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Income Taxes | 12 Months Ended
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Dec. 31, 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 |
|  | 2021 |  |  | 2020 |  |  | 2019 |
Domestic |  | $ | (15,565 | ) |  | $ | (16,245 | ) |  | $ | (5,321 | )
Foreign |  |  | 46,869 |  |  |  | 24,512 |  |  |  | 18,347 |
Income before income taxes |  | $ | 31,304 |  |  | $ | 8,267 |  |  | $ | 13,026 |
The provision (benefit) for income taxes consisted of the following (in thousands):
|  | Years Ended |
|  | 2021 |  |  | 2020 |  |  | 2019 |
Current tax provision: |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | — |  |  | $ | 2 |  |  | $ | — |
State |  |  | — |  |  |  | 15 |  |  |  | 13 |
Foreign |  |  | 5,308 |  |  |  | 3,186 |  |  |  | 2,446 |
Total current provision |  |  | 5,308 |  |  |  | 3,203 |  |  |  | 2,459 |
Deferred tax provision (benefit): |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  |  | 739 |  |  |  | (573 | ) |  |  | (3,003 | )
State |  |  | 106 |  |  |  | 78 |  |  |  | (373 | )
Foreign |  |  | 650 |  |  |  | (354 | ) |  |  | (105 | )
Total deferred provision (benefit) |  |  | 1,495 |  |  |  | (849 | ) |  |  | (3,481 | )
Provision (benefit) for income taxes |  | $ | 6,803 |  |  | $ | 2,354 |  |  | $ | (1,022 | )
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 |
|  | 2021 |  |  | 2020 |  |  | 2019 |
|  | Rate |  |  | Amount |  |  | Rate |  |  | Amount |  |  | Rate |  |  | Amount |
Computed provision for taxes based on income at statutory rate |  |  | 21.0 | % |  | $ | 6,574 |  |  |  | 21.0 | % |  | $ | 1,736 |  |  |  | 21.0 | % |  | $ | 2,735 |
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State tax benefit |  |  | (2.5 | )% |  |  | (778 | ) |  |  | (16.9 | )% |  |  | (1,397 | ) |  |  | 0.7 | % |  |  | 93 |
Foreign tax differential |  |  | (12.4 | )% |  |  | (3,890 | ) |  |  | (27.9 | )% |  |  | (2,304 | ) |  |  | (11.6 | )% |  |  | (1,514 | )
Expiration of state net operating tax loss carryforwards |  |  | 1.1 | % |  |  | 330 |  |  |  | 3.2 | % |  |  | 268 |  |  |  | 8.0 | % |  |  | 1,039 |
ASC 718 share based payment adjustment |  |  | 4.6 | % |  |  | 1,440 |  |  |  | 5.8 | % |  |  | 476 |  |  |  | — |  |  |  | — |
Incentive stock option compensation |  |  | (7.5 | )% |  |  | (2,346 | ) |  |  | (59.4 | )% |  |  | (4,907 | ) |  |  | (0.4 | )% |  |  | (55 | )
Non-qualified stock option and restricted stock tax deduction in excess of cumulative book deduction |  |  | (45.7 | )% |  |  | (14,315 | ) |  |  | (52.3 | )% |  |  | (4,324 | ) |  |  | (12.9 | )% |  |  | (1,679 | )
Executive compensation Section 162(m) limitation |  |  | 33.9 | % |  |  | 10,608 |  |  |  | 43.0 | % |  |  | 3,552 |  |  |  | 4.4 | % |  |  | 569 |
GILTI inclusion |  |  | 0.5 | % |  |  | 171 |  |  |  | 54.0 | % |  |  | 4,461 |  |  |  | 25.9 | % |  |  | 3,372 |
Other |  |  | (0.9 | )% |  |  | (293 | ) |  |  | (1.3 | )% |  |  | (106 | ) |  |  | (0.9 | )% |  |  | (110 | )
Valuation allowance |  |  | 29.7 | % |  |  | 9,302 |  |  |  | 59.3 | % |  |  | 4,899 |  |  |  | (42.0 | )% |  |  | (5,472 | )
Effective tax provision (benefit) |  |  | 21.7 | % |  | $ | 6,803 |  |  |  | 28.5 | % |  | $ | 2,354 |  |  |  | (7.8 | )% |  | $ | (1,022 | )
Note 10 — Income Taxes (Continued) Provision (Benefit) for Income Taxes (Continued) The Company recorded income tax expense during the year ended 2021 due to income tax expense generated from pre-tax profits in its foreign jurisdictions and a recapture of its U.S. valuation allowance of $845,000, as a result of increased tax deductions in the projection of taxable income used in its valuation assessment. From time to time, the Company may adjust the projections of taxable income as a result of current conditions. The Company recorded income tax expense during the year ended 2020 due income tax expense generated from pre-tax profits in its foreign jurisdictions and a release of $495,000 of its U.S. valuation allowance, as a result of increases in foreign income and changes in the usage and release of its deferred tax assets. The Company recorded an income tax benefit during the year ended 2019 due to the income tax benefit from the release of the U.S. valuation allowance of $3,376,000, as a result of positive evidence in U.S. projected future profits (see Note 1 – Income Taxes), offset by income tax expense generated from pre-tax profits in its foreign operations. All earnings from the Company’s subsidiaries are not considered to be permanently reinvested. The Company formed STAAR Surgical UK Limited (“STAAR UK”) as a holding company in the United Kingdom (“U.K.”) for its foreign subsidiaries. Based on the current tax treaties there is no withholding on distributions between Switzerland and the U.K. and the U.K. and the U.S., therefore, there were no withholding taxes paid to foreign jurisdictions for 2021, 2020 and 2019. For 2021, 2020 and 2019, in accordance with the 2017 Tax Act, the Company included GILTI of $800,000, $21,200,000 and $15,100,000, respectively, in U.S. gross income, which was fully offset with current losses and 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) were as follows (in thousands): Note 10 — Income Taxes (Continued) Deferred Tax Assets and Liabilities (Continued)
|  | 2021 |  |  | 2020 |
