<PAGE>
EXHIBIT 99.1
FOUNDATION HEALTH SYSTEMS, INC.
401(K) ASSOCIATE SAVINGS PLAN
Financial Statements as of and for the Years Ended December 31, 1999 and
1998, Supplemental Schedules as of and for the Year Ended December 31, 1999 and
Independent Auditors' Report.
3
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FOUNDATION HEALTH SYSTEMS, INC.
401(K) ASSOCIATE SAVINGS PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
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<S> <C>
INDEPENDENT AUDITORS' REPORT................................ 5
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Plan Benefits as of
December 31, 1999 and 1998................................ 6
Statements of Changes in Net Assets Available for Plan
Benefits for the Years Ended December 31, 1999 and 1998... 7
Notes to Financial Statements............................... 8-10
SUPPLEMENTAL SCHEDULES:
Schedule of Assets Held for Investment Purposes as of
December 31, 1999......................................... 11
Schedule of Reportable Transactions for the Year Ended
December 31, 1999......................................... 12
</TABLE>
4
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INDEPENDENT AUDITORS' REPORT
To the Trustees and Participants of the
Foundation Health Systems, Inc.
401(k) Associate Savings Plan
We have audited the accompanying statements of net assets available for plan
benefits of the Foundation Health Systems, Inc. 401(k) Associate Savings Plan
(the "Plan") as of December 31, 1999 and 1998, and the related statements of
changes in net assets available for plan 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, the financial statements referred to above present fairly,
in all material respects, the net assets available for plan benefits of the Plan
as of December, 31, 1999 and 1998, and the changes in the net assets available
for plan 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 supplemental schedules listed in the
foregoing 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. These supplementary schedules are the responsibility of
the Plan's management. The supplementary schedules have been subjected to the
auditing procedures applied in the audit 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.
Los Angeles, California
May 3, 2000
5
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FOUNDATION HEALTH SYSTEMS, INC.
401(K) ASSOCIATE SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS:
Investments, at fair value:
Interest bearing cash..................................... $ 551,055 $ 460,434
Common stock -- Foundation Health Systems, Inc............ 4,422,254 6,053,957
Mutual funds.............................................. 189,706,877 175,621,151
Loans to participants..................................... 6,544,570 6,718,173
------------ ------------
Total investments................................... 201,224,756 188,853,715
------------ ------------
Contributions receivable:
Employer................................................ 258,631 512,571
Employee................................................ 815,127 1,063,279
------------ ------------
Total contributions receivable...................... 1,073,758 1,575,850
------------ ------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS...................... $202,298,514 $190,429,565
============ ============
</TABLE>
See accompanying notes to financial statements.
6
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FOUNDATION HEALTH SYSTEMS, INC.
401(K) ASSOCIATE SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS FOR THE YEARS
ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ADDITIONS:
Contributions:
Employee................................................ $ 24,153,712 $ 23,767,071
Employer................................................ 10,057,698 8,650,573
Interest and dividends.................................... 9,282,953 9,558,045
Net appreciation (depreciation) in fair value of
investments............................................. 14,998,096 (4,259,119)
Loan repayments and other................................. 52,382 --
Transfer (to) from other plan (Note 1).................... (154,209) 101,387,297
------------ ------------
Total additions....................................... 58,390,632 139,103,867
------------ ------------
DEDUCTIONS:
Benefits paid to participants............................. (46,521,683) (12,955,337)
------------ ------------
NET INCREASE DURING YEAR.................................. 11,868,949 126,148,530
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year......................................... 190,429,565 64,281,035
------------ ------------
End of year............................................... $202,298,514 $190,429,565
============ ============
</TABLE>
See accompanying notes to financial statements.
7
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FOUNDATION HEALTH SYSTEMS, INC.
401(K) ASSOCIATE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. DESCRIPTION OF PLAN
The Foundation Health Systems, Inc. 401(k) Associate Savings Plan (the
"Plan") enables participants to save for retirement through voluntary
contributions and invest in an array of funds. The following description of the
Plan is provided for general information purposes only. Participants should
refer to the plan document for more complete information.
