Company Name: Verizon Communications Inc.
Public Availability Date: January 31, 2006
Document Sections:
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 28, 2005
Division of Corporation Finance
Office of the Chief Counsel
450 Fifth Street, N.W.
Washington D.C. 20549
Re: Verizon Communications Inc. 2006 Annual Meeting Shareholder Proposal of the
National Legal and Policy Center
Ladies and Gentlemen:
This letter is submitted on behalf of Verizon Communications Inc., a Delaware
corporation ("Verizon"), pursuant to Rule 14a-8(j) under the Securities Exchange
Act of 1934, as amended. Verizon has received a shareholder proposal and
supporting statement (the "Proposal") from the National Legal and Policy Center
(the "Proponent"), for inclusion in the proxy materials to be distributed by
Verizon in connection with its 2006 annual meeting of shareholders (the "2006
proxy materials"). A copy of the Proposal is attached as Exhibit A. For the
reasons stated below, Verizon intends to omit the Proposal from its 2006 proxy
materials.
Pursuant to Rule 14a-8(j)(2), enclosed are six copies of this letter and the
accompanying attachments. A copy of this letter is also being sent to the
Proponent as notice of Verizon's intent to omit the Proposal from Verizon's 2006
proxy materials.
I. Introduction.
On November 21, 2005, Verizon received a letter from the Proponent containing
the following proposal:
Resolved: That, by the 2006 annual shareholder meeting, the Board of Directors
make available to shareholders a report on the estimated impacts of a flat tax
for Verizon, omitting proprietary information and at reasonable cost.
The report should provide estimates of the impact to Verizon of:
1. Taxing all profits at a flat rate of 17 percent and at other alternative flat
rates;
2. Limiting taxable income to only income earned in the U.S.;
3. Replacing depreciation with capital expensing;
4. Abolishing special "preferences" or "loopholes" in the corporate tax code.
5. Savings attained from reduced business compliance costs.
Verizon believes that the Proposal may be properly omitted from its 2006 proxy
materials on the following grounds, each of which is discussed in detail below:
the Proposal may be excluded under Rule 14a-8(i)(3) and Rule 14a-8(i)(6)
because it is so vague and indefinite as to be inherently misleading and beyond
the company's power to implement it; and
the Proposal may be excluded under Rule 14a-8(i)(7) because it deals with a
matter relating to the company's ordinary business operations.
Verizon respectfully requests the concurrence of the Staff of the Division of
Corporate Finance (the "Staff") of the Securities and Exchange Commission (the
"Commission") that it will not recommend enforcement action against Verizon if
Verizon omits the Proposal in its entirety from Verizon's 2006 proxy materials.
II. Bases for Excluding the Proposal.
A. The Proposal May Be Omitted Under Rule 14a-8(i)(3) and 14a-8(i)(6) Because It
Is Vague and Indefinite.
We believe that the Proposal may be properly excluded under Rule 14a-8(i)(3) and
Rule 14a-8(i)(6), because the Proponent's description of the requested report is
so vague and indefinite that "any action ultimately taken by the Company upon
implementation of the proposal could be significantly different from the actions
envisioned by the shareholders voting on the proposal." Fuqua Industries, Inc.
(March 12, 1991).
Rule 14a-8(i)(3) permits a company to omit a shareholder proposal and the
related supporting statement from its proxy materials if such "proposal or
supporting statement is contrary to any of the Commission's proxy rules,
including [Rule] 14a-9, which prohibits materially false or misleading
statements in proxy soliciting materials." According to the Staff, a proposal
will violate Rule 14a-8(i)(3) when "the resolution contained in the proposal is
so inherently vague or indefinite that neither the stockholders voting on the
proposal, nor the company in implementing the proposal (if adopted), would be
able to determine with any reasonable certainty exactly what actions or measures
the proposal requires." Staff Legal Bulletin No. 14B (September 15, 2004). See,
also, Johnson & Johnson (February 7, 2003) (permitting omission of a shareholder
proposal that called for a report on the company's "progress with the Glass
Ceiling Report", but did not explain the substance of the report); and H.J.
