Company Name: Union Pacific Corp.
Public Availability Date: February 16, 2006
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 28, 2005
Via Hand Delivery
Division of Corporation Finance
Office of the Chief Counsel
450 Fifth Street, N.W.
Washington D.C. 20549
Re: Union Pacific Corporation- Omission of Shareholder Proposal Pursuant to Rule
14a-8
Dear Ladies and Gentlemen:
I am writing on behalf of Union Pacific Corporation, a Utah corporation (the
"Company"), pursuant to Rule 14a-8(j) under the Securities Exchange Act of 1934,
as amended, to respectfully request that the Staff of the Division of
Corporation Finance (the "Staff") of the Securities and Exchange Commission
concur with the Company's view that, for the reasons stated below, a shareholder
proposal (the "Proposal") and supporting statement submitted by Keith Dameron
(the "Proponent") may properly be omitted from the proxy materials (the "2006
Proxy Materials") to be distributed by the Company in connection with its 2006
annual meeting of shareholders (the "2006 Annual Meeting"). The Proposal and
related correspondence are attached hereto as Attachment 1.
The Company intends to exclude the Proposal from the 2006 Proxy Materials on the
bases set forth below, and the Company respectfully requests that the Staff
concur in its views that: (1) the Proposal may be excluded under Rule
14a-8(i)(5) because the Proposal relates to operations that are financially de
minimis and are not otherwise significantly related to the Company's business;
and (2) the Proposal may be excluded under Rule 14a-8(i)(7) because the Proposal
deals with matters related to the Company's ordinary business operations.
Pursuant to Rule 14a-8(j), enclosed herewith are six (6) copies of this letter
and its attachments. Also, in accordance with Rule 14a-8(j), a copy of this
letter and its attachments is being mailed on this date to the Proponent,
informing him of the Company's intention to omit the Proposal from the 2006
Proxy Materials. Pursuant to Rule 14a-8(j), this letter is being filed with the
Securities and Exchange Commission (the "Commission") no later than eighty (80)
calendar days before the Company files its definitive 2006 Proxy Materials with
the Commission. I hereby agree to promptly forward to the Proponent any Staff
response to this no-action request that the Staff transmits by facsimile to the
Company only.
I. The Proposal and Background
The Proposal reads:
"Resolved that the shareholders of Union Pacific ("Company") hereby recommend
that the Board of Directors include on-time performance data from passenger
operations in the Annual Report. This data would include Amtrak and other
passenger operations using Union Pacific track. Specific Company on-time goals,
and performance results, for each Amtrak route or commuter railroad during the
previous year should be noted in the Annual Report."
In Union Pacific Corporation (avail. Jan. 28, 2005), the Staff concurred with
the exclusion of a proposal substantially similar to the current Proposal that
recommended that the Company "include revenue and on-time performance data from
passenger operations in the Annual Report." In response to the Company's letter
addressing that proposal, the Staff stated that it would not recommend
enforcement action if the Company omitted the proposal in reliance on Rule
14a-8(i)(7), noting in particular that last year's proposal involved the
"presentation of financial information." In reaching that conclusion, the Staff
stated that it had not found it necessary to address the alternative bases for
omission that the Company had set forth. Although the Proponent has attempted to
reform the Proposal by omitting the request for revenue data, for the reasons
set forth below the Company believes that the Proposal remains excludable.
Union Pacific Railroad Company, the principal operating subsidiary of the
Company, is the largest freight railroad in North America, covering 23 states
across two-thirds of the United States. Its approximately 33,000 route miles are
used primarily for freight services, and its over 7,600 locomotives and over
100,000 freight cars are used exclusively to transport commodities in thousands
of freight trains each year.
