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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-Q

|ý                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|--------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended March 31, 2002
|o                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission File No. 000 - 22207

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GUITAR CENTER, INC.(Exact Name of Registrant as Specified in its Charter)

|DELAWARE(State or other jurisdiction of
incorporation or organization)                        |  | 95-4600862(I.R.S. Employer
Identification Number)
|--------------------------------------------------------------------------------------------- |  | -------------------------------------------------
|5795 LINDERO CANYON ROAD
WESTLAKE VILLAGE, CALIFORNIA(Address of principal executive offices) |  | 91362(Zip Code)                                  

(818) 735-8800Registrant's telephone number, including area code

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes /x/    No / /

As
of May 6, 2002, 22,419,484 shares of our Common Stock, $.01 par value, were outstanding.

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Guitar Center, Inc. and subsidiaries

INDEX

|Part I.  | Financial Information                                                                         |  |   
|-------- | --------------------------------------------------------------------------------------------- |  | --
|         | Item 1. Consolidated Financial Statements (Unaudited)                                         |  |   
|         | Consolidated Balance SheetsMarch 31, 2002 and December 31, 2001                              |  | 3 
|         | Consolidated Statements of IncomeThree months ended March 31, 2002 and 2001                  |  | 4 
|         | Consolidated Statements of Cash FlowsThree months ended March 31, 2002 and 2001              |  | 5 
|         | Notes to Consolidated Financial Statements                                                    |  | 6 
|         | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 7 
|         | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 19
|Part II. | Other Information                                                                             |  |   
|         | Item 4. Submission of Matters to a Vote of Security Holders                                   |  | 19
|         | Item 6. Exhibits                                                                              |  | 20

2

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Guitar Center, Inc. and subsidiaries  Consolidated Balance Sheets(in thousands, except per share data)

|                                     |                                                                                                                                          | March 31,
2002 |         | December 31,
20001 |  
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------------------ | -
|Assets                               |                                                                                                                                          |                |         |                    |  
|Current assets:                      |                                                                                                                                          |                |         |                    |  
|                                     | Cash and cash equivalents                                                                                                                |                | $       | 4,892              |  
|                                     | Accounts receivable, net                                                                                                                 |                |         | 21,509             |  
|                                     | Merchandise inventories                                                                                                                  |                |         | 261,074            |  
|                                     | Prepaid expenses and deposits                                                                                                            |                |         | 12,815             |  
|                                     | Deferred income taxes                                                                                                                    |                |         | 4,744              |  
|                                     |                                                                                                                                          |                |         |                    |  
|Total current assets                 |                                                                                                                                          |                | 305,034 |                    |  
|Property and equipment, net          |                                                                                                                                          |                | 79,596  |                    |  
|Goodwill, net                        |                                                                                                                                          |                | 23,094  |                    |  
|Deposits and other assets, net       |                                                                                                                                          |                | 5,225   |                    |  
|                                     |                                                                                                                                          |                |         |                    |  
|                                     |                                                                                                                                          | $              | 412,949 |                    | $
|                                     |                                                                                                                                          |                |         |                    |  
|Liabilities and stockholders' equity |                                                                                                                                          |                |         |                    |  
|Current liabilities:                 |                                                                                                                                          |                |         |                    |  
|                                     | Accounts payable                                                                                                                         |                | $       | 72,583             |  
|                                     | Accrued expenses and other current liabilities                                                                                           |                |         | 28,793             |  
|                                     | Merchandise advances                                                                                                                     |                |         | 11,840             |  
|                                     | Revolving line of credit                                                                                                                 |                |         | 97,762             |  
|                                     | Current portion of long-term debt                                                                                                        |                |         | 551                |  
|                                     |                                                                                                                                          |                |         |                    |  
|Total current liabilities            |                                                                                                                                          |                | 211,529 |                    |  
|Other long-term liabilities          |                                                                                                                                          |                | 3,677   |                    |  
|Deferred income taxes                |                                                                                                                                          |                | 2,733   |                    |  
|Long-term debt                       |                                                                                                                                          |                | 66,954  |                    |  
|                                     |                                                                                                                                          |                |         |                    |  
|Total liabilities                    |                                                                                                                                          |                | 284,893 |                    |  
|Stockholders' equity                 |                                                                                                                                          |                |         |                    |  
|                                     | Preferred Stock; authorized 5,000 shares at March 31, 2002 and December 31, 2001, none issued and outstanding                            |                |         |                   |  
|                                     | Common Stock, $0.01 par value, authorized 55,000 shares, issued and outstanding 22,346 at March 31, 2002 and 22,315 at December 31, 2001 |                |         | 224                |  
|                                     | Additional paid in capital                                                                                                               |                |         | 248,812            |  
|                                     | Accumulated deficit                                                                                                                      |                |         | (120,980           | )
|                                     |                                                                                                                                          |                |         |                    |  
|                                     | Total stockholders' equity                                                                                                               |                |         | 128,056            |  
|                                     |                                                                                                                                          |                |         |                    |  
|                                     |                                                                                                                                          | $              | 412,949 |                    | $
|                                     |                                                                                                                                          |                |         |                    |  

See
accompanying notes to consolidated financial statements.

