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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934

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FORM 10-K

(Mark One)

|ý                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934    
|------------------------------------------- | -------------------------------------------------------------------------------------
|                                            |                                                                                      
|For the fiscal year ended December 31, 2001
|o                                           | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

Commission file number 001-13083

WELLPOINT HEALTH NETWORKS INC.(Exact name of Registrant as specified in its charter)

|Delaware                                                                  |  | 95-4635504                          
|------------------------------------------------------------------------- |  | ------------------------------------
|(State of incorporation)                                                  |  | (I.R.S. Employer Identification No.)
|1 WellPoint Way
Thousand Oaks, CA(Address of principal executive offices) |  | 91362(Zip Code)                     

Registrant's telephone number, including area code: (818) 234-4000
Securities registered pursuant to Section 12(b) of the Act:

|Title of each class           |  | Name of each exchange on which registered
|----------------------------- |  | -----------------------------------------
|Common Stock, $0.01 par value |  | New York Stock Exchange                  

Securities registered pursuant to Section 12(g) of the Act:None

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Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.    Yes    ý    No    o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K.    ý

State
the aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 18, 2002: $8,895,428,927 (based on the last reported sale
price of $62.48 per share on March 18, 2002, on the New York Stock Exchange).

Common
Stock, $0.01 par value of Registrant outstanding as of March 18, 2002: 143,239,794 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates by reference information from the Registrant's definitive proxy
statement for its 2002 Annual Meeting of Stockholders.

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WELLPOINT HEALTH NETWORKS INC.
FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

|                              |  |                                                                                       |  | Page
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I                       
|Item 1.                       |  | Business                                                                              |  | 1   
|Item 2.                       |  | Properties                                                                            |  | 28  
|Item 3.                       |  | Legal Proceedings                                                                     |  | 29  
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                   |  | 30  
|PART II                      
|Item 5.                       |  | Market for the Registrant's Common Equity and Related Stockholder Matters             |  | 31  
|Item 6.                       |  | Selected Financial Data                                                               |  | 32  
|Item 7.                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 33  
|Item 7a.                      |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 53  
|Item 8.                       |  | Financial Statements and Supplementary Data                                           |  | 56  
|Item 9.                       |  | Changes and Disagreements with Accountants on Accounting and Financial Disclosure     |  | 57  
|PART III                     
|Item 10.                      |  | Directors and Executive Officers of the Registrant                                    |  | 57  
|Item 11.                      |  | Executive Compensation                                                                |  | 57  
|Item 12.                      |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 57  
|Item 13.                      |  | Certain Relationships and Related Transactions                                        |  | 57  
|PART IV                      
|Item 14.                      |  | Exhibits, Financial Statements Schedules and Reports on Form 8-K                      |  | 57  
|SIGNATURES                    |  | 63                                                                                   
|INDEX TO FINANCIAL STATEMENTS |  | F-1                                                                                  

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PART I

Item 1. Business

General

WellPoint Health Networks Inc. (the "Company" or "WellPoint") is one of the nation's largest publicly traded managed health care companies. As of
December 31, 2001, WellPoint had approximately 10.1 million medical members and approximately 45.1 million specialty members. As a result of the January 31, 2002 completion
of the Company's merger with RightCHOICE Managed Care, Inc. ("RightCHOICE"), the Company's medical membership has increased to approximately 12.5 million members as of January 31,
2002. The Company offers a broad spectrum of quality network-based managed care plans. WellPoint provides these plans to the large and small employer, individual, Medicaid and senior markets. The
Company's managed care plans include preferred provider organizations ("PPOs"), health maintenance organizations ("HMOs") and point-of-service ("POS") and other hybrid plans
and traditional indemnity plans. In addition, the Company offers managed care services, including underwriting, actuarial services, network access, medical cost management and claims processing. The
Company also provides a broad array of specialty and other products, including pharmacy, dental, workers' compensation managed care services, utilization management, life insurance, preventive care,
disability insurance, behavioral health, COBRA and flexible benefits account administration.

The
Company markets its products in California primarily under the name Blue Cross of California, in Georgia primarily under the name Blue Cross Blue Shield of Georgia, in various parts
of Missouri (including the greater St. Louis area) under the name Blue Cross Blue Shield of Missouri and in various parts of the country under the name UNICARE or HealthLink. Historically, the
Company's primary market for its managed care products has been California. The Company holds the exclusive right in California to market its products under the Blue Cross name and mark and in Georgia
and in 85 counties in Missouri (including the greater St. Louis area) to market its products under the Blue Cross Blue Shield names and marks. The Company's customer base is diversified, with
extensive
membership among large and small employer groups and individuals and a growing presence in the Medicare and Medicaid markets.

In
1996, the Company began pursuing a nationwide expansion strategy through selective acquisitions and start-up activities in key geographic areas. With the acquisitions in
March 1996 of the Life & Health Benefits Management division ("MMHD") of Massachusetts Mutual Life Insurance Company (the "MMHD Acquisition") and in March 1997 of certain portions
of the health and related life group benefit operations (the "GBO") of John Hancock Mutual Life Insurance Company (the "GBO Acquisition"), the Company significantly expanded its operations outside of
California. The Company's acquisition strategy during this period was primarily focused on large employer group plans that offered indemnity and other health insurance products that were less
intensively managed than the Company's products in California. From 1987 until 1996, the Company transitioned substantially all of its California indemnity insurance customers to managed care
products. An element of the Company's geographic expansion strategy during this period was to replicate its experience in California in motivating traditional indemnity members to transition to the
Company's broad range of managed care products.

More
recently, the Company has focused on acquiring businesses that provide significant concentrations of members in strategic locations outside of California. In connection with this
strategy, the Company completed its acquisitions of RightCHOICE in January 2002, Cerulean Companies, Inc. ("Cerulean"), the parent company of Blue Cross and Blue Shield of Georgia
("Georgia Blue"), in March 2001 and Rush Prudential Health Plans ("Rush Prudential") in March 2000. The Company's pending acquisition of CareFirst, Inc. ("CareFirst") is also an
element of this strategy.

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As
of December 31, 2001, the Company's primary internal business divisions were focused on large employer group business, individual and small employer group business, and senior
and specialty business. Revenues (with sales to external customers and sales or transfers to other segments shown separately), operating profit or loss and identifiable assets attributable to each of
the Company's reportable segments are set forth in Note 19 to the Consolidated Financial Statements, which are included elsewhere in this Annual Report on Form 10-K. As a
result of the January 31, 2002 acquisition of RightCHOICE, the organizational structure of the Company has changed effective February 1, 2002. As a result of these changes, the Company
currently anticipates that its Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2002 (and subsequent filings under the Securities Exchange Act of 1934) will
reflect the following two reportable segments: Health Care business and Specialty business.

Recent Completed Transactions and Pending Transactions

Acquisition of RightCHOICE

On January 31, 2002, the Company completed its merger (the "RightCHOICE Merger") with RightCHOICE, pursuant to the Agreement and Plan of Merger dated
October 17, 2001 (the "RightCHOICE Merger Agreement"), by and among the Company, RWP Acquisition Corp., a wholly owned subsidiary of the Company, and RightCHOICE. As a result of the merger,
RightCHOICE has now become a wholly owned subsidiary of WellPoint, and WellPoint now holds the exclusive license to use the Blue Cross and Blue Shield names and marks in 85 counties in the state of
Missouri.

Pursuant
to the RightCHOICE Merger Agreement, each issued and outstanding share of RightCHOICE Common Stock at the closing of the RightCHOICE Merger was converted into the right to
receive $66 in cash or 0.6161 shares of WellPoint Common Stock. Stockholders of RightCHOICE were given the option to elect to receive cash for any or all of the shares of RightCHOICE Common
Stock that they owned as of the effective time of the RightCHOICE Merger, subject to a proration provision to ensure that 30% of the outstanding shares of RightCHOICE Common Stock were converted into
cash and the remaining 70% were converted into WellPoint Common Stock. Total consideration paid to all holders of RightCHOICE Common Stock in the merger was approximately $379.0 million in cash
and 8,255,052 shares of WellPoint Common Stock (prior to the Company's two-for-one stock split in the form of a stock dividend, which was effected on March 15, 2002). As of
December 31, 2001, RightCHOICE had approximately 3.0 million members. During the year ended December 31, 2001, RightCHOICE had total revenues of $1.2 billion and net income
of $66.4 million.

Acquisition of Cerulean

On March 15, 2001, the Company completed its acquisition of Cerulean. The Merger Agreement provided for the merger (the "Cerulean Merger") of Water Polo
Acquisition Corp., a wholly owned subsidiary of WellPoint, with and into Cerulean. As a result of the Cerulean Merger, Cerulean has now become a wholly owned subsidiary of WellPoint. At the effective
time of the Merger, the shareholders of Cerulean became entitled to receive aggregate cash consideration of $700 million. As of December 31, 2000, Cerulean, through Georgia Blue and its
various other subsidiaries, served approximately 1.8 million medical members in the state of Georgia.

Pending Acquisition of CareFirst

On November 20, 2001, the Company entered into a definitive agreement (the "CareFirst Merger Agreement") to acquire CareFirst. CareFirst is a
not-for-profit health care company which, along with its affiliates and subsidiaries, offers a comprehensive portfolio of health insurance products, direct health care and
administrative services. As of December 31, 2001, CareFirst served approximately

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3.1 million members in Maryland, Delaware, the District of Columbia and Northern Virginia. CareFirst operates through three wholly owned affiliates: CareFirst of Maryland, Inc., Group
Hospitalization and Medical Services, Inc., doing business under the name CareFirst BlueCross BlueShield, and Blue Cross Blue Shield of Delaware.

The
CareFirst portfolio of products ranges from traditional fee-for-service health care insurance to fully managed care. CareFirst administers the largest Federal
Employees Health Plan in the nation. CareFirst affiliate companies also offer third-party administrative services and claims processing for self-insured groups.

Under
the terms of the CareFirst Merger Agreement, a wholly owned subsidiary of the Company will merge with and into CareFirst. As a result of the merger, the outstanding shares of
common stock of CareFirst will be converted into the right to receive an aggregate purchase price of $1.3 billion.

The
Company will pay at least $450 million of the purchase price in cash and the balance in shares of the Company's Common Stock based on its average closing price in the 20
trading day period ending the fifth trading day prior to the closing of the CareFirst transaction. In the event that the average closing price is below $35 per share, the Company may issue a
five-year subordinated note in lieu of a portion of the purchase price to be paid in its Common Stock. The subordinated note will rankpari
passuwith the Company's Zero Coupon Convertible Subordinated Debentures due 2019.

Before
the CareFirst transaction is completed, CareFirst and its subsidiaries will convert from their current status as not-for-profit corporations into
for-profit, stock corporations. As part of this conversion, CareFirst will issue 100% of its outstanding common stock to charitable foundations established according to applicable law.

The
conversion will require the approval of insurance regulators in each of the areas where CareFirst and its affiliates are domiciledMaryland, Delaware and the District of
Columbia. In addition, Group Hospitalization and Medical Services, Inc., CareFirst's operating affiliate in the District of Columbia, must have its federal charter amended or repealed by the
United States Congress (subject to presidential approval) and obtain approval from the Washington, D.C. corporation counsel. The acquisition of CareFirst will also be subject to regulatory approval in
the States of Maryland and Delaware and in the District of Columbia, and to antitrust clearance by the U.S. Department of Justice and the Federal Trade Commission.

The
transaction is subject to the receipt of a private letter ruling from the Internal Revenue Service (the "IRS") that the conversion of CareFirst will constitute a tax-free
reorganization and that gain or loss recognized by the holders of CareFirst stock in the merger will not be subject to unrelated business income tax. Although there can be no assurances that WellPoint
and CareFirst will obtain the necessary
approvals, the conversion and regulatory approval process is currently expected to take 18 to 24 months from the date of signing of the CareFirst Merger Agreement.

On
the closing date, one non-employee member of the existing Board of Directors of CareFirst will be appointed to the Company's Board of Directors. The chief executive
officer of CareFirst will be named the president of the Company's southeast business region. Other senior executives of CareFirst will be assigned significant responsibilities with respect to the
business of the Company in that area.

Managed Health Care Overview

An increasing focus on costs by employers and consumers over the last decade has spurred the growth of HMO, PPO, POS and other forms of managed care plans as
alternatives to traditional indemnity health insurance. Typically, HMOs and PPOs, as well as hybrid plans incorporating features of each (such as POS plans), develop health care provider networks by
entering into contracts with hospitals, physicians and other health care professionals to deliver health care at favorable rates that incorporate health care utilization management and other measures
that encourage the delivery of

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medically necessary care as well as network credentialing and quality assurance. HMO, PPO and POS members generally are charged periodic, prepaid premiums, and copayments or deductibles. PPOs, POS
plans and a number of HMOs allow out-of-network usage, typically at substantially higher out-of-pocket costs to members. HMO members generally select
one primary care physician from a network who is responsible for coordinating health care services for the member, while PPOs and other "open access" plans generally allow members to select physicians
without coordination through a primary care physician. Hybrid plans, such as POS plans, typically involve the selection of primary care physicians similar to HMOs, but allow members to choose
non-network physicians at higher out-of-pocket costs similar to PPOs.

The California Market.The desire of California-based employers for a range of health care choices that promote effective
cost controls and quality care has contributed to substantial market acceptance of managed health care in California, where the total penetration of managed health care companies is generally higher
than the national average. Initial developments in California with respect to managed care were focused on HMOs and other tightly controlled plans. Over the last few years, this emphasis has decreased
as consumers and media scrutiny have generally criticized the reduced choice typical of HMO plans and as greater regulatory restrictions have been placed on HMO offerings. The Company believes that
this movement towards PPOs and other open access plans will continue in the future.

Other States.Outside of California, the past decade has seen significant transformations in the health care sector. Although
market acceptance of the array of managed health care plans continues to grow throughout the United States, it still varies widely from state to state. In some states, especially larger population
centers, members are offered health care choices focused on HMO or other closed-access plans. In other states, members are typically offered a spectrum of health care choices which are more focused on
PPOs or traditional indemnity health models than in California. Indemnity insurance usually
allows members substantial freedom of choice in selecting health care providers but without significant financial incentives or cost-control measures typical of managed care plans.
Indemnity insurance plans typically require annual deductible obligations of members. Upon satisfaction of the deductible, the member is reimbursed for health care expenses on a full or partial basis
of the indicated charges. Health plan reimbursement is often limited to the health plan's assessment of the reasonable and customary charges prevailing in a region for the particular health care
procedure. As in California, initial developments in managed care in other states have generally focused on more restrictive plans. More recently, consumer and general public sentiment has shifted
towards open access plans.

Customer Segmentation

WellPoint's products are generally developed and marketed with an emphasis on the differing needs of various customer groups. In particular, the Company's product
development and marketing efforts take into account the differing characteristics between the various customer groups served by the Company, including individuals and small employers, large employers
(generally with 51 or more employees), seniors and Medicaid recipients, as well as the unique needs of educational and public entities, federal employee health and benefit programs, national employers
and state-run programs servicing high-risk and under-served markets. Individual business units are responsible for enrolling, underwriting and servicing customers in specific
segments. The Company believes that one of the keys to its success has been its focus on distinct customer groups defined generally by employer size and geographic region, which better enables the
Company to develop benefit plans and services that meet the needs of these distinct markets. Although the Company has experienced increased competition over the last several years, the Company has
long been a market leader in the California individual and small employer group market.

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Individual and Small Group Business

Marketing

Sales representatives are generally assigned to a specific geographic region to allow WellPoint to tailor its marketing efforts to the particular health care
needs of each regional market. Individual and small employer group products are marketed in California primarily through independent agents and brokers, who are overseen by WellPoint's sales
departments, and through WellPoint's direct sales staff. UNICARE's individual and small employer group products are generally distributed on a regional basis by independent sales agents in the various
localized markets in which UNICARE operates. The Company's Blue Cross and Blue Shield products in Georgia and Missouri are also distributed by independent sales agents working in conjunction with the
Company's internal sales staff. The Company
expects that, over time, the development of Internet-based distribution methods may affect the sales and marketing process in the individual and small employer group market. In this regard, in 1999
the Company entered into sales distribution arrangements with certain Internet-based sales agents and introduced its Agent Connect program, which allows individual agents and brokers to create
customized Internet websites and incorporate basic information regarding the Company's health plan offerings.

Products

PPO and Other Plans.The Company's PPO products are generally marketed in California under the name "Prudent Buyer," in
Georgia under the name "Blue Choice PPO," in Missouri under the name "Alliance PPO" and in various parts of the country under the names "UNICARE" and "HealthLink" and are designed to address the
specific needs of different customer groups. The Company's PPO plans generally require periodic, prepaid premiums and may have copayment obligations for services rendered by network providers that are
often similar to the copayment obligations of its HMO plans. Unlike WellPoint's HMO and other "closed-access" plans, members are not required to select a primary care physician who is responsible for
coordinating their care and may be subject to annual deductible requirements. PPO members have the option to receive health care services from non-network health care professionals,
typically at substantially higher out-of-pocket costs to members. In 1998, the Company introduced its unique Employee Elect product, which allows small employers to offer their
employees a menu of PPO and HMO options. In January 2001, the Company introduced its PlanScape family of individual PPO plans in California. The PlanScape plans are marketed towards purchasers
with varying price preferences and offer a variety of coverage options and premium amounts. The Company's PPO members in California, Missouri and Georgia may also participate in the Blue Cross Blue
Shield Association's Blue Card program, which allows members to access other Blue Cross Blue Shield plans' PPO providers throughout the nation.

The
Company believes that an important growth opportunity in the individual market lies in the development of products that are priced attractively for previously uninsured people. In
2000, the Company introduced a new PPO product in California and selected other locations that offers significantly lower premiums in exchange for certain limited benefits while still offering primary
care physician visits, preventive care benefits and catastrophic coverage. During 2001, the Company also introduced this product in Georgia.

HMO Plans.The Company offers a variety of HMO products to its HMO members in California, Georgia, Illinois and Missouri. HMO
members are generally charged periodic, prepaid premiums that do not vary based on the amount of services rendered, as well as co-payments (per-visit charges). Members choose a
primary care physician from the HMO network who is usually responsible for coordinating health care services for the member. Certain plans permit members to receive services from health care
professionals that are not a part of the Company's HMO network at a substantial out-of-pocket cost to members which includes a deductible and higher copayment obligations.

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Large Group Business

During the last several years, WellPoint's large employer group business has experienced considerable growth. The Company attributes this growth in California
primarily to the strength of the California economy and, throughout the country, to the enhancement of the Company's reputation for customer service and value especially among large, established
companies.

Marketing and Products

WellPoint's managed health care plans to large employers are generally sold by WellPoint sales personnel, in conjunction with an employer's broker or consultant,
to develop a package of managed health care benefits specifically tailored to meet the employer's needs. WellPoint believes that a key component of its success in this market segment is the Company's
strength in developing complex, highly customized benefits packages that respond to the diverse needs of larger employers and their employee population. For example, in 1999, the Company introduced
its Blue Cross Preferred PPO product in California, which provides certain enhanced benefits desired by high-technology companies in competitive labor markets.

Many
of WellPoint's HMO and PPO products offered to individuals and small employer groups are also offered to large employer groups. In addition to competitive pricing and exemplary
customary service, a key competitive factor in the sale of large employer group products is the ability to offer a spectrum of health plan choices. With the completion of the Company's acquisitions of
RightCHOICE, Cerulean and Rush Prudential, the Company is able to offer a mix of products, including HMO and PPO products, to customers in Missouri, Georgia and the greater Chicago area. One component
of the Company's expansion strategy outside of California is to evaluate acquisition opportunities that will allow the Company to complement its product offerings in selected target areas.

Management Services

In addition to fully insured products, WellPoint provides administrative services to large group employers that maintain self-funded health plans. In
California, the Company often has been able to capitalize on this relationship by subsequently introducing WellPoint's underwritten managed care products. The Company's managed care services revenues
have expanded considerably during the last several years as a result of the MMHD, GBO and Cerulean acquisitions. These businesses are comprised of a higher percentage of administrative services
business than the Company's traditional California business. Georgia Blue currently provides administrative services for several accounts sponsored by the state of Georgia. These accounts comprise in
excess of 24% of Georgia Blue's membership.

WellPoint
offers managed care services, including underwriting, actuarial services, medical cost management, claims processing and administrative services for self-funded
employers. WellPoint also enables employers with self-funded health plans to use WellPoint's provider networks and to realize savings through WellPoint's favorable provider arrangements,
while allowing employers the ability to design certain health benefit plans in accordance with their own requirements and objectives. As of December 31, 2001, WellPoint served
self-insured health plans covering approximately 3.4 million medical members.

In
connection with the RightCHOICE transaction, the Company has acquired RightCHOICE's subsidiary, HealthLink. HealthLink provides provider network contracting services and review,
management and coordination of health care services used by members. HealthLink currently serves the states of Missouri, Illinois, Iowa, Arkansas, Indiana, Kentucky and West Virginia. HealthLink's
services are provided to employers that fund their own health plans, commercial insurers, unions and Taft-Hartley trusts. HealthLink also derives a portion of its revenues from providers
for support and administrative services. As of December 31, 2001, HealthLink had approximately 1.1 million group

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health PPO administrative services members and 0.9 million workers' compensation members. In addition, one of HealthLink's wholly owned subsidiaries had approximately 12,000 HMO
members. One of the Company's business strategies is to expand the HealthLink business in selected regions of the country.

Senior Plans

WellPoint offers numerous Medicare supplement plans, which typically pay the difference between health care costs incurred by a beneficiary and amounts paid by
Medicare. For example, WellPoint offers a PPO-based product that offers supplemental Medicare coverage and a hybrid product which allows seniors over the age of 65 to maintain their full
Medicare benefits for any out-of-network benefits while enrolled in a supplemental plan that allows them to choose their own physician with a copayment. As of
December 31, 2001, these Medicare supplemental plans served approximately 338,000 members. As of December 31, 2001, RightCHOICE's Medicare supplemental plans had approximately
47,000 members. These products are marketed under the "Blue Horizons" name.

WellPoint
also offers an HMO plan under a Medicare + Choice contract in certain locations in California and Georgia. These contracts generally entitle WellPoint to a fixed
per-member premium which is subject to adjustment annually by the Centers for Medicare and Medicaid Services ("CMS"), which administers the Medicare program, based on certain demographic
information relating to the Medicare population and the cost of providing health care in a particular geographic area. In addition to physician care, hospitalization and other benefits covered by
Medicare, the benefits under these plans (which vary by county) typically include routine physical exams, hearing tests, immunizations, eye examinations, counseling and health education services. As
of December 31, 2001, the Company's Medicare + Choice HMO plans served approximately 61,000 members.

Medicaid Plans and Other State-Sponsored Programs

The California Department of Health Services ("DHS") administers Medi-Cal, California's Medicaid program. WellPoint has been awarded contracts to
offer Medi-Cal managed care programs in various California counties. Under these programs, WellPoint provides health care coverage to Medi-Cal program members and DHS (or a
delegated local agency) pays WellPoint a fixed payment per member per month. As of December 31, 2001, approximately 941,000 members were enrolled in WellPoint's Medi-Cal managed
care programs in various California counties and in other state-sponsored programs. The Company has also obtained contracts to serve Medicaid members in locations outside of California, including
parts of Oklahoma, Virginia and Massachusetts. As of December 31, 2001, the plans serving these members had approximately 95,000 members. In 2000, the Company entered into a joint
venture with Medical Card Systems, Inc., a Puerto Rico-based group health and life insurer, to pursue contracts under the Health Reform Program in Puerto Rico.

Managed Health Care Networks and Provider Relations

The Company's health care networks and provider relations reflect the different market positions of the Company's various operating subsidiaries and local market
dynamics in the various jurisdictions in which the Company does business.

Blue Cross of California

WellPoint's extensive managed health care provider networks in California include its HMO, PPO and specialty managed care networks. WellPoint uses its large
California membership to negotiate physician contracts at favorable rates that promote delivery of quality care and encourage effective utilization management. Under these contracts, physicians are
paid either a fixed per member monthly amount (known as a capitation payment) or on the basis of a fixed fee schedule. In selecting physicians

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for its networks, WellPoint uses its credentialing programs to evaluate the applicant's professional qualifications and experience, including license status, malpractice claims history and hospital
affiliations.

The
following is a more detailed description of the principal features of WellPoint's California PPO and HMO networks.

PPO Network.There were approximately 3.6 million members (including administrative services members) enrolled in
WellPoint's California PPO health care plans as of December 31, 2001, approximately 35% of whom were individuals or employees of small groups.

WellPoint
endeavors to manage and control costs for its PPO plans by negotiating favorable arrangements with physicians, hospitals and other health care professionals, and requiring
participation in the Company's various medical management programs. In addition, WellPoint manages costs through pricing and product design decisions intended to influence the behavior of both members
and health care professionals.

WellPoint's
California PPO plans provide for the delivery of specified health care services to members by contracting with physicians, hospitals and other health care professionals.
Hospital contracts are on a nonexclusive basis and generally provide for per diem payments (a fixed fee schedule where the daily rate is based on the type of service) that provide for rates that are
below the hospitals' standard billing rates. Physician contracts are also on a nonexclusive basis and specify fixed fee schedules that are below standard billing rates. WellPoint is able to obtain
prices for hospitals and physician services below standard billing rates because of the volume of business it offers to health care professionals that are part of its network. Rates are generally
negotiated on an annual or multi-year basis with hospitals. Rates for physicians in the Company's PPO network are set from time to time by the Company.

HMO Network.Membership in the Company's California HMO was approximately 2.3 million members as of
December 31, 2001.

The
physician network of participating medical groups ("PMGs") is comprised of both multi-specialty medical group practices and individual practice associations ("IPAs"). Substantially
all primary care physicians or PMGs in the Company's California HMO network are reimbursed on a capitated basis. These arrangements specify fixed per member per month payments to providers and may
result in a marginally higher medical loss ratio than a non-capitated arrangement, but significantly reduce risk to WellPoint. Generally, HMO network hospital contracts are on a
nonexclusive basis and provide for a per diem payment, which is below the hospitals' standard billing rates.

Contractual
arrangements with PMGs typically include provisions under which WellPoint provides limited stop-loss protection. If the PMG's actual charges for medical services
provided to a member exceed an agreed-upon threshold amount, WellPoint will pay the group a portion of the excess amount. Rates are generally negotiated with PMGs and hospitals on an
annual or multi-year basis. To encourage PMGs to contain costs for claims for non-capitated services such as inpatient hospital, outpatient surgery, hemodialysis, emergency
room, skilled nursing facility, ambulance, home health and alternative birthing center services, WellPoint's PMG agreements provide for a settlement payment to the PMG based upon the PMG's effective
utilization of such non-capitated services. PMGs are also eligible for additional incentive payments based upon their satisfaction of quality criteria and management of outpatient
prescription drugs. In 2001, BCC announced plans to modify the incentive compensation arrangements for PMGs serving the Company's California HMO members to place greater emphasis on assessment of
health outcomes, patient satisfaction information and generic outpatient drug utilization. This information will be reflected in a Quality Score Card prepared by BCC with respect to a particular
PMG. BCC will seek to implement this modification as agreements with PMGs are renewed over the next two to three years.

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Blue Cross Blue Shield of Georgia

In 1995, Cerulean began using jointly owned integrated delivery systems for managed health care products, with community health partnership networks ("CHPNs") as
the cornerstone of this strategy. CHPNs are locally based equity ventures between Georgia Blue and a local physician group or hospital. The physician or hospital joint ventures, as well as other
health care professionals with which the CHPN maintains contracts, provide clinical services. Georgia Blue provides sales, management and administrative services, including information systems and
data management services. Georgia Blue's HMO affiliate collects premium and fee revenues from subscribers and retains a flat percentage as a contribution to surplus. After deduction for premium taxes
and administrative payments for Georgia Blue, the remaining premium revenue is used for payment of medical expenses and contributions to the CHPN's retained earnings. As of December 31, 2001,
Georgia Blue had one active CHPN, in the greater Atlanta area. Outside of Atlanta, networks for Georgia Blue's HMO products are maintained without the use of a CHPN. The HMO membership in Atlanta that
uses the CHPN Network accounts for a significant percentage of Georgia Blue's HMO membership.

Georgia
Blue has developed extensive physician and hospital networks that serve Georgia Blue's PPO Plans and certain of its indemnity products. For these products, Georgia Blue uses a
variety of reimbursement methods, including per diem payments, maximum allowable charge, case rates, discounted fee-for-service and fee schedules.

Blue Cross Blue Shield of Missouri

The health care services received by Blue Cross Blue Shield of Missouri members are provided primarily by physicians, hospitals and other health care
professionals in proprietary provider networks. Blue Cross Blue Shield of Missouri maintains multiple managed care provider networks, including PPO and HMO networks. Networks are developed based upon
the geographic locale of the provider, the appropriateness of the provider's specialty and the particular region for that network, as well as the convenience and accessibility of the membership. As
with the Company's other networks, physicians' credentials and experience and other factors are evaluated. The managed care contracts with providers incorporate utilization management and quality
improvement provisions. Network physicians receive either a monthly capitation payment or are paid on the basis on a fixed fee schedule which is generally lower than standard billing rates. PPO
physicians are compensated on the basis of a fixed fee schedule. Most of the primary care physicians in the HMO provider networks are compensated on a capitated basis, while most specialist physicians
are compensated on the basis on a fixed fee schedule. Hospital contracts generally provide for inpatient per diem payments, which provide for a reimbursement that is below the hospital's standard
billing rates for an inpatient stay.

HealthLink

HealthLink has developed extensive PPO networks in Missouri, Illinois, Indiana and various other states in which it operates. HealthLink's current network
expansion efforts are concentrated on developing and supplementing the HealthLink provider networks in existing and adjacent areas of regional Missouri, Illinois, Indiana, Arkansas and Kentucky.
HealthLink has also developed an HMO network concentrated in eastern and central Missouri and southern and central Illinois. To serve its workers' compensation members, HealthLink has developed
workers compensation PPO networks serving portions of Missouri, Illinois and Indiana. Physician and hospital representation in HealthLink's various networks takes into account a number of factors,
including the particular specialty or offered services of a contracting physician or facility. Managed care contracts generally incorporate utilization management and quality improvement features.
Many of these contracts also obligate contracting providers to pay HealthLink a monthly fee for administrative services provided by HealthLink.

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UNICARE

Due to the more recent development of the Company's UNICARE national operations, UNICARE's relations with health care professionals are more varied than the
Company's relations in California. Since 1996, the Company has conducted its network development efforts in various states, including Georgia, Illinois, Indiana, Maryland, Ohio, Texas and Virginia.

As
a result of the Rush Prudential acquisition, UNICARE added Rush Prudential's existing networks to its proprietary networks in the greater Chicago area. As part of the MMHD
acquisition, the Company also acquired a majority ownership interest in a PPO entity, UNICARE National Capital Preferred Provider Organization ("UNICARE NCPPO"), which operates in the
Maryland/Virginia area and is a joint venture with local health care providers.

A
large number of UNICARE members are served by third-party provider networks, which generally lack the selectivity and discounts typical of the Company's proprietary networks. One of
the Company's strategies for the expansion of its UNICARE operations is to continue building and acquiring proprietary network systems in certain geographies similar to the Company's networks in
California, which provide a continuum of managed care products to various customer segments. As UNICARE expands its operations, it intends to build or acquire such network operations and, as
appropriate, to replace or supplement the current third-party network arrangements. During the last three years, UNICARE has consolidated its third-party network relationships in an effort to further
contain its administrative expenses.

Ancillary Networks

WellPoint evaluates current and emerging high volume or high cost services to determine whether developing an ancillary service network will yield cost control
benefits. In establishing these ancillary service networks, WellPoint seeks to enter into capitation or fixed-fee arrangements with providers of these services. WellPoint regularly
collects and analyzes industry data on high cost or high volume unmanaged services to identify the need for specialty managed care networks. For example, WellPoint has created Centers of Expertise for
certain transplant services.

Utilization Management

In order to better manage quality in its proprietary provider networks, WellPoint adopts utilization management processes and guidelines that are intended to
reduce unnecessary or inappropriate procedures, admissions and other medical costs. The utilization management systems seek to provide access to quality care to WellPoint's members based on medical
necessity where final decisions are made by physicians. In its California HMO, WellPoint permits PMGs to oversee most utilization management for their particular medical group under WellPoint's
guidelines. Currently, substantially all of the PMGs in WellPoint's California HMO network have established committees to oversee utilization management. For its California PPO network, WellPoint uses
treatment guidelines, requires pre-admission approvals of hospital stays and concurrent review of all admissions and retrospectively reviews physician practice patterns. Utilization
management also includes an outpatient program, with pre-authorization and retrospective review, ongoing supervision of inpatient and outpatient care of members, case management and
discharge planning capacity. Review of practice patterns may result in modifications and refinements to the PPO plan offerings and network contractual arrangements. In addition, WellPoint manages
health care costs by periodically reviewing cost and utilization trends within its provider networks. Cases are reviewed in the aggregate to identify a high volume of a particular type of service to
identify the most effective method of treatment while more effectively managing costs. In addition, the Company reviews high-cost procedures in an effort to provide new quality,
cost-effective treatment by utilizing new technologies or by creating additional networks, such as its networks of home health agencies.

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For
the Company's UNICARE managed care health plans, utilization management is provided by UNICARE through the Company's subsidiary CostCare, Inc. ("CCI"). As part of the GBO
acquisition, the Company acquired CCI, which provides medical management services. The Company has integrated CCI's traditional utilization management and case management services into UNICARE
offerings. CCI products include a disease state management program, a high-risk pregnancy identification and management program and a nurse health information line. Certain of the
Company's plans in California also feature similar programs. In September 2001, CCI (which operates as UNICARE/Cost Care) received a one-year accreditation for its utilization
management program from the Utilization Review Accreditation Commission ("URAC"), a private organization providing voluntary accreditation of utilization review entities. Additionally, in
February 2000, CCI received a two-year accreditation from URAC for its health information line program.

In
2000, the National Committee for Quality Assurance ("NCQA") awarded Blue Cross Blue Shield Healthcare Plan of Georgia, Inc. its second full, three-year
accreditation. Georgia Blue's PPO organization was the first PPO in Georgia to receive accreditation from URAC. In 1999, NCQA awarded the Company's subsidiary HMO Missouri, Inc. a three-year
accreditation. Blue Cross Blue Shield of Missouri's Alliances PPO and the HealthLink PPO have also received accreditation from URAC.

In
1996, Blue Cross Blue Shield of Missouri developed its innovative Physician Group Partners Program, which is designed to increase collaborative managed care initiatives with primary
care physicians in Blue Cross Blue Shield of Missouri's HMO and to provide those physicians with the opportunity to earn additional compensation by improving patient satisfaction and improving
performance levels using nationally recognized health care industry standards. The program has subsequently been expanded to include a specialist program. The Physician Group Partners Program strives
to establish long-term business relationships with physicians. Blue Cross Blue Shield of Missouri believes that this program has resulted in reduced integration and oversight of
physicians, enhanced member satisfaction and improved quality measure scores. Blue Cross Blue Shield of Missouri has also implemented additional initiatives to enhance its business relationships with
the physician community. As WellPoint begins its integration of the RightCHOICE operations, WellPoint intends to explore the various programs implemented by Blue Cross Blue Shield of Missouri and
consider their applicability to other regions of the country in which WellPoint operates.

Underwriting

In establishing premium rates for its health care plans, WellPoint uses underwriting criteria based upon its accumulated actuarial data, with adjustments for
factors such as claims experience, member mix and industry differences to evaluate anticipated health care costs. WellPoint's underwriting practices in the individual and small group market are
subject to legislation in California, Georgia, Illinois, Missouri and other states affecting the individual and small employer group market. Because UNICARE's members are in every state, the Company's
underwriting practices, especially in the individual and small group market, are subject to a variety of legislative and regulatory requirements and restrictions. See "Government Regulation."

Quality Management

Quality management for most of the Company's business is overseen by the Company's Quality Management Department and is designed to ensure that necessary care is
provided by qualified personnel. Depending on the local markets, quality management encompasses plan level quality performance, provider credentialing, provider and member grievance monitoring and
resolution, medical group auditing, monitoring medical group compliance with Company standards for medical records and medical offices, physician peer review and a quality management committee.

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Specialty Managed Health Care and Other Plans and Services

WellPoint offers a variety of specialty managed health care and other services. WellPoint believes that these specialty networks and plans complement and
facilitate the marketing of WellPoint's medical
plans and help in attracting employer groups and other members that are increasingly seeking a wider variety of options and services. WellPoint also markets these specialty products on a stand-alone
basis to other health plans and other payors.