The Plan was implemented on January 1, 1995 as the Health Systems
International Inc. (the former name of the Company) 401(k) Associate Savings
Plan (the "HSI Plan"). The Plan was amended and restated effective September 1,
1997, at which time the name was changed to the Foundation Health Systems, Inc.
401(k) Associate Savings Plan. During 1998, the net assets of the Foundation
Health Corporation Profit Sharing and 401(k) Plan (the "FHC Plan") were merged
into the Plan. In 1999, the Company sold some of its subsidiaries and, in
accordance with those sales agreements, plan funds were also transferred out.
Foundation Health Systems, Inc. (the "Company" or "FHS") is the sponsor and
administrator of the Plan.
CONTRIBUTIONS TO THE PLAN--Each eligible participant may elect a pre-tax
contribution rate from 1 percent to 17 percent of their compensation, subject to
the annual cap on elective deferrals set by the Internal Revenue Code (the
"IRC"). The Company makes a 50 percent contribution up to 6 percent of
compensation. The Company may also make discretionary profit sharing
contributions. During the 1999 and 1998 plan years, the Company did not make any
such discretionary nonmatching contributions.
ELIGIBILITY AND VESTING--All employees of the Company and certain
subsidiaries who are not covered by a collective bargaining agreement and have
met specified service requirements are eligible to participate in the Plan. All
participants are immediately 100 percent vested in their own pre-tax
contributions plus any investment earnings thereon. Participants vest in
employer contributions and corresponding investment earnings at the rate of
25 percent per year beginning with the completion of the first year of service.
An employee shall be credited with one year of service for each fiscal year in
which the employee is employed by the Company and completes 1,000 hours of
service.
In addition, all participants who have attained the age of 55, or who are
terminated from employment by reason of death or disability, become 100 percent
vested in employer contributions and investment earnings thereon.
INVESTMENT OPTIONS--Participants can direct their contributions into one or
more mutual funds that have been selected as investment options for plan
participants as well as the common stock of the Company. The common stock of the
Company is available to all participants except those whose compensation is
determined by the compensation and stock option committee.
BENEFITS--Benefits are distributable from plan assets upon retirement,
death, disability, attainment of age 59 1/2, termination of employment,
termination of the Plan, or in certain cases of hardship. Benefits are based
upon the participant's vested share of plan assets. Upon termination of
employment, other than as described under "eligibility and vesting" above, the
unvested portion of employer contributions and investment earnings thereon is
forfeited by the participant and can be used to reduce future employer
contributions.
At December 31, 1999, forfeited nonvested accounts totaled $925,957. This
amount will be used to reduce future employer contributions. Also, in 1999,
employer contributions were reduced by $1,311,569 from forfeited nonvested
accounts.
8
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FOUNDATION HEALTH SYSTEMS, INC.
401(K) ASSOCIATE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998 (CONTINUED)
1. DESCRIPTION OF PLAN (CONTINUED)
PARTICIPANT LOANS--A participant may borrow up to one-half of the value of
the vested portion of his or her account in the form of a loan with a minimum
principal of $1,000 and up to a maximum of $50,000. Loans bear interest and
generally must be repaid within five years.
ALLOCATION OF EARNINGS--Earnings of each investment fund are allocated on a
daily basis to that fund's participants in proportion to each participant's
share of fund assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING--The financial statements of the Plan are prepared under
the accrual method.
INVESTMENTS--Investments are stated at their fair market value measured by
quoted market prices. Net appreciation or depreciation in the fair value of
investments includes net unrealized market appreciation and depreciation of
investments and net realized gains and losses on the sale of investments during
the period, and is net of investment expenses. Investment income includes
dividends and interest paid on the Plan's investments.
DISTRIBUTIONS OF BENEFITS TO PARTICIPANTS--Benefits are recorded when paid.