3

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Guitar Center, Inc. and subsidiaries  Consolidated Statements of Income(In thousands, except per share data)

|                                             |         | Three months ended March 31,
|-------------------------------------------- | ------- | ----------------------------
|
|Net sales                                    |         | $                           
|Cost of goods sold, buying and occupancy     |         |                             
|                                             |         |                             
|Gross profit                                 |         |                             
|Selling, general and administrative expenses |         |                             
|                                             |         |                             
|Operating income                             |         |                             
|Interest expense, net                        |         |                             
|                                             |         |                             
|Income before income taxes                   |         |                             
|Income taxes                                 |         |                             
|                                             |         |                             
|Net income                                   |         | $                           
|                                             |         |                             
|Net income per share                         |         |                             
|                                             | Basic   |                             
|                                             |         |                             
|                                             | Diluted |                             
|                                             |         |                             
|Weighted average shares outstanding          |         |                             
|                                             | Basic   |                             
|                                             |         |                             
|                                             | Diluted |                             
|                                             |         |                             

See
accompanying notes to consolidated financial statements.

4

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Guitar Center, Inc. and subsidiaries  Consolidated Statements of Cash Flows(In thousands)

|                                                                              |                                              | Three months ended March 31,                   |        
|----------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------------- | -------
|
|Operating activities                                                          |                                              |                                                |        
|Net income                                                                    |                                              | $                                              | 3,438  
|Adjustments to reconcile net income to net cash used in operating activities: |                                              |                                                |        
|                                                                              | Depreciation and amortization                |                                                |        
|                                                                              | Amortization of deferred financing fees      |                                                |        
|                                                                              | Loss on sale of assets                       |                                                |        
|                                                                              | Changes in operating assets and liabilities: |                                                |        
|                                                                              |                                              | Accounts receivable                            |        
|                                                                              |                                              | Merchandise inventories                        |        
|                                                                              |                                              | Prepaid expenses and deposits                  |        
|                                                                              |                                              | Other assets                                   |        
|                                                                              |                                              | Accounts payable                               |        
|                                                                              |                                              | Accrued expenses and other current liabilities |        
|                                                                              |                                              | Other long-term liabilities                    |        
|                                                                              |                                              | Merchandise advances                           |        
|                                                                              |                                              |                                                |        
|Net cash used in operating activities                                         |                                              |                                                | (25,795
|Investing activities                                                          |                                              |                                                |        
|Purchase of property and equipment                                            |                                              |                                                | (5,877 
|Proceeds from sale of property and equipment                                  |                                              |                                                |       
|Acquisitions of businesses                                                    |                                              |                                                | (2,332 
|                                                                              |                                              |                                                |        
|Net cash used in investing activities                                         |                                              |                                                | (8,209 
|Financing activities                                                          |                                              |                                                |        
|Net increase in revolving debt facility                                       |                                              |                                                | 20,858 
|Proceeds from exercise of stock options                                       |                                              |                                                | 750    
|Payments under capital lease                                                  |                                              |                                                | (192   
|                                                                              |                                              |                                                |        
|Net cash provided by financing activities                                     |                                              |                                                | 21,416 
|                                                                              |                                              |                                                |        
|Net decrease in cash and cash equivalents                                     |                                              |                                                | (12,588
|Cash and cash equivalents at beginning of year                                |                                              |                                                | 17,480 
|                                                                              |                                              |                                                |        
|Cash and cash equivalents at end of period                                    |                                              | $                                              | 4,892  
|                                                                              |                                              |                                                |        
|Non-cash activities                                                           |                                              |                                                |        
|Acquisition of businesses:                                                    |                                              |                                                |        
|Fair value of assets acquired                                                 |                                              |                                                | 369    
|Liabilities assumed                                                           |                                              |                                                | (146   
|Goodwill                                                                      |                                              |                                                | 2,109  
|                                                                              |                                              |                                                |        
|Cash paid for acquisitions                                                    |                                              |                                                | 2,332  
|                                                                              |                                              |                                                |        

See
accompanying notes to consolidated financial statements.

5

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Guitar Center, Inc. and subsidiaries  Notes to Consolidated Financial Statements







6

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|                           |  | Three Months Ended March 31, 2002
|-------------------------- |  | ---------------------------------
|
|Net sales                  |  | $                                
|Income before income taxes |  |                                  
|Total assets               |  |                                  



|                           |  | Three Months Ended March 31, 2001
|-------------------------- |  | ---------------------------------
|
|Net sales                  |  | $                                
|Income before income taxes |  |                                  
|Total assets               |  |                                  



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

We operated 92 Guitar Center retail locations in 38 major markets and 10 stores in secondary markets as of March 31, 2002. We also operate the largest
direct response channel (Musician's Friend

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catalog and Internet) in the musical instruments industry in the United States. In addition, the American Music division, which operated 14 band instrument stores at March 31, 2002, is a
leading provider of band instruments and accessories, and primarily focuses on school band and orchestral
instrument sales and rentals. From 1997 to 2001, our net sales grew at an annual compound growth rate of 26.4%, principally due to the comparable store sales growth of our Guitar Center stores
averaging 9.5% per year, the opening of new stores, and a 28.4% per year increase in the direct response channel. We believe such volume increases are the result of the continued success of the
implementation of our business strategy, continued growth in the music products industry and increasing consumer awareness of the Guitar Center, Musician's Friend and American Music brand names. We do
not expect comparable store sales to continue to increase at historical rates.