The Company does not engage in the sale of tickets to passengers and thus is not
engaged in "passenger operations" in the traditional sense. However, the Company
receives a de minimis amount of revenue from other companies that provide
passenger rail service, primarily as a result of the Company providing trackage
rights or operating services under contracts with, Amtrak, METRA (Chicago), the
Altamont Commuter Express (San Francisco Bay area), the Caltrain (San Francisco
Bay area) and Metrolink (Los Angeles). The Company also provides crews and
maintenance operations to METRA and will provide crews and facilities to Amtrak
as needed in emergencies. Under these arrangements, the passenger rail service
companies pay the Company for the use of its tracks and in certain cases for
operating, routing, dispatching and other services. With respect to Amtrak and
governing federal law, the Company is paid only a specified amount designed to
reimburse it for its out-of-pocket costs, plus it may receive an incremental
payment based on the on-time performance of Amtrak trains operating on the
Company's tracks. The other passenger rail service companies pay the Company
contractually negotiated rates for the trackage rights and services they
receive.
II. Basis for Excluding the Proposal
A. The Proposal May Be Excluded under Rule 14a-8(i)(5) Because It Relates to
Operations That Account for Less than Five Percent of the Company's Total
Assets, Net Earnings and Gross Sales, and Is Not Otherwise Related to the
Company's Business.
Rule 14a-8(i)(5) permits exclusion of a proposal relating to operations that (i)
account for less than five percent of a company's total assets at the end of its
most recent fiscal year, (ii) account for less than five percent of its net
earnings for the most recent fiscal year, (iii) account for less than five
percent of its gross sales for its most recent fiscal year, and (iv) are not
otherwise significantly related to the company's business.
The Company's "passenger operations" account for less than five percent of the
Company's total assets, net earnings and operating revenues as of, and for, its
most recent fiscal year. For example, the Company's operating revenue consists
of "commodity revenue" from the Company's freight operations and "other
revenues." For 2004, "commodity revenue" accounted for approximately 96.0% of
the Company's total operating revenue while "other revenue" accounted for
approximately 4.0%. "Passenger operations" are less than one-half of "other
revenue," representing only 1.0% of the Company's operating revenue for its most
recent fiscal year. The Company has no plans that will significantly increase
the percentage of assets, net earnings or revenues attributable to "passenger
operations." As such, the Proposal's subject matter does not meet any of the
economic tests provided by Rule 14a8(i)(5).
In addition, the Proposal does not raise significant social or ethical issues.
The SEC has stated that certain proposals, while relating to only a small
portion of the issuer's operations, can raise policy issues of significance to
the issuer's business. When the proposal has implicated significant social or
ethical issues raised by the issuer's business, rather than routine business
operations, the Staff has not concurred with omission of the proposal pursuant
to Rule 14a-8(i)(5). See, e.g., Long Island Lighting Company (avail. Feb. 11,
1980) (cease further development, planning and construction of nuclear power
plants) and Owens-Illinois Inc. (Feb. 15, 1980) (liquidate the assets of the
company that are located in the Republic of South Africa); Release No. 34-19135,
Proposed Amendments to Rule 14a-8 Under the Securities Exchange Act of 1934
Relating to Proposals by Security Holders, (Oct. 14, 1982).
In contrast, the Staff has long concurred that proposals are excludable under
Rule 14a-8(i)(5) and its predecessor where the proposals address the manner in
which a non-significant portion of a company's business is operated and do not
implicate significant social or ethical issues. For example, in The Walt Disney
Company (avail. Nov. 29, 2002), the Staff concurred that the company could
exclude under Rule 14a-8(i)(5) a proposal requesting that Disney Vacation Club
Owners receive the same reduced rate for annual Disney World Passes that Florida
residents receive. Likewise, in Peoples Energy (avail. Nov. 25, 1994), the Staff
concurred that a proposal that the company eliminate two customer service
branches could be excluded as not significantly related to the company's
business.
As discussed above, the Proposal here pertains to on-time performance data from
"passenger operations." The requested information does not implicate significant
ethical or social issues with respect to the Company's business, nor does the
Proposal purport to raise any such issues. Instead, the supporting statement
refers to potential financial implications with respect to revenue from Amtrak,
and speculates that there could be a link between the on-time performance of
Amtrak's passenger service or local communities' passenger train service and the
Company's reputation or the Company's freight business. This conjecturing simply
does not implicate a significant social or ethical issue with respect to the
Company, but instead relates only to the manner in which an ancillary and small
portion of the Company's business is conducted. Accordingly, because the subject
of the Proposal is not significant to the Company's business, the Company
believes that the Proposal properly may be omitted pursuant to Rule 14a-8(i)(5).
