1 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, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to --------------- ----------------- COMMISSION FILE NUMBER 1-3187 A. Full title of the plan and address of the plan, if different from that of the issuer named below: HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: RELIANT ENERGY, INCORPORATED (FORMERLY HOUSTON INDUSTRIES INCORPORATED) 1111 LOUISIANA STREET HOUSTON, TEXAS 77002
2 TABLE OF CONTENTS Independent Auditors' Report Page 1 Financial Statements: Statement of Net Assets Available for Benefits, December 31, 1998 Page 2 Statement of Net Assets Available for Benefits, December 31, 1997 Page 3 Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 1998 Page 4 Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 1997 Page 5 Notes to Financial Statements for the Years Ended December 31, 1998 and 1997 Page 6 Supplemental Schedules: Supplemental Schedule of Investments, December 31, 1998 (Item 27a) Page 14 Supplemental Schedule of 5% Reportable Transactions for the Year Ended December 31, 1998 (Item 27d) Page 15 Pursuant to Item 4 of Form 11-K, the financial statements and schedules referred to above have been prepared in accordance with regulations of the Employee Retirement Income Security Act of 1974.
3 INDEPENDENT AUDITORS' REPORT Houston Industries Incorporated Savings Plan: We have audited the accompanying statements of net assets for benefits of the Houston Industries Incorporated Savings Plan (the "Plan") as of December 31, 1998 and 1997 and the related statements of changes in net assets available for benefits for the years then ended. 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 in accordance with generally accepted auditing standards. 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 1998 and 1997, and the changes in net assets available for benefits for the years then ended in conformity with generally accepted accounting principles. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental schedules, listed in the Table of Contents, 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. The supplemental information by fund in the statements of net assets available for benefits and the statements of changes in net assets available for benefits is presented for the purpose of additional analysis rather than to present the net assets available for benefits and the changes in net assets available for benefits of the individual funds. These supplemental schedules and supplemental information by fund are the responsibility of the Plan's management. Such supplemental schedules and supplemental information by fund have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, are fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole. Houston, Texas June 18, 1999 1
4 HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1998 PARTICIPANT INVESTMENT FUNDS -------------------------------------------------------------------------------------------- COMPANY CAPITAL GROWTH & COMMON ALLOCATED APPRECIATION INCOME INTERNATIONAL STOCK ESOP EQUITY EQUITY EQUITY BALANCED FUND FUND FUND FUND FUND FUND -------------- -------------- -------------- -------------- -------------- -------------- ASSETS INVESTMENTS Common stock $ 421,383,721 $ 166,000,476 Mutual funds $ 93,798,186 $ 97,609,045 $ 27,798,438 $ 19,586,842 Cash and cash equivalents 4,287,875 3,078,722 17,501,426 Other assets -------------- -------------- -------------- -------------- -------------- -------------- TOTAL 425,671,596 169,079,198 93,798,186 97,609,045 27,798,438 37,088,268 ------------- ------------- ------------ ------------ ------------ ------------ RECEIVABLES Dividends and Interest 20,890 9,971 85,285 Investment sales 1,929,049 1,906,785 Contributions Employer 137,591 Participant 304,731 58,238 193,457 24,903 74,771 -------------- -------------- -------------- -------------- -------------- -------------- TOTAL 325,621 147,562 1,987,287 2,100,242 24,903 160,056 ------------- ------------- ------------ ------------ ------------ ------------ TOTAL ASSETS 425,997,217 169,226,760 95,785,473 99,709,287 27,823,341 37,248,324 ------------- ------------- ------------ ------------ ------------ ------------ LIABILITIES PAYABLES Administrative expenses (4,386) (1,976) (1,211) (1,327) (654) (741) Interest on ESOP loans from Company ESOP loans from Company ------------- ------------- ------------ ------------ ------------ ------------ TOTAL LIABILITIES (4,386) (1,976) (1,211) (1,327) (654) (741) ------------- ------------- ------------ ------------ ------------ ------------ NET ASSETS AVAILABLE FOR BENEFITS $ 425,992,831 $ 169,224,784 $ 95,784,262 $ 99,707,960 $ 27,822,687 $ 37,247,583 ============= ============= ============ ============ ============ ============ PARTICIPANT INVESTMENT FUNDS ------------------------------------------------------------ FIXED MONEY PARTICIPANT UNALLOCATED INCOME MARKET LOAN ESOP FUND FUND FUND TOTAL FUND TOTAL -------------- -------------- -------------- -------------- ------------- -------------- ASSETS INVESTMENTS Common stock $ 587,384,197 $ 375,166,865 $ 962,551,062 Mutual funds $ 10,138,557 248,931,068 248,931,068 Cash and cash equivalents $ 33,088,908 57,956,931 5,745,942 63,702,873 Other assets $ 31,229,646 31,229,646 31,229,646 -------------- -------------- -------------- -------------- ------------- ------------- TOTAL 10,138,557 33,088,908 31,229,646 925,501,842 380,912,807 1,306,414,649 ------------ ------------ ------------ ------------- ------------- -------------- RECEIVABLES Dividends and Interest 53,286 169,432 15,494 184,926 Investment sales 148,064 3,983,898 3,983,898 Contributions Employer 137,591 137,591 Participant 35,072 176,899 868,071 868,071 -------------- -------------- -------------- -------------- ------------- -------------- TOTAL 88,358 324,963 5,158,992 15,494 5,174,486 ------------ ------------ ------------ ------------- ------------- -------------- TOTAL ASSETS 10,226,915 33,413,871 31,229,646 930,660,834 380,928,301 1,311,589,135 ------------ ------------ ------------ ------------- ------------- -------------- LIABILITIES PAYABLES Administrative expenses (496) (706) (11,497) (11,497) Interest on ESOP loans from Company (8,162,079) (8,162,079) ESOP loans from Company (240,431,715) (240,431,715) ------------ ------------ ------------ ------------- ------------- -------------- TOTAL LIABILITIES (496) (706) (11,497) (248,593,794) (248,605,291) ------------ ------------ ------------ ------------- ------------- -------------- NET ASSETS AVAILABLE FOR BENEFITS $ 10,226,419 $ 33,413,165 $ 31,229,646 $ 930,649,337 $ 132,334,507 $1,062,983,844 ============ ============ ============ ============= ============= ============== The accompanying notes are an integral part of these financial statements. 2
