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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(d)
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(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|------------------------------------------- | ----------------------------------------------------------------------------------------
|                                            |                                                                                         
|For the fiscal year ended December 31, 2002
|                                            |                                                                                         
|o                                           | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) 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.    o

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of
1934).    Yes    ý    No    o

As
of June 28, 2002, the aggregate market value of the voting common stock held by non-affiliates of the registrant was $11,312,015,854.75 (based on the last reported
sale price of $77.81 per share on June 28, 2002, on the New York Stock Exchange).

As
of March 15, 2003, there were approximately 144,984,323 shares of Common Stock, $0.01 par value of the registrant outstanding.

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 2003 Annual Meeting of Stockholders.

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WELLPOINT HEALTH NETWORKS INC.
ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

|                              |  |                                                                                                |  | Page
|----------------------------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|PART I                       
|Item 1.                       |  | Business                                                                                       |  | 1   
|Item 2.                       |  | Properties                                                                                     |  | 32  
|Item 3.                       |  | Legal Proceedings                                                                              |  | 32  
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                            |  | 33  
|PART II                      
|Item 5.                       |  | Market for the Registrant's Common Equity and Related Stockholder Matters                      |  | 34  
|Item 6.                       |  | Selected Financial Data                                                                        |  | 35  
|Item 7.                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations          |  | 37  
|Item 7A.                      |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 66  
|Item 8.                       |  | Financial Statements and Supplementary Data                                                    |  | 69  
|Item 9.                       |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure           |  | 70  
|PART III                     
|Item 10.                      |  | Directors and Executive Officers of the Registrant                                             |  | 71  
|Item 11.                      |  | Executive Compensation                                                                         |  | 71  
|Item 12.                      |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 71  
|Item 13.                      |  | Certain Relationships and Related Transactions                                                 |  | 73  
|Item 14.                      |  | Controls and Procedures                                                                        |  | 74  
|PART IV                      
|Item 15.                      |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |  | 75  
|SIGNATURES                    |  | 82                                                                                            
|CERTIFICATIONS                |  | 84                                                                                            
|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, 2002, WellPoint had approximately 13.2 million medical members and approximately 48.1 million specialty members. Through its subsidiaries, the Company offers a broad
spectrum of network-based managed care 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 management and claims processing. The Company also provides a broad array of specialty and other products, including
pharmacy, dental, vision, 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. These products are
marketed by the Company's various operating subsidiaries throughout the United States. 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 and Blue Shield names and marks. The Company's customer base is
diversified, with extensive membership among large and small employer groups and individuals and 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 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 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.

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 Methodist Care, Inc. and its affiliates ("MethodistCare") in April 2002, RightCHOICE Managed Care, Inc. ("RightCHOICE") in
January 2002, Cerulean Companies, Inc. ("Cerulean"), the parent company of Blue Cross and Blue Shield of Georgia, Inc. ("Georgia Blue"), in March 2001 and Rush Prudential
Health Plans ("Rush Prudential") in March 2000. As a result of these acquisitions, the Company is able to offer a mix of products, including HMO and PPO products, to customers in Texas,
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.

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. As a result of the January 31, 2002 acquisition of RightCHOICE, the organizational structure of the Company changed effective February 1, 2002. As a result of
these changes, the Company has the following two reportable segments: Health Care and Specialty. The Health Care segment is managed

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geographically and provides a broad spectrum of network-based health plans to large and small employers and individuals. The Specialty business is maintained as a separate segment providing an array
of specialty and other products, including pharmacy, dental, vision, life insurance, preventive care, disability insurance, behavioral health, COBRA and flexible benefits account administration.
Segment information for the years ended December 31, 2002, 2001 and 2000 is included in Note 20 to the Consolidated Financial Statements.