We
opened a total of 13 Guitar Center stores in 2001. During the three months ended March 31, 2002, we opened five new Guitar Center stores, and acquired a store in Raleigh, North
Carolina which we are converting to our Guitar Center brand. We plan to open six to eight Guitar Center stores during the remainder of 2002. Some of these Guitar Center stores will be smaller format
units designed for secondary markets. In addition, we plan to open six to eight American Music stores during 2002. For the immediate future, our objective is that about half of these new American
Music units will be new stores and about half will be acquisitions of existing businesses. We will continue to pursue our strategy of clustering stores in major markets to take advantage of operating
and advertising efficiencies and to build awareness of the Guitar Center and American Music Group brand names in new markets. In some markets this clustering strategy results in some transfer of sales
from existing stores to new locations.

As
we enter new markets, we expect that we will initially incur higher administrative and promotional costs per store than is currently experienced in established markets. We expect
competition to continue to increase as other music product retailers attempt to execute national growth strategies. Our business strategy will also emphasize opportunities to continue to grow each of
our businesses, including further acquisitions if attractive candidates can be located for reasonable prices.

The
following table sets forth historical income statement data as a percentage of net sales:

Three Months Ended
March 31,2002

2001Net sales

100.0
%
100.0
%Gross profit

25.5

25.7Selling, general and administrative expense

22.0

20.5Operating income

3.5

5.2Interest expense, net

1.3

1.5Income before income tax expense

2.2

3.7Income tax expense

0.8

1.4Net income

1.4

2.3


Results Of Operations



Net sales increased to $251.5 million for the three months ended March 31, 2002, from $213.2 million for the comparable prior period, an
18.0% increase. Net sales from retail stores totaled $205.5 million, an increase of $31.3 million, or 18.0%. Sales from new stores, including our American Music stores, contributed
$22.9 million, or 73.3% of the increase. Comparable store sales increased 5%.

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Our management is presently anticipating comparable store sales growth of 3% to 5% for the immediate future, although fluctuations will undoubtedly take place from period to period. The foregoing
statement is a forward-looking statement and is subject to the qualifications set forth below under "Forward-Looking Statements." Net sales from the direct response channel totaled
$46.1 million, a $7.1 million increase from the first quarter of 2001. Catalog sales for the three months ended March 31, 2002 compared to 2001 increased 18.4% to
$25.7 million from $21.7 million and Internet sales increased 18.0% to $20.4 million from $17.3 million for the same period last year.

Gross
profit dollars for the three months ended March 31, 2002 compared to 2001 increased 17.0% to $64.2 million from $54.8 million. Gross profit as a percentage of
net sales for the three months ended March 31, 2002 compared to 2001 decreased to 25.5% from 25.7%. Gross profit margin percentage for the retail stores after buying and occupancy costs was
24.6% compared to 24.4% in the first quarter of 2001. The increase reflects the higher level of gross margin for American Music stores offset by increased freight and equipment rental expense for
Guitar Center stores. The gross profit margin for
the direct response division was 29.7% for the quarter compared to 31.5% in the first quarter of 2001. The decrease is primarily due to aggressive pricing in the January and February catalogs and the
product mix being more weighted towards higher margin products during the same period last year.

Selling,
general and administrative expenses for the three months ended March 31, 2002 compared to 2001 increased 26.7% to $55.4 million from $43.8 million. Selling,
general and administrative expenses, as a percentage of sales, for the three months ended March 31, 2002 compared to 2001 increased to 22.0% from 20.5%. Selling, general and administrative
expenses for the retail stores in the first quarter, inclusive of pre-opening costs and corporate general and administrative expenses, were 21.4% of sales compared to 20.0% in last year's
first quarter. The increase reflects higher level of expense for the American Music business as compared to the Guitar Center retail business, higher insurance costs and operating lease expenses.
Selling, general and administrative expenses for the direct response division were 25.1% of sales in the first quarter compared to 23.0% in the same period last year. The increase primarily reflects
increased wage costs and recruiting expenses related to the Kansas City distribution center as well as equipment rental and depreciation for that facility.

Operating
income, for the reasons stated above, decreased from $11.1 million to $8.7 million, or 21.3% for the three months ended March 31, 2002.

Interest
expense, net for the three months ended March 31, 2002 increased to $3.2 million from $3.1 million in the same period of 2001. The increase reflects
increased borrowings under our credit facility, partially offset by a reduction in interest rates applicable to those borrowings.

In
the three months ended March 31, 2002, a $2.1 million provision for income taxes was recorded compared to $3.0 million for the same period last year, both based
on an annualized tax rate of approximately 38%.

Net
income for the three months ended March 31, 2002 was $3.4 million, compared to net income of $5.0 million in the first quarter of 2001.

Liquidity and Capital Resources

Our need for liquidity will arise primarily from interest payable on indebtedness and the funding of capital expenditures and working capital requirements, as
well as possible acquisitions. We have historically financed our operations through internally generated funds and borrowings under our credit facilities. We have no mandatory payments of principal on
the $66.7 million of Senior Notes outstanding prior to their final maturity in 2006. As of March 31, 2002, we had $97.8 million outstanding under the 2001 Credit Facility,
excluding $1.2 million outstanding on standby letters of credit, and had available borrowings of approximately $30.2 million.