5 HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1997 PARTICIPANT INVESTMENT FUNDS ---------------------------------------------------------------------------------------------- COMPANY CAPITAL GROWTH & COMMON ALLOCATED APPRECIATION INCOME INTERNATIONAL STOCK ESOP EQUITY EQUITY EQUITY FUND FUND FUND FUND FUND --------------- --------------- --------------- --------------- --------------- ASSETS INVESTMENTS Common stock $ 338,664,722 $ 125,867,057 -- -- -- Mutual funds -- -- $ 76,615,551 $ 93,016,707 $ 25,659,496 Cash and cash equivalents 2,003,994 1,039,573 -- -- -- Other assets -- -- -- -- -- --------------- --------------- --------------- --------------- --------------- TOTAL 340,668,716 126,906,630 76,615,551 93,016,707 25,659,496 --------------- --------------- --------------- --------------- --------------- RECEIVABLES Dividends and Interest 4,754,337 1,796,895 -- -- -- Investment sales -- -- -- 1,818,574 -- Contributions Employer -- 262,752 -- -- -- Participant 108,896 -- 127,140 143,754 54,336 --------------- --------------- --------------- --------------- --------------- TOTAL 4,863,233 2,059,647 127,140 1,962,328 54,336 --------------- --------------- --------------- --------------- --------------- TOTAL ASSETS 345,531,949 128,966,277 76,742,691 94,979,035 25,713,832 --------------- --------------- --------------- --------------- --------------- LIABILITIES PAYABLES Administrative expenses (5,895) (2,407) (1,720) (2,041) (835) Interest on ESOP loans from Company -- -- -- -- -- ESOP loans from Company -- -- -- -- -- --------------- --------------- --------------- --------------- --------------- TOTAL LIABILITIES (5,895) (2,407) (1,720) (2,041) (835) --------------- --------------- --------------- --------------- --------------- NET ASSETS AVAILABLE FOR BENEFITS $ 345,526,054 $ 128,963,870 $ 76,740,971 $ 94,976,994 $ 25,712,997 =============== =============== =============== =============== =============== PARTICIPANT INVESTMENT FUNDS ------------------------------------------------------------------------------------------------ FIXED MONEY PARTICIPANT BALANCED INCOME MARKET LOAN FUND FUND FUND FUND TOTAL --------------- --------------- --------------- --------------- --------------- ASSETS INVESTMENTS Common stock -- -- -- -- $ 464,531,779 Mutual funds $ 34,732,269 $ 7,712,680 -- -- 237,736,703 Cash and cash equivalents -- -- $ 28,962,593 -- 32,006,160 Other assets -- -- -- $ 30,437,985 30,437,985 --------------- --------------- --------------- --------------- --------------- TOTAL 34,732,269 7,712,680 28,962,593 30,437,985 764,712,627 --------------- --------------- --------------- --------------- --------------- RECEIVABLES Dividends and Interest 91,650 41,191 141,577 -- 6,825,650 Investment sales -- -- -- -- 1,818,574 Contributions Employer -- -- -- -- 262,752 Participant 54,915 11,505 28,971 -- 529,517 --------------- --------------- --------------- --------------- --------------- TOTAL 146,565 52,696 170,548 -- 9,436,493 --------------- --------------- --------------- --------------- --------------- TOTAL ASSETS 34,878,834 7,765,376 29,133,141 30,437,985 774,149,120 --------------- --------------- --------------- --------------- --------------- LIABILITIES PAYABLES Administrative expenses (990) (513) (908) -- (15,309) Interest on ESOP loans from Company -- -- -- -- -- ESOP loans from Company -- -- -- -- -- --------------- --------------- --------------- --------------- --------------- TOTAL LIABILITIES (990) (513) (908) -- (15,309) --------------- --------------- --------------- --------------- --------------- NET ASSETS AVAILABLE FOR BENEFITS $ 34,877,844 $ 7,764,863 $ 29,132,233 $ 30,437,985 $ 774,133,811 =============== =============== =============== =============== =============== UNALLOCATED ESOP FUND TOTAL --------------- --------------- ASSETS INVESTMENTS Common stock $ 330,619,455 $ 795,151,234 Mutual funds -- 237,736,703 Cash and cash equivalents 4,671,858 36,678,018 Other assets -- 30,437,985 --------------- --------------- TOTAL 335,291,313 1,100,003,940 --------------- --------------- RECEIVABLES Dividends and Interest 4,611,125 11,436,775 Investment sales -- 1,818,574 Contributions Employer -- 262,752 Participant -- 529,517 --------------- --------------- TOTAL 4,611,125 14,047,618 --------------- --------------- TOTAL ASSETS 339,902,438 1,114,051,558 --------------- --------------- LIABILITIES PAYABLES Administrative expenses -- (15,309) Interest on ESOP loans from Company (7,119,607) (7,119,607) ESOP loans from Company (248,301,638) (248,301,638) --------------- --------------- TOTAL LIABILITIES (255,421,245) (255,436,554) --------------- --------------- NET ASSETS AVAILABLE FOR BENEFITS $ 84,481,193 $ 858,615,004 =============== =============== The accompanying notes are an integral part of these financial statements. 3
