<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
GTE California Incorporated
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
GTE CALIFORNIA INCORPORATED
ONE GTE PLACE
THOUSAND OAKS, CALIFORNIA 91362-3811
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 12, 1995
Irving, Texas
March 29, 1995
To the Holders of the Cumulative Preferred Stock, $20 Par Value, 4 1/2% Series,
and the Common Stock:
Notice is hereby given that, in accordance with the Bylaws of GTE California
Incorporated (the "Company"), the Annual Meeting of Shareholders of the Company
will be held at the office of GTE Telephone Operations World Headquarters, 600
Hidden Ridge, Irving, Texas 75038, at 10:00 a.m., on Wednesday, the 12th day of
April, 1995, for the purpose of (1) electing a Board of Directors to serve for
the ensuing year and until their successors have been elected and qualified, (2)
voting upon the appointment of Arthur Andersen LLP as the independent public
accountant for the Company, and (3) transacting such other business as may
properly come before the meeting and any adjournment thereof. The nominees for
election as directors are named in the attached Proxy Statement, which is a part
of this notice. The Board does not presently know of any other business to be
considered.
Only shareholders of record at the close of business on Wednesday, March 8,
1995, will be entitled to vote at the meeting.
Please mark, sign and return the enclosed proxy as promptly as possible. If you
are present at the meeting, you may withdraw your proxy and vote your shares
personally.
By order of the Board of Directors,
CHARLES J. SOMES
Secretary
<PAGE> 3
GTE CALIFORNIA INCORPORATED
ONE GTE PLACE
THOUSAND OAKS, CALIFORNIA 91362-3811
PROXY STATEMENT
This Proxy Statement is being mailed on approximately March 29, 1995 to
shareholders of GTE California Incorporated (the "Company") in connection with
the Annual Meeting of Shareholders of the Company (the "Annual Meeting") to be
held on Wednesday, April 12, 1995, at the office of GTE Telephone Operations
World Headquarters, 600 Hidden Ridge, Irving, Texas 75038, at 10:00 a.m. and at
any and all adjournments thereof. The Company's Board of Directors is soliciting
proxies to be voted at the Annual Meeting.
PROXY PROCEDURE
Only shareholders of record at the close of business on March 8, 1995 are
entitled to vote in person or by proxy at the Annual Meeting.
The Company's Board of Directors solicits proxies so that each
shareholder has the opportunity to vote on the proposals to be considered at the
Annual Meeting. When a proxy card is returned properly signed and dated, the
shares represented thereby will be voted in accordance with the instructions on
the proxy card. If a shareholder attends the Annual Meeting, he or she may vote
by ballot.
If a shareholder does not return a signed proxy card or does not attend
the Annual Meeting and vote in person, his or her shares will not be voted.
Abstentions are counted towards determining whether a quorum is present.
Shareholders are urged to mark the boxes on the proxy card to indicate
how their shares are to be voted. If a shareholder returns a signed proxy card
but does not mark the boxes, the shares represented by that proxy card will be
voted as recommended by the Board of Directors. The proxy card also gives the
individuals named as Proxies discretionary authority to vote the shares
represented on any other matter that is properly presented for action at the
Annual Meeting. A shareholder may revoke his or her proxy at any time before it
is voted by: (i) giving notice in writing to the Secretary of the Company, (ii)
granting a subsequent proxy or (iii) appearing in person and voting at the
Annual Meeting.
If a shareholder participates in the GTE Shareholder Systematic
Investment Plan (the "SSIP"), his or her proxy card represents both the number
of shares registered in his or her name and the number of full shares credited
to his or her SSIP account. All such shares will be voted in accordance with the
instructions on the proxy card.
-1-
<PAGE> 4
COST OF SOLICITATION
The Company will bear the cost of this solicitation. In addition to
solicitation by mail, directors, officers, and regular employees of the Company
may solicit proxies by telephone or other means. The Company will also request
brokers or nominees who hold shares of Cumulative Preferred Stock, $20 Par
Value, 4 1/2% Series, in their names to forward proxy material at the Company's
expense to the beneficial owners of such stock.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Shareholders of record at the close of business on March 8, 1995, of the
280,312 outstanding shares of Cumulative Preferred Stock, $20 Par Value, 4 1/2%
Series, and the 69,438,190 outstanding shares of Common Stock are entitled to
notice of and to vote at the meeting. Shareholders have cumulative voting
rights, as described below, in electing directors. No shareholders shall be
entitled to cumulative votes (i.e., cast for any one or more candidates a number
of votes greater than the number of the shareholder's shares) unless such
candidate or candidates' names have been placed in nomination prior to the
voting and the shareholder has given notice at the meeting, prior to the voting,
of the shareholder's intention to cumulate the shareholder's votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes for
candidates who have been nominated. If voting for directors is conducted by
cumulative voting, each share will be entitled to a number of votes equal to the
number of directors to be elected, which votes may be cast for a single
candidate or may be distributed among two or more candidates in such proportions
as the shareholder may determine. If voting is not conducted by cumulative
voting, each share will be entitled to one vote, and the holders of a majority
of the shares voting at the meeting will be able to elect all of the directors
if they choose to do so. In such event, the other shareholders will be unable to
elect any director or directors. The candidates receiving the highest number of
votes, up to the number of directors to be elected, shall be elected. On all
other matters, each share is entitled to one vote.
All of the 69,438,190 outstanding shares of Common Stock are owned of
record and beneficially by GTE Corporation ("GTE" or the "Corporation"),
representing 99.6 percent of the outstanding voting securities of the Company.
