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Income Taxes | 12 Months Ended
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Jan. 03, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Note 10 — 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 |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Domestic |  | $ | (5,321 | ) |  | $ | (2,629 | ) |  | $ | (3,318 | )
Foreign |  |  | 18,347 |  |  |  | 9,268 |  |  |  | 1,022 |
Income (loss) before income taxes |  | $ | 13,026 |  |  | $ | 6,639 |  |  | $ | (2,296 | )
The provision (benefit) for income taxes consisted of the following (in thousands):
|  | Years Ended |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Current tax provision: |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | — |  |  | $ | — |  |  | $ | — |
State |  |  | 13 |  |  |  | 10 |  |  |  | 12 |
Foreign |  |  | 2,446 |  |  |  | 1,220 |  |  |  | 378 |
Total current provision |  |  | 2,459 |  |  |  | 1,230 |  |  |  | 390 |
Deferred tax provision (benefit): |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  |  | (3,003 | ) |  |  | — |  |  |  | (546 | )
State |  |  | (373 | ) |  |  | — |  |  |  | — |
Foreign |  |  | (105 | ) |  |  | 441 |  |  |  | (1 | )
Total deferred provision (benefit) |  |  | (3,481 | ) |  |  | 441 |  |  |  | (547 | )
Provision (benefit) for income taxes |  | $ | (1,022 | ) |  | $ | 1,671 |  |  | $ | (157 | )
Note 10 — 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 |
|  | 2019 |  |  | 2018 |  |  | 2017 |
|  | Rate |  |  | Amount |  |  | Rate |  |  | Amount |  |  | Rate |  |  | Amount |
Computed provision (benefit) for taxes based on income at statutory rate |  |  | 21.0 | % |  | $ | 2,735 |  |  |  | 21.0 | % |  | $ | 1,394 |  |  |  | 34.0 | % |  | $ | (781 | )
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Permanent differences |  |  | 17.4 |  |  |  | 2,266 |  |  |  | 0.6 |  |  |  | 41 |  |  |  | (0.9 | ) |  |  | 21 |
Change in the future federal tax rate |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (833.0 | ) |  |  | 19,125 |
State taxes, net of federal income tax benefit |  |  | (2.2 | ) |  |  | (284 | ) |  |  | 0.1 |  |  |  | 8 |  |  |  | (0.3 | ) |  |  | 8 |
State tax benefit |  |  | 0.7 |  |  |  | 93 |  |  |  | (6.7 | ) |  |  | (447 | ) |  |  | 8.3 |  |  |  | (190 | )
Foreign tax differential |  |  | (11.6 | ) |  |  | (1,514 | ) |  |  | (11.0 | ) |  |  | (730 | ) |  |  | (1.3 | ) |  |  | 29 |
Expiration of state net operating tax loss carryforwards |  |  | 8.0 |  |  |  | 1,039 |  |  |  | — |  |  |  | — |  |  |  | (36.4 | ) |  |  | 836 |
Foreign earnings not permanently reinvested, net of the participation exemption |  |  | (0.1 | ) |  |  | (7 | ) |  |  | (14.0 | ) |  |  | (926 | ) |  |  | 108.1 |  |  |  | (2,482 | )
Foreign dividend withholding |  |  | — |  |  |  | — |  |  |  | 4.8 |  |  |  | 317 |  |  |  | (0.3 | ) |  |  | 7 |
ASC 718 share based payment adjustment |  |  | — |  |  |  | — |  |  |  | (6.5 | ) |  |  | (434 | ) |  |  | — |  |  |  | — |
Other |  |  | 1.0 |  |  |  | 122 |  |  |  | 0.5 |  |  |  | 30 |  |  |  | (2.6 | ) |  |  | 59 |
Valuation allowance |  |  | (42.0 | ) |  |  | (5,472 | ) |  |  | 36.4 |  |  |  | 2,418 |  |  |  | 731.2 |  |  |  | (16,789 | )
Effective tax provision (benefit) |  |  | (7.8 | )% |  | $ | (1,022 | ) |  |  | 25.2 | % |  | $ | 1,671 |  |  |  | 6.8 | % |  | $ | (157 | )
The Company recorded an income tax benefit of $1,022,000 during the year ended 2019 due to the income tax benefit from the release of the U.S. and certain states valuation allowances, offset by income tax expense from profits generated in its foreign operations. 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. For the year ended 2019, there was a decrease to the state deferred tax asset of $387,000 and a decrease to the valuation allowance of $760,000, primarily related to the release of certain states valuation allowances as well as the expiration of state net operating loss carryforwards. Included in the state tax provision was 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 losses generated in 2018. For the year ended 2017, there was a decrease to the state deferred tax asset and corresponding decrease to the valuation allowance of $646,000, primarily related to the expiration of state net operating loss carryforwards. Note 10 — Income Taxes (Continued) Provision (Benefit) for Income Taxes (Continued) For the years ended 2019 and 2017, there was a decrease in foreign deferred liabilities of $46,000 and $47,000, respectively. Included in the foreign deferred tax provision is an increase of $36,000 in foreign deferred liabilities for the year ended 2018 All earnings from the Company’s subsidiaries are not considered to be permanently reinvested. Accordingly, the Company provided withholding and U.S. taxes on all unremitted foreign earnings for 2018 and 2017 (see STAAR Surgical UK discussion below). During 2019, 2018 and 2017 there were no withholding taxes paid to foreign jurisdictions. 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 2019 and 2018, in accordance with the 2017 Tax Act, the Company included GILTI of $16,100,000 and $7,700,000, respectively, 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. 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. Significant components of the Company’s deferred tax assets (liabilities) at January 3, 2020 and December 28, 2018 were as follows (in thousands):
|  | 2019 |  |  | 2018 |
Deferred tax assets: |  |  |  |  |  |  |  |
Allowance for doubtful accounts and sales returns |  | $ | 233 |  |  | $ | 252 |
Inventories |  |  | 703 |  |  |  | 560 |
Accrued vacation |  |  | 428 |  |  |  | 387 |
Accrued other expenses |  |  | 1,036 |  |  |  | 1,232 |
Stock-based compensation |  |  | 3,455 |  |  |  | 2,489 |
Pensions |  |  | 1,159 |  |  |  | 884 |
Depreciation and amortization |  |  | 162 |  |  |  | 843 |
Net operating loss carryforwards |  |  | 32,251 |  |  |  | 34,347 |