Pharmacy Products

WellPoint offers pharmacy services and pharmacy benefit management services to its members. WellPoint's pharmacy services incorporate features such as drug
formularies (a WellPoint-developed listing of preferred, cost-effective drugs), a pharmacy network and maintenance of a prescription drug database and mail order capabilities. Pharmacy
benefit management services provided by WellPoint include management of drug utilization through outpatient prescription drug formularies, retrospective review and drug education for physicians,
pharmacists and members. In December 2000, the Company completed its acquisition of a mail-order pharmacy facility, which now operates under the name PrecisionRx. The Company
believes that PrecisionRx will enhance the competitiveness of its pharmacy benefit management services. As of December 31, 2001, WellPoint had approximately 32.8 million pharmacy
members.

Dental Plans

WellPoint's California dental plans include Dental Net, its California dental HMO, and Blue Cross Dental Select HMO, a hybrid plan, a dental PPO, and traditional
indemnity plans. The Company's dental products outside of California currently include a dental PPO in Texas, Georgia and almost all of the other states in which the Company operates. As a result of
the MMHD and GBO acquisitions, the Company has acquired significant additional dental membership outside of California. The Company's dental plans provide primary and specialty dental services,
including orthodontic services, and as of December 31, 2001, served approximately 2.6 million dental members.

Life Insurance

The Company offers primarily term-life and accidental death and dismemberment ("AD&D") insurance to employers, generally in conjunction with the
Company's health plans. The MMHD, GBO and Cerulean acquisitions have expanded the Company's life insurance business both inside and outside of California. As of December 31, 2001, the Company
provided life insurance products to approximately 2.3 million persons.

Mental Health Plans

WellPoint offers specialized mental health and substance abuse programs. The plans cover mental health and substance abuse treatment services on both an inpatient
and an outpatient basis. In addition, approximately 260 employee assistance and behavioral managed care programs have been implemented for a wide variety of businesses throughout the United States. As
of December 31, 2001, there were approximately 5.1 million members covered under WellPoint's mental health plans.

Utilization Management

In connection with the GBO acquisition, the Company acquired CCI. CCI, which now operates under the trade name UNICARE/CostCare, provides stand-alone utilization
management and other medical management services to other health plans and self-funded employers. CCI utilization management services are also integrated into UNICARE product offerings. As
of December 31, 2001, the Company had approximately 1.7 million utilization management members.

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Disability Plans

The Company offers short- and long-term disability programs, usually in conjunction with the Company's health plans. As of December 31, 2001,
the Company provided long-term or short-term disability coverage to approximately 541,000 individuals.

Long-Term Care Insurance

In 1997, the Company began offering a group of long-term care insurance products to its California members through its indirect wholly owned
subsidiary BC Life & Health Insurance Company ("BC Life"). These plans, which are marketed under the Blue Cross Long Term Care trade name, involve six different products. The Company's
long-term care products include tax-qualified and non-tax qualified versions of a skilled nursing home care plan and comprehensive policies covering skilled,
intermediate and custodial long-term care and home health care services.

Workers' Compensation Managed Care Services

In California, the Company offers workers' compensation managed care services, including bill review, network access, medical cost management and utilization
management, to employers who self-insure their workers' compensation coverage, as well as to workers' compensation carriers. The Company's HealthLink subsidiary also provides workers'
compensation managed care services to its clients in the central portion of the United States. See "Large Group BusinessManagement Services."

Market Research and Advertising

WellPoint conducts market research and advertising programs to develop products and marketing techniques tailored specifically to customer segments. WellPoint
uses print and broadcast advertising to promote its health care plans. In addition, the Company engages in promotional activities with agents, brokers and consultants. WellPoint incurred costs of
approximately $59.6 million, $61.8 million and $40.8 million on advertising for the years ended December 31, 2001, 2000 and 1999, respectively.

Competition

The managed health care industry in California is competitive on both a regional and statewide basis. In addition, in recent years there has been a trend of
increasing consolidation among both national and California-based health care companies, which may further increase competitive pressures. WellPoint competes with other companies that offer similar
managed health care plans, some of which have greater resources than WellPoint. In addition, the development and growth of companies offering Internet-based connections between health care
professionals, employers and members, along with a variety of services, may create additional competitors. Currently, WellPoint is a market leader in offering managed health care plans to individuals
and small employer groups in California. The medical loss ratio attributable to WellPoint's individual and small group business has historically been lower than that for its large employer group
business. As a result, a larger portion of WellPoint's profitability on a per-member basis is due to the individual and small group business. WellPoint has experienced increased
competition in this market over the last several years, which could adversely affect its medical loss ratio and future financial condition, cash flows or results of operations. See "Factors That May
Affect Future Results of Operations."

The
markets in which the Company operates outside of California are also highly competitive. Because of the many different markets in which the Company now serves members, the Company
faces unique competitive pressures in regional markets as well as on a national basis. The Company competes with other companies that offer managed health care plans as well as traditional indemnity
insurance products. Many of these companies have greater financial and other resources than the

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Company or greater market share on either a regional or national basis. As the Company continues to geographically expand its operations, it will be subject to national competitive factors as well as
unique competitive conditions that may affect the more localized markets in which the Company operates.

WellPoint
believes that significant factors in the selection of a managed health care plan by employers and individual members include price, the extent and depth of provider networks,
flexibility and scope of benefits, quality of services, market presence, reputation (which may be affected by public rankings or accreditation by voluntary organizations such as NCQA and URAC) and
financial stability. WellPoint believes that it competes effectively against other health care industry participants.

Government Regulation

California

DMHC and DOI Regulation.WellPoint offers its managed health care products in California principally through its wholly owned
indirect subsidiary Blue Cross of California, which is subject to regulation by the California Department of Managed Health Care (the "DMHC") under the Knox-Keene Health Care Service Plan
Act of 1975 (the "Knox-Keene Act"). The insurance business conducted by the Company's subsidiary BC Life & Health Insurance Company ("BC Life") is regulated by the California
Department of Insurance (the "California DOI"). Each entity is subject to various minimum capital and other requirements, such as restrictions on the payment of dividends or the issuance of capital
stock, established by its respective regulatory authority. Blue Cross of California's managed health care programs are also subject to extensive DMHC regulation regarding benefit and coverage levels,
relationships with health care providers, administrative capacity, marketing and advertising, procedures for quality assurance and subscriber and enrollee grievance resolution. Any material
modifications to the organization or operations of Blue Cross of California are subject to prior review and approval by the DMHC. BC Life must obtain approval from the California DOI for all of its
group insurance policies and certain aspects of its individual policies prior to issuing those policies, as well as certain other material actions which BC Life may propose to take. The failure to
comply with applicable regulations can subject BCC or BC Life to various penalties, including fines or the imposition of restrictions on the conduct of its operations.



Since September 1999, California Legislature has adopted a number of health care reform measures. The following is a summary of the material terms of the
most significant of these laws.

The
Managed Health Care Insurance Accountability Act of 1999 ("SB 21") established an explicit duty on managed care entities to exercise ordinary care in arranging for the provision of
medically necessary health care services to their subscribers and imposed liability for all harm legally caused by the failure to exercise such ordinary care. Managed care entities may be held liable
if their failure to exercise ordinary care results in the denial, delay or modification of a health care service recommended for or furnished to the subscriber and the subscriber suffers "substantial
harm." For purposes of the statute, "substantial harm" is defined as the loss of life, loss of or significant impairment of a limb or bodily function, significant disfigurement, severe and chronic
pain or significant financial loss. Liability may be established for health care services regardless of whether the recommending health care provider is a contracting provider with the managed care
entity. Managed care plans may not seek indemnity from a health care provider for the liability imposed by the statute. A cause of action may not be maintained under the statute against a managed care
entity unless the subscriber has exhausted independent medical review procedures, except in instances where substantial harm has occurred or will imminently occur prior to the completion of the
independent medical review.

Assembly
Bill 55 ("AB 55") established an independent medical review system. Every health plan enrollee, whether currently under the regulatory supervision of the DMHC or the California
DOI, must

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be provided with an opportunity to seek an independent medical review whenever health care services have been denied, modified or delayed by a managed care entity or one of its contracting
physicians, if this decision was based on a finding that the proposed services are not medically necessary. There is no minimum dollar level for claims to be subject to the independent review process
and the enrollee does not have any responsibility for the payment of any application or processing fee. An enrollee's provider may assist and advocate in the review. All health plan contracts must
provide an opportunity to seek an independent review. The statute does not apply to decisions by a health plan that health care services are not covered under the plan issued to the subscriber.

Assembly
Bill 88 ("AB 88") required that any health care service plan contract or disability insurance policy must provide coverage for the diagnosis and medically necessary treatment of
severe mental illness under the same terms and conditions applied to other medical conditions.

Assembly
Bill 78 ("AB 78") provided for the creation of the DMHC, which now regulates the health care service plan operations previously under the supervision of the California
Department of Corporations. The DMHC is advised by an advisory committee consisting of 22 members, 11 of whom are appointed by the Governor, 10 of whom are appointed by the joint recommendation
of the Governor, the Speaker of the California Assembly and the California Senate Committee on Rules and
one of whom is the Director of the Department (who is appointed by the Governor). This advisory committee is required to issue an annual report, which will include a report card issued to the public
on the comparative performance of managed care organizations. This bill also established an Office of Patient Advocate, who is appointed by the California Governor, to represent the interest of
enrollees. The Office of Patient Advocate is charged with the responsibility of helping enrollees secure health care services and will have access to the records of the DMHC. Under the legislation,
the new DMHC has been granted expanded powers, including the ability to order the discontinuance of "unsafe or injurious practices."

Senate
Bill 260 ("SB 260") established a Financial Solvency Standards Board (the "Board") comprised of the Director of the Department of Managed Care (the "Director") and seven members
appointed by the Director. The Board reviews financial solvency matters affecting the delivery of health care services and recommends financial solvency requirements relating to plan operations,
plan-affiliate operations and transactions, plan-provider contractual relationships and provider-affiliate operations and transactions. Every contract between a health care
service plan and a risk-bearing organization (i.e., any provider group that provides services in exchange for fixed capitation payments) must include a requirement that the
risk-bearing organization furnish financial information to the health care service plan. In addition, the health care service plan must disclose information to the risk-bearing
organization that enables the organization to be informed regarding its financial risk. Plans must provide payment of all risk arrangements, excluding capitation payments, within 180 days after
the close of each fiscal year. Risk-bearing organizations may not be at financial risk for the provision of health care services unless a particular contract provision allocating such risk
has first been negotiated and agreed to between the health care service plan and the risk-bearing organization. In addition, no contract between a health care service plan and a
risk-bearing organization may include any provision that requires a health care provider to accept rates or methods of payments unless the provisions have first been negotiated and agreed
to between the plan and the risk-bearing organization.

Senate
Bill 559 ("SB 559") imposed certain disclosure obligations and other limitations on health care plans, such as the Company, that make their networks of contracted providers
available to other entities. Under SB 559, health care plans must disclose to contracting providers that they intend to make their health care networks and the negotiated discounts available to other
payors such as self-insured employers or workers' compensation insurance companies. Providers may decline to be included in any list of contracted providers made available to any payor
entity that does not provide financial incentives to, or otherwise actively encourage, the payor's members to use the list of contracting providers when obtaining medical care.

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Assembly
Bill 1455 ("AB 1455") imposed new time limits for the payment of uncontested covered claims and required health care service plans to pay interest on uncontested
claims not paid promptly within the required time period. AB 1455 also granted the DMHC additional authority to impose monetary penalties and other sanctions on health plans engaging in certain
"unfair payment practices" (as defined in AB 1455).

The
California Legislature has also adopted legislation that imposes restrictions on the categories of persons that may be involved in medical management activities and on the conduct of
such activities. Various other newly adopted bills mandate coverage for certain benefits, such as the provision of oral contraceptives, and place further limitations on health plan operations.

Federal

A variety of federal laws have been adopted in the last several years effecting the Company's operations and a significant number of measures have also been
proposed for future adoption. The following is a summary of the significant enacted measures as well as proposed measures.

HIPAA.The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and the implementing regulations that have
thus far been adopted impose new obligations for issuers of health insurance coverage and health benefit plan sponsors. HIPAA requires certain guaranteed issuance and renewability of health coverage
for individuals and small groups (generally 50 or fewer employees) and limits exclusions based on preexisting conditions. Most of the insurance reform provisions of HIPAA became effective for "plan
years" beginning July 1, 1997.

HIPAA
also establishes new requirements regarding the confidentiality of patient health information and regarding standard formats for the transmission of health care data. In
December 2000, the Department of Health and Human Services promulgated final regulations regarding the privacy of "protected health information." The rules would, among other things, require
that health plans give patients a clear written explanation of how they intend to use, keep and disclose patient health information, prohibit health plans from conditioning payment or coverage on a
patient's agreement to disclose health information for other purposes, and create federal criminal penalties for health plans, providers and claims clearinghouses that knowingly and improperly
disclose information or obtain information under false pretenses. Final regulations regarding the standard formats for the transmission of health care information have also been released, with an
effective date of October 2002. In December 2001, legislation was enacted which offered health entities the option of extending the date for compliance with these regulations until
October 2003. The Company currently expects that it will file for such extension. The privacy and standardization regulations could have the effect of increasing the Company's expenses.

Maternity
length of stay and mental health parity benefits measures became effective for plan years beginning January 1, 1998. The maternity stay provision requires health plans
to cover the cost of a 48-hour hospital stay (96 hours following a Caesarian section). This measure does not mandate the length of hospital stays but requires that longer stays be
covered if deemed necessary by the mother or her physician (in consultation with the mother). Although many states already guarantee minimum hospital stays for mothers and newborns, these measures
have further increased WellPoint's claims expense.

Balanced Budget Act.In August 1997, President Clinton signed into law the Balanced Budget Act of 1997 (the "Balanced
Budget Act"). The Balanced Budget Act included a number of measures affecting the provision of health care. The act placed restrictions on the variation in Medicare reimbursement amounts
(so-called "risk adjusters") between counties. CMS has released proposed risk adjusters, which are currently expected to be implemented in phases through the year 2005. In addition, the
Balanced Budget Act ostensibly expanded the managed health plan options available to Medicare enrollees to include PPO, POS and high deductible health plans intended for MSAs. Regulations

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regarding these changes were adopted in June 1998. Finally, the Balanced Budget Act implemented certain changes with respect to Medicare supplement programs, including guaranteed coverage
issues. Certain of the changes under the Balanced Budget Act could have the result of increasing the Company's costs.

Medicare Legislation.WellPoint's health benefits programs include products that are marketed to Medicare beneficiaries as a
supplement to their Medicare coverage. These products are subject to Federal regulations intended to provide Medicare supplement customers with standard minimum benefits and levels of coverage and
full disclosure of coverage terms and assure that fair sales practices are employed in the marketing of Medicare supplement coverage.

In
California and Georgia, WellPoint provides a senior plan product under a Medicare + Choice contract that is subject to regulation by CMS. Under this contract and CMS
regulations, if WellPoint's premiums received for Medicare-covered health care services provided to senior plan Medicare members are more than the Company's projected costs associated with the
provision of health care services provided to senior plan members, then WellPoint must provide its senior plan members with additional benefits beyond those required by Medicare or reduce its
premiums, or deductibles or co-payments, if any. CMS has the right to audit HMOs operating under Medicare contracts to determine the quality of care being rendered and the degree of
compliance with CMS' contracts and regulations.

Future Health Care Reform.A number of legislative proposals have been made at the Federal and state levels over the past several years.
These proposals would, among other things, mandate benefits with respect to certain diseases or medical procedures, require plans to offer an independent external review of certain coverage decisions
or establish health plan liability in a manner similar to the California legislation discussed above or the Georgia and Texas legislation discussed in the following section. The United States Congress
is currently considering a number of alternative health care reform measures that would, among other things, mandate external review of treatment denial decisions and provide for managed care
liability. There have also been proposals made at the Federal level to implement greater restrictions on employer-funded health plans, which are generally exempted from state regulation by ERISA.

WellPoint
is unable to evaluate what legislation may be proposed and when or whether any legislation will be enacted and implemented. However, many of the proposals, if adopted, could
have a material adverse effect on WellPoint's financial condition, cash flows or results of operations, while others, if adopted, could potentially benefit WellPoint's business.

Other States

The Company's activities in other states are subject to state regulation applicable to the provision of managed health care services and the sale of traditional
health indemnity insurance. As a result of the Company's various acquisitions, the Company and certain of its subsidiaries are also subject to regulation by the DOI in Delaware (which is the state of
incorporation and domicile of UNICARE Life & Health Insurance Company, one of the Company's principal operating subsidiaries outside of California), Georgia, Illinois, Indiana, Missouri, Texas
and in all other states. As the Company expands its offering of managed care products in new geographic locations, it will be subject to additional regulation by governmental agencies applicable to
the provision of health care services. The Company believes it is in compliance in all material respects with all current state regulatory requirements applicable to its business as presently
conducted. However, changes in government regulations could affect the level of services which the Company is required to provide or the rates which the Company can charge for its health care products
and services.

As
the Company continues to expand its operations outside of California, new legislative and regulatory developments in Delaware, Georgia, Illinois, Missouri, Texas and various other
states will

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have greater potential effect on the Company's financial condition, cash flows or results of operations. In 1999 the Georgia Legislature adopted several new bills, including one that requires managed
care plans to offer coverage for services rendered by out-of-network providers and one that establishes a Consumers' Insurance Advocate with authority to review and comment
upon matters pending before the Department of Insurance. Over the past few years, there has also been an increase in other states in proposed legislation regarding, among other things, mandated
benefits, prompt payment of claims, health plan liability, third-party review of health plan coverage determinations and health plan relationships with providers. The Company expects that this trend
of increased legislation will continue. These laws may have the effect of increasing the Company's claims expense.

In
1997, the Texas legislature adopted SB 386 which, among other things, purports to make managed care organizations ("MCOs") such as the Company liable for the failure by the MCO, its
employees or agents to exercise ordinary care when making "health care treatment decisions" (as defined in the legislation). The legislation was effective as of September 1, 1997. In
September 1998, the United States District Court for the Southern District of Texas ruled, in part, that the MCO liability provisions of SB 386 are not preempted by ERISA. To date, this
legislation has not adversely affected the Company's results of operations. However, although the Company maintains insurance covering such liabilities, to the extent that this legislation (or similar
legislation that may be subsequently adopted at the Federal or state level) effectively expands the scope of liability of MCOs, such as the Company, it may have a material adverse effect on the
Company's results of operations, financial condition and cash flows. Even if the Company is not held liable under any litigation, the existence of potential MCO liability may cause the Company to
incur greater costs in defending such litigation.

In
connection with the GBO acquisition, the Company has entered into a reinsurance arrangement, on a 100% coinsurance basis, of the insured business of the GBO. This business includes a
small number of insured persons in Canada covered by group policies issued to U.S.-based employers. As a result, the Company may be subject to certain rules and regulations of applicable Canadian
regulatory agencies.

Service Marks

WellPoint and its subsidiaries have filed for registration of and maintain several service marks, trademarks and trade names at the Federal level and in various
states in which it operates. WellPoint and various of its operating subsidiaries are currently parties to license agreements with the Blue Cross Blue Shield Association (the "BCBSA") which allow them
to use the Blue Cross or Blue Shield names and marks in California, Georgia and parts of Missouri with respect to WellPoint's HMO and PPO network-based plans. The BCBSA is a national trade association
of Blue Cross and Blue Shield licensees. Each licensee is an independent legal organization and is not responsible for the obligations of other BCBSA member organizations. A Blue Cross or Blue Shield
license requires payment of a fee to the BCBSA and compliance with various requirements established by the BCBSA, including the maintenance of specified minimum capital. The failure to meet such
capital requirements can subject the Company to certain corrective action, while the failure to meet a lower specified level of capital can result in termination of the Company's license agreement
with the BCBSA. WellPoint considers the licensed Blue Cross and Blue Shield names and their registered service marks, trademarks and trade names important in the operation of its business.

Employees

At December 31, 2001, WellPoint and its subsidiaries employed approximately 13,900 persons. Approximately 145 of the Company's employees are presently
covered by a collective bargaining agreement with the Office and Professional Employees International Union, Local 29. Approximately 163 of the Company's office clerical employees in the greater
Detroit area are presently covered by a collective bargaining agreement with the International Brotherhood of Teamsters, Chauffeurs,

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Warehousemen and Helpers of America, Local No. 614. As of December 31, 2001, RightCHOICE and its subsidiaries employed approximately 2,300 persons. WellPoint believes that its
relations with its employees are good, and it has not experienced any work stoppages.

Executive Officers

Leonard D. Schaeffer, age 56, has been Chairman of the Board of Directors and Chief Executive Officer of the Company since August 1992.
Mr. Schaeffer has also been Chief Executive Officer of BCC since 1986 and Chairman of the Board of Directors since 1989. From 1982 to 1986, Mr. Schaeffer served as President of Group
Health, Inc., an HMO in the midwestern United States. Prior to joining
Group Health, Inc., Mr. Schaeffer was the Executive Vice President and Chief Operating Officer of the Student Loan Marketing Association, a financial institution that provides a
secondary market for student loans, from 1980 to 1981. From 1978 to 1980, Mr. Schaeffer was the Administrator of HCFA (now known as CMS), which administers the Federal Medicare and Medicaid
programs. Mr. Schaeffer serves as a director of Allergan, Inc. and Providian Financial Corporation.

D.
Mark Weinberg, age 49, has been Executive Vice President and Chief Development Officer since February 2002. From March 1999 until February 2002, he was Executive
Vice President, Individual and Small Group Division of the Company since April 1999. From October 1995 until March 1999, he served as Executive Vice President, UNICARE Businesses
of the Company. From August 1992 until May 1996, Mr. Weinberg served as a director of the Company. From February 1993 to October 1995, Mr. Weinberg was
Executive Vice President, Consumer and Specialty Services of the Company. Prior to February 1993, Mr. Weinberg was Executive Vice President of BCC's Consumer Services Group from
December 1989 to February 1993 and was Senior Vice President of Individual and Senior Services of BCC from April 1987 to December 1989. From 1981 to 1987,
Mr. Weinberg held a variety of positions at Touche Ross & Co. From 1976 to 1981, Mr. Weinberg was general manager for the CTX Products Division of PET, Inc.

Joan
E. Herman, age 48, joined the Company in June 1998 as Executive Vice President, Specialty Division. From April 1999 until March 2000, Ms. Herman was
Executive Vice President, Senior and Specialty Businesses. Since March 2000, Ms. Herman has been Executive Vice President, Senior Specialty and State-Sponsored Programs Division. From
1982 until joining the Company, Ms. Herman was with Phoenix Home Life Mutual Insurance Company, a mutual insurance company, most recently serving as Senior Vice President. Ms. Herman is
a member of the Society of Actuaries and American Academy of Actuaries.

David
S. Helwig, age 45, has been Executive Vice President, Blue Cross of California Businesses since February 2002. From March 2001 until February 2002, he was
Executive Vice President, Large Group Division of the Company. From May 2000 until March 2001, Mr. Helwig was Senior Vice President, Western Region, Large Group Businesses of the
Company and from March 1999 until May 2000, Mr. Helwig served as Senior Vice President and Chief Actuary for the Company. From 1995 until March 1999, Mr. Helwig
served as Senior Vice President of Individual and Small Group Services for the Company and from May 1994 until 1995, Mr. Helwig was Senior Vice President of Consumer Services for
CaliforniaCare Health Plans, a subsidiary of the Company. From 1991 to May 1994, Mr. Helwig was Senior Vice President and Chief Actuary of Blue Cross of California and from
February 1993 until May 1994, Mr. Helwig also served as Chief Financial Officer and Treasurer of Blue Cross of California.

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Rebecca Kapustay, age 50, has been Executive Vice President, Blue Cross and Blue Shield of Georgia since March 2001. From 1979 until 1992, Ms. Kapustay held various
positions with Blue Cross of California of increasing responsibility in both operations and data processing. From 1993 until April 1994, Ms. Kapustay was General Manager of the Company
and from May 1994 until 2000, Ms. Kapustay held various positions with the Company including Senior Vice President, California Operations and more recently Senior Vice President, Large
Group Services.

John
A. O'Rourke, age 58, joined the Company in February 2002 as Executive Vice President, Central Business Region. From February 1997 until January 2002,
Mr. O'Rourke was Chairman and Chief Executive Officer of RightCHOICE Managed Care, Inc. From January 1985 until joining RightCHOICE, Mr. O'Rourke was President and Chief
Executive Officer of HealthLink. Prior to joining HealthLink Mr. O'Rourke was Deputy Director of the Office of HMOs in the U.S. Department of Health and Human Services.

David
C. Colby, age 48, joined the Company in September 1997 as Executive Vice President and Chief Financial Officer. From April 1996 until joining the Company,
Mr. Colby was Executive Vice President, Chief Financial Officer and Director of American Medical Response, Inc., a health care services company focusing on ambulance services and
emergency physician practice management. From July 1988 until March 1996, Mr. Colby was with Columbia/HCA Healthcare Corporation, most recently serving as Senior Vice President
and Treasurer. From September 1983 until July 1988, Mr. Colby was Senior Vice President and Chief Financial Officer of The Methodist Hospital in Houston, Texas.

Thomas
C. Geiser, age 51, has been Executive Vice President, General Counsel and Secretary of the Company since May 1996. From July 1993 until May 1996,
Mr. Geiser held the position of Senior Vice President, General Counsel and Secretary. Prior to joining the Company, he was a partner in the law firm of Brobeck, Phleger & Harrison from
June 1990 to June 1993 and a partner in the law firm of Epstein Becker Stromberg & Green from May 1985 to May 1990. Mr. Geiser joined the law firm of Hanson,
Bridgett, Marcus, Vlahos & Stromberg as an associate in March 1979 and became a partner in the firm, leaving in May 1985.

Woodrow
A. Myers, Jr., M.D., age 48, has been Executive Vice President, Chief Medical Officer of the Company since September 2000. From 1995 until September 2000, he served
as Director, Healthcare Management of Ford Motor Company. From 1991 until 1995, Dr. Myers served as Senior Vice President and Corporate Medical Director of The Associated Group (now known as
Anthem Blue
Cross Blue Shield). From 1990 to 1991, Dr. Myers was the Commissioner of Health for the City of New York. Dr. Myers serves as a director of Somnus Medical Technologies.

Alice
F. Rosenblatt, age 53, has been Executive Vice President and Chief Actuary of the Company since March 2002. From October 1996 until March 2002, she served as
Senior Vice President and Chief Actuary of the Company. From February 1994 until September 1996, Ms. Rosenblatt was a partner with Coopers & Lybrand LLP. From
May 1989 until December 1993, Ms. Rosenblatt served as the Senior Vice President and Chief Actuary of Blue Cross Blue Shield of Massachusetts. From 1987 until 1989,
Ms. Rosenblatt served as the Chief Actuary and Senior Vice President of Blue Cross of California's health maintenance organization and group services.

May 1996 Recapitalization and Restrictions on Ownership and Transfer of Securities

The Company's predecessor, WellPoint Health Networks Inc., a Delaware corporation ("Old WellPoint"), was organized in 1992 as a public
for-profit subsidiary of Blue Cross of California ("BCC"), to own and operate substantially all of the managed health care businesses of BCC. In order to fulfill BCC's public benefit
obligations to the State of California arising out of the creation of Old WellPoint, BCC and Old WellPoint undertook a recapitalization (the "Recapitalization") which was concluded on May 20,
1996. As a result of the Recapitalization, among other things, Old WellPoint merged into BCC, a special dividend of $995.0 million was made to the shareholders of Old WellPoint

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and the California HealthCare Foundation (the "Foundation") became the holder of 53,360,000 shares, or approximately 80%, of the surviving WellPoint entity. As of January 2001, the Foundation
ceased to own any shares of WellPoint Common Stock.

In
connection with the Recapitalization, BCC relinquished its rights under the Blue Cross License Agreement dated January 1, 1991, between Blue Cross of California and the BCBSA.
The BCBSA and the Company entered into a new License Agreement (the "License Agreement"), pursuant to which the Company became the exclusive licensee for the right to use the Blue Cross name and
related service marks in California and became a member of the BCBSA. See "Service Marks."

At
the time of the Recapitalization, pursuant to an agreement with the BCBSA, the Company's Certificate of Incorporation included an "Ownership Limit" with respect to the Company's
voting securities. At such time, the "Ownership Limit" was established as one share less than 5% of the Company's outstanding voting securities. In December 1997, the Company and the BCBSA, in
accordance with the provisions of Article VII, Section 14(f)(2) of the Company's Certificate of Incorporation, agreed to modify the Ownership Limit to the following: (i) for any
"Institutional Investor," one share less than 10% of the Company's outstanding voting securities; and (ii) for any "Noninstitutional Investor," other than the Foundation, one share less than 5%
of the Company's outstanding voting securities. For these purposes, "Institutional Investor" means any person if (but only if) such person is (1) a broker or dealer registered under
Section 15 of the Securities Exchange Act of 1934 (the "Exchange Act"), (2) a bank as defined in Section 3(a)(6) of the Exchange Act, (3) an
insurance company as defined in Section 3(a)(19) of the Exchange Act, (4) an investment company registered under Section 8 of the Investment Company Act of 1940, (5) an
investment adviser registered under Section 203 of the Investment Advisers Act of 1940, (6) an employee benefit plan, or pension fund which is subject to the provisions of the Employee
Retirement Income Security Act of 1974 or an endowment fund, (7) a parent holding company, provided the aggregate amount held directly by the parent, and directly and indirectly by its
subsidiaries which are not persons specified in paragraphs (1) through (6), does not exceed one percent of the securities of the subject class, or (8) a group, provided that all the
members are persons specified in paragraphs (1) through (7). In addition, every filing made by such person with the SEC under Regulation 13D-G (or any successor Regulation)
under the Exchange Act with respect to such person's beneficial ownership must contain a certification (or a substantially similar one) that the WellPoint Common Stock acquired by such person was
acquired in the ordinary course of business and was not acquired for the purpose of and does not have the effect of changing or influencing the control of WellPoint and was not acquired in connection
with or as a participant in any transaction having such purpose or effect. For such purposes, "Noninstitutional Investor" means any person that is not an Institutional Investor.

In
December 1997, the Company and the BCBSA also agreed that the License Agreement would be subject to termination in the event that any entity other than the Foundation became
the beneficial owner of 20% or more of WellPoint's then-outstanding Common Stock or other equity securities which (either by themselves or in combination) represented an ownership interest
of 20% or greater. WellPoint also agreed that it would not issue any class or series of securities other than shares of Common Stock, non-voting, non-convertible debt
securities or such other securities as WellPoint may approve, provided that WellPoint will provide the BCBSA with at least 30 days advance notice of the issuance of such securities and the
BCBSA will have the authority to determining how such securities will be treated for purposes of determine a particular holder's beneficial ownership of Common Stock.

In
July 1999, WellPoint issued an aggregate of $299 million in principal amount at maturity of Zero Coupon Convertible Subordinated Debentures Due 2019 (the "Debentures").
The BCBSA has determined that it will treat a holder of Debentures at a particular time as beneficially owning shares of Common Stock equal to the greater of (i) the number of shares into which
the Debentures could be converted upon exercise of the conversion right of the Debentures at such time, and (ii) the number of shares of Common Stock which the holder would receive if WellPoint
paid the holder in shares of

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Common Stock upon exercise of the holder's redemption right (assuming redemption of the Debentures at a price equal to the original issue price plus then-accrued original issue discount
and based on the then-current market price of the Common Stock). This deemed beneficial ownership will be aggregated with a Debentureholder's other beneficial ownership of Common Stock for
purposes of determining if the Ownership Limit provisions have been violated. Any Debentureholder's deemed beneficial ownership of Common Stock may fluctuate as a result of changes in the market price
of the Common Stock.

In
connection with the Recapitalization, BCC also received a ruling from the IRS that, among other things, the conversion of BCC from a nonprofit public benefit corporation to a
for-profit entity (the "BCC Conversion") qualified as a tax-free transaction and that no gain or loss was recognized by BCC for Federal income tax purposes. The Foundation and
the Company have entered into an Indemnification Agreement which provides, with certain exceptions, that the Foundation will indemnify
WellPoint against the net tax liability as a result of a revocation or modification, in whole or in part, of the ruling by the IRS or a determination by the IRS that the BCC Conversion constitutes a
taxable transaction for Federal income tax purposes.

In
August 1997, pursuant to approval by the stockholders at the Company's 1997 Annual Meeting, the Company reincorporated in the state of Delaware. Each of the material agreements
(other than the Indemnification Agreement) entered into in connection with the Recapitalization was amended and restated on substantially similar terms at the time of the reincorporation.

In
connection with the RightCHOICE transaction, the Missouri Foundation for Health (the "Missouri Foundation"), which was formerly the largest stockholder of RightCHOICE, acquired
4,805,200 shares of WellPoint Common Stock, or approximately 6.7% of the then-outstanding WellPoint Common Stock. Because the Missouri Foundation did not qualify as an Institutional
Investor for purposes of the Ownership Limit, the Company requested and received a waiver of the Ownership Limit requirements from the BCBSA. In connection therewith, the Missouri Foundation committed
to sell sufficient shares of WellPoint Common Stock such that its ownership would be reduced to below 5% of WellPoint's outstanding voting securities on or prior to January 31, 2003. As of
March 2002, the Missouri Foundation had sold sufficient shares to reduce its ownership to below 5% of WellPoint's outstanding voting securities.

Factors That May Affect Future Results of Operations

Certain statements contained in "Item 1. Business," such as statements concerning the Company's geographic expansion and other business strategies, the effect of
recent health care reform legislation, changes in the competitive environment and small group membership growth and other statements contained herein regarding matters that are not historical facts,
are forward-looking statements (as such term is defined in the Securities Exchange Act of 1934). Such statements involve a number of risks and uncertainties that may cause actual results to differ
from those projected. Factors that can cause actual results to differ materially include, but are not limited to, those discussed below. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.

Federal and State Health Care Regulation; Legislative Reform; Activities as Government Contractor

WellPoint's operations are subject to substantial regulation by Federal, state and local agencies. Such regulation may either relate to the Company's business
operations or to the financial condition of regulated subsidiaries. With regard to the former, regulation typically covers prescribed benefits, prompt payment of claims, relationships with providers,
marketing, advertising, quality assurance and member grievance resolution. With regard to the latter, regulation typically governs the amount of capital required to be retained in regulated
subsidiaries and the ability of such subsidiaries to pay dividends. From time to time, the Company and its subsidiaries receive requests for information from

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regulatory agencies or are notified that such agencies or other officials are conducting reviews, investigations or other proceedings with respect to certain of the Company's activities. There can be
no assurance that any past or future regulatory action by any such agencies will not have a material adverse effect on the profitability or marketability of WellPoint's health plans, the Company's
ability to access capital from the operations of its regulated subsidiaries or on its financial condition, cash flows or result of operations.

In
addition to capital requirements imposed by the DMHC and certain Departments of Insurance, the Company and its BCBSA-licensed affiliates are required to maintain certain levels of
capital to satisfy BCBSA requirements. During 1998, the National Association of Insurance Commissioners (the "NAIC"), the trade association representing state insurance regulators, adopted a
risk-based capital formula for licensed managed care organizations called Managed Care Organization Risk-Based Capital ("MCORBC"). The NAIC also approved an accompanying
Risk-Based Capital for Health Organizations Model Act (the "Model Act"), which will serve as a model for states considering enacting new legislation. The BCBSA adopted the MCORBC formula
effective as of December 31, 1999. If adopted by states, the minimum capital requirements under the Model Act are not expected to have a material impact on the Company, although there can be no
assurances that new minimum capital requirements will not increase the Company's capital requirements in the future.

The
health care industry has become the subject of greater legislative and media scrutiny in recent years. In 1999, California adopted a considerable number of health care reform
measures, including legislation providing for health plan liability and independent review of health plan decisions. See "Government Regulation." An increasing number of proposals are being considered
by the United States Congress and state legislatures relating to health care reform and the Company expects that some of such proposals will be enacted. There can be no assurance that compliance with
recently enacted or future legislation will not have a material adverse impact on WellPoint's claims expense, financial condition, cash flows or results of operations.