VOTING OF PROXIES
The persons named in the enclosed proxy have advised they intend to vote
for the election of the nominees listed below as directors of the Company. If,
in the event of an unexpected occurrence, any nominee should not be available
for election, the proxies will be voted for the election of such substitute
nominee, if any, as the Board of Directors may propose. Each nominee is at
present available for election. The individuals listed below currently serve as
directors of the Company.
If voting for directors is conducted by cumulative voting, the persons
named on the enclosed form of proxy will have discretionary authority to
cumulate votes among the nominees with respect to which authority was not
withheld or, if the form of proxy either was not marked or was marked for all
nominees, among all nominees. In any case, the proxies may be voted for less
than the entire number of nominees if any situation arises which, in the opinion
of the proxy holders, makes such an action necessary or desirable.
-2-
<PAGE> 5
BOARD OF DIRECTORS
The directors of the Company are elected annually. During 1994 there were
three telephonic meetings of a special committee of the Board of Directors whose
membership was comprised of Larry J. Sparrow and Gerald K. Dinsmore. All other
action of the Board of Directors was by unanimous consent resolutions.
The Board of Directors currently consists of five directors with two
seats vacant. The Company proposes to elect five members at the annual meeting
thereby leaving two seats on the board vacant. The Company has concluded that it
can operate efficiently with only five directors on the Board in light of the
decision to have only GTE employees serve as directors of the Company. The five
nominees for election to hold office until the next annual election of directors
and until their successors shall be elected and qualified are listed in the
following table. The proxies submitted in response to this Proxy Statement
cannot be voted for a greater number of directors than the number of nominees
named. All of the nominees were elected as directors of the Company at the last
Annual Meeting. Also shown on the table are the nominees' ages and principal
occupations or employment during the last five years. All of the nominees are
executives of GTE Telephone Operations.
<TABLE>
<CAPTION>
Director
Name Age Since Business Experience
----------------------- --- ----- ---------------------------------------------------------
<S> <C> <C> <C>
Kent B. Foster 51 1993 Vice Chairman of the Board of Directors, GTE Corporation,
October 1993; President, GTE Telephone Operations, 1989;
Director, GTE Corporation, 1992; Director, all GTE
domestic telephone subsidiaries, 1993 and/or 1994;
Director, BC Telecom, Inc.; Director, Compania Anonima
Nacional Telefonos de Venezuela; Director, NationsBank of
Texas; Director, Dallas Symphony Orchestra.
Richard M. Cahill 56 1993 Vice President - General Counsel, GTE Telephone
Operations, 1988; Director, all GTE domestic telephone
subsidiaries, 1993 and/or 1994; former Director, GTE
Vantage Incorporated, 1991.
Gerald K. Dinsmore 45 1993 Senior Vice President - Finance and Planning, GTE
Telephone Operations, 1994; former Vice President -
Finance, GTE Telephone Operations, 1993; former Vice
President - Intermediary Customer Markets, GTE Telephone
Operations, 1988; former President of all South Area
Companies, GTE Telephone Operations, 1992; Director, GTE
Florida Incorporated and GTE South Incorporated, 1992;
Director all other GTE domestic telephone subsidiaries,
1993 and/or 1994.
</TABLE>
-3-
<PAGE> 6
<TABLE>
<CAPTION>
Director
Name Age Since Business Experience
----------------------- --- ----- ---------------------------------------------------------
<S> <C> <C> <C>
Michael B. Esstman 48 1993 Executive Vice President - Customer Segments, GTE
Telephone Operations, 1994; former Executive Vice
President - Operations, GTE Telephone Operations, 1993;
former President of all Central Area Companies, GTE
Telephone Operations, 1991; former President, Contel
Eastern Region, Telephone Operations Sector, 1983;
Director, AG Communications Systems; Director of all
Central Area Companies, 1991; Director of all other GTE
domestic telephone subsidiaries, 1993 and/or 1994.
Thomas W. White 48 1993 Executive Vice President - Network Operations, GTE
Telephone Operations, 1994; former Executive Vice
President - GTE Telephone Operations, 1993; former Senior
Vice President - General Office Staff, GTE Telephone
Operations, 1989; Director, all GTE domestic telephone
subsidiaries, 1993 and/or 1994; Director, Quebec-Telephone.
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Company does not have any standing audit, nominating or compensation
committees of the Board of Directors. In light of the decision to have only GTE
employees serve on the Board, the Board of Directors concluded that such
committees are not necessary.
DIRECTORS' COMPENSATION
The current directors, all of whom are employees of GTE, are not paid any
fees or remuneration, as such, for service on the Board.
EXECUTIVE COMPENSATION
Report on Executive Compensation
The Board of Directors of GTE California Incorporated ("GTE California"
or the "Company") has reviewed and approved the annual compensation paid to the
Company's President, C. Michael Crawford, and its former President and Chief
Executive Officer, Larry J. Sparrow, and each of the other three highest paid
executive officers of the Company. Mr. Sparrow resigned as President and as a
director of the Company effective at the close of business on February 14, 1995,
to accept another position within GTE. Mr. Sparrow and several of the other
executive officers are also executive officers of affiliates of the Company. The
compensation shown, unless otherwise indicated on the accompanying table, is the
Company's pro rata share of salaries, bonuses and other cash compensation for
such executive officers.
-4-
<PAGE> 7
The compensation of Mr. Sparrow and the other four highest paid executive
officers (the named executive officers) are recommended to and approved by the
Executive Compensation and Organizational Structure Committee of the Board of
Directors of GTE Corporation (the "Committee"). The Committee also administers
GTE's executive incentive plans including the approval of awards under those
plans. In the opinion of the Board of GTE California, the compensation paid to
the named executive officers of the Company is reasonable.
