock Purchase Plan

The fair value of the ESPP shares was estimated at the date of grant using the following assumptions:

Years Ended

~~December 30,~~

~~2017~~

December 31,
~~2016~~ 2022

December 25, 2021

December 26,
~~2015~~ 2020

Volatility

~~47% - 51%~~

~~56% - 67%~~

39% - ~~53%~~63%

38% - 50%

42% - 97%

Risk-free interest rate

~~0.81%~~0.67% - ~~1.16%~~3.12%

~~0.51%~~0.05% - ~~0.52%~~0.06%

~~0.13%~~0.12% - ~~0.26%~~1.56%

Expected life

0.5 years

Estimated fair value

$~~2.44~~1.91 - ~~$3.46~~$2.21

$~~3.16~~2.22 - ~~$4.53~~$3.11

$~~5.15~~2.17 - ~~$6.43~~$3.42

The expected dividend yield is zero for the Company as it does not expect to pay dividends in the future.

~~INFINERA CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

The Company’s ESPP activity for the following periods was as follows (in thousands):


	Years Ended							Years Ended
	December 30, 2017		December 31, 2016		December 26, 2015			December 31, 2022		December 25, 2021		December 26, 2020
Stock-based compensation expense	$	6,049	$	6,094	$	4,472	Stock-based compensation expense	$	5,551	$	5,879	$	6,607
Employee contributions	$	16,410	$	13,609	$	12,253	Employee contributions	$	15,189	$	16,167	$	15,346
Shares purchased	2,140		1,369		1,229		Shares purchased	2,552		2,272		3,001

Restricted Stock Units

~~The~~Pursuant to the 2016 Plan, the Company has granted RSUs to employees and non-employee members of the ~~Company’s~~Company's board of ~~directors to receive shares of the Company’s common stock.~~directors. All RSUs awarded are subject to each individual's continued service to the Company through each applicable vesting date. The Company accounted for the fair value of the RSUs using the closing market price of the Company’s common stock on the date of grant. Amortization of stock-based compensation expense related to RSUs in ~~2017, 2016~~2022, 2021 and ~~2015~~2020 was approximately ~~$30.5~~$54.1 million, ~~$29.6~~$42.3 million and ~~$22.9~~$36.1 million, respectively.

Performance Stock Units

Pursuant to the ~~2007~~2016 Plan, the Company has granted PSUs to certain of the Company’s executive officers, senior management and certain employees. All PSUs awarded are subject to each individual's continued service to the Company through each applicable vesting date and if the performance metrics are not met within the time limits specified in the award agreements, the PSUs will be canceled.

~~A number of~~ PSUs granted to the ~~Company’s~~Company's executive officers and senior management under the 2016 Plan during 2020, 2021 and 2022 are based on ~~the total shareholder return of the Company's common stock price as compared~~performance criteria related to ~~the total shareholder return of the S&P North American Technology Multimedia Networking Index (“SPGIIPTR”)~~a specific financial target over the span of ~~one year, two years and three years.~~a three-year performance period. These PSUs may become eligible for vesting to begin before the end of the three-year performance period, if the applicable financial target is met. The number of shares to be issued upon vesting of these PSUs ~~range from zero to two times~~are capped at the target number of PSUs ~~granted depending on~~granted. Certain other employees were awarded PSUs that will only vest upon the ~~Company’s~~achievement of specific financial and operational performance ~~against the SPGIIPTR.~~

~~The ranges of estimated values of the PSUs granted that are compared to the SPGIIPTR, as well as the assumptions used in calculating these values were based on estimates as follows:~~criteria.

107

2017 2016 2015
Index SPGIIPTR SPGIIPTR SPGIIPTR
Index volatility 33% - 34% 18% 18% - 19%
Infinera volatility 55% - 56% 55% 48%
Risk-free interest rate 1.41% - 1.63% 0.95% - 1.07% 0.97% - 1.10%
Correlation with index 0.10 - 0.49 0.58 - 0.59 0.52
Estimated fair value $15.23 - $17.35 $10.31 - $16.62 $18.08 - $19.29

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~In addition, the Company has granted other PSUs to certain employees that only vest upon the achievement of specific operational performance criteria.~~

The following table summarizes by grant year, the Company’s PSU activity for the fiscal year ended December ~~30, 2017~~31, 2022 (in thousands):


	Total Number of Performance Stock Units	2019	2020	2021	2022
Outstanding at December 25, 2021	2,114	185	1,270	659	—
PSUs granted	899	—	—	—	899

PSUs released	(335)	(185)	(150)	—	—
PSUs canceled	(119)	—	(62)	(57)	—
Outstanding at December 31, 2022	2,559	—	1,058	602	899

Grant Year
Total Number of Performance Stock Units 2014 2015 2016 2017
Outstanding at December 31, 2016 904
123
148
633
—
PSUs granted 916
—
—
—
916
PSUs released (26 ) (20 ) (6 ) —
—
PSUs canceled (427 ) (102 ) (65 ) (213 ) (47 )
Outstanding at December 30, 2017 1,367
1
77
420
869


⁽¹⁾	~~Represents the additional PSUs awarded resulting from the achievement of performance goals above the performance targets established at grant since the original grants were at 100% of target amounts.~~

Amortization of stock-based compensation expense related to PSUs in ~~2017, 2016~~2022, 2021 and ~~2015~~2020 was approximately ~~$9.5~~$1.6 million, ~~$6.6~~$3.3 million and ~~$5.0~~$6.0 million, respectively.

Stock-based Compensation Expense

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


	Years Ended
	December 31, 2022		December 25, 2021		December 26, 2020
Stock-based compensation effects in inventory	$	3,979	$	3,707	$	3,979
Income tax benefit associated with stock-based compensation	$	8,588	$	9,345	$	8,637
Stock-based compensation effects in net loss before income taxes
Cost of revenue	$	9,485	$	7,928	$	7,785
Research and development	23,553		18,554		16,863
Sales and marketing	13,311		12,345		10,907
General and administrative	14,666		12,985		13,906
Total stock-based compensation expense	$	61,015	$	51,812	$	49,461

108

Years Ended

December 30,
2017
December 31,
2016 December 26,
2015
Stock-based compensation effects in inventory $ 5,255
$ 4,911
$ 3,129
Stock-based compensation effects in fixed assets $ 41
$ 67
$ 93

Stock-based compensation effects in net income (loss) before income taxes
Cost of revenue $ 3,065
$ 2,966
$ 2,405
Research and development 15,845
13,732
11,055
Sales and marketing 11,288
11,043
8,081
General and administrative 10,776
9,295
7,354
$ 40,974
$ 37,036
$ 28,895
Cost of revenue—amortization from balance sheet ⁽¹⁾
4,746
3,497
3,685
Total stock-based compensation expense $ 45,720
$ 40,533
$ 32,580


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

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

16. Income Taxes


~~15.~~	~~Income Taxes~~

The following is a geographic breakdown of the provision for ~~(benefit from)~~ income taxes (in thousands):


	Years Ended
	December 31, 2022		December 25, 2021		December 26, 2020
Current:
Federal	$	945	$	991	$	494
State	1,537		137		917
Foreign	20,616		12,431		9,606
Total current	$	23,098	$	13,559	$	11,017
Deferred:
Federal	$	—	$	—	$	—
State	—		—		—
Foreign	(2,566)		(1,571)		(4,982)
Total deferred	$	(2,566)	$	(1,571)	$	(4,982)
Total provision for income taxes	$	20,532	$	11,988	$	6,035

Years Ended

December 30,
2017
December 31,
2016 December 26,
2015
Current:
Federal $ —
$ 32
$ —
State 69
861
1,239
Foreign 4,679
2,288
3,482
Total current $ 4,748
$ 3,181
$ 4,721
Deferred:
Federal $ —
$ —
$ —
State —
—
—
Foreign (6,178 ) (7,932 ) (3,640 )
Total deferred $ (6,178 ) $ (7,932 ) $ (3,640 )
Total provision (benefit) $ (1,430 ) $ (4,751 ) $ 1,081

Loss before provision for income taxes from international operations was ~~$22.6~~$20.2 million,, ~~$23.1~~ $20.7 million and ~~$6.3~~$37.3 million ~~respectively,~~ for the years ended December ~~30, 2017,~~31, 2022, December ~~31, 2016~~25, 2021 and December 26, ~~2015.~~2020, respectively.

