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, 2001
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
TABLE OF CONTENTS
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Page
----
Required Information................................................. 3
Report of Independent Accountants.....................................4
Financial Statements
Statements of Net Assets Available for Benefits as of
December 31, 2001 and 2000..........................................5
Statements of Changes in Net Assets Available for Benefits
for the Years Ended December 31, 2001 and 2000......................6
Notes to Financial Statements....................................7-13
Supplemental Schedule
Schedule of Assets Held for Investment Purposes
As of December 31, 2001............................................14
Signature Page.......................................................15
Exhibit 23 - Consent of Independent Accountants......................16
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, 2001, 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.
REPORT OF INDEPENDENT ACCOUNTANTS
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 the
Tucson Electric Power Company 401(k) Plan (the Plan) at
December 31, 2001 and 2000, 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 auditing standards generally accepted in the
United States of America, which 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 for investment purposes at
December 31, 2001 is presented for the purpose of additional
analysis and is not a required part of the basic financial
statements but is 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. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been
subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic
financial statements taken as a whole.
PricewaterhouseCoopers LLP
June 21, 2002
TUCSON ELECTRIC POWER COMPANY 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
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As of December 31,
-----------------------
2001 2000
---- ----
Assets
Investments
At fair value:
Fund investments $ 97,001,693 $ 106,185,332
Participant loans receivable 3,078,171 2,832,411
At contract value:
Fund investments 2,416,258 3,340,085
------------- -------------
Total Investments 102,496,122 112,357,828
------------- -------------
Receivables
Employer contributions 81,416 61,615
Participant contributions 111,722 116,003
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Total Receivables 193,138 177,618
------------- -------------
Net assets available for benefits $ 102,689,260 $ 112,535,446
============== =============
The accompanying notes are an integral part of the financial statements.
TUCSON ELECTRIC POWER COMPANY 401(k) PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
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For the year ended December 31,
-------------------------------
2001 2000
---- ----
Additions to net assets attributed to:
Contributions
Employer contributions $ 3,119,347 $ 2,793,882
Participant contributions 6,246,661 6,288,331
Transfer of merged plan assets 364,888 -
Investment income
Interest and dividend income 2,362,766 7,899,256
Net depreciation in fair value
of investments (16,222,520) (14,074,003)
-------------- --------------
Total additions (4,128,858) 2,907,466
-------------- --------------
Deductions from net assets attributed to:
Distributions to participants 5,717,328 7,197,567
-------------- ------------
Total deductions 5,717,328 7,197,567
-------------- ------------
Net decrease in net assets available
for benefits (9,846,186) (4,290,101)
Net assets available for benefits -
beginning of year 112,535,446 116,825,547
-------------- --------------
Net assets available for benefits -
end of year $ 102,689,260 $ 112,535,446
============== =============
The accompanying notes are an integral part of the financial statements.
TUCSON ELECTRIC POWER COMPANY 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
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NOTE 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.
PLAN MERGER
The Plan is a defined contribution plan for all full-time
employees of Tucson Electric Power Company (the Company). The
Plan was established on November 4, 1985, effective January 1,
1985, and was formerly called the Tucson Electric Power Company
Triple Investment Plan for Salaried Employees (TIP). The Tucson
Electric Power Company Supplemental Retirement Account for
Classified Employees (SRA) was first established and effective
June 1, 1987. The SRA was merged into the TIP effective July
1, 2000, with the TIP continuing as the survivor of the merger,
and the TIP was renamed the Tucson Electric Power Company 401(k)
Plan. All assets of the SRA were transferred to the Plan at
the time of the merger. The transfer was accounted for in a
manner similar to a pooling of interests. Accordingly, the
financial statements have been restated for all periods prior
to the merger to include the combined financial results of the
TIP and SRA. See Note 2.
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. 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. Prior to July 1, 2000, the investments
had to be made in 5% increments greater than or equal to 10%.
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,
2001, the Company contributed cash to the account of each
participant in an amount equal to the lesser of (i) the
participant's contributions for that payroll period and all
prior payroll periods for the Plan year less Company matching
contributions for all prior payroll periods of the Plan year or
(ii) 4.5% of the participant's compensation for that payroll
period. Participants direct the investment of such Company
contributions using the same guidelines 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 either made monthly or 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, 2001 and 2000 ranged from 7.00% 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 match 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 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
During 2001, fourteen investment options were offered to
participants. A brief description of each of the investment
options follows:
1) The Fidelity Magellan Fund, a mutual fund which invests in
common stocks and securities convertible into common stock of
domestic, foreign and multinational issuers of all sizes that
offer potential for growth;
2) The Fidelity Equity Income Fund, a mutual fund which invests
primarily in income-producing equity securities;
3) The Fidelity Growth Company Fund, a mutual fund which invests
in common stocks and securities convertible into common stock
of companies that have above-average growth potential;
4) The Fidelity Intermediate Bond Fund, a mutual fund which
invests mainly in investment-grade debt securities while
maintaining an average maturity of three to ten years;
5) The Fidelity Cash Reserve Fund, a mutual fund which invests
in U.S. dollar-denominated money market securities and
repurchase agreements, and may enter into reverse repurchase
agreements.
