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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, 2004
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
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DECEMBER 31, 2004 AND 2003
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(i) - Schedule of Assets (Held at End of Year)...........13-14
Signature Page................................................................15
Exhibit 23 - Consent of Independent Registered Public Accounting Firm.........16
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 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, 2004, 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 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 the Tucson Electric Power Company 401 (k) Plan (the "Plan") at December 31,
2004 and December 31, 2003, 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) 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. 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.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Los Angeles, CA
June 27, 2005
4
TUCSON ELECTRIC POWER COMPANY
401(K) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2004 AND 2003
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2004 2003
ASSETS
Investment: $137,015,679 $121,155,621
------------ ------------
Receivables:
Employer contributions 122,682 92,651
Participant contributions 246,495 206,410
Due from broker for securities sold 21,051 --
------------ ------------
Total receivables 390,228 299,061
------------ ------------
Net assets available for benefits $137,405,907 $121,454,682
============ ============
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, 2004 AND 2003
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2004 2003
ADDITIONS TO NET ASSETS ATTRIBUTED TO:
Investment income:
Interest and dividend income $ 490,779 $ 459,113
Net appreciation in fair value of investments 10,212,694 21,472,737
------------ ------------
Total investment income 10,703,473 21,931,850
------------ ------------
Contributions:
Employer contributions 3,669,184 3,274,061
Participant contributions 8,044,632 6,868,251
Participant rollovers 671,420 6,114,968
------------ ------------
Total contributions 12,385,236 16,257,280
------------ ------------
Total additions 23,088,709 38,189,130
------------ ------------
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
Benefits paid to participants 7,123,951 6,127,855
Administrative expenses 13,533 11,503
------------ ------------
Total deductions 7,137,484 6,139,358
Net increase 15,951,225 32,049,772
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 121,454,682 89,404,910
------------ ------------
End of year $137,405,907 $121,454,682
============ ============
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, 2004 AND 2003
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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, 2004, 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 every two weeks through payroll deductions
and are considered to be in default if all payments are not made for any
three month period. If a participant fails to repay a loan in full, the
Committee may immediately reduce the value of the participant's account by
the amount of unpaid principal and interest and/or reduce any distribution
by the amount of the remaining unpaid principal and interest. Each loan is
7
TUCSON ELECTRIC POWER COMPANY
401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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secured by the balance of the participant's account and bears a fixed rate
of interest of the prime rate plus 2%. Interest rates for the years ended
December 31, 2004 and 2003 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
8
TUCSON ELECTRIC POWER COMPANY
401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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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.
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, 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
are valued based upon the net asset value of the unit value of each
specific fund. 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. Net assets available for benefits of
$29,963 at December 31, 2004 are due to participants who have withdrawn
from participation in the Plan.
4. INVESTMENTS
The following investments represent 5% or more of the Plan's net assets as
of December 31:
2004 2003
Fidelity Growth Company Fund
533,412 and 542,172 units, respectively $29,908,412 $27,146,554
Fidelity Magellan Fund
255,162 and 258,840 units, respectively $26,483,275 $25,298,986
Fidelity Equity Income Fund
355,352 and 330,876 units, respectively $18,755,502 $16,461,069
9
TUCSON ELECTRIC POWER COMPANY
401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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Fidelity Retirement Money Market Fund
12,126,473 and 12,146,654 units, respectively $12,126,473 $12,146,654
Fidelity Low Priced Stock Fund
247,534 and 191,768 units, respectively $ 9,963,258 $ 6,708,029
Fidelity Managed Income Portfolio
7,196,002 and 5,968,993 units, respectively $ 7,196,002 $ 5,968,993
Fidelity Intermediate Bond Fund
655,130 and 619,266 units, respectively $ 6,891,963 $ 6,601,380
During 2004 and 2003 the Plan's investments appreciated (including gains
and losses on investments purchased and sold, as well as held during the
year) in value by $10,212,694 and $21,472,737 as follows:
2004 2003
Mutual Funds $ 10,275,573 $ 20,550,764
Common Stock (62,879) 921,973
------------ ------------
Total $ 10,212,694 $ 21,472,737
============ ============
5. CONCENTRATION OF CREDIT RISK
At December 31, 2004 and 2003, the Plan's assets consist primarily of
investments in financial instruments, money market funds, investment
contracts, mutual funds, UniSource Energy Corporation stock and participant
loans. Investment securities are exposed to various risks such as interest
rate, market, and credit risks. Due to the level of risk associated with
certain investment securities, it is at least reasonably possible that
changes in the values of investment securities will occur in the near term
and that such changes could materially affect participants' account
balances and the amounts reported in the statement of net assets available
for benefits.
