GOODWILL AND INTANGIBLE ASSETS

9 Months Ended

Nov. 12, 2011

Goodwill and Intangible Assets Disclosure [Abstract]

In connection with the PCA Acquisition, the Company recorded goodwill in the excess of the purchase price over the fair value of assets acquired and liabilities assumed in accordance with SFAS No. 141, “Business Combinations” (“SFAS No. 141”). Under SFAS No. 141, goodwill is not amortized and instead is periodically evaluated for impairment. The goodwill is expected to be fully deductible for tax purposes over 15 years.

The following table summarizes the Company’s goodwill:



in thousands	November 12, 2011		February 5, 2011
PCA Acquisition	$	21,208	$	21,208
Bella Pictures Acquisition (1)	—		983
Goodwill from prior acquisitions	512		512
Translation impact on foreign balances	122		171

Balance, end of period	$	21,842	$	22,874

(1) See Note 2 for explanation of the adjustment to the Bella Pictures® Acquisition goodwill.

In the current year, the Company adopted FASB ASU No. 2010-28, “Intangibles – Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task Force)” and determined there was no effect to the Company’s financial statements.

The Company performs its annual goodwill impairment test at the end of its second quarter, or more frequently if circumstances indicate the potential for impairment. As of the end of the second quarter, and as of November 12, 2011, the Company has goodwill recorded of approximately $21.8 million, which relates primarily to one goodwill reporting unit – PMPS.

At the end of the Company's 2011 second fiscal quarter, the Company completed its annual goodwill impairment test and concluded that the estimated fair value of its PMPS reporting unit substantially exceeded its carrying value, and therefore, no impairment was indicated. Key items of consideration in the Company's impairment test included the Company's market capitalization relative to the carrying value of its net assets, the estimates of fair value of the reporting units using a discounted cash flow model that is based upon unobservable inputs that management believes are reasonable and other relevant factors. Key assumptions in the calculation of fair value were the discount rate, long term growth rates in sales and profit margins (the most significant assumption being the Company's expectation of future PMPS studio sales levels), as well as our reconciliation to our market capitalization (implied control premium).

As of November 12, 2011, in view of our results for the third quarter, the Company performed an impairment test as of November 12, 2011, and concluded no impairment of its PMPS reporting unit existed at that date. However, the Company has experienced a significant decline in its stock price and sales trends have been lower than anticipated in fiscal year 2011. A prolonged decline in our stock price or a prolonged unfavorable trend in our studio sales if that were to occur could be viewed as a triggering event in a future reporting period and could have a direct negative impact on our fair value determinations; as such, impairments of goodwill could occur and would have a material adverse effect on our financial results. We will continue to monitor the recoverability of the carrying value of these assets.

In connection with the PCA Acquisition, the Company also acquired intangible assets related to the host agreement with Walmart and the customer list. These assets were recorded in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). The host agreement with Walmart and the customer list are being amortized over their useful lives of 21.5 years using the straight-line method and 6 years using an accelerated method, respectively. During fiscal year 2010, in connection with the acquisition of certain assets of Kiddie Kandids, LLC in an auction approved by the United States Bankruptcy Court for the District of Utah (the “Kiddie Kandids asset acquisition”) and the Bella Pictures® Acquisition, the Company also acquired a customer list and tradename, respectively. These assets were recorded in accordance with FASB ASC Topic 350, “Intangibles-Goodwill and Other” (“ASC Topic 350”). The customer list and tradename are being amortized over their useful lives of 5.5 years using an accelerated method and 10 years using the straight-line method, respectively. The following table summarizes the Company’s amortized intangible assets as of November 12, 2011 (in thousands):



in thousands	Net Balance at Beginning of Period	Adjustments		Accumulated Amortization		Translation Impact of Foreign Balances		Net Balance at End of Period
Acquired host agreement	36,719	—		(1,588	)	(140	)	34,991
Acquired customer lists	390	—		(146	)	—		244
Acquired tradename	753	(67	)	(53	)	—		633
	37,862	(67	)	(1,787	)	(140	)	35,868

The Company also reviews its intangible assets with definite useful lives, consisting primarily of the PMPS host agreement, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. As of November 12, 2011, the Company evaluated whether an impairment of its intangible assets had occurred in consideration of projected cash flow data, as well as other relevant factors, and concluded that no impairment was indicated at that date. However, if market conditions at the studio or host store levels significantly deteriorate over a prolonged period, which would result in lower than expected PMPS studio sales, or if there are changes in circumstances, assumptions or estimates, including historical and projected cash flow data, utilized by the Company in its evaluation of the recoverability of its intangible assets with definite useful lives, it is possible that the Company would be required to write-down its intangible assets and record a non-cash impairment charge, which could be significant, and would adversely affect the Company's financial position and results of operations.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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