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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission File No: 001-13739
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
Tucson Electric Power Company 401(k) Plan
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
UniSource Energy Corporation
One South Church Avenue, Suite 100
Tucson, AZ 85701
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Tucson Electric Power Company
401(k) Plan
Index
December 31, 2003 and 2002
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Page(s)
Required Information...........................................................3
Report of Independent Registered Public Accounting Firm........................4
FINANCIAL STATEMENTS
Statements of Net Assets Available for Benefits................................5
Statements of Changes in Net Assets Available for Benefits.....................6
Notes to Financial Statements...............................................7-11
SUPPLEMENTAL SCHEDULES
Schedule H, Line 4(a) - Schedule of Delinquent Participant Contributions......12
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)................13
Signature Page................................................................14
Exhibit 23 - Consent of Independent Accountants...............................15
Note: Other schedules required by Section 2520.103-10 of the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act ("ERISA") of 1974 have been
omitted because they are not applicable.
REQUIRED INFORMATION
The Tucson Electric Power Company 401(k) Plan (the Plan) is subject to
the Employee Retirement Income Security Act of 1974 (ERISA). Therefore, in lieu
of the requirements of Items 1 - 3 of Form 11-K, the financial statements and
schedules of the Plan for the fiscal year ended December 31, 2003, which have
been prepared in accordance with the financial reporting requirements of ERISA,
are filed herewith and incorporated herein by this reference.
The written consent of PricewaterhouseCoopers LLP with respect to the
annual financial statements of the Plan is filed as Exhibit 23 to this Annual
Report.
3
REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and Administrator of
the Tucson Electric Power Company 401(k) Plan:
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of Tucson Electric Power Company 401 (k) Plan (the "Plan") at December 31, 2003
and 2002, and the changes in net assets available for benefits for the years
then ended in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets
(held at end of year) and the schedule of delinquent participant contributions
are presented for the purpose of additional analysis and are not a required part
of the basic financial statements but are supplementary information required by
the Department of Labor's Rules and Regulations for Reporting and Disclosure
under the Employee Retirement Income Security Act of 1974. These supplemental
schedules are the responsibility of the Plan's management. The supplemental
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
PricewaterhouseCoopers LLP
Phoenix, Arizona
June 23, 2004
4
Tucson Electric Power Company
401(k) Plan
Statements of Net Assets Available for Benefits
December 31, 2003 and 2002
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2003 2002
Assets
Investments:
Investments at fair value $111,688,300 $81,336,424
Investments at contract value 5,968,994 4,905,626
Participant loans receivable 3,498,327 2,932,477
----------------- ----------------
Total investments 121,155,621 89,174,527
----------------- ----------------
Receivables:
Employer contributions 92,651 75,745
Participant contributions 206,410 154,638
----------------- ----------------
Total receivables 299,061 230,383
----------------- ----------------
Net Assets available for
benefits $121,454,682 $89,404,910
================= ================
The accompanying notes are an integral part of these financial statements.
5
Tucson Electric Power Company
401(k) Plan
Statements of Changes in Net Assets Available for Benefits
Years Ended December 31, 2003 and 2002
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2003 2002
Additions:
Contributions:
Employer contributions $ 3,274,061 $ 3,178,380
Participant contributions 6,868,251 6,403,320
Participant rollovers 6,114,968 393,039
---------------- -----------------
Total contributions 16,257,280 9,974,739
---------------- -----------------
Investment income (loss):
Interest and dividend income 459,113 523,405
Net appreciation (depreciation)
in fair value of investments 21,472,737 (19,630,500)
---------------- -----------------
Total investment income
(loss) 21,931,850 (19,107,095)
---------------- -----------------
Total additions 38,189,130 (9,132,356)
---------------- -----------------
Deductions:
Benefits paid to participants 6,127,855 4,139,321
Administrative expenses 11,503 12,673
---------------- -----------------
Total deductions 6,139,358 4,151,994
---------------- -----------------
Net increase (decrease) 32,049,772 (13,284,350)
---------------- -----------------
Net Assets available for benefits:
Beginning of year 89,404,910 102,689,260
---------------- -----------------
End of year $121,454,682 $ 89,404,910
================ =================
The accompanying notes are an integral part of these financial statements.
