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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, 2002
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 TO FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
Page(s)
Required Information.....................................................3
Report of Independent Accountants........................................4
Financial Statements:
Statements of Assets Available for Benefits
at December 31, 2002 and 2001.......................................5
Statement of Changes in Assets Available for
Benefits for the Year Ended December 31, 2002.......................6
Notes to Financial Statements.....................................7-12
Supplemental Schedule:
Schedule of Assets (Held at End of Year) at December 31, 2002.......13
Signature Page..........................................................14
Exhibit 23 - Consent of Independent Accountants.........................15
Exhibit 99 - Certifications Pursuant to Section 906
of the Sarbanes-Oxley Act..............................................16
2
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,
2002, 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 INDEPENDENT ACCOUNTANTS
---------------------------------
To the Participants and Administrator of
the Tucson Electric Power Company 401(k) Plan:
In our opinion, the accompanying statements of assets available for benefits
and the related statements of changes in assets available for benefits
present fairly, in all material respects, the assets available for benefits
of the Tucson Electric Power Company 401(k) Plan (the Plan) at December 31,
2002 and 2001, and the changes in 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 at end of year) 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 20, 2003
4
TUCSON ELECTRIC POWER COMPANY 401(k) PLAN
STATEMENTS OF ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2002 AND 2001
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2002 2001
---- ----
ASSETS
Investments:
At fair value:
Fund investments $ 81,336,424 $ 95,403,640
Participant loans receivable 2,932,477 3,078,171
-------------- --------------
84,268,901 98,481,811
At contract value:
Fund investments 4,905,626 4,014,311
-------------- --------------
Total Investments 89,174,527 102,496,122
-------------- --------------
Receivables:
Employer contributions 75,745 81,416
Participant contributions 154,638 111,722
-------------- --------------
Total Receivables 230,383 193,138
-------------- --------------
Assets available for benefits $ 89,404,910 $ 102,689,260
============== ==============
The accompanying notes are an integral part of these financial statements.
5
TUCSON ELECTRIC POWER COMPANY 401(k) PLAN
STATEMENTS OF CHANGES IN ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
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2002 2001
---- ----
Additions:
Contributions:
Employer contributions $ 3,178,380 $ 3,119,347
Participant contributions 6,796,359 6,246,661
-------------- --------------
Total contributions 9,974,739 9,366,008
Transfer of merged plan assets - 364,888
Investment income (loss):
Interest and dividend income 523,405 2,362,766
Net depreciation in fair value
of investments (19,630,500) (16,222,520)
-------------- --------------
Total investment loss (9,132,356) (4,128,858)
-------------- --------------
Deductions:
Benefits paid to participants 4,139,321 5,708,832
Administrative expenses 12,673 8,496
-------------- --------------
Total deductions 4,151,994 5,717,328
-------------- --------------
Net decrease (13,284,350) (9,846,186)
-------------- --------------
Assets available for benefits:
Beginning of year 102,689,260 112,535,446
-------------- --------------
End of year $ 89,404,910 $ 102,689,260
============== ==============
The accompanying notes are an integral part of these financial statements.
6
TUCSON ELECTRIC POWER COMPANY 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
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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. 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, 2002, 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 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.
7
1. DESCRIPTION OF PLAN (CONTINUED)
------------------------------------
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, 2002 and 2001 ranged from 6.25% to 11.50%. Loan transactions
are treated as a transfer to (from) the investment fund from (to) the
Participant Loans fund.
DISRIBUTIONS
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 2002, thirteen 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;
8
1. DESCRIPTION OF PLAN (CONTINUED)
------------------------------------
INVESTMENTS (CONTINUED)
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 Asset Manager Fund, a mutual fund which diversifies
investments across stocks, bonds and short-term instruments both in the
United States and abroad;
6) 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;
7) 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;
8) 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;
9) 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;
10) 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;
11) 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.;
12) The Brokeragelink Account, where participants may elect to invest their
contributions into a self-directed investment portfolio, under the assistance
and custodianship of Fidelity Brokerage Services;
9
1. DESCRIPTION OF PLAN (CONTINUED)
------------------------------------
INVESTMENTS (CONTINUED)
13) The UniSource Energy Stock Fund, a real-time trading 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
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. 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 Fidelity 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 Energy 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.