6 HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1998 PARTICIPANT INVESTMENT FUNDS -------------------------------------------------------------------------------- COMPANY CAPITAL GROWTH & COMMON ALLOCATED APPRECIATION INCOME STOCK ESOP EQUITY EQUITY FUND FUND FUND FUND ------------- ------------- ------------ ------------ INVESTMENT INCOME Dividends Common stock $ 19,247,560 $ 7,481,947 Mutual funds $ 3,281,324 $ 1,819,711 Interest 176,233 Net appreciation in fair value of investments 65,340,475 25,296,573 15,108,354 5,419,492 ------------- ------------- ------------ ------------ TOTAL 84,764,268 32,778,520 18,389,678 7,239,203 ------------- ------------- ------------ ------------ CONTRIBUTIONS Participant 8,592,157 6,502,380 7,518,707 Employer Allocation of ESOP stock 13,879,078 ESOP contribution ------------- ------------- ------------ ------------ TOTAL 8,592,157 13,879,078 6,502,380 7,518,707 ------------- ------------- ------------ ------------ Fund transfers, net 4,434,167 (323,098) (2,814,305) (5,512,655) Administrative expenses (77,217) (1,976) (15,439) (17,462) Benefit payments (17,246,598) (6,071,610) (3,019,023) (4,496,827) Interest on ESOP loans ------------- ------------- ------------ ------------ CHANGE IN NET ASSETS AVAILABLE FOR BENEFITS 80,466,777 40,260,914 19,043,291 4,730,966 NET ASSETS AVAILABLE FOR PLAN BENEFITS BEGINNING OF PERIOD 345,526,054 128,963,870 76,740,971 94,976,994 ------------- ------------- ------------ ------------ END OF PERIOD $ 425,992,831 $ 169,224,784 $ 95,784,262 $ 99,707,960 ============= ============= ============ ============ PARTICIPANT INVESTMENT FUNDS ------------------------------------------------------------------------------ INTERNATIONAL FIXED MONEY EQUITY BALANCED INCOME MARKET FUND FUND FUND FUND ------------- ------------ ------------ ------------ INVESTMENT INCOME Dividends Common stock Mutual funds $ 755,511 $ 536,913 Interest 1,029,987 $ 541,399 $ 1,706,672 Net appreciation in fair value of investments 2,467,397 1,289,386 11,452 ------------ ------------ ------------ ------------ TOTAL 3,222,908 2,856,286 552,851 1,706,672 ------------ ------------ ------------ ------------ CONTRIBUTIONS Participant 2,684,418 2,582,958 512,336 1,199,367 Employer Allocation of ESOP stock ESOP contribution ------------ ------------ ------------ ------------ TOTAL 2,684,418 2,582,958 512,336 1,199,367 ------------ ------------ ------------ ------------ Fund transfers, net (2,622,315) (1,756,669) 2,217,004 5,586,210 Administrative expenses (8,042) (9,272) (5,649) (8,485) Benefit payments (1,167,279) (1,303,564) (814,986) (4,202,832) Interest on ESOP loans ------------ ------------ ------------ ------------ CHANGE IN NET ASSETS AVAILABLE FOR BENEFITS 2,109,690 2,369,739 2,461,556 4,280,932 NET ASSETS AVAILABLE FOR PLAN BENEFITS BEGINNING OF PERIOD 25,712,997 34,877,844 7,764,863 29,132,233 ------------ ------------ ------------ ------------ END OF PERIOD $ 27,822,687 $ 37,247,583 $ 10,226,419 $ 33,413,165 ============ ============ ============ ============ PARTICIPANT INVESTMENT FUNDS ---------------------------------- PARTICIPANT UNALLOCATED LOAN ESOP FUND TOTAL FUND TOTAL ------------ ------------- ------------- --------------- INVESTMENT INCOME Dividends Common stock $ 26,729,507 $ 19,775,491 $ 46,504,998 Mutual funds 6,393,459 6,393,459 Interest 3,454,291 3,454,291 Net appreciation in fair value of investments 114,933,129 53,831,321 168,764,450 ------------ ------------- ------------- --------------- TOTAL 151,510,386 73,606,812 225,117,198 ------------ ------------- ------------- --------------- CONTRIBUTIONS Participant 29,592,323 29,592,323 Employer Allocation of ESOP stock 13,879,078 (13,879,078) ESOP contribution 11,800,169 11,800,169 ------------ ------------- ------------- --------------- TOTAL 43,471,401 (2,078,909) 41,392,492 ------------ ------------- ------------- --------------- Fund transfers, net 791,661 Administrative expenses (143,542) (143,542) Benefit payments (38,322,719) (38,322,719) Interest on ESOP loans (23,674,589) (23,674,589) ------------ ------------- ------------- --------------- CHANGE IN NET ASSETS AVAILABLE FOR BENEFITS 791,661 156,515,526 47,853,314 204,368,840 NET ASSETS AVAILABLE FOR PLAN BENEFITS BEGINNING OF PERIOD 30,437,985 774,133,811 84,481,193 858,615,004 ------------ ------------- ------------- --------------- END OF PERIOD $ 31,229,646 $ 930,649,337 $ 132,334,507 $ 1,062,983,844 ============ ============= ============= =============== The accompanying notes are an integral part of these financial statements. 4
7 HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1997 PARTICIPANT INVESTMENT FUNDS ------------------------------------------------------------------------- COMPANY CAPITAL GROWTH & COMMON ALLOCATED APPRECIATION INCOME STOCK ESOP EQUITY EQUITY FUND FUND FUND FUND ------------- ------------- ------------ ------------ INVESTMENT INCOME Dividends Common stock $ 20,517,489 $ 7,644,282 Mutual funds $ 1,225,483 $ 3,003,484 Interest Net appreciation in fair value of investments 50,357,694 18,909,106 15,766,743 19,662,247 ------------- ------------- ------------ ------------ TOTAL 70,875,183 26,553,388 16,992,226 22,665,731 ------------- ------------- ------------ ------------ CONTRIBUTIONS Participant 9,736,936 6,505,232 7,031,322 Employer Allocation of ESOP stock 15,664,412 Cash 453,639 ESOP Contribution ------------- ------------- ------------ ------------ TOTAL 9,736,936 16,118,051 6,505,232 7,031,322 ------------- ------------- ------------ ------------ Fund transfers, net (21,121,233) (283,653) 5,733,200 14,168,268 Administrative expenses (92,166) (753) (18,815) (22,094) Transfer to STPNOC (33,919,460) (24,081,169) (14,950,572) (18,394,982) Benefit payments (21,692,518) (7,297,304) (3,568,486) (5,683,308) Interest on ESOP loans ------------- ------------- ------------ ------------ CHANGE IN NET ASSETS AVAILABLE FOR BENEFITS 3,786,742 11,008,560 10,692,785 19,764,937 NET ASSETS AVAILABLE FOR PLAN BENEFITS BEGINNING OF PERIOD 341,739,312 117,955,310 66,048,186 75,212,057 ------------- ------------- ------------ ------------ END OF PERIOD $ 