Compensation Philosophy
The compensation philosophy of GTE Corporation ("GTE"), in which the GTE
California Board of Directors concurs, is that the compensation for the
executive officers of the Company as a group should be set at a level so that it
attracts superior individuals, rewards sustained performance and maximizes
shareholder value. The Board also believes that because the Company is a
majority-owned subsidiary of GTE, and because most of the named executive
officers are also executive officers of other GTE affiliates, their compensation
should closely resemble the compensation paid to other similarly situated
employees of other GTE subsidiaries. The Board further believes that the Company
benefits from the policy of compensating its employees on a similar basis to
other employees with similar responsibilities within GTE because it facilitates
the ability of GTE to transfer employees between companies, thereby providing
the Company with a large group of skilled and knowledgeable individuals from
which to draw to fill key vacancies. This policy also serves to attract talented
people to GTE California because they will have an opportunity for additional
experience and promotion throughout all of GTE.
Executive Compensation
The base salary of the named executive officers is determined by
reviewing the individual's performance as well as the duties and
responsibilities of the respective executive management position. Each
management position is given a grade level with an attendant salary range. The
grade levels are determined using the Hay Job Evaluation System, an orderly and
widely recognized system to establish job levels. The Hay system emphasizes
employee relations, staffing/retention and equal opportunity considerations. The
individual's performance, years of experience and prior salary increase history,
determine where within the salary range the individual's base salary falls. The
grade levels of the executive officers are generally comparable to other similar
management positions within GTE.
The base compensation, whether or not specifically allocated to the
Company, of the named executive officers increased during 1994, based on their
performance and the date of their last increase. The percentage increases ranged
from 6% to 14.8% and were based, in the case of Messrs. Sparrow and Crawford,
upon the performance of GTE Telephone Operations and GTE Telephone Operations
West Area, consisting of GTE California Incorporated, GTE Northwest
Incorporated, GTE Hawaiian Telephone Company Incorporated and GTE Alaska
Incorporated (the "GTE West Area") and each individual's performance. The
percentage increases for Messrs. Foster, White and Esstman were based on the
total performance of GTE Telephone Operations. The base salaries paid by the
Company to the named executive officers of GTE California Incorporated as of
December 31, 1994, are included under the "salary" column of the Summary
Compensation Table on page 10.
-5-
<PAGE> 8
Incentive Compensation
Certain executives are also eligible to receive payments under two
incentive plans in addition to their base salary.
Under the Executive Incentive Plan (the "EIP") awards are made, in the
case of Messrs. Sparrow and Crawford, based upon the performance of GTE, GTE
Telephone Operations and GTE West Area during the last fiscal year and upon the
individual participant's achievement of certain goals for his business unit and
other individual objectives. In the case of Messrs. Foster, White and Esstman,
awards are made based on the total performance of GTE and GTE Telephone
Operations.
No awards under the EIP are made for any year in which GTE's ROE does not
exceed 8%. However, under the terms of the EIP, the Committee may also take into
consideration unusual or extraordinary items or circumstances affecting GTE's
financial performance, such as the impact of mandated accounting changes or
unusual charges related to acquisitions or divestitures. GTE's 1994 ROE exceeded
8% and awards under the EIP were made.
The award to Mr. Sparrow under the GTE EIP for 1994 allocated to the
Company was $127,559. This award represents approximately 47% of Mr. Sparrow's
total cash compensation for the year allocated to GTE California. The award was
based on the performance of GTE as a whole as well as Mr. Sparrow's performance
with respect to critical pre-established qualitative and quantitative objectives
related to the GTE West Area established and approved by the Chief Executive
Officer of GTE Telephone Operations and the Committee. The quantitative
objectives included targets for net income, return on equity, net cash flow,
customer value of service and affirmative action. Other objectives included new
product revenues, product price and positioning, employee satisfaction and
process re-engineering. In determining Mr. Sparrow's award for 1994, particular
emphasis was given to the financial performance of the GTE West Area, including
GTE California, and the quality of service provided to customers in the GTE West
Area.
EIP awards for the named executive officers paid by the Company are
included in the "Bonus" column of the Summary Compensation Table on page 10.
Certain executives also have an opportunity to earn incentive payments
under GTE's 1991 Long-Term Incentive Plan ("LTIP"). The primary purpose of the
LTIP is to offer participants an incentive to cause GTE to achieve superior
financial performance, thereby helping to assure superior performance for the
shareholders. Two types of awards are currently used in the provision of the
LTIP - performance bonuses and stock options which may include tandem stock
appreciation rights ("SARs").
The named executive officers are eligible to receive annual grants of
performance bonuses which are earned during a 36-month performance cycle. The
performance bonuses are paid in cash. Awards for the three-year performance
cycle ending in 1994 are based on GTE's financial performance during the
relevant cycle as measured by GTE's average ROE against pre-established target
-6-
<PAGE> 9
levels. In 1994, the Committee established an additional measure of corporate
performance - operating cash flow margin ("OCFM"). The Committee views OCFM as
an excellent complement to ROE due to its capacity to accurately measure
profitable revenue growth, a key determinant of financial strength, especially
for high growth businesses. To transition from awards based solely on
performance against ROE targets to awards based on a combination of ROE and OCFM
performance, the Committee established two performance periods - a one-year
period to run concurrently with the final year of the three-year ROE performance
cycle ending in 1994 and a two-year period to run concurrently with the final
two years of the three-year ROE performance cycle ending in 1995. The awards for
the two award periods will be based on GTE's performance against ROE and OCFM
performance for the one and two-year periods. Awards for the three-year
performance cycle ending in 1996 will be based on GTE's performance against the
ROE and OCFM targets established for the full three-year cycle. 75% of the award
is determined based on ROE performance and 25% of the award is determined based
on OCFM performance.