6
Tucson Electric Power Company
401(k) Plan
Notes to Financial Statements
December 31, 2003 and 2002
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1. DESCRIPTION OF PLAN
The following description of the Tucson Electric Power Company 401(k) Plan
(the "Plan") provides only general information. Participants should refer
to the Plan agreement for a more complete description of the Plan's
provisions.
GENERAL
All regular employees of Tucson Electric Power Company and participating
subsidiaries of UniSource Energy Corporation, the parent company of the
Plan sponsor, (collectively, the "Company") who are employed by the Company
on or after November 1, 1985 are eligible to participate. The Plan is
subject to the provisions of the Employee Retirement Income Security Act of
1974 ("ERISA").
ADMINISTRATION
The Company's Pension Committee (the "Committee"), comprised of three or
more employees, administers the Plan. Fidelity Management Trust Company
(the "Trustee") serves as trustee of all Plan investments. Fidelity
Investments Institutional Operations Company, Inc. serves as recordkeeper
for the Plan. The Company funds the Plan's administrative costs, except for
loan administrative fees and brokerage account fees, which are paid
directly by the participants out of their accounts.
CONTRIBUTIONS
Upon admission to the Plan, participants may contribute, by way of payroll
deductions, a percentage up to but not in excess of 15% of their pre-tax
compensation. Participants may direct their contributions to be invested
entirely into any one of the individual investment funds or, in multiples
of 1% into any combination of these funds. Contributions are subject to
certain limitations.
The Plan also allows for rollovers from participants' other external 401(k)
plans ("Qualified Rollovers") into the Plan. Qualified Rollovers are
accounted for as participant contributions in a separate account of the
participant, and are directed in the same manner as discussed above for
participant contributions.
Each payroll period during the two years ended December 31, 2003, the
Company contributed Company Matching Contributions to the Plan with respect
to each participant in an amount equal to the lesser of (i) the excess of
the participant's Compensation Deferral Contributions to the Plan in the
Plan Year over the Company Matching Contributions previously made in
respect to the participant in the Plan year or (ii) 4.5% of the
participant's compensation for that payroll period. Participants direct the
investment of such Company contributions in the same manner as discussed
above for participant contributions. Effective July 1, 2000, the Board of
Directors of Tucson Electric Power Company has the discretion each year to
establish the formula for Company matching contributions.
LOANS TO PARTICIPANTS
Loan amounts shall not exceed the lesser of $50,000 or 50% of the vested
balance of the participant's accounts at the date of the loan. Loan terms
must be for at least six months and no more than five years, except that
loans used to purchase a principal residence may have a term up to 15
years. Loan repayments are made biweekly through payroll deductions and are
considered to be in default if all payments are not made for any three
month period. Each loan is secured by the balance of the participant's
account and bears a fixed rate of interest established by the Committee
which in no event is less than 2% over the prime rate.
Interest rates for the years ended December 31, 2003 and 2002
7
Tucson Electric Power Company
401(k) Plan
Notes to Financial Statements
December 31, 2003 and 2002
--------------------------------------------------------------------------------
ranged from 4.00% to 11.50%. Loan transactions are treated as a transfer to
(from) the investment fund from (to) the Participant Loans fund.
DISTRIBUTIONS
A participant's account becomes distributable upon termination of
employment, total disability, death or retirement. A participant or
beneficiary of a deceased participant may elect to have his or her account
distributed a) as soon as practicable following the date of termination or
death, or b) in the plan year following such date. Absent such an election,
distributions do not occur until the close of the quarter in which the last
Company matching contribution is made.
The amount distributable to a participant or beneficiary is equal to the
balance in the account valued as of the most recent date preceding such
distribution as the Trustee can determine. Benefits payable to a
participant or the beneficiary are paid in a cash lump sum.
Under certain conditions, once each plan year a participant may withdraw
all or a portion of his or her account while still employed by the Company.
Withdrawals from a participant's account are only permitted (i) for
participants who have attained age 59-1/2 or (ii) in the event of a
participant's hardship as defined in Section 401(k) of the Internal Revenue
Code of 1954, as amended. Beginning with the plan year in which
participants reach age 59-1/2, they may withdraw any portion up to the
entire amount of their Salary Deferral Contributions Account and/or their
Company Matching Contributions Account. In addition, participants may
withdraw any portion of their Salary Deferral Contributions Account,
excluding earnings credited after December 31, 1988, if they have incurred
a financial hardship. The amount which may be withdrawn in the case of a
participant's hardship may not exceed the amount needed and is subject to
the approval of the Committee.
