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Income Taxes | 12 Months Ended
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Jan. 03, 2014
Income Tax Disclosure [Abstract] |
Income Tax Disclosure [Text Block] | Note 9 — Income Taxes The provision for income taxes consists of the following (in thousands):
|  | 2013 |  | 2012 |  | 2011 |
Current tax provision: |  |  |  |  |  |  |  |  |  |
U.S. federal (benefit) |  | $ | (121) |  | $ | — |  | $ | — |
State |  |  | 12 |  |  | 11 |  |  | 13 |
Foreign |  |  | 721 |  |  | 1,125 |  |  | 1,012 |
Total current provision |  |  | 612 |  |  | 1,136 |  |  | 1,025 |
Deferred tax provision: |  |  |  |  |  |  |  |  |  |
U.S. federal and state |  |  | — |  |  | — |  |  | — |
Foreign provision |  |  | 104 |  |  | 108 |  |  | 331 |
Total deferred provision |  |  | 104 |  |  | 108 |  |  | 331 |
Provision for income taxes |  | $ | 716 |  | $ | 1,244 |  | $ | 1,356 |
As of January 3, 2014, the Company had federal net operating loss carryforwards of $121.7 million available to reduce future income taxes. The federal net operating loss carryforwards expire in varying amounts between 2017 and 2032. In California, the main state from which the Company conducts its domestic operations, the Company has state net operating losses of $70.5 million available to reduce future California income taxes. The California net operating loss carryfowards expire in varying amounts between 2014 and 2033 and, approximately $14.6 million of those net operating loss carryforwards, will expire over the next three years The Company had accrued income taxes payable of $655,000 and $1,034,000 at January 3, 2014 and December 28, 2012, respectively, primarily due to taxes from foreign jurisdictions.
The provision for income before taxes differs from the amount computed by applying the statutory federal income tax rate to income before taxes as follows (in thousands):
|  | 2013 |  | 2012 |  | 2011 |
Computed provision for taxes based on income at statutory rate |  |  | 34.0 | % |  | $ | 379 |  |  | 34.0 | % |  | $ | (176) |  |  | 34.0 | % |  | $ | 919 |
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Permanent differences |  |  | 3.2 |  |  |  | 35 |  |  | (7.9) |  |  |  | 41 |  |  | 1.4 |  |  |  | 37 |
State minimum taxes, net of federal income tax benefit |  |  | 0.7 |  |  |  | 8 |  |  | (1.4) |  |  |  | 8 |  |  | 0.3 |  |  |  | 9 |
Stock options |  |  | — |  |  |  | — |  |  | (56.0) |  |  |  | 290 |  |  | — |  |  |  | — |
State tax benefit |  |  | 6.4 |  |  |  | 71 |  |  | 9.2 |  |  |  | (48) |  |  | (4.3) |  |  |  | (116) |
Tax rate difference due to foreign statutory rate |  |  | 43.7 |  |  |  | 487 |  |  | (43.8) |  |  |  | 227 |  |  | (19.7) |  |  |  | (529) |
Foreign tax detriment (benefit) |  |  | — |  |  |  | — |  |  | 3.1 |  |  |  | (16) |  |  | 11.6 |  |  |  | 312 |
Foreign earnings not permanently reinvested |  |  | (7.7) |  |  |  | (86) |  |  | (223.4) |  |  |  | 1,158 |  |  | 29.1 |  |  |  | 788 |
Foreign dividend withholding |  |  | 12.5 |  |  |  | 140 |  |  | (22.1) |  |  |  | 114 |  |  | 5.5 |  |  |  | 147 |
Expiration of charitable contribution carryover |  |  | 0.2 |  |  |  | 2 |  |  | (16.1) |  |  |  | 83 |  |  | — |  |  |  | — |
Reserve |  |  | (10.9) |  |  |  | (121) |  |  | — |  |  |  | — |  |  | — |  |  |  | — |
Other |  |  | 6.4 |  |  |  | 71 |  |  | 1.1 |  |  |  | (6) |  |  | 1.4 |  |  |  | 37 |
Valuation allowance |  |  | (24.2) |  |  |  | (270) |  |  | 83.2 |  |  |  | (431) |  |  | (9.2) |  |  |  | (248) |
Effective tax provision rate |  |  | 64.3 | % |  | $ | 716 |  |  | (240.1) | % |  | $ | 1,244 |  |  | 50.1 | % |  | $ | 1,356 |