Unless
otherwise indicated or the context otherwise requires, the following terms as used in this annual report on Form 10-K have the following meanings: "WellPoint"
and the "Company" refer to WellPoint Health Networks Inc. together with its subsidiaries, "Blue Cross of California" refers to the Company's subsidiaries licensed to use the Blue Cross name and
mark in California, "Blue Cross Blue Shield of Georgia" refers to the Company's subsidiaries licensed to use the Blue Cross and Blue Shield names and marks in Georgia and "Blue Cross Blue Shield of
Missouri" refers to the Company's subsidiaries licensed to use the Blue Cross and Blue Shield names and marks in various Missouri counties. Any references in this annual report on Form 10-K to
the Company's "plans," "services" or similar terms mean the plans and services offered through the Company's various operating subsidiaries.

Recent Completed Transactions and Pending Transactions

Acquisition of MethodistCare

On April 30, 2002, the Company completed its acquisition of MethodistCare, which served over 70,000 members in Houston, Texas and surrounding areas at the
time of acquisition. This acquisition was intended to enable UNICARE, WellPoint's national operating unit, to expand its product line by offering HMO and open-access products in the Gulf
Coast and surrounding regions in Texas, including the greater Houston-Galveston metropolitan area.

Acquisition of RightCHOICE

On January 31, 2002, the Company completed its merger with RightCHOICE, pursuant to the Agreement and Plan of Merger dated October 17, 2001 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 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. The RightCHOICE acquisition was valued at approximately
$1.5 billion on the closing date, which was paid with approximately $379.1 million in cash and approximately 16.5 million shares of WellPoint Common Stock.

Pending Acquisition of CareFirst

On November 20, 2001, the Company entered into a definitive agreement (the "Original 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, 2002, CareFirst served approximately 3.2 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, Inc. 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 benefits plan in the nation. CareFirst affiliate companies also offer third-party administrative services and claims processing
for self-insured groups.

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The
Original CareFirst Merger Agreement provided that a wholly owned subsidiary of the Company would merge with and into CareFirst. As a result of the merger, the outstanding shares of
common stock of CareFirst would be converted into the right to receive an aggregate purchase price of $1.3 billion, at least $450.0 million of which the Company would pay 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 would have the option to 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 would rankpari passuwith the Company's Zero Coupon Convertible Subordinated Debentures due 2019, which were
redeemed as of October 28, 2002.

In
April 2002, the Maryland legislature adopted legislation that would, among other things, require that the consideration paid by the Company in the CareFirst transaction consist
entirely of cash, prohibit certain change-in-control payments to CareFirst management previously approved by CareFirst's Board of Directors and delay for 90 days the
effectiveness of any decision by the Maryland Insurance Administration regarding CareFirst's for-profit conversion and consummation of the CareFirst transaction in order to allow the
Maryland legislature to review the decision.

As
a result of the Maryland legislation, the Company and CareFirst entered into an Amended and Restated Agreement and Plan of Merger (the "Amended CareFirst Merger Agreement") on
January 24, 2003. The Amended CareFirst Merger Agreement provides, among other things, that the consideration for the transaction will consist solely of cash, if stock and other
non-cash consideration are not allowed under any applicable law or regulation, and requires the termination of certain change-in-control payments as a condition to
closing the transaction. In addition, the purchase price of $1.3 billion in the Original CareFirst Merger Agreement was increased by $70.0 million to $1.37 billion in the Amended
CareFirst Merger Agreement. If the purchase price is paid solely in cash, the Amended CareFirst Merger Agreement allows up to $850.0 million of the purchase price to be financed by debt or
equity offerings by the Company. If applicable law allows non-cash consideration, the purchase price will be paid in cash and stock or notes as provided in the Original CareFirst Merger
Agreement. Before the CareFirst transaction is completed, CareFirst and certain of 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. If
the transaction is consummated, 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.

The
conversion will require the approval of insurance regulators in Maryland, Delaware and the District of Columbia, where CareFirst and its affiliates are domiciled. 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 is also subject to antitrust clearance by the U.S. Department of Justice and
the Federal Trade Commission and the receipt of a private letter ruling from the Internal Revenue Service
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.