The
Company provides insurance products to Medi-Cal beneficiaries in various California counties under contracts with the DHS (or a delegated local agency). The Company also
provides administrative services for CMS in various capacities, including certain Medicare programs and under its Blue Cross Senior Secure plan. There can be no assurance that acting as a government
contractor in these circumstances will not increase the risk of heightened scrutiny by such government agencies, or that the profitability from this business will not be adversely affected through
inadequate premium rate increases due to governmental budgetary issues. Future actions by any regulatory agencies may have a material adverse effect on the Company's business.

As
a result of the PrecisionRx transaction completed in December 2000, one of the Company's subsidiaries conducts business as a mail order pharmacy. The pharmacy business is
subject to extensive federal, state and local regulations which are in many instances different from those under which the Company's traditional health care businesses operate. The failure to properly
adhere to these and other applicable regulations could result in the imposition of civil and criminal penalties, which could adversely affect the Company's result of operations or financial condition.
In addition, pharmacies are
exposed to risks inherent in the packaging and distribution of pharmaceuticals and other health care products. Although the Company intends to maintain professional liability insurance, there can be
no assurances that the coverage limits under such insurance programs will be adequate to protect against future claims or that the Company will be able to maintain insurance on acceptable terms in the
future.

Pending Transaction with CareFirst

WellPoint has entered into the CareFirst Merger Agreement pursuant to which CareFirst will become a wholly owned subsidiary of the Company (See "Recent Completed
Transactions and Pending TransactionsPending Acquisition of CareFirst.") Completion of this transaction is subject to the satisfaction of a number of conditions, including approval of the
insurance regulators in each of

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Maryland, Delaware and the District of Columbia. In addition, one of CareFirst's operating affiliates must have its federal charter amended or repealed by the United States Congress (subject to
presidential approval) and must obtain approval from the Washington D.C. Corporation Counsel. There can be no assurances that the required approvals will be obtained. If all conditions to
closing are not met on or before November 20, 2004, each of WellPoint and CareFirst will have the right to terminate the CareFirst Merger Agreement. As a result, there can be no assurances that
the transaction will be consummated.

As
a condition to approval of the transaction, regulatory agencies may seek to impose requirements or limitations on the way that the combined company conducts it business. Although
neither WellPoint nor CareFirst is obligated to agree to any material requirements or limitations in order to obtain approval, if either or both companies were to agree to any such conditions, such
requirements or limitations or additional costs associated therewith could adversely affect WellPoint's ability to integrate the operations of CareFirst with those of WellPoint. Accordingly, a
material adverse effect on WellPoint's revenue, results of operations and cash flows following the CareFirst transaction could result.

Indebtedness from Completed and Pending Acquisitions

In connection with the RightCHOICE and Cerulean transactions, the Company incurred significant additional indebtedness to fund the cash payments made to the
acquired companies' stockholders. In addition, the Company currently expects to incur additional indebtedness to fund some or all of the cash payments to be made in connection with the pending
CareFirst transaction. This existing or new indebtedness may result in a significant percentage of the Company's cash flow being applied to the payment of interest, and there can be no assurance that
the Company's operations will generate sufficient future cash flow to service this indebtedness. The Company's current indebtedness, as well as any indebtedness that the Company may incur in the
future (such as indebtedness incurred to fund repurchases of its Common Stock or to fund the CareFirst or other transactions), may adversely affect the Company's ability to finance its operations and
could limit the Company's ability to pursue business opportunities that may be in the best interests of the Company and its stockholders.

Class Action Lawsuits and Other Evolving Theories of Recovery

From time to time, the Company and certain of its subsidiaries are parties to various legal proceedings, many of which involve claims for coverage encountered in
the ordinary course of business. The Company, like HMOs and health insurers generally, excludes certain health care services from coverage under its HMO, PPO and other plans. The Company is, in the
ordinary course of business, subject to the claims of its enrollees arising out of decisions to restrict treatment or reimbursement for certain services. The loss of even one such claim, if it results
in a significant punitive damage award, could have a material adverse effect on the Company. In addition, the risk of potential liability under punitive damage theories may increase significantly the
difficulty of obtaining reasonable settlements of coverage claims.

In
June 2000, the California Medical Association filed a lawsuit in U.S. district court in San Francisco against BCC. The lawsuit alleges that BCC violated the RICO Act through
various misrepresentations to and inappropriate actions against health care providers. In late 1999, a number of class-action lawsuits were brought against several of the Company's competitors
alleging, among other things, various misrepresentations regarding their health plans and breaches of fiduciary obligations to health plan members. In August 2000, the Company was added as a
party toShane v. Humana, et al., a class-action lawsuit brought on behalf of health care providers nationwide. In addition to the RICO claims brought
in the California Medical Association lawsuit, this lawsuit also alleges violations of ERISA, federal and state "prompt pay" regulations and certain common law claims. In October 2000, the
federal Judicial Panel on Multidistrict Litigation issued an order consolidating the California

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Medical Association lawsuit, theShanelawsuit and various other pending managed care class-action lawsuits against other companies before District
Court Judge Federico Moreno in the Southern District of Florida for purposes of the pretrial proceedings. In March 2001, Judge Moreno dismissed the plaintiffs' claims based on violation of the
RICO Act, although the dismissal was made without prejudice to the plaintiffs' ability to subsequently refile their claims. Judge Moreno also dismissed, with prejudice, the plaintiffs' federal prompt
pay law claims. On March 26, 2001, the California Medical Association filed an amended complaint in its lawsuit, alleging, among other things, revised RICO claims and violations of California
law. A hearing on the plaintiffs' motion to certify a class was held in early May 2001. On May 9, 2001, Judge Moreno issued an order requiring that all discovery in the litigation be
completed by December 2001, with the exception of discovery related to expert witnesses, which must be completed by March 15, 2002. In June 2001, the federal Court of Appeals for
the 11th Circuit issued a stay of Judge Moreno's discovery order, pending a hearing before the Court of Appeals on the Company's appeal of its motion to compel arbitration (which had
earlier been granted in part and denied in part by Judge Moreno). The panel for the hearing was selected in December 2001. The hearing was held in January 2002 and, in March 2002, the
Court of Appeals issued an opinion affirming Judge Moreno's earlier action with respect to the motion to compel arbitration.

In
March 2002, the American Dental Association and three individual dentists filed a lawsuit in U.S. district court in Chicago against the Company and BCC. This lawsuit alleges
that WellPoint and BCC engaged in conduct that constituted a breach of contract under ERISA, trade libel and tortious
interference with contractual relations and existing and prospective business expectancies. The lawsuit seeks class-action status.

In
July 2001, two individual physicians seeking to represent a class of physicians, hospitals and other providers brought suit in the Circuit Court of Madison County, Illinois
against HealthLink, Inc., which is now a subsidiary of the Company as a result of the RightCHOICE transaction. The physicians allege that HealthLink breached the contracts with these physicians by
engaging in the practices of "bundling" and "down-coding" in its processing and payment of provider claims. The relief sought includes an injunction against these practices and damages in an
unspecified amount. In March 2002, HealthLink was notified that the court intends to hold a hearing on class certification, although no formal date for such hearing has been set. A similar
lawsuit was brought by physicians (including one of the physicians in the case described above) in the same court in Madison County, Illinois, on behalf of a nationwide class of providers who contract
with Blue Cross and Blue Shield plans against the Blue Cross and Blue Shield Association and another Blue Cross Blue Shield plan. The complaint recites that it is brought against those entities and
their "unnamed subsidiaries, licensees, and affiliates," listing a large number of Blue Cross and Blue Shield plans, including "Alliance Blue Cross Blue Shield of Missouri." The plaintiffs also allege
that the plans have systematically engaged in practices known as "short paying," "bundling," and "down-coding" in their processing and payment of subscriber claims. Blue Cross Blue Shield of Missouri
has not been formally named or served as a defendant in this suit.

The
financial and operational impact that these and other evolving theories of recovery will have on the managed care industry generally, or the Company in particular, is at present
unknown.

Health Care Costs and Premium Pricing Pressures

WellPoint's future profitability will depend in part on accurately predicting health care costs and on its ability to control future health care costs through
underwriting criteria, utilization management, product design and negotiation of favorable provider and hospital contracts. Changes in utilization rates, demographic characteristics, the regulatory
environment, health care practices, inflation, new technologies, clusters of high-cost cases, continued consolidation of physician, hospital and other provider groups and numerous other
factors affecting health care costs may adversely affect WellPoint's ability to predict and control health care costs as well as WellPoint's financial condition, results of operations or cash flows.
Periodic renegotiations of hospital and other provider contracts, coupled with

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continued consolidation of physician, hospital and other provider groups, may result in increased health care costs or limit the Company's ability to negotiate favorable rates. In the past few years,
large physician practice management companies have experienced extreme financial difficulties (including bankruptcy), which may subject the Company to increased credit risk related to provider groups
and cause the Company to incur duplicative claims expense.

In
addition to the challenge of controlling health care costs, the Company faces competitive pressure to contain premium prices. While health plans compete on the basis of many factors,
including service and
the quality and depth of provider networks, the Company expects that price will continue to be a significant basis of competition. Fiscal concerns regarding the continued viability of programs such as
Medicare and Medicaid may cause decreasing reimbursement rates for government-sponsored programs. WellPoint's financial condition or results of operations would be adversely affected by significant
premium decreases by any of its major competitors or by any limitation on the Company's ability to increase or maintain its premium levels.

Integration of Acquisitions; Geographic Expansion Strategy; Future Acquisitions

One component of the Company's business strategy has been to diversify into new geographic markets, particularly through strategic acquisitions. The Company has
completed a number of significant acquisitions since 1996. Since the relevant dates of acquisition, the Company has worked extensively on the integration of the acquired MMHD, GBO and Rush Prudential
businesses. The Company has also completed significant work on the integration of the Cerulean businesses. The Company expects to begin its integration of RightCHOICE during the remainder of 2002. The
Company is continuing the consolidation of these acquired operations into its operations, which will require considerable expenditures and a significant amount of management time. Due to the complex
nature of the merger integration process, particularly the information systems designed to serve these businesses, the Company may temporarily experience increases in claims inventory or other
service-related issues that may negatively affect the Company's relationship with its customers and contribute to increased attrition of such customers. The success of these acquisitions will, among
other things, also require the integration of a significant number of the employees into the Company's existing operations and the completion of the integration of separate information systems. No
assurances can be given regarding the ultimate success of the integration of these acquisitions into the Company's business.

As
the Company pursues its geographic expansion strategy, the Company's market share in new markets will not be as significant, and its provider networks not as extensive, as in
California, Georgia and Missouri, and the Company will not have the benefit of the Blue Cross or Blue Shield names and marks which are important components of its success in California, Georgia and
Missouri. The Company no longer has the benefit of the MassMutual, John Hancock or Rush Prudential trade names. There can be no assurance that the absence of one or more of these elements will not
adversely affect the success of the Company's geographic expansion strategy.

The
Company actively considers acquisition opportunities on a regular basis, both in connection with its geographic expansion strategy and its California operations. The Company
currently has no existing agreements or commitments to effect any material acquisition, other than CareFirst. Accordingly, there can be no assurance that the Company will be able to identify
additional acquisition, candidates available for sale at reasonable prices or consummate any acquisition or that any discussions will result in an acquisition. Any such acquisitions may require
significant additional capital resources and there can be no assurance that the Company will have access to adequate capital resources to effect such future acquisitions. To the extent that the
Company consummates acquisitions, there can be no assurance that such acquisitions will be successfully integrated into the Company or that such acquisitions will not adversely affect the Company's
results of operations, cash flows and financial condition.

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Prior
to the Company's acquisition of the GBO, John Hancock Mutual Life Insurance Company ("John Hancock") entered into a number of reinsurance arrangements with respect to personal
accident insurance and the occupational accident component of workers' compensation insurance, a portion of which was originated through a pool managed by Unicover Managers, Inc. Under these
arrangements, John Hancock assumed risks as a reinsurer and transferred certain of such risks to other companies. These arrangements have become the subject of disputes, including a number of legal
proceedings to which John Hancock is a party. The Company believes that it has a number of defenses to avoid any ultimate liability with respect to these matters and believes that such liabilities
were not transferred to the Company as part of the GBO acquisition. However, if the Company were to become subject to such liabilities, the Company could suffer losses that might have a material
adverse effect on its financial condition, results of operations or cash flows.

Competition

Managed health care organizations operate in a highly competitive environment that is subject to significant change from legislative reform, business
consolidations, new strategic alliances, aggressive marketing practices by other managed health care organizations, the development of companies offering Internet-based connections between providers,
employers and members and other market pressures. A significant portion of the Company's operations are in California, where the managed health care industry is especially competitive. In addition,
the managed health care industry in California has undergone significant changes in recent years, including substantial consolidation. Outside of California, the Company faces competition from other
regional and national companies, many of which have (or due to future consolidation, may have) significantly greater financial and other resources and market share than the Company. If competition
were to further increase in any of its markets, WellPoint's financial condition, cash flows or results of operations could be materially adversely affected.

A
substantial portion of WellPoint's California business is in the individual and small employer group market, where the loss ratio is significantly lower than in the large employer
group market. The individual and small employer group business constituted approximately 31.0% of WellPoint's total premium revenue for the year ended December 31, 2001. WellPoint has
experienced increasing competition in the individual and small employer group market over the past several years, which could adversely affect WellPoint's loss ratio and future financial condition or
results of operations. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."

Dependence on Independent Agents and Brokers

The Company is dependent on the services of independent agents and brokers in the marketing of its health care plans, particularly with respect to individuals,
seniors and small employer group members. Such independent agents and brokers are typically not exclusively dedicated to the Company and may frequently also market health care plans of the Company's
competitors. The Company faces intense competition for the services and allegiance of independent agents and brokers.

Employee Matters

The Company is dependent on retaining existing employees and attracting and retaining additional qualified employees to meet its future needs. The Company faces
intense competition for qualified employees and there can be no assurance that the Company will be able to attract and retain such employees or that such competition among potential employers will not
result in increasing salaries. There can be no assurance that an inability to retain existing employees or attract additional employees will not have a material adverse effect on the results of
operations of the Company. The Company is especially dependent on attracting and retaining qualified information technology personnel and other skilled professionals.

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Tax Issues Relating to the WellPoint and RightCHOICE Recapitalizations

In connection with the Recapitalization, BCC received a ruling from the IRS that, among other things, the BCC Conversion qualified as a tax-free
transaction and that no gain or loss was recognized by BCC for Federal income tax purposes. If the ruling were subsequently revoked, modified or not honored by the IRS (due to a change in law or for
any other reason), WellPoint, as the successor to BCC, could be subject to Federal income tax on the difference between the value of BCC at the time of the BCC Conversion and BCC's tax basis in its
assets at the time of the BCC Conversion. The potential tax liability to WellPoint if the BCC Conversion is treated as a taxable transaction is currently estimated to be approximately
$696 million, plus interest (and possibly penalties). BCC and the Foundation entered into an Indemnification Agreement that provides, with certain exceptions, that the Foundation will indemnify
WellPoint against the net tax liability as a result of a revocation or modification, in whole or in part, of the ruling by the IRS or a determination by the IRS that the BCC Conversion constitutes a
taxable transaction for Federal income tax purposes. In the event a tax liability should arise against which the Foundation has agreed to indemnify WellPoint, there can be no assurance that the
Foundation will have sufficient assets to satisfy the liability in full, in which case WellPoint would bear all or a portion of the cost of the liability, which could have a material adverse effect on
WellPoint's financial condition.

On
November 30, 2000, RightCHOICE completed a reorganization (the "RightCHOICE Recapitalization") with its majority stockholder, RightCHOICE Managed Care, Inc., a Missouri
corporation ("Old RightCHOICE"). As part of the RightCHOICE Recapitalization, the Missouri Foundation became the holder of approximately 80% of RightCHOICE Common Stock. In connection with the
RightCHOICE Recapitalization, the predecessor of Old RightCHOICE, Blue Cross and Blue Shield of Missouri, received a ruling from the IRS that, among other things, the conversion of Blue Cross and Blue
Shield of Missouri from a non-profit corporation to a for-profit corporation qualified as a reorganization under the Internal Revenue Code and that Blue Cross and Blue Shield
of Missouri recognized no gain or loss for federal income tax purposes. If the IRS subsequently revoked, modified or decided not to honor the ruling due to a change in law or for any other reason,
RightCHOICE, as the successor to Old RightCHOICE, could be subject to federal income tax on the difference between the value of each of Blue Cross and Blue Shield of Missouri's assets at the time of
the RightCHOICE Recapitalization and its tax basis in its assets at the time of the RightCHOICE Recapitalization. RightCHOICE is now a wholly owned subsidiary of WellPoint. RightCHOICE and the
Missouri Foundation entered into an indemnification agreement that provides, with certain exceptions, that the Missouri Foundation will indemnify RightCHOICE against the tax liability as a result of
the IRS's revocation or modification, in whole or in part, of its ruling, or an IRS determination that RightCHOICE's conversion was a taxable transaction for federal income tax purposes. If a tax
liability should arise against which the Missouri Foundation has agreed to indemnify RightCHOICE, the Missouri Foundation may not have sufficient assets to pay the liability. RightCHOICE would then
bear all or a portion of the liability, which could have a material adverse effect on RightCHOICE's and the Company's financial condition.

Item 2. Properties.

Effective as of January 1, 1996, the Company entered into a lease for Blue Cross of California's Woodland Hills, California headquarters facility, which
provides for a term expiring in December 2019 with two options to extend the term for up to two additional five-year terms. In 1997, the Company entered into a lease, which expires
in December 2019, for a new facility located in Thousand Oaks, California housing certain corporate and specialty services. This facility was completed in January 1999. The Company and
its subsidiaries have additional offices in the greater Los Angeles and Ventura County area. As a result of the Company's continuing national expansion efforts, the Company leases or owns offices in
various other locations, including Atlanta and Columbus, Georgia; St. Louis, Missouri; Springfield, Massachusetts; Charlestown, Massachusetts; the greater Chicago, Illinois area;

28

---

Dearborn, Michigan; and Plano, Texas. As a result of the PrecisionRx acquisition, the Company now owns an approximately 79,000 square foot mail-order pharmacy distribution facility in the
greater Fort Worth, Texas area.

Item 3. Legal Proceedings.

From time to time, the Company and certain of its subsidiaries are parties to various legal proceedings, many of which involve claims for coverage encountered in
the ordinary course of business. The Company, like HMOs and health insurers generally, excludes certain health care services from coverage
under its HMO, PPO and other plans. The Company is, in the ordinary course of business, subject to the claims of its enrollees arising out of decisions to restrict treatment or reimbursement for
certain services. The loss of even one such claim, if it results in a significant punitive damage award, could have a material adverse effect on the Company. In addition, the risk of potential
liability under punitive damage theories may increase significantly the difficulty of obtaining reasonable settlements of coverage claims.

In
June 2000, the California Medical Association filed a lawsuit in U.S. district court in San Francisco against BCC. The lawsuit alleges that BCC violated the RICO Act through
various misrepresentations to and inappropriate actions against health care providers. In late 1999, a number of class-action lawsuits were brought against several of the Company's competitors
alleging, among other things, various misrepresentations regarding their health plans and breaches of fiduciary obligations to health plan members. In August 2000, the Company was added as a
party toShane v. Humana, et. al.,a class-action lawsuit brought on behalf of health care providers nationwide. In addition to the RICO claims brought
in the California Medical Association lawsuit, this lawsuit also alleges violations of ERISA, federal and state "prompt pay" regulations and certain common law claims. In October 2000, the
federal Judicial Panel on Multidistrict Litigation issued an order consolidating the California Medical Association lawsuit, theShanelawsuit and
various other pending managed care class-action lawsuits against other companies before District Court Judge Federico Moreno in the Southern District of Florida for purposes of the pretrial
proceedings. In March 2001, Judge Moreno dismissed the plaintiffs' claims based on violation of the RICO Act, although the dismissal was made without prejudice to the plaintiffs' ability to
subsequently refile their claims. Judge Moreno also dismissed, with prejudice, the plaintiffs' federal prompt pay law claims. On March 26, 2001, the California Medical Association filed an
amended complaint in its lawsuit, alleging, among other things, revised RICO claims and violations of California law. A hearing on the plaintiffs' motion to certify a class was held in early
May 2001. On May 9, 2001, Judge Moreno issued an order requiring that all discovery in the litigation be completed by December 2001, with the exception of discovery related to
expert witnesses, which must be completed by March 15, 2002. In June 2001, the federal Court of Appeals for the 11th Circuit issued a stay of Judge Moreno's discovery
order, pending a hearing before the Court of Appeals on the Company's appeal of its motion to compel arbitration (which had earlier been granted in part and denied in part by Judge Moreno). The panel
for the hearing was selected in December 2001. The hearing was held in January 2002 and, in March 2002, the Court of Appeals issued an opinion affirming Judge Moreno's earlier action
with respect to the motion to compel arbitration.

In
March 2002, the American Dental Association and three individual dentists filed a lawsuit in U.S. district court in Chicago against the Company and BCC. This lawsuit alleges
that WellPoint and BCC engaged in conduct that constituted a breach of contract under ERISA, trade libel and tortious interference with contractual relations and existing and prospective business
expectancies. The lawsuit seeks class-action status.

In
July 2001, two individual physicians seeking to represent a class of physicians, hospitals and other providers brought suit in the Circuit Court of Madison County, Illinois
against HealthLink, Inc., which is now a subsidiary of the Company as a result of the RightCHOICE transaction. The physicians allege that HealthLink breached the contracts with these physicians by
engaging in the practices of

29

---

"bundling" and "down-coding" in its processing and payment of provider claims. The relief sought includes an injunction against these practices and damages in an unspecified amount. In
March 2002, HealthLink was notified that the court intends to hold a hearing on class certification, although no formal date for such hearing has been set. A similar lawsuit was brought by
physicians (including one of the physicians in the case described above) in the same court in Madison County, Illinois, on behalf of a nationwide class of providers who contract with Blue Cross and
Blue Shield plans against the Blue Cross and Blue Shield Association and another Blue Cross Blue Shield plan. The complaint recites that it is brought against those entities and their "unnamed
subsidiaries, licensees, and affiliates," listing a large number of Blue Cross and Blue Shield plans, including "Alliance Blue Cross Blue Shield of Missouri." The plaintiffs also allege that the plans
have systematically engaged in practices known as "short paying," "bundling," and "down-coding" in their processing and payment of subscriber claims. Blue Cross Blue Shield of Missouri has not been
formally named or served as a defendant in this suit.

The
financial and operational impact that these and other evolving theories of recovery will have on the managed care industry generally, or the Company in particular, is at present
unknown.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

30

---



PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters

The Company's Common Stock has been traded on the New York Stock Exchange under the symbol "WLP" since the Company's initial public offering on January 27,
1993. The following table sets forth for the periods indicated the high and low sale prices for the Common Stock. The information shown below has been adjusted to reflect the Company's
two-for-one stock split in the form of a stock dividend, which was effective on March 15, 2002.

High

LowYear Ended December 31, 2000First Quarter

$
39.25

$
28.47Second Quarter


39.94


33.38Third Quarter


48.19


35.19Fourth Quarter


60.75


45.78Year Ended December 31, 2001First Quarter


57.88


42.38Second Quarter


50.09


40.83Third Quarter


54.97


46.40Fourth Quarter


61.45


49.75


On
March 18, 2002 the closing price on the New York Stock Exchange for the Company's Common Stock was $62.48 per share. As of March 18, 2002, there were approximately 621
holders of record of Common Stock.

The
Company did not pay any dividends on its Common Stock in 2000 or 2001. Management currently expects that all of WellPoint's future income will be used to expand and develop its
business. The Board of Directors currently intends to retain the Company's net earnings during 2002.

31

---

Item 6. Selected Financial Data.

|                                     |                                                                                                                                    | Year Ended December 31,                                                                                 |                                                 
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------------------------------------------------
|
|
|Consolidated Income Statements(A)(B) |                                                                                                                                    |                                                                                                         |                                                 
|                                     | Revenues:                                                                                                                          |                                                                                                         |                                                 
|                                     |                                                                                                                                    | Premium revenue                                                                                         |                                                 
|                                     |                                                                                                                                    | Management services and other revenue                                                                   |                                                 
|                                     |                                                                                                                                    | Investment income                                                                                       |                                                 
|                                     |                                                                                                                                    |                                                                                                         |                                                 
|                                     |                                                                                                                                    |                                                                                                         | 12,428,647                                      
|                                     | Operating Expenses:                                                                                                                |                                                                                                         |                                                 
|                                     |                                                                                                                                    | Health care services and other benefits                                                                 |                                                 
|                                     |                                                                                                                                    | Selling expense                                                                                         |                                                 
|                                     |                                                                                                                                    | General and administrative expense                                                                      |                                                 
|                                     |                                                                                                                                    | Nonrecurring costs                                                                                      |                                                 
|                                     |                                                                                                                                    |                                                                                                         |                                                 
|                                     |                                                                                                                                    |                                                                                                         | 11,605,422                                      
|                                     |                                                                                                                                    |                                                                                                         |                                                 
|                                     | Operating Income                                                                                                                   |                                                                                                         |                                                 
|                                     |                                                                                                                                    | Interest expense                                                                                        |                                                 
|                                     |                                                                                                                                    | Other expense, net                                                                                      |                                                 
|                                     |                                                                                                                                    |                                                                                                         |                                                 
|                                     | Income from Continuing Operations before provision for income taxes, extraordinary gain and cumulative effect of accounting change |                                                                                                         |                                                 
|                                     |                                                                                                                                    | Provision for Income Taxes                                                                              |                                                 
|                                     |                                                                                                                                    |                                                                                                         |                                                 
|                                     | Income from Continuing Operations before extraordinary gain and cumulative effect of accounting change                             |                                                                                                         |                                                 
|                                     |                                                                                                                                    | Loss from Discontinued Operations                                                                       |                                                 
|                                     |                                                                                                                                    | Extraordinary gain from early extinguishment of debt, net of tax                                        |                                                 
|                                     |                                                                                                                                    | Cumulative effect of accounting change, net of tax                                                      |                                                 
|                                     |                                                                                                                                    |                                                                                                         |                                                 
|                                     | Net Income                                                                                                                         |                                                                                                         | $                                               
|                                     |                                                                                                                                    |                                                                                                         |                                                 
|                                     | Per Share Data(A)(C)(D):                                                                                                           |                                                                                                         |                                                 
|                                     |                                                                                                                                    | Income from Continuing Operations before extraordinary gain and cumulative effect of accounting change: |                                                 
|                                     |                                                                                                                                    |                                                                                                         | Earnings Per Share                              
|                                     |                                                                                                                                    |                                                                                                         | Earnings Per Share Assuming Full Dilution       
|                                     |                                                                                                                                    | Extraordinary gain:                                                                                     |                                                 
|                                     |                                                                                                                                    |                                                                                                         | Earnings Per Share                              
|                                     |                                                                                                                                    |                                                                                                         | Earnings Per Share Assuming Full Dilution       
|                                     |                                                                                                                                    | Cumulative Effect Of Accounting Change:                                                                 |                                                 
|                                     |                                                                                                                                    |                                                                                                         | Earnings (Loss) Per Share                       
|                                     |                                                                                                                                    |                                                                                                         | Earnings (Loss) Per Share Assuming Full Dilution
|                                     |                                                                                                                                    | Loss from Discontinued Operations:                                                                      |                                                 
|                                     |                                                                                                                                    |                                                                                                         | Earnings (Loss) Per Share                       
|                                     |                                                                                                                                    |                                                                                                         | Earnings (Loss) Per Share Assuming Full Dilution
|                                     |                                                                                                                                    | Net Income:                                                                                             |                                                 
|                                     |                                                                                                                                    |                                                                                                         | Earnings Per Share                              
|                                     |                                                                                                                                    |                                                                                                         | Earnings Per Share Assuming Full Dilution       
|Operating Statistics(A)(E):          |                                                                                                                                    |                                                                                                         |                                                 
|                                     | Loss ratio                                                                                                                         |                                                                                                         |                                                 
|                                     | Selling expense ratio                                                                                                              |                                                                                                         |                                                 
|                                     | General and administrative expense ratio                                                                                           |                                                                                                         |                                                 
|                                     | Net income ratio                                                                                                                   |                                                                                                         |                                                 



|                       |                      | December 31,
|---------------------- | -------------------- | ------------
|
|Balance Sheet Data(A): |                      |             
|                       | Cash and investments |             
|                       | Total assets         |             
|                       | Long-term debt       |             
|                       | Total equity(G)      |             
|Medical Membership(F)  |                      |             

---

32

---



Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations

This discussion contains forward-looking statements, which involve risks and uncertainties. The Company's actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those set forth under "Factors That May Affect Future Results of Operations."

General

The Company is one of the nation's largest publicly traded managed health care companies. As of December 31, 2001, WellPoint had approximately
10.1 million medical members and approximately 45.1 million specialty members. As a result of the January 31, 2002 closing of the RightCHOICE transaction, the Company's medical
membership has increased to approximately 12.5 million as of January 31, 2002. The Company offers a broad spectrum of network-based managed care plans. WellPoint provides these plans to
the large and small employer, individual and senior markets. The Company's managed care plans include HMOs, PPOs, POS plans, other hybrid medical plans and traditional indemnity plans. In addition,
the Company offers managed care services, including underwriting, actuarial services, network access, medical cost management and claims processing. The Company also provides a broad array of
specialty and other products, including pharmacy, dental, utilization management, life insurance, preventive care, disability insurance, behavioral health, COBRA and flexible benefits account
administration. The Company markets its products in California primarily under the name Blue Cross of California, in Georgia primarily under the name Blue Cross Blue Shield of Georgia, in various
parts of Missouri (including the greater St. Louis area) under the name Blue Cross Blue Shield of Missouri and in other states primarily under the name UNICARE or HealthLink. The Company holds the
exclusive right in California to market its products under the Blue Cross name and mark and in Georgia and in 85 counties in Missouri (including the greater St. Louis area) to market its products
under the Blue Cross Blue Shield names and marks.

Acquisition of Cerulean

On March 15, 2001, the Company completed its acquisition of Cerulean Companies, Inc. ("Cerulean"), the parent company of Blue Cross Blue Shield of
Georgia, Inc. (See Note 2 to the Consolidated Financial Statements). Cerulean, principally through its Blue Cross and Blue Shield of Georgia subsidiary, offers insured and administrative
services products primarily in the State of Georgia.
Cerulean has historically experienced a higher administrative expense ratio than the Company's core businesses due to its higher concentration of administrative services business. Cerulean has also
historically experienced a higher medical loss ratio than the Company's core businesses due to its higher percentage of Large Employer Group business and fewer managed care offerings. Accordingly,
Cerulean's higher loss and administrative expense ratios have contributed to an increase in those ratios for the Company. The acquisition increased the Company's Georgia medical membership by
approximately 1.9 million members as of March 31, 2001. The cash purchase price was $700.0 million. As a result of the acquisition of Cerulean, the Company estimates that it will
incur up to $140.6 million in expenses, primarily related to change in control payments to Cerulean management and transaction costs. This acquisition was accounted for under the purchase
method of accounting.

Acquisition of RightCHOICE

On October 17, 2001, the Company entered into an Agreement and Plan of Merger with RightCHOICE, through its wholly owned subsidiary, RWP Acquisition Corp.
(See Note 22 to the Consolidated Financial Statements). On January 31, 2002, the Company completed this transaction, pursuant to which RightCHOICE became a wholly owned subsidiary of the
Company. The acquisition price for RightCHOICE was approximately $1.4 billion, which was paid with $379.0 million in cash and approximately 8.3 million shares (on a pre-stock
split basis) of WellPoint Common Stock.

33

---

RightCHOICE, through its exclusive license to use the "Blue Cross" and "Blue Shield" names and service marks, is the largest provider of managed health care benefits in the state of Missouri based on
number of members. As of January 31, 2002, RightCHOICE served approximately 2.2 million medical members in Missouri, Arkansas, Illinois, Indiana, Iowa, Kentucky and West Virginia.
RightCHOICE has historically experienced a higher administrative expense ratio than the Company's core businesses due to its higher concentration of administrative services business. Accordingly it is
expected that RightCHOICE's higher administrative expense ratios will ultimately contribute to an increase in the administrative expense ratio for the Company.

Pending Acquisition of CareFirst

On November 20, 2001, WellPoint entered into a definitive agreement to acquire CareFirst, Inc. ("CareFirst"). CareFirst is a
not-for-profit health care company which, along with its affiliates and subsidiaries, offers a comprehensive portfolio of health insurance products, direct health care and
administrative services to approximately 3.1 million people in Maryland, Delaware, the District of Columbia and Northern Virginia. CareFirst operates through three wholly owned affiliates:
CareFirst of Maryland, Inc., Group Hospitalization and Medical Services, Inc., doing business under the name CareFirst BlueCross BlueShield, and Blue Cross Blue Shield of Delaware. Under
the terms of the acquisition agreement, a wholly owned subsidiary of the Company will merge with and into CareFirst. As a result of the merger, the outstanding shares of common stock of CareFirst will
be converted into the right to receive an aggregate purchase price of $1.3 billion. Before the CareFirst acquisition is completed, CareFirst and its subsidiaries will convert from their current
status as not-for-profit corporations into for-profit, stock corporations. As part of this conversion, CareFirst will issue 100% of its outstanding common stock to
charitable foundations established according to applicable law. The
conversion will require the approval of insurance regulators and the transaction is subject to the receipt of a private letter ruling from the IRS that the conversion of CareFirst will constitute a
tax-free reorganization and that the gain or loss recognized by the holders of CareFirst stock in the merger will not be subject to unrelated business income tax. The conversion and
regulatory approval process is currently expected to take 18 to 24 months from the date of signing of the definitive agreement. The acquisition is expected to close in 2003.

National Expansion and Other Recent Developments

In an effort to pursue the expansion of the Company's business outside the state of California, the Company acquired two businesses in 1996 and 1997, the Life and
Health Benefits Management Division ("MMHD") of Massachusetts Mutual Life Insurance Company and the Group Benefits Operations (the "GBO") of John Hancock Mutual Life Insurance Company. The
acquisitions of Rush Prudential and PrecisionRx in 2000 and the acquisition of Cerulean in 2001 were also components of this expansion strategy. In 2001 the Company entered into definitive agreements
to expand into the Midwest with its acquisition of RightCHOICE which closed on January 31, 2002 and into the Mid-Atlantic region with the pending acquisition of CareFirst which is
expected to close in 2003.

As
a result of these acquisitions, the Company has significantly expanded its operations outside of California. In order to integrate its acquired businesses and implement the Company's
regional expansion strategy, the Company will need to develop satisfactory networks of hospitals, physicians and other health care service providers, develop distribution channels for its products and
successfully convert acquired books of business to the Company's existing information systems, which will require continued investments by the Company.

In
response to rising medical and pharmacy costs, the Company has from time to time implemented premium increases with respect to certain of its products. The Company will continue to
evaluate the need for further premium increases, plan design changes and other appropriate actions in the future in order to maintain or restore profit margins. There can be no assurances, however,
that

34

---

the Company will be able to take subsequent pricing or other actions or that any actions previously taken or implemented in the future will be successful in addressing any concerns that may arise
with respect to the performance of certain businesses.

Legislation

Federal legislation enacted during the last several years seeks, among other things, to insure the portability of health coverage and mandates minimum maternity
hospital stays. California legislation enacted since 1999, among other things, establishes an explicit duty on managed care entities to exercise ordinary care in arranging for the provision of
medically necessary health care services and
establishes a system of independent medical review. In 1997, Texas adopted legislation purporting to make managed care organizations such as the Company liable for their failure to exercise ordinary
care when making health care treatment decisions. Similar legislation has also been enacted in Georgia and in other states in which the Company operates. These and other proposed measures may have the
effect of dramatically altering the regulation of health care and of increasing the Company's loss ratio and administrative costs or decreasing the affordability of the Company's products.

Results of Operations

The Company's revenues are primarily generated from premiums earned for risk-based health care and specialty services provided to its members, fees
for administrative services, including claims processing and access to provider networks for self-insured employers and investment income. Operating expenses include health care services
and other benefits expenses, consisting primarily of payments for physicians, hospitals and other providers for health care and specialty products claims; selling expenses for broker and agent
commissions; general and administrative expenses; interest expense; depreciation and amortization expense; and income taxes.

The
Company's consolidated results of operations for the year ended December 31, 2001 include the results of Cerulean from March 15, 2001, the acquisition date.

The
Company's consolidated results of operations for the year ended December 31, 2000 include the results of Rush Prudential from March 1, 2000 and PrecisionRx from
December 5, 2000, their respective dates of acquisition.