Included in the state tax provision for 2013 is a decrease to the state deferred tax asset and corresponding decrease to the valuation allowance of $71,000. For 2012 and 2011, included in the state tax provision is an increase to the state deferred tax asset and corresponding increase to the valuation allowance of $48,000 and $116,000, respectively. Included in the deferred foreign tax provision for 2013 is decrease to the foreign deferred tax asset of $630,000 and corresponding decrease to the valuation allowance of $1,008,000. For 2012, there was an increase to the foreign deferred tax asset of $16,000 and corresponding increase to the valuation allowance. For 2011, there was an decrease to the foreign deferred tax asset and corresponding decrease to the valuation allowance of $312,000, respectively. All earnings from the Company’s subsidiaries are not considered to be permanently reinvested. Accordingly, the Company provides withholding and U.S. taxes on all unremitted foreign earnings. During 2013 and 2012 there were no withholding taxes paid to foreign jurisdictions and there were no earnings repatriated from foreign subsidiaries. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets (liabilities) as of January 3, 2014 and December 28, 2012 are as follows (in thousands):
|  | 2013 |  | 2012 |
Current deferred tax assets (liabilities): |  |  |  |  |  |  |
Allowance for doubtful accounts and sales returns |  | $ | 21 |  | $ | 89 |
Inventories |  |  | 11 |  |  | 190 |
Accrued vacation |  |  | 375 |  |  | 534 |
State taxes |  |  | — |  |  | 3 |
Accrued other expenses |  |  | 105 |  |  | 187 |
Other |  |  | (137) |  |  | (111) |
Valuation allowance |  |  | (741) |  |  | (1,331) |
Total current deferred tax liabilities |  | $ | (366) |  | $ | (439) |
Non-current deferred tax assets (liabilities): |  |  |  |  |  |  |
Net operating loss carryforwards |  |  | 50,409 |  |  | 51,533 |
Stock-based compensation |  |  | 2,212 |  |  | 1,602 |
Business, foreign and AMT credit carryforwards |  |  | 921 |  |  | 844 |
Capitalized R&D |  |  | 525 |  |  | 605 |
Contributions |  |  | 57 |  |  | 58 |
Pensions |  |  | 731 |  |  | 877 |
Depreciation and amortization |  |  | 360 |  |  | 202 |
Foreign tax withholding |  |  | (1,129) |  |  | (885) |
Foreign earnings not permanently reinvested |  |  | (4,992) |  |  | (5,783) |
Other |  |  | (40) |  |  | 11 |
Valuation allowance |  |  | (50,082) |  |  | (49,762) |
Total non-current deferred tax liabilities |  | $ | (1,028) |  | $ | (698) |
As of January 3, 2014, the Company had net deferred tax liabilities in Switzerland of $1,683,000 (which included $1,129,000 of withholding taxes on unremitted foreign earnings) and net deferred tax assets of $289,000 in Japan included in the Company’s components of deferred income tax assets and liabilities table. As of December 28, 2012, the Company had net deferred tax liabilities in Switzerland of $1,137,000 (which included $885,000 of withholding taxes on unremitted foreign earnings) included in the Company’s components of deferred income tax assets and liabilities table. Valuation allowance ASC 740 requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset may not be realizable. The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. In evaluating the Company’s ability to recover the deferred tax assets within a jurisdiction from which they arise, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of recent operations. In projecting future taxable income, the Company begins with historical results and incorporates assumptions including overall current and projected business and industry conditions, the amount of future federal, state, and foreign pretax operating income, the reversal of temporary differences and the successful implementation of feasible and prudent tax-planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates the Company uses to manage the underlying businesses. In evaluating the objective evidence that historical results provide, the Company considers three years of cumulative operating results. Valuation allowances, or reductions to deferred tax assets, are recognized if, based on the weight of all the available evidence, it is more likely than not that some portion or all of the deferred tax asset may not be realized.