Heinz Co. (May 25, 2001) (supporting the omission of a shareholder proposal
under Rule 14a-8(i)(3) where the proposal requested the company to implement the
SA8000 Social Accountability Standards, but did not clearly set forth what
SA8000 required of the company); Kohl's Corp. (March 13, 2001) (same); and
Philadelphia Electric Co. (July 30, 1992) (supporting the omission of a
shareholder proposal under predecessor Rule 14a-8(c)(3) where a proposal
resolved that a committee of small stockholders would refer a "plan or plans" to
the board, but did not describe the substance of those plans). In addition, a
company may exclude a shareholder proposal under Rule 14a-8(i)(6) if it is
beyond the company's power to implement it. A company lacks the power or
authority to implement a proposal under Rule 14a-8(i)(6) when the proposal in
question "is so vague and indefinite that [the company] would be unable to
determine what action should be taken." International Business Machines
Corporation (January 14, 1992).
The Proposal is vague and indefinite because it fails to take into account the
complexities of corporate accounting and taxation. Verizon is being asked to
dedicate valuable analytical resources to a hypothetical, ill-defined policy
project. The Proposal seeks a report detailing the estimated impact on Verizon
of a flat tax and asks Verizon to evaluate the impact of a flat tax under
vaguely defined scenarios. The Proposal, moreover, fails to provide even a
rudimentary definition of any of the basic parameters of the requested estimates
or to explain how or whether the different scenarios are to be integrated in the
analysis. For example:
The Proposal seeks an estimate of the impact of taxing "all profits" at a flat
rate of 17%, but does not define "profits." It goes on to request estimates at
unspecified "other alternative flat rates," raising the additional question: How
many and what other rates?
The Proposal requests an estimate of the impact of "limiting taxable income to
only income earned in the U.S.", but does not define "income" or "earned in the
U.S." For example, are dividends paid to Verizon by a foreign corporation
"earned in the U.S."? What about sales of services to foreign persons?
The Proposal seeks an estimate of the impact of "replacing depreciation with
capital expensing," but does not indicate whether the impact should be evaluated
under the current tax regime, or under some proposed flat tax regime and, if the
latter, what the tax impact of expenses would be in a flat tax regime.
The Proposal seeks an estimate of the impact of "abolishing special
'preferences' or 'loopholes' in the corporate tax code" but fails to specify
which tax code provisions and regulations are to be deemed as preferences or
loopholes.
The Proposal requests an estimate of the "savings attained from reduced
business compliance costs," but does not define "compliance costs.
In a number of instances, the Staff has permitted the exclusion of a proposal
requesting a report where the proposal contains only general or uninformative
references to the complex or multifaceted set of issues implicated by the
proposal. See, for example, Kroger, Co. (March 19, 2004) (permitting exclusion
of proposal requesting report based on the Global Reporting Initiative's
sustainability guidelines); The Ryland Group, Inc. (January 19, 2005);
Albertsons, Inc. (March 5, 2004); and Terex Corp. (March 1, 2004). Like these
proposals, the Proposal should be excludable because it is so vague and
indefinite that it would be impossible for either the shareholders or the
Verizon Board to ascertain precisely what implementation of the proposal would
entail.
Finally, we note that the Proposal requests that a report on the estimated
impacts of a flat tax be delivered "by the 2006 annual shareholder meeting."
This would, of course, not be possible since the Proponent seeks to present the
Proposal to the 2006 annual meeting of shareholders.
B. The Proposal May Be Omitted Under Rule 14a-8(i)(7) Because It Deals With a
Matter Relating to Verizon's Ordinary Business Operations.
