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Income Taxes | 12 Months Ended
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Dec. 28, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Note 9 — Income Taxes Provision (Benefit) for Income Taxes Income (loss) from continuing operations before provision (benefit) for income taxes was as follows (in thousands):
|  | Years Ended |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Domestic |  | $ | (2,629 | ) |  | $ | (3,318 | ) |  | $ | (10,399 | )
Foreign |  |  | 9,268 |  |  |  | 1,022 |  |  |  | (2,045 | )
Income (loss) before income taxes |  | $ | 6,639 |  |  | $ | (2,296 | ) |  | $ | (12,444 | )
The provision (benefit) for income taxes consisted of the following (in thousands):
|  | Years Ended |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Current tax provision: |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | — |  |  | $ | — |  |  | $ | — |
State |  |  | 10 |  |  |  | 12 |  |  |  | 18 |
Foreign |  |  | 1,220 |  |  |  | 378 |  |  |  | 1,031 |
Total current provision |  |  | 1,230 |  |  |  | 390 |  |  |  | 1,049 |
Deferred tax provision (benefit): |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal and state |  |  | — |  |  |  | (546 | ) |  |  | — |
Foreign |  |  | 441 |  |  |  | (1 | ) |  |  | (1,364 | )
Total deferred provision (benefit) |  |  | 441 |  |  |  | (547 | ) |  |  | (1,364 | )
Provision (benefit) for income taxes |  | $ | 1,671 |  |  | $ | (157 | ) |  | $ | (315 | )
Note 9 — Income Taxes (Continued) Provision (Benefit) for Income Taxes (Continued) A reconciliation of the statutory U.S. federal tax rate to the Company’s effective tax rate was as follows (dollars in thousands):
|  | Years Ended |
|  | 2018 |  |  | 2017 |  |  | 2016 |
|  | Rate |  |  | Amount |  |  | Rate |  |  | Amount |  |  | Rate |  |  | Amount |
Computed provision (benefit) for taxes based on income at statutory rate |  |  | 21.0 | % |  | $ | 1,394 |  |  |  | 34.0 | % |  | $ | (781 | ) |  |  | 34.0 | % |  | $ | (4,231 | )
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Permanent differences |  |  | 0.6 |  |  |  | 41 |  |  |  | (0.9 | ) |  |  | 21 |  |  |  | (3.0 | ) |  |  | 373 |
Change in the future federal tax rate |  |  | — |  |  |  | — |  |  |  | (833.0 | ) |  |  | 19,125 |  |  |  | — |  |  |  | — |
State minimum taxes, net of federal income tax benefit |  |  | 0.1 |  |  |  | 8 |  |  |  | (0.3 | ) |  |  | 8 |  |  |  | (0.1 | ) |  |  | 12 |
State tax benefit |  |  | (6.7 | ) |  |  | (447 | ) |  |  | 8.3 |  |  |  | (190 | ) |  |  | 6.2 |  |  |  | (767 | )
Foreign tax differential |  |  | (11.0 | ) |  |  | (730 | ) |  |  | (1.3 | ) |  |  | 29 |  |  |  | (8.9 | ) |  |  | 1,109 |
Expiration of state net operating tax loss carryforwards |  |  | — |  |  |  | — |  |  |  | (36.4 | ) |  |  | 836 |  |  |  | (7.2 | ) |  |  | 892 |
Foreign earnings not permanently reinvested, net of the participation exemption |  |  | (14.0 | ) |  |  | (926 | ) |  |  | 108.1 |  |  |  | (2,482 | ) |  |  | 6.5 |  |  |  | (809 | )
Foreign dividend withholding |  |  | 4.8 |  |  |  | 317 |  |  |  | (0.3 | ) |  |  | 7 |  |  |  | 3.8 |  |  |  | (478 | )
ASC 718 Share Based Payment Adjustment |  |  | (6.5 | ) |  |  | (434 | ) |  |  | - |  |  |  | — |  |  |  | — |  |  |  | — |
Other |  |  | 0.5 |  |  |  | 30 |  |  |  | (2.6 | ) |  |  | 59 |  |  |  | 1.1 |  |  |  | (139 | )
Valuation allowance |  |  | 36.4 |  |  |  | 2,418 |  |  |  | 731.2 |  |  |  | (16,789 | ) |  |  | (29.9 | ) |  |  | 3,723 |
Effective tax provision (benefit) |  |  | 25.2 | % |  | $ | 1,671 |  |  |  | 6.8 | % |  | $ | (157 | ) |  |  | 2.5 | % |  | $ | (315 | )
