Maker of Gibson Guitars Files for Bankruptcy Protection

Gibson Brands has made guitar history over the years as entertainers Elvis Presley, B.B. King and Keith Richards used them. However, a financial fall of devastating proportion forced the guitar maker into filing for Chapter 11 bankruptcy protection.

Gibson also has Wurlitzer organs, Baldwin pianos as well as other popular well-known brands and said that it is expecting to survive the bankruptcy reorganization because of support that it expects to receive from its key creditors.

The company has entered into a deal with most of its creditors, which will allow it to carry on its business and instrument manufacturing.

The filing of bankruptcy represents a failure in strategy for company CEO Henry Juszkiewicz, who with his partner Dave Berryman, were the rescuers of Gibson 32 years ago when it was on the brink of collapse and they returned it to prominence.

Gibson is the maker of guitars, banjos as well as mandolins.

As music that was made with a computer increased in popularity, sales of international guitars slipped, creating a challenge for the larger musical instruments makers as well as retailers such as Gibson.

Juszkiewicz, in response, oversaw a strategy that grew Gibson from just a guitar company into what he called a lifestyle brand, as the company acquired businesses that made speakers, turntables and headphones.

As more debt accumulated on Gibson’s books to acquire Onkyo, Phillips and other electronics businesses, annual revenue increased and profit margins narrowed.

During 2010, the company took in total sales of $300 million and showed a margin of 12.9% before taxes and interest. By 2015, the company posted annual revenue of $2.1 billion, but profit margins were down to just 4%.

The overleveraged Gibson was negotiating with his banks and creditors for several months. A deadline of July 23 loomed for the maturities of over $500 million of debt obligations already funded.

Gibson, as part of its bankruptcy announced it would be shuttering its innovations division. During the last 12 months, substantial strides have been made through a system of operational restructuring.

Juszkiewicz, who owns 36% of Gibson, said the company would refocus on core business, which is its musical instruments that he believes, will assure the long-term stability as well as financial health of the company.

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