The provisions for ~~(benefit from)~~ income taxes differ from the amount computed by applying the statutory federal income tax rates as follows:


	Years Ended
	December 31, 2022		December 25, 2021		December 26, 2020
Expected tax at federal statutory rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	(2.2)	%	(1.2)	%	(0.4)	%
Research credits	8.9	%	1.7	%	1.2	%
Stock-based compensation	(10.2)	%	1.1	%	(1.2)	%
Change in valuation allowance	(25.9)	%	(20.9)	%	(16.9)	%
Foreign rate differential	(7.3)	%	(6.9)	%	(6.3)	%
Nondeductible expenses	(15.4)	%	—	%	—	%
Other	(6.0)	%	(2.3)	%	(0.4)	%
Effective tax rate	(37.1)	%	(7.5)	%	(3.0)	%

Years Ended
December 30,
2017 December 31,
2016 December 26,
2015
Expected tax (benefit) at federal statutory rate (35.0 )% (35.0 )% 35.0 %
State taxes, net of federal benefit — % 2.2 % 1.5 %
Research credits (1.8 )% (8.9 )% (5.0 )%
Stock-based compensation 6.0 % 22.3 % 9.6 %
Change in valuation allowance 26.8 % (5.9 )% (43.0 )%
Foreign rate differential 3.3 % 9.4 % 4.0 %
Other — % (0.4 )% — %
Effective tax rate (0.7 )% (16.3 )% 2.1 %

For 2022, the Company's income tax expense was $20.5 million with effective tax rate of (37.1)%. The difference between the effective income tax rate and the U.S federal statutory rate of 21% to income before income taxes is primarily the result of R&D credits, stock-based compensation, foreign income taxed at different rates and valuation allowances. The Company recognized an income tax ~~benefit~~expense of ~~$1.4 million on a loss before income taxes of $195.9 million, income tax benefit of $4.8 million on a loss before income taxes of $29.2~~$12.0 million and ~~income tax expense of $1.1 million on income before income taxes of $52.0~~$6.0 million in ~~fiscal years 2017, 2016~~2021 and ~~2015,~~2020, respectively. The resulting effective tax rates were ~~(0.7)%, (16.3)~~(7.5)% and ~~2.1%~~(3.0)% for ~~2017, 2016~~2021 and ~~2015,~~2020, respectively. The ~~2017~~2021 and ~~2016~~2020 effective tax rates differ from the expected statutory rate of ~~35%~~21%, based on the Company's ability to benefit from its U.S. loss carryforwards, offset by state income taxes, non-deductible stock-based compensation expenses and foreign taxes provided on foreign subsidiary earnings. The lower 2017 income tax benefit compared to the 2016 income tax benefit primarily relates to a lower acquisition related amortization expenses and lower state income taxes offset by an increase in tax reserves, and taxable foreign profits in certain jurisdictions. The tax benefit for 2016 compared to tax expense in 2015 is primarily due to acquisition related

109

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~amortization expenses~~During 2022, the Company implemented a realignment of its internal supply chain and ~~charges lower state taxes,~~customer facing entities. The new structure aligned and ~~reduction in tax reserves, offset by an increase in taxable foreign profits.~~

~~Because of~~consolidated the Company's ~~U.S. operating loss~~intellectual property and the associated commercial risk and reward among the customer-facing entities in ~~2017~~their internal supply chain and ~~significant loss carryforward position with a corresponding full valuation allowance in 2016 and 2015, it has not been subject to federal or state tax on U.S. income because~~improved operational efficiency. The impact of the availability of loss carryforwards, with the exception of amounts for certain states’ taxes for which the losses are limited by statute or amount in 2016 and more significantly in 2015, and federal and state taxes associated with a discontinued US subsidiary. If these losses and other tax attributes become fully utilized, taxes will increase significantly to a more normalized, expected rate on U.S. earnings. The release of transfer pricing reservesthis internal realignment is reflected in the ~~future will have a beneficial impact to~~Company’s tax ~~expense, but~~provision for the ~~timing of the impact depends on factors such as expiration of the statute of limitations or settlements with tax authorities.~~year ended December 31, 2022.

On December 22, 2017, the Tax Act was signed into law. The Tax Act significantly revises the U.S. corporate income tax regime by, among other things, lowering the federal corporate income tax rate from 35% to 21% effective January 1, 2018, while also imposing a repatriation tax on deemed repatriated earnings of the Company's foreign subsidiaries in 2017, and implementing a quasi-territorial tax system on future foreign earnings.

On December 22, 2017, SAB 118 was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, the Company determined an adjustment to deferred tax assets, along with a corresponding adjustment to valuation allowance, which resulted in no tax expense recorded in connection with the re-measurement of certain deferredDeferred tax assets and liabilities ~~from 35% to 21% to reflect~~are recognized for the ~~new corporate~~future tax ~~rate. Additionally, the Company has provisionally recorded no tax expense in connection with the transition tax on the mandatory deemed repatriation~~consequences of foreign earnings, based upon an aggregate tax loss of its foreign subsidiaries, as a reasonable estimate at December 30, 2017. Additional work may be necessary for a more detailed analysis of the Company's deferred tax assets and liabilities and its historical foreign earnings. Any subsequent adjustment to these amounts will be recorded in 2018 when the analysis is complete.

~~INFINERA CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~Deferred income taxes reflect the net effects of temporary~~ differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for ~~financial reporting purposes and~~ the ~~amounts used for income tax purposes.~~year in which the differences are expected to reverse. Significant ~~components of the Company’s~~ deferred tax assets ~~are as follows, reduced by the effects~~and liabilities consist of the ~~change in the U.S. corporate tax rate from 35% to 21%, as applicable~~following (in thousands):


	Years Ended							Years Ended
	December 30, 2017			December 31, 2016				December 31, 2022		December 25, 2021
Deferred tax assets:							Deferred tax assets:
Net operating losses	$	66,122		$	77,670		Net operating losses	$	293,179	$	336,711
Research and foreign tax credits	74,434			47,405			Research and foreign tax credits	140,828		132,829
Nondeductible accruals	28,801			42,507			Nondeductible accruals	57,480		76,898
R&D expense capitalization							R&D expense capitalization	49,135		—
Inventory valuation	29,197			30,449			Inventory valuation	14,329		22,651
Property, plant and equipment	1,919			1,692
Intangible assets	3			119

Leasing Liabilities							Leasing Liabilities	16,890		19,407
Stock-based compensation	6,325			9,412			Stock-based compensation	5,138		4,902
Total deferred tax assets	$	206,801		$	209,254		Total deferred tax assets	$	576,979	$	593,398
Valuation allowance	(205,241		)	(200,476		)	Valuation allowance	(548,257)		(521,620)
Net deferred tax assets	$	1,560		$	8,778		Net deferred tax assets	$	28,722	$	71,778
Deferred tax liabilities:							Deferred tax liabilities:
Depreciation	(67		)	(239		)
Accruals, reserves and prepaid expenses	(1,154		)	(4,008		)
Property, plant and equipment							Property, plant and equipment	$	(11,912)	$	(10,792)
Right of use asset							Right of use asset	(10,482)		(12,216)
Acquired intangible assets	(20,348		)	(24,088		)	Acquired intangible assets	(4,293)		(19,273)
Convertible senior notes	(1,191		)	(5,653		)	Convertible senior notes	—		(29,897)
Total deferred tax liabilities	$	(22,760	)	$	(33,988	)	Total deferred tax liabilities	$	(26,687)	$	(72,178)
Net deferred tax liabilities	$	(21,200	)	$	(25,210	)
Net deferred tax assets (liabilities)							Net deferred tax assets (liabilities)	$	2,035	$	(400)

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company must consider all positive and negative evidence, including the Company's forecasts of taxable income over the applicable carryforward periods, its current financial performance, its market environment, and other factors in evaluating the need for a full or partial valuation allowance against its net U.S. deferred tax assets. Based on the available objective evidence, management believes it is not more likely than not that the domestic net deferred tax assets will be realizable in the foreseeable future. Accordingly, the Company has provided a full valuation allowance against its domestic deferred tax assets, net of deferred tax liabilities, as of December ~~30, 2017~~31, 2022 and December ~~31, 2016.~~ 25, 2021.

The ~~net~~Company intends to continue maintaining a full valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, considering the Company's current assessment of the probability of maintaining profitability, there is a reasonable possibility that, within the next year or two, sufficient positive evidence may become available to reach a conclusion that a portion of the valuation allowance will no longer be needed. As such, the Company may release a portion of its valuation allowance against its deferred tax assets within the next 12-24 months. This release, if

110

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

any, would result in the recognition of certain deferred tax assets and ~~full valuation allowance thereon as of December 30, 2017 reflects~~ a ~~reduction of approximately $66.1 million due~~decrease to ~~a lower effective~~income tax ~~rate under~~expense for the period such release is recorded.

Beginning in 2022, the Tax ~~Act.~~

ToCuts and Jobs Act of 2017 eliminated the ~~extent that the Company determines that deferred~~right to deduct research and development expenditures for tax ~~assets are realizable on a more likely than not basis, and an adjustment is needed, that adjustment will be recorded~~purposes in the period the expenses were incurred and instead requires all U.S. and foreign research and development expenditures to be amortized over five and fifteen tax years, respectively. Due to this required capitalization of research and development expenditures, the Company has recorded U.S. current income tax expense of $1.3 million for the year ended December 31, 2022. The U.S. current income tax provision is primarily for state taxes we anticipate paying as a result of statutory limitations on our ability to offset expected taxable income with net operating loss and research and development credit carry forwards. The increase in Federal taxable income due to R&D expense capitalization is offset by net operating carryover balance. It is expected that ~~the determination is made~~R&D expense capitalization will continue to generate Federal and ~~would generally decrease the valuation allowance~~State taxable income in future years and ~~record a corresponding benefit~~continue to ~~earnings.~~utilize net operating loss and other available tax credits.