The Company recorded an income tax provision of $1,671,000 during the year ended 2018 due to profits generated in its foreign operations. The Company recorded an income tax benefit of $157,000 during the year ended 2017 due primarily to a U.S. income tax benefit related to an alternative minimum tax carryforward, offset by income tax expense generated from profits in its foreign operations. The Company recorded an income tax benefit of $315,000 during the year ended 2016 due to losses generated in its foreign operations and a reduction in foreign withholding taxes in connection with the dissolution of one of its foreign subsidiaries. Included in the state tax provision is an increase to the state deferred tax asset and corresponding increase to the valuation allowance of $447,000 for the year ended 2018, primarily related to the loss generated in 2018. For the years ended 2017 and 2016, there was a decrease to the state deferred tax asset and corresponding decrease to the valuation allowance of $646,000 and $125,000, respectively, primarily related to the expiration of state net operating loss carryforwards. Included in the foreign deferred tax provision is an increase of $36,000 in foreign deferred liabilities for the year ended 2018. For the years ended 2017 and 2016, there was a decrease in foreign deferred liabilities of $47,000 and $617,000, 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 2018, 2017 and 2016 there were no withholding taxes paid to foreign jurisdictions. Note 9 — Income Taxes (Continued) Provision (Benefit) for Income Taxes (Continued) As discussed in Note 1, on December 22, 2017, the United States enacted major tax reform legislation, the 2017 Tax Act, which enacted a broad range of changes to the federal tax code. Most of the changes from the new law are effective for years beginning after December 31, 2017, with the noted exception of the deemed repatriation of the offshore earnings. For 2018, in accordance with the 2017 Tax Act, the Company included GILTI of $7,700,000 in U.S. gross income, which was fully offset with net operating loss carryforwards. The Company was not able to utilize the deduction of 50 percent of GILTI, as this deduction is limited by the Company’s pre-GILTI U.S. tax income. For 2017, in accordance with the 2017 Tax Act, there was an adjustment made to the inclusion amount for cumulative unearned foreign earnings and profits that were previously deferred from U.S. income taxes. At that time, for 2017, the Company made reasonable estimates of the impact and included $5,700,000 in foreign earnings which were fully offset by deemed foreign tax credits. This inclusion amount was later finalized at $7,500,000, which were fully offset by deemed foreign tax credits. Deferred Tax Assets and Liabilities 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. For 2017, the federal portion of the deferred tax assets and liabilities were revalued from 34% to 21% percent, based on the enacted 2017 Tax Act. Significant components of the Company’s deferred tax assets (liabilities) at December 28, 2018 and December 29, 2017 were as follows (in thousands):
|  | 2018 |  |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |  |
Allowance for doubtful accounts and sales returns |  | $ | 252 |  |  | $ | 230 |
Inventories |  |  | 560 |  |  |  | 381 |
Accrued vacation |  |  | 387 |  |  |  | 322 |
Accrued other expenses |  |  | 1,232 |  |  |  | 559 |
Stock-based compensation |  |  | 2,489 |  |  |  | 1,444 |
Pensions |  |  | 884 |  |  |  | 720 |
Depreciation and amortization |  |  | 843 |  |  |  | 959 |
Net operating loss carryforwards |  |  | 34,347 |  |  |  | 33,770 |
Business, foreign, AMT and R&D credit carryforwards |  |  | 3,256 |  |  |  | 3,706 |
Prepaid expenses |  |  | 272 |  |  |  | 188 |
Capitalized R&D |  |  | 968 |  |  |  | 941 |
Other |  |  | 122 |  |  |  | 92 |
Valuation allowance |  |  | (43,075 | ) |  |  | (40,656 | )
Total deferred tax assets |  | $ | 2,537 |  |  | $ | 2,656 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Foreign tax withholding |  | $ | (1,282 | ) |  | $ | (881 | )
Amortization of R&D |  |  | (759 | ) |  |  | (723 | )
Net foreign earnings not permanently reinvested |  |  | (240 | ) |  |  | (160 | )
Total deferred tax liabilities |  |  | (2,281 | ) |  |  | (1,764 | )