U.S.Jurisdiction Due to the Company’s history of losses in the U.S., the valuation allowance fully offsets the value of U.S. deferred tax assets on the Company’s balance sheet as of January 3, 2014. Further, under Federal Tax Law Internal Revenue Code Section 382, significant changes in ownership may restrict the future utilization of these tax loss carry forwards. Foreign Jurisdictions STAAR Japan, Inc. STAAR Surgical Company acquired its remaining ownership interest in STAAR Japan in 2008. Based on management's assessment of all available evidence at the time, including STAAR Japan’s history of cumulative losses, the Company concluded it was more likely than not that the net deferred tax assets would not be realized, and accordingly, a full valuation allowance was established. As of December 28, 2012, STAAR Japan’s valuation allowance was approximately $1.0 million. During 2011 and 2012, the Company was engaged in a global restructuring strategy to consolidate global manufacturing into the U.S. to reduce costs, improve gross profit, enable use of significant net operating loss carryforwards in the U.S., and reduce income taxes in foreign jurisdictions. At the time, the Company manufactured its products in four facilities, two located in the U.S., and one of each located in Switzerland and Japan. Since that time, the Company has developed and begun implementing a plan to consolidate its manufacturing into a single site at its Monrovia, California location, to be substantially completed by the middle of 2014. During 2013, the Company completed the transfer of the manufacturing operations in Japan to the U.S. An important change in connection with this global restructuring strategy was the conversion of STAAR Japan from a traditional principal manufacturer with unlimited manufacturing and inventory risk to a limited-risk distributor, or LRD. As an LRD, STAAR Japan does not bear manufacturing risk and has limited risk of maintaining inventory. This conversion was accomplished by contractually shifting these risks from STAAR Japan to STAAR AG, another wholly owned subsidiary of STAAR, as part of this global restructuring strategy. STAAR Japan, although legally converted to an LRD at the end of 2012, continued to sell off its on-hand inventory from the end of 2012 through the first six months of 2013; consequently, it retained that inventory risk and functioned substantively as a principal entrepreneur during that period. Beginning in the third quarter of 2013, STAAR Japan began to operate as an LRD, both legally and economically, for STAAR AG. STAAR AG contractually assumed full principal manufacturing responsibility for its LRD (STAAR Japan), thereby allowing STAAR Japan to completely transfer the risks of being a principal manufacturer to STAAR AG. As a result of this change to an LRD, in the normal course of business, STAAR Japan no longer bears the risks of manufacturing its inventory and operates as a limited-risk distributor for STAAR AG. STAAR AG has engaged STAAR U.S. as its contract manufacturer for all of STAAR AG’s territory, including for Japan and China. Also, beginning in the third quarter of 2013, STAAR AG began selling inventory to STAAR Japan in order for STAAR Japan to market and distribute the products in its territory, principally in Japan and China, as an LRD. As a limited-risk distributor, STAAR Japan is contractually guaranteed to earn a fixed return on its net sales. The rate of return is consistent with what a limited-risk distributor would earn in a distribution agreement of similar risks and responsibilities with an unrelated party as determined by formal transfer price studies conducted by the Company in connection with its global manufacturing consolidation strategy. As a result of this change from a principal manufacturer to a limited-risk distributor with a guaranteed return, STAAR Japan achieved a three-year cumulative pretax income in the third quarter of 2013, as measured from the beginning of the fourth quarter of 2010 through the end of the third quarter of 2013. Based on these results and management’s consideration of all available positive and negative evidence, including the projected pretax income that STAAR Japan is contractually guaranteed to earn as an LRD, management concluded that, at September 27, 2013 and at January 3, 2014, it is more likely than not that STAAR Japan’s deferred tax assets would be realized. Accordingly, STAAR Japan fully released its remaining valuation allowance against net deferred tax assets based on the weight of positive evidence that existed at September 27, 2013. This release amounted to approximately $433,000 of income tax benefit recorded in the consolidated financial statements for the three and nine months ended September 27, 2013 (as translated using the Japanese Yen exchange rate on September 27, 2013). The valuation allowance as of December 28, 2012 of $1.0 million was reduced to $433,000 primarily due to the utilization of STAAR Japan’s net operating loss carryover during the nine months ended September 27, 2013. As of January 3, 2014, STAAR Japan’s net deferred tax assets of $289,000, including the remaining net operating loss carryover of $20,000 (as translated using the Japanese Yen exchange rate on January 3, 2014), are included above in the table of components of deferred income tax assets and liabilities.
STAAR Surgical AG Due to STAAR Surgical AG’s history of profits, the deferred tax assets are considered fully realizable. Included in deferred tax assets and liabilities of STAAR AG is noncurrent deferred tax assets of $185,000 and $187,000 as of January 3, 2014 and December 28, 2012, respectively. Other Income Tax Disclosures The following tax years remain subject to examination:
Significant Jurisdictions |  | Open Years |
U.S. Federal |  | 2010 – 2012 |
California |  | 2009 – 2012 |
Switzerland |  | 2011 – 2012 |
Japan |  | 2008 – 2012 |
Income (loss) from continuing operations before provision for income taxes is as follows (in thousands):
|  | 2013 |  | 2012 |  | 2011 |
Domestic |  | $ | (2,131) |  | $ | (2,967) |  | $ | (2,145) |
Foreign |  |  | 3,245 |  |  | 2,448 |  |  | 4,849 |
|  | $ | 1,114 |  | $ | (519) |  | $ | 2,704 |

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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