The Committee established minimum and maximum targets for each cycle
based upon the practices of other major companies in the telecommunications
industry including the regional Bell operating companies (RBOCs) and AT&T Corp.
(collectively the Telecommunications Group) and corporations not involved in the
telecommunications industry that have a reputation for excellence, are
comparable to GTE in terms of such quantitative measures as revenues, market
value and total shareholder return and are viewed as direct competitors for
executive talent in the overall labor market (the Broad Industry Group) as well
as the Corporation's past and projected financial performance. In establishing
the targeted levels of ROE and OCFM, the Committee considered past performance,
the strategic goals of the Corporation and the plans for implementing those
goals. The established targets are designed to facilitate implementing strategic
plans and improving performance.
At the time performance targets for the current LTIP cycles were
established, a Common Stock Unit account was set up for each participant in the
LTIP. An initial dollar amount for each ("target award") was determined based on
the competitive performance bonus grant practices of the Telecommunications
Group and the Broad Industry Group. That amount was then divided by the average
market price for GTE Common Stock for the calendar week preceding the day the
account was established to determine the number of Common Stock Units in the
account. The value of the account increased or decreased based on the market
price of the GTE Common Stock. An amount equal to the dividends paid on an
equivalent number of shares of GTE Common Stock was added on each dividend
payment date. This amount was then converted into a number of Common Stock Units
obtained by dividing the amount of the dividend by the average price of the GTE
Common Stock on the composite tape of the New York Stock Exchange on the
dividend payment date and added to the Common Stock Unit account.
If the minimum level of targeted performance is not attained, no award is
paid. If the minimum performance target is achieved for a performance measure,
participants receive a payment of 20% of the target award for that performance
measure. If the maximum performance target for a performance measure is
attained, participants receive a payment of 100% of the target award for that
performance measure. Superior performance, achieving results
-7-
<PAGE> 10
in excess of the maximum performance target, results in a payment in excess of
100% of the target award based upon the following formula which is applied
separately for each performance measure:
- For the first and second 0.1% above the maximum
performance target, 2% of the target award for that
performance measure is added to the target award;
- For the third and fourth 0.1% above the maximum
performance target, 3% of the target award for that
performance measure is added to the target award; and
- For each additional 0.1% after .4% above the maximum
performance target, 4% of the target award for that
performance measure is added to the target award.
Payouts to the named executives for the 1992-1994 award cycle and 1994
award period are shown in the Summary Compensation Table on page 10. Also shown
are historical awards for the 1990-1992 and 1991-1993 cycles. The awards shown
reflect the following combinations of performance: the 1992-1994 ROE goal was
not met completely, while the goal for the 1994 award period was exceeded. With
respect to these three-year cycles, the Committee had the discretion to adjust
targets or performance results to reflect unusual items that the Committee
determined were extraordinary, nonrecurring and unrelated to the normal
operations of the business and unanticipated or not contemplated at the time the
targets were originally established. Awards under the plan would not have been
made if the minimum performance thresholds were not met. The actual dollar value
of each award also reflected stock price changes during the period and included
the equivalent of dividends paid as if they had been reinvested in additional
shares of GTE Common Stock. Awards for the 1994-1996 award cycle are shown in
the Long-Term Incentive Plan Awards Table on page 12.
Under the LTIP, the Committee normally approves annual grants of stock
options, which may include tandem stock appreciation rights. These options are
granted to a larger group of executives, including the named executive officers,
than those who are eligible to receive performance bonuses under the LTIP.
In approving the number of options awarded under the LTIP, the Committee
compares GTE's grant levels to competitive practices with respect to such grants
over a period of time. GTE's philosophy is to be at or near a median grant
posture of the Telecommunications Group and Broad Industry Group. The number of
options currently held by any individual participant is not a factor in
determining individual grants since such a factor should create an incentive to
exercise options and sell the shares. In 1994, the named executive officers
received the awards shown in the Summary Compensation Table on page 10.
New Internal Revenue Service Rules
In late December 1993, the Internal Revenue Service issued proposed
regulations that apply to the recently-enacted provision limiting the deduction
a publicly held corporation may take for compensation paid to its chief
executive officer and its four other most highly compensated employees.
-8-
<PAGE> 11
The IRS regulations limit the amount that a company may deduct to one million
dollars per person unless the compensation constitutes "performance based"
compensation. Although amendments to the regulations were issued in December
1994, final rules have not yet been issued.
In order to comply with the Internal Revenue Service regulations, the
Committee has adopted certain procedures to provide the deductibility of future
amounts received under the EIP for 1994 and LTIP for cycles commencing in 1994.
The provisions include, but are not limited to, establishing the maximum award
payable to any individual participant under the EIP. However, performance
bonuses paid under the LTIP for the 3-year performance cycles beginning prior to
1994 do not qualify for the performance-based exemption to the one million
dollar limit.
Other Compensation Plans
GTE California also participates in various broad-based GTE employee
benefit plans. Executives participate in these plans on the same terms as
eligible, non-executive employees, subject to any legal limits on the amounts
that may be contributed or paid to executives under the plans. GTE offers an
Employees' Stock Plan pursuant to the provision of Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code"), under which employees may
purchase GTE Common Stock at a discount. The GTE Savings Plan (the "Savings
Plan"), pursuant to the provisions of Section 401(k) of the Code, permits
employees to invest in a variety of funds on a pre- or after-tax basis. Matching
contributions under the Savings Plan are made in GTE Common Stock.