On
March 5, 2003, the Maryland insurance commissioner issued an order disapproving the conversion of CareFirst to a for-profit entity. The Maryland legislature has
90 days to review the matter and has the power to veto the commissioner's decision. The Company has 30 days from the date of the

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commissioner's order to appeal the order. WellPoint intends to review the decision in greater detail and decide what actions, if any, are appropriate.

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 management and other measures that
encourage the delivery of medically necessary care as well as network credentialing and quality assurance. HMO, PPO and POS members generally are charged periodic, prepaid premiums and copayments
(per-visit charges) 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 toward PPOs and other open-access plans will continue in the future. As of December 31, 2002, approximately 80.4% of the Company's commercial membership nationwide was
in PPO plans or other types of open-access plans.

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, such acceptance 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 that 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 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 toward 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

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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 customer groups. 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.

Health Care Products and Services

Managed Care 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 members 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, Blue Cross of California ("BCC") introduced its unique Employee Elect product in California, which allows small employers to offer their employees a menu of PPO and HMO options.
In January 2001, BCC introduced its PlanScape family of individual PPO plans in California. The PlanScape plans are marketed toward purchasers with varying price preferences and offer a variety
of coverage options and premium amounts. A similar small group program has been introduced by UNICARE in various states under the name "BusinessFlex." The Company's PPO members in California, Georgia
and Missouri may also participate in the Blue Cross and Blue Shield Association's Blue Card program, which allows members to access other Blue Cross Blue Shield plans' PPO providers throughout the
nation. In 2002, Blue Cross Blue Shield of Missouri introduced OptionBlue, a flexible health plan that allows employers to buy more than one PPO or POS design, while offering a choice of benefits to
employees. Under OptionBlue, employers pay all or most of the cost of the lower-benefit plan and employees can purchase greater benefits if they choose. In January 2003, BCC introduced Power
CareAdvocate PPO, which combines the choices of a PPO with the care management of an HMO. Power CareAdvocate PPO members who contact "health advocates" prior to receiving specialty care receive a
higher level of benefits. Health advocates also assist members with special needs, such as those who are pregnant or awaiting surgery. In January 2003, UNICARE introduced CompleteChoice, which
combines a high-deductible PPO with a supplemental employer-funded health reimbursement account and an optional member-funded flexible spending account. Cost incentives and information
resources built into CompleteChoice encourage employees to become better-educated consumers of health care services. BCC introduced a similar product, also in January 2003, called Power
HealthFund.

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, BCC introduced a new PPO product in California 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, this product was also introduced in Georgia.

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HMO Plans.The Company offers a variety of HMO products to its HMO members in California, Georgia, Illinois, Missouri and
Texas. HMO members are generally charged periodic, prepaid premiums that do not vary based on the amount of services rendered, as well as copayments. 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 may include a deductible and higher copayment obligations.

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 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, Cerulean and RightCHOICE 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 approximately 22% of the Company's Blue Cross Blue Shield of Georgia members and are scheduled to be transferred to an entity unaffiliated with the Company over the next two years.

WellPoint
offers managed care services, including underwriting, actuarial services, medical 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, 2002, WellPoint served
self-insured health plans covering approximately 5.0 million medical members.

In
connection with the RightCHOICE transaction, the Company has acquired RightCHOICE's subsidiary, HealthLink, Inc. ("HealthLink"), which itself wholly owns HealthLink HMO, Inc.
As a preferred provider organization, HealthLink organizes networks of providers who agree to provide health care services at reduced rates. HealthLink contracts with payers of health care, such as
employers that fund their own health plans, commercial insurers and Taft-Hartley trusts for access to HealthLink's networks. HealthLink also provides access to its networks for workers' compensation
programs. HealthLink currently serves the states of Missouri, Illinois, Iowa, Arkansas, Indiana, Kentucky and West Virginia. HealthLink derives a portion of its revenues from providers for
administrative services. As of December 31, 2002, approximately 2.0 million people were members of plans contracted with HealthLink. One of HealthLink's business strategies is to expand
the HealthLink business in selected regions of the country.