Rule 14a-8(i)(7) permits a company to omit a shareholder proposal from its proxy
materials if it deals with a matter relating to the company's ordinary business
operations. The general policy underlying 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 shareholders meeting." Exchange Act Release No.
34-40018 (May 21, 1998). This general policy reflects two central
considerations: (i) "[c]ertain tasks are so fundamental to management's ability
to run a company on a day-to-day basis that they could not, as a practical
matter, be subject to direct shareholder oversight"; and (ii) 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." Exchange Act Release No.
34-40018 (May 21, 1998). Verizon believes that these policy considerations
clearly justify exclusion of the Proposal. Not only is corporate tax planning
and compliance intricately interwoven with Verizon's financial planning,
day-to-day business operations and financial reporting, but it is precisely the
type of "matter of a complex nature upon which shareholders, as a group, would
not be in a position to make an informed judgment."
In order to determine whether a proposal requesting preparation and
dissemination of a special report to shareholders on specific aspects of a
registrant's business is excludable under Rule 14a-8(i)(7), the Staff "will
consider whether the subject matter of the special report involves a matter of
ordinary business." See Exchange Act Release No. 34-20091 (Aug. 16, 1983), at 6.
The Staff has agreed in a number of instances that proposals addressing
hypothetical changes in the application or availability of tax code provisions
or other federal financial incentives can be excluded as ordinary business
matters because they implicate a company's decisions on sources of financing.
See Texaco Inc. (March 31, 1992) (Commission, reversing an earlier decision,
agreed to exclusion of proposal requesting company to reject tax-payer
guaranteed loans); E.I. du Pont de Nemours & Co. (October 16, 1992) (same);
General Electric Co. (February 15, 2000) (permitting omission of a proposal to
prepare a report on the financial benefits received by the company from tax
abatements and credits); Pfizer Inc. (February 5, 2003) (permitting omission of
proposal for report on tax breaks that provide the company with more than $5
million of tax savings); and Pepsico, Inc. (March 13, 2003) (same). The Proposal
is directly analogous to the foregoing proposals in its request for a report to
discuss the impact of "abolishing special 'preferences or loopholes' in the
corporate tax code." Moreover, the methods used by Verizon to manage its
effective tax rate are at the core of management's daily business planning and
decision-making.
The Staff consistently has permitted a proposal to be excluded under Rule
14a-8(i)(7) where the proposal appeared to be directed at engaging the company
in a political or legislative process relating to an aspect of its business
operations. International Business Machines Corporation (March 2, 2000)
(proposal sought establishment of a board committee to evaluate the impact of
pension-related proposals under consideration by national policymakers). See
also Pacific Enterprises (February 12, 1996) (proposal that a utility dedicate
its resources to ending state utility deregulation was excludable); Pepsico,
Inc. (March 7, 1991) (permitting exclusion of proposal calling for an evaluation
of the impact on the company of various federal healthcare proposals); Dole Food
Company (February 10, 1992) (same); and GTE Corporation (February 10, 1992)
(same). Here, the Proponent clearly wants to commandeer the resources of Verizon
to pursue the Proponent's agenda in public policy discussions relating to the
nation's tax policy. The supporting statement explicitly advocates tax reform,
stating that "[T]ax reform is crucial to America's business competitiveness" and
claiming that Verizon and its shareholders can "significantly benefit" from a
flat tax. On a day-to-day basis, Verizon devotes substantial resources to
monitoring its compliance with existing tax laws, reviewing proposed regulations
and participating in ongoing regulatory and legislative processes. The Proposal
inappropriately seeks to intervene in Verizon's day-to- day operations in this
area in order to advance a specific political objective.