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The
credit facility permits borrowings up to $200 million, subject to borrowing base limitations. Certain assets secure the credit facility and the actual amount available is tied
to our inventory and receivable base. A fee of 0.375% is assessed on the unused portion of the credit facility. Borrowings bear interest at either the prime rate plus an applicable margin or at LIBOR
plus an applicable margin rate, at our option, with interest due monthly. The applicable margin rate is based upon a quarterly calculation of average daily availability at the end of each fiscal
quarter. Borrowings are subject to a minimum annual interest rate of 4%. The applicable interest rate at March 31, 2002 was LIBOR plus 2.00%. The agreement underlying the credit facility
includes certain restrictive covenants. We were in compliance with such requirements as of March 31, 2002.

During
the quarter ended March 31, 2002, we entered into a master operating lease agreement with General Electric Capital Corporation to lease equipment and other property
primarily to support the operations of the new central warehouse/distribution center for our Guitar Center retail stores. The agreement allows us to lease up to $15.0 million in equipment and
other property and is planned to commence in second quarter of 2002.

For
the three months ended March 31, 2002, net cash used in operating activities was $25.8 million, which principally consisted of purchases of inventory and payments of
accrued expenses. Cash used in investing activities totaled $8.2 million, which principally consisted of capital expenditures under our store expansion program ($5.9 million) and
acquisitions of businesses ($2.3 million). Cash provided by financing activities totaled $21.4 million, which principally consisted of borrowings under the credit facility.

We
intend to pursue an aggressive growth strategy by opening additional stores in new and existing markets. During the three months ended March 31, 2002, we opened five new Guitar
Center stores, and acquired a store in Raleigh, North Carolina. We are currently converting that store to our Guitar Center brand. Each new large format Guitar Center store typically has required
approximately $1.6 to $1.8 million for gross inventory. Historically, our cost of capital improvements for a large format Guitar Center store has been approximately $850,000, consisting of
leasehold improvements, fixtures and equipment. We incur higher costs in some geographic areas, particularly the Northeast. We have developed smaller Guitar Center stores to build in secondary markets
or sites that we do not believe will support our large format units. The first of these units was opened in late 2000 and eight more had been opened as of March 31, 2002. Our small format
stores will incur approximately $450,000 in capital expenditures and require approximately $600,000 to $800,000 in inventory.

We
are also anticipating additional capital and strategic requirements related to improving our fulfillment facilities, upgrading our technology and systems, and pursuing new
opportunities in the e-commerce activities of Guitar Center and Musician's Friend, and related businesses. In July 2000, we leased a new distribution facility for Musician's Friend
in Kansas City, and in July 2001 we closed our
existing distribution facilities in Medford, Oregon and Knoxville, Tennessee and consolidated all direct response fulfillment in Kansas City. We are currently implementing an expansion of the Kansas
City facility.

During
2001, we began construction of a central distribution center in the Indianapolis, Indiana area for our Guitar Center retail store operations with a view towards the facility
commencing operation in July of 2002. We have entered into a 10-year agreement to lease the facility and we also plan to enter into numerous additional commitments necessary to support the
operations of the facility. Migration from our present "drop-ship" model to a centralized distribution model is an important development in our operating strategy and will require
significant financial and managerial resources for the next several quarters.

We
also continue to make significant investments in information technology across our businesses and to incur costs and make investments designed to expand the reach of Guitar Center and
Musician's Friend on the Internet. We are currently implementing a significant technology upgrade at American Music. The costs of these initiatives and other investments related to our businesses will
continue to be significant.

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Our expansion strategy is to continue to increase our market share in existing markets and to penetrate strategically selected new markets. We opened a total of 13 Guitar Center stores
in 2001 and 14 stores in 2000. As of March 31, 2002, we opened five new Guitar Center stores, and we plan to open approximately six to eight additional stores during the current year. We also
acquired a store in Raleigh, North Carolina, which we are currently converting to our Guitar Center brand. Some of the new stores will be smaller format units designed for secondary markets. During
2002, we plan to open six to eight American Music stores. For the immediate future, our objective is that about half of these new American Music units will be new stores and about half will be
acquisitions of existing businesses. We believe there exists a number of acquisition opportunities in the relatively fragmented band instruments market that could be a good fit into our American Music
platform.

We
also believe there may be attractive opportunities to expand by selectively acquiring existing music products retailers or other complementary businesses, if attractive opportunities
can be identified. While we cannot provide assurance that we will complete any further acquisition transactions, in the ordinary course of our business we investigate and engage in negotiations
regarding such opportunities. Acquisitions will be financed with drawings under our existing credit facilities, expansion of our credit facilities, issuance of debt or equity securities, or a
combination, depending upon transaction size and market conditions, among other things.

Our
capital resources and liquidity for 2002 are presently expected to be provided by net cash flow from operations and additional borrowings under our credit facility and advances under
operating leases. Depending upon market conditions, we may also elect or be required to raise additional capital in the form of common or preferred equity, debt or convertible securities for the
purpose of providing additional capital to fund working capital needs or continued growth of our existing business, or to refinance existing obligations. Any such financing activity will be dependent
upon many factors, including our liquidity needs, market conditions and prevailing market terms, and we can not assure you that future external financing for Guitar Center will be available on
attractive terms or at all.