Deferred tax assets: |  |  |  |  |  |  |  |
Allowance for doubtful accounts and sales returns |  | $ | 195 |  |  | $ | 357 |
Inventories |  |  | 444 |  |  |  | 691 |
Accrued vacation |  |  | 581 |  |  |  | 599 |
Accrued other expenses |  |  | 1,869 |  |  |  | 786 |
Stock-based compensation |  |  | 2,146 |  |  |  | 3,277 |
Pensions |  |  | 824 |  |  |  | 1,679 |
Net operating loss carryforwards |  |  | 48,223 |  |  |  | 38,642 |
Business, foreign, AMT and R&D credit carryforwards |  |  | 3,100 |  |  |  | 3,051 |
Prepaid expenses |  |  | 272 |  |  |  | 280 |
Capitalized R&D |  |  | 880 |  |  |  | 1,000 |
Operating lease liability |  |  | 6,894 |  |  |  | 1,687 |
Other |  |  | 67 |  |  |  | 19 |
Valuation allowance |  |  | (51,794 | ) |  |  | (42,502 | )
Total deferred tax assets |  | $ | 13,701 |  |  | $ | 9,566 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Foreign tax withholding |  | $ | (1,295 | ) |  | $ | (1,295 | )
Operating lease ROU assets |  |  | (6,862 | ) |  |  | (1,662 | )
Depreciation and amortization |  |  | (888 | ) |  |  | (424 | )
Amortization of R&D |  |  | (763 | ) |  |  | (846 | )
Net foreign earnings not permanently reinvested |  |  | (891 | ) |  |  | (617 | )
Total deferred tax liabilities |  |  | (10,699 | ) |  |  | (4,844 | )
Total net deferred tax assets |  | $ | 3,002 |  |  | $ | 4,722 |
The Company’s net deferred tax assets (liabilities) by jurisdiction were as follows (in thousands):
|  | 2021 |  |  | 2020 |
Federal deferred tax assets |  | $ | 2,838 |  |  | $ | 3,576 |
State deferred tax assets |  |  | 188 |  |  |  | 295 |
Japan deferred tax assets |  |  | 787 |  |  |  | 1,073 |
Switzerland deferred tax liabilities(1) |  |  | (811 | ) |  |  | (222 | )
Total net deferred tax assets |  | $ | 3,002 |  |  | $ | 4,722 |
(1)Includes $1,295,000 of pre-2019 withholding taxes on unremitted foreign earnings The Company had accrued net income taxes payable of $2,221,000 and $4,650,000 at December 31, 2021 and January 1, 2021, respectively, primarily due to taxes owed in foreign jurisdictions. Note 10 — Income Taxes (Continued) 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. In addition, 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. Under the incremental cash tax savings approach, the valuation allowance release (recapture) was as follows (in thousands):
|  | Years Ended |
|  | 2021 |  |  | 2020 |  |  | 2019 |
Federal |  | $ | (739 | ) |  | $ | 573 |  |  | $ | 3,003 |
State |  |  | (106 | ) |  |  | (78 | ) |  |  | 373 |
Valuation allowance release (recapture) |  | $ | (845 | ) |  | $ | 495 |  |  | $ | 3,376 |
Under the incremental cash tax savings approach, the valuation allowances 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 were as follows (in thousands):
|  | 2021 |  |  | 2020 |
Cumulative federal valuation allowance |  | $ | 43,626 |  |  | $ | 34,681 |
Cumulative state valuation allowance |  |  | 7,848 |  |  |  | 7,399 |
Total U.S. valuation allowance |  | $ | 51,474 |  |  | $ | 42,080 |
As of December 31, 2021, the Company had federal net operating loss carryforwards of $194,710,000 available to reduce future income taxes of its U.S. operations. The pre-2018 federal net operating loss carryforwards expire in varying amounts between 2022 and 2037. The post-2017 federal net operating loss carryforwards can be carried forward indefinitely based on the enacted legislation from the 2017 Tax Act. In California, the main state from which the Company conducts its domestic operations, the Company has state net operating losses of $46,109,000 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 2040. 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 2021 the Company does not have a change in ownership. Foreign Jurisdictions STAAR Surgical AG Due to STAAR Surgical AG’s history of profits, its deferred tax assets are considered fully realizable. The Swiss government has approved a tax holiday for STAAR Surgical AG providing a 10.45% income tax rate for 2020 through 2024, and a 10.90% income tax rate for 2025 through 2029. STAAR Japan Since 2012, STAAR Japan functions as a limited-risk distributor with a guaranteed return from STAAR Surgical AG and accordingly, STAAR Japan’s deferred tax assets are considered fully realizable. STAAR Japan’s net deferred tax assets included a valuation allowance of $41,000 and $35,000 as of December 31, 2021 and January 1, 2021, respectively, related to non-deductible stock compensation for directors. STAAR Japan is subject to the statutory corporate income tax rate of 25.59%. Note 10 — Income Taxes (Continued) The following tax years remain subject to examination:
Significant jurisdictions |  | Open Years
U.S. Federal |  | 2018 – 2020
California |  | 2017 – 2020
Switzerland |  | 2020
Japan |  | 2019 – 2020

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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=121826272&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=122134291&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=121826272&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=122134291&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=121826272&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 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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