6) The Fidelity Asset Manager Fund, a mutual fund which
diversifies investments across stocks, bonds and short-term
instruments both in the United States and abroad;
7) The Fidelity Retirement Money Market Portfolio, which is
invested in high quality, U.S. dollar-denominated money market
instruments of the United States and foreign issuers which
present minimal credit risk;
8) The Fidelity Managed Income Portfolio, which is mainly
invested in short- and long-term conventional and synthetic
investment contracts or funding agreements issued by insurance
companies and other institutions that meet high credit quality
standards;
9) The Spartan U.S. Equity Index Fund, a mutual fund which
invests primarily in the companies that make up the Standard
and Poor's 500 index;
10) The Fidelity Low-Priced Stock Fund, a mutual fund which
mainly invests in companies with a stock price of $35.00 or
less per share at the time of purchase;
11) The Janus Flexible Income Fund, a mutual fund which
invests in a wide variety of income-producing securities
including corporate bonds and notes, government securities,
indexed and structured securities, preferred stock, income-
producing common stocks, convertible and exchangeable debt
securities and, to a lesser extent, in common stocks or
debt securities that are not currently paying dividends or
interest;
12) The Janus Worldwide Fund, a mutual fund which invests mainly
in common stocks of companies and organizations of any size,
from at least five different countries, including the U.S.;
13) The Brokerage Account, where participants may elect to
invest their contributions into a self-directed investment
portfolio, under the assistance and custodianship of Fidelity
Brokerage Services;
14) The UniSource Energy Stock Fund, a unitized stock fund
which invests in the common stock of UniSource Energy
Corporation.
The Fidelity Mutual Funds listed above are managed by the
Trustee. The Janus funds are managed by Janus Investments.
VESTING AND PRIORITIES UPON TERMINATION
A participant's interest in each of his accounts is at all
times 100% vested. 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.
NOTE 2: PLAN MERGER
-------------------
The TIP and the SRA plans were merged effective July 1, 2000.
For the year ended December 31, 2000, the plans were administered
through two separate trusts. Information related to the separate
TIP and SRA trust assets as of the period ended December 31, 2000
is as follows:
For the year ended December 31, 2000
------------------------------------
TIP SRA TOTAL
--- --- -----
Total additions to net assets $ 1,641,330 $ 1,266,136 $ 2,907,466
Total distributions from net assets (5,669,707) (1,527,860) (7,197,567)
Interplan transfers 137,378 (137,378) -
Change in net assets (3,890,999) (399,102) (4,290,101)
Net assets, beginning of year 66,165,898 50,659,649 116,825,547
------------ ------------ --------------
Net assets, end of year $ 62,274,899 $ 50,260,547 $ 112,535,446
============ ============ =============
The Amended and Restated Plan required the transfer of the SRA
assets (including the accounts of participants and any such
loans) to the Plan as soon as administratively practical after
July 1, 2000. Due to administrative limitations, the assets of
the SRA were transferred to the Plan in January 2001. Combined
recordkeeping began in February 2001.
On April 30, 2001, net assets of $364,888 relating to the 401(k)
plan of Global Solar Energy, LLC, an affiliate of Tucson Electric
Power Company (TEP), were merged into the Plan. Global Solar
Energy is a subsidiary of UniSource Energy Corporation, the parent
of TEP. Prior periods have not been restated as amounts transferred
into the Plan are not considered material in relation to total
net assets of the Plan.
NOTE 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
The Plan's investments are stated at fair value except for its
investments in the Managed Income Portfolio, which are valued
at contract value including accumulated earnings. The Fidelity
Magellan, Fidelity Equity Income, Fidelity Growth Company,
Fidelity Intermediate Bond, Fidelity Asset Manager, Spartan
U.S. Equity Index, Fidelity Low-Priced Stock, Janus Flexible
Income and Janus Worldwide Funds are valued at the net asset
value of the underlying investments as of the last day of the
Plan year as quoted by the National Association of Securities
Dealers, Inc. The Fidelity Retirement Money Market Portfolio
is stated at cost plus accumulated earnings which approximates
fair value. The UniSource Stock Fund and the Brokerage Account
are stated at fair value. Loans to participants are valued at
cost which approximates fair value.
