Fair Value Measurements

3 Months Ended

Mar. 31, 2013

Fair Value Measurements

Fair Value Measurements

5. 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.

· 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 drivers are observable.

· Level 3 Inputs— Instruments with primarily unobservable value drivers.

Valuation policies and procedures for fair value measurements using level 3 inputs are established by finance management reporting to our chief financial officer. We corroborate level 3 inputs with historical and market information where possible and appropriate and we may engage third-party valuation firms to assist us in determining certain fair value measurements.

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

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

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.

We did not make any non-recurring fair value measurements during the three months ended March 31, 2013.

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

	March 31, 2013				December 31, 2012
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Guitar Center
Senior secured term loan	$	620,750	$	617,646	$	621,762	$	600,000
Senior unsecured notes	394,890		428,219		394,890		418,579
Capital lease obligations	460		460		54		54
Total Guitar Center	1,016,100		1,046,325		1,016,706		1,018,633
Holdings
Senior unsecured PIK notes	564,673		622,461		564,673		596,965
Holdings consolidated	$	1,580,773	$	1,668,786	$	1,581,379	$	1,615,598

We estimate the fair value of our long-term debt using observable inputs classified as level 2 in the fair value hierarchy. We use present value and market techniques that consider rates of return on similar credit facilities recently initiated by companies with like credit quality in similar industries, quoted prices for similar instruments, and inquiries with certain investment communities.