Net assets available for plan benefits at December 31, 1999 and 1998 include
$68,489,157 and $69,118,397, respectively, for participants who have withdrawn
from the Plan but have not yet been paid their vested benefits.
ADMINISTRATIVE EXPENSES--Certain administrative expenses of the Plan are
borne by the Company.
ACCOUNTING ESTIMATES--In preparing the financial statements of the Plan,
estimates and assumptions are made that affect the reported amounts of net
assets available for benefits at the date of the financial statements and the
reported amounts of changes in net assets available for benefits during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1998
financial statements to conform with the 1999 presentation.
ACCOUNTING PRONOUNCEMENT--In September 1999, Statement of Position ("SOP")
99-3, "Accounting and Reporting of Certain Defined Contribution Plan Investments
and Other Disclosure Matters" was issued. The SOP, among other items, eliminates
the previous requirements for a defined contribution plan to disclose
investments by general or fund type for participant-directed investments.
3. INCOME TAXES
The Company has obtained a favorable tax determination letter from the
Internal Revenue Service as to the qualified status of the HSI Plan as amended
and restated on April 3, 1997, conditioned upon the adoption of certain plan
amendments. Management believes that such condition has been met by the adoption
of certain technical changes to the Plan. Since that date, the Plan has been
amended and restated further in connection with the merger of the FHC Plan into
the Plan in April 1998. On December 22, 1999, the Company filed an application
for a favorable determination letter with respect to the amended and restated
Plan. Except for those deficiencies taken into account in filings under the
Internal Revenue Service's Employee Plans Resolution Compliance System, the
Company is of the opinion that the Plan continues to fulfill the requirements of
the IRC and the Employee Retirement Income Security Act of 1974 ("ERISA"), and
that the trust, which forms a part of the Plan, is exempt from income tax.
Accordingly, no provision has been made for federal or state income taxes.
9
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FOUNDATION HEALTH SYSTEMS, INC.
401(K) ASSOCIATE SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998 (CONTINUED)
4. RELATED PARTY TRANSACTIONS
Certain Plan investments are in mutual fund shares issued by Merrill Lynch
Asset Management, L.P. ("Merrill Lynch"). Merrill Lynch Trust Company is the
trustee as defined by the Plan, and therefore, these transactions qualify as
party-in-interest transactions. In addition, transactions in the Company's
common stock, which is offered to participants as a plan investment option,
qualify as party-in-interest transactions. However, such transactions are exempt
from the prohibited transaction rules of ERISA and the IRC.
5. INVESTMENTS
The following table presents the fair values of investments that represent
five percent or more of the Plan's net assets available for plan benefits as of
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Massachusetts Investors Trust Fund.......................... $42,194,749 $45,467,198
Davis New York Venture Fund................................. 28,769,604 26,834,865
Merrill Lynch Capital Fund, Inc............................. 20,517,950 24,142,173
Templeton Foreign Fund...................................... 23,509,783 22,103,649
Merrill Lynch Retirement Preservation Trust Fund............ 22,542,230 21,198,385
Barclays S&P 500 Stock Fund................................. 24,090,602 15,284,798
AIM Constellation Fund...................................... 11,083,708
</TABLE>
During 1999, the Plan's investments (including gain and losses on
investments bought and sold, as well as held during the year) appreciated in
value by $14,998,096 as follows:
<TABLE>
<S> <C>
Mutual funds................................................ $15,908,741
Common stock................................................ (910,645)
-----------
Net appreciation............................................ $14,998,096
===========
</TABLE>
6. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions set forth in ERISA. In the event of any
termination of the Plan, participants will become fully vested in their
accounts.
10
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SUPPLEMENTAL SCHEDULE
FOUNDATION HEALTH SYSTEMS, INC.
