Gibson guitar maker files for Chapter 11 bankruptcy protection

Nathan Bomey and Nate Rau | USA TODAY and The (Nashville) Tennessean

Whether it was Elvis Presley, Keith Richards or B.B. King and his beloved "Lucille," Gibson Brands made guitar history, but a devastating financial fall forced it Tuesday to file for bankruptcy protection.

Gibson, which also has Baldwin pianos, Wurlitzer organs and other well-known brands, said that it expects to survive its Chapter 11 bankruptcy reorganization because of the support it expects from key creditors.

The company, which filed for bankruptcy protection in Delaware, has struck a deal with the majority of its creditors that will allow business to continue and its instrument manufacturing to carry on.

The bankruptcy filing represents a strategy failure for CEO Henry Juszkiewicz, who, along with partner Dave Berryman, rescued Gibson from the brink of collapse 32 years ago and returned the company founded in 1894 to prominence. Gibson makes guitars, banjos and mandolins.

As more popular music has been made with computers, international guitar sales began to slip, creating a challenge for larger manufacturers and retailers like Gibson. In response, Juszkiewicz oversaw an aggressive strategy that expanded Gibson from a guitar company into a lifestyle brand. The company acquired electronics companies that made headphones, speakers and turntables.

As Gibson took on more debt to acquire Phillips, Onkyo and other electronics companies, its annual revenue grew and its profit margins shrunk.

More: Gibson bankruptcy: What went wrong, and what lies ahead for Nashville-based icon

More: 5 things to know about guitar maker Gibson Brands filing for bankruptcy

In 2010, Gibson brought in $300 million in total sales and showed an earnings-before-taxes-and-interest margin of 12.9% on its balance sheet. By 2015, Gibson was doing $2.1 billion in annual revenue, but its profit margin had dropped to 4%.

Overleveraged, Gibson had been negotiating with banks and creditors for months. A July 23 deadline loomed for maturities on more than $500 million of funded debt obligations. Juszkiewicz owns 36% of the company.

As part of the bankruptcy, Gibson announced it will kill its innovations division.

"Over the past 12 months, we have made substantial strides through an operational restructuring," Juszkiewicz said in a statement, adding that Gibson will "refocus on our core business" of musical instruments, which "we believe will assure the company's long-term stability and financial health."

Gibson’s guitar business has actually been on the uptick, according to the bankruptcy filings, rising 10.5% from January 2017 — $110 million to $122 million during the same 12-month period.

Gibson's guitars include the Les Paul, SG, Flying V, Explorer, J-45 and Hummingbird. They are still used by a who's who of rock 'n' roll stars. The late bluesman B.B. King adored his Gibsons that he always performed with.

Gibson enjoys 22% market share in electric guitars and 40% market share for guitars selling for more than $2,000, including the iconic Les Paul model.

The company's other brands include Dobro, Epiphone, KRK and Cerwin Vega.

More: 401(k) investors' gains in 2018 won't match last year's as stock market stalls

More: Roger Chen and Bret Schoolmeester: How we became innovators and shoe designers at Nike

More: Foolish Take: Does 'Sell in May and go away' maxim actually work? It hasn't lately

Jimi Hendrix guitar is up for bid, others too. Guitars used by iconic musicians such as Jimi Hendrix and Paul McCartney hit the auction block on Saturday in New York City. Video provided by Reuters

A federal judge will be required to sign off on the company's plan to shed debt. Unsecured creditors, such as other lenders and vendors, could object to the restructuring plan and demand liquidation on the grounds that they'd be better off with the company going out of business.

The company sells its products in more than 3,000 places, including music stores and websites.

The company has long trumpeted its made-in-America guitars. Gibsons are manufactured in Nashville, Memphis and Bozeman, Mt.

Gibson's musical instruments business has more than 875 workers.

Restoring the World's Largest Musical Instrument Efforts are underway to restore a New Jersey pipe organ described as the largest musical instrument on the planet. The massive organ at Boardwalk Hall in Atlantic City hasn't fully functioned since a hurricane in 1944. (Dec. 18)

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.