GTE California also maintains pension, insurance and other benefit plans
for its employees.
Michael B. Esstman
Gerald K. Dinsmore
Kent B. Foster
Richard M. Cahill
Thomas W. White
March 29, 1995
-9-
<PAGE> 12
EXECUTIVE COMPENSATION TABLES
The following tables provide information about executive compensation.
SUMMARY COMPENSATION TABLE
The following table sets forth information about the compensation of the 1994
Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company in 1994 for services in all capacities to the
Company and its subsidiary.
<TABLE>
<CAPTION>
Long-Term Compensation
---------------------------------------------
Annual Compensation(1) Awards Payouts
-------------------------------- --------------------- ---------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Other Annual Restricted Underlying LTIP All Other
Name and Principal Salary Compensation Stock Options/ Payouts Compensation
Position in Group Year ($) Bonus($) ($) Awards(#) SARs(#) ($)(2) ($)(3)
------------------ ---- -------- -------- ------------ ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Larry J. Sparrow(4) 1994 142,215 127,559 -- -- 30,900 63,943 2,455
Area President - West 1993 152,277 107,528 -- -- 14,500 23,723 4,563
1992 141,038 148,586 -- -- 9,000 32,653 4,186
Kent B. Foster 1994 160,126 201,934 -- -- 138,100 95,870 1,084
President - 1993 137,534 126,332 -- -- 58,800 27,823 1,545
GTE Telephone Operations 1992 124,808 145,822 -- -- -- 45,395 1,589
Thomas W. White 1994 85,195 88,736 -- -- 53,700 39,548 1,084
Executive Vice President - 1993 78,098 67,146 -- -- 22,600 12,521 1,679
Network Operations, 1992 73,908 73,143 -- -- 16,200 20,341 1,589
GTE Telephone Operations
C. Michael Crawford(5) 1994 109,280 61,613 -- -- 7,800 9,341 2,849
Area Vice President - 1993 96,317 38,341 -- -- 4,900 -- 2,890
General Manager 1992 114,502 69,228 -- -- 4,400 -- 3,454
Michael B. Esstman 1994 78,939 86,326 -- -- 53,700 38,150 584
Executive Vice President - 1993 48,215 44,640 -- -- 22,600 -- 1,174
Customer Segments, 1992 -- -- -- -- 16,200 -- --
GTE Telephone Operations
</TABLE>
(1) Annual Compensation represents the Company's pro rata share of salaries,
bonuses and other annual compensation. Total annual cash compensation for
Messrs. Sparrow, Foster, White, Crawford and Esstman, for whom allocated
amounts are shown above, is $494,462, $1,525,508, $721,708, $539,005, and
$685,746 in 1994, respectively.
(2) 1994 LTIP Payouts include transition awards for the 1994 period, which
were established by the Committee as a special grant to allow for the
smooth transitioning from a single long-term performance measure (return
on equity) to a combined measure (return on equity and operating cash
flow margin).
(3) All other compensation includes Company contributions to defined
contribution plans.
(4) On February 15, 1995 Mr. Sparrow was appointed President - Carrier
Markets, GTE Telephone Operations, and also Vice President - Carrier
Markets, GTE California Incorporated.
(5) Effective February 15, 1995, Mr. Crawford was elected President - GTE
California Incorporated.
-10-
<PAGE> 13
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows all grants of options and tandem stock appreciation
rights ("SARs") to the named executive officers of the Company in 1994, whether
or not specifically allocated to the Company. The options and SARs were granted
under the LTIP. Pursuant to Securities and Exchange Commission (the "SEC")
rules, the table also shows the value of the options granted at the end of the
option terms (ten years) if the stock price were to appreciate annually by 5%
and 10%, respectively. There is no assurance that the stock price will
appreciate at the rates shown in the table. The table also indicates that if the
stock price does not appreciate, there will be no increase in the potential
realizable value of the options granted.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rate of Stock
Price Appreciation For
Individual Grants(1) Option Term
----------------------------------------------------- -------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
Percent of
Number of Total Options/
Securities SARs Granted Exercise
Underlying to All GTE Or Base
Option/SARs Employees in Price Expiration
Name Granted (1) Fiscal Year ($/SH) Date 0% 5% 10%
---- ----------- -------------- -------- --------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Larry J. Sparrow 30,900 0.75% $32.4375 2/16/04 $ 0 $ 630,135 $1,596,759
Kent B. Foster 69,050 1.68 34.4375 2/16/04 0 1,270,016 3,430,063
69,050 1.68 32.4375 2/16/04 0 1,408,116 3,568,163
Thomas W. White 53,700 1.31 32.4375 2/16/04 0 1,095,088 2,774,950
C. Michael Crawford 7,800 0.19 32.4375 2/16/04 0 159,063 403,065
Michael B. Esstman 53,700 1.31 32.4375 2/16/04 0 1,095,088 2,774,950
</TABLE>
(1) Each option was granted in tandem with a SAR, which will expire upon
exercise of the option. Under the LTIP, one-third of these grants vest
annually commencing one year after the date of grant.
