<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
( ) 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
GUITAR CENTER, INC.
----------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4600862
----------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5155 CLARETON DRIVE
AGOURA HILLS, CALIFORNIA 91301
-----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(818) 735-8800
-----------------------------------------------------------------------
Registrant'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 April 28, 1999, 20,112,012 shares of our Common Stock, $.01 par value,
were outstanding.
1
<PAGE>
GUITAR CENTER, INC.
INDEX
<TABLE>
<S> <C>
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Balance Sheets - March 31, 1999 and December 31, 1998 ...........................3
Condensed Statements of Income - Three months ended
March 31, 1999 and 1998....................................................................4
Condensed Statements of Cash Flows - Three months ended
March 31, 1999 and 1998 ...................................................................5
Notes to Condensed Financial Statements ..................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ...........................................................7
Part II. Other Information
Item 1. Not Applicable
Item 2. Not Applicable
Item 3. Not Applicable
Item 4. Not Applicable
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K ...............................................14
</TABLE>
2
<PAGE>
GUITAR CENTER, INC.
CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 130 $ 113
Accounts receivable 13,239 10,575
Merchandise inventories 107,554 102,853
Prepaid expenses and other current assets 2,287 3,338
Pre-opening costs -- 1,652
--------- ---------
Total current assets 123,210 118,531
Property and equipment, net 36,698 34,754
Goodwill, net of accumulated amortization 4,572 4,618
Other assets 4,566 3,260
Deferred income taxes 10,431 10,431
--------- ---------
$ 179,477 $ 171,594
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,178 $ 18,790
Accrued expenses and other current liabilities 20,782 19,566
Line of credit 12,494 7,723
--------- ---------
Total current liabilities 50,454 46,079
Other long-term liabilities 1,527 1,426
Long term debt 67,084 66,691
Stockholders' equity
Preferred stock; authorized 5,000,000 shares at
March 31, 1999 and December 31, 1998 -- --
Common stock, $0.01 par value, authorized 55,000,000 shares, issued and
outstanding 20,111,246 at March 31, 1999 and
20,092,943 at December 31, 1998, respectively 201 201
Additional paid in capital 228,394 228,195
Accumulated deficit (168,183) (170,998)
--------- ---------
Total stockholders' equity 60,412 57,398
--------- ---------
$ 179,477 $ 171,594
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
GUITAR CENTER, INC.
CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Net sales $109,904 $85,216
Cost of goods sold, buying and occupancy 81,007 61,686
--------- ---------
Gross profit 28,897 23,530
Selling, general and administrative 20,813 17,203
--------- ---------
Operating income 8,084 6,327
Interest expense, net 2,088 1,972
--------- ---------
Income before income taxes and cumulative effect
of change in accounting principle 5,996 4,355
Income taxes 2,099 135
--------- ---------
Income before cumulative effect of change in
accounting principle 3,897 4,220
Cumulative effect of change in accounting
principle-write-off of pre-opening costs,
net of tax of $578 1,074 --
--------- ---------
Net income $ 2,823 $ 4,220
--------- ---------
--------- ---------
Net income per share
Basic
Income before cumulative effect of change
in accounting principle $ 0.19 $ 0.22
Cumulative effect of change in accounting
principle-write-off of pre-opening costs (0.05) --
--------- ---------
Net income $ 0.14 $ 0.22
--------- ---------
--------- ---------
Diluted
Income before cumulative effect of change
in accounting principle $ 0.19 $ 0.20
Cumultive effect of change in accounting
princple-write off of pre-opening
costs (0.05) --
--------- ---------
Net income $ 0.14 $ 0.20
--------- ---------
--------- ---------
Weighted average shares outstanding
Basic 20,101 19,347
--------- ---------
--------- ---------
Diluted 20,846 20,773
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to condensedfinancial statements.