345,526,054 $ 128,963,870 $ 76,740,971 $ 94,976,994 ============= ============= ============ ============ PARTICIPANT INVESTMENT FUNDS ------------------------------------------------------------------------- INTERNATIONAL FIXED MONEY EQUITY BALANCED INCOME MARKET FUND FUND FUND FUND ------------ ------------ ----------- ------------ INVESTMENT INCOME Dividends Common stock Mutual funds $ 175,869 $ 1,302,781 $ 484,565 Interest $ 1,763,644 Net appreciation in fair value of investments 2,103,474 3,782,020 46,129 ------------ ------------ ----------- ------------ TOTAL 2,279,343 5,084,801 530,694 1,763,644 ------------ ------------ ----------- ------------ CONTRIBUTIONS Participant 2,944,829 2,826,070 577,443 1,871,287 Employer Allocation of ESOP stock Cash ESOP Contribution ------------ ------------ ----------- ------------ TOTAL 2,944,829 2,826,070 577,443 1,871,287 ------------ ------------ ----------- ------------ Fund transfers, net 201,886 (766,298) 572,991 958,942 Administrative expenses (9,986) (11,310) (5,827) (10,644) Transfer to STPNOC (5,148,850) (6,080,629) (886,193) (2,984,272) Benefit payments (1,238,233) (2,168,287) (944,489) (5,728,034) Interest on ESOP loans ------------ ------------ ----------- ------------ CHANGE IN NET ASSETS AVAILABLE FOR BENEFITS (971,011) (1,115,653) (155,381) (4,129,077) NET ASSETS AVAILABLE FOR PLAN BENEFITS BEGINNING OF PERIOD 26,684,008 35,993,497 7,920,244 33,261,310 ------------ ------------ ----------- ------------ END OF PERIOD $ 25,712,997 $ 34,877,844 $ 7,764,863 $ 29,132,233 ============ ============ =========== ============ PARTICIPANT INVESTMENT FUNDS -------------------------------- PARTICIPANT UNALLOCATED LOAN ESOP FUND TOTAL FUND TOTAL ------------ ------------- ------------ ------------- INVESTMENT INCOME Dividends Common stock $ 28,161,771 $ 19,260,588 $ 47,422,359 Mutual funds 6,192,182 6,192,182 Interest 1,763,644 1,763,644 Net appreciation in fair value of investments 110,627,413 49,289,685 159,917,098 ------------ ------------- ------------ ------------- TOTAL 146,745,010 68,550,273 215,295,283 ------------ ------------- ------------ ------------- CONTRIBUTIONS Participant 31,493,119 31,493,119 Employer Allocation of ESOP stock 15,664,412 (15,664,412) Cash 453,639 453,639 ESOP Contribution 19,431,067 19,431,067 ------------ ------------- ------------ ------------- TOTAL 47,611,170 3,766,655 51,377,825 ------------ ------------- ------------ ------------- Fund transfers, net 535,897 Administrative expenses (171,595) (171,595) Transfer to STPNOC (7,404,652) (113,850,779) (113,850,779) Benefit payments (48,320,659) (48,320,659) Interest on ESOP loans (24,986,977) (24,986,977) ------------ ------------- ------------ ------------- CHANGE IN NET ASSETS AVAILABLE FOR BENEFITS (6,868,755) 32,013,147 47,329,951 79,343,098 NET ASSETS AVAILABLE FOR PLAN BENEFITS BEGINNING OF PERIOD 37,306,740 742,120,664 37,151,242 779,271,906 ------------ ------------- ------------ ------------- END OF PERIOD $ 30,437,985 $ 774,133,811 $ 84,481,193 $ 858,615,004 ============ ============= ============ ============= The accompanying notes are an integral part of these financial statements. 5
8 HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 1. ACCOUNTING POLICIES In accordance with the provisions of the Houston Industries Incorporated Savings Plan (the "Plan"), the financial records of the Plan are generally kept and the valuations of accounts of participating employees ("Participants") are determined on the accrual basis. The Plan recognizes net appreciation or depreciation in the fair value of its investments. Investments are reflected at fair value in the financial statements. Fair value for securities listed on a national exchange is principally determined using the closing price on the New York Stock Exchange. Fair value for mutual funds is determined using net asset value. The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the reported amounts as well as certain disclosures. The Plan's financial statements include amounts that are based on management's best estimates and judgments. Actual results could differ from those estimates. Certain 1997 balances have been reclassed to conform to the 1998 presentation. 2. SUMMARY OF THE PLAN DESCRIPTION OF PLAN The following description of the Plan provides only general information. Participants should refer to the Plan document for a more complete description of the Plan's provisions. GENERAL The Plan is a defined contribution plan covering all employees of Reliant Energy, Incorporated formerly Houston Industries Incorporated (the "Company") and each subsidiary of the Company that has adopted the Plan except (i) building trades workers under a construction industry collective bargaining agreement providing specifically for retirement benefit payments to be made thereunder for such building trades workers, (ii) leased employees, (iii) independent contractors. Employees on the payroll of Reliant Energy Resources Corp. or any of its divisions or subsidiaries are not covered by the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). PARTICIPANT ACCOUNTS Each Participant's account is credited with the Participant's contributions and with allocations of the Company's contributions and Plan earnings. Each Participant's account is also charged with an allocation of administrative expenses. Allocations are based on Participant compensation or account balances, as defined. The benefit to which a Participant is entitled is the amount that can be provided from the Participant's vested accounts. 6