Discussion of Critical Accounting Policies and Disclosures about Contractual Obligations and Commercial Commitments

For further discussion of critical accounting policies and disclosure about contractual obligations and commercial commitments, please see Management's Discussion
and Analysis of Financial Condition and Results of Operations in our audited consolidated financial statements and notes thereto, each of which is contained in our Annual Report on
Form 10-K for the year ended December 31, 2001.

New Accounting Pronouncements

On July 20, 2001, the Financial Accounting Standards Board issued Statement No. 141, "Business Combinations" (SFAS
No. 141),and Statement No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142). These new
pronouncements significantly change the permissible accounting methods for business combinations and the treatment of goodwill and other intangible assets. Prior to the adoption of these new
standards, goodwill and similar intangible assets were generally amortized into income on a stated periodic basis. This treatment has been replaced by an alternative method, which does require
goodwill amortization on a stated basis but rather requires periodic testing of the goodwill for impairment, with no charge to income except to the extent of any such impairment. We adopted the new
rules effective January 1, 2002, at which time we ceased to record periodic goodwill charges absent an impairment charge.

In
October 2001, the Financial Accounting Standards Board issued Statement No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" (SFAS No. 144).This pronouncement provides new guidance on the recognition of impairment losses on long-lived assets to be
held and used or to be

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disposed of and also broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. The provisions of SFAS
No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. We adopted SFAS No. 144 effective January 1, 2002, and the
adoption of this standard did not have an impact on our consolidated financial statements.

Seasonality

Our operating results are not highly seasonal, except for the effect of the holiday selling season in November and December. Sales in the fourth quarter are
typically significantly higher on a per store basis and through the direct response unit than in any other quarter.

Inflation

We believe that the relatively moderate rates of inflation experienced in recent years have not had a significant impact on our net sales or profitability.

Forward-Looking Statements

This report contains forward-looking statements relating to, among other things, future results of operations, growth and investment plans, sales, trends in gross
margin, growth in the Internet business and other factors affecting growth in sales and earnings. Specific forward-looking statements are provided regarding our management's current views regarding
comparable store sales and new store openings. Statements regarding new store openings are based largely on our current expectations and are necessarily subject to associated business risks related
to, among other things, the identification of suitable sites or acquisition opportunities, the timely construction, staffing and merchandising of those stores and other matters, some of which are
outside of our control. Comparative store sales growth is highly dependent upon the effectiveness of our sales and promotion strategies and the effect of competition, including other national
operators of music products stores attempting to implement national growth strategies. The American Music business was only recently acquired by us and may be subject to significant fluctuations as we
integrate these activities with the other Guitar Center businesses.

Sales
and earnings trends are also affected by many other factors including, among others, world and national political events, general economic conditions, which recently have been
weak, particularly in terms of consumer demand and general retail sales, the effectiveness of our promotion and merchandising strategies, changes in the music products industry, retail sales trends
and the emergence of new or growing specialty retailers of music products. In light of these risks, there can be no assurance that the forward-looking statements contained in this report will in fact
be realized. The statements made by us in this report represent our views as of the date of this report, and it should not be assumed that the statements made herein remain accurate as of any future
date. We do not presently intend to update these statements prior to our next, regularly scheduled, quarterly report, and undertake no duty to any person to affect any such update under any
circumstances.

For
further discussion of risks associated with our business, please see the discussion under the caption "Risks Related to the Business."

All
forward-looking statements are provided in express reliance on the safe harbor provisions contained in Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934.

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Risks Related to the Business

An investment in our securities involves a high degree of risk. Described below are some of the risks and uncertainties facing our company. There may be
additional risks that we do not presently know of
or that we currently consider immaterial. Any of these risks could adversely affect our business, results of operations, liquidity and financial position.

We may be unable to meet our retail store growth strategy, which could result in financial performance below that planned for internally or expected by the investment
community.

Our retail store growth strategy includes opening new stores and increasing sales at existing locations. We intend to pursue an aggressive expansion strategy by
opening additional stores in new and existing markets. As of March 31, 2002, we operated 102 Guitar Center stores and 14 American Music stores. We opened a total of 13 Guitar Center stores in
2001, and 14 stores in 2000. During the three months ended March 31, 2002, we opened five new Guitar Center stores, and we plan to open six to eight additional stores during the current year.
We also acquired a store in Raleigh, North Carolina, which we are currently converting to our Guitar Center brand. Some of these new stores will be smaller format units designed for secondary markets.
During 2002, we plan to open six to eight American Music stores. For the immediate future, our objective is that about half of these new American Music units will be new units and about half will be
acquisitions of existing businesses. We believe there exists a number of acquisition opportunities in the relatively fragmented band instruments market that could be a good fit into our American Music
platform. Our expansion plan depends on a number of factors, including:



We
cannot assure that we will achieve our store expansion goals or that our new stores will achieve sales or profitability levels similar to our existing stores. Our expansion strategy
includes clustering stores in existing markets. This has in the past and may in the future result in the transfer of sales to the new store and a reduction in the profitability of an existing store.
In addition to the factors noted
above, expansion to new markets may present unique competitive and merchandising challenges, including:



