Condensed Financial Statement of Parent Company Only

12 Months Ended

Dec. 31, 2011

Condensed Financial Statements of Parent Company Only

Condensed Financial Statements of Parent Company Only

GUITAR CENTER HOLDINGS, INC. (PARENT COMPANY ONLY)

CONDENSED BALANCE SHEETS

(in thousands, except par values)

	December 31, 2011			December 31, 2010
Assets
Investment in Guitar Center, Inc.	$	123,275		$	275,217
Receivable from Guitar Center, Inc.		303,715			384,743
Deferred income taxes		73,581			76,565
Other assets, net		2,610			2,120
Total assets	$	503,181		$	738,645
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accrued interest	$	16,575		$	16,576
Total current liabilities		16,575			16,576
Long-term debt		564,673			564,673
Total liabilities		581,248			581,249
Commitments and contingencies		—			—
Stockholders' equity (deficit):
Preferred stock, $0.01 par value, 5,000 shares authorized, none issued and outstanding		—			—
Common stock, $0.01 par value, 20,000 shares authorized, 9,742 and 9,750 shares issued and outstanding, respectively		97			98
Additional paid-in capital		632,757			631,490
Accumulated deficit		(710,748	)		(473,809	)
Accumulated other comprehensive loss		(173	)		(383	)
Total stockholders' equity (deficit)		(78,067	)		157,396
Total liabilities and stockholders' equity (deficit)	$	503,181		$	738,645

GUITAR CENTER HOLDINGS, INC. (PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF OPERATIONS

(in thousands)

	Year ended December 31,
	2011			2010			2009
General and administrative expenses	$	277		$	—		$	—
Interest expense		79,973			74,391			64,972
Equity in net loss of Guitar Center, Inc., net of income tax		153,705			8,864			147,633
Loss before income taxes		(233,955	)		(83,255	)		(212,605	)
Income tax expense (benefit)		2,984			(26,878	)		(22,747	)
Net loss	$	(236,939	)	$	(56,377	)	$	(189,858	)

GUITAR CENTER HOLDINGS, INC. (PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

	Year ended December 31,
	2011			2010			2009
Operating activities:
Net loss	$	(236,939	)	$	(56,377	)	$	(189,858	)
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in net loss of Guitar Center, Inc.		153,705			8,864			147,633
Amortization of deferred financing fees		410			400			400
Non-cash interest expense		8,288			57,415			64,572
Deferred income taxes		2,984			(26,878	)		(22,747	)
Changes in operating assets and liabilities:
Accrued expenses and other current liabilities		(8,288	)		16,576			—
Net cash used in operating activities		(79,840	)		—			—
Financing activities:
Repurchase of common stock		(286	)		(729	)		(504	)
Financing fees		(902	)		—			—
Advances from Guitar Center, Inc., net		81,028			729			504
Net cash provided by financing activities		79,840			—			—
Net change in cash		—			—			—
Cash at beginning of year		—			—			—
Cash at end of year	$	—		$	—		$	—
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	79,562		$	—		$	—
Income taxes		—			—			—

GUITAR CENTER HOLDINGS, INC. (PARENT COMPANY ONLY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. Basis of Presentation

        Schedule I, Condensed Financial Information of Registrant, is required in Securities and Exchange Commission ("SEC") filings when restricted net assets of consolidated subsidiaries exceed 25% of consolidated net assets at the end of the most recent fiscal year. The restricted net assets of Guitar Center, Inc. were $317.3 million as of December 31, 2011.

        Pursuant to the rules and regulations of the SEC, the condensed parent company financial statements do not include all of the information and notes normally included with financial statements prepared in accordance with United States generally accepted accounting principles. In addition, for purposes of this schedule, the investment in wholly-owned subsidiary, Guitar Center, Inc., is accounted for using the equity method of accounting, which is not in accordance with United States generally accepted accounting principles. The condensed financial statements of the parent company should be read in conjunction with the consolidated financial statements of Guitar Center Holdings, Inc. and Guitar Center, Inc. and the combined notes thereto.

2. Dividends from Subsidiary

        The parent company did not receive any dividends from Guitar Center, Inc. during 2009, 2010 or 2011.

3. Long-Term Debt

        The terms and future maturities of the parent company's long-term debt are presented in Note 5 of the combined notes to consolidated financial statements of Guitar Center Holdings, Inc. and Guitar Center, Inc.

4. Litigation, Contingencies and Commitments

        See Note 12 of the combined notes to consolidated financial statements of Guitar Center Holdings, Inc. and Guitar Center, Inc. for a discussion of litigation contingencies.

        The parent company did not have any separate material long-term obligations or guarantees as of December 31, 2011.