9 INVESTMENT PROGRAM The Plan has seven investment funds (Funds), as follows: COMPANY COMMON STOCK FUND: Invested primarily in shares of common stock of the Company. CAPITAL APPRECIATION EQUITY FUND: Invested in a pool of stock mutual funds that have a goal of long-term growth with little emphasis on current income. The mutual funds seek to buy stocks of rapidly growing companies or companies with potential for above average growth, including small company and international stocks. GROWTH AND INCOME EQUITY FUND: Invested in a pool of stock mutual funds that have a goal of long-term growth and current income. The mutual funds buy stocks of growing companies and companies that have a history of paying dividends. INTERNATIONAL EQUITY FUND: Invested in a pool of international stock mutual funds that have a goal of long-term growth with little emphasis on current income. The mutual funds buy stocks of growing and established companies that have their principal business activities and interests outside of the United States and which show the potential for growth. BALANCED FUND: Invested in both stock and bond mutual funds. The Fund uses a bond mutual fund investing in high-quality bonds and stock mutual funds investing in a wide variety of companies. FIXED INCOME FUND: Invested in a fixed income mutual fund. The mutual fund invests in high-quality government and corporate bonds and other fixed income securities. MONEY MARKET FUND: Invested in a money market fund. The mutual fund invests in high-quality government and corporate fixed income securities with maturities of less than one year. Investments in the funds are assigned units of participation. The unit value of the funds are determined daily based upon the fair market value of the underlying net assets. The total units assigned to participants at December 31, 1998 were as follows: Market Value Total Market Fund Units Per Unit Value -------------------------------- ------------- ------------ ------------ Company Common Stock Fund and Allocated ESOP Fund 32,345,071.13 18.4021 595,217,615 Capital Appreciation Equity Fund 4,923,685.86 19.4538 95,784,262 Growth and Income Equity Fund 5,498,414.37 18.1340 99,707,960 International Equity Fund 1,921,030.28 14.4832 27,822,687 Balanced Fund 2,584,002.76 14.4147 37,247,583 Fixed Income Fund 829,308.50 12.3313 10,226,419 Money Market Fund 2,787,751.06 11.9857 33,413,165 7
10 Pending the acquisition of an investment in an orderly manner for the Funds, the Trustee (as hereinafter defined) may temporarily hold funds uninvested or in short-term investments. The assets of the Plan are held in trust by The Northern Trust Company ("Trustee"). The Benefits Committee ("Committee"), appointed by the Board of Directors of the Company as the administrator of the Plan. The Committee retains an independent investment consultant to provide investment advice with respect to the Funds. The fees charged by the Trustee and the investment consultant are paid by the Trustee out of the Funds. A Participant has the right to direct the Trustee to invest his contributions, but not matching contributions made by the employer ("Employer Contributions"), in 1% increments in any or all of the Funds. All Employer Contributions to the Plan were invested in the ESOP (as hereinafter defined). EMPLOYEE STOCK OWNERSHIP PLAN The employee stock ownership component ("ESOP") of the Plan is a funding mechanism for a portion of the Employer Contributions to the Plan. In connection with the ESOP, the Company was party to an ESOP Trust Agreement between the Company and State Street Bank ("Prior ESOP Trustee"). The Prior ESOP Trustee purchased shares of the Company's common stock in open market transactions with funds provided by loans ("Loans") from the Company. The Prior ESOP Trustee completed the purchases of shares of the Company's common stock in December 1991 after purchasing 18,762,184 shares at a cost of approximately $350 million. At December 31, 1998 and 1997, the balance of the Loans was approximately $240 million and $248 million, respectively. The Loans bear interest at a fixed rate of 9.783%. The Loans are expected to be repaid over a period of up to twenty years. The Company makes periodic cash contributions ("ESOP Contributions") to the Unallocated ESOP (as hereinafter defined) portion of the Trust (as hereinafter defined). The ESOP Contributions, together with the earnings received on the investments included in the Unallocated ESOP and dividend income from the Unallocated ESOP and Allocated ESOP are used to pay principal and interest on the Loans. The dividend income from the Allocated ESOP used is replaced with released shares. As debt service payments on the Loans are made, the Company releases shares of common stock from the pledge securing the Loans and such shares are available for allocation to Participants' accounts as Employer Contributions. All released shares must be allocated to Participants' accounts at year-end. No allocated shares serve as collateral for the Loans. In addition to the ESOP Contributions, the Company may elect to make Employer Contributions to the Allocated ESOP (as hereinafter defined) in the form of cash which may be used to purchase shares of the Company's common stock in the open market. Dividend income received on shares of the Company's common stock that were purchased in the open market and placed in the Allocated ESOP is not available for debt service payments. That portion of the ESOP which has been allocated to Participants ("Allocated ESOP") as Employer Contributions and that portion of the ESOP which has not been allocated to Participants ("Unallocated ESOP") are presented separately in the accompanying financial statements. 8