Historically,
we have achieved significant sales growth in existing stores. Our quarterly comparable stores sales results have fluctuated significantly in the past. Sales growth for
comparable periods,

13

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excluding net sales attributable to stores not open for 14 months, was as follows for our Guitar Center stores:

|          |           | 2001 |   | 2000 |   | 1999 |   
|--------- | --------- | ---- | - | ---- | - | ---- | --
|Quarter 1 |           | 7    | % | 8    | % | 10   | % 
|Quarter 2 |           | 5    | % | 7    | % | 7    | % 
|Quarter 3 |           | 3    | % | 6    | % | 11   | % 
|Quarter 4 |           | 6    | % | 7    | % | 11   | % 
|          |           |      |   |      |   |      |   
|          | Full Year |      | 6 | %    | 7 | %    | 10

A
variety of factors affect our comparable store sales results, including:



Our
management is presently planning for comparable store sales growth of 3% to 5% for the second quarter of 2002, although fluctuations will undoubtedly take place from period to
period. A shortfall in comparative sales growth in any period will likely cause a shortfall in earnings.

Any
shortfall in the growth plan for new stores or our existing stores would likely result in financial performance below that for which we have planned or the investment community
expects.

Our growth plans could be accelerated by acquisitions although such transactions involve special risks.

We believe that our expansion may be accelerated by the acquisition of existing music product retailers. For example, in April 2001 we acquired the
business of American Music Group, a New York-based retailer of band instruments, a business in which we were not previously engaged. Further, our growth for the American Music business
contemplate a significant number of relatively small acquisitions. We also regularly investigate acquisition opportunities complimentary to our Guitar Center and Musician's Friend businesses.
Accordingly, in the ordinary course of our business, we regularly consider, evaluate and enter into negotiations related to potential acquisition opportunities. We may pay for these acquisitions in
cash or securities, including equity securities, or a combination of both. We cannot assure you that attractive acquisition targets will be available at reasonable prices or that we will be successful
in any such transaction. Acquisitions involve a number of special risks, including:



We depend on suppliers who may not be able or desire to supply our requirements.

We depend significantly on our suppliers for both our existing stores and the direct response unit as well as our expansion goals for each of these units. We do
not have any long-term contracts with our suppliers, which we believe is customary in our industry. If we failed to maintain our relationships with our key brand name vendors, we believe
this could have a material adverse effect on our business. We

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believe we currently have adequate supply sources; however, we cannot assure you that sufficient quantities or the appropriate mix of products will be available in the future to supply our existing
stores and expansion plans. This risk is especially prevalent in new markets where our vendors have existing agreements with other dealers and thereby may be unwilling or unable to meet our
requirements. Also, our growth presents a challenge to some of our vendors as it requires significant production increases by them which at times results in extended lead times and shortages of
desirable products.

We face significant competition particularly from those retailers also trying to execute national expansion strategies.

Our industry is fragmented and highly competitive. We compete with many different types of music product retailers, including conventional retailers, as well as
other catalog and e-commerce retailers, who sell many or most of the items we sell. We anticipate increased competition in our existing markets and planned new markets from other large
format music product retailers. Additionally, our expansion to new markets will be inhibited by established competitors in those markets. If our competitors adopt a new, innovative store format or
retail selling method, or if a new competitor with substantial financial or other resources enters the marketplace, then we may fail to achieve market position gains or may lose market share.

We depend on key personnel including our senior management who are important to the success of our business.

Our success depends to a significant extent on the services of Larry Thomas, our Chairman and Co-CEO, Marty Albertson, our President, and
Co-CEO, Robert Eastman, the CEO of our wholly-owned subsidiary, Musician's Friend, Inc., and David Flemming, President and Chief Operating Officer of the American Music division, as
well as our ability to attract and retain additional key personnel with the skills necessary to manage our existing business and growth plans. The loss of one or more of these individuals or other key
personnel could have a material adverse effect on our business, results of operations, liquidity and financial position. During 2001, we entered into a five-year employment contract
extension with each of Mr. Thomas and Mr. Albertson. Additionally, we carry key man insurance on the lives of Mr. Thomas and Mr. Albertson in the amounts of
$5.0 million and $3.5 million, respectively. Historically, we have promoted employees from within our organization to fill senior operations, sales and store management positions. In
order to achieve our growth plans, we will depend upon our ability to retain and promote existing personnel to senior management, and we must attract and retain new personnel with the skills and
expertise to manage our business. If we cannot hire, retain and promote qualified personnel, our business, results of operations, financial condition and prospects could be adversely affected.

We intend to implement a new distribution center for the Guitar Center retail stores, which presents operational risks and represents a significant investment.