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table provides information as to options and SARs exercised by
each of the named executive officers of the Company during 1994. The table sets
forth the value of options and SARs held by such officers at year-end measured
in terms of the closing price of GTE Corporation (GTE) Common Stock on December
30, 1994.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options/SARs
Acquired Value Options/SARs at FY-End At FY-End($)
Name On Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- -------------- ----------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Larry J. Sparrow 0 $ 0 35,583 48,617 $ 0 $ 0
Kent B. Foster 0 0 152,374 210,626 0 0
Thomas W. White 0 0 85,532 83,168 146,025 0
Clark Michael Crawford 0 0 8,866 12,534 0 0
Michael B. Esstman 0 0 18,333 74,167 0 0
</TABLE>
-11-
<PAGE> 14
LONG-TERM INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR
The LTIP provides for awards, currently in the form of stock options with tandem
SARs and cash bonuses, to participating employees. The stock options and tandem
SARs awarded under the LTIP to the named executive officers are shown in the
table on page 11. The LTIP is described in more detail on pages 6 through 8.
<TABLE>
<CAPTION>
Estimated Future Payouts
Under Non-Stock Price Based Plans(1)
------------------------------------
(a) (b) (c) (d) (e) (f)
Performance
Number of Or Other
Shares, Units Period Until
Or Other Maturation Threshold(2) Target(3)
Name Rights Or Payout (# of Units) (# of Units) Maximum(4)
--------------- ------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Kent B. Foster 15,400 3 Years 3,701 18,507
5,400 2 Years 1,221 6,103
5,400 1 Year 1,148 5,739
Larry J. Sparrow 3,800 3 Years 873 4,367
1,400 2 Years 316 1,582
1,400 1 Year 298 1,488
Thomas W. White 5,900 3 Years 1,418 7,090
2,100 2 Years 475 2,373
2,100 1 Year 446 2,232
C. Michael Crawford 1,200 3 Years 288 1,442
750 2 Years 170 848
350 1 Year 74 372
Michael B. Esstman 3,800 3 Years 873 4,367
1,400 2 Years 316 1,582
1,400 1 Year 298 1,488
</TABLE>
(1) It is not possible to predict future dividends and, accordingly, estimated
Common Stock Unit accruals in this table are calculated for illustrative
purposes only and are based upon the dividend rate and price of GTE Common
Stock at the close of business on December 30, 1994. The target award is
the dollar amount derived by multiplying the Common Stock Unit balance at
the end of the award cycle by the price of GTE Common Stock.
(2) The Threshold is the level of the average return on equity ("ROE") and the
average operating cash flow margin ("OCFM") during the relevant cycle
which represents the minimum acceptable performance level for both the ROE
and OCFM performance measures. If the Threshold is attained with respect
to both performance measures, the award will be equal to 20% of the
combined target award for ROE and OCFM. Because ROE and OCFM are separate
performance measures, it is possible to receive an award if the Threshold
is achieved with respect to only one of the performance measures. If the
actual results for one, but not both, performance measures is at the
Threshold level, the portion of the award determined by the measure
performing at the Threshold level will be at 20% of the target award for
that performance measure, and no award will be made for the portion of the
award determined by the measure performing at less than the Threshold
level. However, if the actual results for both performance measures are
below the minimum acceptable performance level, no award will be earned.
-12-
<PAGE> 15
(3) The Target is the level of the average ROE and the average OCFM during the
cycle which represents outstanding performance for both the ROE and OCFM
performance measures. If the Target is attained with respect to both
performance measures, the award will be equal to 100% of the target award
for ROE and OCFM. If the actual results for one, but not both, performance
measures is at the Target level, the portion of the award determined by
the measure performing at the Target level will be at 100% of the target
award for that performance measure, and the portion of the award
determined by the measure performing at less than 100% will be determined
accordingly.
(4) This column has intentionally been left blank because it is not possible
to determine the maximum award until the award cycle has been completed.
The maximum amount of the award is limited by the amount the actual ROE
and the actual OCFM exceed the targeted ROE and the targeted OCFM. If
GTE's average ROE and OCFM during the cycle exceed their respective
performance targets, additional bonuses may be earned according to the
schedule on page 8. For example, if average ROE and OCFM performance each
exceed the ROE and OCFM targets by .5%, respectively, the performance
bonus will equal 114% of the combined target award.
EXECUTIVE AGREEMENTS
GTE has entered into agreements (the "Agreements") with Messrs. Sparrow, Foster
and White regarding benefits to be paid in the event of a change in control of
GTE (a "Change in Control").
A Change in Control is deemed to have occurred if a majority of the members of
the Board do not consist of members of the incumbent Board (as defined in the
Agreements) or if, in any 12-month period, three or more directors are elected
without the approval of the incumbent Board. An individual whose initial
assumption of office occurred pursuant to an agreement to avoid or settle a
proxy or other election contest is not considered a member of the incumbent
Board. In addition, a director who is elected pursuant to such a settlement
agreement will not be deemed a director who is elected or nominated by the
incumbent Board for purposes of determining whether a Change in Control has
occurred. A Change in Control will not occur in the following situations: (1)
certain merger transactions in which there is at least 50% GTE shareholder
continuity in the surviving corporation, at least a majority of the members of
the board of directors of the surviving corporation consists of members of the
Board of GTE and no person owns more than 20% (or under certain circumstances, a
lower percentage, not less than 10%) of the voting power of the surviving
corporation following the transaction, and (2) transactions in which GTE's
securities are acquired directly from GTE.
The Agreements provide for benefits to be paid in the event these individuals
separate from service and have a "good reason" for leaving or are terminated
without "cause" within two years after a Change in Control of GTE.
Good reason for leaving includes but is not limited to the following events:
demotion, relocation or a reduction in total compensation or benefits, or the
new entity's failure to expressly assume obligations under the Agreements.