11 FUNDING Participants may make contributions to the Plan through (i) payroll deductions on a pre-tax ("Pre-tax Contributions") or an after-tax ("After-tax Contributions") basis, (ii) a combination of After-tax and Pre-tax Contributions or (iii) a rollover of pre-tax contributions from another qualified plan. Contributions to the Plan are made by Participants and by the Company and each subsidiary of the Company that has adopted the Plan. Each Participant may contribute to the Plan annually an amount equal to any whole percentage up to and including 6% of his total eligible compensation. This amount, referred to as the Participant's "Basic Contributions", could be made up of Pre-tax and/or After-tax Contributions provided that the total amount contributed does not exceed 6% of the Participant's compensation. Employer Contributions are in an amount equal to 70% of Participant's Basic Contributions. Each Participant may make excess contributions annually to the Plan in an amount equal to any whole percentage up to and including 10% of his total eligible compensation. This amount, referred to as the Participant's "Excess Contributions", may be made up of Pre-tax and After-tax Contributions, provided that the total amount contributed does not exceed 10% of the Participant's compensation. The Company does not match Excess Contributions. Pre-tax Contributions made to the Plan decrease a Participant's income for federal income tax purposes by the amount of such Participant's Pre-tax Contributions. Pre-tax Contributions are, however, subject to Federal Insurance Contributions Act withholding tax. The maximum amount that a participant may elect to defer as a Pre-tax Contribution for any taxable year under all cash or deferred arrangements (such as the Plan) in which the participant participates was limited to $9,500 in 1997. The limit for 1998 was $10,000. Such amount may be adjusted thereafter for inflation. If the total amount of Pre-tax Contributions exceeds the maximum limit during any calendar year, such excess will be included in the participant's gross income for the year to which the deferrals relate, and will be returned to the Participant, plus any income or minus any loss allocable thereto, by April 15 of the following year. PARTICIPATION Any eligible employee may participate in the Plan as soon as is practicable after employment commences. Ineligible employees include persons not regularly and principally employed by the Company or a participating subsidiary, building trades workers under a construction industry collective bargaining agreement providing specifically for retirement benefit payments thereunder for such building trades workers, leased employees, independent contractors and employees on the payroll of Reliant Energy Resources Corp. or any of its divisions or subsidiaries. Former Participants who are reemployed by the Company may recommence participation in the Plan as soon as practicable after reemployment. Their vesting service will be reinstated, and any portion of their interest in the Employer Contributions that was forfeited will be reinstated in accordance with the terms of the Plan. 9
12 DISTRIBUTIONS AND FORFEITURES A terminated Participant or the beneficiary of a deceased Participant is entitled to a distribution of the value of the Participant's entire account in case of death, disability, or retirement (as hereinafter defined). Retirement is termination of service at the later of (i) Participant's attainment of age 65 or (ii) the fifth anniversary of the Participant's commencement of participation in the Plan. In case of termination of service for other reasons, a Participant is entitled to a distribution of the entire value of his contribution account plus the vested portion of his Employer Contribution account. Vesting is determined by vesting service years in accordance with the following schedule: Vesting Service Vested Years* Percentage --------------- ---------- Less than two..................... 0% Two but less than three........... 20% Three but less than four.......... 40% Four but less than five........... 60% Five but less than six............ 80% Six or more....................... 100% *Generally, a vesting service year is each Plan year during which an employee completed at least 1,000 hours of service. Any portion of the value of Employer Contributions not vested will be forfeited. The amount forfeited by a Participant is applied to reduce the respective Company's subsequent contribution to the Plan. Employee forfeitures for the years ended December 31, 1998 and 1997 were not significant to the Plan. A terminated Participant receives a lump sum final distribution from the Plan upon written request any time after such termination. If no request is received, an automatic distribution will be made to the terminated Participant and mailed to his last known address within 60 days after the end of the Plan year in which he reaches age 65. Immediate lump sum distributions are made, however, for accounts which do not exceed $5,000. PARTICIPANT WITHDRAWALS AND LOANS A Participant may make in-service withdrawals from amounts attributable to his After-tax Contributions. A Participant with less than five years of service who withdraws Basic After-tax Contributions will be suspended from Plan participation for six months. A Participant may borrow against amounts attributable to his Pre-tax Contributions. The maximum amount that a Participant may borrow from his Pre-tax Contribution account is the lesser of (i) $50,000, reduced by the excess, if any, of the highest outstanding balance of loans to the Participant from all plans maintained by the Company or an affiliated entity during the one-year period ending on the day before the date on which such loan is made over the outstanding balance of loans from the Plan on the date on which such loan is made, (ii) 50% of the value of the Participant's vested account balance under the Plan or (iii) 100% of the value of the Participant's Pre-tax Contribution account. 10
