GOODWILL AND INTANGIBLE ASSETS

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”). In connection with the Bella Pictures® Acquisition in fiscal year 2010, the Company recorded goodwill in the excess of the purchase price over the fair value of the assets acquired and liabilities assumed in accordance with ASC Topic 350. Under SFAS No. 141 and ASC Topic 350, 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 is a summary of the 2011 and 2010 changes in goodwill (in thousands):



	2011			2010

Balance, beginning of year	$	22,874		$	21,720
Bella Pictures® Acquisition (1)	(983		)	983
Impairment of PMPS and SPS goodwill (2)	(12,108		)	—
Translation impact on foreign balances	(11		)	171

Balance, end of year	$	9,772		$	22,874

(1) See Note 4 for explanation of the adjustment to the Bella Pictures® Acquisition goodwill.

(2) The accumulated impairment losses for the PMPS and SPS reporting units is $12.1 million as of February 4, 2012.

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. Key items considered in the Company's impairment test include 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 are 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 a reconciliation to our market capitalization (implied control premium).

As of July 23, 2011, the Company had goodwill recorded of approximately $22.0 million, which related to both the PMPS and SPS reporting units. At the end of the Company’s 2011 second fiscal quarter, the Company completed its annual impairment test and concluded that the estimated fair values of its PMPS and SPS reporting units substantially exceeded their carrying values, and therefore, no impairment was indicated at that time. In view of declining results for the fiscal third quarter, the Company also performed an interim goodwill impairment test as of November 12, 2011 and concluded no impairment of its PMPS or SPS reporting units existed at that date.

In the fourth fiscal quarter of 2011, the Company continued to experience a significant decline in its stock price and lower than anticipated sales trends. As such, the Company performed a goodwill impairment test as of its fiscal year ended February 4, 2012, using the key items of consideration and assumptions as discussed above. After performing the first step of the impairment test, we determined the carrying amounts of goodwill in our PMPS and SPS reporting units exceeded their fair value. As such, we performed the second step and determined that the goodwill recorded was impaired by approximately $12.1 million, which we recorded in the Impairments line in the Consolidated Statement of Operations for fiscal year 2011. As of February 4, 2012, the Company had remaining goodwill recorded in its PMPS reporting unit of approximately $9.8 million.

If market conditions at the studio or host store levels continue to deteriorate, which would result in lower than expected PMPS studio sales, or if there are significant changes in the Company's circumstances (see Note 2), or in our projections of future cash flows, it is possible that the Company would be required to further write-down its goodwill and record a non-cash impairment charge, which could be significant, and would adversely affect the Company’s financial position and results of operations.

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 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 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 tables summarize the Company’s amortized intangible assets as of February 4, 2012 and February 5, 2011:



	2011

in thousands	Net Balance at Beginning of Year		Acquisition			Impairment			Accumulated Amortization			Translation Impact of Foreign Balances			Net Balance at End of Year

Acquired host agreement	$	36,719	$	—		$	(4,666	)	$	(2,062	)	$	(33	)	$	29,958
Acquired customer lists	390		—			—			(188		)	—			202
Acquired tradename	753		(67		)	(341		)	(69		)	—			276

	$	37,862	$	(67	)	$	(5,007	)	$	(2,319	)	$	(33	)	$	30,436



	2010

in thousands	Net Balance at Beginning of Year		Acquisition		Impairment		Accumulated Amortization			Translation Impact of Foreign Balances		Net Balance at End of Year

Acquired host agreement	$	38,238	$	—	$	—	$	(2,049	)	$	530	$	36,719
Acquired customer lists	422		257		—		(294		)	5		390
Acquired tradename	—		755		—		(2		)	—		753

	$	38,660	$	1,012	$	—	$	(2,345	)	$	535	$	37,862

The aggregate amortization expense for these intangible assets was $2.3 million, $2.3 million and $2.4 million in fiscal years 2011, 2010 and 2009, respectively. The estimated aggregate amortization expense for the next five fiscal years is as follows (in thousands):



2012		$1,941
2013		$1,870
2014		$1,824
2015		$1,818
2016		$1,814

The Company reviews its intangible assets with definite useful lives, consisting primarily of the PMPS host agreement, under ASC Topic 360, which requires the Company to review for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of intangible assets with definite useful lives is measured by a comparison of the carrying amount of the asset to the estimated future undiscounted cash flows expected to be generated by such assets. If such assets are considered to be impaired, the impairment is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets, which is determined on the basis of discounted cash flows.

As of February 4, 2012, the Company evaluated whether an impairment of its intangible assets had occurred in consideration of the lower than expected sales in the fourth quarter. The Company determined that the carrying amount of the PMPS host agreement exceeded its fair value, and accordingly recognized an impairment charge of $4.7 million in the fourth fiscal quarter of 2011. In addition, the Company concluded that the carrying value of its Bella Pictures® tradename was impaired and recognized an impairment charge of $341,000 in the fourth fiscal quarter of 2011. The impairment charges are recorded in the Impairments line in the Consolidated Statement of Operations for fiscal year 2011.

If market conditions at the studio or host store levels continue to deteriorate, which would result in lower than expected PMPS studio sales, or if there are changes in the Company's circumstances (see Note 2), or in our projections of future cash flows, it is possible that the Company would be required to further 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.