III. Conclusion.
Verizon believes that the Proposal may be omitted from the 2006 proxy materials
(i) pursuant to Rule 14a-8(i)(3) and Rule 14a-8(i)(6) because the Proposal is so
vague and indefinite that neither the shareholders voting on the proposal, nor
Verizon in any attempt to implement it, would be able to determine with any
reasonable certainty exactly what actions or measure the proposal requires, and
(ii) pursuant to Rule 14a-8(i)(7) because corporate tax and financial planning
are within the scope of Verizon's ordinary business operations as interpreted in
the no-action letters cited above. Verizon respectfully requests the concurrence
of the Staff that it will not recommend enforcement action against Verizon if
Verizon omits the Proposal in its entirety from its 2006 proxy materials.
Kindly acknowledge receipt of this letter by stamping and returning the extra
enclosed copy of this letter in the enclosed self-addressed, stamped envelope.
If you have any questions with respect to this matter, please telephone me at
(908) 559-5636.
Very truly yours,
/s/
Mary Louise Weber
Assistant General Counsel
Enclosure
cc: National Legal and Policy Center
107 Park Washington Court
Falls Church, VA 22046
[APPENDIX]
FLAT TAX REPORT
Whereas:
Verizon's primary responsibility is to create value for shareholders and should
pursue legal and ethical means to achieve that goal, including identifying
public policies that would advance shareholder value in a transparent and lawful
manner. [See National Legal and Policy Center, www.nlpc.org/cip.asc and Free
Enterprise Action Fund, http://www.FreeEnterpriseActionFund.com/about.html]
Whereas:
Company profitability and shareholder value are significantly affected by the
federal tax code.
The current federal corporate income tax is complex, costly, and burdensome for
businesses and shareholders. The number of pages of federal tax laws and
regulations exceed 50,000. Annual tax compliance costs are estimated to range
from $100 billion and $200 billion.
The U.S. has the second-highest corporate tax rate among 69 countries. [See
Chris Edwards, "Corporate Tax Reform," Cato Institute Tax & Budget Bulletin No.
21, September 2004, www.cato.org/Pubs/Tbb/Tbb-0409-21.Pdf.]
Tax reform is crucial to America's business competitiveness. In 2005, the
President's Advisory Panel on Tax Reform developed proposals for simplifying the
federal tax system to: reduce compliance costs and burdens to businesses and
individuals; promote economic growth and job creation; encourage capital
investment; and to strengthen the ability of U.S. companies to compete in
foreign markets.
Other tax reform proposals include the "flat tax" proposed in the book entitled
"Flat Tax Revolution: Using a Postcard to Abolish the IRS" (Regnery, 2005) by
Steve Forbes
Whereas:
Verizon and its shareholders may significantly benefit from significant reform
of the federal tax code, such as by replacing the current federal income tax
with a flat tax.
Resolved: That, by the 2006 annual shareholder meeting, the Board of Directors
make available to shareholders a report on the estimated impacts of a flat tax
for Verizon, omitting proprietary information and at reasonable cost.
The report should provide estimates of the impact to Verizon of:
1. Taxing all profits at a flat rate of 17 percent and at other alternative flat
rates;
2. Limiting taxable income to only income earned in the U.S.;
3. Replacing depreciation with capital expensing.
4. Abolishing special "preferences" or "loopholes" in the corporate tax code.
5. Savings attained from reduced business compliance costs.
Supporting Statement:
The flat tax might benefit Verizon and its shareholders by:
1. Increasing corporate dividend payouts to shareholders;
2. Reducing corporate tax accounting, planning and compliance costs;
3. Reducing incentives for questionable tax avoidance schemes that could
backfire and attract litigation and penalties from federal authorities;
4. Increasing transparency in accounting and improved planning for investment
and other activities;
5. Spurring economic activity and growth, which might further increase company
revenue, expand the financial services industry and increase shareholder value.
For more information:
1. Chris Edwards, "Options for Tax Reform," Policy Analysis No. 536, Cato
Institute: Washington, DC, February 24, 2005.]
2. "The Flat Tax: Issue Home Page," Freedom Works, http://www.freedomeworks.org.
