Goodwill

6 Months Ended

Jul. 30, 2011

Goodwill

Goodwill

7. Goodwill

Goodwill represents the excess of the purchase price over the fair value of assets acquired.  Goodwill acquired in a purchase business combination and determined to have an indefinite useful life is not amortized, but instead tested for impairment annually or more frequently if events occur or circumstances change which would, more likely than not, reduce the fair value of a reporting unit below its carrying value.  In the Company’s case, there is only one reporting unit, therefore, fair value and carrying value used in the test are at the consolidated level.  Goodwill impairment is determined using a two-step process.  The first step is to identify if a potential impairment exists by comparing the Company’s fair value with its carrying amount, including goodwill.  If such fair value exceeds the carrying amount, the goodwill is not considered to have a potential impairment and the second step of the impairment test is not necessary.

During the second quarter of 2011, there was a significant decline in the Company’s earnings and, therefore, the market price of the Company’s stock.  These factors indicated potential impairment, thus requiring an interim impairment test.  Based on the testing performed, management determined that the Company’s fair value, including a reasonable control premium, exceeded the carrying value of assets (including goodwill) by approximately 35% as of July 30, 2011.  Accordingly, the second step of the impairment testing was not required and no impairment charges were recorded.  Due to the uncertainty of the Company’s future results, it is possible that goodwill could be impaired in future periods; however, the potential impairment charges are limited to the carrying value of goodwill on the condensed consolidated balance sheet, which was $1.4 million as of July 30, 2011.