As of December ~~30, 2017,~~31, 2022, the Company ~~has~~had net operating loss carryforwards of approximately ~~$273.1~~$507.0 million for federal income tax purposes and $138.8 million for state tax purposes. The carryforward balance reflects expected generation of both federal and state net operating losses for the year ended December 30, 2017. Federal net operating loss carryforwardswhich will begin to expire in ~~2025 while certain unutilized California losses have expired~~2032 if unused. The Company had net operating loss carryforwards of approximately $512.0 million for state income tax purposes which will begin to expire in ~~2017. Additionally,~~the year 2023 if unused. The Company also had foreign net operating loss carryforwards of approximately $605.5 million, some of which will begin expiring in the year 2023 if unused.

As of December 31, 2022, the Company ~~has~~also had R&D credit carryforwards of approximately $49.3 million for federal ~~research~~income tax and ~~development and~~$55.1 million for state income tax purposes. The federal R&D tax credit will begin to expire in 2023 if unused. State R&D tax credits will carry forward indefinitely.

As of December 31, 2022, the Company also had Foreign Tax credit carryforwards of approximately $38.9 million for federal income tax. The foreign tax ~~credits, and California research and development credits available~~credit will begin to ~~reduce future income taxes payable of approximately $52.6 million and $43.2 million, respectively, as of December 30, 2017.~~ expire in 2023 if unused.

Infinera Canada Inc., an indirect wholly owned subsidiary, has Scientific Research and Experimental Development Expenditures (“SRED”)

~~INFINERA CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

credits available of ~~$2.7~~$4.0 million to offset future Canadian income ~~tax~~taxes payable as of December ~~30, 2017. Federal credits will begin~~31, 2022. Infinera Portugal subsidiary has a SIFIDE Credit of $4.3 million to ~~expire~~offset future income tax payable in ~~the year 2022 if not utilized and California research credits have no expiration date.~~Portugal as of December 31, 2022. Canadian SRED credits will begin to expire in the year ~~2030~~2032 if not fully utilized. The Portugal SIFIDE credits will begin to expire in the year 2023.

~~Under~~At December 31, 2022, the Company had federal capital loss carryforwards of $19.6 million. If not utilized, the federal capital loss will expire in 2023.

The federal and state net operating loss carryforwards may be subject to significant limitations under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended (the "Code") and similar provisions under state law. The Tax Reform Act of 1986 contains provisions that limit the ~~amount of benefit from~~federal net operating loss ~~and tax credit~~ carryforwards that may be ~~impaired or limited~~used in ~~certain circumstances. Events which cause limitations~~any given year in the ~~amount~~event of ~~net~~special occurrences, including significant ownership changes. The Company has completed a Section 382 review and has determined that none of its operating losses ~~that the Company may utilize in any one year include, but are not limited~~will expire solely due to a cumulative ownership change of more than 50 percent as defined over a three-year testing period. As of December 30, 2017, the Company had determined that while ownership changes had occurred in the past, the resulting limitations were not significant enough to impact the utilization of the tax attributes against its taxable profits earned to date.Section 382 limitation(s).

Prior to the enactment of the Tax Act, the Company’s policy with respect to undistributed foreign subsidiaries’ earnings was to consider those earnings to be indefinitely reinvested. Under the Tax Act, undistributed earnings of foreign subsidiaries are deemed to be repatriated for U.S. corporate tax purposes and a one-time toll tax at a reduced U.S. corporate tax rate is applicable in 2017. However, because of the aggregated net tax loss of our foreign subsidiaries, no tax is accruable in 2017. If and when funds are actually distributed in the form of dividends or otherwise, foreign withholding taxes may be applicable in some jurisdictions. The Company's policy with respect to certain undistributed foreign subsidiaries’ earnings is to continue to consider those earnings to be indefinitely reinvested and therefore the Company has not accrued such withholding taxes.

The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in thousands):

111

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	December 30, 2017			December 31, 2016			December 26, 2015				December 31, 2022		December 25, 2021		December 26, 2020
Beginning balance	$	22,282		$	19,130		$	16,978		Beginning balance	$	54,250	$	57,931	$	44,092
Tax position related to current year										Tax position related to current year
Additions	2,234			2,548			2,891			Additions	1,536		1,198		3,213
Tax positions related to prior years										Tax positions related to prior years
Additions	—			1,292			—			Additions	7,220		7,633		11,494
Reductions	(4,728		)	—			(497		)	Reductions	(4,832)		(9,569)		(625)
Lapses of statute of limitations	(2		)	(688		)	(242		)	Lapses of statute of limitations	(325)		(2,943)		(243)
Ending balance	$	19,786		$	22,282		$	19,130		Ending balance	$	57,849	$	54,250	$	57,931

As of December ~~30, 2017,~~31, 2022, the cumulative unrecognized tax benefit was ~~$19.8~~$57.8 million, of which ~~$16.9~~$49.5 million was netted against deferred tax assets, which would have otherwise been subjected with a full valuation allowance. Of the total unrecognized tax benefit as of December ~~30, 2017,~~31, 2022, approximately ~~$2.9~~$8.3 million, if recognized, would impact the Company’s effective tax rate. The amount of unrecognized tax benefit could be reduced upon expiration of the applicable statute of limitation. The potential reduction in unrecognized tax benefits during the next 12 months is not expected to be material.

As of December ~~30, 2017,~~31, 2022, December ~~31, 2016~~25, 2021 and December 26, ~~2015,~~2020, the Company had ~~$0.7~~$1.3 million, ~~$0.5~~$2.1 million and ~~$0.5~~$2.9 million, respectively, of accrued interest or penalties related to unrecognized tax benefits, of which ~~less than $0.2~~$0.8 million was included in the Company’s provision for income taxes in each of the years ended December ~~30, 2017,~~31, 2022, December ~~31, 2016~~25, 2021 and December 26, ~~2015,~~2020, respectively.

The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the Company’s provision for income taxes.

The Company is potentially subject to examination by the Internal Revenue Service and the relevant state income taxing authorities under the statute of limitations for years ~~2002~~2003 and forward.

The Company has received assessments of tax resulting from transfer pricing examinations in India for most years in the range of fiscal years ending March 2005 through March 2014. While some of the assessment years have been settled with no change from the original tax return position, the Company intends to appeal all

~~INFINERA CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

remaining assessment years, and does not expect a significant adjustment to unrecognized tax benefits as a result of these inquiries. The Company believes that the resolution of these disputed issues will not have a material impact on our financial statements.

Included in the balance of income tax liabilities, accrued interest and penalties at December ~~30, 2017~~31, 2022 is ~~$0.4 million~~an immaterial amount related to tax positions for which it is reasonably possible that the statute of limitations will expire in various jurisdictions within the next twelve months.

Post U.S. Tax Reform, the Company and its subsidiaries do not have significant unremitted foreign earnings and the associated withholding and other taxes are not material for the fiscal year ended December 31, 2022.


~~16.~~	~~Segment Information~~

17. Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Company’s Chief Executive Officer (“CEO”). The Company’s CEO reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region for purposes of allocating resources and evaluating financial performance. The Company has one business activity as a provider of optical transport networking equipment, software and services. Accordingly, the Company is considered to be in a single reporting segment and operating unit structure.

Revenue by geographic region is based on the shipping address of the customer. ~~The~~For more information regarding revenue disaggregated by geography, see Note 4, “Revenue Recognition” to the Notes to Consolidated Financial Statements.

Additionally, the following ~~tables set~~table sets forth ~~revenue~~our property, plant and ~~long-lived assets~~equipment, net by geographic region (in thousands):

~~Revenue~~

112

Years Ended

December 30,
2017
December 31,
2016 December 26,
2015
United States $ 428,592
$ 541,889
$ 602,433
Other Americas 20,070
40,036
65,075
Europe, Middle East and Africa 234,972
243,783
174,380
Asia Pacific and Japan 57,105
44,427
44,826
Total revenue $ 740,739
$ 870,135
$ 886,714

~~Property, plant and equipment, net~~

December 30,
2017
December 31,
2016
United States $ 128,582
$ 117,715
Other Americas 661
218
Europe, Middle East and Africa 3,527
3,822
Asia Pacific and Japan 3,172
3,045
Total property, plant and equipment, net $ 135,942
$ 124,800

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	December 31, 2022		December 25, 2021
United States	$	156,065	$	141,977
Other Americas	2,908		2,687
Europe, Middle East and Africa	10,285		12,245
Asia Pacific and Japan	3,671		3,309
Total property, plant and equipment, net	$	172,929	$	160,218


~~17.~~	~~Employee Benefit Plan~~

18. Employee Benefit and Pension Plans

Defined Contribution Plans

The Company has established a savings plan under Section 401(k) of the ~~Internal Revenue~~ Code (the “401(k) Plan”). As allowed under Section 401(k) of the ~~Internal Revenue~~ Code, the 401(k) Plan provides tax-deferred salary contributions for eligible U.S. employees. Employee contributions are limited to a maximum annual amount as set periodically by the ~~Internal Revenue~~ Code. The Company made voluntary cash contributions and matched a portion of employee contributions of ~~$2.2~~$3.0 million,, ~~$2.1~~ $2.8 million and ~~$1.7~~$2.4 million for ~~2017, 2016~~2022, 2021, and ~~2015,~~2020, respectively. Expenses related to the 401(k) Plan were insignificant for each of the years ~~2017, 2016~~2022, 2021, and ~~2015.~~2020.