During 2001, we began construction of a central distribution center in the Indianapolis, Indiana area for our Guitar Center retail store operations with a view
towards the facility commencing operations in July of 2002. Migration from our present "drop-ship" model to a centralized distribution model is an important development in our operating
strategy and will continue to require significant financial and managerial resources for the next several quarters. This program involves financial and operating risks that could include the need to
expend greater funds than presently budgeted or disruptions in retail store operations and the loss of sales if inventory is not timely provided in the required quantities. Further, one of the key
underlying economic assumptions of our distribution center project is that this program will permit us to reduce overall inventory levels as a percentage of sales thereby resulting in
significantly reduced working capital requirements. Any failure to reach our inventory reduction targets will adversely affect our future financial performance and capital needs,

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potentially in a material manner. Failure to execute on these requirements could result in a poor or no return on our investment, disruption in our retail store business and a distraction of the
efforts of our management team.

Our retail operations are concentrated in California, which ties our financial performance to events in that state.

As of March 31, 2002, our corporate headquarters as well as 21 of our 102 Guitar Center stores were located in California and stores located in that state
generated 28.3% and 29.0% of our retail sales for 2001 and 2000, respectively. Although we have opened and acquired stores in other areas of the United States, a significant percentage of our net
sales and results of operations will likely remain concentrated in California for the foreseeable future. As a result, our results of operations and financial condition are heavily dependent upon
general consumer trends and other general economic conditions in California and are subject to other regional risks, including earthquakes. We do maintain certain earthquake insurance, but such
policies carry significant deductibles and other restrictions.

Economic conditions or changing consumer preferences could also adversely impact us.

Our business is sensitive to consumer spending patterns, which can be affected by prevailing economic conditions. A downturn in economic conditions in one or more
of our markets, such as occurred after September 11, 2001, could have a material adverse effect on our results of operations, financial condition, business and prospects. Although we attempt to
stay informed of consumer preferences for musical products and accessories typically offered for sale in our stores, any sustained failure on our part to identify and respond to trends would have a
material adverse effect on our results of operations, financial condition, business and prospects.

We must manage efficiently the expansion of our direct response business, including the musiciansfriend.com website, our systems that process orders in our direct response
business, and our fulfillment resources in order to service our customers properly.

Our direct response business, particularly our e-commerce business, will require significant investments to respond to anticipated growth and
competitive pressures. If we fail to rapidly upgrade our website in order to accommodate increased traffic, we may lose customers, which would reduce our net sales. Furthermore, if we fail to expand
the computer systems that we use to process and ship customer orders and process payment and the fulfillment facilities we use to manage and ship our inventory, we may not be able to successfully
distribute customer orders. We experienced some delays of this sort in 2001 in connection with the consolidation of our fulfillment centers. As a result, we could incur
excessive shipping costs due to the need to split delayed shipments, increased marketing costs in the form of special offers to affected customers or the loss of customers altogether. We may
experience difficulty in improving and maintaining such systems if our employees or contractors that develop or maintain our key systems become unavailable to us. We have experienced periodic service
disruptions and interruptions, which we believe will continue to occur, while enhancing and expanding these systems.

We must efficiently integrate American Music and grow its band instrument business in order to earn an acceptable return on that investment.

In April 2001, we completed our acquisition of American Music Group, a New York-based retailer of band instruments. We have not previously
participated in the band instruments segment of the music products business and have no experience in this distribution channel. We are integrating this business into our retail stores unit as a
separate division and intend to use the acquired American Music business as a platform to grow in the band instruments business. Thus, we face the normal challenges of any acquisition, such as
integration of personnel and systems as well as the need to learn,

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understand and further develop this business. Further, we presently have underway a project to install new management information systems at American Music. This implementation is an important
project to permit further integrating of American Music with our other businesses and to provide a scaleable systems backbone to facilitate growth of this division. In addition, we have also begun to
market through the American Music stores some Guitar Center products not previously marketed by it and to leverage some common infrastructure. Failure to execute on these requirements and initiatives
described above could result in a poor or no return on our investment and a distraction of the efforts of our management team from the core Guitar Center and Musician's Friend brands.

Net sales of our e-commerce business could decrease if our online security measures fail.

Our relationships with our e-commerce customers may be adversely affected if the security measures that we use to protect their personal information,
such as credit card numbers, are ineffective. If, as a result, we lose customers, our net sales could decrease. We rely on security and authentication technology that we license from third parties.
With this technology, we perform real-time credit card authorization and verification with our bank. We cannot predict whether events or developments will result in a compromise or breach
of the technology we use to protect a customer's personal information. Furthermore, our servers may be vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions. We may need to expend significant additional capital and other resources to protect against a security breach or to alleviate problems caused by any breaches. We cannot assure that we can
prevent all security breaches.

If we do not respond to rapid technological changes, our services could become obsolete and we could lose customers.

If we face material delays in introducing new services, products and enhancements, our e-commerce customers may forego the use of our services and use
those of our competitors. To remain competitive, we must continue to enhance and improve the functionality and features of our online store. The Internet and the online commerce industry are rapidly
changing. If competitors introduce new products and services embodying new technologies, or if new industry standards and practices emerge, our existing website and proprietary technology and systems
may become obsolete. To develop our websites and other proprietary technology entails significant technical and business risks. We may use new technologies ineffectively or we may fail to adapt our
website, our transaction processing systems and our computer network to meet customer requirements or emerging industry standards. In addition, the success of e-commerce may result in
greater efficiency and lower prices, which could have an adverse effect on selling prices and margins in our retail store business and in our catalog business and generally constrain profitability in
the specialty retail business.

