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Income Taxes | 12 Months Ended
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Jan. 01, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | Note 10 — Income Taxes Provision (Benefit) for Income Taxes Income from continuing operations before provision (benefit) for income taxes was as follows (in thousands):
|  | Years Ended |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Domestic |  | $ | (16,245 | ) |  | $ | (5,321 | ) |  | $ | (2,629 | )
Foreign |  |  | 24,512 |  |  |  | 18,347 |  |  |  | 9,268 |
Income before income taxes |  | $ | 8,267 |  |  | $ | 13,026 |  |  | $ | 6,639 |
The provision (benefit) for income taxes consisted of the following (in thousands):
|  | Years Ended |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Current tax provision: |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | 2 |  |  | $ | — |  |  | $ | — |
State |  |  | 15 |  |  |  | 13 |  |  |  | 10 |
Foreign |  |  | 3,186 |  |  |  | 2,446 |  |  |  | 1,220 |
Total current provision |  |  | 3,203 |  |  |  | 2,459 |  |  |  | 1,230 |
Deferred tax provision (benefit): |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  |  | (573 | ) |  |  | (3,003 | ) |  |  | — |
State |  |  | 78 |  |  |  | (373 | ) |  |  | — |
Foreign |  |  | (354 | ) |  |  | (105 | ) |  |  | 441 |
Total deferred provision (benefit) |  |  | (849 | ) |  |  | (3,481 | ) |  |  | 441 |
Provision (benefit) for income taxes |  | $ | 2,354 |  |  | $ | (1,022 | ) |  | $ | 1,671 |
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 |
|  | 2020 |  |  | 2019 |  |  | 2018 |
|  | Rate |  |  | Amount |  |  | Rate |  |  | Amount |  |  | Rate |  |  | Amount |
Computed provision for taxes based on income at statutory rate |  |  | 21.0 | % |  | $ | 1,736 |  |  |  | 21.0 | % |  | $ | 2,735 |  |  |  | 21.0 | % |  | $ | 1,394 |
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Permanent differences |  |  | 0.4 | % |  |  | 29 |  |  |  | 0.5 | % |  |  | 60 |  |  |  | 0.5 | % |  |  | 34 |
State taxes, net of federal income tax benefit |  |  | 0.9 | % |  |  | 74 |  |  |  | (2.2 | )% |  |  | (284 | ) |  |  | 0.1 | % |  |  | 8 |
State tax benefit |  |  | (16.9 | )% |  |  | (1,397 | ) |  |  | 0.7 | % |  |  | 93 |  |  |  | (6.7 | )% |  |  | (447 | )
Foreign tax differential |  |  | (27.9 | )% |  |  | (2,304 | ) |  |  | (11.6 | )% |  |  | (1,514 | ) |  |  | (11.0 | )% |  |  | (730 | )
Expiration of state net operating tax loss carryforwards |  |  | 3.2 | % |  |  | 268 |  |  |  | 8.0 | % |  |  | 1,039 |  |  |  | — |  |  |  | — |
Foreign earnings not permanently reinvested, net of the participation exemption |  |  | (0.1 | )% |  |  | (5 | ) |  |  | (0.1 | )% |  |  | (7 | ) |  |  | (14.0 | )% |  |  | (926 | )
Foreign dividend withholding |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 4.8 | % |  |  | 317 |
ASC 718 share based payment adjustment |  |  | 5.8 | % |  |  | 476 |  |  |  | — |  |  |  | — |  |  |  | (6.5 | )% |  |  | (434 | )
Incentive stock option compensation |  |  | (59.4 | )% |  |  | (4,907 | ) |  |  | (0.4 | )% |  |  | (55 | ) |  |  | (12.7 | )% |  |  | (842 | )
Non-qualified stock option and restricted stock tax deduction in excess of cumulative book deduction |  |  | (52.3 | )% |  |  | (4,324 | ) |  |  | (12.9 | )% |  |  | (1,679 | ) |  |  | (12.7 | )% |  |  | (842 | )
Executive compensation Section 162(m) limitation |  |  | 43.0 | % |  |  | 3,552 |  |  |  | 4.4 | % |  |  | 569 |  |  |  | 0.9 | % |  |  | 60 |
GILTI inclusion |  |  | 54.0 | % |  |  | 4,461 |  |  |  | 25.9 | % |  |  | 3,372 |  |  |  | 26.8 | % |  |  | 1,780 |
Other |  |  | (2.5 | )% |  |  | (204 | ) |  |  | 0.9 | % |  |  | 121 |  |  |  | 0.5 | % |  |  | 30 |
Valuation allowance |  |  | 59.3 | % |  |  | 4,899 |  |  |  | (42.0 | )% |  |  | (5,472 | ) |  |  | 34.2 | % |  |  | 2,269 |
Effective tax provision (benefit) |  |  | 28.5 | % |  | $ | 2,354 |  |  |  | (7.8 | )% |  | $ | (1,022 | ) |  |  | 25.2 | % |  | $ | 1,671 |
The Company recorded income taxes of $2,354,000 during the year ended 2020 due to pre-tax income generated in certain foreign jurisdictions, which included a release of $495,000 of the Company’s U.S. valuation allowance, as a result of increases in foreign income and changes in the usage and release of our deferred tax assets. 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. For the years ended 2020 and 2019, there was a decrease in foreign deferred liabilities of $213,000 and $46,000, respectively. Included in the foreign deferred tax provision is an increase of $36,000 in foreign deferred liabilities for the year ended 2018 Note 10 — Income Taxes (Continued) Provision (Benefit) for Income Taxes (Continued) 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 through 2018 (see STAAR Surgical UK discussion below). During 2020, 2019 and 2018 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 2020, 2019 and 2018, in accordance with the 2017 Tax Act, the Company included GILTI of $21,300,000, $15,100,000 and $7,700,000, respectively, in U.S. gross income, which was fully offset with net operating loss carryforwards. The Company utilized the high-tax exception to exclude income from foreign jurisdictions with foreign taxes at an effective rate that is higher than 90 percent of the applicable highest U.S. corporate tax rate. 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 1, 2021 and January 3, 2020 were as follows (in thousands):