4
<PAGE>
GUITAR CENTER, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,823 $ 4,220
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,618 996
Amortization of deferred financing fees 60 60
Cumulative change in accounting principle - pre-opening
cost write-off 1,652 --
Changes in operating assets and liabilities:
Accounts receivable (2,664) 913
Merchandise inventories (4,701) (7,577)
Prepaid expenses (148) (471)
Other assets (121) (73)
Accounts payable (1,612) (1,147)
Accrued expenses and other current liabilities 1,216 (3,287)
Other long term liabilities 101 91
------- -------
Net cash used in operating activities $(1,776) $(6,275)
INVESTING ACTIVITIES
Purchase of property and equipment (3,571) (4,678)
------- -------
Net cash used in investing activities $(3,571) $(4,678)
FINANCING ACTIVITIES
Net change in revolving debt facility 4,772 3,012
Proceeds from exercise of stock options 199 281
Borrowings under long term debt and
capital leases 393 --
------- -------
Net cash provided by financing activities $ 5,364 $ 3,293
Net increase (decrease) in cash and cash equivalents $ 17 $(7,660)
Cash and cash equivalents at beginning of year 113 7,755
------- -------
Cash and cash equivalents at end of period $ 130 $ 95
------- -------
------- -------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
GUITAR CENTER, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. General
In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments necessary to present
fairly the financial position of Guitar Center, Inc., a Delaware
corporation, ("Guitar Center" or the "Company"), as of March 31, 1999,
and the results of operations and cash flows for the three months ended
March 31, 1999 and 1998. The accompanying financial statements should
be read in conjunction with the audited financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998. During the three months ended March 31,
1999, Guitar Center's sole subsidiary was merged into Guitar Center,
Inc. in a short-form merger.
The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the results to be expected for the full
year.
2. Income Taxes
As a result of the $72.4 million loss incurred in fiscal 1996, the
Company had a net operating loss carryforward for federal income taxes
of approximately $41.8 million as of December 31, 1998. A provision for
income taxes of $2.1 million has been made in the condensed statement
of operations for the three months ended March 31, 1999.
3. Change in Accounting for Store Pre-Opening Costs
Effective January 1, 1999, we adopted AICPA Statement of Position
98-5, "Reporting on the Costs of Start-up Activities" (SOP 98-5)
which requires all store pre-opening costs to be expensed as incurred.
As a result of this adoption, we recorded a charge for the cumulative
effect of this change in accounting principle of $1,074,000 (net of
taxes of $578), in the Statement of Operations for the period ending
March 31, 1999 relative to the adoption of SOP 98-5.
The following illustrates the pro forma amounts assuming the new
accounting policy for pre-opening costs was applied retroactively:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Net income $3,897 $4,194
Net income per share:
Basic $ 0.19 $ 0.22
Diluted $ 0.19 $ 0.20
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
We operated 50 stores in 26 major markets as of March 31, 1999. From
1994 to 1998 our net sales and operating income before deferred compensation
expense grew at compound annual growth rates of 32.0% and 32.2%, respectively,
principally due to comparable store sales growth averaging 15.2% per year and
the opening of new stores. The increases were principally attributable to
increases in unit sales rather than increases in prices or changes in product
mix. Our management believes 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 name. We do not expect comparable store sales to continue to
increase at historical rates.
We opened twelve stores in 1998 and as of March 31, 1999, had opened
two additional stores this year. Presently, we expect to open an additional ten
stores during the remainder of 1999. In preparation for these additional stores,
management had dedicated a substantial amount of resources over the past several
years to building the infrastructure necessary to support a large, national
chain. We believe the infrastructure is in place to support our needs for the
immediate foreseeable future, including our present expansion plans. 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 name in new markets. In some markets this clustering strategy
results in some transfer of sales from existing stores to new locations.
Generally, however, mature stores have demonstrated net sales growth rates
consistent with the Company's average. As we enter new markets, management
expects that we will initially incur higher administrative and promotional costs
per store than is currently experienced in established markets. We also expect
competition to continue to increase over time as other music products retailers
attempt to execute national growth strategies.
The following table sets forth historical income statement data as a
percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
-------- --------
<S> <C> <C>
Net sales 100.0% 100.0%
Gross profit 26.3 27.6
Selling, general, and administrative
expenses 18.9 20.2
----- -----
Operating income 7.4 7.4
Interest expense, net 1.9 2.3
Income before income taxes and
cumulative effect of change in
accounting principle 5.5 5.1
Income taxes 1.9 0.2
Income before cumulative effect of
change in accounting principle 3.5 5.0
Cumulative effect of change in
accounting principle, net of tax 1.0 --
----- -----
Net income 2.6% 5.0%
----- -----
----- -----
</TABLE>
7
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1998.
Net sales increased to $109.9 million for the three months ended
March 31, 1999, from $85.2 million for the comparable prior period, a 29.0%
increase. This growth was attributable to an increase of 9.2% in comparable
store net sales which contributed $7.8 million, or 31.8%, of the total
increase. New store net sales accounted for the balance of the increase in
net store sales. Comparable store sales growth was slightly adversely
affected as a result of our decision to add additional stores to several
existing market clusters in an effort to enhance customer service and
convenience.