401(K) ASSOCIATE SAVINGS PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES DECEMBER 31, 1999
<TABLE>
<CAPTION>
(C)
(B) DESCRIPTION OF INVESTMENT
IDENTITY OF ISSUER, (INCLUDING MATURITY DATE, (E)
BORROWER, LESSOR, RATE OF INTEREST, COLLATERAL, (D) CURRENT
(A) OR SIMILAR PARTY PAR OR MATURITY VALUE) COST VALUE
--- ------------------------ -------------------------------------- ------------ ------------
<C> <S> <C> <C> <C>
$ 39,396,596 $ 42,194,749
* MFS Fund Distributors, Massachusetts Investors Trust Fund....
Inc.
24,335,440 28,769,604
* Davis Distributors, LLC Davis New York Venture Fund...........
22,686,670 20,517,950
* Merrill Lynch Merrill Lynch Capital Fund, Inc.......
22,542,246 22,542,230
* Merrill Lynch Merrill Lynch Retirement Preservation
Trust Fund..........................
21,874,338 24,090,602
* Barclays Global Barclays S&P 500 Stock Fund...........
Investors Funds, Inc.
7,230,662 6,129,422
* Ivy Mackenzie Ivy Bond Fund.........................
Distributors, Inc.
5,817,277 10,030,622
* Templeton Franklin Franklin Small CAP Growth Fund........
Investment Services,
Inc.
8,284,841 11,083,708
* AIM Distributors, Inc. AIM Constellation Fund................
21,122,963 23,509,783
* Templeton Franklin Templeton Foreign Fund................
Investment Services,
Inc.
646,318 838,207
* Templeton Franklin Templeton Developing Markets Trust....
Investment Services,
Inc.
10,166,745 4,422,254
* FHS, Inc. Company Stock.........................
551,055 551,055
* Merrill Lynch Cash Fund.............................
6,544,570 6,544,570
* Participant Loans Loans to participants are secured by
participant's account, have terms of
up to five years, and bear interest
at varying rates)...................
------------ ------------
$191,199,721 $201,224,756
TOTAL INVESTMENTS...............................................
============ ============
</TABLE>
------------------------
* Investment held by a party-in-interest.
11
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SUPPLEMENTAL SCHEDULE
FOUNDATION HEALTH SYSTEMS, INC.
401(K) ASSOCIATE SAVINGS PLAN
SCHEDULE OF REPORTABLE TRANSACTIONS YEAR ENDED DECEMBER 31, 1999
SERIES OF TRANSACTIONS EXCEEDING FIVE PERCENT OF NET ASSETS
<TABLE>
<CAPTION>
(E)
(B) (C) (D) NET
PURCHASE SELLING COST OF GAIN
(A) IDENTITY OF FUND PRICE PRICE ASSETS (LOSS)
-------------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Merrill Lynch Retirement Preservation $13,035,989 $11,691,678 $11,692,129 $ (451)
Trust Fund...............................
Massachusetts Investors Trust Fund......... 10,819,762 15,589,576 14,860,022 729,554
Davis New York Venture Fund................ 8,242,668 10,178,466 9,010,284 1,168,182
Templeton Foreign Fund..................... 5,603,494 10,496,147 11,197,273 (701,126)
Merrill Lynch Capital Fund, Inc............ 6,424,782 8,691,630 8,888,683 (197,053)
Barclays S&P 500 Stock Fund................ 13,845,986 6,794,619 6,165,320 629,299
</TABLE>
12
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SIGNATURES
THE PLAN. Pursuant to the requirements of the Securities and Exchange Act of
1934, the trustees (or other persons who administer the employee benefit plan)
have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
<TABLE>
<S> <C> <C>
FOUNDATION HEALTH SYSTEMS INC.
401(k) ASSOCIATE SAVINGS PLAN
Date: June 28, 2000 /s/ STEVEN P. ERWIN
---------------------------------------------
Steven P. Erwin
Executive Vice President and
Chief Financial Officer of
Foundation Health Systems, Inc. and
Member of the Plan's Administrative
Committee
</TABLE>
13
