WorldCom Inc. CEO John Sidgmore said today that the telecommunications giant had no choice but to file for bankruptcy protection, but he said it would "stabilize" the company and allow it to manage its debt.
Sidgmore also said that he hopes to have WorldCom emerge from bankruptcy by the first quarter of next year as a much stronger company.
"I regret that we are in the position that we are in today," said Sidgmore, in a press conference this morning in New York that was streamed from the company's Web site. "We fought hard and frantically to avoid this. But ultimately the board of directors decided that taking this action was the very best way to help the greatest number of people, including our customers, our investors and our employees."
Bankruptcy "became the only way to provide for our company's future," said Sidgmore. He said the action will allow the company to secure the financing to supplement its cash flow.
WorldCom, like much of the telecom industry, has been struggling for many months with weak customer demand. But the company's problems spun seemingly out of control last month when it revealed that its earnings had been inflated by nearly US$4 billion over the past 15 months to help prop up its sagging stock price.
The company filed under Chapter 11 yesterday in the U.S. Bankruptcy Court for the Southern District of New York.
Under Chapter 11, the company "will operate and manage our business in the normal course, provide service to customers," said Sidgmore.
The company carries debt estimated at $32.8 billion, has several thousand corporate customers, serves about 20 million consumers and runs the world's biggest Internet network. Subsidiaries include Internet infrastructure company UUNet Technologies Inc. and telecommunications carrier MCI Communications Corp.
Although it's not clear how long the bankruptcy reorganization will last, Sidgmore said "it's my hope it will be fairly brief, but we expect it to last at least through the first quarter of next year."
"We plan on using this time under reorganization to regain our company's strength, focus our industry leadership," said Sidgmore.
The bankruptcy filing does not apply to non-U.S. operations, said Sidgmore.
Chapter 11 provides a financially beleaguered company a method to keep operating its business under protection from its creditors while developing a plan for resolving its financial problems.
WorldCom has obtained an agreement to arrange up to $2 billion in debtor-in-possession financing, of which $750 million has already been committed by several banks. This process, if it is approved by the Bankruptcy Court, would allow the company to operate its business normally while it focuses on its new strategic plan, restructures its finances, reduces its debt burden and strengthens its balance sheet, the company said.
Sidgmore pledged to emerge from bankruptcy a stronger company. "We will still have the best set of assets in the telecommunications industry," he said. "While this is not the path that we wanted to take, we think it's clearly the right thing to do for our future with this company."
The company has not lost any major customers, and Sidgmore said he believed bankruptcy would stabilize the company and make it easier to deal with customers and vendors. "I think we can be much more certain about where we are headed," he said.
Sidgmore also announced the election of two new members to its board of directors -- Nicholas Katzenbach and Dennis Beresford.
Katzenbach was U.S. attorney general from 1965-66, as well as a longtime senior vice president and general counsel at IBM.
Beresford is an accounting professor at the Terry College of Business at the University of Georgia, and previously was chairman of the Financial Accounting Standards Board from 1987-1997.
Katzenbach and Beresford have not previously been involved in the company's affairs, WorldCom said in a statement.