The
following table sets forth selected operating ratios. The loss ratio for health care services and other benefits is shown as a percentage of premium revenue. All other ratios are
shown as a percentage of premium revenue and management services and other revenue combined.

Year Ended December 31,2001

2000

1999Operating Revenues:Premium revenue

95.0
%
95.0
%
94.1
%Management services and other revenue

5.0
%
5.0
%
5.9
%100.0
%
100.0
%
100.0
%Operating Expenses:Health care services and other benefits (loss ratio)

81.5
%
80.8
%
80.2
%Selling expense

4.1
%
4.4
%
4.5
%General and administrative expense

13.7
%
14.0
%
14.7
%


35

---

Membership

The following table sets forth membership data and the percent change in membership:

As of December 31,Percent
Change2001

2000Medical Membership(a)(b)(c):Large Employer Group(d)CaliforniaHMO

2,000,026

1,800,932

11.1
%PPO and Other

2,131,865

1,982,474

7.5
%Total California

4,131,891

3,783,406

9.2
%Texas

205,458

197,037

4.3
%Georgia

1,543,900

43,160

3,477.2
%Illinois

430,689

459,282

(6.2
)%Other States

1,251,271

1,205,883

3.8
%Total Large Employer Group

7,563,209

5,688,768

32.9
%Individual and Small Employer GroupCaliforniaHMO

308,213

355,400

(13.3
)%PPO and Other

1,256,478

1,228,230

2.3
%Total California

1,564,691

1,583,630

(1.2
)%Texas

176,473

167,845

5.1
%Georgia

346,357

34,185

913.2
%Illinois

90,555

67,550

34.1
%Other States

87,486

96,546

(9.4
)%Total Individual and Small Employer Group

2,265,562

1,949,756

16.2
%Senior(e)CaliforniaHMO

38,715

34,930

10.8
%PPO and Other

177,268

173,311

2.3
%Total California

215,983

208,241

3.7
%Texas

317

222

42.8
%Georgia

71,616

1,050

6,720.6
%Illinois

12,112

10,936

10.8
%Other States

18,146

10,146

78.8
%Total Senior

318,174

230,595

38.0
%Total Medical Membership

10,146,945

7,869,119

28.9
%Membership by Network(f)Proprietary Networks

8,017,883

6,246,519

28.4
%Affiliate Networks

1,317,946

994,166

32.6
%Non-Network

811,116

628,434

29.1
%Total Medical Membership

10,146,945

7,869,119

28.9
%Management Services MembershipCalifornia

1,367,147

1,309,994

4.4
%Georgia

895,780

23,166

3,766.8
%Other States

1,155,659

1,210,239

(4.5
)%Total Management Services Membership

3,418,586

2,543,399

34.4
%


---

36

---

Specialty Membership

As of December 31,Percent
Change2001

2000Pharmacy

32,754,990

29,038,815

12.8
%Dental

2,630,225

2,245,490

17.1
%Utilization Management

1,734,675

2,103,396

(17.5
)%Life

2,310,030

2,020,069

14.4
%Disability

540,826

569,266

(5.0
)%Behavioral Health

5,144,220

4,352,988

18.2
%


Comparison of Results for the Year Ended December 31, 2001 to the Year Ended December 31, 2000

On March 15, 2002, WellPoint effected a two-for-one split of the Company's Common Stock. The stock split was in the form of a stock
dividend of one additional share of WellPoint Common Stock for each share held. Share and per share data for all periods presented below have been adjusted to give effect to the stock split.

The
following table depicts premium revenue by business segment:

Year Ended December 31,2001

2000(In thousands)Large Employer Group

$
7,188,430

$
5,011,562Individual and Small Employer Group


3,583,839


3,030,503Corporate and Other


804,901


541,598Consolidated

$
11,577,170

$
8,583,663


Premium
revenue increased 34.9%, or $2,993.5 million, to $11,577.2 million for the year ended December 31, 2001 from $8,583.7 million for the year ended
December 31, 2000. The increase was primarily due to $1,905.2 million of premium revenue related to the Cerulean and Rush Prudential acquisitions, representing 63.6% of the increase.
Excluding acquisitions, premium revenue would have increased 12.7% for the year ended December 31, 2001. The increase excluding acquisitions was primarily due to an increase in insured member
months of approximately 5.8% primarily in the Large Employer Group business segment, and the implementation of premium increases overall.

The
following table depicts management services and other revenue by business segment:

Year Ended December 31,2001

2000(In thousands)Large Employer Group

$
500,290

$
379,142Individual and Small Employer Group


268


2,865Corporate and Other


109,135


69,840Consolidated

$
609,693

$
451,847


Management
services and other revenue increased approximately $157.9 million to $609.7 million for the year ended December 31, 2001 from $451.8 million for
the year ended December 31, 2000. The increase was primarily due to $124.5 million of management services revenue related to the Cerulean and Rush Prudential acquisitions, representing
78.8% of the increase. Excluding acquisitions, management services revenue would have increased 7.4% for the year ended December 31, 2001. The

37

---

increase excluding acquisitions was primarily due to an increase in pharmacy benefit management services revenues.

Investment
income was $241.8 million for the year ended December 31, 2001 compared to $193.4 million for the year ended December 31, 2000, an increase of
25.0%, or $48.4 million. The Cerulean and Rush Prudential acquisitions represented $24.9 million, or 51.4%, of the increase. Excluding acquisitions, investment income would have
increased $23.5 million or 12.2%. The increase excluding acquisitions was primarily due to lower net realized losses in 2001 of $3.0 million as compared to net realized losses in 2000 of
$21.6 million. Additionally, net investment income, excluding acquisitions, increased $6.4 million to $220.3 million for the year ended December 31, 2001 in comparison to
$213.9 million for the year ended December 31, 2000. The increase resulted from higher average investment balances during the year ended December 31, 2001 versus 2000.

The
loss ratio attributable to managed care and related products for the year ended December 31, 2001 increased to 81.5% compared to 80.8% for the year ended December 31,
2000, due in part to the incremental effect of the Cerulean acquisition on the Company's overall results. The acquired Cerulean business has traditionally experienced a higher loss ratio than the
Company's core businesses due to its higher percentage of Large Employer Group business and fewer managed care offerings. Excluding Cerulean, the loss ratio increased slightly to 80.9% for the year
ended December 31, 2001. The health care services and other benefits expense includes an estimate of claims incurred during the period but which have not been reported to the Company. This
estimate is actuarially determined based on a variety of factors and is inherently subject to a number of highly variable circumstances. See "Critical Accounting Policies" for a more complete
discussion of this item and its potential effect on the Company's reported results of operations.

Selling
expense consists of commissions paid to outside brokers and agents representing the Company. The selling expense ratio for the year ended December 31, 2001 decreased to
4.1% compared to 4.4% for the year ended December 31, 2000. The acquired Cerulean business has traditionally experienced a lower selling expense ratio due primarily to its lower percentage of
Individual and Small Employer Group business. Excluding Cerulean, the selling expense ratio would have remained unchanged at 4.4% for the year ended December 31, 2001.

The
general and administrative expense ratio decreased to 13.7% for the year ended December 31, 2001 from 14.0% for the year ended December 31, 2000. The acquired Cerulean
business has historically experienced a higher administrative expense ratio than the Company's core businesses due to its higher percentage of administrative services business. Excluding Cerulean, the
administrative expense ratio would have been 13.6% for the year ended December 31, 2001. The lower administrative expense ratio for the year ended December 31, 2001, excluding Cerulean,
is primarily attributable to savings from the integration of information systems centers related to acquired businesses onto the Company's information systems platform, economies of scale associated
with premium revenue growth in relation to fixed corporate administrative expenses in addition to technology investments made by the Company (e.g., electronic claims submission, internet
self-service and interactive voice response).

Interest
expense increased $25.9 million to $49.9 million for the year ended December 31, 2001 compared to $24.0 million for the year ended
December 31, 2000. The increase in interest expense was related to the higher average debt balance for the year ended December 31, 2001 in comparison to the year ended
December 31, 2000, primarily due to the Cerulean acquisition. The weighted average interest rate for all debt for the year ended December 31, 2001, including the fees associated with the
Company's borrowings and interest rate swap agreements, was 6.70%.

The
Company's net income for the year ended December 31, 2001 was $414.7 million, compared to $342.3 million for the year ended December 31, 2000. Earnings
per share totaled $3.27 and $2.74 for the years ended December 31, 2001 and 2000, respectively. Earnings per share assuming full dilution totaled $3.15 and $2.64 for years ended
December 31, 2001 and 2000, respectively.

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Earnings
per share for the year ended December 31, 2001 is based upon weighted average shares outstanding of 126.9 million, excluding potential common stock, and
132.4 million shares, assuming full dilution. Earnings per share for the year ended December 31, 2000 is based on 125.1 million shares, excluding potential common stock, and
130.2 million shares, assuming full dilution. Earnings per share and weighted average shares above reflect the two-for-one stock split which occurred on March 15,
2002.

Comparison of Results for the Year Ended December 31, 2000 to the Year Ended December 31, 1999

On March 15, 2002, WellPoint effected a two-for-one split of the Company's Common Stock. The stock split was in the form of a stock
dividend of one additional share of WellPoint Common Stock for each share held. Share and per share data for all periods presented below have been adjusted to give effect to the stock split.

The
following table depicts premium revenue by business segment:

Year Ended December 31,2000

1999(In thousands)Large Employer Group

$
5,011,562

$
3,889,032Individual and Small Employer Group


3,030,503


2,551,961Corporate and Other


541,598


455,864Consolidated

$
8,583,663

$
6,896,857


Premium
revenue increased 24.5%, or $1,686.8 million, to $8,583.7 million for the year ended December 31, 2000 from $6,896.9 million for the year ended
December 31, 1999. The Rush Prudential acquisition contributed $378.1 million or 22.4% of the overall premium revenue increase. Also
contributing to increased premium revenue was an increase in insured member months of 12.5% in the Large Employer Group and Individual and Small Employer Group business segments, in addition to the
implementation of premium increases in both segments.

The
following table depicts management services and other revenue by business segment:

Year Ended December 31,2000

1999(In thousands)Large Employer Group

$
379,142

$
367,060Individual and Small Employer Group


2,865


4,579Corporate and Other


69,840


57,697Consolidated

$
451,847

$
429,336


Management
services and other revenue increased approximately $22.5 million to $451.8 million for the year ended December 31, 2000 from $429.3 million for the
year ended December 31, 1999. The Rush Prudential acquisition contributed $4.2 million, or 18.6% of the overall increase. Also contributing to the increased management services revenue
was the implementation of price increases, partially offset by a decrease in non-insured member months of approximately 0.9%, related to attrition of previously acquired businesses.

Investment
income was $193.4 million for the year ended December 31, 2000 compared to $159.2 million for the year ended December 31, 1999, an increase of
21.5%, or $34.2 million. The Rush Prudential acquisition accounted for $5.3 million or 15.4% of the increase. An increase in net interest and dividend income of $16.2 million to
$212.7 million for the year ended December 31, 2000 in comparison to $196.5 million for the year ended December 31, 1999 also contributed to the overall net

39

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increase in investment income. This increase was primarily due to higher average investment balances in 2000 versus 1999, partially offset by a reduction in other interest income related to interest
income received in 1999 related to the Company's refund from the Internal Revenue Service. Net realized losses on investment securities totaled $21.6 million for the year ended
December 31, 2000 in comparison to losses of $33.8 million for the year ended December 31, 1999.

The
loss ratio attributable to managed care and related products for the year ended December 31, 2000 increased to 80.8% compared to 80.2% for the year ended December 31,
1999, due in part to the incremental effect of the Rush Prudential acquisition on the Company's overall results. The acquired Rush Prudential business has traditionally experienced a higher loss ratio
than the Company's core business. Excluding the acquired operations of Rush Prudential, the loss ratio would have been 80.5%. The increase in the loss ratio excluding Rush Prudential was primarily due
to growth in the Company's Large Employer Group business segment which has historically experienced a higher loss ratio than the Company's Individual and Small Employer Group business.

The
selling expense ratio decreased slightly to 4.4% for the year ended December 31, 2000 from 4.5% for the year ended December 31, 1999.

The
general and administrative expense ratio decreased to 14.0% for the year ended December 31, 2000 from 14.7% for the year ended December 31, 1999. The overall decline is
primarily attributable to savings from the integration of information systems centers related to acquired businesses on the Company's information systems platform, a reduction in Year 2000 remediation
expense from 1999 levels, economies of scale associated with premium revenue growth in relation to fixed corporate administrative expenses in addition to technology investments made by the Company
(e.g., electronic claims submission, internet self-service and interactive voice response).

Interest
expense increased $3.8 million to $24.0 million for the year ended December 31, 2000 compared to $20.2 million for the year ended December 31,
1999. The increase in interest expense was related to the higher average debt balance due to the Rush Prudential acquisition, which was partially offset by a decrease in the effective interest rate
due to the issuance of the Company's Zero Coupon Convertible Subordinated Debentures (the "Debentures") in July 1999. The weighted average interest rate for all debt for the year ended
December 31, 2000, including the fees associated with the Company's borrowings and interest rate swap agreements, was 6.16%.

The
Company's income before extraordinary gain and the cumulative effect of accounting change for the year ended December 31, 2000 was $342.3 million, compared to
$297.2 million for the year ended December 31, 1999. Earnings per share before extraordinary gain and cumulative effect of accounting change totaled $2.74 and $2.25 for the years ended
December 31, 2000 and 1999, respectively. Earnings per share before extraordinary gain and cumulative effect of accounting change assuming full dilution totaled $2.64 and $2.19 for years ended
December 31, 2000 and 1999, respectively.

Earnings
per share for the year ended December 31, 2000 is based upon weighted average shares outstanding of 125.1 million, excluding potential common stock, and
130.2 million shares, assuming full dilution. Earnings per share for the year ended December 31, 1999 is based on 132.1 million shares, excluding potential common stock, and
136.2 million shares, assuming full dilution. The decrease in weighted average shares outstanding primarily resulted from the repurchase of approximately 5.0 million shares during the
year ended December 31, 2000. For weighted average shares outstanding assuming full dilution, the decline was partially offset by the impact of the assumed conversion of the Debentures.

Effective
January 1, 1999, the Company changed its method of accounting for start-up costs related to the Company's provider network and distribution channel
development and is now expensing these

40

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costs. The cumulative effect of this change of $20.6 million, net of tax, was reflected in the results of operations for the year ended December 31, 1999.

Financial Condition

The Company's consolidated assets increased by $1,967.4 million, or 35.7%, to $7,472.1 million as of December 31, 2001 from
$5,504.7 million as of December 31, 2000. The Cerulean acquisition accounted for $1,058.1 million, or 53.8% of the increase. The remaining increase in total assets was primarily
due to growth in cash and investments as a result of operating cash flow. Cash and investments totaled $5.0 billion, or 66.7% of total assets, as of December 31, 2001. Receivables and
goodwill and intangible assets represented 11.3% and 14.6% of total assets at December 31, 2001, respectively.

Overall
claims liabilities increased $327.6 million, or 17.3%, to $2,219.8 million as of December 31, 2001 from $1,892.2 million as of December 31,
2000. The Cerulean acquisition accounted for $266.2 million, or 81.3% of the total increase. The remaining increase in claims liabilities of $61.4 million was a result of an increase in
insured membership (excluding the Cerulean acquisition) of 3.4%.

As
of December 31, 2001, the Company's long-term indebtedness was $838.0 million, of which $153.9 million was related to the Debentures,
$235.0 million was related to the Company's revolving credit facility and $449.1 million was related to the Company's 63/8% Notes due 2006 (the "2001 Notes"). (See
Note 8 to the Consolidated Financial Statements). As a result of the Cerulean acquisition, the Company incurred $500.0 million of indebtedness under its revolving credit facility. During
the quarter ended June 30, 2001, the Company used the proceeds from the aforementioned 2001 Notes to reduce the outstanding balance of the Company's revolving credit facility. As of
December 31, 2000, the Company's long-term indebtedness was $400.9 million, of which $250.0 million was related to the Company's revolving credit facility and
$150.9 million was related to the Debentures.

Stockholders'
equity totaled $2,132.6 million as of December 31, 2001, an increase of $488.2 million from $1,644.4 million as of December 31, 2000. The
increase was primarily due to net income of $414.7 million
for the year ended December 31, 2001 in addition to $86.1 million of net proceeds from the reissuance of treasury stock related to the Company's employee stock option and purchase plans.
Partially offsetting these increases were a decrease in other comprehensive income of $5.2 million, primarily related to an increase in the minimum pension liability of $22.5 million and
an increase in unrealized losses on foreign currency adjustments of $0.3 million, offset by an increase in net unrealized gains on investment securites of $17.6 million. During the third
quarter of 2001, the Company purchased 75,000 shares (on a pre-stock split basis) of its Common Stock, which reduced the stockholders' equity by approximately $7.4 million.

Liquidity and Capital Resources

The Company's primary sources of cash are premium and management services revenues received and investment income. The primary uses of cash include health care
claims and other benefits, capitation payments, income taxes, repayment and repurchases of long-term debt, interest expense, broker and agent commissions, administrative expenses, common
stock repurchases and capital expenditures. In addition to the foregoing, other uses of cash include costs of provider networks and systems development, and costs associated with the integration of
acquired businesses.

The
Company generally receives premium revenue in advance of anticipated claims for related health care services and other benefits. The Company's investment policies are designed to
provide safety and preservation of capital, sufficient liquidity to meet cash flow needs, the integration of investment strategy with the business operations and objectives of the Company, and
attainment of a competitive after-tax total return.

41

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The
Company's strategy for achieving its investment goals is broad diversification of its investments, both across and within asset classes. As of December 31, 2001, the Company's
portfolio consisted primarily of investment grade fixed-maturity securities. The Company's portfolio also included large capitalization and small capitalization domestic equities, foreign equities,
tax-exempt municipal bonds where the after-tax return is higher than the comparable taxable securities, and a small amount of non-investment grade debt securities. The fixed-income assets include both
short and long-duration securities with an attempt to match the Company's funding needs. The investment policy contains limitations regarding concentrations in individual securities and industries and
generally prohibits speculative and leveraged investments. Cash and investment balances maintained by the Company are sufficient to meet applicable regulatory financial stability and net worth
requirements, including license requirements of the Blue Cross Blue Shield Association.

Cash
flow provided by operating activities was $806.2 million for the year ended December 31, 2001, compared with $647.9 million for the year ended
December 31, 2000. Cash flow from operations for the year ended December 31, 2001 was due primarily to net income of $414.7 million, increases in accounts payable and accrued
expenses of $94.7 million, due to the timing of other operating liability payments,
and an increase in medical claims payable of $110.0 million, which related to the growth of insured members, and the timing of other operating liability payments.

Net
cash used in investing activities in 2001 totaled $857.2 million, compared with $557.4 million in 2000. The cash used in 2001 was attributable primarily to the purchase
of investments of $4.9 billion, property and equipment, net of sales proceeds of $84.5 million, and the purchase of Cerulean, net of acquired cash, of $561.7 million. Proceeds
from investments sold and matured totaled $4.7 billion, partially offsetting the aforementioned purchases.

Net
cash provided by financing activities totaled $512.6 million in 2001 compared to net cash used in financing activities of $28.6 million in 2000. The increase was
primarily related to additional debt incurred to finance the Cerulean acquisition of $500.0 million, in addition to the receipt of proceeds from the issuance of stock related to the Company's
employee stock option and purchase programs of $86.1 million less $7.4 million in Company stock repurchases. During 2001, the Company decreased indebtedness under its revolving credit
facility by $15.0 million.

Effective
as of March 30, 2001, the Company entered into two new unsecured revolving credit facilities allowing aggregate indebtedness of $1.0 billion. Upon execution of
these facilities, the Company terminated its prior $1.0 billion unsecured revolving facility. Borrowings under these facilities (which are generally referred to collectively in this Annual
Report on Form 10-K as the Company's "revolving credit facility") bear interest at rates determined by reference to the bank's base rate or to the London Inter Bank Offered Rate
("LIBOR") plus a margin determined by reference to the then-current rating of the Company's unsecured long-term debt by specified rating agencies. One facility, which provides
for borrowings of up to $750.0 million, expires as of March 30, 2006, although it may be extended for up to two additional one-year periods under certain circumstances. The
other facility, which provides for borrowings of up to $250.0 million, originally expired as of March 29, 2002. Any amount outstanding under this facility as of March 29, 2002 may
be converted into a one-year term loan at the option of the Company. In March 2002, the Company amended this facility to provide for a one-year extension with an expiration date of
March 28, 2003. Borrowings under the facilities are made on a committed basis or, in the case of the $750.0 million facility, pursuant to an auction bid process. The
$750.0 million facility also contains sublimits for letters of credit and "swingline" loans. Each credit agreement requires the Company to maintain certain financial ratios and contains
restrictive convenants, including restrictions on the occurrence of additional indebtedness and the granting of certain liens, limitations on acquisitions and investments and limitations on changes in
control (See Note 8 to the Consolidated Financial Statements). The total amount outstanding under these facilities was $235.0 million as of December 31, 2001. The total amount
outstanding under the Company's prior revolving credit facility was $250.0 million as of December 31, 2000.

42

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As
a part of a hedging strategy to limit its exposure to variable interest rate increases, the Company entered into interest rate swap agreements in order to reduce the volatility of
interest expense resulting from changes in interest rates. The swap agreements are contracts to exchange variable-rate interest payments (weighted average rate for the year ended
December 31, 2001 of 4.81%) for fixed-rate interest
payments (weighted average rate for the year ended December 31, 2001 of 7.45%) without the exchange of the underlying notional amounts. As of December 31, 2001, the Company had entered
into $200.0 million of fixed rate swap agreements, which consisted of a $150.0 million notional amount swap agreement at 6.99% maturing on October 17, 2003 and a
$50.0 million notional amount swap agreement at 7.06% maturing on October 17, 2006.

During
2001, the Company entered into foreign currency forward exchange contracts for each of the fixed maturity securities on hand denominated in foreign currencies in order to hedge
asset positions with respect to currency fluctuations related to these securities. As of December 31, 2001, however, the Company had liquidated its non-dollar foreign bond holdings
and as a result entered into a hedge to offset the remaining currency hedge. Subsequent to the implementation of SFAS No. 133, all gains and losses from both effective and ineffective forward
exchange contracts have been reported in investment income offset by the related gains and losses on the Company's available-for-sale foreign securities (See Note 15 to
the Consolidated Financial Statements).

Certain
of the Company's subsidiaries are required to maintain minimum capital requirements prescribed by various regulatory agencies, including the California Department of Managed
Health Care and the Departments of Insurance in various states. As of December 31, 2001 (or the most recent date with respect to which compliance is required), those subsidiaries of the Company
were in compliance with all minimum capital requirements.

On
June 15, 2001, the Company issued $450.0 million aggregate principal amount at maturity of 63/8% Notes due June 15, 2006 (the "2001 Notes"). The
net proceeds of this offering totaled approximately $449.0 million. The net proceeds from the sale of the 2001 Notes were used for repayment of indebtedness under the Company's revolving credit
facilities which indirectly financed a portion of the Cerulean acquisition. The 2001 Notes bear interest at a rate of 63/8% per annum, payable semi-annually in arrears on
June 15 and December 15 of each year commencing December 15, 2001. Interest is computed on the basis of a 360-day year of twelve 30-day months.

The
2001 Notes may be redeemed, in whole or in part, at the Company's option at any time. The redemption price for any 2001 Notes redeemed will be equal to the greater of the following
amounts: 1) 100% of the principal amount of the 2001 Notes being redeemed on the redemption date; and 2) the sum of the present values of the remaining scheduled payments of principal
and interest on the 2001 Notes being redeemed on that redemption date (not including any portion of any payments of interest accrued to the redemption date) discounted to the redemption date on a
semiannual basis at the Treasury rate as determined by the Reference Treasury Dealer (Salomon Smith Barney Inc. or UBS Warburg LLC or their respective successors), plus 25 basis points. In each
case, the redemption price will also include accrued and unpaid interest on the 2001 Notes to the redemption date.

With
the anticipated acquisition of RightCHOICE on January 31, 2002, the Company on January 16, 2002 issued $350.0 million aggregate principal amount at maturity of
63/8% Notes due January 15, 2012 (the "2002 Notes") The net proceeds of this offering totaled approximately $348.9 million. The 2002 Notes bear interest at a rate of
63/8% per annum, payable semi-annually in arrears on January 15 and
July 15 of each year commencing July 15, 2002. Interest is computed on the basis of a 360-day year of twelve 30-day months.

The
2002 Notes may be redeemed, in whole or in part, at the Company's option at any time. The redemption price for any 2002 Notes redeemed will be equal to the greater of the following
amounts: 1) 100% of the principal amount of the 2002 Notes being redeemed on the redemption date; and 2) the sum of the present values of the remaining scheduled payments of principal
and interest on the

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2002 Notes being redeemed on that redemption date (not including any portion of any payments of interest accrued to the redemption date) discounted to the redemption date on a semiannual basis at the
Treasury rate as determined by the Reference Treasury Dealer (J.P. Morgan Securities Inc. or Deutsche Banc Alex. Brown or their respective successors), plus 25 basis points. In each case, the
redemption price will also include accrued and unpaid interest on the 2002 Notes to the redemption date.

The
2001 and 2002 Notes are unsecured obligations and rank equally with all of the Company's existing and future senior unsecured indebtedness. All existing and future liabilities of the
Company's subsidiaries are and will be effectively senior to the 2001 and 2002 Notes. The indenture governing the 2001 and 2002 Notes contains a covenant that limits the Company's ability and that of
the Company's subsidiaries to create liens on Company property or assets to secure certain indebtedness without also securing the 2001 and 2002 Notes.

The
Company enters into operating leases primarily for office space, electronic data processing and office equipment. As of December 31, 2001, minimum annual rental commitments on
operating leases having initial or remaining noncancellable lease terms in excess of one year during the years 2002 through 2006 were $89.6 million, $71.5 million, $49.0 million,
$37.8 million and $29.6 million, respectively, with $245.6 million in minimum commitments thereafter.

The
Company's obligations relating to debt and leases at December 31, 2001 were as follows:

|                                                |  | Total |         | 2002 |   | 2003 |  | 2004 |       | 2005 |   | 2006 |  | Thereafter
|----------------------------------------------- |  | ----- | ------- | ---- | - | ---- |  | ---- | ----- | ---- | - | ---- |  | ----------
|
|63/8% Notes due 2006                            |  | $     | 450.0   |      | $ |     |  | $    |      |      | $ |     |  | $         
|Revolving credit facility                       |  |       | 235.0   |      |   |     |  |      | 35.0  |      |   |     |  |           
|Zero coupon convertible subordinated debentures |  |       | 218.0   |      |   |     |  |      |      |      |   |     |  |           
|Operating leases                                |  |       | 523.1   |      |   | 89.6 |  |      | 71.5  |      |   | 49.0 |  |           
|                                                |  |       |         |      |   |      |  |      |       |      |   |      |  |           
|Total contractual obligations                   |  | $     | 1,426.1 |      | $ | 89.6 |  | $    | 106.5 |      | $ | 49.0 |  | $         
|                                                |  |       |         |      |   |      |  |      |       |      |   |      |  |           

The
Company's committed credit availability as of December 31, 2001 was as follows:

|                                         |  |   |         |  |   | Amount of Available Commitment
Expiration per Period
|---------------------------------------- |  | - | ------- |  | - | ----------------------------------------------------
|
|
|
|Revolving Creditcommitted and available |  | $ | 1,000.0 |  | $ | 765.0                                               

The
Company believes that cash flow generated by operations and its cash and investment balances, supplemented by the Company's ability to borrow under its existing revolving credit
facilities or through public or private financing sources, will be sufficient to fund continuing operations and expected capital requirements for the foreseeable future.

Pending Acquisition

On November 20, 2001, WellPoint entered into a definitive agreement to acquire CareFirst. The Company will pay at least $450.0 million of the
purchase price in cash and the balance in shares of the Company's Common Stock and under certain circumstances a five-year subordinated note. The transaction, which is subject to regulatory approvals,
is currently expected to be completed within 18-24 months from the date of signing of the definitive agreement. The acquisition is expected to close in 2003. (See Note 23 to
the Consolidated Financial Statements for further discussion.)

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Tax Issues Relating to the WellPoint and RightCHOICE Recapitalizations

In connection with the Recapitalization, BCC received a ruling from the IRS that, among other things, the BCC Conversion qualified as a tax-free
transaction and that no gain or loss was recognized by BCC for Federal income tax purposes. If the ruling were subsequently revoked, modified or not honored by
the IRS (due to a change in law or for any other reason), WellPoint, as the successor to BCC, could be subject to Federal income tax on the difference between the value of BCC at the time of the BCC
Conversion and BCC's tax basis in its assets at the time of the BCC Conversion. The potential tax liability to WellPoint if the BCC Conversion is treated as a taxable transaction is currently
estimated to be approximately $696 million, plus interest (and possibly penalties). BCC and the Foundation entered into an Indemnification Agreement that provides, with certain exceptions, that
the Foundation will indemnify WellPoint against the net tax liability as a result of a revocation or modification, in whole or in part, of the ruling by the IRS or a determination by the IRS that the
BCC Conversion constitutes a taxable transaction for Federal income tax purposes. In the event a tax liability should arise against which the Foundation has agreed to indemnify WellPoint, there can be
no assurance that the Foundation will have sufficient assets to satisfy the liability in full, in which case WellPoint would bear all or a portion of the cost of the liability, which could have a
material adverse effect on WellPoint's financial condition.

During
the quarter ended September 30, 1998 the Company received a private letter ruling from the IRS with respect to the treatment of certain payments made at the time of the
Recapitalization and the acquisition of the commercial operations of BCC. The ruling allowed the Company to deduct as an ordinary and necessary business expense the $800 million cash payment
made by BCC in May 1996 to one of two newly formed charitable foundations. As a result of and in reliance on the ruling, the Company experienced a reduction in its income tax expense of
$85.5 million and the Company reduced its goodwill resulting from the Recapitalization by $194.5 million during the year ended December 31, 1998. The Company filed for refund
claims of approximately $198.6 million of previous year income tax payments and reduced income tax payments during 1998 and 1999 by approximately $81.4 million. In August 1999,
the Company received a cash refund (including applicable accrued interest) of approximately $183.0 million, which was reflected in the statement of cash flows for such year. The Company has
refund claims pending of approximately $39.3 million.

In
March 2002, the Company received a letter from the IRS notifying the Company that the IRS was considering revoking the September 1998 private letter ruling. The letter
stated that the IRS was considering, in essence, reversing its earlier position and concluding that the $800 million payment was not an ordinary and necessary business expense. The letter
further stated that the IRS was withdrawing the private letter ruling and that the Company could no longer rely on the private letter ruling. Under Section 7805(b) of the Code, the IRS has
discretionary authority to limit the retroactive effect of any revocation of a letter ruling. The Company has submitted a written request for such relief under Section 7805(b). According to
regulations promulgated by the United States Treasury, such relief will be granted whenever a taxpayer meets all of five specified criteria, including that the taxpayer has relied in good faith on an
earlier ruling and that the revocation of the ruling would be to the detriment of the taxpayer. The Company believes that it meets substantially all of these criteria. Therefore, although no
assurances can be given, the Company currently expects that such relief will be granted. The Company's request for relief under Section 7805(b) is being made without prejudice to the Company's
right to subsequently argue that the $800 million cash payment should continue to be treated as an ordinary and necessary business expense under the Code.

On
November 30, 2000 RightCHOICE completed a reorganization (the "RightCHOICE Recapitalization") with its majority stockholder, RightCHOICE Managed Care, Inc., a Missouri
corporation ("Old RightCHOICE"). As part of the RightCHOICE Recapitalization, The Missouri Foundation For Health (the "Missouri Foundation") became the holder of approximately 80% of RightCHOICE
Common Stock. In connection with the RightCHOICE Recapitalization, the

45

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predecessor of Old RightCHOICE, Blue Cross and Blue Shield of Missouri, received a ruling from the IRS that, among other things, the conversion of Blue Cross and Blue Shield of Missouri from a
non-profit corporation to a for-profit corporation qualified as a reorganization under the Internal Revenue Code and that Blue Cross and Blue Shield of Missouri recognized no
gain or loss for federal income tax purposes. If the IRS subsequently revoked, modified or decided not to honor the ruling due to a change in law or for any other reason, RightCHOICE, as the successor
to Old RightCHOICE, could be subject to federal income tax on the difference between the value of each of Blue Cross and Blue Shield of Missouri's assets at the time of the RightCHOICE
Recapitalization and its tax basis in its assets at the time of the RightCHOICE Recapitalization. RightCHOICE is now a wholly owned subsidiary of WellPoint. RightCHOICE and the Missouri Foundation
entered into an indemnification agreement that provides, with certain exceptions, that the Missouri Foundation will indemnify RightCHOICE against the tax liability as a result of the IRS's revocation
or modification, in whole or in part, of its ruling, or an IRS determination that RightCHOICE's conversion was a taxable transaction for federal income tax purposes. If a tax liability should arise
against which the Missouri Foundation has agreed to indemnify RightCHOICE, the Missouri Foundation may not have sufficient assets to pay the liability. RightCHOICE would then bear all or a portion of
the liability, which could have a material adverse effect on RightCHOICE's and the Company's financial condition.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles requires the Company's management to make a variety of
estimates and assumptions. These estimates and assumptions affect, among other things, the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts
of revenues and expenses. Actual results can differ from the amounts previously estimated, which were based on the information available at the time the estimates were made.

The
critical accounting policies described below are those that the Company believes are important to the portrayal of the Company's financial condition and results, and which require
management to make difficult, subjective and/or complex judgments. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is
unknown. The Company believes that critical accounting policies include medical claims payable, reserves for future policy benefits and intangible assets and goodwill.

Medical Claims Payable

Medical claims payable includes claims in process and a provision for the Company's estimate of incurred but not reported claims. Such estimates are developed
using actuarial principles and assumptions which consider, among other things, contractual requirements, historical utilization trends and payment patterns, medical inflation, product mix,
seasonality, membership and other relevant factors. Claim processing expenses are also accrued based on an estimate of expenses necessary to
process such claims. Such reserves are continually monitored and reviewed with any adjustments reflected in current operations. Capitation costs represent monthly fees paid one month in advance to
physicians, certain other medical service providers and hospitals in the Company's HMO networks as retainers for providing continuing medical care. The Company maintains various programs that provide
incentives to physicians, certain other medical service providers and hospitals participating in its HMO networks through the use of risk-sharing agreements and other programs. Payments
under such agreements are made based on the providers' performance in controlling health care costs while providing quality health care. Expenses related to these programs, which are based in part on
estimates, are recorded in the period in which the related services are rendered. Management believes that its reserves for medical claims payable are adequate to satisfy its ultimate claim liability.
However, these estimates are inherently subject to a number of highly variable circumstances. Consequently, the actual results could differ materially from the amount recorded in the consolidated
financial statements.

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The Company's future results of operations will depend in part on its ability to predict and control health care costs through underwriting criteria, utilization management, product
design and negotiation of favorable provider and hospital contracts. WellPoint's ability to contain such costs may be adversely affected by changes in utilization rates, demographic characteristics,
the regulatory environment, health care practices, inflation, new technologies, clusters of high-cost cases, continued consolidation of physician, hospital and other provider groups, acts
of terrorism and bioterrorism or other catastrophes, including war, and numerous other factors. The inability to mitigate any or all of the above-listed or other factors may adversely affect the
Company's future profitability.

Reserves for Future Policy Benefits

The estimated reserves for future policy benefits relate to life and disability insurance policies written in connection with health care contracts. Reserves for
future life benefit coverage are based on projections of past experience. Reserves for future policy and contract benefits for certain long-term disability products and group
paid-up life products are based upon interest, mortality and morbidity assumptions from published actuarial tables, modified based upon the Company's experience. Reserves are continually
monitored and reviewed, and as settlements are made or reserves adjusted, differences are reflected in current operations. The current portion of reserves for future policy benefits relates to the
portion of such reserves which management expects to pay within one year. Management believes that its reserves for future policy benefits are adequate to satisfy its ultimate benefit liability.
However, these estimates are inherently subject to a number of highly variable circumstances. Consequently, the actual results could differ materially from the amount recorded in the consolidated
financial statements.