Gross profit dollars for the three months ended March 31, 1999 compared
to 1998 increased 22.8% to $28.9 million from $23.5 million. Gross profit as a
percentage of net sales for the three months ended March 31, 1999 compared to
1998 decreased to 26.3% from 27.6%. Selling margin was approximately the same in
each period. Occupancy and buying costs increased by 1.3% on sales in the first
quarter of 1999 compared to the first quarter of 1998 primarily due to the fact
that 42% of the store base is on average only one year old.
Selling, general and administrative expenses for the three months ended
March 31, 1999 compared to 1998 increased 21.0% to $20.8 million from $17.2
million. Selling, general and administrative expenses, excluding pre-opening
costs, for the three months ended March 31, 1999 compared to 1998 decreased to
18.7%, as a percentage of sales, from 19.7%. Store-level selling, general and
administrative expenses were slightly higher as a percentage of sales due to the
number of immature stores, however, this was more than offset by leveraging of
the corporate general and administrative expenses.
Operating income for the three months ended March 31, 1999 was $8.1
million compared to $6.3 million for the same three months of 1998, an increase
of 27.8%. The increase is principally the result of the increase in sales and
gross profit margin percentage derived from both new and existing stores. As a
percentage of sales, operating income for the three months ended March 31, 1999
and 1998 was 7.4%.
Interest expense, net for the three months ended March 31, 1999
increased to $2.1 million from $2.0 million in the same period of 1998. The
interest expense for the first quarter of 1999 consisted of interest on the 11%
Senior Notes due 2006 (the "Senior Notes") and borrowings under our line of
credit.
In the quarter ended March 31, 1999, a provision for income taxes of
$2.1 million was recorded. In the prior period, minimal income taxes were
charged to income as we recognized the benefit of our tax net operating loss
carryforward. As the majority of the tax benefits related to the net
operating loss carryforward has been recognized as of December 31, 1998, the
Company's effective tax rate for the three months ended March 31 represents
the combined federal and state rates expected to be realized for the full
year, offset partially by the recognition of the remaining NOL.
In the first quarter of 1999, a charge to operations of $1.7 million,
net of tax of $0.6 million, was incurred for the cumulative effect of a change
in accounting principle to expense pre-opening costs as incurred.
Net income for the three months ended March 31, 1999 decreased to $2.8
million from $4.2 million for the same period in 1998, principally as a result
of the effect of the cumulative change in accounting principle as discussed
above, and the effect of income tax provision of $2.1 million.
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 Senior
Notes prior to the their final maturity in 2006. As of March 31, 1999, we had
$12.5 million outstanding under our 1997 Credit Facility with Wells Fargo Bank,
excluding $170,000 outstanding on standby letters of credit, and had available
8
<PAGE>
borrowings under the 1997 Credit Facility of approximately $27.3 million. The
agreement underlying the 1997 Credit Facility expires July 1, 2004 and includes
restrictive covenants which, among other things, require us to maintain
specified financial ratios. We were in compliance with respect to all such
requirements as of March 31, 1999.
For the three months ended March 31, 1999, cash used by operating
activities was $1.8 million. Cash used in investing activities totaled $3.6
million, of which $2.6 million related principally to the opening of new
stores and remodeling of relocated stores and the balance principally related
to computer hardware and software. Cash provided by financing activities
totaled $5.4 million, which principally consisted of borrowings under the
1997 Credit Facility.
During the first quarter of 1999, inventory turn for new product in
mature stores decreased from 3.2 times as of March 31, 1998 to 3.0 times as of
March 31, 1999. Management believes that the increase in inventory balances has
reduced store stockouts which has benefited comparable and new store sales.
We intend to pursue an aggressive growth strategy by opening additional
stores in new and existing markets. During the quarter ended March 31, 1999, we
opened two new stores. Each new store typically has required approximately $1.8
million for gross inventory. Historically, our cost of capital improvements for
an average new store has been approximately $850,000, consisting of leasehold
improvements, fixtures and equipment.
Our expansion strategy is to continue to increase our market share in
existing markets and to penetrate strategically selected markets. We opened a
total of 12 stores in 1998 and 8 stores in 1997, and currently anticipate
opening approximately 12 stores in 1999 and approximately 16 stores in 2000. In
preparation for this expansion, we have dedicated a substantial amount of our
resources over the past several years to building the infrastructure necessary
to support a large national chain. In addition, we have developed a methodology
for targeting prospective store sites which includes analyzing demographic and
psychographic characteristics of a potential store location. We also believe
there may be attractive opportunities to expand by selectively acquiring
existing music products retailers. However, in the music industry there are only
a small number of companies that would strategically and financially be a
beneficial opportunity for us to acquire. Our "average" store is 15,000 square
feet, carrying 7,000 SKUs and generating first year sales of $6,000,000, whereas
the "average" industry store is 3,200 square feet, carrying 2,500 SKUs and
generating sales of $720,000. Within the industry there are other opportunities
to expand, such as through mail order catalogue and internet sales businesses.