Business, foreign, AMT and R&D credit carryforwards |  |  | 3,164 |  |  |  | 3,256 |
Prepaid expenses |  |  | 272 |  |  |  | 272 |
Capitalized R&D |  |  | 986 |  |  |  | 968 |
Operating lease liability |  |  | 1,309 |  |  |  | — |
Other |  |  | 5 |  |  |  | 122 |
Valuation allowance |  |  | (37,603 | ) |  |  | (43,075 | )
Total deferred tax assets |  | $ | 7,560 |  |  | $ | 2,537 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Foreign tax withholding |  | $ | (1,295 | ) |  | $ | (1,282 | )
Operating lease ROU assets |  |  | (1,309 | ) |  |  | — |
Amortization of R&D |  |  | (805 | ) |  |  | (759 | )
Net foreign earnings not permanently reinvested |  |  | (401 | ) |  |  | (240 | )
Total deferred tax liabilities |  |  | (3,810 | ) |  |  | (2,281 | )
Total net deferred tax assets |  | $ | 3,750 |  |  | $ | 256 |
Note 10 — Income Taxes (Continued) Deferred Tax Assets and Liabilities (Continued) As of January 3, 2020, the Company had combined federal and state net deferred tax assets of $3,512,000, net deferred tax assets in Japan of $896,000, and net deferred tax liabilities in Switzerland of $658,000 (which included $1,295,000 of withholding taxes on unremitted foreign earnings) included in the Company’s components of deferred income tax assets and liabilities table. As of December 28, 2018, the Company had net deferred tax assets in the U.S. of $273,000 and in Japan of $905,000, and had net deferred tax liabilities in Switzerland of $922,000 (which included $1,282,000 of withholding taxes on unremitted foreign earnings) included in the Company’s components of deferred income tax assets and liabilities table. The Company had accrued net income taxes payable of $2,572,000 and $820,000 at January 3, 2020 and December 28, 2018, respectively, primarily due to taxes owed in foreign jurisdictions. 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. As of January 3, 2020, the Company has three years of accumulated profits for federal income tax purposes as a result of GILTI. However, the three-year income position is not solely determinative and, accordingly, management considers all other available positive and negative evidence in its analysis. This includes existing profits in foreign jurisdiction as well as projected future profits. After consideration of all the information available, the Company determined that a release of the federal valuation and certain states valuation were appropriate. Under the incremental cash tax savings approach, the Company recorded a valuation allowance release of $3,003,000 and $373,000 against the federal and certain states deferred tax assets, respectively. Under this method, valuation allowances of $33,813,000 and $6,643,000 for federal and state, respectively, remain as the usage of the remaining net operating losses and deferred tax assets will not result in cash tax savings and therefore provide no additional benefit. Further included in the federal deferred tax asset balance is $2,285,000 in foreign tax credits and foreign withholding taxes that are unlikely to be realized in the future under the new tax act and the mechanics of GILTI. As of January 3, 2020, the Company had net deferred tax assets in the U.S. of $3,139,000, which consisted of the federal valuation allowance release of $3,003,000 and the refundable alternative minimum tax credit of $136,000. Also, as of January 3, 2020, the Company had state net deferred tax assets of $373,000, which consisted of the release of certain state valuation allowances. As of January 3, 2020, the Company had federal net operating loss carryforwards of $129,000,000 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 2037. In California, the main state from which the Company conducts its domestic operations, the Company has state net operating losses of $33,000,000 available to reduce future California income taxes. The California net operating loss carryforwards expire in varying amounts between 2028 and 2039. 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 10 — Income Taxes (Continued) Foreign Jurisdictions STAAR Surgical UK On October 9, 2019 STAAR US formed STAAR Surgical UK Limited (“STAAR UK”) as a holding company in the United Kingdom for their foreign subsidiaries. On December 30, 2019, STAAR US transferred their shares in STAAR Surgical AG to STAAR UK. STAAR UK will act as the main foreign group holding company (“STAAR Group”). The STAAR Group intends to consolidate the group’s global operations to create a centralized hub to hold all future subsidiaries of the group, as well as expand into the United Kingdom market. STAAR UK’s activity will include the training and promotion of the entire product line with private and government hospitals in the United Kingdom. Based on the current tax treaties there is no withholding on distributions between Switzerland and the United Kingdom, and the United Kingdom and the U.S. Accordingly, the Company will no longer accrue Swiss withholding tax on foreign earnings after fiscal 2018. 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 liabilities in Switzerland of $658,000 and $922,000 as of January 3, 2020 and December 28, 2018, respectively, as discussed above. 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 $896,000 and $905,000 as of January 3, 2020 and December 28, 2018, respectively. STAAR Japan net deferred tax assets included a valuation allowance of $46,000 and $44,000 as of January 3, 2020 and December 28, 2018, respectively, related to non-deductible stock compensation for directors. The following tax years remain subject to examination:
Significant jurisdictions |  | Open Years
U.S. Federal |  | 2016 – 2018
California |  | 2015 – 2018
Switzerland |  | 2018
Japan |  | 2017 – 2018

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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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