Discontinued Operations

6 Months Ended

Dec. 31, 2016

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Note 3. Discontinued Operations

Lumentum Separation

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 shares. Lumentum was formed to hold Viavi’s CCOP business and the WaveReady product line. 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 December 31, 2016, the Company owns approximately 1.7 million shares, of Lumentum’s common stock. Refer to “Note 7. Investments, Forward Contracts and Fair Value Measurements” for more information.

As the separation of the Lumentum business represented a strategic shift that had and will have a major effect on the Company’s operations and financial results, the results of operations of the Lumentum business are presented separately as discontinued operations for the three and six months endedJanuary 2, 2016 in accordance with the authoritative guidance.

As of the Separation Date, 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.

The removal of Lumentum’s net assets and equity related adjustments upon the Separation are presented as an increase of Viavi's accumulated deficit and represents a non-cash financing activity, excluding the cash transferred. Refer to “Note 14. 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 condensed Consolidated Statement of Operations (in millions):

	Six Months Ended (1)
	January 2, 2016
Net revenues	$	66.5
Cost of revenues	49.7
Amortization of acquired technologies	0.6
Gross profit	16.2
Operating expenses:
Research and development	12.5
Selling, general and administrative	24.0
Restructuring charges	0.1
Total operating expenses	36.6
Loss from operations	(20.4		)
Interest and other income (expense), net	0.5
Loss before income taxes	(19.9		)
Provision for income taxes	30.5
Net loss from discontinued operations	$	(50.4	)

(1) Net income from discontinued operations for the three months ended January 2, 2016 was $3.0 million comprised of costs to complete the separation offset by a benefit from income taxes from discontinued operations of $4.5 million. No income or expense has been recorded relating to the Lumentum business after the separation from Viavi on August 1, 2015.

During the six months endedJanuary 2, 2016, the income tax provision for discontinued operations of $30.5 million, included approximately $5.6 million cash taxes that were due to federal and state authorities as a result of the Separation. In addition, approximately $25.2 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. Net income (loss) from discontinued operations includes transaction, advisory and other costs to effect the separation of $1.5 million and $15.5 million for the three and six months ended January 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):

	Six Months Ended (1)
	January 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.