3. Daniel Mitchell, "Making American Companies More Competitive," Backgrounder
1691, Heritage Foundation: Washington, DC, September 25, 2003.
[INQUIRY LETTER]
January 3, 2006
BY HAND DELIVERY
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: Verizon Communications, Inc.; Shareowner Proposal of the National Legal and
Policy Center; Securities Exchange Act of 1934Rule 14a-8
Dear Ladies and Gentleman,
This letter is on behalf of the National Legal and Policy Center ("NLPC" or the
"Center") in response to the December 28, 2005 request by Verizon
Communications, Inc. ("Verizon" or the "Company") for a letter from the staff of
the Division of Corporate Finance (the "Staff") concurring with Verizon's view
that the above-referenced Shareowner Proposal (the "Proposal") is excludable
pursuant to Rule 14a-8.
We believe the Proposal is not excludable for any of the reasons claimed by
Verizon.
THE PROPOSAL
The Proposal states in its entirety:
FLAT TAX REPORT
Whereas:
Verizon's primary responsibility is to create value for shareholders and should
pursue legal and ethical means to achieve that goal, including identifying
public policies that would advance shareholder value in a transparent and lawful
manner. [See National Legal and Policy Center, www.nlpc.org/cip.asc and Free
Enterprise Action Fund, http://www.FreeEnterpriseActionFund.com/about.html]
Whereas:
Company profitability and shareholder value are significantly affected by the
federal tax code.
The current federal corporate income tax is complex, costly, and burdensome for
businesses and shareholders. The number of pages of federal tax laws and
regulations exceed 50,000. Annual tax compliance costs are estimated to range
from $100 billion and $200 billion.
The U.S. has the second-highest corporate tax rate among 69 countries. [See
Chris Edwards, "Corporate Tax Reform," Cato Institute Tax & Budget Bulletin No.
21, September 2004, www.cato.org/Pubs/Tbb/Tbb-0409-21.Pdf.]
Tax reform is crucial to America's business competitiveness. In 2005, the
President's Advisory Panel on Tax Reform developed proposals for simplifying the
federal tax system to: reduce compliance costs and burdens to businesses and
individuals; promote economic growth and job creation; encourage capital
investment; and to strengthen the ability of U.S. companies to compete in
foreign markets.
Other tax reform proposals include the "flat tax" proposed in the book entitled
"Flat Tax Revolution: Using a Postcard to Abolish the IRS" (Regnery, 2005) by
Steve Forbes.
Whereas:
Verizon and its shareholders may significantly benefit from significant reform
of the federal tax code, such as by replacing the current federal income tax
with a flat tax.
Resolved: Verizon's shareholders request that, by the 2006 annual shareholder
meeting, the Board of Directors make available to shareholders a report on the
estimated impacts of a flat tax for Verizon, omitting proprietary information
and at reasonable cost.
The report should provide estimates of the impact to Verizon of:
1. Taxing all profits at a flat rate of 17 percent and at other alternative flat
rates;
2. Limiting taxable income to only income earned in the U.S.;
3. Replacing depreciation with capital expensing.
4. Abolishing special "preferences" or "loopholes" in the corporate tax code.
5. Savings attained from reduced business compliance costs.
Supporting Statement:
The flat tax might benefit Verizon and its shareholders by:
1. Increasing corporate dividend payouts to shareholders;
2. Reducing corporate tax accounting, planning and compliance costs;
3. Reducing incentives for questionable tax avoidance schemes that could
backfire and attract litigation and penalties from federal authorities;
4. Increasing transparency in accounting and improved planning for investment
and other activities;
5. Spurring economic activity and growth, which might further increase company
revenue, expand the financial services industry and increase shareholder value.
For more information:
1. Chris Edwards, "Options for Tax Reform," Policy Analysis No. 536, Cato
Institute: Washington, DC, February 24, 2005.]
2. "The Flat Tax: Issue Home Page," FreedomWorks, http://www.freedomeworks.org.