~~In connection with the Company's acquisition of Transmode during the third quarter of 2015, the~~The Company has an ITP pension plan covering its Swedish employees. Commitments for old-age and survivors' pension for salaried employees in Sweden are vested through an insurance policy. Expenses related to the ITP pension plan were ~~$3.3~~$2.5 million for ~~2017, $2.6~~2022, $2.8 million for ~~2016~~2021 and ~~$0.8~~$2.7 million ~~from the Acquisition Date through December 26, 2015.~~for 2020.

The Company also provides defined contribution plans in certain foreign countries where required by local statute or at the Company's discretion. For the years ended December 31, 2022, December 25, 2021 and December 26, 2020, the Company had $4.9 million, $6.2 million, and $3.5 million related to post-retirement costs, respectively.

Pension Plans

Pension and Post-Retirement Benefit Plans

The Company has a number of post-employment plans in Germany, as well as a number of smaller post-employment plans in other countries, including both defined contribution and defined benefit plans. The defined benefit plans expose the Company to actuarial risks such as, investment risk, interest rate risk, life expectancy risk and salary risk. The characteristics of the defined benefit plans and the risks associated with them vary depending on legal, fiscal, and economic requirements.

113

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Obligations and Funded Status


~~18.~~	~~Financial Information by Quarter (Unaudited)~~

The following table sets forth the ~~Company’s unaudited quarterly consolidated statements~~changes in benefits obligations and the fair value of ~~operations data for 2017~~plan assets of the Company's benefit plans (in thousands):


	December 31, 2022		December 25, 2021
Benefit obligation at beginning of year	$	115,771	$	129,936
Service cost	300		351
Interest cost	1,249		1,265
Benefits paid	(3,382)		(3,413)


Actuarial gain	(30,779)		(3,050)
Employee contributions	54		190
Foreign currency exchange rate changes	(7,041)		(9,508)
Benefit obligation at end of year(1)	$	76,172	$	115,771
Fair value of plan assets at beginning of year	$	81,615	$	77,561
Actual (loss) return on plan assets	(5,305)		12,425


Payments	(5,316)		(3,206)
Employee contributions	153		289

Foreign currency exchange rate changes	(4,692)		(5,454)
Fair value of plan assets at end of year	$	66,455	$	81,615
Net liability recognized	$	9,717	$	34,156

(1) The Company's accumulated benefit obligation was $76.1 million and ~~2016.~~ $115.1 million at December 31, 2022 and December 25, 2021, respectively.

The ~~data has been prepared on the same basis as the audited consolidated financial statements and related notes~~net liability is included in ~~this report. The table includes all necessary adjustments, consisting only of normal recurring adjustments that~~ the ~~Company considers necessary for a fair presentation of this data.~~

For the Three Months Ended (Unaudited)
2017 2016
Dec. 30 Sep. 30 Jul. 1 Apr. 1 Dec. 31 Sep. 24 Jun. 25 Mar. 26

(In thousands, except per share data)
Revenue:
Product $ 160,543
$ 159,579
$ 143,360
$ 147,053
$ 151,365
$ 156,188
$ 227,532
$ 216,082
Services 35,273
33,001
33,461
28,469
29,678
29,264
31,290
28,736
Total revenue 195,816
192,580
176,821
175,522
181,043
185,452
258,822
244,818
Cost of revenue:
Cost of product 115,681
111,803
100,302
99,332
101,702
91,064
122,438
118,062
Cost of services 13,708
12,951
11,687
12,134
10,309
9,786
12,638
10,418
Restructuring and other related costs 19,141
—
—
—
—
—
—
—
Total cost of revenue 148,530
124,754
111,989
111,466
112,011
100,850
135,076
128,480
Gross profit 47,286
67,826
64,832
64,056
69,032
84,602
123,746
116,338
Operating expenses 117,793
102,074
105,337
101,883
114,900
95,461
107,664
101,467
Income (loss) from operations (70,507 ) (34,248 ) (40,505 ) (37,827 ) (45,868 ) (10,859 ) 16,082
14,871
Other income (expense), net (4,449 ) (2,772 ) (2,846 ) (2,782 ) 5,589
(2,854 ) (3,295 ) (2,847 )
Income (loss) before income taxes (74,956 ) (37,020 ) (43,351 ) (40,609 ) (40,279 ) (13,713 ) 12,787
12,024
Provision for (benefit from) income taxes (971 ) 211
(512 ) (158 ) (4,026 ) (2,416 ) 1,475
216
Net income (loss) $ (73,985 ) $ (37,231 ) $ (42,839 ) $ (40,451 ) $ (36,253 ) $ (11,297 ) $ 11,312
$ 11,808
Less: Net loss attributable to noncontrolling interest —
—
—
—
—
(125 ) (171 ) (207 )
Net income (loss) attributable to Infinera Corporation $ (73,985 ) $ (37,231 ) $ (42,839 ) $ (40,451 ) $ (36,253 ) $ (11,172 ) $ 11,483
$ 12,015
Net income (loss) per common share attributable to Infinera Corporation
Basic $ (0.50 ) $ (0.25 ) $ (0.29 ) $ (0.28 ) $ (0.25 ) $ (0.08 ) $ 0.08
$ 0.09
Diluted $ (0.50 ) $ (0.25 ) $ (0.29 ) $ (0.28 ) $ (0.25 ) $ (0.08 ) $ 0.08
$ 0.08
line item other long-term liabilities in the Company's consolidated balance sheets.

The ~~Company operates~~following table presents net amounts of non-current assets and reports financial results on a fiscal year of 52 or 53 weeks ending on the last Saturday of December in each year. Accordingly, fiscal year 2017 was a 52-week year that ended on December 30, 2017. Fiscal year 2016 was a 53-week year that ended on December 31, 2016,current and ~~2015 was a 52-week year that ended on December 26, 2015. The quarters~~non-current liabilities for ~~fiscal years 2017 and 2015 were 13-week quarters, and the quarters for fiscal year 2016 were 14-week quarters.~~

~~During the fourth quarter of 2016, the Company recorded an impairment charge of $11.3 million related to in-process research and development, resulting from~~ the Company's ~~decision to abandon previously acquired in-process technologies. Additionally, during the same period, the Company~~pension and other post-retirement benefit plans recognized ~~a gain of $9.0 million~~ on ~~the sale of a cost-method investment.~~its consolidated balance sheet (in thousands):


	December 31, 2022		December 25, 2021
Other non-current assets	$	66,455	$	81,615
Other long-term liabilities	(76,172)		(115,771)
Net liability recognized	$	(9,717)	$	(34,156)

114

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Components of Net Periodic Benefit Cost

~~As a result~~Net periodic benefit cost for the Company's pension and other post-retirement benefit plans consisted of the ~~2017 Restructuring~~following (in thousands):


	Years ended
	December 31, 2022		December 25, 2021		December 26, 2020
Service cost	$	300	$	351	$	896
Interest cost	1,249		1,265		1,773
Expected return on plan assets	(2,936)		(2,895)		(2,644)
Amortization of net actuarial loss	326		3,383		1,884
Total net periodic (benefit) cost	$	(1,061)	$	2,104	$	1,909

Actuarial gains and losses are amortized using a corridor approach. The gain/loss corridor is equal to 10% of the greater of the pension benefit obligation and the market-related value of assets. Gains and losses in excess of the corridor are generally amortized over the average future working lifetime of the pension plan participants. The service cost component is included in operating expenses in the Company's consolidated statements of operations. All other components are included in Other income (expense), net in the Company's consolidated statements of operations.

The following table sets forth the changes in accumulated other comprehensive income (loss) for the Company's benefit plans (pre-tax) (in thousands):


	December 31, 2022		December 25, 2021
Beginning balance	$	4,297	$	(11,666)
Net actuarial gain arising in current year	22,538		12,580
Amortization of net actuarial loss(1)	326		3,383

Ending balance	$	27,161	$	4,297

(1) The actuarial gain for the fiscal years ended December 31, 2022 and December 25, 2021 is primarily due to the change in the discount rate. Amounts recorded in accumulated other comprehensive income (loss) expected to be amortized as a part of net periodic pension cost during 2023 is $3.7 million (pre-tax).

Assumptions

Certain actuarial assumptions used in computing the benefit obligations for the major plans are as follows:


	December 31, 2022		December 25, 2021
Discount rate	4.17	%	1.20	%
Salary growth rate	2.50	%	2.25	%
Pension growth rate	2.25	%	2.00	%
Expected long-term rate of return on plan assets	3.93	%	3.93	%

115

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Investment Policy

The financial position of the Company’s funded status is the difference between the fair value of plan assets and projected benefit obligations. Volatility in funded status occurs when asset values change differently from liability values and can result in fluctuations in costs in financial reporting. The Company’s investment policies and strategies are designed to increase the rate of assets to plan liabilities at an appropriate level of funded status volatility. Asset allocation decisions are recommended by the trustees for the specific plan and agreed to by the Company's management. Investment objectives are designed to generate returns that will enable the plan to meet its future obligations. The Company's management reviews the investment strategy and performance semi-annually and discuss alternatives to manage volatility.

