Oct. 31, 2007 — Vitelco's finances and operations are being affected by the acrimonious bankruptcy proceedings involving Vitelco's parent company, Innovative Communications, Vitelco President David Sharp told the Public Services Commission at a hearing in St. Croix's Henry E. Rohlsen Airport Wednesday.
"I would say in the short term, the surrounding situation has very definitely had a short-term negative impact on our operations," Sharp said when PSC Chairman Joseph Boschulte asked if Vitelco has a cash-flow problem. Sharp elaborated that vendors, banks and others have been confused about the difference between the bankrupt parent companies and the not-bankrupt Vitelco subsidiary.
"The original Chapter 11 and the more recent series of events have created a situation where some individuals have refused to take our checks," he said. "In one instance, a bank refused to honor a check because they thought we were bankrupt."
Some vendors are demanding payment in advance or cutting off services, as well, Sharp said.
"People are starting to be cautious," he said. "So there is a short-term impact with respect to our operations. Everyone is waiting to see how it will all play out."
Commissioner Donald Cole asked about the state of Vitelco's employee pension fund, which parent company ICC has reportedly shorted tens of millions of dollars. (See "Pension Shortfall for Prosser Companies More Than Previously Reported.")
Sharp said he cannot speak for ICC, but because Vitelco is the largest component of ICC he could still shed a little light. There are more than 1,000 people signed up for the pension plan, including people who no longer work for the company but who have vested benefits from when they did. He emphasized that the Pension Benefit Guarantee Corporation (PBGC) guarantees line worker's pensions.
"It is reported that the plan is underfunded," Sharp said. "That is true — the plan is underfunded, but we are not in a unique position. Many plans are underfunded. The GERS (Government Employees' Retirement System) plan is underfunded. I don't know about their fund, but our funds are protected by the (PBGC). If we don't to anything and close our door, the PBGC would provide a certain level of pension benefit. … One hundred percent of the rank-and-file employees would not lose a penny because the PBGC covers them completely. On the management side, I cannot be quite so confident nobody would lose benefits. Only three of us are affected by that, however."
The PBGC has filed liens demanding ICC pay into the pension fund, as required by law. ICC has not done so yet. Commissioner Sirri Hamad asked how the fund would be paid.
"My concern is that the hardworking people of this company will not lose their pensions," Hamad said.
"It is my expectation whoever buys the company will have to make the pension whole," Sharp said. "But ICC sponsors the fund. So ICC had the obligation to those funds, and I am not here to answer on that. I think … funding is going to be required of any new buyer, and I guess the backstop is the PBGC."
Sharp did not have news as to whether a buyer existed for Vitelco.
"Clearly I think at some point the company or companies, individually or collectively, will be sold," he said. "I have no idea if a buyer has been found. I know, or suspect, there are a tremendous amount of investors who might. I can't predict when that might happen. I think it is a dynamic situation affected by everything that takes place between now and then."
"Can the telephone company operate independently of ICC?" Hamad asked.
"I don't think it can," Sharp said. "Innovative has had to divert a lot of resources and capital to the defense of the company. That is clearly a distraction."
Boschulte asked Sharp whether Vitelco is running better or healthier today compared to five years ago.
"I think we've seen some improvement," Sharp said. "The number of reports of outages and the number of complaints are down from when I came in as vice president in 2002. … At the same time, I have been distracted in my personal function by the ongoing bankruptcy. … I certainly look forward to the day it is settled and I can go back to spending all my time on running the company."
Pressed for details, Sharp said revenues were down.
"We are just one of many providers of service in the territory now," he said. "And we have seen real line losses in the territory. We've seen a decline in those revenues. At the same time, our situation has been reflective of that of lots of phone companies."
Boschulte and Commissioner Verne C. David both pressed Sharp for details of Vitelco's finances.
"Providing this information is critical," David said. "The information helps us perform our jobs. Getting this information without twisting arms would be very helpful."
"I agree," Sharp said. "We have provided this information in the past and we can improve. I have invited the commissioners to come and look at matters in depth. Unfortunately, events have and will continue to be distracting."
David pressed further.
"Vitelco gets EDC (Economic Development Commission) tax benefits," David said. "Is the information you report to them available for analyses?"
"Certain parts of the EDC agreement are proprietary," Sharp said.
In the past, he said, Vitelco's EDC tax benefits included a 90-percent exemption on corporate income tax, 100-percent exemption from gross receipts taxes, and 100 percent of certain excise taxes. Currently the company pays corporate income tax, he said.
The EDC has not been given recent financial information, either, Sharp said.
"We are behind in the reports filed with the EDC commission, which again are confidential," he said. David asked whether Vitelco is in jeopardy of losing EDC tax benefits because of its failure to submit the required reports.
"That is correct," Sharp said.
At the close of the meeting, Boschulte again urged Sharp to provide financial information to the PSC.
"I understand the parent company is in bankruptcy," Boschulte said. "But there should not be this level of delay to submit financial reports. After 90 days you should be able to get them. There must be some information so we can decide whether or not the rates being charged are right, are fair or reasonable. … I understand the situation is chaotic. But the company is still running, still providing service and still billing its customers."
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