Medicaid Plans and Other State-Sponsored Programs

The California Department of Health Services ("DHS") administers Medi-Cal, California's Medicaid program. BCC has been awarded contracts to offer
Medi-Cal managed care programs in various California counties. Under these programs, BCC provides health care coverage to Medi-Cal program members, and DHS (or a delegated
local agency) pays BCC a fixed payment per member per month. As of December 31, 2002, approximately 1.1 million members were enrolled in BCC's Medi-Cal and other
state-sponsored programs in various California counties. 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, 2002, the plans serving these members had approximately 396,160 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

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Reform Program in Puerto Rico. As of December 31, 2002, the Company's share of this joint venture served approximately 288,151 members.

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. 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. 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.

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.

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 PPO, HMO 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 medical 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 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.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

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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.The physician network of participating medical groups ("PMGs") is comprised of both multi-specialty medical
group practices and individual practice associations. 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 care 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 of 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 in part 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. The HMO Shared Risk Incentive Program was launched in July 2001. In the program, a new
quality standards score card is used to evaluate all medical groups in the HMO network and to provide them with feedback and assistance to support quality improvement efforts. BCC will continue to
seek to implement this modification as agreements with PMGs are renewed over the next few years. In 2002, BCC announced plans to introduce a similar program to improve the quality of clinical care and
service delivered to Blue Cross PPO members and to specifically reward quality performance among its PPO physician network. The one-year pilot program for BCC's PPO, designated the PPO
Physician Quality and Incentive Program, is not expected to result in a material increase in the Company's medical expenses.

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, 2002,
Georgia Blue had one active CHPN, which operates 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 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

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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 medical management and quality improvement provisions. Network physicians receive either a monthly capitation payment or are paid on the basis of 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 of 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 rate 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, southern and central Illinois and parts of Arkansas. To serve workers' compensation members, HealthLink has
developed workers' compensation PPO networks serving portions of Missouri, Illinois, Indiana and Arkansas. 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. HealthLink's provider contracts generally incorporate medical management and quality
improvement features. These contracts also obligate contracting providers to pay HealthLink a fee for administrative services provided by HealthLink.

HealthLink
also operates a PPO entity, National Capital Preferred Provider Organization ("NCPPO"), in the Maryland/Virginia area. NCPPO is a joint venture with local health care
providers and is majority owned by WellPoint.

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, Georgia or Missouri. The Company conducts its network development efforts in various states, including Arkansas, Illinois, Indiana, Massachusetts, Michigan, 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. The MethodistCare acquisition
was intended to enable UNICARE to expand its product line by offering HMO and open-access products in the Gulf Coast and surrounding regions in Texas, including the greater
Houston-Galveston metropolitan area.

A
large number of UNICARE members are served by third-party provider networks, which may lack the selectivity and discounts typical of the Company's proprietary networks. One of the
Company's

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strategies for the expansion of its UNICARE operations is to continue building and acquiring proprietary network systems in certain geographies in order to 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.

Medical Management

In order to better manage quality in its provider networks, WellPoint adopts medical management processes and guidelines that are intended to reduce unnecessary
or inappropriate procedures and admissions and the costs associated therewith. The medical management systems seek to provide WellPoint's members access to quality care based on medical necessity
where final decisions are made by physicians. Other than for BCC's HMO and individual PPO products, WellPoint uses treatment guidelines, requires pre-admission approvals of hospital stays and
concurrent review of certain admissions and retrospectively reviews physician practice patterns. Medical 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. In its California HMO, WellPoint permits PMGs to oversee most medical
management for their respective medical groups under WellPoint's guidelines. Currently, substantially all of the PMGs in WellPoint's California HMO network have established committees to oversee
medical management.

In
addition to the medical management services above, WellPoint offers certain disease management programs, a high-risk pregnancy identification and management program and a nurse health
information line to various members.