Basis for Expected Long-Term Rate of Return on Plan ~~implemented~~Assets

The expected long-term rate of return on plan assets reflects the expected returns for each major asset class in which the plan invests and the weight of each asset class in the target mix. Expected asset returns reflect the current yield on government bonds, risk premiums for each asset class and expected real returns which considers each country’s specific inflation outlook. The expected return is set using a low to medium risk profile and to meet the market expectations over a longer period of time to meet the obligations in the future.

Fair Value of Plan Assets

The following tables present the fair value of plan assets for pension and other benefit plans by major asset category (in thousands):


	As of December 31, 2022				December 25, 2021
	Fair Value Measured Using				Fair Value Measured Using
	Level 1		Level 2		Total		Level 1		Level 2		Total
Cash	$	1,160	$	—	$	1,160	$	738	$	—	$	738
Equity fund	—		41,492		41,492		—		55,400		55,400
Insurance contracts	—		23,803		23,803		—		25,388		25,388
Pension fund	—		—		—		—		89		89
Total plan assets at fair value	$	1,160	$	65,295	$	66,455	$	738	$	80,877	$	81,615

Valuation Techniques

The following describes the valuation techniques used to measure the fair value of the assets shown in the table above. Equity funds are invested in traded securities and are recorded at market value as of the balance sheet date. Insurance contracts are recorded at cash surrender value of the policies. Mixed fund and pension fund are valued at the amounts as provided by the insurance companies who manage the funds and represent fair market value at the date of the balance sheet.

Transfers Between Levels

Any transfers between levels in the fair value hierarchy are recognized as of the end of the reporting period. No material transfers between levels occurred during the ~~fourth quarter of 2017,~~fiscal year ended December 31, 2022.

Future Contributions

In 2023, the Company incurred charges of $19.1 million within cost of revenue, including inventory write-downs of $13.6 million, manufacturing equipment impairments of $4.0 million, and severance related charges of $1.5 million. Within operating expenses, the Company recorded charges of $16.1 million, including $7.9 million of severance related costs, $7.3 million of facilities impairment costs and test equipment impairments of $0.9 million. For more information, see Note 8, “Restructuring and Other Related Costs,”does not expect to make additional contributions to the ~~Notes to Consolidated Financial Statements.~~plan.

~~During the fourth quarter of 2017, the carrying amount of~~

116

INFINERA CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Cash Flows

Estimated future benefit payments under the Company's ~~cost-method investment exceeded its fair value and the decline in value was determined to be other-than-temporary. As a result, the Company recorded an impairment charge~~pension plans as of ~~$1.9 million during the fourth quarter of 2017.~~December 31, 2022 are as follows (in thousands):


2023	$	5,385
2024	4,071
2025	4,698
2026	4,020
2027	3,908
2027 to 2031	20,752


~~ITEM 9.~~	~~CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE~~

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


~~ITEM 9A.~~	~~CONTROLS AND PROCEDURES~~

ITEM 9A. CONTROLS AND PROCEDURES

Attached as exhibits to this Form 10-K are certifications of our ~~Chief Executive Officer (“CEO”)~~CEO and ~~Chief Financial Officer (“CFO”),~~CFO, which are required in accordance with Rule 13a-14 of the Exchange Act. This “Controls and Procedures” section includes information concerning the internal controls and controls evaluation referred to in the certifications.

Evaluation of Disclosure Controls and Procedures

An evaluation was performed by our management, with the participation of our CEO and our CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d -15(e) under the Exchange Act). Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our CEO and CFO concluded that, as of December ~~30, 2017,~~31, 2022, our disclosure controls and procedures ~~are~~were effective.

Inherent Limitations on Effectiveness of Controls

~~The Company's~~ Our management, including the CEO and CFO, does not expect that our disclosure controls or our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to ~~their~~its costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in business conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control over Financial Reporting

During the ~~fourth quarter of fiscal 2017,~~three months ended December 31, 2022 there were no changes in ~~the Company’s~~our internal control over financial reporting which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting. We are continually monitoring and assessing the

117

COVID-19 pandemic situation to minimize the impact, if any, on the design and operating effectiveness on our internal controls.

Management’s Report on Internal Control Over Financial Reporting

~~The Company's~~ Our management, with the participation of our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

Management assessed the effectiveness of our internal control over financial reporting as of December ~~30, 2017,~~31, 2022, the end of our fiscal year. Management based its assessment on the framework established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“2013 COSO framework”). Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. This assessment is supported by testing and monitoring performed by our internal audit and finance personnel utilizing the 2013 COSO framework.

Based on our assessment, management has concluded that our internal control over financial reporting was effective as of the end of ~~our fiscal year 2017~~2022 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. ~~generally accepted accounting principles.~~

GAAP.

The effectiveness of our internal control over financial reporting as of the end of ~~fiscal year 2017~~2022 has been audited by Ernst & Young, LLP, an independent registered public accounting firm, as stated in their report, which is included elsewhere herein.


~~ITEM 9B.~~	~~OTHER INFORMATION~~

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

118

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information responsive to this item is incorporated herein by reference to our definitive proxy statement with respect to our ~~2018~~2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. For information pertaining to our executive ~~offers,~~officers, refer to the section entitled ~~“Executive~~“Information about our Executive Officers” in Part 1, Item 1 of this Annual Report on Form 10-K.

As part of our system of corporate governance, our board of directors has adopted a code of business conduct and ethics. The code applies to all of our employees, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions), agents and representatives, including our independent directors and consultants, who are not employees of Infinera, with regard to their Infinera-related activities. The full text of our code of business conduct and ethics is posted on our web site at ~~http://www.infinera.com~~. We intend to disclose future amendments to certain provisions of our code of business conduct and ethics, or waivers of such provisions, applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions or our directors on our web site identified above. The inclusion of our web site address in this report does not include or incorporate by reference the information on our web site into this report.


~~ITEM 11.~~	~~EXECUTIVE COMPENSATION~~

ITEM 11. EXECUTIVE COMPENSATION


~~ITEM 12.~~	~~SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS~~

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


~~ITEM 13.~~	~~CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE~~

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE


~~ITEM 14.~~	~~PRINCIPAL ACCOUNTING FEES AND SERVICES~~

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

119

PART IV


~~ITEM 15.~~	~~EXHIBITS, FINANCIAL STATEMENT SCHEDULES~~

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1) Consolidated Financial Statements

This Annual Report on Form 10-K contains the following financial statements which appear under Part II, Item 8 of this Form 10-K on the pages noted below:



			Page
Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm			5365
Consolidated Balance Sheets			5568
Consolidated Statements of Operations			5669
Consolidated Statement of Comprehensive Income (Loss)			5770
Consolidated Statements of Stockholders’ Equity			5871
Consolidated Statements of Cash Flows			6072
Notes to Consolidated Financial Statements			6174

(a)(2) Financial Statement Schedule

Schedule II: Valuation and Qualifying Accounts


	Years Ended
	December 31, 2022		December 25, 2021		December 26, 2020

	(In thousands)
Deferred tax asset, valuation allowance
Beginning balance	$	521,620	$	531,923	$	484,834
Additions	41,782		14,395		53,761
Reductions	(15,145)		(24,698)		(6,672)
Ending balance	$	548,257	$	521,620	$	531,923
Allowance for credit losses
Beginning balance	$	1,304	$	2,912	$	4,005
Additions	1,397		822		2,422
Write-offs	(1,279)		(2,430)		(3,515)
Ending balance	$	1,422	$	1,304	$	2,912

Years Ended

December 30,
2017
December 31,
2016 December 26,
2015

(In thousands)
Deferred tax asset, valuation allowance
Beginning balance $ 200,476
$ 169,240
$ 199,698
Additions 31,759
31,913
15,266
Reductions (26,994 ) (677 ) (45,724 )
Ending balance $ 205,241
$ 200,476
$ 169,240
Allowance for doubtful accounts
Beginning balance $ 772
$ 630
$ 38
Additions 138
772
657
Reductions (18 ) (630 ) (65 )
Ending balance $ 892
$ 772
$ 630

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or notes thereto.

(a)(3) Exhibits.

See Index to Exhibits. The Exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K.

ITEM 16. FORM 10-K SUMMARY

None.

