Nature of Business and Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2012

Nature of Business and Significant Accounting Policies

Principles of Consolidation

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements of Holdings and Guitar Center include the accounts of the respective companies’ wholly-owned subsidiaries.  All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

As a result of economic conditions in the United States, there is uncertainty about unemployment, consumer confidence and business and consumer spending. Over the last several years, these factors have reduced our visibility into long-term trends, dampen our expectations of future business performance and have affected our estimates.

New Accounting Pronouncements

New Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board, or FASB, issued revised standards related to fair value measurements and disclosures. The revised standards clarify existing fair value measurement principles, modify the application of fair value measurement principles in certain circumstances and expand the disclosure requirements related to fair value measurements.

The revised standards are effective for interim and annual reporting periods beginning after December 15, 2011. We adopted the revised standards on January 1, 2012. The change resulted in expanded fair value disclosures in the notes to financial statements and had no effect on our balance sheets, statements of comprehensive loss or cash flows.

In June 2011, FASB issued revised standards related to the presentation of comprehensive income. The revised standards eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of income and comprehensive income or in two separate but consecutive statements.

The revised standards are effective for interim and annual reporting periods beginning after December 15, 2011 and must be applied retrospectively to all periods upon adoption. We adopted the revised standards on January 1, 2012, opting to present components of other comprehensive income in a single continuous statement of comprehensive income or loss.

In July 2012, FASB issued revised standards related to testing indefinite-lived intangible assets for impairment.  The new standards permit an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under the revised standards, an entity would only be required to calculate the fair value of an indefinite-lived intangible asset if the entity determines, based on a qualitative assessment, that the intangible asset is more likely than not impaired. The revised standards are intended to reduce costs and simplify impairment testing for indefinite-lived intangible assets.

The revised standards are effective for annual and interim impairment tests of indefinite-lived intangible assets performed for fiscal years beginning after September 15, 2012, with early adoption permitted. We plan to adopt the revised standards for our annual impairment test of indefinite-lived intangible assets performed during the fourth quarter of 2012. We do not expect the adoption of the revised standards to affect our financial statements.