Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Measurements

Fair Value Measurements

11. Fair Value Measurements

        The accounting standards related to fair value measurements define fair value and provide a consistent framework for measuring fair value under GAAP. Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect market assumptions.

        Valuation inputs are classified into the following hierarchy:

• •

  Level 1 Inputs—Quoted prices for identical instruments in active markets.

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  Level 2 Inputs—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value

  •

  Level 3 Inputs—Instruments with primarily unobservable value drivers.

        We do not have any material assets or liabilities measured at fair value on a recurring basis.

        Some assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. These assets can include long-lived and intangible assets that have been reduced to fair value when they are impaired and long-lived assets that are held for sale. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs.

        The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a non-recurring basis (in thousands):

	Year ended December 31, 2011
	Level 1		Level 2		Level 3		Total		Total Losses
Goodwill, net of accumulated impairment losses	$	—	$	—	$	—	$	—	$	107,026
Direct response trademarks and trade names		—		—		11,500		11,500		32,500
Direct response customer relationship intangible asset		—		—		6,800		6,800		13,461
Specific-store leasehold improvements		—		—		745		745		1,294

	Year ended December 31, 2010
	Level 1		Level 2		Level 3		Total		Total Losses
Specific-store leasehold improvements	$	—	$	—	$	1,350	$	1,350	$	884

        We estimated the fair value of goodwill using a combination of income-based and market-based approaches using level 3 inputs. We estimate the fair value of other intangible assets using an income-based approach with level 3 inputs. The methods and assumptions used to measure the fair value of goodwill and other intangible assets are discussed in Note 2.

        We estimated the fair value of specific-store leasehold improvements using the income-based approach, considering the cash flows expected over the remaining lease term for each location. The income-based approach uses unobservable inputs, including projected free cash flow and internal cost of capital and accordingly these fair value measurements have been classified as level 3 in the fair value hierarchy.

        The fair values of cash, receivables, accounts payable, accrued expenses and other current liabilities approximate their carrying amounts because of their short-term nature.

        The following table presents the difference between the carrying amount and estimated fair value of our long-term debt (in thousands):

	December 31, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Guitar Center
Senior secured term loan	$	621,762	$	545,596	$	621,762	$	575,130
Senior unsecured notes		375,000		394,542		375,000		403,425
Capital lease obligations		700		700		1,341		1,341
Total Guitar Center		997,462		940,838		998,103		979,896
Holdings
Senior unsecured PIK notes		564,673		609,312		564,673		607,758
Total Holdings	$	1,562,135	$	1,550,150	$	1,562,776	$	1,587,654

        We estimated the fair value of our long-term debt based on recent similar credit facilities initiated by companies with like credit quality in similar industries, quoted prices for similar instruments, and inquiries with certain investment communities.