B. The Proposal Relates to Ordinary Business Operations. Accordingly, the
Company May Exclude the Proposal Pursuant to Rule 14a-8(i)(7).
Rule 14a-8(i)(7) permits the omission of shareholder proposals dealing with
matters relating to a company's "ordinary business" operations. According to the
Commission's Release accompanying the 1998 amendments to Rule 14a-8, the
underlying policy of the ordinary business exclusion is "to confine the
resolution of ordinary business problems to management and the board of
directors, since it is impracticable for shareholders to decide how to solve
such problems at an annual meeting." Release No. 34-40018 (May 21, 1998) (the
"1998 Release"). The 1998 Release stated that two central considerations
underlie this policy. First, that "[c]ertain tasks are so fundamental to
management's ability to run a company on a day-to-day basis" that they are not
proper subjects for shareholder proposals. The Commission stated that the other
policy underlying Rule 14a-8(i)(7) is "the degree to which the proposal seeks to
micro-manage the company by probing too deeply into matters of a complex nature
upon which shareholders, as a group, would not be in a position to make an
informed judgment."
The Proposal requests that the Company disclose information regarding the
Company's "passenger operations," including on-time performance data and
"on-time goals, and performance results, for each Amtrak route or commuter
railroad during the previous year." The Staff has indicated that "where the
subject matter of the additional disclosure sought in a particular proposal
involves a matter of ordinary business ... it may be excluded under Rule
14a-8(i)(7)." Johnson Controls, Inc. (avail. Oct. 26, 1999). Under this
standard, because the substance of the Proposal pertains to how the Company
accommodates and provides services to third parties' passenger trains under
several contracts, it implicates only the Company's ordinary business operations
and is excludable under Rule 14a-8(i)(7).
The Company's decisions regarding its services to, and facilitation of, third
parties' passenger operations result from a complex process that considers track
capacity, contract terms, performance capability and both freight and passenger
demand. The Company's allocation of track usage between passenger rail service
companies and its own freight cargo operations therefore involve "matters of a
complex nature upon which shareholders, as a group, would not be in a position
to make an informed judgment." These decisions are predicated on the Company's
knowledge and understanding of the compensation it receives from the different
lines of business, the demand for freight and passenger service, and complex
scheduling and operational decisions. Accordingly, these decisions cannot "as a
practical matter, be subject to direct shareholder oversight." Id.
Consistent with this view, the Staff has concurred that shareholder proposals
seeking to affect company operations or relations with customers are excludable
because they implicate ordinary business matters. For example, in UAL
Corporation, (avail. Jan. 28, 2002), the Staff concurred that the company could
exclude a proposal asking that it discontinue the practice of code share
flights, in which flights operated by another airline use the flight number of
United Airlines. The Proposal similarly seeks to micro-manage the Company's
relationship with its customers, namely the decisions the Company makes
regarding track usage by Company trains carrying cargo for the Company's freight
customers and by Amtrak and commuter trains operated by the Company's passenger
operations' customers. In Wal-Mart Stores, Inc., (avail. Mar. 27, 2001), the
Staff concurred with exclusion of a proposal relating to the implementation of
annual "customer meetings," noting that the proposal related to ordinary
business operationsi.e., customer relations. Here, the Proposal implicates the
Company's business decisions regarding the use by other companies of the
Company's tracks. Because these issues implicate routine business decisions, the
Proposal is excludable under Rule 14a-8(i)(7).
