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.
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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