For
the Company's UNICARE managed care health plans, medical management is provided by UNICARE through the Company's subsidiary, CostCare, Inc. ("CCI"). As part of the GBO acquisition,
the Company acquired CCI, which provided medical management services. The Company has integrated CCI's medical management and case management services into UNICARE offerings.

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 in order to identify
the most effective method of treatment while 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.

In
January 2003, BCC achieved full accreditation status for its PPO and excellent accreditation status for its commercial HMO/POS products from the National Committee for Quality
Assurance ("NCQA"). Full and excellent accreditation are the highest ratings possible for these products, respectively. In May 2002, HMO Missouri, Inc. was awarded an excellent accreditation by
NCQA for its HMO/POS products. In July 2002, NCQA awarded UNICARE Health Plans of the Midwest, Inc. an excellent accreditation for its HMO product. In 2002, Georgia Blue was awarded an
excellent

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accreditation by NCQA for its HMO/POS and Platinum Medicare + Choice products. Georgia Blue's PPO product was also awarded Health Network Accreditation and Health Utilization Management
Accreditation by the Utilization Review Accreditation Commission ("URAC"), a private organization providing voluntary accreditation of medical review entities. In addition, Georgia Blue was granted
disease management accreditation from URAC for all of Georgia Blue's disease management organization programs. These programs include diabetes, congestive heart failure, high-risk
pregnancy and secondary cholesterol. 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 in the PPO. 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. In 2002, the Company's subsidiary, UNICARE Health Plans of the Midwest, Inc., was awarded a three-year excellent
accreditation from the NCQA for its HMO product.

CCI
(which operates as UNICARE/CostCare) received full accreditation for its medical management program from URAC. Additionally, CCI has received full accreditation from URAC for its
health information line program and its disease management programs. Blue Cross Blue Shield of Missouri and HealthLink are fully accredited by URAC for their medical management and health networks.

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, Texas and other states. Because UNICARE's members are in most states, 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.

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 payers.

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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, 2002, these Medicare supplemental plans served approximately 402,433
members. These products are marketed under the "Senior Select" and "Senior SmartChoice" names in California, under the "65Plus" name in Georgia and under the "Blue Horizons" name in Missouri.

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 that 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, 2002, the Company's Medicare + Choice HMO plans served approximately 77,657 members.

Pharmacy Products

WellPoint offers pharmacy services and pharmacy benefit management services to its members. WellPoint's pharmacy services incorporate features such as drug
formularies (Company-developed lists 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. As of December 31,
2002, WellPoint had approximately 35.0 million risk and non-risk 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 dental PPOs in Michigan, Missouri, Georgia and Texas and almost all of the other states in which the Company
operates. The Company's dental plans provide primary and specialty dental services, including orthodontic services, and as of December 31, 2002, served approximately 2.7 million dental
members.

In
December 2002, the Company announced the signing of a definitive agreement to acquire Golden West Dental & Vision, a privately held, stand-alone dental and vision
company, headquartered in Camarillo, California. As of December 2002, Golden West served approximately 293,000 members, principally dental HMO members in California. The acquisition is subject
to a number of closing conditions, including approval by the California Department of Managed Health Care. If the conditions are satisfied, the transaction is scheduled to close during the quarter
ending June 30, 2003.

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Life Insurance

The Company offers life insurance (primarily term-life) and accidental death and dismemberment 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, 2002, the
Company provided life insurance products to approximately 2.6 million individuals.

Behavioral Health Plans

WellPoint offers specialized behavioral health plans. These plans cover mental health and substance abuse treatment services on both an inpatient and an
outpatient basis. In addition, the Company has implemented approximately 290 employee assistance and behavioral managed care programs for a wide variety of businesses throughout the United States. As
of December 31, 2002, there were approximately 7.3 million members covered under WellPoint's behavioral health plans.

Disability Plans

The Company offers short-term and long-term disability programs, usually in conjunction with the Company's health plans. As of December 31,
2002, the Company provided short-term or long-term disability coverage to approximately 513,520 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 and medical 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 "Managed Health Care Networks and Provider RelationsHealthLink."