Moreover, the Proposal is similar to many others that the Staff has concurred
can be omitted under Rule 14a-8(i)(7) because they seek reports on the ordinary
implications of a company's business operations. For example, in The Dow
Chemical Company (avail. Feb. 23, 2005), the Staff concurred that the company
could exclude a shareholder proposal requesting a report describing the
reputational and financial impact of the company's response to pending
litigation under Rule 14a-8(i)(7) because it related to the company's ordinary
business operations (i.e., evaluation of risks and liabilities). Likewise, in
Newmont Mining Corp. (avail. Feb. 4, 2004), the Staff concurred that the company
could exclude a shareholder proposal requesting a report on the risk to the
company's "operations, profitability and reputation" arising from its social and
environmental liabilities, where the company argued that an assessment of
financial risks of its operations implicated the company's ordinary business
operations. In determining that these types of proposals are excludable, the
Staff has stated that it looks not only at the text of the proposal itself, but
also at the supporting statement. See Staff Legal Bulletin No. 14C (June 28,
2005) ("In determining whether the focus of these proposals is a significant
social policy issue [as opposed to ordinary business matters], we consider both
the proposal and the supporting statement as a whole."). Here, the supporting
statement specifically refers only to financial and reputation risks to the
Company from the on-time operation of passenger operations that use the
Company's tracks and services. Because the Proposal thus seeks only an internal
assessment and report on the risks to the Company's reputation and financial
performance of an ordinary aspect of the Company's operations, the Proposal
improperly relates to Company's ordinary business operations and may be excluded
under Rule 14a-8(i)(7).
III. Conclusion
For the reasons discussed in Section II hereof, the Company requests that the
Staff concur with the Company's views that the Proposal may be excluded from its
2006 Proxy Materials pursuant to Rules 14a-8(i)(5) and 14a-8(i)(7).
If the Staff has any questions or comments regarding the foregoing, please
contact the undersigned at (402) 544-6765 or, in my absence, Ronald O. Mueller
of Gibson, Dunn & Crutcher LLP, the Company's counsel, at (202) 955-8671.
Very truly yours,
/s/
Attachment
cc: Keith Dameron
[INQUIRY LETTER]
November 18, 2005
Barbara W. Schaefer, Senior Vice President
Human Resources and Secretary
Union Pacific Corporation
1416 Dodge St - Room 1230
Omaha, NE 68179
Dear Ms. Schaefer,
I would like to submit the following 'Shareholder Proposal' for consideration of
inclusion in the Company's proxy statement relating to the 2006 Annual Meeting.
I (Keith Dameron, 2000 Little Raven St. #103, Denver, CO 80202) have owned 100
shares of Union Pacific stock continuously for over one year and will continue
to hold these shares for the next year. Pursuant to SEC Rule 14a-8, I have
included a letter from Wachovia Securities confirming my ownership of these
shares.
Proposal:
Resolved that the shareholders of Union Pacific ("Company") hereby recommend
that the Board of Directors include on-time performance data from passenger
operations in the Annual Report. This data would include Amtrak and other
passenger operations using Union Pacific track. Specific Company on-time goals,
and performance results, for each Amtrak route or commuter railroad during the
previous year should be noted in the Annual Report.
Statement of Support:
The current Annual report fails to mention that passenger service exists or that
any revenue is received from passenger rail operations. Amtrak and commuter rail
trains operate daily on many parts of the Union Pacific system. The result is
that shareholders are not made aware of 1) The number of passenger trains
operating on Company tracks; 2) The on-time performance of those trains; 3)
Union Pacific's own on-time performance goals for each train; 4) The incentive
money forfeited by Union Pacific for failing to meet those goals, and; 5) The
potential impact of future litigation for non-performance or failing to meet
obligations specified in the contracts.
According to financial reports on Amtrak's web site, Union Pacific only
collected 4% of the incentive money available, and forfeited over $12.9 million
dollars of incentive money available from Amtrak, for failing to meet
performance goals in Federal FY 2004.
The Rail Passenger Service Act [Title 49, Subtitle V, Part C, Section 24308(c)]
gives preference over freight transportation to Amtrak intercity and commuter
rail passenger transportation (except in an emergency). Passenger trains running
consistently late reflects poorly on the Company and can negatively impact
freight business. Some communities only knowledge of how the railroad is running
is based on whether or not their passenger train arrives on time, on a regular
basis. Improvements in this area would only enhance Union Pacific's 'We Deliver'
reputation.