13 The loans are to be secured by the pledge of a portion of the Participant's right, title and value of the Participant's vested account balance under the Plan as determined immediately after the loan is made. Loans may be repaid over a period of up to five years, except loans made before January 1, 1994 must be repaid over a period of up to four years. No loan will be made for a sum of less than $500. Interest rates are fixed at the prime rate prevailing at the loan's inception plus one percent. Loan transactions are treated as a transfer to (from) the investment fund from (to) the Participant Loan fund. DIVERSIFICATION OF INVESTMENTS A Participant who is 55 years of age or older as of any December 31 and who has service in the Plan for at least ten years is qualified to diversify ("Qualified Participant"), in any subsequent calendar year, the investments in his ESOP account and his Employer Contribution account by transferring up to 25% of the sum of the balances of those accounts (less any amount previously transferred) to any of the other Funds. After five years as a Qualified Participant, the maximum percentage increases to 50% (less any amount previously transferred). A Qualified Participant must make this election in the first 90 days of any calendar year following qualification to diversify. The transfer will be effective on the last business day in March. Second or subsequent elections will cause transfers only to the extent the permissible election exceeds amounts previously transferred. TERMINATION OF THE PLAN Although it has not expressed any intent to do so, the Company may terminate the Plan at any time subject to the provisions of ERISA and must give written notice to the Trustee. In the event of termination of the Plan, the assets held by the Trustee under the Plan will be valued and each Participant will become fully vested in his account. 3. FEDERAL INCOME TAXES The Internal Revenue Service (IRS) determined and informed the Company by letter dated December 3, 1994 that the Plan, as amended and restated effective January 1, 1994 ("Prior Plan"), was qualified and the trust fund (Trust) established under the Prior Plan was tax-exempt under the appropriate sections of the Internal Revenue Code of 1986, as amended (Code). Although the Plan was amended and restated subsequent to that date, the Committee and the Company's counsel believe that the Plan was designed and operated in compliance with the requirements of the Code. As a result, the Participant's Pre-tax Contributions, up to a specified maximum amount each calendar year, and the Employer Contributions to the Trust on behalf of a Participant are not currently taxable to a Participant when made, and income from any source accruing to a Participant's account is not taxable when realized by the Trust. The After-tax Contributions made by a Participant will not be deductible by the Participant. The continued status of the Trust as a tax-exempt trust and the Plan as a qualified plan are contingent upon the continuing operation of the Trust and the Plan in accordance with applicable provisions of the Code. 11
14 4. RELATED PARTY TRANSACTIONS During 1998 and 1997, the Plan purchased and sold shares of the Company's Common Stock and units of short-term investment funds managed by the Trustee as temporary investments (party-in-interest transactions) as shown below: 1998 1997 ---- ---- PURCHASES Company's Common Stock $ 26,984,642 $ 25,325,767 Short-term Funds 277,166,783 216,664,199 SALES Company's Common Stock $ 16,622,986 $ 37,473,072 Short-term Funds 266,219,707 226,647,363 As of December 31, 1998, an aggregate of 29,962,679 shares of the Company's common stock was held by the Plan, including shares held in the Unallocated ESOP. As of December 31, 1997, an aggregate of 29,794,894 shares of the Company's common stock was held by the Plan, including shares held in the Unallocated ESOP. These shares represented 10.10% and 10.09%, respectively, of the Company's common stock outstanding at December 31, 1998 and December 31, 1997. See Note 5 regarding transfer of plan assets to a South Texas Project Nuclear Operating Company Savings Plan. 5. TRANSFER OF PLAN ASSETS TO THE SOUTH TEXAS PROJECT NUCLEAR OPERATING COMPANY SAVINGS PLAN In 1997, the Company and the other three owners of the South Texas Project Electric Generating Station ("South Texas Project") completed the transfer of the Company's responsibilities for operation of the South Texas Project to a Texas non-profit corporation formed by the owners and known as the STP Nuclear Operating Company ("STPNOC"). STPNOC was formed exclusively for the purpose of operating the South Texas Project, and certain of the Company's officers and employees who had been responsible for day-to-day operation and management of the South Texas Project were transferred to STPNOC effective in October, 1997. STPNOC created its own savings plan to which Plan assets, in the amount of $113,850,779, were transferred in October, 1997 which represented the account balances of Participants who became employees of STPNOC. 12
15 6. SUBSEQUENT EVENT Effective January 1, 1999, the employer matching contribution increased from 70% to 75% of Participant's Basic Contributions. In addition, the employer may contribute up to an additional 50 cents for every $1 of the Participant's Basic Contribution. The Company may make this contribution during the first quarter of each year based on the Company's performance for the previous year. The Plan's new vesting schedule effective January 1, 1999 is as follows: Vesting Service Vested Years Percentage --------------------- ---------- Less than two.......................... 0% Two but less than three................ 25% Three but less than four............... 50% Four but less than five................ 75% Five and more.......................... 100% Effective April 1, 1999, the NorAm Corp. Employee Savings and Investment Plan and the Minnegasco Division Employees' Retirement Savings Plan (the "Merged Plans") were merged into the Plan. Net assets available for benefits of approximately $462 million were transferred into the Plan on April 1, 1999. Management believes that the merger was a tax exempt transaction under the applicable provisions of the Internal Revenue Code. Effective April 1, 1999, the Plan offered a new fund, S&P 500 Index Fund. This fund seeks to track investment performance of the Standard & Poor's 500 Composite Index. The mutual fund invests in stock of large U.S. companies following a simple, cost-effective, index-matching strategy. Beginning April 1, 1999, the Plan was renamed as the Reliant Energy, Incorporated Savings Plan. 13