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Our hardware and software systems are vulnerable to damage that could harm our business

Our success partially depends upon the efficient operation of our computer hardware and software systems. We use management information systems to track inventory
information at the store level, communicate information to and from stores and aggregate daily sales information. These systems and our operations are vulnerable to damage or interruption from:



Any
failure that causes an interruption in our operations could result in reduced net sales.

We may need to change the manner in which we conduct our business if government regulation increases which could impose additional costs and adversely affect our financial
results.

The adoption or modification of laws or regulations relating to the Internet could adversely affect the manner in which we currently conduct our
e-commerce business. For example, laws related to the taxation of online commercial activity, including direct response sales, remain in flux. In addition, the growth and development of
the market for online commerce may lead to more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on us. Laws and regulations directly
applicable to communications or commerce over the Internet are becoming more prevalent. The law of the Internet, however, remains largely unsettled, even in areas where there has been some legislative
action. It may take years to determine whether and how existing laws such as those governing intellectual property, consumer privacy, taxation of e-commerce transactions and the like are
interpreted and enforced. Any adverse change in any of these laws or in the enforcement, interpretation or scope of existing laws could have a material adverse effect on our results of operations,
financial condition or prospects.

The results of operations of our Direct Response Division could be materially adversely affected should the distribution of catalogs and other direct mail become more costly or
less effective

Our Direct Response Division, Musician's Friend, relies on the United States Postal Service to distribute its catalogs and other direct mail communications to
consumers. Further, should the United States Postal Service significantly tighten security guidelines or impose additional processes on mail to detect or respond to contamination, the expected result
would be increased costs to shippers and lengthened delivery times, each of which will impose greater costs on us. There is also concern, not yet documented, that some consumers are disposing of
direct mail pieces, such as catalogs, out of fear of contamination in the mail system. Any trend of this sort would reduce the number of catalogs in circulation, reduce response rates, raise costs and
decrease margins.

We have a limited history of trading on the Nasdaq National Market, and our stock price could be volatile.

We began trading on the Nasdaq National Market on March 14, 1997. The market price of our shares of common stock has been subject to significant
fluctuations in response to our operating results and other factors, including announcements by our competitors, and those fluctuations will likely continue in the future. In addition, the stock
market in recent years has experienced significant price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of particular companies. These
fluctuations, as well as a shortfall in sales or earnings compared to public market analysts' expectations, changes in analysts' recommendations or projections, and general economic and market
conditions, may adversely affect the market price of our common stock.

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Our actual operating results may differ significantly from our projections.

From time to time, we release projections regarding our future performance that represent our management's estimates as of the date of release. These projections,
which are forward looking-statements, are prepared by our management and are qualified by, and subject to, the assumptions and the other information contained in the release. Our projections are not
prepared with a view toward compliance with published guidelines of the Securities and Exchange Commission, the American Institute of Certified Public Accountants, any regulatory or professional
agency or body, or generally accepted accounting principles. In addition, neither our independent public accountants nor any other independent expert or outside party compiles or examines the
projections and, accordingly, no such person expresses any opinion or any other form of assurance with respect thereto. Projections are based upon a number of assumptions and estimates that, while
presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon
specific assumptions with respect to future business decisions, some of which will change. We state possible outcomes as high and low ranges which are intended to provide a sensitivity analysis as
variables are changed but are not intended to represent that actual results could not fall outside of the suggested ranges. The principal reason that we
release this data is to provide a basis for our management to discuss our business outlook with analysts and investors. We do not accept any responsibility for any projections or reports published by
any such persons. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions of the projections furnished by us will not materialize or will vary
significantly from actual results. Accordingly, our projections are only an estimate of what management believes is realizable as of the date of release. Actual results will vary from the projections
and the variations may be material. Investors should also recognize that the reliability of any forecasted financial data diminishes the farther in the future that the data is projected. In light of
the foregoing, investors are urged to put the projections in context and not to place undue reliance on them.

Any
failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this report could result in the actual operating results
being different than the projections, and such differences may be adverse and material.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Guitar Center does not have any assets or liabilities which in its view impose upon it significant market risk except that it has outstanding $66.7 million
in aggregate principal amount of 11% Senior Notes due 2006. These senior notes constitute long-term, fixed interest rate obligations for which market quotations are available.

Part II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

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Nominee

For

WithheldLarry Thomas

17,576,446

1,587,543Marty Albertson

17,576,459

1,587,530Robert Eastman

17,523,227

1,640,762David Ferguson

19,025,849

138,140Harvey Kibel

18,907,702

256,287Peter Starrett

18,907,749

256,240Jeffrey Walker

18,906,949

257,040Larry Livingston

19,026,649

137,340


Item 6. Exhibits and Reports on Form 8-K



| |  |       |  |                                                                                                                         
| |  | ----- |  | ------------------------------------------------------------------------------------------------------------------------
| |  | 10.31 |  | Master Lease Agreement, dated as of March 4, 2002, between Guitar Center, Inc. and General Electric Capital Corporation.



Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized as of the 6th day of May 2002.

| |  | GUITAR CENTER, INC.                                                                                                                                     
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | /s/BRUCE L. ROSSBruce L. Ross, Executive Vice President, Chief Financial Officer and Secretary
(Duly Authorized Officer and Principal Financial Officer)

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