"When the original tax asset was calculated in 2005 and forward, the company had to book an allowance against the asset, essentially reducing it to zero. But if the losses occurred so long ago, why did it take the company so many years to show the tax benefit on its books? Well, GAAP requires that management devalue a deferred tax benefit if it can't be more certain than not that the benefit will be realized. In other words, management has to be solidly confident that the company will have significant future earnings to use the benefit. Until 2012, management hasn't been able to make that call. So in addition to the cash advantages that will accrue to Krispy Kreme, shareholders can infer an implicit endorsement of the company's prospects from CEO Jim Morgan, CFO Doug Muir, and other members of management.
But the signs that earnings stability has returned are numerous. Operating cash flow has strengthened for five consecutive years, and year-to-date, at $38 million, it outpaces the comparable period last year by 65%. In November management also increased operating income guidance, not only for the rest of this fiscal year, but for fiscal 2014 as well.
A taste of things to come
Removing the valuation allowance from the company's deferred tax asset is a subtle but unmistakable sign that management believes earnings will be consistent and predictable. Given its relatively low valuation, those with an intermediate to long-term horizon may be rewarded by revisiting a stock that investors, along with customers, once happily queued up in line for."
Motley Fool: "Krispy Kreme Uncovers a Balance-Sheet Strength"