Purchases and sales of securities are recorded on a trade-date
basis. Interest income is recorded on the accrual basis.
Dividends are recorded on the ex-dividend date.
The Plan presents in the Statement of Changes in Net Assets
Available for Benefits the net appreciation (depreciation) in
the fair value of its investments which consists of the
realized gains or losses and the unrealized appreciation
(depreciation) on those investments.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
NOTE 4: INVESTMENTS
-------------------
The following presents investment funds that represent five
percent or more of the Plan's net assets:
As of December 31,
-----------------------
2001 2000
---- ----
Fidelity Magellan Fund
250,665 and 248,620 units, respectively $ 26,124,294 $ 29,660,454
Fidelity Equity Income Fund
296,995 and 277,507 units, respectively $ 14,484,439 $ 14,827,201
Fidelity Growth Company Fund
484,551 and 502,610 units, respectively $ 25,787,829 $ 35,901,428
Fidelity Retirement Money Market Fund
10,885,465 and 8,581,105 units, respectively $ 10,885,465 $ 8,581,105
During 2001, the Plan's investment funds at fair value
depreciated (including gains and losses on investments
purchased and sold, as well as held during the year) in
value by $16,622,520. During 2000, the Plan's investment
funds at fair value depreciated (including gains and losses
on investments purchased and sold, as well as held during
the year) in value by $14,074,003.
NOTE 5: TAX STATUS
------------------
The Internal Revenue Service has determined and informed the
Company by letter dated November 5, 1994, and July 22, 1995
that the TIP and the SRA, respectively, as restated and the
related trust are designed in accordance with applicable
sections of the Internal Revenue Code (IRC). The Committee
believes that the Plan as amended and restated 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.
NOTE 6: RELATED PARTY TRANSACTIONS
----------------------------------
The Plan's investments in shares of mutual funds managed by
the Trustee and in stock of Unisource Energy Corporation
qualify as party-in-interest transactions for which a statutory
exemption exists.
TUCSON ELECTRIC POWER COMPANY 401(k) PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 2001
----------------------------------------------------------------------------------------------------------------
Column B Column C Column D Column E
Description of Investment Including
Identity of Issuer, Borrower, Maturity Date, Rate of Interest,
Lessor or Similar Party Collateral, Par or Maturity Value Cost Current Value
----------------------------- --------------------------------------------- ---- -------------
* Fidelity Magellan Fund Investment in 250,665 units of a growth fund $ 26,124,294
* Fidelity Equity Income Fund Investment in 296,995 units of a growth and 14,484,439
income fund
* Fidelity Growth Company Fund Investment in 484,551 units of a growth fund 25,787,829
* Fidelity Intermediate Bond Fund Investment in 351,944 units of an income fund 3,632,064
* Fidelity Cash Reserve -
* Fidelity Asset Manager Fund Investment in 135,344 units of an asset 2,088,847
allocation fund
* Fidelity Low-Priced Stock Fund Investment in 80,883 units of a growth fund 2,217,810
* Fidelity Retirement Money Investment in 10,885,465 units of a money 10,885,465
Market Portfolio market fund
* Fidelity Spartan U.S. Equity Investment in 60,645 units of a growth fund 2,464,594
Index Fund
Brokeragelink Account Investment in 2,407,996 units of a 2,416,258
self-directed investment fund
Janus Worldwide Fund Investment in 78,291 units of a growth fund 3,432,287
Janus Flexible Income Fund Investment in 55,632 units of an income fund 512,924
* UniSource Stock Fund Investment in 118,708 units of a unitized 1,356,829
company stock fund
* Fidelity Managed Income Investment in 4,014,311 units of an 4,014,311
Portfolio open-end commingled pool
* Loans to Participants Loans with maturities ranging from 3,078 171
1 month to 180 months and interest -------------
rates from 7.00% to 11.50%
$ 102,496,122
=============
* Denotes party-in-interest
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 28, 2002
----------------------------- ---------------
Kevin P. Larson
Vice President, Chief Financial Officer
and Treasurer
By: /s/ Dennis R. Nelson Date: June 28, 2002
----------------------------- ---------------
Dennis R. Nelson
Senior Vice President and Chief Operating
Officer, Energy Resources
By: /s/ Michael J. DeConcini Date: June 28, 2002
----------------------------- ---------------
Michael J. DeConcini
Senior Vice President, Strategic Planning
and Investments