INVESTMENTS
Participants may direct the investment of their Pretax Contributions and
Company Matching Contributions in a variety of investment vehicles
comprised of common stocks, mutual funds, money market funds and
common/collective funds. The Plan is intended to comply with Section 404(c)
of ERISA.
VESTING
A participant's interest in each of his accounts is at all times 100%
vested.
PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to terminate the Plan. Upon termination of the Plan,
the accounts under the Plan will be valued and distributed to participants
at the time of such termination, subject to the provisions of ERISA.
2. ACQUISITION
On August 11, 2003, UniSource Energy completed the purchase of the Arizona
electric and gas utility businesses from Citizens Communications Company
(Citizens). Upon closing and transfer of employment to UniSource Energy
Services, Inc., the participants of the Citizens' 401(k) Savings Plan were
allowed to roll over their account balance, including outstanding loan
balances, to the Tucson Electric Power Company 401(k) Plan. Rollovers from
the Citizens Plan of $5,986,061 are included in 2003 participant rollovers.
8
Tucson Electric Power Company
401(k) Plan
Notes to Financial Statements
December 31, 2003 and 2002
--------------------------------------------------------------------------------
3. SUMMARY OF ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of the Plan are prepared using the accrual basis
of accounting and in accordance with accounting principles generally
accepted in the United States of America.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
changes therein, and disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
INVESTMENT VALUATION AND INCOME RECOGNITION
Plan investments other than the Fidelity Managed Income Portfolio and the
Retirement Money Market Portfolio, are presented at fair value. The fair
values of common stock, mutual funds and common/collective fund shares are
based upon the closing market price on the valuation date. Investments in
the Fidelity Managed Income Portfolio and the Money Market Portfolio are
valued at contract value including accumulated earnings. Participant loans
are valued at cost, which approximates fair value.
Security transactions are recorded on the trade date basis. Expenses paid
by the Plan in connection with such transactions include brokerage
commissions and taxes that are included in the cost of securities purchased
and deducted from the proceeds of securities sold. Net appreciation
(depreciation) in the fair value of the Plan's investments consists of the
realized gains (losses) and the unrealized appreciation (depreciation) on
those investments. Dividend income is recognized on the ex-dividend date.
Interest income is recognized as earned. Employer and Participant
contributions are recognized on the accrual basis.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
4. INVESTMENTS
The following investments represent 5% or more of the Plan's net assets as
of December 31:
2003 2002
Fidelity Growth Company Fund
542,172 and 476,168 units,
respectively $27,146,554 $16,865,874
Fidelity Magellan Fund
258,840 and 245,441 units,
respectively $25,298,986 $19,380,022
Fidelity Equity Income Fund
330,876 and 309,549 units,
respectively $16,461,069 $12,279,819
Fidelity Retirement Money Market Fund
12,146,654 and 12,013,820 units,
respectively $12,146,654 $12,013,820
9
Tucson Electric Power Company
401(k) Plan
Notes to Financial Statements
December 31, 2003 and 2002
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Fidelity Low Priced Stock Fund
191,768 and 144,506 units,
respectively $ 6,708,029 $ 3,637,223
Fidelity Intermediate Bond Fund
619,266 and 523,651 units,
respectively $ 6,601,380 $ 5,618,775
Fidelity Managed Income Portfolio
5,968,993 and 4,905,626 units,
respectively $ 5,968,993 $ 4,905,626
During 2003 and 2002 the Plan's investments appreciated (depreciated)
(including gains and losses on investments purchased and sold, as well as
held during the year) in value by $21,472,737 and ($19,630,500) as follows:
2003 2002
Mutual Funds $ 20,550,764 $ (19,344,263)
Common Stock 921,973 (286,237)
---------------- -----------------
Total $ 21,472,737 $ (19,630,500)
================ =================
5. CONCENTRATION OF CREDIT RISK
At December 31, 2003 and 2002, the Plan's assets consist primarily of
investments in financial instruments, money market funds, investment
contracts, mutual funds, UniSource Energy stock and participant loans. The
Plan does not require collateral or other security to support the
investments in these financial instruments. These investments may subject
the Plan to concentrations of risk, as from time-to-time, cash balances
exceed amounts insured by the Federal Deposit Insurance Corporation and the
value of UniSource Energy stock and mutual funds are subject to changes in
market values.