Intangible Assets and Goodwill

The Company has made several acquisitions in the past several years that included a significant amount of intangible assets and goodwill. Under generally accepted
accounting principles in effect through December 31, 2001, these assets were amortized over their useful lives, and were tested periodically to determine if they were recoverable from operating
earnings on an undiscounted basis over their useful lives.

The
Company evaluates whether events or circumstances have occurred that may affect the estimated useful life or the recoverability of the remaining balance of goodwill and other
identifiable intangible assets. Impairment of an intangible asset is triggered when the estimated future undiscounted cash
flows (excluding interest charges) do not exceed the carrying amount of the intangible asset and related goodwill. If the events or circumstances indicate that the remaining balance of the intangible
asset and goodwill may be permanently impaired, such potential impairment will be measured based upon the difference between the carrying amount of the intangible asset and goodwill and the fair value
of such asset determined using the estimated future discounted cash flows (excluding interest charges) generated from the use and ultimate disposition of the respective acquired entity.

Effective
January 1, 2002, intangible assets and goodwill will be accounted for under SFAS No. 142, "Goodwill and Other Intangible Assets." The new rules eliminate
amortization of goodwill and other intangibles with indefinite lives, but these assets will be subject to the impairment tests. (See "New Accounting Pronouncements" and Note 7 to the
Consolidated Financial Statements for a more complete discussion of the Company's intangible assets and goodwill). Management is required to make assumptions and estimates, such as the discount
factor, in determining estimated fair value. Such estimated fair values might produce significantly different results if other reasonable assumptions and estimates were to be used.

47

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New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS No. 141"). SFAS No. 141 addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, "Business Combinations," and
FASB Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." Upon adoption of SFAS No. 141, all business combinations must be accounted for using the
purchase method. The use of the pooling of interests method is now prohibited. The provisions of the new standard apply to all business combinations initiated after June 30, 2001. For business
combinations accounted for using the purchase method before July 1, 2001, the provisions of this statement will be effective in the first quarter of 2002. The adoption of SFAS No. 141
did not have a material effect on the financial statements of the Company.

In
July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which supersedes APB Opinion No. 17, "Intangible Assets." This statement addresses the
accounting and reporting of goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that (i) goodwill and indefinite-lived intangible assets will no
longer be amortized, (ii) impairment will be measured using various valuation techniques based on discounted cash flows, (iii) goodwill will be tested for impairment at least annually at
the reporting unit level, (iv) intangible assets deemed to have an indefinite life will be tested for impairment at least annually and (v) intangible assets with finite lives will be
amortized over their useful lives. The statement provides specific guidance on testing goodwill and intangible assets for impairment, and requires that reporting units be identified for the purpose of
assessing potential future impairments. Goodwill and intangible assets acquired after June 30, 2001 were subjected to the provisions of this statement. All provisions of this statement will be
effective in the first quarter of 2002. Utilizing internal and external resources, the Company is in the process of
adopting SFAS No. 142 and is identifying its reporting units and the amounts of goodwill, intangible assets, other assets and liabilities to be allocated to those reporting units.

SFAS
No. 142 requires that goodwill be tested annually for impairment using a two-step process. The first step is to identify a potential impairment and, in transition, this step
must be measured as of the beginning of the fiscal year. However, companies have six months from the date of adoption to complete the first step. The Company expects to complete the first step of the
goodwill impairment test during the first quarter of 2002. The second step of the goodwill impairment test measures the amount of impairment loss (measured as of the beginning of the year of
adoption), if any, and must be completed by December 31, 2002. Intangible assets deemed to have an indefinite life will be tested for impairment using a one-step process which compares the fair
value to the carrying amount of the asset as of the beginning of the year. This process will be completed during the first quarter of 2002. The Company is in the process of completing these impairment
tests for goodwill and other intangible assets and, based on current information, does not anticipate transitional impairment losses. The Company expects the adoption of SFAS No. 142 to benefit
earnings, net of taxes, of approximately $31.7 million compared to 2001.

In
June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS
No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company will adopt SFAS No. 143 on January 1, 2003. The provisions
of SFAS No. 143 require companies to record an asset and related liability for the costs associated with the retirement of a long-lived tangible asset if a legal liability to retire
the asset exists. The Company is in the process of analyzing the provisions of SFAS No. 143; however, the effect of adoption is not expected to have a significant impact on the Company's
financial condition and results of operations.

In
October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"). SFAS No. 144 is

48

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effective for financial statements issued for fiscal years beginning after December 15, 2001. This statement addresses financial accounting and reporting for the impairment or disposal of
long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business and Extraordinary,
Unusual, and Infrequently Occurring Events and Transactions," for the disposal of a segment of business (as previously defined in that opinion). SFAS No. 144 retains the basic principles of
SFAS No. 121 for long-lived assets to be disposed of by sale or held and used and broadens discontinued operations presentation to include a component of an entity that is held for
sale or that has been disposed. Components must have operations and cash flows that can be clearly distinguished from the rest of the entity. The Company is in the process of analyzing the provisions
of this statement. All provisions of this statement will be effective in the first quarter of 2002. The adoption of this standard is not expected to have a significant impact on the Company's
financial results.

Factors That May Affect Future Results Of Operations

Certain statements contained herein, such as statements concerning potential or future loss ratios, the effects as the Company continues to integrate its recently
acquired operations and other statements regarding matters that are not historical facts, are forward-looking statements (as such term is defined in the Securities Exchange Act of 1934). Such
statements involve a number of risks and uncertainties that may cause actual results to differ from those projected. Factors that can cause actual results to differ materially include, but are not
limited to, those discussed below and those discussed from time to time in the Company's various filings with the Securities and Exchange Commission.

The
Company's operations are subject to substantial regulation by federal, state and local agencies in all jurisdictions in which the Company operates. Many of these agencies have
increased their scrutiny of managed health care companies in recent periods or are expected to increase their scrutiny, as newly passed legislation becomes effective. From time to time, the Company
and its subsidiaries receive requests for information from regulatory agencies or are notified that such agencies are conducting reviews, investigations or other proceedings with respect to certain of
the Company's activities. The Company also provides insurance products to Medi-Cal beneficiaries in various California counties under contracts with the California Department of Health
Services (or delegated local agencies) and provides administrative services to the Centers for Medicare and Medicaid Services ("CMS") in various capacities. There can be no assurance that acting as a
government contractor in these circumstances will not increase the risk of heightened scrutiny by such government agencies or that such scrutiny will not have a material adverse effect on the Company,
either through negative publicity about the Company or through an adverse impact on the Company's results of operations. In addition, profitability from this business may be adversely affected through
inadequate premium rate increases due to governmental budgetary issues. Future actions by any regulatory agencies may have a material adverse effect on the Company's business.

In
connection with the RightCHOICE and Cerulean transactions, the Company incurred significant additional indebtedness to fund the cash payments made to the acquired companies'
stockholders. In addition, the Company currently expects to incur additional indebtedness to fund some or all of the cash payments to be made in connection with the pending CareFirst transaction. This
existing or new indebtedness may result in a significant percentage of the Company's cash flow being applied to the payment of interest, and there can be no assurance that the Company's operations
will generate sufficient future cash flow to service this indebtedness. The Company's current indebtedness, as well as any indebtedness that the Company may incur in the future (such as indebtedness
incurred to fund repurchases of its Common Stock or to fund the CareFirst or other transactions), may adversely affect

49

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the Company's ability to finance its operations and could limit the Company's ability to pursue business opportunities that may be in the best interests of the Company and its stockholders.

As
part of the Company's business strategy, the Company has acquired substantial operations in new geographic markets over the last five years. These businesses, some of which include
substantial indemnity-based insurance operations, have experienced varying profitability or losses in recent periods. Since the relevant dates of acquisition of Rush Prudential and Cerulean, the
Company has continued to
work extensively on the integration of these businesses. The Company has also begun its integration of the RightCHOICE business. However, there can be no assurances regarding the ultimate success of
the Company's integration efforts or regarding the ability of the Company to maintain or improve the results of operations of the businesses of completed or pending transactions. The Company has
incurred and will, among other things, need to continue to incur considerable expenditures for provider networks, distribution channels and information systems in addition to the costs associated with
the integration of these acquisitions. The integration of these complex businesses may result in, among other things, temporary increases in claims inventory or other service-related issues that may
negatively affect the Company's relationship with its customers and contribute to increased attrition of such customers. The Company's results of operations could be adversely affected in the event
that the Company experiences such problems or is otherwise unable to implement fully its expansion strategy.

The
Company and certain of its subsidiaries are subject to capital surplus requirements by the California Department of Managed Health Care, the Georgia Department of Insurance, the
Missouri Department of Insurance, various other state Departments of Insurance and the Blue Cross Blue Shield Association. Although the Company believes that it is currently in compliance with all
applicable requirements, there can be no assurances that such requirements will not be increased in the future.

From
time to time, the Company and certain of its subsidiaries are parties to various legal proceedings, many of which involve claims for coverage encountered in the ordinary course of
business. The Company, like HMOs and health insurers generally, excludes certain health care services from coverage under its HMO, PPO and other plans. The Company is, in its ordinary course of
business, subject to the claims of its enrollees arising out of decisions to restrict treatment or reimbursement for certain services. The loss of even one such claim, if it results in a significant
punitive damage award, could have a material adverse effect on the Company. In addition, the risk of potential liability under punitive damage theories may increase significantly the difficulty of
obtaining reasonable settlements of coverage claims.

In
June 2000, the California Medical Association filed a lawsuit in U.S. district court in San Francisco against BCC. The lawsuit alleges that BCC violated the RICO Act through
various misrepresentations to and inappropriate actions against health care providers. In late 1999, a number of class-action lawsuits were brought against several of the Company's competitors
alleging, among other things, various misrepresentations regarding their health plans and breaches of fiduciary obligations to health plan members. In August 2000, the Company was added as a
party toShane v. Humana, et al., a class-action lawsuit brought on behalf of health care providers nationwide. In addition to the RICO claims brought
in the California Medical Association lawsuit, this lawsuit also alleges violations of ERISA, federal and state "prompt pay" regulations and certain common law claims. In October 2000, the
federal Judicial Panel on Multidistrict Litigation issued an order consolidating the California Medical Association lawsuit, theShanelawsuit and
various other pending managed care class-action lawsuits against other companies before District Court Judge Federico Moreno in the Southern District of Florida for purposes of the pretrial
proceedings. In March 2001, Judge Moreno dismissed the plaintiffs' claims based on violation of the RICO Act, although the dismissal was made without prejudice to the plaintiffs' ability to
subsequently refile their claims. Judge Moreno also dismissed, with prejudice, the plaintiffs' federal prompt pay law claims. On March 26, 2001, the California Medical Association filed an
amended complaint in its lawsuit, alleging, among other things, revised RICO claims and violations of California law. A hearing on the plaintiffs' motion to certify a class was held in

50

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early May 2001. On May 9, 2001, Judge Moreno issued an order requiring that all discovery in the litigation be completed by December 2001, with the exception of discovery related
to expert witnesses, which must be completed by March 15, 2002. In June 2001, the federal Court of Appeals for the 11th Circuit issued a stay of Judge Moreno's discovery order, pending a
hearing before the Court of Appeals on the Company's appeal of its motion to compel arbitration (which had earlier been granted in part and denied in part by Judge Moreno). The panel for the hearing
was selected in December 2001. The hearing was held in January 2002 and, in March 2002, the Court of Appeals issued an opinion affirming Judge Moreno's earlier action with respect to the motion
to compel arbitration.

In
March 2002, the American Dental Association and three individual dentists filed a lawsuit in U.S. district court in Chicago against the Company and BCC. This lawsuit alleges
that WellPoint and BCC engaged in conduct that constituted a breach of contract under ERISA, trade libel and tortious interference with contractual relations and existing and prospective business
expectancies. The lawsuit seeks class-action status. The financial and operational impact that these and other evolving theories of recovery will have on the managed care industry generally, or the
Company in particular, is at present unknown.

In
July 2001, two individual physicians seeking to represent a class of physicians, hospitals and other providers brought suit in the Circuit Court of Madison County, Illinois
against HealthLink, Inc., which is now a subsidiary of the Company as a result of the RightCHOICE transaction. The physicians allege that HealthLink breached the contracts with these physicians by
engaging in the practices of "bundling" and "down-coding" in its processing and payment of provider claims. The relief sought includes an injunction against these practices and damages in an
unspecified amount. In March 2002, HealthLink was notified that the court intends to hold a hearing on class certification, although no formal date for such hearing has been set. A similar
lawsuit was brought by physicians (including one of the physicians in the case described above) in the same court in Madison County, Illinois, on behalf of a nationwide class of providers who contract
with Blue Cross and Blue Shield plans against the Blue Cross and Blue Shield Association and another Blue Cross Blue Shield plan. The complaint recites that it is brought against those entities and
their "unnamed subsidiaries, licensees, and affiliates," listing a large number of Blue Cross and Blue Shield plans, including "Alliance Blue Cross Blue Shield of Missouri." The plaintiffs also allege
that the plans have systematically engaged in practices known as "short paying," "bundling," and "down-coding" in their processing and payment of subscriber claims. Blue Cross Blue Shield of Missouri
has not been formally named or served as a defendant in this suit.

The
Company's future results will depend in large part on accurately predicting health care costs incurred on existing business and upon the Company's ability to control future health
care costs through product and benefit design, underwriting criteria, utilization management and negotiation of favorable provider contracts. Changes in mandated benefits, utilization rates,
demographic characteristics, health care practices, provider consolidation, inflation, new pharmaceuticals/technologies, clusters of high-cost cases, the regulatory environment and
numerous other factors are beyond the control of any health plan provider and may adversely affect the Company's ability to predict and control health care costs and claims, as well as the Company's
financial condition, results of operations or cash flows. Periodic renegotiations of hospital and other provider contracts coupled with continued consolidation of physician, hospital and other
provider groups may result in increased health care costs and limit the Company's ability to negotiate favorable
rates. Recently, large physician practice management companies have experienced extreme financial difficulties, including bankruptcy, which may subject the Company to increased credit risk related to
provider groups and cause the Company to incur duplicative claims expense. Additionally, the Company faces competitive pressure to contain premium prices. Fiscal concerns regarding the continued
viability of government-sponsored programs such as Medicare and Medicaid may cause decreasing reimbursement rates for these programs. Any limitation on the Company's ability to increase or maintain
its premium levels, design

51

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products, implement underwriting criteria or negotiate competitive provider contracts may adversely affect the Company's financial condition or results of operations.

Managed
care organizations, both inside and outside California, operate in a highly competitive environment that has undergone significant change in recent years as a result of business
consolidations, new strategic alliances, aggressive marketing practices by competitors and other market pressures. Additional increases in competition could adversely affect the Company's financial
condition, cash flows or results of operations. Additional increases in competition (including competition from market entrants offering Internet-based products and services), could adversely affect
the Company's financial condition.

As
a result of the Company's acquisitions, the Company operates on a select geographic basis nationally and offers a spectrum of health care and specialty products through various
risk-sharing arrangements. The Company's health care products include a variety of managed care offerings as well as traditional fee-for-service coverage. With
respect to product type, fee-for-service products are generally less profitable than managed care products. A component of the Company's expansion strategy is to transition
over time the traditional insurance members of the Company's acquired businesses to more managed care products.

With
respect to the risk-sharing nature of products, managed care products that involve greater potential risk to the Company generally tend to be more profitable than
management services products and those managed care products where the Company is able to shift risks to employer groups. Individuals and small employer groups are more likely to purchase the
Company's higher-risk managed care products because such purchasers are generally unable or unwilling to bear greater liability for health care expenditures. Typically,
government-sponsored programs involve the Company's higher-risk managed care products. Over the past few years, the Company has experienced a slight decline in margins in its
higher-risk managed care products and to a lesser extent on its lower-risk managed care and management services products. This decline is primarily attributable to product mix
change, product design, competitive pressure and greater regulatory restrictions applicable to the small employer group market. From time to time, the Company has implemented price increases in
certain of its managed care businesses. While these price increases are intended to improve profitability, there can be no assurance that this will occur. Subsequent unfavorable changes in the
relative profitability between the Company's various products could have a material adverse effect on the Company's results of operations and on the continued merits of the Company's geographic
expansion strategy.

Substantially
all of the Company's investment assets are in interest-yielding debt securities of varying maturities or equity securities. The value of fixed income securities is highly
sensitive to fluctuations in short- and long-term interest rates, with the value decreasing as such rates increase and increasing as such rates decrease. In addition, the value of equity
securities can fluctuate significantly with changes in market conditions. Changes in the value of the Company's investment assets, as a result of interest rate fluctuations, can affect the Company's
results of operations and stockholders' equity. There can be no assurances that interest rate fluctuations will not have a material adverse effect on the results of operations or financial condition
of the Company.

The
Company's operations are dependent on retaining existing employees, attracting additional qualified employees and achieving productivity gains from the Company's investment in
technology. The Company faces intense competition for qualified information technology personnel and other skilled professionals. There can be no assurances that an inability to retain existing
employees or attract additional employees will not have a material adverse effect on the Company's results of operations.

In
December 2000, a wholly owned subsidiary of the Company completed its acquisition of certain mail order pharmaceutical service assets and conducts business as a mail order
pharmacy. The pharmacy business is subject to extensive federal, state and local regulations which are in many instances different from those under which the Company's core health plan business
currently operates.

52

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The failure to properly adhere to these and other applicable regulations could result in the imposition of civil and criminal penalties, which could adversely affect the Company's results of
operations or financial condition. In addition, pharmacies are exposed to risks inherent in the packaging and distribution of pharmaceuticals and other health care products. Although the Company
intends to maintain professional liability and errors and omissions liability insurance, there can be no assurances that the coverage limits under such insurance programs will be adequate to protect
against future claims or that the Company will be able to maintain insurance on acceptable terms in the future.

Following
the terrorist attacks of September 11, 2001, there have been various incidents of suspected bioterrorist activity in the United States. To date, these incidents have
resulted in related isolated incidents of illness and death. However, federal and state law enforcement officials have issued public warnings about additional potential terrorist activity involving
biological weapons. If the United States were to experience more widespread bioterrorist attacks, the Company's covered medical expenses could rise and the Company could experience a material adverse
effect on its results of operations, financial condition and cash flow.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

The Company regularly evaluates its asset and liability interest rate risks as well as the appropriateness of investments relative to its internal investment
guidelines. The Company operates within these guidelines by maintaining a well-diversified portfolio, both across and within asset classes. The Company
has from time to time retained an independent consultant to advise the Company on the appropriateness of its investment policy and the compliance therewith.

Asset
interest rate risk is managed within a duration band tied to the Company's liability interest rate risk. Credit risk is managed by maintaining high average quality ratings and a
well-diversified portfolio.

The
Company's use of derivative instruments is generally limited to hedging purposes and has principally consisted of forward exchange contracts and interest rate swaps. The foreign
exchange contracts are intended to minimize the portfolio's exposure to currency volatility associated with certain foreign currency denominated bond holdings. The Company's investment policy
prohibits the use of derivatives for leveraging purposes as well as the creation of risk exposures not otherwise allowed within the policy.

Since
1996, the Company has from time to time entered into interest rate swap agreements primarily by exchanging the floating debt payments due under its outstanding indebtedness for
fixed rate payments. The Company believes that this allows it to better anticipate its interest payments while helping to manage the asset-liability relationship.

Interest Rate Risk

As of December 31, 2001, approximately 71% of the Company's investment portfolio consisted of fixed income securities (maturing in more than one year). Of
the remainder, 10% was comprised of equities and 19% was comprised of cash, which is not subject to interest rate risk, the value of which generally varies inversely with changes in interest rates.

The
Company has evaluated the net impact to the fair value of its fixed income investments from a hypothetical change in all interest rates of 100, 200 and 300 basis points ("bp"). In
doing so, optionality was addressed through Monte Carlo simulation of the price behavior of securities with embedded options. In addressing prepayments on mortgage-backed securities, the model follows
the normal market practice of estimating a non-interest rate sensitive component (primarily related to relocations) and an interest sensitive component (primarily related to refinancings)
separately. The model is based on statistical techniques applied to historical prepayment and market data, and then incorporates

53

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forward-looking mortgage market research and judgments about future prepayment behavior. Changes in the fair value of the investment portfolio are reflected in the balance sheet through stockholders'
equity. Under the requirements of SFAS No. 133, effective January 1, 2001, all derivative financial instruments are reflected on the balance sheet at fair value. The results of this
analysis as of December 31, 2001 are reflected in the table below. The table reflects the change in valuation of interest rate swap agreements for the year ended December 31, 2001 to the
extent that the notional
amount of interest rate swap agreements exceeded the principal balance of the Company's floating rate indebtedness.

Increase (decrease) in fair value
given an interest rate increase of:100 bp

200 bp

300 bp(In millions)Fixed Income Portfolio

$
(120.0
)
$
(236.3
)
$
(346.8
)Valuation of Interest Rate Swap Agreements


4.8


9.4


13.8$
(115.2
)
$
(226.9
)
$
(333.0
)


Results
as of December 31, 2000 are reflected in the table below. The table reflects the change in valuation of interest rate swap agreements for the year ended
December 31, 2000 to the extent that the notional amount of interest rate swap agreements exceeded the principal balance of the Company's floating rate indebtedness.

Increase (decrease) in fair value
given an interest rate increase of:100 bp

200 bp

300 bp(In millions)Fixed Income Portfolio

$
(85.5
)
$
(170.0
)
$
(250.1
)Valuation of Interest Rate Swap Agreements


6.1


12.0


17.6$
(79.4
)
$
(158.0
)
$
(232.5
)


The
Company believes that an interest rate shift in a 12-month period of 100 bp represents a moderately adverse outcome, while a 200 bp shift is significantly adverse and a
300 bp shift is unlikely given historical precedents. Although the Company holds its bonds as "available for sale" for purposes of SFAS No. 115, the Company's cash flows and the short duration
of its investment portfolio should allow it to hold securities to maturity, thereby avoiding the recognition of losses, should interest rates rise significantly.

Interest Rate Swap Agreements

The Company has entered into interest rate swap agreements in order to reduce the volatility of interest expense resulting from changes in interest rates. As of
December 31, 2001, the Company had entered into $200 million of floating to fixed rate swap agreements, which consisted of a $150 million notional amount swap agreement at 6.99%
and a $50 million notional amount swap agreement at 7.06%. As of December 31, 2001, the Company also had $235 million of LIBOR-based floating rate debt outstanding. The Company
also receives a LIBOR-based payment as a result of its swap arrangements, thereby eliminating the payment exposure to changes in interest rates on that $235 million of outstanding debt.

Equity Price Risk

The Company's equity securities are comprised primarily of domestic stocks as well as certain foreign holdings. Assuming an immediate decrease of 10% in market
value, as of December 31, 2001

54

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and 2000, the hypothetical loss in fair value of stockholders' equity was estimated to be approximately $47.8 million and $39.3 million, respectively.

Foreign Exchange Risk

The Company has generally hedged the foreign exchange risk associated with its fixed income portfolio. The Company uses short-term foreign exchange
contracts to hedge the risk associated with certain fixed-income securities denominated in foreign currencies. Therefore, the Company believes that there is minimal risk to the fixed-income portfolio
due to currency exchange rate fluctuations. The Company's hedging program related to its foreign currency denominated investments is described in Note 15 to the Consolidated Financial
Statements. As of December 31, 2001, however, the Company had liquidated its non-dollar foreign bond holdings and entered into a hedge to offset the remaining currency hedge.

The
Company does not hedge its foreign exchange risk arising from equity investments denominated in foreign currencies. Assuming a foreign exchange loss of 10% across all foreign equity
investments, the net hypothetical pretax loss in fair value as of December 31, 2001 and 2000, was estimated to be $6.6 million and $8.1 million, respectively.

55

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Item 8. Financial Statements and Supplementary Data

The location in this Annual Report on Form 10-K of the Company's Consolidated Financial Statements is set forth in the "Index" on Page
F-1.

WellPoint Health Networks Inc.
Quarterly Selected Financial Information
(Unaudited)

|                                         |                                           | As of and for the Quarter Ended
|---------------------------------------- | ----------------------------------------- | -------------------------------
|
|
|Total revenues                           |                                           | $                              
|Operating income                         |                                           |                                
|Income before provision for income taxes |                                           |                                
|Net income                               |                                           | $                              
|                                         |                                           |                                
|Per Share Data(A):                       |                                           |                                
|                                         | Earnings Per Share                        |                                
|                                         |                                           |                                
|                                         | Earnings Per Share Assuming Full Dilution |                                
|                                         |                                           |                                
|Medical membership                       |                                           |                                
|                                         |                                           |                                



|                                         |                                           | As of and for the Quarter Ended
|---------------------------------------- | ----------------------------------------- | -------------------------------
|
|
|Total revenues                           |                                           | $                              
|Operating income                         |                                           |                                
|Income before provision for income taxes |                                           |                                
|Net income                               |                                           | $                              
|                                         |                                           |                                
|Per Share Data(A):                       |                                           |                                
|                                         | Earnings Per Share                        |                                
|                                         |                                           |                                
|                                         | Earnings Per Share Assuming Full Dilution |                                
|                                         |                                           |                                
|Medical membership                       |                                           |                                
|                                         |                                           |                                

---

56

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Item 9. Changes And Disagreements With Accountants On Accounting And Financial Disclosure

None.

PART III

Item 10. Directors And Executive Officers Of The Registrant

A. Directors of the Company.

Information
regarding the directors of the Company will be contained in the Company's proxy statement for its 2002 Annual Meeting of Stockholders and is incorporated herein by reference.

B.
Executive Officers of the Company

Information
regarding the Company's executive officers is contained in Part I above under the caption "Item 1. Business."

Item 11. Executive Compensation

The information required by Item 11 will be contained in the Company's proxy statement for its 2002 Annual Meeting of Stockholders and is incorporated herein by
reference.

Item 12. Security Ownership Of Certain Beneficial Owners And Management

The information required by Item 12 will be contained in the Company's proxy statement for its 2002 Annual Meeting of Stockholders and is incorporated herein by
reference.

Item 13. Certain Relationships And Related Transactions

The information required by Item 13 will be contained in the Company's proxy statement for its 2002 Annual Meeting of Stockholders and is incorporated herein by
reference.

PART IV

Item 14. Exhibits, Financial Statements Schedules And Reports On Form 8-K.

a. 1) Financial Statements

The consolidated financial statements are contained herein as listed on the "Index" on page F-1 hereof.

2) Financial Statement Schedules

All of the financial statement schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the
applicable instructions or are not applicable and therefore have been omitted.

b. Reports on Form 8-K

On December 7, 2001, the Company filed a Current Report on Form 8-K which reported that the Company had signed the Agreement and Plan of
Merger dated as of November 20, 2001 among the Company, CareFirst, Inc. ("CareFirst") and Congress Acquisition Corp., a wholly owned subsidiary of the Company, pursuant to which
CareFirst would merge with Congress Acquisition Corp.

57

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c. Exhibits

|Exhibit
Number |  | Exhibit                                                                                                                                                                                                                                                                                                                     
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.01           |  | Amended and Restated Recapitalization Agreement dated as of March 31, 1995, by and among the Registrant, Blue Cross of California, Western Health Partnerships and Western Foundation for Health Improvement incorporated by
reference to Exhibit 2.1 of Registrant's Registration Statement on Form S-4 dated April 8, 1996
|2.02           |  | Amended and Restated Agreement and Plan of Merger dated as of November 29, 2000, by and among Cerulean Companies, Inc., the Registrant and Water Polo Acquisition Corp, incorporated by reference to Exhibit 2.01 of the
Registrant's Current Report on Form 8-K dated March 15, 2001.                                      
|2.03           |  | Agreement and Plan of Merger dated as of October 17, 2001 by and among the Registrant, RightCHOICE Managed Care, Inc. ("RightCHOICE") and RWP Acquisition Corp., Incorporated by reference to Exhibit 2.01 to the
Registrant's Registration Statement on Form S-4 (registration no. 333-73382)                              
|2.04           |  | Agreement and Plan of Merger dated as of November 20, 2001 by and among WellPoint Health Networks Inc., CareFirst, Inc. and Congress Acquisition Corp., incorporated by reference to Exhibit 99.1 to the Registrant's Current
Report on Form 8-K dated November 20, 2001                                                    
|3.01           |  | Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed on August 5, 1997.                                                                                                                                                   
|3.02           |  | Bylaws of the Registrant, incorporated by reference to Exhibit 4.2 of the Registrant's Registration Statement on Form S-8 (Registration No. 333-90791)                                                                                                                                                                      
|4.01           |  | Specimen of Common Stock certificate of WellPoint Health Networks Inc., incorporated by reference to Exhibit 4.4 of the Registrant's Registration Statement on Form 8-B, Registration No. 001-13083                                                                                                                         
|4.02           |  | Restated Certificate of Incorporation of the Registrant (included in Exhibit 3.01)                                                                                                                                                                                                                                          
|4.03           |  | Bylaws of the Registrant (included in Exhibit 3.02)                                                                                                                                                                                                                                                                         
|4.04           |  | Indenture dated as of July 2, 1999 by and between Registrant and the Bank of New York, as trustee (including the Form of Debenture attached as Exhibit A thereto), incorporated by reference to Exhibit 4.04 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.                    
|4.05           |  | Amended and Restated Senior Indenture dated as of June 8, 2001 by and between the Registrant and the Bank of New York, as trustee, incorporated by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K
dated June 7, 2001.                                                                              
|4.06           |  | Form of Note evidencing the Registrant's 63/8% Notes due 2006, incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated June 12, 2001.                                                                                                                                                 
|4.07           |  | Form of Note evidencing the Registrant's 63/8% Notes due 2012, incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K dated January 12, 2002.                                                                                                                                              
|9.01           |  | Voting Trust Agreement dated as of January 31, 2002 by and among the Registrant, the Missouri Foundation for Health and Wilmington Trust Company, incorporated by reference to Exhibit 9.01 to the Registrant's Current
Report on Form 8-K dated January 31, 2002                                                           
|10.01          |  | Undertakings dated January 7, 1993, by the Registrant, Blue Cross of California and certain subsidiaries to the California Department of Corporations, incorporated by reference to Exhibit 10.24 of the Registrant's Form
S-1 Registration Statement No. 33-54898                                                          

58

---

|10.02 | * | Supplemental Pension Plan of Blue Cross of California, incorporated by reference to Exhibit 10.15 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992                                                                                                                                       
|----- | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.03 | * | Form of Indemnification Agreement between the Registrant and its Directors and Officers, incorporated by reference to Exhibit 10.17 of the Registrant's Form S-1 Registration Statement No. 33-54898                                                                                                                               
|10.04 | * | Officer Severance Agreement, dated as of July 1, 1993, between the Registrant and Thomas C. Geiser, incorporated by reference to Exhibit 10.24 of the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993                                                                                          
|10.05 |   | Orders Approving Notice of Material Modification and Undertakings dated September 7, 1995, by BCC, the Registrant and the Registrant's subsidiaries to the California Department of Corporations, incorporated by reference
to Exhibit 10.47 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995
|10.06 |   | Lease Agreement, dated as of January 1, 1996, by and between TA/Warner Center Associates II, L.P., and the Registrant, incorporated by reference to Exhibit 10.46 of Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995                                                                           
|10.07 | * | Letter, dated November 13, 1995, from the Registrant to D. Mark Weinberg regarding severance benefits, together with underlying Officer Severance Agreement, incorporated by reference to Exhibit 10.48 of Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995                                     
|10.08 | * | Letter, dated November 13, 1995, from the Registrant to Thomas C. Geiser regarding severance benefits, incorporated by reference to Exhibit 10.49 of Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995                                                                                           
|10.09 |   | Amended and Restated Undertakings dated March 5, 1996, by BCC, the Registrant and the Registrant's subsidiaries to the California Department of Corporations, incorporated by reference to Exhibit 99.1 of the Registrant's
Current Report on Form 8-K dated March 5, 1996                                                         
|10.10 |   | Indemnification Agreement dated as of May 17, 1996, by and among the Registrant, WellPoint Health Networks Inc., a Delaware corporation, and Western Health Partnerships, incorporated by reference to Exhibit 99.9 of the
Registrant's Current Report on Form 8-K dated May 20, 1996                                              
|10.11 |   | Amended and Restated Share Escrow Agent Agreement dated as of August 4, 1997 by and between the Registrant and U.S. Trust Company of California, N.A., incorporated by reference to Exhibit 99.4 of the Registrant's Current
Report on Form 8-K filed on August 5, 1997                                                            
|10.12 |   | Blue Cross License Agreement effective as of January 31, 2002 by and among the Registrant and the Blue Cross Blue Shield Association (the "BCBSA")                                                                                                                                                                                 
|10.13 |   | Blue Cross Controlled Affiliate License Agreement effective as of August 4, 1997 by and between the BCBSA and Blue Cross of California, incorporated by reference to Exhibit 99.8 of Registrant's Current Report on Form 8-K
filed on August 5, 1997                                                                               
|10.14 |   | Blue Cross Affiliate License Agreement effective as of August 4, 1997 by and between the BCBSA and BC Life & Health Insurance Company, incorporated by reference to Exhibit 99.9 of Registrant's Current Report on Form
8-K filed on August 5, 1997                                                                                
|10.15 |   | Blue Cross Controlled Affiliate License Agreement Applicable to Life Insurance Companies effective as of August 4, 1997 by and between the BCBSA and BC Life & Health Insurance Company, incorporated by reference to
Exhibit 99.10 of Registrant's Current Report on Form 8-K filed on August 5, 1997                             

59

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|10.16 |   | Undertakings dated July 31, 1997 by the Registrant, WellPoint California and WellPoint California Services, Inc. to the California Department of Corporations, incorporated by reference to Exhibit 99.12 to the Registrant's
Current Report on Form 8-K filed on August 5, 1997            
|----- | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.17 | * | 401(k) Retirement Savings Program of WellPoint Health Networks Inc., as amended through January 1, 2001, incorporated by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2000                                                     
|10.18 | * | WellPoint Officer Benefit Enrollment Guide Brochure                                                                                                                                                                                                                                         
|10.19 | * | Office Lease dated as of December 2, 1997 by and among the Registrant and Westlake Business Park, Ltd., incorporated by reference to Exhibit 10.48 to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1997                                                      
|10.20 |   | Amendment No. 1 dated as of June 12, 1998 to the Amended and Restated Share Escrow Agent Agreement by and between the Registrant and U.S. Trust Company of California, N.A., incorporated by reference to Exhibit 99.3 to the
Registrant's Current Report on Form 8-K filed on June 15, 1998
|10.21 | * | Promissory Note dated as of June 23, 1998 made by Joan E. Herman in favor of the Registrant, incorporated by reference to Exhibit 10.04 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998                                                               
|10.22 | * | WellPoint Health Networks Inc. Officer Change-in-Control Plan (as amended and restated through December 4, 2001)                                                                                                                                                                            
|10.23 | * | WellPoint Health Networks Inc. Officer Severance Plan (as amended and restated through December 4, 2001)                                                                                                                                                                                    
|10.24 | * | WellPoint Health Networks Inc. Management Bonus Plan, incorporated by reference to Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000                                                                                                        
|10.25 | * | Board of Directors Deferred Compensation Plan of WellPoint Health Networks Inc., incorporated by reference to Exhibit 10.52 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998.                                                                            
|10.26 | * | Employment Agreement dated as of February 10, 1999 by and between the Registrant and Leonard D. Schaeffer, incorporated by reference to Exhibit 10.01 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999.                                               
|10.27 | * | Promissory Note dated as of February 10, 1999 made by Leonard D. Schaeffer in favor of the Registrant, incorporated by reference to Exhibit 10.02 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999                                                    
|10.28 | * | Special Executive Retirement Plan dated as of February 10, 1999 by and between the Registrant and Leonard D. Schaeffer, incorporated by reference to Exhibit 10.03 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999                                   
|10.29 | * | 1999 Stock Incentive Plan, as amended through December 6, 2000, incorporated by reference to Exhibit 10.37 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000                                                                                              
|10.30 | * | 1999 Executive Officer Annual Incentive Plan, incorporated by reference to Annex II to the Registrant's Proxy Statement on Schedule 14A dated March 28, 2001                                                                                                                                
|10.31 | * | WellPoint Health Networks Inc. Comprehensive Executive Non-Qualified Retirement Plan (as amended through February 1, 2001), incorporated by reference to Exhibit 10.39 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 2000                                  