Total net deferred tax assets |  | $ | 256 |  |  | $ | 892 |
Note 9 — Income Taxes (Continued) Deferred Tax Assets and Liabilities (Continued) As of December 28, 2018, the Company had net deferred tax liabilities in Switzerland of $909,000 (which included $1,282,000 of withholding taxes on unremitted foreign earnings) and net deferred tax assets in Japan of $905,000 (which included a $44,000 valuation allowance related to non-deductible stock compensation for directors) included in the Company’s components of deferred income tax assets and liabilities table. As of December 29, 2017, the Company had net deferred tax liabilities in Switzerland of $377,000 (which included $881,000 of withholding taxes on unremitted foreign earnings) and net deferred tax assets of $722,000 in Japan included in the Company’s components of deferred income tax assets and liabilities table. The Company had accrued net income taxes payable of $820,000 and $29,000 at December 28, 2018 and December 29, 2017, respectively, primarily due to taxes owed in foreign jurisdictions. 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 the deferred tax asset may not be realized. U.S. Jurisdiction The ultimate realization of deferred tax assets is dependent upon future generation of income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the projected future income and tax planning strategies in making this assessment. After consideration of all the information available, including the Company’s history of cumulative losses domestically, and the volatility in forecasting future foreign profits, the Company established a full valuation allowance in the U.S. for all periods presented due to the significant uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets, with the exception of the refundable alternative minimum tax credit of $273,000. Management will continue to monitor and evaluate all available evidence each reporting period in assessing the need to maintain a full valuation allowance against the Company’s deferred tax assets. Continued growth and profits in foreign jurisdictions will be evaluated and considered in the determination by Management of whether it is more likely than not that the Company’s deferred tax assets will be realizable in a later period. Further, pursuant to the provisions of Internal Revenue Code Section 382, significant changes in ownership may restrict the future utilization of these tax loss carry forwards. Note 9 — Income Taxes (Continued) U.S. Jurisdiction (Continued) As of December 28, 2018, the Company had federal net operating loss carryforwards of $135,000,000 available to reduce future income taxes of its U.S. operations. The pre-2018 federal net operating loss carryforwards expire in varying amounts between 2020 and 2038. In California, the main state from which the Company conducts its domestic operations, the Company has state net operating losses of $29,000,000 available to reduce future California income taxes. The California net operating loss carryforwards expire in varying amounts between 2028 and 2038. Foreign Jurisdictions STAAR Surgical AG Due to STAAR Surgical AG’s history of profits, the deferred tax assets are considered fully realizable. The Company had net deferred tax assets in Switzerland of $373,000 and $505,000 as of December 28, 2018 and December 29, 2017, respectively. STAAR Japan, Inc. Since 2012, STAAR Japan functions as a limited-risk distributor with a guaranteed return from STAAR AG and accordingly, STAAR Japan’s deferred tax assets are considered fully realizable. The Company had net deferred tax assets of $905,000 and $722,000 as of December 28, 2018 and December 29, 2017, respectively. The following tax years remain subject to examination:
Significant jurisdictions |  | Open Years
U.S. Federal |  | 2015 – 2017
California |  | 2014 – 2017
Switzerland |  | 2017
Japan |  | 2016 – 2017

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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