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 2004 and 2003, the Plan's investments in shares of mutual funds managed
by the Trustee of $117,202,526 and $103,532,978, respectively, as well as
in stock of UniSource Energy Corporation in the amounts of $2,638,328 and
$2,866,040, 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, 2004 AND 2003
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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:
2004 2003
Cost of shares purchased $ 645,633 $ 764,754
Number of shares purchased 26,375 39,453
Proceeds from shares sold $ 810,466 $ 802,246
Number of shares sold 33,168 37,838
8. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following reconciles net assets available for plan benefits per the
financial statements at December 31, 2004 to Form 5500:
2004
Net assets available for benefits per the
financial statements $137,405,907
Amounts allocated to withdrawing participants
at December 31, 2004 (29,963)
------------
Net assets available for benefits per Form 5500 $137,375,944
============
The following reconciles benefits paid to participants per the financial
statements for the year ended December 31, 2004, to Form 5500:
2004
Benefits paid to participants per the
financial statements $ 7,123,951
Add: Amounts allocated to withdrawing participants
at December 31, 2004 29,963
-----------
Benefits paid to participants per Form 5500 $ 7,153,914
===========
Amounts allocated to withdrawing participants are for benefit claims that
have been processed and approved for payment prior to December 31, 2004,
but not yet paid as of that date.
11
SUPPLEMENTAL SCHEDULES
12
TUCSON ELECTRIC POWER COMPANY
401(K) PLAN
SCHEDULE H, LINE 4(I) - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2004
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DESCRIPTION OF INVESTMENT INCLUDING
IDENTITY OF ISSUE, BORROWER, MATURITY DATE, RATE OF INTEREST,
(a) (b) LESSOR OR SIMILAR PARTY (c) COLLATERAL, PAR OR MATURITY VALUE (d) COST** (e) CURRENT VALUE
----------------------- --------------------------------- ------ -------------
* Fidelity Growth Company Fund Investment in 533,412 units of a growth fund $ 29,908,412
* Fidelity Magellan Fund Investment in 255,162 units of a growth fund 26,483,275
* Fidelity Equity Income Fund Investment in 355,352 units of a growth and
income fund 18,755,502
* Fidelity Retirement Money Market Investment in 12,126,473 units of a money
Portfolio market fund 12,126,473
* Fidelity Low-Priced Stock Fund Investment in 247,534 units of a growth fund 9,963,258
* Fidelity Intermediate Bond Fund Investment in 655,130 units of an income fund 6,891,963
* Fidelity Managed Income Portfolio Investment in 7,196,002 units of an open
ended commingled pool 7,196,002
Spartan U.S. Equity Index Fund Investment in 104,172 units of a growth fund 4,464,819
* Fidelity Asset Manager Fund Investment in 261,135 units of an asset
allocation fund 4,233,005
Janus Worldwide Fund Investment in 73,008 units of a growth fund 3,023,271
* UniSource Energy Stock Fund Investment in 109,429 units of a unitized
company stock fund 2,638,328
BrokerageLink Account Investment in 3,394,157 units of a self-
directed investment fund 3,394,157
Janus Flexible Bond Fund Investment in 180,805 units of an income fund 1,753,812
* Fidelity Diversified International Fund Investment in 13,260 units of a growth fund 379,765
* Fidelity Freedom 2005 Investment in 31,489 units of an income fund 340,086
American Beacon Small Cap Value Plan Investment in 16,525 units of an growth fund 329,006
* Fidelity Freedom 2010 Investment in 23,404 units of an income fund 318,756
Franklin Utilities A Investment in 28,489 units of an growth and
income fund 315,948
* Fidelity Freedom 2015 Investment in 24,063 units of an growth fund 265,894
* Fidelity Freedom 2025 Investment in 16,557 units of an growth fund 186,766
13
TUCSON ELECTRIC POWER COMPANY
401(K) PLAN
SCHEDULE H, LINE 4(I) - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2004
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DESCRIPTION OF INVESTMENT INCLUDING
IDENTITY OF ISSUE, BORROWER, MATURITY DATE, RATE OF INTEREST,
(a) (b) LESSOR OR SIMILAR PARTY (c) COLLATERAL, PAR OR MATURITY VALUE (d) COST** (e) CURRENT VALUE
----------------------- --------------------------------- ------ -------------
* Fidelity Small Cap Stock Investment in 4,290 units of an growth fund 77,897
* Fidelity Freedom 2020 Investment in 1,586 units of an growth fund 22,145
* Fidelity Freedom 2030 Investment in 1,393 units of an growth fund 19,620
* Fidelity Freedom 2035 Investment in 1,661 units of an growth fund 19,002
* Fidelity Freedom 2040 Investment in 1,778 units of an growth fund 14,705
* Loans to participants Loans with maturities ranging from 1 month to
180 months and interest rates from 4.00%
to 11.50% 3,893,812
-------------
$ 137,015,679
=============
* Denotes party-in-interest
** Historical cost information is not required for participant-directed
investments.
14
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 29, 2005
------------------------------------------ -------------
Kevin P. Larson
Member of Plan Administrative Committee
By: /s/ Steven J. Glaser Date: June 29, 2005
------------------------------------------ -------------
Steven J. Glaser
Member of Plan Administrative Committee
By: /s/ Michael J. DeConcini Date: June 29, 2005
------------------------------------------ -------------
Michael J. DeConcini
Member of Plan Administrative Committee
15