Amtrak's poor on-time performance record was noted in November, 2004 by the
DOT's Office of the Inspector General. Since some of the delay's can certainly
be blamed on Amtrak, it would seem prudent for UP to show how well it does in
dispatching passenger trains. Amtrak's 4 long distance trains, that run on UP
track, include the three worst for on-time performance (FY 05 thru August).
California Zephyr - 26.8%, Coast Starlight - 21.4% and the Sunset Ltd - 4.3%.
Only the Texas Eagle comes in at a respectable 61.8% on-time performance. I
don't believe that most of the delays can be blamed on UP but without the data
being listed in the annual report, many people believe UP to be the major reason
for the delays on the four trains listed.
An article published August 8, 2005 in the Tracy (CA) Press illustrates the
problem very well. Altamont Commuter Express (ACE) and the San Joaquin Regional
Rail Commission were reported to have sent a letter to Dennis Duffy (UP's
Exeoutive VP of Operations) expressing their frustration over the fact that they
had paid more than $41 million for the right to run trains 6 times daily between
the Central Valley and the Bay area and the June 2005 on-time performance was
only 41%. According to ACE, their contract with UP stipulates that 95% of all
commuter express trains arrive on time. The article also mentions that several
million dollars were spent by the Commission in Capital projects that benefit
both Union Pacific and ACE.
The ACE situation is just one example of an issue that will become even more
important in the future as other communities look at passenger rail options
which could include public/private partnerships (including financing) that would
be used to expand track capacity or improve track conditions which would benefit
Union Pacific and the local community.
Improved passeriger train service is consistent with the stated importance of
the Company's "Building Communities" and "Service Reliability" themes. Union
Pacific's goal of 'Building America' should include passenger rail performance
data in the Annual Report. I urge shareholders to support this recommendation.
Thanks in advance for your time and attention to this proposal.
Sincerely,
/s/
Keith Dameron
2000 Little Raven St. #103
Denver, CO 80202
Xc Securities and Exchange Commission (Staff)
UP Board of Directors
Et al;
[INQUIRY LETTER]
December 30, 2005
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Re: Shareholder proposal to Union Pacific Corporation [14a-8(k)]
Dear Ladies and Gentlemen,
I am responding to Union Pacific's letter (Dec. 28th) stating their intent to
omit my Shareholder Proposal from their 2006 proxy material. I disagree with
their comments and would ask that my input on this matter be considered.
They are rejecting my proposal for two reasons. My comments are as follows:
Rule 14a-8(i)(5) allows for items that are significant to the company's
business. Amtrak's passenger trains operating every day on 5,473 miles (16.5% of
Union Pacific's 33,000 miles) of track is very significant to the Company's
business. The Company acknowledges that four commuter rail operations (Metra,
Altamont Commuter Express, Peninsula and Metrolink) use additional UP track
miles. The significance of this is confirmed by their own statement on page 4 of
their response. "The Company's decisions regarding ... passenger operations
result from a complex process that considers track capacity, contract terms,
performance capability and both freight and passenger demand." Ridership on the
four Amtrak long distance trains that operate on UP tracks totaled over 1
million people in federal FY 04. Ridership on the commuter lines undoubtedly
exceeded that number. This would certainly seem to be related to the Company's
business in a socially significant manner!
It is interesting to note that the Company Law Department failed to mention
(ethics?) their own passenger operations? In fact they state that the Company's
"...over 7,000 locomotives ... are used exclusively (emphasis added) to
transport commodities in thousands of freight trains each day" (page 2). Union
Pacific's own website states that the Company owns seven passenger locomotives
(including two steam locomotives). These are used for numerous special events
throughout the year and must be maintained. Union Pacific also owns over 40
passenger cars that they refer to as their 'Heritage Fleet'. One example of
their use is to run an annual special train to Cheyenne Frontier Days in
Cheyenne, WY from Denver every summer. I spent $145.00 per ticket to travel to
Cheyenne on their steam train July 24thof this year.
