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Sears, the original everything store, files for bankruptcy
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Martial law, human rights and other stark issues Cecilio T. Arillo
DATABASE
By Michael Corkery | New York Times News Service
EARS, which more than a century ago pioneered the strategy of selling everything to everyone, filed for bankruptcy protection early on Monday.
The company had long ago given up its mantle as a retail innovator. It was overtaken first by big-box retailers like Wal-mart and Home Depot and then, by Amazon as the go-to shopping destinations for clothing, tools and appliances. In the last decade, Sears had been run by a hedge fund manager, Edward S. Lampert, who sold off many of the company’s valuable properties and brands, but failed to develop a winning strategy to entice consumers who increasingly shop online. The result has been a long painful decline. A decade ago, the company employed 302,000. Today, there are about 68,000 people still working at Sears and Kmart, which Lampert also runs. Now, the retailer aims to use Chapter 11 bankruptcy filing to cut its debts and keep operating at least through the holidays, according to two people briefed on the matter who spoke on condition of anonymity to discuss the company’s plans. As part of the reorganization plan Sears will receive a loan of more than $500 million to help keep its shelves stocked and employees paid, these people said. The company is also planning to close as many as 150 additional stores as it tries to reduce costs and find some way forward. “It’s a sad day for American retail,” said Craig Johnson, president of Customer Growth Partners, a retail research and consulting firm. “There are generations of people who grew up on Sears and now it’s not relevant. When you are in the retail business, it’s all about newness. But Sears stopped innovating.” Founded shortly after the Civil War, the original Sears, Roebuck & Co. built a catalog business that sold Americans the latest dresses, toys, build-it-yourself houses and even tombstones. In their heyday, the company’s stores, which began to spread across the country in the early-20th century, were showcases for must-have washing machines, snow tires and furniture. More recently, Sears became known for another distinction— Lampert’s audacious feats of financial engineering. He has spun off numerous assets from the retailer into separate companies that his hedge fund invests in. While many of these spinoffs have flourished, Sears has slid toward insolvency. During the last five years, the company lost about $5.8 billion, and over the last decade, it shut more than 1,000 stores. Many of the 700 stores that remain have frequent clearance sales, empty shelves and handwritten signs. Sears stores remain the centerpiece of hundreds of shopping centers across the United States and their decline has reduced traffic to many of those malls. Running low on cash, the company had a $134-million debt payment due on Monday. Its total debt stood at about $5.6 billion in late-September. Over the weekend, a group of lenders was negotiating with Sears over the terms of a new loan, totaling more than $500 million, the people briefed on the matter said. No other large retailer has endured as long or played as important a role in American life as Sears. The company started out selling watches to railroad agents in 1886 and soon expanded into a vast mailorder business that sold clothing, tools, shoes and, at one point, even cocaine and opium, through catalogs that ran as long as 1,000 pages. Sears Roebuck was, in many ways, an early version of Amazon. It used the Postal Service to reach the most
remote parts of a growing nation and stored and shipped products from a 3 million-square-foot warehouse in Chicago. After World War II, Sears stores served the needs of the country’s expanding middle class. Families came to have their children’s portraits taken, to get their tires rotated and oil changed, and to buy Kenmore refrigerators. “Sears is where you went to shop,” said Barbara E. Kahn, a retail expert and marketing professor at the University of Pennsylvania’s Wharton School. “They sold fundamental products that consumers needed.” Through the 1960s and 1970s, Sears shared its success with employees at all levels of its corporate hierarchy. Cashiers, janitors and executives alike took part in profitsharing and received options in the company’s soaring stock. As many as 100,000 retired Sears employees receive pensions, which are expected to emerge largely unscathed in the bankruptcy. As the company was bleeding cash and selling off assets in recent years, federal regulators required Lampert to inject cash into the pension plan. Other benefits for retirees like life insurance, however, could be in danger. “It is sad to see the company you really loved go down the tubes,” said Ron Olbrysh, 77, who worked in Sears’ legal department for 24 years and now heads an association of retired workers. By the 1990s, Sears was struggling to find its place. Wal-mart was plopping its super centers across the United States. Home Depot was taking away market share on appliances and power tools, but Sears had valuable brands like Kenmore, DieHard and Lands’ End, and stores in prime locations. Things changed dramatically when Lampert arrived on the scene. A hedge fund manager who got his start at Goldman Sachs and had little experience running a large retail chain, Lampert took control of Kmart after it came out of bankruptcy in 2003 and then acquired Sears a year later. The company’s board came to be dominated by other wealthy investors, including Steven Mnuchin, the current Treasury secretary who had been Lampert’s roommate at Yale University. Lampert says his strategy was to move the company away from its brick-and-mortar legacy into the digital era. His plan was to use the money saved from closing stores and selling off assets to reinvest in the business. But the company never gained traction online. The company’s decline has also exacted a toll on its workers. Peggy Mitchell, 55, who works full time unloading delivery trucks at the Sears in Chicago Ridge, Illinois, said she barely makes enough to make ends meet. Mitchell, who has four children, earns $10.75 an hour and cannot afford the company’s health plan. “Wal-mart pays more than that,” she said. Sears remains a publicly traded company, but Lampert exerts an enormous amount of control. Lampert is the chairman and chief executive, and his hedge fund ESL Investments is the largest shareholder and a major lender. He orchestrated a series of deals that generated cash for Sears in the near term, but stripped out many of the company’s most valuable assets—often selling them to companies that he also has a stake in. Sears’s shares, which topped $120 as recently as 2007, closed on Friday at 40.7 cents.