120

INDEX TO EXHIBITS


~~ITEM 16.~~	~~FORM 10-K SUMMARY~~

~~None.~~

I~~NDEX TO EXHIBITS~~



Exhibit No.		Description
2.1		Unit Purchase Agreement by and among Infinera Corporation, Coriant Investor LLC and Oaktree Optical Holdings, L.P., dated July 23, 2018, incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K/A (No. 001-33486), filed with the SEC on July 27, 2018.
3.1		Amended and Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on June 12, 2007.
3.2		Amended and Restated Bylaws, incorporated herein by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on ~~February 29, 2016.~~December 9, 2022.
4.1		Form of Common Stock Certificate, incorporated herein by reference to Exhibit 4.1 of the Registrant’s Form S-1/A (No. 333-140876), filed with the SEC on April 27, 2007.
4.2		Base Indenture, dated ~~May 30, 2013,~~as of September 11, 2018, by and between ~~the Registrant~~Infinera Corporation and U.S. Bank National Association, ~~as trustee,~~ incorporated herein by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on ~~May 30, 2013.~~September 12, 2018.
4.3		First Supplemental Indenture, dated as of September 11, 2018, by and between Infinera Corporation and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), incorporated herein by reference to Exhibit 4.2 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on September 12, 2018.
4.4		Form of 2.125% Convertible Senior Notes due 2024 (included in Exhibit 4.3 incorporated by reference hereto).
4.5		Indenture, dated March 9, 2020, by and between Infinera Corporation and U.S. Bank Trust Company, National Association (as successor in interest to U .S. Bank National Association), incorporated herein by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on March 9, 2020
4.6		Form of 2.50% Convertible Senior Notes due 2027 (included in Exhibit 4.5 incorporated by reference hereto)
4.7		Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, incorporated herein by reference to Exhibit 4.5 of the Registrant's Annual Report on Form 10-K (No. 001-33486) filed with the SEC on March 4, 2020.
4.8		Form of Indenture, incorporated herein by reference to Exhibit 4.2 of the Registrant's Form S-3 Registration Statement (No. 333-244741) filed with the SEC on August 12, 2020.
4.9		Indenture, dated August 8, 2022, by and between Infinera Corporation and U.S. Bank Trust Company, National Association, incorporated herein by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K (No. 00133486) filed with the SEC on August 8, 2022.
4.10		Form of 3.75% Convertible Senior Notes due 2028 (included in Exhibit 4.9 incorporated by reference hereto).
10.1*		Form of Indemnification Agreement between Registrant and each of its directors and executive officers, incorporated herein by reference to Exhibit 10.1 of the ~~Registrant��s~~Registrant’s Form S-1 (No. 333-140876), filed with the SEC on February 26, 2007.
10.2*		2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.3 of the Registrant’s Annual Report on Form 10-K (No. 001-33486), filed with the SEC on February 18, 2015.
10.3*		Infinera Corporation Amended and Restated 2007 Employee Stock Purchase Plan, incorporated herein by reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K (No. 001-33486) filed with the SEC on March 4, 2020.
10.4*		Form of 2007 Employee Stock Purchase Plan Global Subscription Agreement, incorporated herein by reference to Exhibit 10.4 of the Registrant's Annual Report on Form 10-K ~~(no.~~(No. 001-33486), filed with the SEC on ~~February 23, 2017.~~March 4, 2020.
10.410.5		~~Form of 2007 Employee Stock Purchase~~Bonus Plan, ~~Subscription Agreement,~~ incorporated herein by reference ~~to Exhibit 10.2 of the Registrant's Current Report on Form 8-K (no. 001-33486), filed with the SEC on May 20, 2014.~~
10.5*	~~Bonus Plan, incorporated by reference herein~~ to Exhibit 10.1 of the Registrant’s Current Report on 8-K (No. 001-33486), filed with the SEC on February 14, 2011.
10.6*		Form of Section 16 Officer Notice of Grant of Restricted Stock ~~Unit Agreement~~Units under the 2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.7 of the Registrant’s Annual Report on Form 10-K (No. 001-33486), filed with the SEC on February 18, 2015.

121


Exhibit No.		Description
10.7*		Form of ~~Section 16 Officer Performance Share Agreement under the 2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.8~~Notice of ~~the Registrant’s Annual Report on Form 10-K (No. 001-33486), filed with the SEC on February 18, 2015.~~
10.8*	Form of Director Restricted Stock Unit Agreement under the 2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.9 of the Registrant’s Annual Report on Form 10-K (No. 001-33486), filed with the SEC on February 18, 2015.
10.9*	~~Form~~Grant of Stock Option ~~Agreement~~ under the 2007 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (No. 001-33486), filed with the SEC on May 5, 2010.
10.1010.8		Form of ~~CEO~~Chief Executive Officer Amended and Restated Change of Control Severance Agreement, incorporated herein by reference to Exhibit ~~10.10~~10.1 of the Registrant’s ~~Annual~~Current Report on Form ~~10-K~~8-K (No. 001-33486), filed with the SEC on ~~March 5, 2013.~~February 22, 2018.
10.1110.9		Form of Section 16 Officer Amended and Restated Change of Control Severance Agreement, incorporated herein by reference to Exhibit ~~10.11~~10.2 of the Registrant’s ~~Annual~~Current Report on Form ~~10-K~~8-K (No. 001-33486), filed with the SEC on ~~March 5, 2013.~~February 22, 2018.
10.1210.10		Executive Clawback Policy, incorporated herein by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on January 17, 2013.
~~10.13~~10.11*		Purchase Agreement dated May 23, 2013, between the Registrant and Morgan Stanley and Co. LLC and Goldman, Sachs & Co., as representatives of the initial purchasers, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on May 24, 2013.
10.14*	Executive Severance Policy, incorporated herein by reference to Exhibit 10.19 of the Registrant’s Annual Report on Form 10-K (No. 001-33486), filed with the SEC on February 18, 2015.
10.1510.12		Infinera Corporation Amended and Restated 2016 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on May ~~30, 2017.~~19, 2022.



~~Exhibit No.~~	~~Description~~
10.1610.13		Form of Notice of Grant of Restricted Stock Units under the Amended and Restated 2016 Equity Incentive ~~Plan, incorporated herein by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on May 17, 2016.~~Plan.
10.1710.14		Form of Notice of Grant of Restricted Stock Units for Directors under the Amended and Restated 2016 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on May 17, 2016.
10.1810.15		Form of Notice of Grant of Performance Shares under the Amended and Restated 2016 Equity Incentive Plan, incorporated herein by reference to Exhibit ~~10.4~~10.2 of the Registrant’s Quarterly Report on Form 10-Q (No. 001-33486), filed with the SEC on May 9, 2019.
10.16		Underwriting Agreement, dated as of September 6, 2018, by and between Infinera Corporation and Morgan Stanley & Co. LLC, as manager of the underwriter named therein, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on ~~May 17, 2016.~~September 12, 2018.
~~21.1~~10.17		~~Subsidiaries.~~Form of Capped Call Confirmation, incorporated herein by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on September 12, 2018.
10.18		First Amendment to Unit Purchase Agreement, dated as of March 4, 2019, by and among Infinera Corporation, Coriant Investor LLC and Oaktree Optical Holdings, L.P., incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on March 4, 2019.
10.19*		Offer Letter between Infinera Corporation and David L. Teichmann dated March 18, 2019, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (No. 001-33486), filed with the SEC on August 8, 2019.
10.20*		Offer Letter between Infinera Corporation and Nancy Erba dated July 8, 2019, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (No. 001-33486), filed with the SEC on November 12, 2019.
10.21*		Infinera Corporation 2019 Inducement Equity Incentive Plan, incorporated herein by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-8 (No. 333-233150), filed with the SEC on August 8, 2019.
10.22*		Form of Notice of Grant of Restricted Stock Units (Inducement Plan), incorporated herein by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-8 (No. 333-233150), filed with the SEC on August 8, 2019.
10.23*		Form of Notice of Grant of Performance Shares (Inducement Plan), incorporated herein by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-8 (No. 333-233150), filed with the SEC on August 8, 2019.
10.24*		Offer Letter between Infinera Corporation and Nicholas Walden dated January 3, 2020, incorporated herein by reference to Exhibit 10.27 of the Registrant's Annual Report in Form 10-K (No. 001-33486) filed with the SEC on March 4, 2020.

122


Exhibit No.						Description
10.25						Purchase Agreement, dated March 4, 2020, by and between Infinera Corporation and Goldman Sachs & Co. LLC, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on March 9, 2020
10.26						Letter agreement, dated as of April 13, 2020, among Infinera Corporation, Oaktree Optical Holdings, L.P. and certain other parties, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on April 14, 2020
10.27						Loan, Guaranty and Security Agreement, dated as of June 24, 2022, by and among Infinera Corporation, the other obligors party thereto, the lenders party thereto, and Bank of America, N.A. as agent, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486), filed with the SEC on June 27, 2022.
10.28						First Amendment to Loan, Guaranty and Security Agreement, dated as of August 2, 2022, among Infinera Corporation, the other obligors party thereto, the lenders party thereto, and Bank of America, N.A., as Administrative Agent, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486) filed with the SEC on August 3, 2022.
10.29						Purchase Agreement, dated August 3, 2022, by and between Infinera Corporation and Jefferies LLC, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (No. 001-33486) filed with the SEC on August 8, 2022.
21.1						Subsidiaries.
23.1						Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
24.1						Power of Attorney (reference is made to the signature page hereto)
31.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						XBRL Instance Document
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (embedded within the Inline XBRL document)


*	~~Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.~~

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

* Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.