We are presently investigating these avenues of growth either by acquisition or
development of our own capability.
Management believes that our company has adequate capital resources and
liquidity to meet its borrowing obligations, fund all required capital
expenditures and pursue its business strategy for at least the next twelve
months, including our present plans for expansion as described elsewhere in this
Report. Our capital resources and liquidity are expected to be provided by net
cash flow from operations and borrowings under the 1997 Credit Facility.
Depending upon market conditions, we may also incur additional indebtedness or
issue equity securities. There can be no assurance that such additional capital,
if and when required, will be available on terms acceptable to us, if at all.
SEASONALITY
Our operating results are not highly seasonal, although, as with most
retailers, sales in the fourth quarter are typically higher than any other
quarter.
YEAR 2000
The Year 2000 issue is primarily the result of computer programs using
a two-digit format, as opposed to four digits, to indicate the year. Computer
programs that are date dependent are found in the software that operates many IT
systems as well as in the computer based devices which control many types of
electronic equipment. Computer programs that are not Year 2000 compliant will be
unable to interpret
9
<PAGE>
dates beyond the year 1999, which could cause a system failure or other computer
errors, leading to a disruption in the operation of the related IT systems or
electronic equipment.
In 1997, we established a project plan to investigate the Year 2000
compliance of its internal and third party computer system applications and
hardware. The objective was to verify third party compliance and complete
internal compliance prior to year end 1999. All work has been substantially
completed with the exception of a major software project related to our
inventory management system implemented in April of 1999. As of the date of this
Report, we believe that all of our significant IT systems will be Year 2000
compliant by the end of 1999. We currently do not have a contingency plan with
regard to the Year 2000. During 1999, we will continue to evaluate whether and
to what extent contingency arrangements should be implemented.
We have also endeavored to assess the Year 2000 compliance of the
outside parties upon which we are most dependent, including large vendors of the
products resold in the Guitar Center stores. While we are not aware of any
material compliance difficulties expected by any such supplier, our ability to
obtain accurate information is necessarily limited. A number of our vendors
manufacture their products overseas, also making accurate information difficult
to obtain. Those vendors, as well as ourselves, are also dependent upon the
continued normal functioning of surface and air transportation, electric utility
and voice and data transmission infrastructure, and the electronic payments
systems and other activities of large financial institutions. Many of these
companies have very significant Year 2000 compliance programs underway because
they tend to be dependent on large, proprietary "legacy" computing systems that
are particularly susceptible to Year 2000 problems. The success of these
compliance programs will prove important to us and our business.
Based on the assessment efforts to date, however, we do not believe
that the Year 2000 issue will have a material adverse effect on our financial
condition or results of operations. Our beliefs and expectations, however, are
based on assumptions and expectations that ultimately may prove to be
inaccurate. We believe that by the end of 1999, we will be able to fully
determine its most reasonably likely worst case scenarios. Potential sources of
risk include:
o the inability of principal suppliers to be Year 2000 ready, which
could result in delays in product deliveries from such suppliers;
o disruption of the distribution channel, including ports, and
transportation vendors, as a result of a general failure of
systems and necessary infrastructure such as electric power
supply, voice and data communications and financial payment
systems; and
o unexpected failures of systems or devices that are misidentified
as being Year 2000 compliant or which prove unexpectedly to
contain non-compliant, date-dependent computer code.
As of the date of this Report, we do not expect the future costs
associated with our Year 2000 efforts to be substantial. To date, we have spent
minimal resources on the Year 2000 issue, as such, primarily due to an already
established, long term plan to upgrade and modernize all systems which we have
been implementing since 1995. The Year 2000 issues have been addressed as part
of the overall global system strategies. Our statements concerning future costs
do not include time and costs that may be incurred by us as a result of the
failure of any third parties, including suppliers, to become Year 2000
compliant, or costs to implement any contingency plans.
The information above contains forward-looking statements which reflect
the current views of our company with respect to Year 2000 compliance and the
related costs and possible impact on its financial performance. As indicated
above, these assessments may prove to be inaccurate. The Year 2000 problem is
novel. Neither Guitar Center nor any of our suppliers is experienced at
identifying and remediating a problem of this sort which represents a systemic
defect that, if not corrected, will cause the failure of computer systems and
computer-controlled devices that are pervasive in the infrastructure of business
and government.
