Note 12 — Income Taxes

The provision for income taxes consists of the following (in thousands):

		2011		2010			2009⁽¹⁾
Current tax provision:
U.S. federal	$	—	$	—		$	—
State		13		13			15
Foreign		1,012		602			1,341
Total current provision		1,025		615			1,356
Deferred tax provision:
U.S. federal and state		—		—			—
Foreign		331		(183	)		(202	)
Total deferred provision		331		(183	)		(202	)
Provision for income taxes	$	1,356	$	432		$	1,154

⁽¹⁾Adjusted to reflect effects of discontinued operations.

As of December 30, 2011, the Company had $121.1 million of U.S. federal net operating loss carryforwards available to reduce future income taxes. The net operating loss carryforwards expire in varying amounts between 2020 and 2031.

The Company had accrued income taxes receivable of $10,000 and $151,000 at December 30, 2011 and December 31, respectively, primarily due to taxes payable in 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 (amounts in thousands):

	2011					2010					2009⁽¹⁾
Computed provision for taxes based on income at statutory rate	34.0	%	$	919		34.0	%	$	(1,252	)	34.0	%	$	(1,954	)
Increase (decrease) in taxes resulting from:
Permanent differences	1.4			37		(0.9	)		33		(0.5	)		23
State minimum taxes, net of federal income tax benefit	0.3			9		(0.2	)		9		(0.2	)		10
State tax benefit	(4.3	)		(116	)	5.6			(207	)	13.7			(786	)
Tax rate difference due to foreign statutory rate	(19.7	)		(529	)	5.7			(208	)	2.9			(164	)
Foreign tax benefit	11.6			312		3.7			(137	)	4.7			(273	)
Foreign earnings not permanently reinvested	29.1			788		—			—		(17.4	)		1,001
Foreign dividend withholding	5.5			147		(12.0	)		440		(3.1	)		179
Return to provision adjustment	—			—		—			—		—			—
FAS 123R	—			—		(23.7	)		873		—			—
Other	1.4			37		0.2			(7	)	(0.4	)		25
Valuation allowance	(9.2	)		(248	)	(24.1	)		888		(53.8	)		3,093
Effective tax provision rate	50.1	%	$	1,356		(11.7	)%	$	432		(20.1	)%		1,154

⁽¹⁾Adjusted to reflect effects of discontinued operations.

Included in the state tax provision is an increase to the state deferred tax asset and corresponding increase to the valuation allowance of $118,000, $207,000, and $786,000, for 2011, 2010 and 2009 respectively. This results in a total state tax provision of $13,000 for 2011, $13,000 for 2010, and $15,000 for 2009.

For 2011, included in the foreign tax provision is a decrease to the foreign deferred tax asset and corresponding decrease to the valuation allowance of $312,000. For 2010 and 2009, there was an increase to the foreign deferred tax asset and corresponding increase to the valuation allowance of $137,000 and $273,000, respectively. This results in a foreign tax provision of $1,343,000 for 2011, $419,000 for 2010, and $1,139,000 for 2009.

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 2011 and 2010 the Company paid $0 and $435,000 respectively, in withholding taxes to the Swiss government due to the repatriation of approximately $0 in 2011 and $8.7 million in 2010 of earnings from its Swiss subsidiary, STAAR Surgical AG.

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 December 30, 2011 and December 31, 2010 are as follows (in thousands):

	2011			2010
Current deferred tax assets (liabilities):
Allowance for doubtful accounts and sales returns	$	90		$	245
Inventories		270			421
Accrued vacation		490			434
Other		(110	)		(123	)
State taxes		3			3
Accrued legal judgment and other accrued expenses		211			152
Valuation allowance		(1,426	)		(1,458	)
Total current deferred tax liabilities	$	(472	)	$	(326	)
Non-current deferred tax assets (liabilities):
Net operating loss carryforwards		51,334			51,077
Stock-based payments		1,311			1,128
Business, foreign and AMT credit carryforwards		788			723
Capitalized R&D		597			602
Contributions		160			190
Pensions		812			713
Depreciation and amortization		54			100
Foreign tax withholding		(711	)		(869	)
Foreign earnings not permanently reinvested		(4,789	)		(3,780	)
Other		33			61
Valuation allowance		(50,145	)		(50,231	)
Total non-current deferred tax liabilities	$	(556	)	$	(286	)

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 realized. Cumulative losses weigh heavily in the assessment of the need for a valuation allowance. 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 December 30, 2011. 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.

Included in deferred tax assets and liabilities are net non-current deferred tax assets of $152,000 and $202,000 for 2011 and 2010 respectively for Staar AG. Due to Staar AG’s history of profits, the deferred tax assets are considered fully realizable.

The Company does not have any uncertain tax positions. The Company classifies any interest and penalties related to income taxes assessed by jurisdiction as part of income tax expense. The Company did not incur significant interest and penalties during 2011

The following tax years remain subject to examination:

Significant Jurisdictions	Open Years
U.S. Federal		2008 – 2010
California		2007 – 2010
Germany		2008 – 2010
Switzerland	2010
Japan		2007 – 2010

Income (loss) from continuing operations before provision for income taxes is as follows (in thousands):

	2011			2010			2009
Domestic	$	(2,145	)	$	(4,732	)	$	(9,052	)
Foreign		4,849			1,051			3,304
	$	2,704		$	(3,681	)	$	(5,748	)