6. TAX STATUS
The Plan is qualified under Section 401 of the Internal Revenue Code
("IRC") and is, therefore, considered to be exempt from federal income
taxes under the provisions of Section 501(a). A tax qualification letter,
dated September 27, 2002, has been received from the IRS. The Plan has
since been amended; however, the Plan administrator believes that the Plan,
as amended, is currently designed and being operated in compliance with the
applicable requirements of the IRC. Therefore, no provision for income
taxes has been included in the Plan's financial statements.
7. RELATED PARTY TRANSACTIONS
In 2003 and 2002, the Plan's investments in shares of mutual funds managed
by the Trustee of $107,166,947 and $76,765,946, respectively, as well as in
stock of UniSource Energy Corporation in the amounts of $2,866,040 and
$1,981,559, respectively, qualify as party-in-interest transactions for
which a statutory exemption exists.
10
Tucson Electric Power Company
401(k) Plan
Notes to Financial Statements
December 31, 2003 and 2002
--------------------------------------------------------------------------------
The Trustee invests in the Company's common stock in accordance with the
provisions of the Plan. The following is a summary of transactions in the
Company's common stock:
2003 2002
Cost of shares purchased $ 764,754 $ 2,977,279
Number of shares purchased 39,453 153,670
Proceeds from shares sold $ 802,246 $ 709,483
Number of shares sold 37,838 39,063
11
SUPPLEMENTAL SCHEDULES
Tucson Electric Power Company
401(k) Plan
Schedule H, Line 4(a) - Schedule of Delinquent Participant Contributions
December 31, 2003
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Participant Contributions Total That Constitutes Nonexempt
Transferred Late to Plan Prohibited Transactions
--------------------------------- ---------------------------------
$ 39,574 $ 39,574
12
Tucson Electric Power Company
401(k) Plan
Schedule H, Line 4(i) - Schedule of Assets (Held at End of Year) December 31,
2003
--------------------------------------------------------------------------------
Description of
Investment Including
Identity of Issuer, Maturity Date, Rate of
Borrower, Lessor or Interest,Collateral,
Similar Party Par or Maturity Value Cost ** Current Value
-------------------- -------------------------- -------- -------------
* Fidelity Growth Investment in 542,172 units
Company Fund of a growth fund $27,146,554
* Fidelity Magellan Investment in 258,840 units
Fund of a growth fund 25,298,986
* Fidelity Equity Investment in 330,876 units
Income Fund of a growth and income fund 16,461,069
* Fidelity
Retirement Money Investment in 12,146,654
Market Portfolio units of a money market fund 12,146,654
* Fidelity
Low-Priced Stock Investment in 191,768 units
Fund of a growth fund 6,708,029
* Fidelity
Intermediate Bond Investment in 619,266 units
Fund of an income fund 6,601,380
* Fidelity Managed Investment in 5,968,993
Income Portfolio units of an open
ended commingled pool 5,968,993
Spartan U.S. Investment in 92,209 units
Equity Index Fund of a growth fund 3,633,967
* Fidelity Asset Investment in 203,129 units
Manager Fund of an asset allocation fund 3,201,315
Janus Worldwide Investment in 77,575 units
Fund of a growth fund 3,067,313
* UniSource Energy Investment in 116,222 units
Stock Fund of a unitized company stock
fund 2,866,040
BrokerageLink Investment in 2,744,514 units
Account of a self-directed investment
fund 2,744,514
Janus Flexible Investment in 184,947 units
Income Fund of an income fund 1,812,480
* Loans to Loans with maturities
participants ranging from 1 month to
180 months and interest
rates from 4.00% to 11.50% 3,498,327
-----------------
$121,155,621
=================
* Denotes party-in-interest
** Historical cost information is not required for participant-directed
investments.
13
SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities Exchange Act
of 1934, the trustees (or other persons who administer the employee benefit
plan) have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
TUCSON ELECTRIC POWER COMPANY 401(k) PLAN
By: Tucson Electric Power Company 401(k) Plan Administrative Committee
By: /s/ Kevin P. Larson Date: June 25, 2004
---------------------------------- ----------------------
Kevin P. Larson
Member of Plan Administrative Committee
By: /s/ Steven J. Glaser Date: June 25, 2004
---------------------------------- ----------------------
Steven J. Glaser
Member of Plan Administrative Committee
By: /s/ Michael J. DeConcini Date: June 25, 2004
---------------------------------- ----------------------
Michael J. DeConcini
Member of Plan Administrative Committee
14