10
<PAGE>
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; BUSINESS RISKS
This Report contains forward-looking statements relating to, among
other things, future results of operations, growth plans, sales, gross margin
and expense trends, capital requirements and general industry and business
conditions applicable to Guitar Center. These forward-looking statements are
based largely on our current expectations and are subject to risks and
uncertainties. Actual results could differ materially from these forward-looking
statements. Important factors to consider in evaluating any of these
forward-looking statements include changes in external competitive market
factors, the effectiveness of our promotion and merchandising strategies,
changes in our business strategy or any inability to execute our business
strategy due to unanticipated changes in the music products industry or the
economy in general, the emergence of new or growing specialty retailers of music
products and various competitive factors that may prevent us from competing
successfully in existing or future markets. These matters and other business
risks to which Guitar Center is subject are discussed in our periodic reports
and registration statements filed from time to time with the Securities and
Exchange Commission. In particular, a discussion of such risks in greater detail
is contained under the caption "Item 1., Business Risks Related to the Business"
on pages 11 through 13 of our 1998 Annual Report on Form 10-K.
11
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
(a) The annual meeting of the Company's shareholders (the "Annual Meeting")
was held on April 26, 1999. At that time there were present, in person
or by proxy, 18,552,859 shares of the Company's Common Stock.
(b) At the annual meeting, two items were submitted to a vote of
shareholders: (1) the election of directors; (2) the approval of the
Company's 1997 Equity Participation Plan, as amended.
(c) The results of voting for the election of eight directors at the Annual
Meeting were as follows:
<TABLE>
<CAPTION>
Nominee For Withheld
------- --- --------
<S> <C> <C>
Larry Thomas 18,549,897 2,962
Marty Albertson 18,549,897 2,962
Steven Burge 18,548,097 4,762
David Ferguson 18,549,850 3,009
Harvey Kibel 18,549,897 2,962
Michael Lazarus 18,548,097 4,762
Peter Starrett 18,549,797 3,062
Jeffrey Walker 18,548,097 4,762
</TABLE>
The results of voting for the approval of the Company's 1997 Equity
Participation Plan, as amended, were as follows:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
<S> <C> <C> <C> <C>
1997 EPP 17,977,861 572,286 2,712 0
</TABLE>
12
<PAGE>
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS.
(a) Exhibit 11. Computation of Income per share.
Exhibit 27. Financial Data Schedule.
13
<PAGE>
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 28th day of April 1999.
Guitar Center, Inc.
/s/ Bruce L. Ross
Bruce L. Ross, Executive Vice President,
Chief Financial Officer and Secretary
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
14
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
11 Computation of Income Per Share
27 Financial Data Schedule
</TABLE>
15
<PAGE>
Exhibit 11
Guitar Center, Inc.
Computation of income per share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1999 1998
------- -------
<S> <C> <C>
Income before cumulative effect of change
in accounting principle $ 3,897 $ 4,220
Cumulative effect of change in accounting
principle--write-off of pre-opening costs 1,074 --
------- -------
Net income 2,823 4,220
------- -------
------- -------
Weighted average shares outstanding
Basic 20,101 19,347
------- -------
------- -------
Diluted 20,846 20,773
------- -------
------- -------
Income per common share
Basic
Income before cumulative effect of change
in accounting principle $ 0.19 $ 0.22
Cumulative effect of change in accounting
priniciple--write-off of pre-opening costs (0.05) --
------- -------
Net income $ 0.14 $ 0.22
------- -------
------- -------
Diluted
Income before cumulative effect of change
in accounting principle $ 0.19 $ 0.20
Cumulative effect of change in accounting
principle--write-off of pre-opening costs (0.05) --
------- -------
Net income $ 0.14 $ 0.20
------- -------
------- -------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 130
<SECURITIES> 0
<RECEIVABLES> 13,449
<ALLOWANCES> 210
<INVENTORY> 107,554
<CURRENT-ASSETS> 123,210
<PP&E> 54,606
<DEPRECIATION> 17,908
<TOTAL-ASSETS> 179,477
<CURRENT-LIABILITIES> 50,454
<BONDS> 67,084
0
0
<COMMON> 201
<OTHER-SE> 60,211
<TOTAL-LIABILITY-AND-EQUITY> 179,477
<SALES> 109,904
<TOTAL-REVENUES> 109,904
<CGS> 81,007
<TOTAL-COSTS> 20,813
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,088
<INCOME-PRETAX> 5,996
<INCOME-TAX> 2,099
<INCOME-CONTINUING> 3,897
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,074<F1>
<NET-INCOME> 2,823
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
<FN>
<F1>REPRESENTS A CHARGE FOR PRE-OPENING COSTS RECORDED AS A CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX.
</FN>
</TABLE>