Tuesday, October 16, 2018 A7
Part Seven
Martial-law period poorly misunderstood
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O this day, the martial-law period remains poorly understood, to put it mildly. There are still many who feel strongly that it was a period of unjustified cruelty, the main purpose of which, supposedly, was to keep Marcos in power,” said noted historians Karla Sohmer, Salvador Escalante and J. Augustus Y. de la Paz, of the Truth and Justice Foundation (TJF). “Had it truly been such,” they argued, “then Marcos would not have brooked any opposition nor tolerated any criticism. Thousands would have perished in February 1986 at Edsa, Ninoy’s funeral in 1983 would have been much more modest, Ninoy would probably have died earlier and more quietly, of heart failure, in his cell as a death convict. History would have proceeded differently.” In their Hubris, the comprehensive historical book on the persecution of the Marcoses published in 2000 by the TJF, they said: “Record showed that Marcos imposed martial law not to exterminate his critics, but to save the majority—critics included—from the triple menace of the communists, the rightist oligarchs and warlords and the Muslim-led separatists. Marcos had no delusion
that martial law was going to make him politically fragrant; he knew that the political cost would be high, that he would be risking his place in history. But it had to be done, and he alone had the power under the 1935 Constitution to do it.” The martial-law regime, despite the increase in detention centers, the setting up of checkpoints and the increased visibility of the military, did not result in the “garrison state” that Ninoy had warned about, except in the hotbeds of insurgency. But it was undeniable—inasmuch as it was necessary—that the regime assumed the trappings of a police state. Marcos recalled that the application of the state’s police power was calibrated: “Every step taken in the martial-law situation was measured according to the recognized desires
and wishes of the greater number of the Filipino people. Dismantling the leftist rebellion and the rightist conspiracy, for example, took the “classical” form of surveillance, apprehension, detention, and public trial, although I immediately granted amnesty to those accepting it… “We had to restore civil order as the bedrock of any constitutional survival. Civil order is merely the rationale of all societies: enforcement of and obedience to the law. When I placed the entire country under martial law, my first concern was to secure the Republic against any uprising, politically motivated or otherwise, and to secure the entire citizenry from the criminal elements, the private armies bred by local politics, and the outlaw bands in the countryside, who might either take advantage of the temporary panic or undermine our efforts to assert the authority of our police forces. It was imperative that we dismantle the apparatus of the insurgency movement and the whole system of violence and criminality that had virtually imprisoned out society in fear and anarchy.” Critics have accused the martiallaw regime of incarcerating up to 70,000 people, making it sound that all of those persons became prisoners of conscience, or “political detainees.” In fact, most of them were detainees either for crimes against the state, such as rebellion and subversion, and a great many others were jailed for common crimes, including 12,000 suspected involvement in crimes
ranging from theft to murder. Also, thousands of those detained, mainly for subversion, were released when they availed themselves of amnesty, which required pledging of loyalty to the Constitution or on purely humanitarian grounds. “Are surveillance, apprehension, detention and public trial incompatible with democracy? Did they make martial law the antithesis of democracy? Hardly. The US and Philippine governments jointly detained the Marcoses in America, and neither regime was denounced for being undemocratic. Martial law forms part of the survival mechanisms of democratic governments; provision for it in the 1935 Constitution was proof of that,” they said. They added: “Much as Cory Aquino and other anti-Marcos figures denounced these tactics as dictatorial, they would be adopted by the Aquino regime on an even bigger scale, albeit without declaring martial law. And the Aquino-appointed Supreme Court, mostly composed of self-styled civil libertarians, would uphold the regime’s recourse to these tactics. If the same practices were held to be legitimate during the “democratic” Aquino regime, why should the Marcos administration be denounced for applying them? For applying them less?” To be continued To reach the writer, e-mail cecilio.arillo@ gmail.com.
Deficiency and delinquency interest, clarified Atty. Rodel C. Unciano
TAX LAW FOR BUSINESS
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EFORE the amendment introduced by the Tax Reform for Acceleration and Inclusion (TRAIN) law, the imposition of deficiency and delinquency interest on late payment of tax under the Tax Code had become too burdensome to taxpayers. In interpreting of the Tax Code on interest prior to its amendment, the Court of Tax Appeals issued a number of decisions where the imposition of the deficiency interest at a rate of 20 percent per annum is imposed simultaneously with the imposition of a delinquency interest, also at a rate of 20 percent per annum. So, following previous CTA decisions, the imposition of the 20-percent delinquency interest on top of the 20-percent deficiency interest created a situation where a 40-percent interest per annum was imposed. The imposition of deficiency interest at a rate of 20 percent per annum, and simultaneous with the imposition of delinquency interest, also at 20 percent per annum, is seemingly oppressive, confiscatory and unconscionable, especially in tax investigation cases being contested in courts considering that court cases usually take years to resolve.