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 $76.3 million, $59.6 million and $61.8 million on advertising for the years ended December 31, 2002, 2001 and 2000, 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

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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 care 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 care 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 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. Over the last couple of years, a health plan's ability to interact with employers, members and other third parties (including health care professionals) via the Internet has
become a more important competitive factor. The Company has made technology investments to enhance its electronic interactions with third parties. 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, BCC, 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
insurance business conducted by the Company's subsidiary, 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. BCC'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 BCC 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 that 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.

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California Health Care Reform Legislation

Since September 1999, the California legislature has adopted a number of health care reform measures and other legislation affecting the Company's
operations. 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 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 imposes 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 established an independent medical review system. Every health plan enrollee, whether currently under the regulatory supervision of the DMHC or the California DOI, must
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 requires 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 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 California Governor, 10 of whom are appointed by the joint recommendation of the
California 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 California
Governor). This advisory committee is required to issue an annual report, which is to 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 established a Financial Solvency Standards Board (the "Board") comprised of the Director of the DMHC (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,

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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") imposes 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 payers, 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
payer entity that does not provide financial incentives to, or otherwise actively encourage, the payer's members to use the list of contracting providers when obtaining medical care.

Assembly
Bill 1455 ("AB 1455") imposes 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).

Senate
Bill 168 ("SB 168"), which became effective January 1, 2002, prohibits publicly displaying an individual's social security number or printing an individual's social
security number on any member identification card. Compliance with SB 168 is being phased in over periods extending to July 1, 2005.

Senate
Bill 1411 ("SB 1411") prohibits health plans that provide maternity coverage from imposing copayments or deductibles for inpatient hospital maternity services that exceed the most
common amount of the copayment or deductible for inpatient services provided for other medical conditions. SB 1411 will become effective on July 1, 2003.

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 affecting 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

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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." These regulations become effective in
April 2003. The rules, 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 became effective in October 2002. In December 2001, legislation was enacted that offers health entities the option of extending the date for compliance with these
regulations until October 2003. The Company has filed for such extension. The Company, like many other entities in the health care industry, has incurred substantial expenditures as a result of
the various HIPAA regulations, and expects that it will continue to incur expenditures as the various regulations become effective. The Company is working diligently to achieve compliance with these
regulations in the time periods required. However, there can be no assurances that the Company
will achieve such compliance or that the other entities with which the Company interacts will take the appropriate actions to achieve compliance in a timely manner. Upon effectiveness in October 2003
of the HIPAA regulations governing standard formats for health care transactions, the Company may see an increase in the number of health care transactions that are submitted to the Company in paper
format, which could have the effect of increasing the Company's costs to process medical claims.

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 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 copayments, 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. During 2003, Congress is expected to consider a number of proposals to reform the

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Medicare program. These proposals may range from extensive reform of the program itself to the addition of a prescription drug benefit for Medicare beneficiaries. It is unclear what legislation, if
any, may be adopted and, if any proposals are adopted, the effects of such measures on the Company's results of operations or financial condition.

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 the Employee Retirement Income Security Act of 1974, as amended. During 2003, Congress may
consider a proposal to authorize so-called association health plans ("AHPs"), which would allow small employers to associate for the purposes of obtaining health coverage. AHPs would be
generally exempt from state insurance regulation and, as a result, could potentially have a significant competitive advantage over the small-employer group products currently offered by WellPoint's
operating subsidiaries.

WellPoint
is unable to evaluate new legislation that may be proposed and when or whether any such 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 most 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 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 health care services expense.

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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 became effective as of September 1, 1997. 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 and 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 health plan business. 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. Pursuant to the rules and license standards of the BCBSA, WellPoint has agreed to guarantee specified obligations to customers of certain of WellPoint's subsidiaries holding controlled
affiliate licenses from 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, 2002, WellPoint and its subsidiaries employed approximately 16,200 persons on a full-time basis. Approximately 142 of the
Company's employees were covered by a collective bargaining agreement with the Office and Professional Employees International Union, Local 29 as of December 31, 2002. Approximately 175 of the
Company's office clerical employees in the greater
Detroit area were covered by a collective bargaining agreement with the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America, Local No. 614 as of
March 1, 2003. WellPoint believes that its relations with its employees are good, and it has not experienced any work stoppages.