3. Daniel Mitchell, "Making American Companies More Competitive," Backgrounder
1691, Heritage Foundation: Washington, DC, September 25, 2003.
RESPONSES TO VERIZON's CLAIMS
I. The Proposal is not impermissibly vague or indefinite.
The Proposal clearly references the "flat tax" proposed in the book entitled,
"Flat Tax Revolution: Using a Postcard to Abolish the IRS" (Regnery, 2005) by
Steve Forbes. The Proposal states,
Other tax reform proposals include the "flat tax" proposed in the book entitled
"Flat Tax Revolution: Using a Postcard to Abolish the IRS" (Regnery, 2005) by
Steve Forbes.
The term "flat tax" refers specifically to the flat tax concept raised in "Flat
Tax Revolution."
As widely discussed in the public media and as described in the Proposal, the
flat tax contemplates: (1) taxing all profits at a flat rate of 17 percent; (2)
limiting taxable income to only income earned in the U.S.; (3) replacing
depreciation with capital expensing; and (4) abolishing special preferences or
"loopholes" in the tax code. The Proposal contemplates that these conditions be
considered jointly in the requested report. If the Staff believes that
clarification would assist the implementation of this Proposal, we request the
opportunity to amend the Proposal.
The terms used in the Proposal, including: "profits"; "income earned in the
U.S."; "depreciation and capital expensing"; "special preferences and
'loopholes'"; and "reduced business compliance costs" are either commonly
understood terms or are adequately explained in "Flat Tax Revolution."
References to the Internal Revenue Code (the "IRC" or "Code") are irrelevant
since the flat tax would substantially revise the existing Code. To the extent
that terms used in the Proposal may include some uncertainty, Verizon may
certainly exercise reasonable discretion in determining how to address any such
uncertainties. There is no requirement that the Proposal provide precise
directions that provide no room for the exercise of reasonable discretion.
a. In the context of the flat tax, the term "profits" has an unequivocal
meaning. "Flat Tax Revolution" states:
Profits are derived by taking a company's total revenue and subtracting 1) wages
and salaries, 2) purchases of materials and other inputs necessary to run the
business and producing the business's goods and/or services, and 3) purchases of
plants and equipment.
The existing Code and its definitions and provisions are irrelevant to the
Proposal, since the flat tax would involve substantial revision of the IRC. The
flat tax only applies to federal tax liabilities, so state tax schemes are also
irrelevant to the Proposal.
b. In the context of the flat tax, "Flat Tax Revolution" states,
"The flat tax will only tax companies on the income they make in the United
States."
This simple statement will be easily applicable to the vast majority of
Verizon's income. To the extent that income classification issues are in doubt,
Verizon may exercise reasonable discretion in addressing uncertainties and
presenting analyses for alternative scenarios. There is no requirement that the
Proposal provide detailed instructions eliminate all situations where some
uncertainty may require that reasonable judgment may be required.
The existing IRC and its definitions and provisions are irrelevant to the
Proposal, since the flat tax would involve substantial revision of the IRC.
c. With respect to depreciation and capital expensing and the flat tax, "Flat
Tax Revolution" states in part,
"Currently small businesses can expense only up to $100,000 a year immediately.
Why shouldn't theyand all companiesbe allowed to expense all investments?
Under a flat tax, depreciation schedule and credits would go into the dumpster.
Businesses would be allowed to expense immediately the purchase of long-lived
physical assets. If a company bought a piece of machinery, the cost would be
written off entirely in the year in which the purchase was made. No more
depreciating an asset over a number of years. No more trying to figure out if a
particular asset qualifies for some credit or for accelerated depreciation.
If a company made large investments and therefore had negative income during a
year, the loss could be carried forward to use against profits for as many years
as necessary to use it up."