** This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

123

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: February 27, ~~2018~~

2023



			Infinera Corporation

			By:						/s/ ~~BRAD D. FELLER~~NANCY ERBA
									~~Brad D. Feller~~ Nancy Erba Chief Financial Officer Principal Financial ~~and Accounting~~ Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints ~~Thomas J. Fallon~~David W. Heard and ~~Brad D. Feller,~~Nancy Erba, and each of them individually, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

124


Name and Signature			Title		Date

~~Name and Signature~~			~~Title~~	~~Date~~

/s/ ~~THOMAS J. FALLON~~ DAVID W. HEARD	Chief Executive Officer, Principal Executive Officer and Director			February 27, ~~2018~~2023
~~Thomas J. Fallon~~David W. Heard

/s/ ~~BRAD D. FELLER~~NANCY ERBA			Chief Financial Officer, Principal Financial ~~and~~ ~~Accounting~~ Officer		February 27, ~~2018~~2023
~~Brad D. Feller~~Nancy Erba

/s/ MICHAEL FERNICOLA			Chief Accounting Officer and Principal Accounting Officer		February 27, 2023
Michael Fernicola
/s/ GEORGE RIEDEL			Chairman of the Board		February 27, 2023
George Riedel

/s/ CHRISTINE BUCKLIN			Director		February 27, 2023
Christine Bucklin

/s/ GREG P. DOUGHERTY			Director		February 27, 2023
Greg P. Dougherty

/s/ SHARON HOLT			Director		February 27, 2023
Sharon Holt

/s/ ROOP K. LAKKARAJU			Director		February 27, 2023
Roop Lakkaraju

/s/ PAUL J. MILBURY			Director		February 27, 2023
Paul J. Milbury

/s/ AMY RICE			Director		February 27, 2023
Amy Rice
/s/ DAVID F. WELCH, PH.D.			Co-founder, Chief ~~Strategy and Technology~~Innovation Officer and Director		February 27, ~~2018~~2023
David F. Welch, Ph.D.

~~/s/ KAMBIZ Y. HOOSHMAND~~	~~Chairman of the Board~~	~~February 27, 2018~~
~~Kambiz Y. Hooshmand~~

~~/s/ JOHN P. DAANE~~	~~Director~~	~~February 27, 2018~~
~~John P. Daane~~

~~/s/ MARCEL GANI~~	~~Director~~	~~February 27, 2018~~
~~Marcel Gani~~

~~/s/ PAUL J. MILBURY~~	~~Director~~	~~February 27, 2018~~
~~Paul J. Milbury~~

~~/s/ RAJAL M. PATEL~~	~~Director~~	~~February 27, 2018~~
~~Rajal M. Patel~~

~~/s/ MARK A. WEGLEITNER~~	~~Director~~	~~February 27, 2018~~
~~Mark A. Wegleitner~~

~~111~~125



Delaware			77-0560433
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)



~~Title of Each Class~~	~~Name of Each Exchange on Which Registered~~
~~Common Stock, $0.001 Par Value~~	~~The Nasdaq Global Select Market~~


Title of each class	Trading Symbol	Name of exchange on which registered
Common shares, par value $0.001 per share	INFN	The Nasdaq Global Select Market



		Page
	Part I
Item 1.	Business	1
Item 1A.	Risk Factors	1116
Item 1B.	Unresolved Staff Comments	2945
Item 2.	Properties	2945
Item 3.	Legal Proceedings	2945
Item 4.	Mine Safety Disclosures	3045
	Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	3146
Item 6.	~~Selected Financial Data~~[RESERVED]	3347
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3448
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	5063
Item 8.	Financial Statements and Supplementary Data	5264
	CONSOLIDATED BALANCE SHEETS	68
	CONSOLIDATED STATEMENTS OF OPERATIONS	69
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)	70
	CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY	71
	CONSOLIDATED STATEMENTS OF CASH FLOWS	72
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	74
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~104~~117
Item 9A.	Controls and Procedures	~~104~~117
Item 9B.	Other Information	~~105~~118
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	118
	Part III
Item 10.	Directors, Executive Officers and Corporate Governance	~~106~~119
Item 11.	Executive Compensation	~~106~~119
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~106~~119
Item 13.	Certain Relationships and Related Transactions, and Director Independence	~~106~~119
Item 14.	Principal Accounting Fees and Services	~~106~~119
	Part IV
Item 15.	Exhibits, Financial Statement Schedules	~~107~~120
Item 16.	Form 10-K Summary	~~107~~120
	Signatures	124



Name		Age	Position
~~Thomas J. Fallon~~David W. Heard		5654	Chief Executive Officer and Director
~~David F. Welch, Ph.D.~~Nancy L. Erba		5756	~~Co-founder, Chief Strategy and Technology Officer, and Director~~
~~Brad D. Feller~~	44	Chief Financial Officer
David ~~W. Heard~~L. Teichmann		4966	~~General Manager, Products~~Chief Legal Officer and ~~Solutions~~Corporate Secretary
~~Robert J. Jandro~~Nicholas R. Walden		6251	Senior Vice President, Worldwide Sales
~~James L. Laufman~~	52	~~Senior Vice President, General Counsel and Corporate Secretary~~



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



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	High		Low
Fourth Quarter 2017	$	9.09	$	6.27
Third Quarter 2017	$	12.38	$	8.12
Second Quarter 2017	$	12.27	$	9.09
First Quarter 2017	$	12.50	$	8.35
Fourth Quarter 2016	$	9.62	$	7.23
Third Quarter 2016	$	13.24	$	8.20
Second Quarter 2016	$	16.25	$	10.95
First Quarter 2016	$	19.16	$	13.02



			Payments Due by Period
	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years

	(In thousands)
Purchase obligations⁽¹⁾	$	96,053	$	96,053	$	—	$	—	$	—
Operating leases⁽²⁾	32,709		11,319		18,610		2,719		61
Convertible senior notes, including interest	151,313		151,313		—		—		—
Total contractual obligations⁽³⁾	$	280,075	$	258,685	$	18,610	$	2,719	$	61


⁽¹⁾	~~We have service agreements with our major production suppliers under which we are committed to purchase certain parts.~~


⁽³⁾	~~Tax liabilities of $2.9 million related to uncertain tax positions~~(4)Certain commitments and contingencies are not included in the table because we cannot reliably estimate the timing and amount ~~of future payments, if any.~~


~~ITEM 7A.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~



	Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders' Equity			Noncontrolling Interest			Total
	Shares		Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders' Equity			Noncontrolling Interest			Total
Balance at December 27, 2014	126,160		$	126	1,077,225			$	(4,618	)	$	(590,826	)	$	481,907		$	—		$	481,907
Stock options exercised	1,787		2		13,092			—			—			13,094			—			13,094
ESPP shares issued	1,229		1		12,252			—						12,253			—			12,253
Shares withheld for tax obligations	(300	)	—		(5,227		)	—			—			(5,227		)	—			(5,227		)
Restricted stock units released	3,448		3		(3		)	—			—			—			—			—
Issuance of common stock related to acquisition	7,873		8		169,499			—			—			169,507			—			169,507
Stock-based compensation	—		—		32,621			—			—			32,621			—			32,621
Noncontrolling interest investment	—		—		—			—			—			—			15,373			15,373
Tax benefit from share-based award activity	—		—		842			—			—			842			—			842
Other comprehensive income	—		—		—			5,741			—			5,741			—			5,741
Net income	—		—		—			—			51,413			51,413			(463		)	50,950
Balance at December 26, 2015	140,197		$	140	$	1,300,301		$	1,123		$	(539,413	)	$	762,151		$	14,910		$	777,061
Stock options exercised	825		1		4,094			—			—			4,095			—			4,095
ESPP shares issued	1,369		1		13,607			—			—			13,608			—			13,608
Shares withheld for tax obligations	(287	)			(3,657		)	—			—			(3,657		)	—			(3,657		)
Restricted stock units released	2,917		3		(3		)	—			—			—			—			—
Stock-based compensation					42,552			—						42,552			—			42,552
Noncontrolling interest investment	—		—		—			—			—			—			(14,407		)	(14,407		)
Squeeze-out Proceedings	—				(2,812		)	—			—			(2,812		)	—			(2,812		)
Cumulative-effect adjustment from adoption of ASU 2016-09	—		—		—			—			(235		)	(235		)	—			(235		)
Other comprehensive loss	—		—		—			(29,447		)	—			(29,447		)	—			(29,447		)
Net loss	—		—		—			—			(23,927		)	(23,927		)	(503		)	(24,430		)
Balance at December 31, 2016	145,021		$	145	$	1,354,082		$	(28,324	)	$	(563,575	)	$	762,328		$	—		$	762,328


Supplemental schedule of non-cash investing and financing activities:
Transfer of inventory to fixed assets	$	9,332	$	2,279	$	1,083



Property and equipment included in accounts payable and accrued liabilities	$	7,435	$	9,011	$	—
Unpaid term licenses (included in accounts payable, accrued liabilities and other long term liabilities)	$	9,178	$	9,339	$	12,478