Executive Officers of the Registrant

Leonard D. Schaeffer, age 57, has been Chairman of the Board of Directors and Chief Executive Officer of the Company since August 1992.
Mr. Schaeffer served as Chief Executive Officer of Blue Cross of California from 1986 to 2002 and has served as Chairman of its Board of Directors since 1989.

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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.

D.
Mark Weinberg, age 50, 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. 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 Blue Cross of California's Consumer Services Group from
December 1989 to February 1993 and was Senior Vice President of Individual and Senior Services of Blue Cross of California 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 49, 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 the American Academy of Actuaries.

David
S. Helwig, age 46, 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.

Rebecca
Kapustay, age 51, has been Executive Vice President, Central Services since January 2003. From March 2001 until January 2003, she served as Executive Vice
President, Blue Cross Blue Shield of Georgia. 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 59, 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.

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David
C. Colby, age 49, 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 52, 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 49, 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 54, has been Executive Vice President, Actuarial and Integration Planning and Implementation, and Chief Actuary of the Company since March 2002. From
March 1999 to February 2002, Ms. Rosenblatt was Senior Vice President, Actuarial and Integration Planning and Implementation and Chief Actuary of the Company. From
August 1998 to February 1999, she was Senior Vice President, Mergers and Acquisitions Integration and from October 1996 to July 1998, she was Senior Vice President, 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.

Ronald
J. Ponder, Ph.D., age 60, has been Executive Vice President, Information Services and Chief Information Officer since July 2002. From April 1999 to June 2002,
Dr. Ponder served as President and Chief Executive Officer of Telecom, Media & Networks Americas, a Cap Gemini Ernst & Young company. Prior to that, Dr. Ponder was
President and Chief Executive Officer of BDSI, Inc. from November 1997 to April 1999. Dr. Ponder has also held senior officer positions at Federal Express, Sprint and AT&T.

John
S. Watts, Jr., age 43, became Executive Vice President, Blue Cross Blue Shield of Georgia in January 2003. From March 2001 to January 2003, Mr. Watts served as
Senior Vice President for Blue Cross Blue Shield of Georgia's Large Group Division. From February 2000 to March 2001, Mr. Watts served as Acting Senior Vice President, UNICARE
commercial accounts for the Company's Large Group Division, eastern, southern and central regions. Prior to that, Mr. Watts was General Manager of Blue Cross of California's Large Group
Services, key and major accounts serving employer groups of 51-2,000 employees. Mr. Watts joined Blue Cross of California in 1995 as regional director responsible for the Los
Angeles sales office.

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

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("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
and the California HealthCare Foundation (the "California Foundation") became the holder of 53,360,000 shares, or approximately 80%, of the surviving WellPoint entity. As of January 2001, the
California 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 BCC 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 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 California 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 Securities and Exchange Commission 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. The License Agreement
is subject to termination by the BCBSA in the event that any stockholder of the Company becomes the beneficial owner of shares greater than the applicable Ownership Limit.

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 California
Foundation became the beneficial owner of 20% or more of WellPoint's then-outstanding Common Stock or other equity securities that (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

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issuance of such securities and the BCBSA will have the authority to determine how such securities will be treated for purposes of determining a particular holder's beneficial ownership of Common
Stock.

In
connection with the Recapitalization, BCC also received a ruling from the Internal Revenue Service (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 California Foundation and the Company entered into an Indemnification Agreement which provides, with certain exceptions, that the California 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.