This simple statement will be easily applicable to the vast majority of
Verizon's depreciation and capital expensing issues. To the extent that
depreciation and capital expensing issues are in doubt, Verizon may exercise
reasonable discretion in addressing uncertainties and presenting analyses for
alternative scenarios. There is no requirement that the Proposal provide
detailed instructions eliminate all situations where some uncertainty may
require that reasonable judgment may be required.
The existing IRC and its definitions and provisions are irrelevant to the
Proposal, since the flat tax would involve substantial revision of the IRC.
d. With respect to special preferences or "loopholes" and the flat tax, "Flat
Tax Revolution" states
"Corporate loopholes, all of them would be abolished, under the flat tax."
It would be impossible to enumerate the special preferences and "loopholes"
abolished by the flat tax simply because they are too numerous, particularly for
enumeration in the Proposal, which is limited to 500 words. The concept and
structure of the flat tax, however, obviates the need for such enumeration.
As described, supra, the flat tax, provides for the simple taxation of profits,
which, as described in "Flat Tax Revolution" are,
"... derived by taking a company's total revenue and subtracting 1) wages and
salaries, 2) purchases of materials and other inputs necessary to run the
business and producing the business's goods and/or services, and 3) purchases of
plants and equipment."
The calculation of the flat tax clearly necessarily eliminates consideration of
any and all special preferences or loopholes. To the extent that special
preferences or loopholes may be in doubt, Verizon may exercise reasonable
discretion in addressing uncertainties and presenting analyses for alternative
scenarios. There is no requirement that the Proposal provide detailed
instructions eliminate all situations where some uncertainty may require that
reasonable judgment may be required.
The existing IRC and its definitions and provisions are irrelevant to the
Proposal, since the flat tax would involve substantial revision of the IRC.
e. The Proposal term "reduced business compliance costs" is sufficiently clear
on its face. To the extent that the method of calculating "reduced business
compliance costs" is in doubt, Verizon may exercise reasonable discretion in
addressing uncertainties and presenting analyses for alternative scenarios.
There is no requirement that the Proposal provide detailed instructions
eliminate all situations where some uncertainty may require that reasonable
judgment may be required.
The Proposal's reference to the "2006 annual shareholder meeting" is an
inadvertent error. The Proposal intends that Verizon will deliver the flat
report by the 2007 annual shareholder meeting. Verizon never contacted us about,
or otherwise provided us the opportunity to fix that obvious, technical error.
Rule 14a-8 does not contemplate exclusion of shareholder proposals for such
non-substantive, technical errors. We request leave to amend the Proposal to
specify a delivery date for the flat tax report of the 2007 annual shareholder
meeting.
II. The Proposal is not excludable as pertaining to Verizon's ordinary business
operations.
The Proposal involves a significant social policy issue that does not constitute
ordinary business operations. The flat tax contemplates future substantial
revision of the Internal Revenue Codea significant social policy issue that in
no way pertains to "ordinary business operations."
Exchange Act Release No. 40,018 (May 21, 1998) provides that shareholder
proposals may focus on sufficiently significant social policy issues so as to
preclude exclusion in certain circumstances. Moreover, a shareowner proposal
involving a significant policy issue is not excludable merely because it may
impact ordinary business operations at some indeterminate point in the future.
Given the intent of the Proposal merely to urge that Verizon produce a report on
the flat tax, and the hypothetical nature of the flat tax, the Proposal in no
way infringes upon any of management's fundamental decision-making functions.
The Proposal does not request information pertaining to the Company's sources of
financing or strategies used to manage its tax liabilities. Moreover, the
Proposal specifically requests omission of the Company's proprietary
information. This omission would exclude proprietary information on the
Company's sources of financing and tax strategies.
As the Proposal does not constrain, impact or even address Verizon's ongoing
operations, and as the flat tax is a significant social policy that currently is
hypothetical in nature, the Proposal in no way touches upon Verizon's ordinary
business operations.
The Proposal does not request a report on a "matter of a complex nature upon
which shareholders, as a group, would not be in a position to make an informed
judgment."