60

---

|10.32 | * | WellPoint Health Networks Inc. Employee Stock Purchase Plan (as amended and restated effective April 1, 2000), incorporated by reference to Annex I to the Registrant's definitive Proxy Statement on Schedule 14A dated
March 23, 2000                                                                                                                                                                                                                                        
|----- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.33 | * | WellPoint Health Networks Inc. 2000 Employee Stock Option Plan (as amended through October 19, 2001)                                                                                                                                                                                                                                                                                                                                                                           
|10.34 | * | Amendment No. 1 to the Special Executive Retirement Plan for Leonard D. Schaeffer, incorporated by reference to Exhibit 10.01 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
2000                                                                                                                                                                                                                                                            
|10.35 | * | WellPoint Health Networks Inc. Supplemental Executive Retirement Plan (as restated effective December 4, 2001)                                                                                                                                                                                                                                                                                                                                                                 
|10.36 | * | Promissory Note made by Woodrow A. Myers, Jr., M.D. in favor of the Registrant, incorporated by reference to Exhibit 10.01 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
2000                                                                                                                                                                                                                                                          
|10.37 |   | Credit Agreement ($750,000,000 Five-Year Revolving Credit and Competitive Advance Facility) dated as of March 30, 2001 by and among the Registrant, the lenders from time to time party thereto, Bank of America, N.A., as
administrative agent, and Banc of America Securities LLC and JPMorgan, as joint arrangers and joint book managers, incorporated by reference to Exhibit 10.01 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30,
2001
|10.38 |   | Credit Agreement ($250,000,000 364-Day Revolving Credit and Competitive Advance Facility) dated as of March 30, 2001 by and among the Registrant, the lenders from time to time party thereto, Bank of America, N.A., as
administrative agent, and Banc of America Securities LLC and JPMorgan, as joint arrangers and joint book managers, incorporated by reference to Exhibit 10.02 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30,
2001  
|10.39 |   | Blue Cross Controlled Affiliate License Agreement dated as of March 15, 2001 by and among the BCBSA, Blue Cross and Blue Shield of Georgia, Inc. ("Georgia Blue") and the Registrant, incorporated by reference to Exhibit
10.03 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 2001                                                                                                                                                        
|10.40 |   | Blue Shield Controlled Affiliate License Agreement dated as of March 15, 2001 by and among the BCBSA, Georgia Blue and the Registrant, incorporated by reference to Exhibit 10.04 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 30, 2001                                                                                                                                                                                                       
|10.41 |   | Blue Cross Controlled Affiliate License Agreement dated as of March 15, 2001 by and among the BCBSA, Blue Cross Blue Shield Health Care Plan of Georgia, Inc. ("Georgia Blue HMO") and Registrant, incorporated by reference
to Exhibit 10.05 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 2001                                                                                                                                           
|10.42 |   | Blue Shield Controlled Affiliate License Agreement dated as of March 15, 2001 by and among the BCBSA, Georgia Blue HMO and the Registrant, incorporated by reference to Exhibit 10.06 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 30, 2001                                                                                                                                                                                                   
|10.43 |   | Blue Cross Controlled Affiliate License Agreement dated as of March 15, 2001 by and among the BCBSA, Greater Georgia Life Insurance Company ("GGL") and the Registrant, incorporated by reference to Exhibit 10.07 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 2001                                                                                                                                                                      
|10.44 |   | Blue Shield Controlled Affiliate License Agreement dated as of March 15, 2001 by and among the BCBSA, and GGL and the Registrant, incorporated by reference to Exhibit 10.08 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 30, 2001                                                                                                                                                                                                            

61

---

|10.45 | * | Amendment No. 1 to the WellPoint 401(k) Retirement Savings Plan (as amended through January 1, 2001), incorporated by reference to Exhibit 10.01 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 2001           
|----- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.46 |   | California Blue Cross License Addendum dated as of January 31, 2002 by and among the Registrant and the BCBSA                                                                                                                                    
|10.47 |   | California Blue Shield License Addendum dated as of January 31, 2002 by and among the Registrant and the BCBSA                                                                                                                                   
|10.48 |   | Blue Cross Controlled Affiliate License Agreement dated as of January 31, 2002 by and among the BCBSA, RightCHOICE Managed Care, Inc. ("RightCHOICE") and the Registrant                                                                         
|10.49 |   | Blue Shield Controlled Affiliate License Agreement dated as of January 31, 2002 by and among the BCBSA, RightCHOICE and the Registrant                                                                                                           
|10.50 |   | Blue Cross Controlled Affiliate License Agreement dated as of January 31, 2002 by and among the BCBSA, Healthy Alliance Life Insurance Company ("HALIC") and the Registrant                                                                      
|10.51 |   | Blue Shield Controlled Affiliate License Agreement dated as of January 31, 2002 by and among the BCBSA, HALIC and the Registrant                                                                                                                 
|10.52 |   | Blue Cross Controlled Affiliate License Agreement dated as of January 31, 2002 by and among the BCBSA, HMO Missouri, Inc. ("HMO Missouri") and the Registrant                                                                                    
|10.53 |   | Blue Shield Controlled Affiliate License Agreement dated as of January 31, 2002 by and among the BCBSA, HMO Missouri and the Registrant                                                                                                          
|10.54 |   | Registration Rights Agreement dated as of October 17, 2001 by and between the Registrant and the Missouri Foundation for Health, incorporated by reference to Exhibit 10.01 to the Registrant's Current Report on Form 8-K
dated January 31, 2002
|10.55 | * | Amendment No. 2 to the WellPoint 401(k) Retirement Savings Plan (as amended through January 1, 2001)                                                                                                                                             
|10.56 | * | Amendment No. 3 to the WellPoint 401(k) Retirement Savings Plan (as amended through January 1, 2001)                                                                                                                                             
|10.57 | * | Amendment No. 4 to the WellPoint 401(k) Retirement Savings Plan (as amended through January 1, 2001)                                                                                                                                             
|10.58 |   | Blue Shield License Agreement effective as of January 31, 2002 by and between the Registrant and the BCBSA                                                                                                                                       
|21    |   | List of Subsidiaries of the Registrant                                                                                                                                                                                                           
|23.1  |   | Consent of Independent Accountants                                                                                                                                                                                                               
|24    |   | Power of Attorney (included on Signature Page).                                                                                                                                                                                                  

---

62

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SIGNATURES

Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|Date: March 28, 2002 |  | WELLPOINT HEALTH NETWORKS INC.
|-------------------- |  | ------------------------------
|                     |  | By:                           

POWER OF ATTORNEY

KNOW
ALL PERSONS BY THESE PRESENTS:

That
the undersigned officers and directors of WellPoint Health Networks Inc. do hereby constitute and appoint Leonard D. Schaeffer and Thomas C. Geiser, and each of them, the
lawful attorney and agent or attorneys and agents with power and authority to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or either of them,
determine may be necessary or advisable or required to enable WellPoint Health Networks Inc. to comply with the Securities Exchange Act of 1934, as amended, and any rules or regulations or
requirements of the Securities and Exchange Commission in connection with this Annual Report on Form 10-K. Without limiting the generality of the
foregoing power and authority, the powers granted include the power and authority to sign the names of the undersigned officers and directors in the capacities indicated below to this Annual Report on
Form 10-K or amendment or supplements thereto, and each of the undersigned hereby ratifies and confirms all that said attorneys and agent, or either of them, shall do or cause to be
done by virtue hereof. This Power of Attorney may be signed in several counterparts.

IN
WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated opposite his or her name.

Pursuant
to the requirements of the Securities Exchange Act of 1934, the Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

|Signature                                   |  | Title                                                                                        |  | Date          
|------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | --------------
|                                            |  |                                                                                              |  |               
|/s/LEONARD D. SCHAEFFERLeonard D. Schaeffer |  | Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) |  | March 28, 2002
|/s/DAVID C. COLBYDavid C. Colby             |  | Executive Vice President and Chief Financial Officer (Principal Financial Officer)           |  | March 28, 2002
|                                            |  |                                                                                              |  |               

63

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|/s/KENNETH C. ZUREKKenneth C. Zurek         |  | Senior Vice President, Controller and Taxation (Principal Accounting Officer) |  | March 28, 2002
|------------------------------------------- |  | ----------------------------------------------------------------------------- |  | --------------
|/s/W. TOLIVER BESSONW. Toliver Besson       |  | Director                                                                      |  | March 28, 2002
|/s/ROGER E. BIRKRoger E. Birk               |  | Director                                                                      |  | March 28, 2002
|/s/SHEILA P. BURKESheila P. Burke           |  | Director                                                                      |  | March 28, 2002
|/s/WILLIAM H.T. BUSHWilliam H.T. Bush       |  | Director                                                                      |  | March 28, 2002
|/s/STEPHEN L. DAVENPORTStephen L. Davenport |  | Director                                                                      |  | March 28, 2002
|/s/JULIE A. HILLJulie A. Hill               |  | Director                                                                      |  | March 28, 2002
|/s/WARREN Y. JOBEWarren Y. Jobe             |  | Director                                                                      |  | March 28, 2002
|/s/ELIZABETH A. SANDERSElizabeth A. Sanders |  | Director                                                                      |  | March 28, 2002

64

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INDEX TO FINANCIAL STATEMENTS
WELLPOINT HEALTH NETWORKS INC.

|                                                                                                       |  | Page
|------------------------------------------------------------------------------------------------------ |  | ----
|Report of Independent Accountants                                                                      |  | F-2 
|Consolidated Balance Sheets as of December 31, 2001 and 2000                                           |  | F-3 
|Consolidated Income Statements for the Three Years Ended December 31, 2001                             |  | F-4 
|Consolidated Statements of Changes in Stockholders' Equity for the Three Years Ended December 31, 2001 |  | F-5 
|Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2001                      |  | F-6 
|Notes to Consolidated Financial Statements                                                             |  | F-7 

F-1

---

Report of Independent Accountants

To
the Stockholders and Board of Directors
WellPoint Health Networks Inc.

In
our opinion, the accompanying consolidated balance sheets and the related consolidated income statements and consolidated statements of changes in stockholders' equity and cash flows
present fairly, in all material respects, the financial position of WellPoint Health Networks Inc. and its subsidiaries (the "Company") at December 31, 2001 and 2000, and the results of
its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

As
discussed in Note 3 to the Consolidated Financial Statements, effective January 1, 1999, the Company changed its method of accounting for start-up costs.

PricewaterhouseCoopers
LLP
Los Angeles, California
January 31, 2002,
except Note 3 as to which the date is March 15, 2002, and
Note 22 as to which the date is March 18, 2002

F-2

---

WellPoint Health Networks Inc.
Consolidated Balance Sheets

|                                                 |                                                                                                              | 2001                                       |           | 2000      |          
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | --------- | --------- | ---------
|
|ASSETS                                           |                                                                                                              |                                            |           |           |          
|Current Assets:                                  |                                                                                                              |                                            |           |           |          
|                                                 | Cash and cash equivalents                                                                                    |                                            | $         | 1,028,476 |          
|                                                 | Investment securities, at market value                                                                       |                                            |           | 3,832,982 |          
|                                                 | Receivables, net                                                                                             |                                            |           | 841,722   |          
|                                                 | Deferred tax assets, net                                                                                     |                                            |           | 79,063    |          
|                                                 | Other current assets                                                                                         |                                            |           | 90,398    |          
|                                                 |                                                                                                              |                                            |           |           |          
|                                                 |                                                                                                              | Total Current Assets                       |           |           | 5,872,641
|Property and equipment, net                      |                                                                                                              |                                            | 222,080   |           |          
|Intangible assets, net                           |                                                                                                              |                                            | 430,488   |           |          
|Goodwill, net                                    |                                                                                                              |                                            | 661,346   |           |          
|Long-term investments, at market value           |                                                                                                              |                                            | 124,611   |           |          
|Deferred tax assets, net                         |                                                                                                              |                                            | 54,486    |           |          
|Other non-current assets                         |                                                                                                              |                                            | 106,481   |           |          
|                                                 |                                                                                                              |                                            |           |           |          
|                                                 |                                                                                                              | Total Assets                               |           | $         | 7,472,133
|                                                 |                                                                                                              |                                            |           |           |          
|LIABILITIES AND STOCKHOLDERS' EQUITY             |                                                                                                              |                                            |           |           |          
|Current Liabilities:                             |                                                                                                              |                                            |           |           |          
|                                                 | Medical claims payable                                                                                       |                                            | $         | 1,934,620 |          
|                                                 | Reserves for future policy benefits                                                                          |                                            |           | 62,739    |          
|                                                 | Unearned premiums                                                                                            |                                            |           | 332,813   |          
|                                                 | Accounts payable and accrued expenses                                                                        |                                            |           | 783,026   |          
|                                                 | Experience rated and other refunds                                                                           |                                            |           | 255,570   |          
|                                                 | Income taxes payable                                                                                         |                                            |           | 64,654    |          
|                                                 | Other current liabilities                                                                                    |                                            |           | 632,383   |          
|                                                 |                                                                                                              |                                            |           |           |          
|                                                 |                                                                                                              | Total Current Liabilities                  |           |           | 4,065,805
|Accrued postretirement benefits                  |                                                                                                              |                                            | 94,124    |           |          
|Reserves for future policy benefits, non-current |                                                                                                              |                                            | 222,406   |           |          
|Long-term debt                                   |                                                                                                              |                                            | 837,957   |           |          
|Other non-current liabilities                    |                                                                                                              |                                            | 119,262   |           |          
|                                                 |                                                                                                              |                                            |           |           |          
|                                                 |                                                                                                              | Total Liabilities                          |           |           | 5,339,554
|Stockholders' Equity:                            |                                                                                                              |                                            |           |           |          
|                                                 | Preferred Stock$0.01 par value, 50,000,000 shares authorized, none issued and outstanding                   |                                            |           |          |          
|                                                 | Common Stock$0.01 par value, 300,000,000 shares authorized, 71,390,971 issued at December 31, 2001 and 2000 |                                            |           | 714       |          
|                                                 | Treasury stock, at cost, 7,474,305 and 8,566,399 shares at December 31, 2001 and 2000, respectively          |                                            |           | (465,805  | )        
|Additional paid-in capital                       |                                                                                                              |                                            | 1,002,193 |           |          
|Retained earnings                                |                                                                                                              |                                            | 1,548,941 |           |          
|Accumulated other comprehensive income           |                                                                                                              |                                            | 46,536    |           |          
|                                                 |                                                                                                              |                                            |           |           |          
|                                                 | Total Stockholders' Equity                                                                                   |                                            |           | 2,132,579 |          
|                                                 |                                                                                                              |                                            |           |           |          
|                                                 |                                                                                                              | Total Liabilities and Stockholders' Equity |           | $         | 7,472,133
|                                                 |                                                                                                              |                                            |           |           |          

See the accompanying notes to the consolidated financial statements.

F-3

---

WellPoint Health Networks Inc.
Consolidated Income Statements

|                                                                                                        |                                                                             | Year Ended December 31, |           
|------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ----------------------- | ----------
|
|
|Revenues:                                                                                               |                                                                             |                         |           
|                                                                                                        | Premium revenue                                                             |                         | $         
|                                                                                                        | Management services and other revenue                                       |                         |           
|                                                                                                        | Investment income                                                           |                         |           
|                                                                                                        |                                                                             |                         |           
|                                                                                                        |                                                                             |                         | 12,428,647
|Operating Expenses:                                                                                     |                                                                             |                         |           
|                                                                                                        | Health care services and other benefits                                     |                         |           
|                                                                                                        | Selling expense                                                             |                         |           
|                                                                                                        | General and administrative expense                                          |                         |           
|                                                                                                        |                                                                             |                         |           
|                                                                                                        |                                                                             |                         | 11,605,422
|                                                                                                        |                                                                             |                         |           
|Operating Income                                                                                        |                                                                             |                         | 823,225   
|                                                                                                        | Interest expense                                                            |                         |           
|                                                                                                        | Other expense, net                                                          |                         |           
|                                                                                                        |                                                                             |                         |           
|Income before Provision for Income Taxes, Extraordinary Gain and Cumulative Effect of Accounting Change |                                                                             |                         | 698,582   
|                                                                                                        | Provision for income taxes                                                  |                         |           
|                                                                                                        |                                                                             |                         |           
|Income before Extraordinary Gain and Cumulative Effect of Accounting Change                             |                                                                             |                         | 414,746   
|Extraordinary Gain from Early Extinguishment of Debt, net of tax                                        |                                                                             |                         |          
|Cumulative Effect of Accounting Change, net of tax                                                      |                                                                             |                         |          
|                                                                                                        |                                                                             |                         |           
|Net Income                                                                                              |                                                                             | $                       | 414,746   
|                                                                                                        |                                                                             |                         |           
|Earnings Per Share(A):                                                                                  |                                                                             |                         |           
|                                                                                                        | Income before extraordinary gain and cumulative effect                      |                         |           
|                                                                                                        | of accounting change                                                        |                         | $         
|                                                                                                        | Extraordinary gain from early extinguishment of debt, net of tax            |                         |           
|                                                                                                        | Cumulative effect of accounting change, net of tax                          |                         |           
|                                                                                                        |                                                                             |                         |           
|                                                                                                        | Net income                                                                  |                         | $         
|                                                                                                        |                                                                             |                         |           
|Earnings Per Share Assuming Full Dilution(A):                                                           |                                                                             |                         |           
|                                                                                                        | Income before extraordinary gain and cumulative effect of accounting change |                         | $         
|                                                                                                        | Extraordinary gain from early extinguishment of debt, net of tax            |                         |           
|                                                                                                        | Cumulative effect of accounting change, net of tax                          |                         |           
|                                                                                                        |                                                                             |                         |           
|                                                                                                        | Net income                                                                  |                         | $         
|                                                                                                        |                                                                             |                         |           

---

See
the accompanying notes to the consolidated financial statements.

F-4

---

WellPoint Health Networks Inc.
Consolidated Statements of Changes in Stockholders' Equity

|                                                                |                                        |                                                                                                        |   | Common Stock |        |  |   |     |  |        |   |   |         
|--------------------------------------------------------------- | -------------------------------------- | ------------------------------------------------------------------------------------------------------ | - | ------------ | ------ |  | - | --- |  | ------ | - | - | --------
|
|
|
|
|Balance as of January 1, 1999                                   |                                        | $                                                                                                      |  |              | 70,621 |  | $ | 706 |  | 3,502  |   | $ | (193,435
|Stock grants to employees and directors                         |                                        |                                                                                                        |   |              | 75     |  |   | 1   |  | (4     | ) |   | 172     
|Stock issued for employee stock option and stock purchase plans |                                        |                                                                                                        |   |              | 695    |  |   | 7   |  | (66    | ) |   | 3,616   
|Stock repurchased, at cost                                      |                                        |                                                                                                        |   |              |        |  |   |     |  | 4,333  |   |   | (291,684
|Net losses from treasury stock reissued                         |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|Comprehensive income (loss)                                     |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|                                                                | Net income                             |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|                                                                | Other comprehensive income, net of tax |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|                                                                |                                        | Change in unrealized valuation adjustment on investment securities, net of reclassification adjustment |   |              |        |  |   |     |  |        |   |   |         
|                                                                |                                        | Foreign currency adjustments, net of tax                                                               |   |              |        |  |   |     |  |        |   |   |         
|                                                                |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|Total comprehensive income (loss)                               |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|                                                                |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|Balance as of December 31, 1999                                 |                                        |                                                                                                        |  |              | 71,391 |  |   | 714 |  | 7,765  |   |   | (481,331
|Stock grants to employees and directors                         |                                        |                                                                                                        |   |              |        |  |   |     |  | (15    | ) |   | 1,013   
|Stock issued for employee stock option and stock purchase plans |                                        |                                                                                                        |   |              |        |  |   |     |  | (1,668 | ) |   | 118,396 
|Stock repurchased, at cost                                      |                                        |                                                                                                        |   |              |        |  |   |     |  | 2,484  |   |   | (174,602
|Net losses from treasury stock reissued                         |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|Comprehensive income                                            |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|                                                                | Net income                             |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|                                                                | Other comprehensive income, net of tax |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|                                                                |                                        | Change in unrealized valuation adjustment on investment securities, net of reclassification adjustment |   |              |        |  |   |     |  |        |   |   |         
|                                                                |                                        | Foreign currency adjustments, net of tax                                                               |   |              |        |  |   |     |  |        |   |   |         
|                                                                |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|Total comprehensive income                                      |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|                                                                |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|Balance as of December 31, 2000                                 |                                        |                                                                                                        |  |              | 71,391 |  |   | 714 |  | 8,566  |   |   | (536,524
|Stock grants to employees and directors                         |                                        |                                                                                                        |   |              |        |  |   |     |  | (14    | ) |   | 886     
|Stock issued for employee stock option and stock purchase plans |                                        |                                                                                                        |   |              |        |  |   |     |  | (1,153 | ) |   | 77,266  
|Stock repurchased, at cost                                      |                                        |                                                                                                        |   |              |        |  |   |     |  | 75     |   |   | (7,433  
|Net losses from treasury stock reissued                         |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|Comprehensive income (loss)                                     |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|                                                                | Net income                             |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|                                                                | Other comprehensive income, net of tax |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|                                                                |                                        | Change in unrealized valuation adjustment on investment securities, net of reclassification adjustment |   |              |        |  |   |     |  |        |   |   |         
|                                                                |                                        | Foreign currency adjustments, net of tax                                                               |   |              |        |  |   |     |  |        |   |   |         
|                                                                |                                        | Minimum pension liability adjustment, net of tax                                                       |   |              |        |  |   |     |  |        |   |   |         
|                                                                |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|Total comprehensive income (loss)                               |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|                                                                |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         
|Balance as of December 31, 2001                                 |                                        | $                                                                                                      |  |              | 71,391 |  | $ | 714 |  | 7,474  |   | $ | (465,805
|                                                                |                                        |                                                                                                        |   |              |        |  |   |     |  |        |   |   |         

See the accompanying notes to the consolidated financial statements.

F-5

---

WellPoint Health Networks Inc.
Consolidated Statements of Cash Flows

|                                                 |                                                                                                                                                    | Year Ended December 31,                                                                  |                                                                                
|------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------
|
|
|Cash flows from operating activities:            |                                                                                                                                                    |                                                                                          |                                                                                
|                                                 | Income before extraordinary gain and cumulative effect of accounting change                                                                        |                                                                                          | $                                                                              
|                                                 | Adjustments to reconcile income before extraordinary gain and cumulative effect of accounting change to net cash provided by operating activities: |                                                                                          |                                                                                
|                                                 |                                                                                                                                                    | Depreciation and amortization, net of accretion                                          |                                                                                
|                                                 |                                                                                                                                                    | Loss on sales of assets, net                                                             |                                                                                
|                                                 |                                                                                                                                                    | Provision (benefit) for deferred income taxes                                            |                                                                                
|                                                 |                                                                                                                                                    | Amortization of deferred gain on sale of building                                        |                                                                                
|                                                 |                                                                                                                                                    | Accretion of interest on zero coupon convertible subordinated debentures and 63/8% Notes |                                                                                
|                                                 |                                                                                                                                                    | (Increase) decrease in certain assets:                                                   |                                                                                
|                                                 |                                                                                                                                                    |                                                                                          | Receivables, net                                                               
|                                                 |                                                                                                                                                    |                                                                                          | Income taxes recoverable                                                       
|                                                 |                                                                                                                                                    |                                                                                          | Other current assets                                                           
|                                                 |                                                                                                                                                    |                                                                                          | Other non-current assets                                                       
|                                                 |                                                                                                                                                    | Increase (decrease) in certain liabilities:                                              |                                                                                
|                                                 |                                                                                                                                                    |                                                                                          | Medical claims payable                                                         
|                                                 |                                                                                                                                                    |                                                                                          | Reserves for future policy benefits                                            
|                                                 |                                                                                                                                                    |                                                                                          | Unearned premiums                                                              
|                                                 |                                                                                                                                                    |                                                                                          | Accounts payable and accrued expenses                                          
|                                                 |                                                                                                                                                    |                                                                                          | Experience rated and other refunds                                             
|                                                 |                                                                                                                                                    |                                                                                          | Income taxes payable                                                           
|                                                 |                                                                                                                                                    |                                                                                          | Other current liabilities                                                      
|                                                 |                                                                                                                                                    |                                                                                          | Accrued postretirement benefits                                                
|                                                 |                                                                                                                                                    |                                                                                          | Other non-current liabilities                                                  
|                                                 |                                                                                                                                                    |                                                                                          |                                                                                
|                                                 |                                                                                                                                                    |                                                                                          |                                                                                
|                                                 |                                                                                                                                                    |                                                                                          |                                                                                
|Cash flows from investing activities:            |                                                                                                                                                    |                                                                                          |                                                                                
|                                                 |                                                                                                                                                    |                                                                                          | Investments purchased                                                          
|                                                 |                                                                                                                                                    |                                                                                          | Proceeds from investments sold                                                 
|                                                 |                                                                                                                                                    |                                                                                          | Proceeds from investments matured                                              
|                                                 |                                                                                                                                                    |                                                                                          | Property and equipment purchased                                               
|                                                 |                                                                                                                                                    |                                                                                          | Proceeds from property and equipment sold                                      
|                                                 |                                                                                                                                                    |                                                                                          | Settlement of sales price for sale of Workers' Compensation business           
|                                                 |                                                                                                                                                    |                                                                                          | Acquisition of new businesses, net of cash acquired                            
|                                                 |                                                                                                                                                    |                                                                                          |                                                                                
|                                                 |                                                                                                                                                    |                                                                                          |                                                                                
|                                                 |                                                                                                                                                    |                                                                                          |                                                                                
|Cash flows from financing activities:            |                                                                                                                                                    |                                                                                          |                                                                                
|                                                 |                                                                                                                                                    |                                                                                          | Proceeds from issuance of zero coupon convertible subordinated debentures      
|                                                 |                                                                                                                                                    |                                                                                          | Net borrowing (repayment) of long-term debt under the revolving credit facility
|                                                 |                                                                                                                                                    |                                                                                          | Net borrowing of long-term debt under 63/8% Notes due 2006                     
|                                                 |                                                                                                                                                    |                                                                                          | Proceeds from issuance of common stock                                         
|                                                 |                                                                                                                                                    |                                                                                          | Common stock repurchased                                                       
|                                                 |                                                                                                                                                    |                                                                                          |                                                                                
|                                                 |                                                                                                                                                    |                                                                                          |                                                                                
|                                                 |                                                                                                                                                    |                                                                                          |                                                                                
|Net increase in cash and cash equivalents        |                                                                                                                                                    |                                                                                          | 461,587                                                                        
|Cash and cash equivalents at beginning of period |                                                                                                                                                    |                                                                                          | 566,889                                                                        
|                                                 |                                                                                                                                                    |                                                                                          |                                                                                
|Cash and cash equivalents at end of period       |                                                                                                                                                    |                                                                                          | 1,028,476                                                                      
|                                                 |                                                                                                                                                    |                                                                                          |                                                                                

See the accompanying notes to the consolidated financial statements.

F-6

---



WellPoint Health Networks Inc.        Notes to Consolidated Financial Statements

1. ORGANIZATION

WellPoint Health Networks Inc. (the "Company" or "WellPoint") is one of the nation's largest publicly traded managed health care companies. As of
December 31, 2001, WellPoint had approximately 10.1 million medical members and approximately 45.1 million specialty members. The Company offers a broad spectrum of network-based
managed care plans. WellPoint provides these plans to the large and small employer, individual and senior markets. The Company's managed care plans include preferred provider organizations ("PPOs"),
health maintenance organizations ("HMOs"), point-of-service ("POS") plans, other hybrid medical plans and traditional indemnity plans. In addition, the Company offers managed
care services, including underwriting, actuarial service, network access, medical cost management and claims processing. The Company offers a continuum of managed health care plans while providing
incentives to members and employers to select more intensively managed plans. The Company also provides a broad array of specialty and other products and services including pharmacy, dental,
utilization management, vision, life insurance, preventive care, disability, behavioral health, medicare supplements, COBRA and flexible benefits account administration.

2. ACQUISITIONS

On March 15, 2001, the Company completed its acquisition of Cerulean Companies, Inc. ("Cerulean"), the parent company of Blue Cross Blue Shield of
Georgia, Inc., which served approximately 1.9 million medical members in the state of Georgia as of March 31, 2001. This acquisition was accounted for under the purchase method of
accounting and, accordingly, the consolidated results of operations of the Company include the results of Cerulean from the date of acquisition. The cash purchase price was $700.0 million. As a
result of the acquisition of Cerulean, the Company estimates that it will incur up to $140.6 million in expenses primarily related to change in control payments to Cerulean management and
transaction costs. Generally accepted accounting principles require that these expenses, which are not associated with the generation of future revenues and have no future economic benefit, be
reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired. Cash of
$200.0 million and debt of $500.0 million were used to purchase net assets with a fair value of approximately $334.8 million. Goodwill and other intangibles totaling
$572.7 million includes $66.9 million of deferred and current tax liabilities relating to identified intangibles. The estimated purchase price allocation between goodwill and
identifiable intangible assets is $282.7 million and $290.0 million, respectively.

On
March 1, 2000, the Company completed its acquisition of Rush Prudential Health Plans ("Rush Prudential"). Rush Prudential offers a broad array of products and services ranging
from HMO products to traditional PPO products. The acquisition significantly increased the Company's Illinois medical membership to nearly 600,000 members as of March 31, 2000. Subsequent to
the acquisition, the acquired business has been operated as UNICARE Health Plans. The transaction, which was financed with both cash from operations and debt from the Company's existing revolving
credit facility, is valued at approximately $202.6 million. This acquisition was accounted for under the purchase method of accounting. Cash of $102.6 million and debt totaling
$100.0 million were used to purchase net assets with a fair value of approximately $19.4 million, resulting in goodwill and other intangibles totaling $215.5 million. The
resulting goodwill includes $32.3 million of deferred tax liabilities relating to identified intangibles. The purchase price allocation between goodwill and identifiable intangible assets is
$135.8 million and $79.7 million, respectively.

On
December 5, 2000, the Company completed its acquisition of a mail order pharmacy fulfillment facility from RxAmerica LLC ("RxAmerica"). RxAmerica is a pharmacy benefits
management joint

F-7

---

venture between Albertson's, Inc. and Longs Drugs Stores California, Inc. Subsequent to the acquisition, the business was re-named PrecisionRx. This acquisition was
accounted for under the purchase method of accounting.

In
accordance with the requirements of APB Opinion No. 16, "Business Combinations," the following unaudited pro forma summary presents revenues, net income and per share data of
WellPoint as if the acquisitions of Cerulean, Rush Prudential and PrecisionRx had occurred on January 1, 2000. The pro forma information includes the results of operations for the period prior
to the acquisition, adjusted for interest expense on long-term debt incurred to fund the acquisition of Cerulean and Rush Prudential, amortization of goodwill and intangible assets and the
related income tax effects. The pro forma financial information is presented for informational purposes only and may not be indicative of the results of operations had the Company been a single entity
during the years ended December 31, 2001 and 2000, nor is it necessarily indicative of future results of operations. Pro forma earnings per share is based on 126.9 million and
125.1 million weighted average shares for the years ended December 31, 2001 and 2000, respectively. Pro forma earnings per share assuming full dilution is based on 132.4 million
and 130.2 million weighted average shares for the years ended December 31, 2001 and 2000, respectively.

Year Ended
December 31,2001

2000(In millions, except
earnings per share)Revenues

$
12,915.3

$
11,473.9Net Income

$
424.1

$
342.3Earnings Per Share

$
3.34

$
2.74Earnings Per Share Assuming Full Dilution

$
3.22

$
2.64


3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As a managed health care organization, the Company derives the majority of its revenues from premiums received for providing prepaid health services and prepares
its financial statements in accordance with the AICPA Audit and Accounting Guide for "Health Care Organizations." The following is a summary of significant accounting policies used in the preparation
of the accompanying consolidated financial statements. Such policies are in accordance with accounting principles generally accepted in the United States of America and have been consistently applied.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for each reporting period. The significant
estimates made in the preparation of the Company's consolidated financial statements relate to the assessment of the carrying value of the goodwill and intangible assets, medical claims payable,
reserves for future policy benefits, experience rated refunds and contingent liabilities. While management believes that the carrying value of such assets and liabilities is adequate as of
December 31, 2001 and 2000, actual results could differ from the estimates upon which the carrying values were based.

F-8

---

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been
eliminated in consolidation.

Cash Equivalents

The Company considers cash equivalents to include highly liquid debt instruments purchased with an original remaining maturity of three months or less.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments, bonds, foreign
currency denominated forward exchange contracts and interest rate swap agreements. The Company invests its excess cash primarily in commercial paper and money market funds. Although a majority of the
cash accounts exceed the federally insured deposit amount, management does not anticipate nonperformance by financial institutions and reviews the financial viability of these institutions. The
Company attempts to limit its risk in investment securities by maintaining a diversified portfolio. The components of investment securities are shown in Note 4.

Investments

Investment securities consist primarily of U.S. Treasury and agency securities, foreign currency denominated bonds, mortgage-backed securities, investment grade
and non-investment grade corporate bonds, equity securities and venture capital. The Company has determined that its investment securities are available for use in current operations and,
accordingly, has classified such investment securities as current without regard to contractual maturity dates.

Long-term
investments consist primarily of restricted assets, equity and other investments. Restricted assets, at market value, included in long-term investments
at December 31, 2001 and 2000 were $106.6 million and $104.1 million, respectively, and consisted of investments on deposit with the California Department of Managed Health Care
("DMHC"). These deposits consisted primarily of U.S. Treasury and agency securities. Due to their restricted nature, such investments are classified as long-term without regard to
contractual maturity.

The
Company has determined that its debt and equity securities are available-for-sale. Debt and equity securities are carried at estimated fair value based on
quoted market prices for the same or similar instruments. Unrealized gains and losses are computed on the basis of specific identification and are included in other comprehensive income, net of
applicable deferred income taxes. Realized gains and losses on the disposition of investments are included in investment income. The specific identification method is used in determining the cost of
debt and equity securities sold.

The
Company evaluates all of its investments based on current economic conditions, declining market valuation and financial condition of the issuer. Investments that have declines in
fair value below cost, which are judged to be other than temporary, are written down to estimated fair value.

The
Company participates in a securities lending program whereby marketable securities in the Company's portfolio are transferred to an independent broker or dealer in exchange for
collateral equal to at least 101% of the market value of securities on loan.

F-9

---

In
June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133"). SFAS No. 133, as amended by SFAS Nos. 137 and 138, establishes the accounting and reporting standards for derivative instruments and for hedging
activities. Upon adoption of SFAS No. 133, all derivatives must be recognized on the balance sheet at their then fair value. Any deferred gains and losses remaining on the balance sheet under
previous hedge-accounting rules must be removed from the balance sheet and all hedging relationships must be designated anew and documented pursuant to the new accounting. The new standard was adopted
in the first quarter of 2001.

The
adoption of SFAS No. 133 on January 1, 2001, resulted in a pre-tax increase to other income of $0.1 million and an after-tax decrease to
other comprehensive income of $4.2 million.

The
Company utilizes derivative instruments, specifically forward exchange contracts, to mitigate foreign currency risk associated with its foreign currency denominated investment
portfolio. Forward exchange contracts are used to hedge the foreign currency risk between trade date and settlement date of foreign currency investment transactions. Gains and losses from such
instruments are recognized in the Company's income statement at the settlement date.

Forward
exchange contracts are also used to hedge asset positions in foreign denominated securities. The unrealized gains and losses, net of deferred taxes, from such forward contracts
and related hedging investments are reflected in other comprehensive income at the balance sheet dates. As of December 31, 2001, the Company no longer invested in foreign government securities.

Premiums Receivable

Premiums receivable are shown net of an allowance based on historical collection trends and management's judgment on the collectibility of these accounts. These
collection trends, as well as prevailing and anticipated economic conditions, are routinely monitored by management, and any adjustments required are reflected in current operations.

Property and Equipment, net

Property and equipment are stated at cost, net of depreciation, and are depreciated on the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are stated net of amortization and are amortized over a period not exceeding the term of the lease. Upon disposal of property and equipment, the cost of the asset and
the related accumulated depreciation are removed from the accounts while the resulting gain or loss is reflected in current operations.

Computer
software costs that are incurred in the preliminary project stage are expensed as incurred. Direct consulting costs, payroll and payroll related cost for employees, incurred
during the development stage, who are directly associated with each project are capitalized and amortized over a five-year period when placed into production.