10
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
----------------------------------------------
INVESTMENT VALUATION AND INCOME RECOGNITION (CONTINUED)
The Plan presents in the Statement of Changes in 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.
3. INVESTMENTS
---------------
The following presents investment funds that represent five percent or more
of the Plan's assets as of December 31:
2002 2001
---- ----
Fidelity Magellan Fund
245,441 and 250,665 units, respectively $19,380,022 $26,124,294
Fidelity Growth Company Fund
476,168 and 484,551 units, respectively $16,865,874 $25,787,829
Fidelity Equity Income Fund
309,549 and 296,995 units, respectively $12,279,819 $14,484,439
Fidelity Retirement Money Market Fund
12,013,820 and 10,885,465 units, respectively $12,013,820 $10,885,465
Fidelity Intermediate Bond Fund
523,651 and 351,944 units, respectively $ 5,618,775 $ 3,632,064
Fidelity Managed Income Portfolio
4,905,626 and 4,014,311 units, respectively $ 4,905,626 $ 4,014,311
During 2002 and 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 $19,630,500 and $16,222,520, respectively.
11
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4. CONCENTRATION OF CREDIT RISK
--------------------------------
At December 31, 2002 and 2001, 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.
5. 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.
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.
7. SUBSEQUENT EVENT
---------------------
On October 29, 2002, UniSource Energy entered into two Asset Purchase
Agreements with Citizens Communication Company (Citizens) for the purchase of
Citizens' Arizona electric and gas utility businesses. The asset purchases
are expected to close in the second half of 2003 after the conditions to the
consummation of the transactions, including federal and state regulatory
approvals, are satisfied or waived. Upon closing and transfer of employment
to UniSource Energy Services, Inc., the participants of the Citizens' 401(k)
Savings Plan will have the option to roll over their account balance,
including outstanding loan balances, to the Tucson Electric Power Company
401(k) Plan.
12
TUCSON ELECTRIC POWER COMPANY 401(k) PLAN
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
AS OF DECEMBER 31, 2002
---------------------------------------------------------------------------------------------------------
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 245,441 units of a growth fund $ 19,380,022
* Fidelity Growth Company Fund Investment in 476,168 units of a growth fund 16,865,874
* Fidelity Equity Income Fund Investment in 309,549 units of a growth and 12,279,819
income fund
* Fidelity Retirement Money Investment in 12,013,820 units of a money 12,013,820
Market Portfolio market fund
* Fidelity Intermediate Investment in 523,651 units of an income fund 5,618,775
Bond Fund
* Fidelity Managed Income Investment in 4,905,626 units of an 4,905,626
Portfolio open-ended commingled pool
* Fidelity Low-Priced Investment in 144,506 units of a growth fund 3,637,223
Stock Fund
Janus Worldwide Fund Investment in 80,035 units of a growth fund 2,571,534
* Fidelity Asset Manager Fund Investment in 149,622 units of an asset 2,064,787
allocation fund
* Fidelity Spartan U.S. Investment in 64,005 units of a growth fund 1,993,770
Equity Index Fund
* UniSource Energy Stock Fund Investment in 114,607 units of a real-time 1,981,559
trading company stock fund
Brokeragelink Account Investment in 1,866,427 units of a 1,866,427
self-directed investment fund
Janus Flexible Income Fund Investment in 110,365 units of an income fund 1,062,814
* Loans to Participants Loans with maturities ranging from 1 month 2,932,477
to 180 months and interest rates from --------------
6.25% to 11.50%
$ 89,174,527
==============
* 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 27, 2003
----------------------------- ---------------
Kevin P. Larson
Member of Plan Administrative Committee
By: /s/ Steven J. Glaser Date: June 27, 2003
----------------------------- ---------------
Steven J. Glaser
Member of Plan Administrative Committee
By: /s/ Michael J. DeConcini Date: June 27, 2003
----------------------------- ---------------
Michael J. DeConcini
Member of Plan Administrative Committee
14