A significant social policy issue's complexity does not preclude it from being
considered at the annual meeting for shareholders. The Staff previously ruled in
Exxon Mobil Corporation (Mar. 19, 2004) and Exxon Mobil Corporation (Mar. 15,
2005), for example, that the scientifically and economically complex issue of
global climate change was appropriate for consideration at an annual shareholder
meeting. Given that the flat report requested by the Proposal addresses much
less complex issues than the scientific and economic issues involved in global
climate change, Verizon's assertion that the flat tax is too complex for
shareholders is inconsistent with prior Staff rulings, the facts and common
sense.
Verizon's reliance on prior Staff letters is misplaced as follows:
Texaco Inc. (avail. Mar.31, 1992) and EI du Pont de Nemours & Co. (avail. Oct.
16, 1992). The Proposal does not request that Verizon reject taxpayer-guaranteed
loans, credits or subsidies. The Proposal requests a report and not that Verizon
take any other action.
General Electric Co. (avail. Feb 15, 2000). The Proposal does not request that
Verizon report on any financial benefits received under various governmental
provisions, such as tax abatements and tax credits.
Pfizer Inc. (avail. Feb 5, 2003) and Pepsico, Inc. (avail. Mar. 13, 2003). The
Proposal does not request that Verizon report on any tax breaks that the Company
has previously received. The Proposal requests a report on a hypothetical
application of flat tax principles, not disclosure of confidential business
information.
Int'l Business Machines Corporation (avail. Mar 2, 2000). The Proposal does
not request that Verizon establish a board for the purpose of evaluating
legislative proposals. The Proposal only requests a report on the impacts on the
Company of a flat tax.
Pacific Enterprises (avail. Feb. 12, 1996). The Proposal does not request that
Verizon involve itself in and political or legislative process relating to the
Company's operations. The Proposal requests a report on the impacts of a
hypothetical flat tax.
Pepsico, Inc. (avail. Mar 7, 1991); Dole Good Company (avail. Feb. 10. 1992);
GTE Corporation (avail. Feb 10, 1992). Since the flat tax as described in "The
Flat Tax Revolution" is not embodied in pending legislation, the Proposal does
not request that Verizon evaluate any current legislative proposal.
CONCLUSION
Based upon the forgoing analysis, we respectfully request that the Staff reject
Verizon's request for the Staff to take no action if Verizon excludes the
Proposal from its 2006 Proxy Materials. Pursuant to Rule 14a-8(j), enclosed
herewith a six copies of this letter and its attachments. A copy of this
correspondence has been timely provided to Verizon and its counsel. In the
interest of a fair and balanced process, we request that the Staff notify the
undersigned if it receives any correspondence on the Proposal from Verizon or
other persons, unless that correspondence has specifically confirmed to the
Staff that the Proponent or the undersigned have timely been provided with a
copy of the correspondence. If we can provide additional correspondence to
address any questions that the Staff may have with respect to this
correspondence or Verizon's no-action request, please do not hesitate to call me
at 301-258-2852.
Sincerely,
/s/
Steven J. Milloy
Cc: Mary Louise Weber, Verizon Communications, Inc.
Peter Flaherty, National Legal and Policy Center
[STAFF REPLY LETTER]
January 31, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Verizon Communications Inc. Incoming letter dated December 28, 2005
The proposal requires the board of directors to make available to shareholders,
by the 2006 annual meeting of shareholders, a report on the estimated impacts of
a flat tax for Verizon.
There appears to be some basis for your view that Verizon may exclude the
proposal under rule 14a-8(i)(7), as relating to Verizon's ordinary business
operations (i.e., evaluating the impact of a flat tax on Verizon). Accordingly,
we will not recommend enforcement action to the Commission if Verizon 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 bases
for omission upon which Verizon relies.
Sincerely,
/s/
Mark F. Vilardo
Special Counsel
|