	As of December 30, 2017								As of December 31, 2016
	Fair Value Measured Using								Fair Value Measured Using
	Level 1		Level 2			Total			Level 1		Level 2			Total
Assets
Money market funds	$	20,371	$	—		$	20,371		$	41,773	$	—		$	41,773
Certificates of deposit	—		240			240			—		1,881			1,881
Commercial paper	—		26,912			26,912			—		39,310			39,310
Corporate bonds	—		118,558			118,558			—		88,324			88,324
U.S. agency notes	—		5,480			5,480			—		11,759			11,759
U.S. treasuries	35,408		—			35,408			52,092		—			52,092
Foreign currency exchange forward contracts	—		—			—			—		187			187
Total assets	$	55,779	$	151,190		$	206,969		$	93,865	$	141,461		$	235,326
Liabilities
Foreign currency exchange forward contracts	$	—	$	(204	)	$	(204	)	$	—	$	(71	)	$	(71	)



	December 30, 2017
	Adjusted Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Cash	$	87,991	$	—	$	—		$	87,991
Money market funds	20,371		—		—			20,371
U.S. treasuries	7,984		—		(1		)	7,983
Total cash and cash equivalents	$	116,346	$	—	$	(1	)	$	116,345
Certificates of deposit	240		—		—			240
Commercial paper	26,924		—		(12		)	26,912
Corporate bonds	90,685		—		(155		)	90,530
U.S. agency notes	2,500		—		(11		)	2,489
U.S. treasuries	27,495		—		(70		)	27,425
Total short-term investments	$	147,844	$	—	$	(248	)	$	147,596
Corporate bonds	28,186		—		(158		)	28,028
U.S. agency notes	3,002		—		(11		)	2,991
Total long-term investments	$	31,188	$	—	$	(169	)	$	31,019
Total cash, cash equivalents and investments	$	295,378	$	—	$	(418	)	$	294,960



	As of December 30, 2017							As of December 31, 2016
	Gross Notional⁽¹⁾		Prepaid Expenses and Other Assets		Other Accrued Liabilities			Gross Notional⁽¹⁾		Prepaid Expenses and Other Assets		Other Accrued Liabilities
Foreign currency exchange forward contracts
Related to euro denominated receivables	$	24,794	$	—	$	(202	)	$	23,887	$	137	$	(71	)
Related to British pound denominated receivables	$	—	$	—	$	—		$	6,353	$	48	$	—
Related to euro denominated restricted cash	$	252	$	—	$	(2	)	$	242	$	2	$	—
Total			$	—	$	(204	)			$	187	$	(71	)



Balance as of December 31, 2016	$	176,760
Foreign currency translation adjustments	18,855
Accumulated impairment loss	—
Balance as of December 30, 2017	$	195,615



			Fiscal Years
	Total		2018		2019		2020		2021		2022 and Thereafter
Total future amortization expense	$	92,188	$	27,591	$	26,968	$	19,681	$	7,194	$	10,754



	December 30, 2017			December 31, 2016
Inventory:
Raw materials	$	27,568		$	33,158
Work in process	59,662			74,533
Finished goods	127,474			125,264
Total	$	214,704		$	232,955
Property, plant and equipment, net:
Computer hardware	$	13,881		$	12,775
Computer software⁽¹⁾	32,521			26,779
Laboratory and manufacturing equipment	246,380			222,311
Land and building	12,347			—
Furniture and fixtures	2,474			2,075
Leasehold and building improvements	43,475			42,267
Construction in progress	34,816			33,633
Subtotal	$	385,894		$	339,840
Less accumulated depreciation and amortization⁽²⁾	(249,952		)	(215,040		)
Total	$	135,942		$	124,800
Accrued expenses:
Loss contingency related to non-cancelable purchase commitments	$	6,379		$	5,555
Professional and other consulting fees	5,305			4,955
Taxes payable	3,707			2,384
Royalties	5,404			5,375
Restructuring accrual	5,490			—
Other accrued expenses	13,497			13,311
Total	$	39,782		$	31,580



	Number of Options		Weighted-Average Exercise Price Per Share		Aggregate Intrinsic Value
Outstanding at December 27, 2014	4,298		$	7.29	$	32,833
Options granted	—		$	—
Options exercised	(1,787	)	$	7.33	$	21,566
Options canceled	—		$	—
Outstanding at December 26, 2015	2,511		$	7.26	$	28,288
Options granted	—		$	—
Options exercised	(825	)	$	4.97	$	4,433
Options canceled	(31	)	$	12.46
Outstanding at December 31, 2016	1,655		$	8.30	$	965
Options granted	—		$	—
Options exercised	(196	)	$	7.78	$	373
Options canceled	(62	)	$	14.11
Outstanding at December 30, 2017	1,397		$	8.11	$	1
Exercisable at December 30, 2017	1,397		$	8.11	$	1



	Unrecognized Compensation Expense, Net		Weighted- Average Period (in years)
Stock options	$	1	0.04
RSUs	$	56,474	2.5
PSUs	$	9,620	1.5



	Options Outstanding				Vested and Exercisable Options
Exercise Price	Number of Shares	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number of Shares	Weighted- Average Exercise Price
	(In thousands)	(In years)			(In thousands)
$6.30 - $ 7.25	261	1.65	$	6.88	261	$	6.88
$7.45 - $ 7.61	270	1.38	$	7.51	270	$	7.51
$7.68 - $ 8.19	235	2.45	$	8.07	235	$	8.07
$ 8.58	509	3.12	$	8.58	509	$	8.58
$9.02 - $13.54	122	1.54	$	10.22	122	$	10.23
	1,397	2.26	$	8.11	1,397	$	8.11



	2017	2016	2015
Index	SPGIIPTR	SPGIIPTR	SPGIIPTR
Index volatility	33% - 34%	18%	18% - 19%
Infinera volatility	55% - 56%	55%	48%
Risk-free interest rate	1.41% - 1.63%	0.95% - 1.07%	0.97% - 1.10%
Correlation with index	0.10 - 0.49	0.58 - 0.59	0.52
Estimated fair value	$15.23 - $17.35	$10.31 - $16.62	$18.08 - $19.29



			Grant Year
	Total Number of Performance Stock Units		2014		2015		2016		2017
Outstanding at December 31, 2016	904		123		148		633		—
PSUs granted	916		—		—		—		916
PSUs released	(26	)	(20	)	(6	)	—		—
PSUs canceled	(427	)	(102	)	(65	)	(213	)	(47	)
Outstanding at December 30, 2017	1,367		1		77		420		869



Stock-based compensation effects in net income (loss) before income taxes
Cost of revenue	$	3,065	$	2,966	$	2,405
Research and development	15,845		13,732		11,055
Sales and marketing	11,288		11,043		8,081
General and administrative	10,776		9,295		7,354
	$	40,974	$	37,036	$	28,895
Cost of revenue—amortization from balance sheet ⁽¹⁾	4,746		3,497		3,685
Total stock-based compensation expense	$	45,720	$	40,533	$	32,580



	For the Three Months Ended (Unaudited)
				2017									2016
	Dec. 30			Sep. 30			Jul. 1			Apr. 1			Dec. 31			Sep. 24			Jun. 25			Mar. 26

							(In thousands, except per share data)
Revenue:
Product	$	160,543		$	159,579		$	143,360		$	147,053		$	151,365		$	156,188		$	227,532		$	216,082
Services	35,273			33,001			33,461			28,469			29,678			29,264			31,290			28,736
Total revenue	195,816			192,580			176,821			175,522			181,043			185,452			258,822			244,818
Cost of revenue:
Cost of product	115,681			111,803			100,302			99,332			101,702			91,064			122,438			118,062
Cost of services	13,708			12,951			11,687			12,134			10,309			9,786			12,638			10,418
Restructuring and other related costs	19,141			—			—			—			—			—			—			—
Total cost of revenue	148,530			124,754			111,989			111,466			112,011			100,850			135,076			128,480
Gross profit	47,286			67,826			64,832			64,056			69,032			84,602			123,746			116,338
Operating expenses	117,793			102,074			105,337			101,883			114,900			95,461			107,664			101,467
Income (loss) from operations	(70,507		)	(34,248		)	(40,505		)	(37,827		)	(45,868		)	(10,859		)	16,082			14,871
Other income (expense), net	(4,449		)	(2,772		)	(2,846		)	(2,782		)	5,589			(2,854		)	(3,295		)	(2,847		)
Income (loss) before income taxes	(74,956		)	(37,020		)	(43,351		)	(40,609		)	(40,279		)	(13,713		)	12,787			12,024
Provision for (benefit from) income taxes	(971		)	211			(512		)	(158		)	(4,026		)	(2,416		)	1,475			216
Net income (loss)	$	(73,985	)	$	(37,231	)	$	(42,839	)	$	(40,451	)	$	(36,253	)	$	(11,297	)	$	11,312		$	11,808
Less: Net loss attributable to noncontrolling interest	—			—			—			—			—			(125		)	(171		)	(207		)
Net income (loss) attributable to Infinera Corporation	$	(73,985	)	$	(37,231	)	$	(42,839	)	$	(40,451	)	$	(36,253	)	$	(11,172	)	$	11,483		$	12,015
Net income (loss) per common share attributable to Infinera Corporation
Basic	$	(0.50	)	$	(0.25	)	$	(0.29	)	$	(0.28	)	$	(0.25	)	$	(0.08	)	$	0.08		$	0.09
Diluted	$	(0.50	)	$	(0.25	)	$	(0.29	)	$	(0.28	)	$	(0.25	)	$	(0.08	)	$	0.08		$	0.08