|  | 2020 |  |  | 2019 |
Deferred tax assets: |  |  |  |  |  |  |  |
Allowance for doubtful accounts and sales returns |  | $ | 357 |  |  | $ | 233 |
Inventories |  |  | 691 |  |  |  | 703 |
Accrued vacation |  |  | 599 |  |  |  | 428 |
Accrued other expenses |  |  | 786 |  |  |  | 1,036 |
Stock-based compensation |  |  | 3,277 |  |  |  | 2,859 |
Pensions |  |  | 1,679 |  |  |  | 1,159 |
Depreciation and amortization |  |  | — |  |  |  | 162 |
Net operating loss carryforwards |  |  | 38,642 |  |  |  | 32,251 |
Business, foreign, AMT and R&D credit carryforwards |  |  | 3,051 |  |  |  | 3,164 |
Prepaid expenses |  |  | 280 |  |  |  | 272 |
Capitalized R&D |  |  | 1,000 |  |  |  | 986 |
Operating lease liability |  |  | 1,687 |  |  |  | 1,309 |
Other |  |  | 19 |  |  |  | 5 |
Valuation allowance |  |  | (42,502 | ) |  |  | (37,007 | )
Total deferred tax assets |  | $ | 9,566 |  |  | $ | 7,560 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Foreign tax withholding |  | $ | (1,295 | ) |  | $ | (1,295 | )
Operating lease ROU assets |  |  | (1,662 | ) |  |  | (1,309 | )
Depreciation and amortization |  |  | (424 | ) |  |  | — |
Amortization of R&D |  |  | (846 | ) |  |  | (805 | )
Net foreign earnings not permanently reinvested |  |  | (617 | ) |  |  | (401 | )
Total deferred tax liabilities |  |  | (4,844 | ) |  |  | (3,810 | )
Total net deferred tax assets |  | $ | 4,722 |  |  | $ | 3,750 |
Note 10 — Income Taxes (Continued) Deferred Tax Assets and Liabilities (Continued) As of January 1, 2021, the Company had combined federal and state net deferred tax assets of $3,871,000, net deferred tax assets in Japan of $1,073,000, and net deferred tax liabilities in Switzerland of $222,000 (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 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. The Company had accrued net income taxes payable of $4,650,000 and $2,572,000 at January 1, 2021 and January 3, 2020, 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. Since January 3, 2020, the Company has at least 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. As a result of the Company’s 2020 operating results, revising its global forecasts for fiscal 2021 and beyond as a result of COVID-19 in the first quarter of 2020 and changes in the usage and release of certain deferred tax assets, under the incremental cash tax savings approach, the Company recorded a valuation allowance release of $573,000 against the federal deferred tax assets, and a valuation allowance release reversal of $78,000 against certain states deferred tax assets, during 2020. Under this method, valuation allowances of $34,681,000 and $7,399,000 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 at January 1, 2021. Under the incremental cash tax savings approach, the Company recorded a valuation allowance release of $3,003,000 and $373,000 again federal and certain states deferred tax assets, respectively, during 2019, and valuation allowances of $30,308,000 and $6,174,000 for federal and state, respectively, remained 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 at January 3, 2020. Further included in the federal deferred tax asset balance is $2,013,000 in foreign tax credits that are unlikely to be realized in the future under the new tax act and the mechanics of GILTI. As of January 1, 2021, the Company had net deferred tax assets in the U.S. of $3,576,000, which consisted of the cumulative federal valuation allowance release and had state net deferred tax assets of $294,000, which consisted of the cumulative release of certain state valuation allowances. As of January 1, 2021, the Company had federal net operating loss carryforwards of $152,863,000 available to reduce future income taxes of its U.S. operations. The pre-2019 federal net operating loss carryforwards expire in varying amounts between 2021 and 2037. In California, the main state from which the Company conducts its domestic operations, the Company has state net operating losses of $27,275,000 available to reduce future California income taxes. In 2020, California enacted Assembly Bill 85 which imposed limits on the usability of California state net operating losses and research and development credits in tax years beginning after 2019 and before 2023. 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. For 2020 the Company does not have a change in ownership. 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 $222,000 and $658,000 as of January 1, 2021 and January 3, 2020, 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 $1,073,000 and $896,000 as of January 1, 2021 and January 3, 2020, respectively. STAAR Japan net deferred tax assets included a valuation allowance of $35,000 and $46,000 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 |  | 2017 – 2019
California |  | 2016 – 2019
Switzerland |  | 2019
Japan |  | 2018 – 2019

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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