Note 4. Discontinued Operations

On August 1, 2015, the Company completed the separation of the Lumentum business (the “Separation”) and made a tax-free distribution of approximately 80.1% of the outstanding shares of Lumentum common stock to VIAVI shareholders who received one share of Lumentum common stock for every five shares of VIAVI common stock held as of the close of business on July 27, 2015 (the “Record Date”) and not sold prior to August 4, 2015 (the “ex-dividend date”). In connection with the Separation, VIAVI agreed to contribute $137.6 million all of which was contributed during fiscal 2016. As of the Distribution, VIAVI retained ownership of approximately 19.9%, or 11.7 million shares, of Lumentum’s outstanding common stock. As a result of the Distribution, Lumentum is now an independent public company. The Company agreed not to liquidate the retained shares during the first six months following the Distribution. However, in connection with a private letter ruling from the Internal Revenue Service, the Company committed to liquidate these shares within three years from the Distribution. As of July 1, 2017, the Company sold all of its ownership of Lumentum’s common stock. Refer to “Note 9. Investments, Forward Contracts and Fair Value Measurements” for more information.

As of the Separation, Lumentum became a stand-alone public company that separately reports its financial results. Due to the difference between the basis of presentation for discontinued operations and the basis of presentation as a stand-alone company, the financial results of Lumentum included within discontinued operations for the Company may not be indicative of actual financial results of Lumentum as a stand-alone company.

In connection with the Separation, the Company entered into a Tax Matters Agreement which governs the rights, responsibilities and obligations of Lumentum and VIAVI with respect to tax, liabilities and benefits, attributes, contests, returns, and certain other tax matters.

The Intellectual Property Matters Agreement outlines the intellectual property rights and technology transferred to Lumentum upon the Separation, as well as the intellectual property and technology both companies can license from each other. In addition, it outlines non-compete restrictions between VIAVI and Lumentum.

The Company also transferred deferred tax assets of $29.5 million, deferred tax liabilities of $1.0 million, current income tax payables of $3.3 million, an income tax receivable of $1.3 million and other long-term liabilities related to uncertain tax positions totaling $0.1 million on the Separation date. The Company utilized approximately $1.0 billion of federal net operating losses to offset income recognized as a result of the Separation and the license of Lumentum’s intellectual property to a foreign subsidiary.

The removal of Lumentum’s net assets and equity related adjustments upon the Separation are presented as an increase of VIAVI's accumulated deficit in the Consolidated Statements of Stockholders’ Equity and represents a non-cash financing activity, excluding the cash transferred. Refer to “Note 16. Stock-Based Compensation” for information on modifications to stock-based compensation awards as a result of the Distribution.

The following table summarizes results from discontinued operations of the Lumentum business included in the Consolidated Statement of Operations (in millions):



	Years Ended
	July 1, 2017			July 2, 2016
Net revenues	$	—		$	66.5
Cost of revenues	—			49.8
Amortization of acquired technologies	—			0.6
Gross profit	—			16.1
Operating expenses:
Research and development	—			12.5
Selling, general and administrative	(0.8		)	24.7
Restructuring charges	—			0.1
Total operating expenses	(0.8		)	37.3
Income (loss) from operations	0.8			(21.2		)
Income (loss) before income taxes	0.8			(21.2		)
(Benefit from) provision for income taxes	(0.8		)	27.8
Net income (loss) from discontinued operations (1)	$	1.6		$	(49.0	)

(1) No income relating to the Lumentum business was recorded after the Separation Date.

During the fiscal year ended June 30, 2018, the Company did not recognize revenue or incur costs from discontinued operations.

During the fiscal year ended July 1, 2017, the net income from discontinued operations had a benefit of $0.8 million related to the true up of contractual obligations between the company and Lumentum per the Tax Matters Agreement and the Company recognized a tax benefit of $0.8 million relating to the income taxes incurred as a result of the Separation.

During the fiscal year ended July 2, 2016, the income tax provision for discontinued operations of $27.8 million included approximately $6.2 million cash taxes due to federal and state authorities as a result of the Separation. In addition, approximately $19.0 million of the income tax provision for discontinued operations related to the income tax intraperiod tax allocation rules in relation to continuing operations and other comprehensive income.

Net income (loss) from discontinued operations also includes other costs incurred by the Company to separate Lumentum. These costs include transaction charges, advisory and consulting fees, of $16.5 million and $21.4 million for the year ended, July 1, 2017 and July 2, 2016, respectively.

The following table presents supplemental cash flow information: depreciation expense, amortization expense, stock-based compensation expense and capital expenditures of the Lumentum business (in millions):



	July 2, 2016
Operating activities:
Depreciation expense	$	3.7
Amortization expense	0.6
Stock-based compensation expense	1.6
Investing activities:
Capital expenditures	$	5.8

(1) No depreciation expense, amortization expense, stock based compensation expense and capital expenditures relating to the Lumentum business are presented after the Separation date.