This would create a scenario where upon final resolution of a case, a losing taxpayer litigant would end up paying interest on the taxes due much more than the total amount of taxes due at the time the assessment was issued by the Bureau of Internal Revenue (BIR). Thus, the amendment introduced by the TRAIN law lowering the rate
of interest imposed on late payment of taxes from a rate of 20 percent per annum to a rate of double the legal interest rate, is truly a relief to delinquent taxpayers willing to settle their unpaid tax liabilities. As provided in the Revenue Regulations 21-2018, the Department of Finance clarified that effective January 1, 2018, the effectivity date of the TRAIN law, the rate of interest imposable for late payment of taxes shall now be 12 percent, which is twice the 6-percent interest rate imposed on loans or forbearance of any money per BSP Circular 799 Series of 2013. The deficiency interest shall be imposed on the basic tax due from the date prescribed for its payment until its full payment, or upon issuance of a notice and demand by the Commissioner or his authorized representative, whichever comes first. The delinquency interest shall be imposed on the basic deficiency tax plus surcharge and interest, to be computed from the due date appearing in the notice and demand by the Commissioner until full payment. The regulations clarified that upon effectivity of the TRAIN law, the deficiency and delinquency interest
shall not be imposed simultaneously. The BIR, however, clarified that in cases where the tax liabilities became due before the effectivity of the TRAIN law and where the full payment will only be made after the effectivity of the TRAIN law, the deficiency and delinquency interest imposed shall be at a rate of 20 percent per annum for the period up to December 31, 2017 and 12 percent per annum, for the period from January 1, 2018 until full payment of the tax liabilities. The double imposition of deficiency and delinquency interest prior to the effectivity of the TRAIN law shall still apply for the period between the date prescribed for payment until December 31, 2017. The author is a senior associate of Du-Baladad and Associates Law Offices (BDB Law), a memberfirm of WTS Global. The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at rodel.unciano@ bdblaw.com.ph or call 403-2001 local 140.
Economic leaders point to mounting risks By Mohamed A. El-Erian Bloomberg Opinion
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HE finance ministers and central bankers from almost 190 countries who gathered in Bali for the annual meetings of the International Monetary Fund and World Bank drove, I suspect, the final nail into the coffin of the notion of a synchronized pickup in global growth. In a tone that contrasted with the optimism of their spring meetings in April, members of the International Monetary and Financial Committee, or IMFC, listed much fragility, and cited a set of risks that “are increasingly skewed to the downside.” Even though the IMFC contains members with opposing views on free trade and responsible economic and currency management, it managed to arrive at compromise language for its common communiqué at the conclusion of the meetings over the weekend. But the committee failed to go beyond boilerplate phrases when it came
to policies, including an agreement on meaningful and coordinated measures to deal with the increasing divergence among advanced economies, as well as steps to ensure that the eventual convergence translates into higher global growth and durable financial stability, as opposed to meaningful risks of recession and unsettling financial volatility. In the run-up to the meetings, the IMF published updated macroeconomic projections that pointed to somewhat less buoyant growth, despite what I see as excessive optimism in many individual country forecasts —with the notable exception of the US—and more divergence among systemically important countries. This theme is reflected in the IMFC communiqué. Officials said “the global expansion remains strong,” though they recognized that “the recovery is increasingly uneven, and some of the previously identified risks have partially materialized.” The less optimistic outlook for the global economy comes with a long list
of gathering clouds that were listed not only in the communiqué but also in virtually every one of the public statements by officials from the most influential countries. I suspect the worries were even more pointed in private. They include heightened trade tensions, ongoing geopolitical concerns, tighter financial conditions that affect many emerging economies, policy uncertainty, historically high debt levels, rising financial vulnerabilities and limited policy space, which could further undermine confidence and growth prospects. When it came to offering measures to contain these risks, the communiqué’s drafters found all-encompassing language, such as “we will act promptly to advance policies and reforms to protect the expansion, mitigate risks, rebuild policy space, enhance resilience and raise medium-term growth prospects for the benefit of all.” Even more skillfully, they struck a delicate balance between opposing national policy views that have resulted in loud and open conflict elsewhere.
This was the case most notably on trade (“We acknowledge that free, fair, and mutually beneficial goods and services trade and investment are key engines for growth and job creation”), and on currency policy (“We will refrain from competitive devaluations and will not target our exchange rates for competitive purposes”). For the most part, the communiqué is likely to be a nonevent for policy making, and for markets when they reopen for trading on Monday morning. The outcome of the meeting might have been seen as more positive if markets weren’t undergoing a gradual transition from an overwhelmingly liquidity-driven paradigm to one that is more reflective of the underlying fundamentals. This shift is made more complicated by, in particular, divergence and trade. As such, the IMFC’s public communication will do little to counter the risk that this transition could be accompanied by one that involves greater and periodically more unsettling volatility for financial markets.