Termination for cause includes certain unlawful acts on the part of the
executive or a material violation of his or her responsibilities to the
Corporation resulting in material injury to the Corporation.
-13-
<PAGE> 16
An executive who experiences a qualifying separation from service will be
entitled to receive up to two times the sum of (i) base salary and (ii) the
average of his or her other percentage awards under the EIP for the previous
three years. The executive will also continue to receive medical and life
insurance coverage for up to two years and will be provided with financial and
outplacement counseling.
In addition, the Agreements with Messrs. Sparrow, Foster and White provide that
in the event of a separation from service, they will receive service credit in
the following amounts: two times years of service otherwise credited if the
executive has five or fewer years of credited service; 10 years if credited
service is more than five and not more than 10 years; and, if the executive's
credited service exceeds 10 years, the actual number of credited years of
service. These additional years of service will apply towards vesting,
retirement eligibility, benefit accrual and all other purposes under the
Supplemental Executive Retirement Plan ("SERP") and the Executive Retired Life
Insurance Plan. In addition, each executive covered under an Agreement will be
considered to have not less than 76 points and 15 years of accredited service
for the purpose of determining his or her eligibility for early retirement
benefits. The Agreements provide that there will be no duplication of benefits.
The Agreements remain in effect until the earlier of July 1 of each successive
year or the date on which the executive reaches age 65, unless the Agreement is
terminated earlier pursuant to its terms. The Agreements will be automatically
renewed on each successive July 1 unless, not later than December 31 of the
preceding year, one of the parties notifies the other that he does not wish to
extend the Agreement. If a Change in Control occurs, the Agreements will remain
in effect until the obligations of GTE (or its successor) under the Agreements
have been satisfied.
-14-
<PAGE> 17
RETIREMENT PROGRAMS
Pension Plans
The estimated annual benefits payable, calculated on a single life annuity
basis, under GTE's defined benefit pension plans at normal retirement at age 65,
based upon final average earnings and years of employment, are illustrated in
the table below:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
Final Average -------------------------------------------------------------------------------
Earnings 15 20 25 30 35
------------ --------- --------- --------- ---------- ----------
<C> <C> <C> <C> <C> <C>
$ 150,000 $ 31,532 $ 42,042 $ 52,553 $ 63,063 $ 73,574
200,000 42,407 56,542 70,678 84,813 98,949
300,000 64,157 85,542 106,928 128,313 149,699
400,000 85,907 114,542 143,178 171,813 200,449
500,000 107,657 143,542 179,428 215,313 251,199
600,000 129,407 172,542 215,678 258,813 301,949
700,000 151,157 201,542 251,928 302,313 352,699
800,000 172,907 230,542 288,178 345,813 403,449
900,000 194,657 259,542 324,428 389,313 454,199
1,000,000 216,407 288,542 360,678 432,813 509,949
1,200,000 259,907 346,542 433,178 519,813 606,449
1,500,000 325,157 433,542 541,928 650,313 758,699
2,000,000 433,907 578,542 723,178 867,813 1,012,449
</TABLE>
GTE Service Corporation, a wholly-owned subsidiary of GTE, maintains the
GTE Service Corporation Plan for Employees' Pensions (the "Service Corporation
Plan"), a noncontributory pension plan for the benefit of GTE employees based on
years of service. Pension benefits to be paid from the Service Corporation Plan
and contributions to this plan are related to basic salary exclusive of
overtime, differentials, incentive compensation (except as otherwise described)
and other similar types of payment. Under the Service Corporation Plan,
pensions are computed on a two-rate formula basis of 1.15% and 1.45% for each
year of service, with the 1.15% service credit being applied to that portion of
the average annual salary for the five highest consecutive years that does not
exceed the Social Security Integration Level (the portion of salary subject to
the Federal Security Act), and the 1.45% service credit being applied to that
portion of the average annual salary that exceeds said level. As of February 15,
1995, the credited years of service under the plan for Messrs. Sparrow, Foster,
White, Crawford and Esstman are 27, 24, 26, 26, and 26 respectively.
Under Federal law, an employee's benefits under a qualified pension plan
such as the Service Corporation Plan are limited to certain maximum amounts. GTE
maintains a SERP, which supplements, on an unfunded basis, the benefits of any
participant in the Service Corporation Plan in an amount by which any
participant's benefits under the Service Corporation Plan are limited by law. In
addition, the SERP includes a provision permitting the payment of additional
retirement benefits determined in a similar manner as under the Service
Corporation Plan on remuneration accrued under management incentive plans as
determined by the Executive Compensation and Organizational Structure Committee.
SERP benefits are payable in a lump sum or an annuity.
-15-
<PAGE> 18
Executive Retired Life Insurance Plan
The GTE Corporation Executive Retired Life Insurance Plan ("ERLIP")
provides Messrs. Sparrow, Foster, White and Esstman a postretirement life
insurance benefit of three times final base salary and provides Mr. Crawford a
postretirement life insurance benefit of two and one-half times final base
salary. Upon retirement, ERLIP benefits may be paid as life insurance, or
optionally, an equivalent amount equal to the present value of the life
insurance amount (based on actuarial factors and the interest rate then in
effect), as a lump sum payment, as an annuity or as installment payments.