Intangible Assets and Goodwill, net

Intangible assets and goodwill represent the cost in excess of fair value of the net assets, net of the related tax impact, acquired in purchase transactions.
Intangible assets and goodwill are being amortized on a straight-line basis over periods ranging from 1.5 to 40 years. For acquisitions

F-10

---

consummated prior to 1998, intangible assets and goodwill are being amortized utilizing a composite useful life. For acquisitions consummated after 1997, the specific identified useful life method is
utilized. (See Note 7 for a more complete discussion of the Company's intangible assets and goodwill.)

The
Company evaluates whether events or circumstances have occurred that may affect the estimated useful life or the recoverability of the remaining balance of goodwill and other
identifiable intangible assets. Impairment of an intangible asset is triggered when the estimated future undiscounted cash flows (excluding interest charges) do not exceed the carrying amount of the
intangible asset and related goodwill. If the events or circumstances indicate that the remaining balance of the intangible asset and goodwill may be permanently impaired, such potential impairment
will be measured based upon the
difference between the carrying amount of the intangible asset and goodwill and the fair value of such asset determined using the estimated future discounted cash flows (excluding interest charges)
generated from the use and ultimate disposition of the respective acquired entity.

Effective
January 1, 2002, intangible assets and goodwill will be accounted for under SFAS No. 142, "Goodwill and Other Intangible Assets." The new rules eliminate
amortization of goodwill and other intangibles with indefinite lives, but these assets will be subject to the impairment tests. (See "New Accounting Pronouncements" and Note 7 for a more
complete discussion of the Company's intangible assets and goodwill).

Medical Claims Payable

The liability for medical claims payable includes claims in process and a provision for incurred but not reported claims, which is actuarially determined based on
historical claims payment experience and other statistics. Claim processing expenses are also accrued based on an estimate of expenses necessary to process such claims. Such reserves are continually
monitored and reviewed with any adjustments reflected in current operations. Capitation costs represent monthly fees paid one month in advance to physicians, certain other medical service providers
and hospitals in the Company's HMO networks as retainers for providing continuing medical care. The Company maintains various programs that provide incentives to physicians, certain other medical
service providers and hospitals participating in its HMO networks through the use of risk-sharing agreements and other programs. Payments under such agreements are made based on the
providers' performance in controlling health care costs while providing quality health care. Expenses related to these programs, which are based in part on estimates, are recorded in the period in
which the related services are rendered. Management believes that its reserves for medical claims payable are adequate to satisfy its ultimate claim liability. However, these estimates are inherently
subject to a number of highly variable circumstances. Consequently, the actual results could differ materially from the amount recorded in the consolidated financial statements.

The
Company's future results of operations will depend in part on its ability to predict and control health care costs through underwriting criteria, utilization management, product
design and negotiation of favorable provider and hospital contracts. WellPoint's ability to contain such costs may be adversely affected by changes in utilization rates, demographic characteristics,
the regulatory environment, health care practices, inflation, new technologies, clusters of high-cost cases, continued consolidation of physician, hospital and other provider groups, acts
of terrorism and bioterrorism or other catastrophes, including war, and numerous other factors. The inability to mitigate any or all of the above-listed or other factors may adversely affect the
Company's future profitability.

F-11

---

Reserves for Future Policy Benefits

The estimated reserves for future policy benefits relate to life and disability policies written in connection with health care contracts. Reserves for future
extended benefit coverage are based on projections of past experience. Reserves for future policy and contract benefits for certain long-term disability products and group
paid-up life products are based upon interest, mortality and morbidity assumptions from published actuarial tables, modified based upon the Company's experience. Reserves are continually
monitored and reviewed, and as settlements are made or reserves adjusted, differences are reflected in current operations. The current portion of reserves for future policy benefits relates to the
portion of such reserves which management expects to pay within one year. Management believes that its reserves for future policy benefits are adequate to satisfy its ultimate benefit liability.
However, these estimates are inherently subject to a number of highly variable circumstances. Consequently, the actual results could differ materially from the amount recorded in the consolidated
financial statements.

Postretirement Benefits

The Company currently provides certain health care and life insurance benefits to eligible retirees and their dependents under plans administered by the Company.
The Company accrues the estimated costs of retiree health and other postretirement benefits during the periods in which eligible employees render service to earn the benefits.

Interest Rate Swap Agreements

The Company uses interest rate swap agreements to manage interest rate exposures. The principal objective of such contracts is to minimize the risks and costs
associated with financial activities. The counterparties to these contractual arrangements are major financial institutions with which the Company also has other financial relationships. These
counterparties expose the Company to credit loss in the event of nonperformance. However, the Company does not anticipate nonperformance by the counterparties.

The
Company entered into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate debt under its revolving credit facility. The swap
agreements are contracts to exchange floating interest rate payments for fixed interest rate payments periodically over the life of the agreements without the exchange of the underlying notional
amounts. The notional amounts of the interest rate swap agreements are used to measure interest to be paid. For interest rate instruments that effectively hedge interest rate exposures, the net cash
amounts paid on the agreements are accrued and recognized as an adjustment to interest expense. If an agreement no longer qualifies as a hedge instrument, then it is marked to market and carried on
the balance sheet at fair value. The change in fair value of these instruments is included in investment income.

Income Taxes

The Company's provision for income taxes reflects the current and future tax consequences of all events that have been recognized in the financial statements as
measured by the provision of currently enacted tax laws and rates applicable to future periods.

F-12

---

Recognition of Premium Revenue and Management Services and Other Revenue

For most health care and life insurance contracts, premiums are billed in advance of coverage periods and are recognized as revenue over the period in which
services or benefits are obligated to be provided. Premiums include revenue from other contracts, which principally relate to minimum premium contracts, where revenue is recognized based upon the
ultimate loss experience of the contract. These contracts obligate the Company to arrange for the provision of health care for the members covered by the related contract and exposes the Company to
financial risk based upon its ability to manage health care costs below a contractual fixed attachment point. Premium revenue includes an adjustment for experience rated refunds based on an estimate
of incurred claims. Experience rated refunds are paid based on contractual requirements.

The
Company's group life and disability insurance contracts are traditional insurance contracts, which are typically issued only in conjunction with a health care contract. Additionally,
WellPoint has a limited number of indemnity health insurance contracts. All of these contracts provide insurance protection for a fixed period ranging from one month to a year.

The
Company has the ability at a minimum to cancel the contract or adjust the provisions of the contract at the end of the contract period. As a result, the Company's insurance contracts
are considered short-duration contracts.

Premiums
applicable to the unexpired contractual coverage periods are reflected in the accompanying consolidated balance sheet as unearned premiums.

Management
services revenue is earned as services are performed and consists of administrative fees for services provided to third parties, including management of medical services,
claims processing and access to provider networks. Under administrative service contracts, self-funded employers retain the full risk of financing benefits. Funds received from employers
are equal to amounts required to fund benefit expenses and pay earned administrative fees. Because benefit expenses are not the obligation of the Company, premium revenue and benefit expenses for
these contracts are not included in the
Company's financial statements. Administrative service fees received from employer groups are included in the Company's revenues. Revenues from PrecisionRx, a mail order pharmacy acquired in
December 2000, are shown net of pharmaceutical costs. Gross pharmaceutical sales for the years ended December 31, 2001 and 2000 were $200.3 million and $11.0 million,
respectively. The pharmaceutical costs for the years ended December 31, 2001 and 2000 were $186.8 million and $10.3 million, respectively.

Loss Contracts

The Company monitors its contracts for the provision of medical care and recognizes losses on those contracts when it is probable that expected future health care
and maintenance costs, under a group of existing contracts, will exceed anticipated future premiums on those contracts. The estimation of future health care medical costs includes all costs related to
the provision of health care to members covered by the related group of contracts. In determining whether a loss has been incurred, the Company reviews contracts either individually or collectively,
depending upon the Company's method of establishing premium rates for such contracts.

The
Company further monitors its life insurance contracts and recognizes losses on those contracts for which estimated future claims costs and maintenance costs exceed the related
unearned premium.

F-13

---



3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Health Care Services and Other Benefits

Health care services and other benefits expense includes the costs of health care services, capitation expenses and expenses related to risk sharing agreements
with participating physicians, medical groups and hospitals and incurred losses on the disability and life products. The costs of health care services are accrued as services are rendered, including
an estimate for claims incurred but not yet reported.

Advertising Costs

The Company uses print and broadcast advertising to promote its products. The cost of advertising is expensed as incurred and totaled approximately
$59.6 million, $61.8 million and $40.8 million for the years ended December 31, 2001, 2000 and 1999, respectively.

Earnings per Share

Basic earnings per share is computed excluding the impact of potential common stock and earnings per share assuming full dilution is computed including the impact
of potential common stock.

Stock Split

On March 15, 2002, WellPoint effected a two-for-one split of the Company's Common Stock. The stock split was in the form of a stock
dividend of one additional share of WellPoint stock for each share held. Share and per share data for all periods presented herein have been adjusted to give effect to the stock split. Except for the
Consolidated Balance Sheets, Consolidated Statements of Changes in Stockholders' Equity and as noted otherwise, all per share, weighted average share amounts and other share related numbers have been
restated retroactively to reflect this stock split.

Stock-Based Compensation

The Company accounts for stock-based compensation using the intrinsic method. Accordingly, compensation cost for stock options under existing plans is measured as
the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock.

Comprehensive Income

Comprehensive income encompasses all changes in stockholders' equity (except those arising from transactions with stockholders) and includes net income and net
unrealized gains or losses on available-for-sale securities, foreign currency adjustments and adjustments to minimum pension liabilities. Comprehensive income is net of
reclassification adjustments to adjust for items currently included in net income, such as realized gains on investment securities.

Start-Up Costs

Effective January 1, 1999, the Company changed its method of accounting for start-up costs related to the Company's provider and sales network
development to comply with the AICPA Statement of Position No. 98-5, "Reporting on the Costs of Start-Up Activities." The change involves expensing

F-14

---

these costs as incurred, rather than capitalizing and subsequently amortizing such costs. The total amount of deferred start-up costs reported as a cumulative effect of a change in
accounting principle was $20.6 million, net of a tax benefit of $14.3 million, for the year ended December 31, 1999.

Reclassifications

Certain amounts in the prior years consolidated financial statements have been reclassified to conform to the 2001 presentation.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS No. 141"). SFAS No. 141 addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, "Business Combinations," and
FASB Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." Upon adoption of SFAS No. 141, all business combinations must be accounted for using the
purchase method. The use of the pooling of interests method is now prohibited. The provisions of the new standard apply to all business combinations initiated after June 30, 2001. The adoption
of SFAS No. 141 did not have a material effect on the financial statements of the Company.

In
June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 142
addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets." The new rules change the accounting
methodology for goodwill from a model that amortizes goodwill to one which evaluates it for impairment. Amortization of goodwill, including previously recorded goodwill, will end upon adoption of the
new rules. The new rules also eliminate amortization of other intangibles with indefinite useful lives, but these assets also will be subject to the impairment tests. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001. Based upon the Company's review of its operations conducted thus far, the accounting impact of SFAS No. 142 related
to goodwill amortization would increase the Company's net income by approximately $31.7 million on an annualized basis. The Company is in the process of completing the impairment tests for
goodwill and other intangible assets and based on current information, does not anticipate transitional impairment losses.

In
June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS
No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company will adopt SFAS No. 143 on January 1, 2003. The provisions
of SFAS No. 143 require companies to record an asset and related liability for the costs associated with the retirement of a long-lived tangible asset if a legal liability to retire
the asset exists. The Company is in the process of analyzing the provisions of SFAS No. 143; however, the effect of adoption is not expected to have a significant impact on the Company's
financial condition and results of operations.

In
October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"). SFAS No. 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001. This statement addresses financial accounting and reporting for the impairment or disposal of
long-lived

F-15

---

assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual, and Infrequently
Occurring Events and Transactions," for the disposal of a segment of business (as previously defined in that opinion). SFAS No. 144 retains the basic principles of SFAS No. 121 for
long-lived assets to be disposed of by sale or held and used and broadens discontinued operations presentation to include a component of an entity that is held for sale or that has been
disposed. Components must have operations and cash flows that can be clearly distinguished from the rest of the entity. The Company is in the process of analyzing the provisions of this statement. All
provisions of this statement will be effective in the first quarter of 2002. The adoption of this standard is not expected to have a significant impact on the Company's financial results.

4. INVESTMENTS

Investment Securities

The Company's investment securities consist of the following:

|                                    |                       | December 31, 2001          
|----------------------------------- | --------------------- | ---------------------------
|
|
|
|
|U.S. Treasury and agency securities |                       | $                          
|Municipal securities                |                       |                            
|Mortgage-backed securities          |                       |                            
|Corporate and other securities      |                       |                            
|                                    |                       |                            
|                                    | Total debt securities |                            
|Equity and other investments        |                       |                            
|                                    |                       |                            
|                                    |                       | Total investment securities
|                                    |                       |                            



|                                    |                       | December 31, 2000          
|----------------------------------- | --------------------- | ---------------------------
|
|
|
|
|U.S. Treasury and agency securities |                       | $                          
|Foreign government securities       |                       |                            
|Mortgage-backed securities          |                       |                            
|Corporate and other securities      |                       |                            
|                                    |                       |                            
|                                    | Total debt securities |                            
|Equity and other investments        |                       |                            
|                                    |                       |                            
|                                    |                       | Total investment securities
|                                    |                       |                            

F-16

---

The
amortized cost and estimated fair value of debt securities as of December 31, 2001, based on contractual maturity dates are summarized below (in thousands). Expected
maturities for mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

|                                       |  | Amortized
Cost |           | Estimated
Fair Value
|-------------------------------------- |  | -------------- | --------- | --------------------
|
|Due in one year or less                |  | $              | 80,050    |                     
|Due after one year through five years  |  |                | 1,374,080 |                     
|Due after five years through ten years |  |                | 867,976   |                     
|Due after ten years                    |  |                | 976,432   |                     
|                                       |  |                |           |                     
|Total debt securities                  |  | $              | 3,298,538 |                     
|                                       |  |                |           |                     

For
the years ended December 31, 2001, 2000 and 1999, proceeds from the sales and maturities of debt securities were $4,534.7 million, $2,760.8 million and
$2,713.8 million, respectively. For 2001, gross realized gains and gross realized losses from sales of debt securities were $54.2 million and $41.6 million, respectively. Gross
gains of $12.0 million and gross losses of $28.8 million were realized on the sales of debt securities for the year ended December 31, 2000. In 1999, gross realized gains and
gross realized losses from sales of debt securities were $16.2 million and $52.6 million, respectively.

For
the years ended December 31, 2001, 2000 and 1999, proceeds from the sales of equity securities were $168.4 million, $310.3 million and $262.4 million,
respectively. In 2001, gross realized gains and gross realized losses on the sales of equity securities were $6.4 million and $23.3 million, respectively. Gross gains of
$11.0 million and gross losses of $15.3 million were realized on the sales of equity securities in 2000. For 1999, gross realized gains and gross realized losses on the sales of equity
securities were $30.9 million and $26.5 million, respectively.

Securities
on loan under the Company's securities lending program are included in its cash and investment portfolio shown on the accompanying consolidated balance sheets. Under this
program, broker/dealers are required to deliver substantially the same security to the Company upon completion of the transaction. The balance of securities on loan as of December 31, 2001 and
2000 was $110.8 million and $101.9 million, respectively, and income earned on security lending transactions for the years ended December 31, 2001, 2000 and 1999 was
$0.3 million, $0.3 million and $0.6 million, respectively.

Long-term Investments

The Company's long-term investments consist of the following:

|                             |                             | December 31, 2001
|---------------------------- | --------------------------- | -----------------
|
|
|
|
|Mortgage-backed securities   |                             | $                
|Equity and other investments |                             |                  
|                             |                             |                  
|                             | Total long-term investments |                  
|                             |                             |                  



F-17

---



|                             |                             | December 31, 2000
|---------------------------- | --------------------------- | -----------------
|
|
|
|
|Mortgage-backed securities   |                             | $                
|Equity and other investments |                             |                  
|                             |                             |                  
|                             | Total long-term investments |                  
|                             |                             |                  

At
December 31, 2001 the Company's debt securities had contractual maturity dates: due in one through five years, amortized cost of $97.4 million and market value of
$100.1 million. Expected maturities for mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.

5. RECEIVABLES, NET

Receivables consist of the following:

|                                        |  | December 31,
|--------------------------------------- |  | ------------
|
|
|Premiums receivable                     |  | $           
|Investment income and other receivables |  |             
|                                        |  |             
|                                        |  |             
|Less: allowance for doubtful accounts   |  |             
|                                        |  |             
|Receivables, net                        |  | $           
|                                        |  |             

6. PROPERTY AND EQUIPMENT, NET

Property and equipment, at cost, consist of the following:

December 31,Useful Life

2001

2000(in thousands)Equipment

5 years

$
135,863

$
123,994Software

5 years


186,158


94,371Leasehold improvements

Term of Lease


75,630


67,931Furniture and fixtures

8 years


81,658


58,338Building

30 years


14,427


3,373Land




1,429


382495,165


348,389Less: accumulated depreciation and amortization




273,085


197,358Property and equipment, net



$
222,080

$
151,031


Depreciation
and amortization expense for the years ended December 31, 2001, 2000 and 1999 was $45.4 million, $38.5 million and $39.3 million, respectively.

F-18

---



7. INTANGIBLE ASSETS AND GOODWILL

The intangible asset balance consists of the following components:

December 31,2001

2000(in thousands)Employer group relationships

$
282,148

$
160,609Tradenames and trademarks


135,000


Self-developed software


27,280


7,280Provider contracts


23,378


13,247Miscellaneous intangible assets


10,495


11,197478,301


192,333Less: accumulated amortization


47,813


27,169Intangible assets, net

$
430,488

$
165,164


The
goodwill balance consists of the following components:

December 31,2001

2000(in thousands)Goodwill

$
778,407

$
492,804Less: accumulated amortization


117,061


74,684Goodwill, net

$
661,346

$
418,120


In
May 1999, the Company entered into an agreement with Omni Healthcare ("Omni"), a Sacramento, California-based health plan to transition Omni members to the Company's Blue Cross
of California subsidiary. The Company paid $7.7 million, subject to adjustment, in exchange for Omni's cooperation in transferring its approximately 124,000 members. The entire amount has been
allocated to intangible assets and was originally being amortized over 3 years. During the second quarter of 2000, the Company re-evaluated the useful life of intangible assets
related to its acquisition of Omni and reduced its related useful life to 1.5 years.

On
March 1, 2000, the Company completed its acquisition of Rush Prudential Health Plans ("Rush Prudential"), which was valued at approximately $202.6 million, subject to
certain post-closing adjustments. This acquisition generated goodwill and other intangibles of $135.8 million and $79.7 million, respectively. (See Note 2 for a more
complete discussion of this acquisition).

On
March 15, 2001, the Company completed its acquisition of Cerulean Companies, Inc. ("Cerulean") for $700.0 million. This estimated purchase price allocation
between goodwill and other intangibles was
$282.7 million and $290.0 million, respectively. (See Note 2 for a more complete discussion of this acquisition). Goodwill and other intangibles are being amortized on a
straight-line basis ranging from 15 to 25 years for goodwill and ranging from three to 40 years for other intangible assets.

Amortization
charged to operations was $63.1 million, $38.1 million and $25.5 million for the years ended December 31, 2001, 2000 and 1999, respectively.

F-19

---

8. LONG-TERM DEBT

63/8% Notes due 2006

On June 15, 2001, the Company issued $450.0 million aggregate principal amount at maturity of 63/8% Notes due June 15, 2006
(the "2001 Notes"). The net proceeds of this offering totaled approximately $449.0 million. The net proceeds from the sale of the 2001 Notes were used for repayment of indebtedness under the
Company's revolving credit facilities. The 2001 Notes bear interest at a rate of 63/8% per annum, payable semi-annually in arrears on June 15 and December 15
of each year commencing December 15, 2001. Interest is computed on the basis of a 360-day year of twelve 30-day months. At December 31, 2001, the Company had
$449.1 million (based upon the principal amount of $450.0 million less discount) of 2001 Notes outstanding and the related interest expense for 2001 totaled $16.4 million.

The
2001 Notes may be redeemed, in whole or in part, at the Company's option at any time. The redemption price for any 2001 Notes redeemed will be equal to the greater of the following
amounts: 1) 100% of the principal amount of the 2001 Notes being redeemed on the redemption date; and 2) the sum of the present values of the remaining scheduled payments of principal
and interest on the 2001 Notes being redeemed on that redemption date (not including any portion of any payments of interest accrued to the redemption date) discounted to the redemption date on a
semiannual basis at the Treasury rate as determined by the designated Reference Treasury Dealer (Salomon Smith Barney Inc. or UBS Warburg LLC or their respective successors), plus 25 basis
points. In each case, the redemption price will also include accrued and unpaid interest on the 2001 Notes to the redemption date.

The
2001 Notes are unsecured obligations and rank equally with all of the Company's existing and future senior unsecured indebtedness. All existing and future liabilities of the
Company's subsidiaries are and will be effectively senior to the 2001 Notes. The indenture governing the 2001 Notes contains a covenant that limits the Company's ability and that of the Company's
subsidiaries to create liens on Company property or assets to secure certain indebtedness without also securing the 2001 Notes.

Revolving Credit Facility

Effective as of March 30, 2001, the Company entered into two new unsecured revolving credit facilities allowing aggregate indebtedness of
$1.0 billion. Upon execution of these facilities, the Company terminated its prior $1.0 billion unsecured revolving facility. Borrowings under these facilities, which are generally
referred to collectively in this Annual Report on Form 10-K as the Company's "revolving credit facility," bear interest at rates determined by reference to the bank's base rate or
to the London Inter Bank Offered Rate ("LIBOR") plus a margin determined by reference to the then-current rating of the Company's unsecured long-term debt by specified rating
agencies. One facility, which provides for borrowings of up to $750.0 million, expires as of March 30, 2006, although it may be extended for up to two additional one-year periods
under certain circumstances. The other facility, which provides for borrowings of up to $250.0 million, expires as of March 30, 2002. Any amount outstanding under this facility as of
March 29, 2002 may be converted into a one-year term loan at the option of the Company. In March 2002, the Company amended this facility to provide for a one year extension with an
expiration date of March 28, 2003. Borrowings under the facilities are made on a committed basis or, in the case of the $750.0 million facility, pursuant to an auction bid process. The
$750.0 million facility also contains sublimits for letters of credit and "swingline" loans. Each credit agreement requires the Company to maintain certain financial ratios and contains
restrictive

F-20

---

convenants, including restrictions on the occurrence of additional indebtedness and the granting of certain liens, limitations on acquisitions and investments and limitations on changes in control.
The total amount outstanding under these facilities was $235.0 million as of December 31, 2001. The total amount outstanding under the Company's prior revolving credit facility was
$250.0 million as of December 31, 2000.

The
agreement provides for interest on committed advances at rates determined by reference to the bank's base rate or to the London Interbank Offered Rate ("LIBOR") plus a margin
determined by reference to the Company's leverage ratio (as defined in the credit agreement) or the then-current rating of the Company's unsecured long-term debt by specified
rating agencies. Interest is determined using whichever of these methods is the most favorable to the Company. The effective interest rates were 2.76% and 6.87% at December 31, 2001 and 2000,
respectively. Borrowings under the credit facility are made on a committed basis or pursuant to an auction-bid process. A facility fee based on the facility amount, regardless of
utilization, is payable quarterly. The facility fee rate is also determined by the unsecured debt ratings or the leverage ratio of the Company.

Zero Coupon Convertible Subordinated Debentures

On July 2, 1999, the Company issued $299.0 million aggregate principal amount at maturity of zero coupon convertible subordinated debentures due
2019 (the "Debentures"). The proceeds totaled approximately $200.8 million. The Debentures accrue interest at a yield to maturity of 2.0% per year compounded semi-annually. Holders
have the option to convert the Debentures into the Company's Common Stock at any time prior to maturity at a rate of 13.594 shares per $1,000 principal amount at
maturity. In lieu of delivering shares of common stock upon conversion of any Debentures, the Company may elect to pay cash for the Debentures in an amount equal to the last reported sales price of
its Common Stock on the trading day preceding the conversion date. The Debentures are subordinate in right of payment to all existing and future senior indebtedness.

On
October 6, 1999, the Board of Directors authorized the repurchase of some or all of the Company's Debentures for cash. The Company did not repurchase any Debentures during the
years ended December 31, 2001 and 2000. During the year ended December 31, 1999, the Company repurchased $81.0 million in aggregate principal amount at maturity of the Debentures
at a total purchase price of $49.8 million. The gain on such repurchase is shown on the Company's income statement as an extraordinary gain, net of applicable tax.

As
of December 31, 2001 and 2000, the Company had $153.9 million and $150.9 million (based upon the original issue price plus accreted interest), respectively, of
Debentures outstanding. For the years ended December 31, 2001 and 2000, the Company accrued $3.0 million and $3.1 million, respectively, of interest related to the Debentures.

Maturities

At December 31, 2001, the Company's long-term debt maturities were as follows: 2002zero; 2003$35 million;
2004zero; 2005zero; 2006$650 million; 2019$218 million.

F-21

---

Debt Covenants

The Company's revolving credit facility requires the maintenance of certain financial ratios and contains other restrictive covenants, including restrictions on
the occurrence of additional indebtedness and the granting of certain liens, limitations on acquisitions and investments and limitations on changes in control. As of December 31, 2001, the
Company was in compliance with the requirements in these agreements.

Interest Rate Swaps

As described in Note 15, as of December 31, 2001, the Company was a party to two separate interest rate swap agreements, which convert underlying
variable-rate debt into fixed-rate debt.

Interest Paid

Interest paid on long-term debt for the years ended December 31, 2001, 2000 and 1999 was $43.0 million, $21.5 million and
$22.1 million, respectively.

F-22

---



9. INCOME TAXES

The components of the provision (benefit) for income taxes are as follows:

Year Ended December 31,2001

2000

1999(in thousands)Current:Federal

$
224,380

$
226,606

$
106,036State


43,541


56,608


42,987267,921


283,214


149,023Deferred:Federal


13,180


(54,552
)

43,968State


2,735


(8,383
)

(2,881
)15,915


(62,935
)

41,087Valuation allowance





1,747


Provision for income taxes

$
283,836

$
222,026

$
190,110


The
overall effective tax rate differs from the statutory federal tax rate as follows (percent of pretax income from continuing operations):

Year Ended December 31,2001

2000

1999Tax provision based on the federal statutory rate

35.0
%
35.0
%
35.0
%State income taxes, net of federal benefit

4.3

5.6

5.3Non-deductible expenses/non-taxable items

1.2

(0.1
)
(0.4
)Change in valuation allowance



0.3

Other, net

0.1

(1.5
)
(0.9
)Effective tax rate

40.6
%
39.3
%
39.0
%


F-23

---

Net
deferred tax assets are comprised of the following:

|                                |                                           | December 31,                         |        
|------------------------------- | ----------------------------------------- | ------------------------------------ | -------
|
|
|Gross deferred tax assets:      |                                           |                                      |        
|                                | Net operating loss                        |                                      | $      
|                                | Investment basis difference               |                                      |        
|                                | Vacation and holiday accruals             |                                      |        
|                                | Incurred claim reserve discounting        |                                      |        
|                                | Provision for doubtful accounts           |                                      |        
|                                | Unearned premium reserve                  |                                      |        
|                                | State income taxes                        |                                      |        
|                                | Postretirement benefits                   |                                      |        
|                                | Deferred gain on building                 |                                      |        
|                                | Deferred compensation                     |                                      |        
|                                | Expenses not currently deductible         |                                      |        
|                                | Intangible asset impairment               |                                      |        
|                                | Capital loss carryover                    |                                      |        
|                                | Start-up costs                            |                                      |        
|                                | Deferred acquisition costs                |                                      |        
|                                | Other, net                                |                                      |        
|                                |                                           |                                      |        
|                                |                                           | Total gross deferred tax assets      |        
|                                |                                           |                                      |        
|Gross deferred tax liabilities: |                                           |                                      |        
|                                | Market valuation on investment securities |                                      |        
|                                | Depreciation and amortization             |                                      |        
|                                | Investment basis difference               |                                      |        
|                                | Internally developed software             |                                      |        
|                                | Purchased intangibles                     |                                      |        
|                                | Lease expense                             |                                      |        
|                                | Other, net                                |                                      |        
|                                |                                           |                                      |        
|                                |                                           | Total gross deferred tax liabilities |        
|                                |                                           |                                      |        
|Valuation allowance:            |                                           |                                      |        
|                                | Net operating loss carryover              |                                      |        
|                                | Capital loss carryover                    |                                      |        
|                                |                                           |                                      |        
|                                |                                           |                                      | (3,703 
|                                |                                           |                                      |        
|Net deferred tax assets         |                                           | $                                    | 133,549
|                                |                                           |                                      |        

In
connection with the acquisition of Cerulean, the Company acquired $112.8 million deferred tax liabilities and $72.0 million net deferred tax assets. The net result was
an increase to goodwill of $40.8 million. In connection with the acquisition of Rush Prudential, the Company acquired $32.3 million deferred tax liabilities and $7.4 million net
deferred tax assets. The net result was an

F-24

---

increase to goodwill of approximately $24.9 million, which included a valuation allowance for certain operating loss carryforwards acquired in such transaction.

As
of December 31, 2001, the Company had $5.5 million of federal net operating loss carryforwards acquired from Cerulean and $9.6 million of federal net operating loss
carryforwards acquired from Rush Prudential. In addition, the Company's $16.6 million of Illinois net operating loss carryforward acquired from Rush Prudential was completely utilized during
the year ended December 31, 2001. As a result, management reduced the valuation allowance from $4.3 million to $1.3 million and recorded the change as a reduction to goodwill. The
federal carryforward begins to expire in 2014.

As
of December 31, 2001, the Company has a state capital loss carryforward of $98.0 million. The Company established a valuation allowance of $2.4 million related to this
carryforward. Management believes it is more likely than not that the recorded deferred tax assets, net of the valuation allowance, will be realized. The state carryforward begins to expire in 2003.
As of December 31, 2001, the Company utilized its entire federal capital loss carryforward.

During
2001, the Internal Revenue Service ("IRS") completed its examination of the Company's consolidated federal income tax returns for 1992 through 1994. The settlement of the audit
had no material impact on the financial position or results of operations. The IRS has begun its audit of tax years 1995 through 1998. The results of this audit are not expected to have a material
impact on the Company's financial position or results of operations.

Income
taxes paid (refunded) for the years ended December 31, 2001, 2000 and 1999 were $222.5 million, $283.8 million and ($57.0) million, respectively.

10. PENSION AND POSTRETIREMENT BENEFITS

Pension Benefits

The Company covers substantially all employees through two non-contributory defined benefit pension plans. The Restated Employees' Retirement Plan of
Blue Cross of California covers employees of a bargaining unit. The WellPoint Pension Accumulation Plan, which was established on January 1, 1987, covers all eligible employees (employees
covered under a collective bargaining agreement participate if the terms of the collective bargaining agreement permits) meeting certain age and service requirements. Plan assets are invested
primarily in pooled income funds. The Company's policy is to fund its plans according to the applicable Employee Retirement Income Security Act of 1974 and income tax regulations. The Company uses the
projected unit credit method of cost determination.

In
conjunction with the acquisition of Cerulean on March 15, 2001, the Company's Board of Directors approved the merger of Cerulean's Non-Contributory Retirement
Program for Certain Employees of Blue Cross and Blue Shield of Georgia, Inc. into the WellPoint Pension Accumulation Plan.

F-25

---

The
funded status of the plans is as follows:

December 31,2001

2000(In thousands)Change in Benefit ObligationBenefit obligation at beginning of year

$
86,680

$
77,656Service cost


10,987


8,008Interest cost


10,353


6,456Actuarial (gain) loss


13,699


(59
)Acquisitions


65,814


Benefits paid


(12,178
)

(5,381
)Benefit obligation at end of year

$
175,355

$
86,680Change in Plan AssetsFair value at beginning of year

$
72,180

$
72,128Actual return on fair value


(5,028
)

(3,206
)Employer contributions


24,455


8,639Acquisitions


65,770


Benefits paid


(12,178
)

(5,381
)Fair value at end of year

$
145,199

$
72,180Funded status

$
(30,156
)
$
(14,500
)Unrecognized prior service cost


377


424Unrecognized actuarial loss


48,037


20,252Net amount recognized

$
18,258

$
6,176


Amounts
recognized in the Consolidated Balance Sheets consists of:

December 31,2001

2000(In thousands)Prepaid benefit cost

$
18,258

$
6,176Additional minimum liability


(38,523
)

Intangible asset


377


Accumulated other comprehensive income


38,146


Net amount recognized

$
18,258

$
6,176


F-26

---

As
of December 31, 2001 and December 31, 2000 the Company's Pension Accumulation Plan had accumulated benefits in excess of plan assets as follows:

December 31,2001

2000(In thousands)Projected benefit obligation

$
163,386

$
78,771Accumulated benefit obligation


156,510


73,350Fair value of assets


133,758


61,870Weighted Average AssumptionsDiscount rate


7.25
%

7.75
%Expected return on plan assets


9.50
%

9.50
%Rate of compensation increases


4.50
%

5.00
%


Net
periodic pension expense for the Company's defined benefit pension plans includes the following components:

Year Ended December 31,2001

2000

1999(In thousands)Service costbenefits earned during the year

$
10,987

$
8,008

$
8,117Interest cost on projected benefits obligations


10,353


6,456


5,583Expected return on plan assets


(10,736
)

(6,946
)

(6,603
)Amortization of prior service cost


47


15


14Recognized net actuarial loss


1,677


286


81Net periodic pension expense

$
12,328

$
7,819

$
7,192


The
Company sponsors the WellPoint 401(k) Retirement Savings Plan (the "401(k) Plan"). Generally, employees (excluding temporary employees working less than 1,000 hours and leased
employees) over 18 years of age are eligible to participate in the 401(k) Plan if they meet certain length of service requirements. Under this plan, employees may contribute a percentage of
their pre-tax earnings to the 401(k) Plan. After one year of service, employee contributions up to 6% of eligible compensation are matched by an employer contribution equal to 75% on the
employee's contribution. Matching contributions are immediately vested. One third of the employer contribution is in the Company's Common Stock. As of December 31, 2001, employees were
prohibited from transferring the Company's match received in the form of Common Stock until the calendar year following receipt of such Company match. Effective March 1, 2002, the 401(k) Plan
was amended to remove this restriction. The 401(k) Plan includes a grandfather match provision whereby the employer contribution is 85% for those employees with 10 to 19 years of service as of
January 1, 1997 and 100% for those employees with 20 years or more of service as of such date. Company expense related to the 401(k) Plan totaled $20.2 million,
$16.5 million and $15.9 million for the years ended December 31, 2001, 2000 and 1999, respectively. In conjunction with the acquisition of Cerulean on March 15, 2001, the
Company's Board of Directors approved the merger of Cerulean's Blue Cross and Blue Shield of Georgia, Inc. Savings Program into the Company's 401(k) Plan.

F-27

---

Postretirement Benefits

The Company currently provides certain health care and life insurance benefits to eligible retirees and their dependents. Employees outside of California and
certain employees in California acquired as a result of the acquisitions and all employees hired, rehired or reinstated after January 1, 1997 are not covered under the Company's postretirement
benefit plan. All eligible employees in Georgia acquired as a result of the Cerulean acquisition will continue to be covered under the Cerulean Defined Dollar Benefit Plan ("DDB Plan"). Blue Cross
Blue Shield of Georgia employees hired, rehired or reinstated after March 15, 2001 are not eligible to be covered under the Cerulean DDB Plan or any WellPoint retiree plan. All other Company
employees are fully eligible for retiree benefits upon attaining 10 years of service and a minimum age of 55. The plan, in effect for those retiring prior to September 1, 1994, provides
for Company-paid life insurance for all retirees based on age and a percent of salary. In addition, the majority of retirees from age 62 or greater currently receive fully paid health
benefit coverage for themselves and their dependents. For employees retiring on or after September 1, 1994, the Company currently subsidizes health benefit coverage based on the retiree's years
of service at retirement and date of hire. Life insurance benefits for retirees hired on or after May 1, 1992 are set at $10,000 upon retirement and are reduced to $5,000 at age 70.