16 Item 27a -- Schedule of assets Held for Investment Purposes EIN 74-0694415; PN: 015 HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN SUPPLEMENTAL SCHEDULE OF INVESTMENTS ASSETS HELD FOR INVESTMENT PURPOSES DECEMBER 31, 1998 CURRENT DESCRIPTION OF ASSET SHARES COST VALUE - -------------------------------------------------------------- ---------- ------------- -------------- COMPANY COMMON STOCK FUND *Company Common Stock 13,117,003 $ 230,311,443 $ 421,383,721 *Northern Trust Collective Short-Term Investment Fund 4,287,875 4,287,875 4,287,875 ------------- -------------- TOTAL COMPANY COMMON STOCK FUND INVESTMENTS 234,599,318 425,671,596 ------------- -------------- ALLOCATED ESOP *Company Common Stock 5,167,330 97,531,188 166,000,476 *Northern Trust Collective Short-Term Investment Fund 3,078,722 3,078,722 3,078,722 ------------- -------------- TOTAL ALLOCATED ESOP INVESTMENTS 100,609,910 169,079,198 ------------- -------------- CAPITAL APPRECIATION EQUITY FUND Mutual Funds Acorn Fund - Inc. Cap. Open End Fd. 1,722,256 24,554,317 29,020,020 Harbor Capital Fund - Cap. Appreciation U.S. Equities 823,961 29,242,364 31,289,147 Janus Fund - Inc. Cap. Open End Fd. 995,216 27,785,934 33,489,019 ------------- -------------- TOTAL CAPITAL APPRECIATION EQUITY FUND INVESTMENTS 81,582,615 93,798,186 ------------- -------------- GROWTH AND INCOME EQUITY FUND Mutual Funds Davis New York Venture Fund Class A 1,508,694 22,337,435 37,732,445 Dodge & Cox Stock Fund 302,823 27,313,979 27,478,090 ICAP Fund - Inc. Equity Portfolio 838,688 30,894,401 32,398,510 ------------- -------------- TOTAL GROWTH & INCOME EQUITY FUND INVESTMENTS 80,545,815 97,609,045 ------------- -------------- INTERNATIONAL EQUITY FUND Mutual Funds American Funds EuroPacific Growth Fund 355,576 8,685,688 10,098,357 GAM Fund - International Fund 257,378 7,682,742 7,716,201 Lazard International Equity Portfolio 655,540 8,734,466 9,983,880 ------------- -------------- TOTAL INTERNATIONAL EQUITY FUND INVESTMENTS 25,102,896 27,798,438 ------------- -------------- BALANCED FUND Mutual Funds Acorn Fund - Inc. Cap. Open End Fd. 347,695 5,311,094 5,858,663 American Funds EuroPacific Growth Fund 110,543 2,693,358 3,139,420 Davis New York Venture Fund Class A 279,177 5,157,276 6,982,224 ICAP Fund - Inc. Equity Portfolio 93,361 3,600,000 3,606,535 Vanguard Fixed Income Securities - Short-Term Corp. Portfolio 1,325,137 14,283,507 14,364,484 *Northern Trust Collective Short-Term Investment Fund 3,136,942 3,136,942 3,136,942 ------------- -------------- TOTAL BALANCED FUND INVESTMENTS 34,182,177 37,088,268 ------------- -------------- FIXED INCOME FUND Mutual Fund Vanguard Fixed Income Securities - Short-Term Corp. Portfolio 935,291 10,128,290 10,138,557 ------------- -------------- TOTAL FIXED INCOME FUND INVESTMENT 10,128,290 10,138,557 ------------- -------------- MONEY MARKET FUND *Northern Trust Collective Short-Term Investment Fund 33,088,908 33,088,908 33,088,908 ------------- -------------- TOTAL MONEY MARKET FUND INVESTMENT 33,088,908 33,088,908 ------------- -------------- TOTAL PARTICIPANT INVESTMENTS 599,839,929 894,272,196 ------------- -------------- UNALLOCATED ESOP *Company Common Stock 11,678,346 217,282,448 375,166,865 *Northern Trust Collective Short-Term Investment Fund 5,745,942 5,745,942 5,745,942 ------------- -------------- TOTAL UNALLOCATED ESOP INVESTMENTS 223,028,390 380,912,807 ------------- -------------- TOTAL SAVINGS PLAN INVESTMENTS $ 822,868,319 $1,275,185,003 ============= ============== PARTICIPANT LOANS, interest rate at prime plus 1% $ 31,229,646 ============== *Party-in-interest 14
17 ITEM 27d - Schedule of Reportable Transactions EIN 74-0694415; PN: 015 HOUSTON INDUSTRIES INCORPORATED SUPPLEMENTAL SCHEDULE OF INVESTMENTS LINE 27(d)--SCHEDULE OF 5% REPORTABLE TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 1998 - ---------------------------------------------------------------------------------------------------------------------------------- CURRENT VALUE PURCHASE SELLING COST OF ON TRANSACTION NET GAIN DESCRIPTION PRICE PRICE ASSET DATE OR (LOSS) - ---------------------------------------------------------------------------------------------------------------------------------- SINGLE TRANSACTIONS None SERIES OF TRANSACTIONS-SAME SECURITY Capital Appreciation Equity Fund Mutual Fund - Janus Fund - Inc. Cap. Open End Fd. 133 Purchases $33,945,860 $33,945,860 127 Sales $27,744,779 $26,706,895 27,744,779 $1,037,884 * Company Common Stock Fund 11 Purchases 26,984,642 26,984,642 5 Sales 16,622,986 10,073,701 16,622,986 6,549,285 * The Northern Trust Collective Short-Term Investment Fund 444 Purchases 277,166,783 277,166,783 419 Sales 266,219,707 266,219,707 266,219,707 *Party-in-interest 15
18 SIGNATURE THE PLAN. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the Plan) have duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized. HOUSTON INDUSTRIES INCORPORATED SAVINGS PLAN By /s/ Lee W. Hogan ----------------------------------------- (Lee W. Hogan, Chairman of the Benefits Committee of Reliant Energy, Incorporated, Plan Administrator) June 25, 1999
19 INDEX TO EXHIBITS Exhibits Description - -------- ----------- 23 Independent Auditors' Consent
1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-11329 of Reliant Energy, Incorporated (formerly Houston Industries Incorporated) on Form S-8 of our report dated June 18, 1999, appearing in this Annual Report on Form 11-K of the Houston Industries Incorporated Savings Plan for the year ended December 31, 1998. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Houston, Texas June 29, 1999