OWNERSHIP OF STOCK BY DIRECTORS, NOMINEES FOR DIRECTORS, EXECUTIVE OFFICERS
AND CERTAIN BENEFICIAL OWNERS
The table below sets forth the shares of GTE's Common Stock
beneficially owned by each director, nominee for director, the Chief Executive
Officer and the other four most highly compensated executive officers and by all
directors and executive officers as a group. No director, nominee for director
or executive officer owns as much as one-tenth of one percent of the total
outstanding shares. Unless otherwise indicated, all persons named in the table
have sole voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
Percent of
Shares Total Shares
Beneficially Outstanding
Owned as of as of
Name of Director or Nominee (1)(2) December 31,1994 December 31,1994
---------------------------------- ---------------- ----------------
<S> <C> <C>
No director
Kent B. Foster 268,305 or nominee or
Thomas W. White 120,994 executive
Michael B. Esstman 67,631 officer owns
Richard M. Cahill 36,287 as much as
Gerald K. Dinsmore 41,529 1/10 of
---------- 1 percent
534,746
==========
Executive Officers(1)(2)
Larry J. Sparrow 64,835
Kent B. Foster 268,305
Thomas W. White 120,994
C. Michael Crawford 18,428
Michael B. Esstman 67,631
----------
540,193
==========
All directors and executive
officers as a group(1)(2) 1,192,937 Represents
========== less than 1/5
of 1 percent
of outstanding
common stock.
</TABLE>
(1) Includes shares acquired through participation in GTE's Consolidated
Employee Stock Ownership Plan and/or the GTE Savings Plan.
-16-
<PAGE> 19
(2) Included in the number of shares beneficially owned by Messrs.
Foster, White, Esstman, Cahill, Dinsmore, Sparrow and Crawford and
all directors and executive officers as a group are 214,539;
109,299; 46,466; 32,616; 39,499; 50,716; 14,566; and 1,225,527
shares, respectively, which such persons have the right to acquire
within 60 days pursuant to stock options.
DIRECTOR AND EXECUTIVE OFFICER SECURITIES REPORTS
The Federal securities laws require the Company's directors and executive
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of any equity
securities of the Company.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and representations that no other reports were
required, all persons subject to these reporting requirements filed the required
reports on a timely basis. All of the Company's common stock is owned by GTE
and, to the Company's knowledge, none of such directors or executive officers
currently owns, or has ever owned, any shares of the Company's registered
preferred stock (which is the only registered class of the Company's equity
securities).
INDEPENDENT PUBLIC ACCOUNTANTS
A proposal will be presented at the meeting that the selection by the Board
of Directors of Arthur Andersen LLP as the independent public accountants of the
Company be approved by the shareholders of the Company. An affirmative vote of
the holders of a majority of the shares represented at the meeting will be
required for such approval. In the event such approval is not obtained,
selection of the accountant will be reconsidered by the Board of Directors.
Proxies solicited by the Board of Directors will be voted for the proposal
unless marked to the contrary.
A representative of Arthur Andersen LLP will not attend the shareholders'
meeting.
CERTAIN TRANSACTIONS
The Company incurs certain printing and other costs associated with
telephone directories, data processing services and equipment rentals, and
receives management, consulting, research and development and pension management
services from affiliated companies. These charges were $368.2 million in 1994.
An affiliated company also supplies construction and maintenance
materials, supplies and equipment to the Company. These purchases were $81.9
million in 1994.
OTHER MATTERS
The Board of Directors does not know of any other matters to be presented
at the meeting. If any other business should properly be brought before the
meeting, it is the intention of the person named in the proxy to vote the proxy
in accordance with their best judgment on such matters.
-17-
<PAGE> 20
PROPOSALS FOR NEXT ANNUAL MEETING
Any proposal which a shareholder intends to present at the next Annual
Meeting of Shareholders, to be held in April 1996, must be received at the
office of the Company by November 29, 1995, if such proposal is to be considered
for inclusion in the Company's proxy statement and form of proxy relating to
that meeting.
A copy of the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission is available free of charge by written
request to:
GTE Telephone Operations
Financial Reporting
P.O. Box 407, MC INAAACG
Westfield, Indiana 46074
(317) 896-6464
By order of the Board of Directors,
Charles J. Somes
Secretary
Dated: March 29, 1995
-18-
<PAGE> 21
PROXY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
GTE CALIFORNIA INCORPORATED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints RICHARD M. CAHILL, PETER K. PLAUT and CHARLES J.
SOMES,and each of them, proxies, with power of substitution, to vote, as
designated on the reverse side, all shares of the undersigned at the annual
meeting of shareholders of GTE California Incorporated to be held at 600 Hidden
Ridge, Irving, Texas 75038, on Wednesday, April 12, 1995, at 10 a.m., and all
adjournments.
PROXIES CANNOT BE VOTED FOR A GREATER NUMBER OF DIRECTORS THAN THE
NOMINEES NAMED.
-----------
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
----------
-------------------------------------------------------------------------------
PLEASE MARK
/X/ VOTES AS IN
THIS EXAMPLE
This proxy when properly executed will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made this proxy will be
voted FOR Proposals 1 and 2.
1. ELECTION OF DIRECTORS
NOMINEES: Kent B. Foster, Thomas W. White, Michael B. Esstman, Gerald K.
Dinsmore and Richard M. Cahill.
FOR WITHHELD
/ / / /
/ /
-----------------------------
For all nominees except as noted above
2. Proposal to approve the appointment of Arthur Andersen LLP as the
independent public accountant for the Company.
FOR AGAINST ABSTAIN
/ / / / / /
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
MARK HERE
FOR ADDRESS / /
CHANGE AND
NOTE AT LEFT
(Please sign your name(s) as printed hereon. If co-owner,
both parties should sign.)
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY Signature:____________Date_____
CARD PROMPTLY USING THE ENCLOSED ENVELOPE. Signature:____________Date_____