The
accumulated postretirement benefit obligation ("APBO") and the accrued postretirement benefits as of December 31, 2001 and 2000 are as follows:

December 31,2001

2000(in thousands)Benefit obligation at the beginning of the year

$
59,291

$
54,932Service cost


2,312


1,520Interest cost


5,950


4,234Actuarial (gain) loss


9,711


1,063Acquisitions


19,568


Benefits paid


(3,564
)

(2,458
)Accumulated postretirement benefits obligation


93,268


59,291Unrecognized net gain from accrued postretirement benefit cost


856


12,219Accrued postretirement benefits

$
94,124

$
71,510


The
Company currently pays for its postretirement benefit obligations as they are incurred. As such, there are no plan assets.

The
above actuarially determined APBO was calculated using a discount rate of 7.25% and 7.75% for 2001 and 2000, respectively. The original medical trend rate assumed a decline from 7.0%
(under age 65) and 6.5% (age 65 and over) for 2001 to 6.0% by the year 2002. This medical trend rate was re-evaluated and modified to 10.0% for the year 2002 with a gradual decline
to 5.0% by the year 2007. These estimated trend rates are subject to change in the future. The medical trend rate assumption has a significant effect on the amounts reported. For example, an increase
in the assumed health care trend rate of one percent in each year would increase the APBO as of December 31, 2001 by $8.5 million and would increase service and interest costs by
$1.0 million. Conversely, a decrease in the assumed health care trend rate of one percent in each year would decrease the APBO as of December 31, 2001 by
$7.6 million and would decrease service and interest costs by $0.9 million. For life insurance benefit calculations, a compensation increase of 4.5% was assumed.

F-28

---



10. PENSION AND POSTRETIREMENT BENEFITS (Continued)

Net
periodic postretirement benefit cost includes the following components (in thousands):

Year Ended December 31,2001

2000

1999Service cost

$
2,312

$
1,520

$
1,650Interest cost


5,950


4,234


3,933Net amortization and deferral


(213
)

(689
)

(418
)Net periodic postretirement benefit cost

$
8,049

$
5,065

$
5,165


11. COMMON STOCK

Stock Option Plans

In 1996, the Company adopted an Employee Stock Option Plan (the "Employee Option Plan"). In May 1996, all eligible employees were granted options to
purchase common stock under the Employee Option Plan. The exercise price of options granted under the Employee Option Plan is the fair market value of the Common Stock on the date of the grant. Each
option granted has a maximum term of 10 years. Options granted under the Employee Option Plan vest in accordance with the terms of the applicable grant.

In
1996, the Company also implemented a Stock Option/Award Plan (the "Stock Option/Award Plan") for key employees, officers and directors. The exercise price per share is fixed by a
committee appointed by the Board of Directors to administer the Stock Option/Award Plan, but for any incentive stock option, the exercise price will not be less than the fair market value on the date
of grant. The maximum term for an option is ten years. Options granted will vest in accordance with the terms of each grant. The Stock Option/Award Plan also allows the grant or award of restricted
stock, performance units and phantom stock.

On
May 11, 1999, the stockholders of the Company approved a new Stock Incentive Plan (the "Plan") for key employees, officers and directors. This new plan serves as the successor
to the Company's Stock Option/Award Plan and Employer Stock Option Plan (the "Predecessor Plans"). All options granted under the Predecessor Plans and outstanding on the Plan's effective date were
incorporated into the Plan and treated as outstanding awards under the Plan. The exercise price is determined by the plan administrator; however, it will generally not be less than the fair market
value on the date of grant. The maximum term for an option is ten years. Options granted will vest in accordance with the terms of each grant. The Plan also allows the grant or award of restricted
stock, performance units and phantom stock. As of December 31, 2001 the maximum number of shares issuable under the Plan, subject to subsequent adjustments for certain changes in the Company's
capital structure, was 14.6 million.

Effective
as of February 17, 2000, the Company adopted the 2000 Employee Stock Option Plan (the "2000 Employee Plan") for employees and non-executive officers of the
Company. The exercise price and maximum term of any stock option granted under the 2000 Employee Plan are determined by the plan administrator. Options granted will vest in accordance with the terms
of each grant. As of December 31, 2001, the maximum number of shares issuable under the 2000 Employee Plan, subject to subsequent adjustments for certain changes in the Company's capital
structure, was 9.0 million shares.

F-29

---

The
following summarizes activity in the Company's stock option plans for the years ended December 31, 2001, 2000 and 1999:

Shares

Weighted Average
Exercise Price
Per ShareOutstanding at January 1, 1999

8,998,476

22.12Granted

3,915,210

36.93Canceled

(283,208
)
26.29Exercised

(2,028,958
)
19.54Outstanding at December 31, 1999

10,601,520

27.97Granted

4,370,190

36.11Canceled

(497,882
)
33.73Exercised

(3,821,630
)
23.21Outstanding at December 31, 2000

10,652,198

32.73Granted

7,293,674

47.25Canceled

(835,604
)
42.41Exercised

(2,402,460
)
31.97Outstanding at December 31, 2001

14,707,808

39.45Exercisable at:December 31, 1999

4,928,650

23.96December 31, 2000

4,924,224

30.99December 31, 2001

5,993,936

34.02


The
options outstanding at December 31, 2001 had exercise prices ranging from $13.43 to $61.82 per share.

Options Outstanding

Options ExercisableActual Range
of Exercise Prices

Number
Outstanding
at 12/31/01

Weighted Average
Remaining
Contractual Life

Weighted
Average
Exercise Price

Number
Outstanding
at 12/31/01

Weighted
Average
Exercise Price$13.43 - 19.84

1,175,998

4.3

$
19.12

1,175,998

$
19.12$22.78 - 33.82

1,366,140

6.1

$
28.43

1,356,952

$
28.40$34.19 - 51.25

11,375,568

8.3

$
41.78

2,810,052

$
37.96$51.51 - 61.82

790,102

7.0

$
55.29

650,934

$
55.6214,707,808

7.7

$
39.45

5,993,936

$
34.02


Stock Purchase Plan

On May 18, 1996, the Company's stockholders approved the Company's Employee Stock Purchase Plan (the "ESPP"). The stockholders approved an amendment and
restatement of the ESPP on May 9, 2000. The ESPP allows eligible employees to purchase Common Stock at the lower of 85% of the market price of the stock at the beginning or end of each offering
period. The aggregate amount of Common Stock that may be issued pursuant to the ESPP shall not exceed 2,800,000 shares, subject to adjustment pursuant to the terms of the ESPP. During the years ended
December 31, 2001, 2000 and 1999, approximately 218,000, 222,800, and 186,800 shares of Common Stock were purchased under the ESPP. There are offering periods for the first half and second half
of the year and accordingly, two

F-30

---

purchase prices. For the year ended December 31, 2001, the purchase prices were $40.05 and $39.74 per share. For the year ended December 31, 2000, the purchase prices were $28.05 and
$30.84 per share. For the year ended December 31, 1999, the purchase prices were $36.07 and $28.03 per share.

SFAS No. 123 Disclosure

In accordance with the provisions of SFAS No. 123, the Company applies APB Opinion No. 25 and related interpretations in accounting for its stock
option plans and, accordingly, does not recognize compensation cost. If the Company had elected to recognize the compensation cost based on the fair value of the options granted at grant date as
prescribed by SFAS No. 123, net income and earnings per share for the years ended December 31, 2001, 2000 and 1999 would have been reduced to the pro forma amounts indicated in the table
which follows:

|                                                      |  | 2001 |       | 2000 |   | 1999 
|----------------------------------------------------- |  | ---- | ----- | ---- | - | -----
|
|Net incomeas reported                                |  | $    | 414.7 |      | $ | 342.3
|Net incomepro forma                                  |  | $    | 381.7 |      | $ | 315.7
|Earnings per shareas reported                        |  | $    | 3.27  |      | $ | 2.74 
|Earnings per sharepro forma                          |  | $    | 3.01  |      | $ | 2.52 
|Earnings per share assuming full dilutionas reported |  | $    | 3.15  |      | $ | 2.64 
|Earnings per share assuming full dilutionpro forma   |  | $    | 2.90  |      | $ | 2.44 



2001

Officers

EmployeesAssumptionsExpected dividend yield



Risk-free interest rate

4.66%

4.53%Expected stock price volatility

35.00%

35.00%Expected life of options

four years

three years




2000

Officers

EmployeesAssumptionsExpected dividend yield



Risk-free interest rate

6.38%

6.37%Expected stock price volatility

40.00%

40.00%Expected life of options

four years

three years




1999

Officers

EmployeesAssumptionsExpected dividend yield



Risk-free interest rate

5.02%

4.86%Expected stock price volatility

38.00%

38.00%Expected life of options

four years

three years


The
above pro forma disclosures may not be representative of the effects on reported pro forma net income for future years. The weighted average fair value of options granted during
2001, 2000 and 1999 is $14.46, $13.09, and $11.88 per share, respectively.

F-31

---

Treasury Stock

As of December 31, 2001, the Company was authorized to repurchase approximately 25.4 million shares of its Common Stock. As of December 31,
2001, 20.8 million shares of Common Stock had been repurchased pursuant to this authorization.

12. EARNINGS PER SHARE

The following is an illustration of the dilutive effect of the Company's potential Common Stock on earnings per share ("EPS"). There were no antidilutive
securities in any of the three periods presented.

|                                                                                     |  | Year Ended December 31, |        
|------------------------------------------------------------------------------------ |  | ----------------------- | -------
|
|
|Basic Earnings Per Share Calculation:                                                |  |                         |        
|Numerator                                                                            |  |                         |        
|Income before extraordinary gain and cumulative effect of accounting change          |  | $                       | 414,746
|Extraordinary gain from early extinguishment of debt, net of tax                     |  |                         |       
|Cumulative effect of accounting change, net of tax                                   |  |                         |       
|                                                                                     |  |                         |        
|Net Income                                                                           |  | $                       | 414,746
|                                                                                     |  |                         |        
|Denominator                                                                          |  |                         |        
|Weighted average shares outstanding                                                  |  |                         | 126,851
|                                                                                     |  |                         |        
|Earnings Per Share                                                                   |  |                         |        
|Income before extraordinary gain and cumulative effect of accounting change          |  | $                       | 3.27   
|Extraordinary gain from early extinguishment of debt, net of tax                     |  |                         |       
|Cumulative effect of accounting change, net of tax                                   |  |                         |       
|                                                                                     |  |                         |        
|Net Income                                                                           |  | $                       | 3.27   
|                                                                                     |  |                         |        
|Earnings Per Share Assuming Full Dilution Calculation:                               |  |                         |        
|Numerator                                                                            |  |                         |        
|Income before extraordinary gain and cumulative effect of accounting change          |  | $                       | 414,746
|Interest expense on zero coupon convertible subordinated debentures, net of tax      |  |                         | 1,880  
|                                                                                     |  |                         |        
|Adjusted income before extraordinary gain and cumulative effect of accounting change |  |                         | 416,626
|Extraordinary gain from early extinguishment of debt, net of tax                     |  |                         |       
|Cumulative effect of accounting change, net of tax                                   |  |                         |       
|                                                                                     |  |                         |        
|Adjusted Net Income                                                                  |  | $                       | 416,626
|                                                                                     |  |                         |        
|Denominator                                                                          |  |                         |        
|Weighted average shares outstanding                                                  |  |                         | 126,851
|Net effect of dilutive stock options                                                 |  |                         | 2,608  
|Assumed conversion of zero coupon convertible subordinated debentures                |  |                         | 2,963  
|                                                                                     |  |                         |        
|Diluted weighted average shares outstanding                                          |  |                         | 132,422
|                                                                                     |  |                         |        
|Earnings Per Share Assuming Full Dilution                                            |  |                         |        
|Income before extraordinary gain and cumulative effect of accounting change          |  | $                       | 3.15   
|Extraordinary gain from early extinguishment of debt, net of tax                     |  |                         |       
|Cumulative effect of accounting change, net of tax                                   |  |                         |       
|                                                                                     |  |                         |        
|Net Income                                                                           |  | $                       | 3.15   
|                                                                                     |  |                         |        

F-32

---

13. LEASES

Effective January 1, 1996, the Company entered into a new lease agreement for a 24-year period for its former corporate headquarters, expiring
in December 2019, with two options to extend the term for up to two additional five-year terms. In addition to base rent, beginning in January 1997, the Company must pay a
contingent amount based upon annual changes in the consumer price index. The Company paid $30 million to the owner of the building in connection with this lease agreement which is being
amortized on a straight-line basis over the life of the new lease.

The
Company's other lease terms range from one to 19 years with certain options to renew. Certain lease agreements provide for escalation of payments which are based on
fluctuations in certain published cost-of-living indices.

Future
minimum rental payments under operating leases utilized by the Company having initial or remaining noncancellable lease terms in excess of one year at December 31, 2001 are
as follows:

Year Ending December 31, (In thousands)

Operating Leases2002

$
89,6352003


71,4752004


49,0012005


37,7372006


29,640Thereafter


245,610Total minimum payments required

$
523,098


Rental
expense for the years ended December 31, 2001, 2000 and 1999 for all operating leases was $66.3 million, $47.5 million and $41.8 million, respectively.
Contingent rentals included in the above rental expense for the years ended December 31, 2001, 2000 and 1999 were $1.5 million, $1.2 million and $0.9 million, respectively.

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:



F-33

---



The
carrying amounts and estimated fair values of the Company's financial instruments as of December 31, 2001 are summarized below:

Carrying
Amount

Estimated
Fair Value(In thousands)Cash and cash equivalents

$
1,028,476

$
1,028,476Investment securities


3,832,982


3,832,982Long-term investments


124,611


124,611Revolving credit facility


235,000


235,000Zero Coupon Convertible Subordinated Debentures


153,887


185,28063/8% Notes Due 2006


449,070


458,955Interest rate swaps


(14,085
)

(14,558
)Forward exchange contracts


775


775


15. HEDGING ACTIVITIES

In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133, as amended by SFAS Nos. 137 and 138, establishes the accounting and reporting standards for derivative
instruments and for hedging activities. Upon adoption of SFAS No. 133, all derivatives must be recognized on the balance sheet at their then fair value. Any deferred gains and losses remaining
on the balance sheet under previous hedge-accounting rules must be removed from the balance sheet and all hedging relationships must be designated anew and documented pursuant to the new accounting.
The Company adopted SFAS No. 133 on January 1, 2001.

The
Company maintains an interest rate risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by interest rate
volatility. The Company's goal is to maintain a balance between fixed and floating interest rates on its long-term debt.

By
using derivative financial instruments to hedge exposures to changes in exchange rates and interest rates, the Company exposes itself to credit risk and market risk. Market risk is
the adverse effect on the value of a financial instrument that results from a change in currency exchange rates or interest rates. The Company manages exposure to market risk associated with interest
rate and foreign exchange contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

F-34

---



15. HEDGING ACTIVITIES (Continued)

The
Company uses interest rate swap agreements and foreign currency contracts to manage interest rate and foreign currency exposures. The principal objective of such contracts is to
minimize the risks and/or costs associated with financial and investing activities. The Company does not use derivative financial instruments for speculative purposes. The counterparties to these
contractual arrangements are major financial institutions with which the Company also has other financial relationships. These counterparties expose the Company to credit loss in the event of non
performance. However, the Company does not anticipate non performance by the other parties.

Fair Value Hedges

As part of the Company's investment strategy to diversify its investment portfolio, the Company has invested in certain fixed maturity securities denominated in
foreign currencies. In order to mitigate the foreign currency risk, the Company has entered into foreign currency derivative instruments. Gains and losses related to such instruments are recognized in
the Company's income statement. The Company recognized a gain of $0.5 million and losses of $0.5 million and $1.9 million from such hedging activities for the years ended
December 31, 2001, 2000 and 1999, respectively. As of December 31, 2001, the Company had liquidated its non-dollar foreign bond holdings and, as a result, entered into a
hedge to offset the remaining currency hedge.

The
transition provisions of SFAS No. 133 state that any gain or loss previously reported in accumulated other comprehensive income on a derivative that hedged an
available-for-sale security, together with the gain or loss on the related security shall be reclassified to earnings as a cumulative effect type adjustment of both net income
and accumulated other comprehensive income. On January 1, 2001, the Company recorded a transition adjustment as a charge to other income of approximately $0.3 million,
net of tax, which represented a gain of $2.0 million on the available-for-sale bonds related to the Company's foreign exchange contracts partially offset by a loss of
$1.7 million on the related hedges.

For
the year ended December 31, 2001, the Company recognized a net loss of $1.2 million, included in other income on the consolidated income statement, which represented
the ineffective portion of all the Company's fair value hedges. All components of each derivative's gain or loss were included in the assessment of hedge effectiveness.

Cash Flow Hedges

The Company uses interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate debt under its revolving credit facility.
The swap agreements are contracts to exchange variable-rate for fixed-rate interest payments without the exchange of the underlying notional amounts. During the year ended
December 31, 2001, the Company recognized a net gain of $0.1 million reported in other income in the consolidated income statement, which represented the total ineffectiveness of all
cash flow hedges.

The
adoption of SFAS No. 133 resulted in an after-tax reduction in accumulated other comprehensive income of $4.2 million to recognize at fair value all
derivatives that were designated as cash flow hedges as of January 1, 2001.

Events
that are expected to occur over the next 12 months and will necessitate reclassifying the derivative losses into earnings relate primarily to the repricing of variable rate
debt. The Company does

F-35

---

not expect that the amounts that will be reclassified will be material to the Company's financial condition or results of operations.

As
of December 31, 2001 the Company had the following interest rate swap agreements in effect (notional amount in thousands):

Notional Amount

Strike Rate

Expiration Date$150,000

6.99
%
October 17, 2003$50,000

7.06
%
October 17, 2006


As
of December 31, 2001, the Company had recognized net derivative liabilities related to such interest rate swap agreements and foreign currency contracts of
$13.3 million.

16. CONTINGENCIES

From time to time in the ordinary course of business, the Company and certain of its subsidiaries are parties to various legal proceedings, many of which involve
claims for coverage. The Company, like HMOs and health insurers generally, excludes certain health care services from coverage under its HMO, PPO and other plans. The Company is, in its ordinary
course of business, subject to the claims of its enrollees arising out of decisions to restrict reimbursement for certain services. The loss of even one such claim, if it results in a significant
punitive damage award, could have a material adverse effect on the Company. In addition, the risk of potential liability under punitive damage theories may increase significantly the difficulty of
obtaining reasonable settlements of coverage claims.

In
June 2000, the California Medical Association filed a lawsuit in U.S. district court in San Francisco against BCC. The lawsuit alleges that BCC violated the RICO Act through
various misrepresentations to and inappropriate actions against health care providers. In late 1999, a number of class-action lawsuits were brought against several of the Company's competitors
alleging, among other things, various misrepresentations regarding their health plans and breaches of fiduciary obligations to health plan members. In August 2000, the Company was added as a
party to Shane v. Humana, et al., a class-action lawsuit brought on behalf of health care providers nationwide. In addition to the RICO claims brought in the California Medical Association lawsuit,
this lawsuit also alleges violations of ERISA, federal and state "prompt pay" regulations and certain common law claims. In October 2000, the federal Judicial Panel on Multidistrict Litigation
issued an order consolidating the California Medical Association lawsuit, the Shane lawsuit and various other pending managed care class-action lawsuits against other companies before District Court
Judge Federico Moreno in the Southern District of Florida for purposes of the pretrial proceedings. In March 2001, Judge Moreno dismissed the plaintiffs' claims based on violation of the RICO
Act, although the dismissal was made without prejudice to the plaintiffs' ability to subsequently refile their claims. Judge Moreno also dismissed, with prejudice, the plaintiffs' federal prompt pay
law claims. On March 26, 2001, the California Medical Association filed an amended complaint in its lawsuit, alleging, among other things, revised RICO claims and violations
of California law. A hearing on the plaintiffs' motion to certify a class was held in early May 2001. On May 9, 2001, Judge Moreno issued an order requiring that all discovery in the
litigation be completed by December 2001, with the exception of discovery related to expert witnesses, which must be completed by March 15, 2002. In June 2001, the federal Court
of Appeals for the 11th Circuit issued a stay of Judge Moreno's discovery order, pending a hearing before the Court of Appeals on the Company's appeal of its motion to compel arbitration (which had
earlier been granted in part

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and denied in part by Judge Moreno). The panel for the hearing was selected in December 2001. The hearing was held in January 2002 and, in March 2002, the Court of Appeals issued an opinion
affirming Judge Moreno's earlier action with respect to the motion to compel arbitration.

In
March 2002, the American Dental Association and three individual dentists filed a lawsuit in U.S. district court in Chicago against the Company and BCC. This lawsuit alleges
that WellPoint and BCC engaged in conduct that constituted a breach of contract under ERISA, trade libel and tortious interference with contractual relations and existing and prospective business
expectancies. The lawsuit seeks class-action status.

In
July 2001, two individual physicians seeking to represent a class of physicians, hospitals and other providers brought suit in the Circuit Court of Madison County, Illinois
against HealthLink, Inc., which is now a subsidiary of the Company as a result of the RightCHOICE transaction. The physicians allege that HealthLink breached the contracts with these physicians by
engaging in the practices of "bundling" and "down-coding" in its processing and payment of provider claims. The relief sought includes an injunction against these practices and damages in an
unspecified amount. In March 2002, HealthLink was notified that the court intends to hold a hearing on class certification, although no formal date for such a hearing has been set. A similar
lawsuit was brought by physicians (including one of the physicians in the case described above) in the same court in Madison County, Illinois, on behalf of a nationwide class of providers who contract
with Blue Cross and Blue Shield plans against the Blue Cross and Blue Shield Association and another Blue Cross Blue Shield plan. The complaint recites that it is brought against those entities and
their "unnamed subsidiaries, licensees, and affiliates," listing a large number of Blue Cross and Blue Shield plans, including "Alliance Blue Cross Blue Shield of Missouri." The plaintiffs also allege
that the plans have systematically engaged in practices known as "short paying," "bundling," and "down-coding" in their processing and payment of subscriber claims. Blue Cross Blue Shield of Missouri
has not been formally named or served as a defendant in this suit.

The
financial and operational impact that these and other evolving theories of recovery will have on the managed care industry generally, or the Company in particular, is at present
unknown.

Certain
of such legal proceedings are or may be covered under insurance policies or indemnification agreements. Based upon information presently available, management of the Company
believes that the final outcome of all such proceedings should not have a material adverse effect on the Company's results of operations, cash flows or financial condition.

17. REGULATORY REQUIREMENTS

Certain of the Company's regulated subsidiaries must comply with certain minimum capital or tangible net equity requirements in each of the states in which they
operate. As of December 31, 2001, the Company and its regulated subsidiaries were in compliance with these requirements.

The
ability of the Company's licensed insurance company subsidiaries to pay dividends is limited by the Departments of Insurance in their respective states of domicile. Generally,
dividends in any 12-month period are limited to the greater of the prior year's statutory net income or 10% of statutory surplus. Larger dividends, classified as extraordinary, require a
special request of the applicable Departments of Insurance. The maximum dividend payable in 2002 without prior approval by WellPoint's licensed insurance company subsidiaries (which do not include the
Company's Blue Cross of California subsidiary) is estimated to be $220.6 million.

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18. FISCAL INTERMEDIARY FUNCTION

Under an agreement with the BCBSA, the Company's wholly-owned subsidiary Blue Cross of California ("BCC") was previously contracted to administer Part A of
Title XVIII of the Social Security Act (Medicare) in certain regions or for certain health care providers. The agreement was renewable annually unless terminated by the parties involved. As fiscal
intermediary under the agreement, BCC made disbursements to providers for medical care from funds provided by the Federal Government and was reimbursed for these expenses incurred under the agreement.
Effective December 1, 2000, BCC ceased to participate as a Medicare fiscal intermediary. BCC disbursed approximately $7.6 billion and $8.8 billion and received administrative fees
of approximately $39.1 million and $40.7 million for the years ended December 31, 2000 and 1999, respectively. The reimbursement was treated as a direct recovery of general and
administrative expenses.

With
the acquisition of Cerulean, the Company is currently a participant in the aforementioned Medicare plan through its wholly-owned subsidiary Blue Cross and Blue Shield of
Georgia, Inc. ("BCBSGA"). BCBSGA disbursed approximately $2.9 billion and received administrative fees of approximately $8.5 million from March 15, 2001, the acquisition
date, to December 31, 2001.

19. BUSINESS SEGMENT INFORMATION

The Company has two reportable segments: the Large Employer Group business segment and the Individual and Small Employer Group business segment. The Large
Employer Group and Individual and Small Employer Group segments provide a broad spectrum of network-based health plans, including HMOs, PPOs, POS plans, other hybrid plans and traditional indemnity
products to large and small employers and individuals. The Company's senior and specialty businesses are included in the Corporate and Other segment.

The
Company's management identified its reportable segments based upon the following factors: (1) the Company's organizational structure contains a Division President that
oversees each of these segments, (2) the Company's Chief Operating Decision Maker (Chief Executive Officer) reviews the results of operations for each of the following segments and holds each
Division President accountable for results, and (3) a Division President's overall compensation is based upon the related segment's results.

The
accounting policies of the segments are the same as those described in the summary of significant accounting policies and are consistent with generally accepted accounting principles
with the exception of the exclusion of allocated corporate overhead to the reportable segments.

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The
following tables present segment information for the Large Employer Group and Individual and Small Employer Group for the years ended December 31, 2001, 2000 and 1999:

2001

|                                      |  | Large
Employer
Group |           | Individual &
Small Employer
Group |   | Corporate
& Other |  | Consolidated
|------------------------------------- |  | -------------------- | --------- | --------------------------------- | - | ----------------- |  | ------------
|
|Premium revenue                       |  | $                    | 7,188,430 |                                   | $ | 3,583,839         |  | $           
|Management services and other revenue |  |                      | 500,290   |                                   |   | 268               |  |             
|                                      |  |                      |           |                                   |   |                   |  |             
|Total revenue from external customers |  |                      | 7,688,720 |                                   |   | 3,584,107         |  |             
|Intersegment revenues                 |  |                      | 19,724    |                                   |   |                  |  |             
|Investment income                     |  |                      | 139,701   |                                   |   | 82,119            |  |             
|Interest expense                      |  |                      | 36,358    |                                   |   | 10,140            |  |             
|Depreciation and amortization expense |  |                      | 62,500    |                                   |   | 23,503            |  |             
|Income tax expense (benefit)          |  |                      | 244,257   |                                   |   | 93,500            |  |             
|Segment net income (loss)             |  | $                    | 347,495   |                                   | $ | 135,817           |  | $           
|                                      |  |                      |           |                                   |   |                   |  |             
|Segment Assets                        |  | $                    | 3,714,081 |                                   | $ | 1,416,361         |  | $           
|                                      |  |                      |           |                                   |   |                   |  |             

2000

|                                      |  | Large
Employer
Group |           | Individual &
Small Employer
Group |   | Corporate
& Other |   | Consolidated
|------------------------------------- |  | -------------------- | --------- | --------------------------------- | - | ----------------- | - | ------------
|
|Premium revenue                       |  | $                    | 5,011,562 |                                   | $ | 3,030,503         |   | $           
|Management services and other revenue |  |                      | 379,142   |                                   |   | 2,865             |   |             
|                                      |  |                      |           |                                   |   |                   |   |             
|Total revenue from external customers |  |                      | 5,390,704 |                                   |   | 3,033,368         |   |             
|Intersegment revenues                 |  |                      | 12,375    |                                   |   | (583              | ) |             
|Investment income                     |  |                      | 102,037   |                                   |   | 77,886            |   |             
|Interest expense                      |  |                      | 23,244    |                                   |   | 310               |   |             
|Depreciation and amortization expense |  |                      | 38,167    |                                   |   | 17,014            |   |             
|Income tax expense (benefit)          |  |                      | 176,342   |                                   |   | 131,027           |   |             
|Segment net income (loss)             |  | $                    | 210,221   |                                   | $ | 172,051           |   | $           
|                                      |  |                      |           |                                   |   |                   |   |             
|Segment Assets                        |  | $                    | 2,323,129 |                                   | $ | 1,067,692         |   | $           
|                                      |  |                      |           |                                   |   |                   |   |             

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19. BUSINESS SEGMENT INFORMATION (Continued)

1999

|                                       |  | Large
Employer
Group |           | Individual &
Small Employer
Group |   | Corporate
& Other |   | Consolidated |          
|-------------------------------------- |  | -------------------- | --------- | --------------------------------- | - | ----------------- | - | ------------ | ---------
|
|Premium revenue                        |  | $                    | 3,889,032 |                                   | $ | 2,551,961         |   | $            | 455,864  
|Management services and other revenue  |  |                      | 367,060   |                                   |   | 4,579             |   |              | 57,697   
|                                       |  |                      |           |                                   |   |                   |   |              |          
|Total revenue from external customers  |  |                      | 4,256,092 |                                   |   | 2,556,540         |   |              | 513,561  
|Intersegment revenues                  |  |                      | 19,941    |                                   |   | 2,500             |   |              | (22,441  
|Investment income                      |  |                      | 98,410    |                                   |   | 53,627            |   |              | 7,197    
|Interest expense                       |  |                      | 20,949    |                                   |   | 278               |   |              | (1,049   
|Depreciation and amortization expense  |  |                      | 36,829    |                                   |   | 14,641            |   |              | 13,328   
|Income tax expense (benefit)           |  |                      | 145,973   |                                   |   | 105,347           |   |              | (61,210  
|Extraordinary gain / cumulative effect |  |                      | (12,328   | )                                 |   | (7,685            | ) |              | 1,346    
|Segment net income (loss)              |  | $                    | 167,435   |                                   | $ | 134,828           |   | $            | (23,719  
|                                       |  |                      |           |                                   |   |                   |   |              |          
|Segment Assets                         |  | $                    | 2,300,056 |                                   | $ | 998,060           |   | $            | 1,295,118
|                                       |  |                      |           |                                   |   |                   |   |              |          

As
a result of the January 31, 2002 acquisition of RightCHOICE, the organizational structure of the Company has changed effective February 1, 2002. As a
result of these changes, the Company currently anticipates that its Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2002 (and subsequent filings under the
Securities Exchange Act of 1934) will reflect the following two reportable segments: Health Care business and Specialty business.

20. COMPREHENSIVE INCOME

The following summarizes comprehensive income reclassification adjustments included in the statements of changes in stockholders' equity:

|                                                                                                                                                                                          |  | Year Ended December 31, |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------
|
|
|Holding gain (loss) on investment securities arising during the period (net of tax expense of $12,485, $53,624 and tax benefit of $6,295, respectively)                                   |  | $                       | 21,051 
|Holding gain (loss) related to foreign exchange transactions (net of tax expense of $222 and tax benefit of $1,013, respectively)                                                         |  |                         |       
|Net change in pension liability (net of tax benefit of $15,640)                                                                                                                           |  |                         | (22,506
|Add: Reclassification adjustment for realized losses on investment securities (net of tax benefit of $2,420, $10,004 and $10,442, respectively)                                           |  |                         | (3,482 
|Reclassification adjustment related to foreign exchange gains (losses) on investment securities (net of tax benefit of $163, tax benefit of $204 and tax expense of $1,160, respectively) |  |                         | (262   
|                                                                                                                                                                                          |  |                         |        
|Net gain (loss) recognized in other comprehensive income (net of tax benefit of $5,738, tax expense of $43,638 and tax benefit of $16,590, respectively)                                  |  | $                       | (5,199 
|                                                                                                                                                                                          |  |                         |        

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21. EXTRAORDINARY GAIN

On October 6, 1999, the Board of Directors authorized the repurchase of some or all of the Company's Debentures for cash. During the year ended
December 31, 1999, the Company repurchased $81.0 million aggregate principal amount at maturity of the Company's Debentures at a total purchase price of $49.8 million. This
repurchase resulted in an extraordinary gain of $1.9 million, or $0.01 per share assuming full dilution (per share amount reflects the two-for-one stock split which
occurred on March 15, 2002), net of tax expense totaling $1.2 million.

22. SUBSEQUENT EVENTS

63/8% Notes due 2012

On January 16, 2002, the Company issued $350.0 million aggregate principal amount at maturity of 63/8% Notes due January 15,
2012 (the "2002 Notes"). Interest on the 2002 Notes will accrue from January 16, 2002, and will be payable on January 15 and July 15 of each year, beginning on July 15,
2002. The net proceeds of this offering totaled approximately $348.9 million. The net proceeds from the sale of the 2002 Notes were used for the financing of the RightCHOICE merger discussed
below.

RightCHOICE Acquisition

On January 31, 2002 WellPoint completed its merger, through its wholly owned subsidiary, RWP Acquisition Corp., with RightCHOICE Managed Care, Inc.
("RightCHOICE"), the parent company of Blue Cross and Blue Shield of Missouri, Inc., which serves approximately 2.2 million medical members. Under the terms of the transaction, total
consideration paid to all holders of RightCHOICE common stock and holders of employee stock options in the merger was $379.0 million in cash and 8.3 million shares (on a pre-stock split
basis) of WellPoint Common Stock. The Company currently expects that approximately 6.1 million shares (on a pre-stock split basis) will be issued from treasury stock and the remaining
2.2 million shares (on a pre-stock split basis) will be newly issued shares of WellPoint Common Stock. The total purchase price was approximately $1.4 billion.

Open Tax Issue relating to the WellPoint Recapitalization

During the quarter ended September 30, 1998 the Company received a private letter ruling from the IRS with respect to the treatment of certain payments
made at the time of the Recapitalization and the acquisition of the commercial operations of BCC. The ruling allowed the Company to deduct as an ordinary and necessary business expense the
$800 million cash payment made by BCC in May 1996 to one of two newly formed charitable foundations. As a result of and in reliance on the ruling, the Company experienced a reduction in
its income tax expense of $85.5 million and the Company reduced its goodwill resulting from the Recapitalization by $194.5 million during the year ended December 31, 1998. The
Company filed for refund claims of approximately $198.6 million of previous year income tax payments and reduced income tax payments during 1998 and 1999 by approximately $81.4 million.
In August 1999, the Company received a cash refund (including applicable accrued interest) of approximately $183.0 million, which was reflected in the statement of cash flows for such
year. The Company has refund claims pending of approximately $39.3 million.

In
March 2002, the Company received a letter from the IRS notifying the Company that the IRS was considering revoking the September 1998 private letter ruling. The letter
stated that the IRS was considering, in essence, reversing its earlier position and concluding that the $800 million payment was not an ordinary and necessary business expense. The letter
further stated that the IRS was withdrawing

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the private letter ruling and that the Company could no longer rely on the private letter ruling. Under Section 7805(b) of the Code, the IRS has discretionary authority to limit the
retroactive effect of any revocation of a letter ruling. The Company has submitted a written request for such relief under Section 7805(b). According to regulations promulgated by the United
States Treasury, such relief will be granted whenever a taxpayer meets all of five specified criteria, including that the taxpayer has relied in good faith on an earlier ruling and that the revocation
of the ruling would be to the detriment of the taxpayer. The Company believes that it meets substantially all of these criteria. Therefore, although no assurances can be given, the Company currently
expects that such relief will be granted. The Company's request for relief under Section 7805(b) is being made without prejudice to the Company's right to subsequently argue that the
$800 million cash payment should continue to be treated as an ordinary and necessary business expense under the Code.

23. PENDING ACQUISITION

On November 20, 2001, WellPoint entered into a definitive agreement to acquire CareFirst, Inc. ("CareFirst"). CareFirst is a
not-for-profit health care company which, along with its affiliates and subsidiaries, offers a comprehensive portfolio of health insurance products, direct health care and
administrative services to more than three million people in Maryland, Delaware, the District of Columbia and Northern Virginia. CareFirst operates through three wholly owned affiliates: CareFirst of
Maryland, Inc., Group Hospitalization and Medical Services, Inc., doing business under the name CareFirst BlueCross BlueShield, and Blue Cross Blue Shield of Delaware. Under the terms of
the acquisition agreement, a wholly owned subsidiary of the Company will merge with and into CareFirst. As a result of the merger, the outstanding shares of common stock of CareFirst will be converted
into the right to receive an aggregate purchase price of $1.3 billion. Before the CareFirst acquisition is
completed, CareFirst and its subsidiaries will convert from their current status as not-for-profit corporations into for-profit, stock corporations. As part of this
conversion, CareFirst will issue 100% of its outstanding common stock to charitable foundations established according to applicable law. The conversion will require the approval of insurance
regulators and the transaction is subject to the receipt of a private letter ruling from the IRS that the conversion of CareFirst will constitute a tax-free reorganization and that gain or
loss recognized by the holders of CareFirst stock in the merger will not be subject to unrelated business income tax. The conversion and regulatory approval process is currently expected to take 18 to
24 months from the date of signing of the definitive agreement. The acquisition is expected to close in 2003.

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