Another passenger train that regularly uses UP track is the Ski Train out of
Denver that operates to Winter Park, CO. A similar train called the 'Fun Train'
makes trips from the Bay area to Reno too. If UP considered incentive money and
all their passenger operations (not just the ones they listed), they might
actually be at 5% of gross sales? I wonder how many other passenger operations
UP is not including? This would seem to make the proposal ethically significant
too.
Rule 14a-8(i)(7) relates to management functions. I would agree with the
Companies assessment of my request if it wasn't for the federal law that
requires priority be given to passenger trains. Suggesting that the annual
report include on-time performance data (goals and results) in their annual
report is no different from listing commodity revenue, revenue carloads and
average revenue per car. All this info is included in their 2004 annual report.
I was under the impression that the Federal Railroad Administration, and
existing Federal law, set the rules that govern day to day operations. I don't
see how an annual summary of passenger operation results is micro-managing the
Company? I believe the potential impact of future litigation for failing to meet
contractual obligations (and federal law) is a huge ethical concern!!
Thomas Mulligan, UP's Director of Passenger Operations, spoke in Denver in May
of last year. He was able to provide on-time performance data (E/B and W/B) for
all three segments of UP's track that the California Zephyr operates on.
Obviously this is an easily obtainable record for UP.
Another quote from (pages 4&5) regarding how the company operates passenger
trains on its network is very illuminating. "These decisions are predicated on
the Company's knowledge and understanding of the compensation (emphasis added)
it receives from the different lines of business, the demand for freight and
passenger service, and complex scheduling and operational decisions." I would
ask why there is no reference to the Rail Passenger Service Act [Title 49,
Subtitle V, Part C, Section 24308(c)] which gives preference over freight
transportation to Amtrak intercity and commuter rail passenger transportation
(except in an emergency)? As a shareholder, I would certainly hope that the
Company is in compliance with existing law. The meltdowns of Enron and WorldCom
began with executives failing to comply with existing laws! This is not only an
ethical issue but a social one too. The fallout from corporate (ethical)
failures is still being felt today by many shareholders in those companies.
I am concerned that nearly $13 Million that was available to the Company was not
received as revenue. I suspect that many shareholders would share this opinion.
Anybody reading the newspaper or watching the news along the Sunset corridor
would note the many times that the lateness of Amtrak is mentioned. A November
2004 report by the Inspector General made specific reference to the poor on-time
performance of Amtrak as one of the major problems that Amtrak needed to deal
with. I believe that an IG's report is both socially and ethically significant!
In summary, my proposal was to allow the shareholders to determine if they would
like to recommend that the Union Pacific Company Annual report include data from
passenger rail operations that use Company tracks. It is interesting to note
that Mr. Theisen failed to dispute any of my supporting statements in his
comments. I expected that the Company would exclude my proposal under
14a-8(i)(10) as they would implement this idea on their own. It would provide
the 'good will' that many of the best companies strive for. If non-compliance
with a federal law is not ethically significant, then what is?
Thanks in advance for your time and attention to this proposal. I can be reached
at 303-295-3456 if you have any questions.
Sincerely,
/s/
Keith Dameron
2000 Little Raven St. #103
Denver, CO 80202
Xc James J. Theisen Jr.
Assistant General Counsel & Assistant Secretary
Law Department - UP Corporation
[STAFF REPLY LETTER]
February 16, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Union Pacific Corporation Incoming letter dated December 28, 2005
The proposal recommends that the board include on-time performance data from
passenger operations in the annual report.
There appears to be some basis for your view that Union Pacific may exclude the
proposal under rule 14a-8(i)(7), as relating to Union Pacific's ordinary
business operations (i.e., presentation of on-time performance data).
Accordingly, we will not recommend enforcement action to the Commission if Union
Pacific omits the proposal from its proxy materials in reliance on rule
14a-8(i)(7). In reaching this position, we have not found it necessary to
address the alternative basis for omission upon which Union Pacific relies.
Sincerely,
/s/
Mark F. Vilardo
Special Counsel
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