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 $800.0 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 $800.0 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 Internal Revenue Code,
the IRS has discretionary authority to limit the retroactive effect of any revocation of a letter ruling. In March 2002, the Company submitted a written request for such relief under
Section 7805(b). On April 9, 2002, the Company received a letter from the IRS notifying the Company that its request had been granted and that the September 1998 private letter
ruling would not be revoked on a retroactive basis. Based on this April 9, 2002 letter, the Company intends to continue to rely on the September 1998 private letter ruling in its
treatment of the $800.0 million cash payment made in May 1996.

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, as amended). Such statements involve a number of risks and uncertainties that may cause actual results
to differ from those projected. Factors that could cause actual results to differ materially include, but are not limited to, those discussed

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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 Company's business operations, regulation typically covers prescribed benefits, prompt payment of claims,
relationships with providers, marketing, advertising, medical management, quality assurance and member grievance resolution. With regard to the financial condition of regulated subsidiaries,
regulation typically governs the amount of capital required to be retained in such subsidiaries and the ability of such subsidiaries to pay dividends. From time to time, the Company and its
subsidiaries receive requests for information from 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 results of operations.
See "Government Regulation" for an additional discussion of federal and state laws and regulations affecting the Company's business 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 serves 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. During 2003, the United States Congress is
expected to consider adoption of legislation to authorize AHPs, which could have a material adverse effect on the Company's small employer group business. There can be no assurance that recently
enacted or future legislation will not have a material adverse impact on WellPoint's health care services 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) and to Medicare
beneficiaries in certain states. The Company also provides Medicaid products to beneficiaries in Virginia, Oklahoma, Massachusetts, Puerto Rico and other states and provides administrative services
for 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 the profitability from this business will not be adversely affected by 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.

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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 that 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 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 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.

One
of the Company's wholly owned subsidiaries operates as a pharmacy benefit manager ("PBM") under the trade name WellPoint Pharmacy Management. The PBM industry faces a number of risks
and uncertainties in addition to those facing the Company's core health plan business. Such risks and uncertainties include the application of federal and state anti-remuneration laws
(generally known as "anti-kickback" laws), whether PBMs operate as fiduciaries under the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and are in compliance
with their fiduciary obligations under ERISA in connection with the development and implementation of items such as formularies, preferred drug listings and therapeutic intervention programs, and
potential liability regarding the use of patient-identifiable medical information. In addition, a number of federal and state legislative proposals are being considered that could affect a variety of
PBM industry practices, such as the receipt of rebates from pharmaceutical manufacturers. The Company believes that its PBM business is currently being conducted in compliance in all material respects
with applicable legal requirements. However, there can be no assurance that the Company's PBM business will not be subject to challenge under various laws and regulations, or that any such challenge
will not have a material adverse effect upon the Company's results of operations or financial condition. In addition, future legislative enactments affecting the PBM industry could have a material
adverse effect upon the Company's results of operations and financial condition.

In
April and May 2002, WellPoint Pharmacy Management received two administrative subpoenas duces tecum issued by the U.S. Attorney's Office in Boston Massachusetts. The Company
does not believe that its pharmacy benefit management business is presently a target of investigation by the U.S. Attorney. The subpoenas appear to focus primarily on WellPoint Pharmacy Management's
relationship with TAP Pharmaceuticals, including TAP's drugs Lupron and Prevacid. The Company has responded to the subpoenas by producing certain requested documents.

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 Racketeer
Influenced and Corrupt Organizations Act ("RICO") 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

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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 the Employee Retirement Income Security Act of 1974, as amended ("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 Shanelawsuit 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 RICO, 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. 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 was to 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 hearing was held in January 2002 and, in
March 2002, the Court of Appeals panel issued an opinion affirming Judge Moreno's earlier action with respect to the motion to compel arbitration. The Company filed a motion requesting a
rehearing of the matter before the entire 11th Circuit Court of Appeals, which motion was denied by the 11th Circuit Court of Appeals in June 2002. On
July 29, 2002, Judge Moreno issued an order providing that discovery in the case would be allowed to re-commence on September 30, 2002. On September 26, 2002, Judge
Moreno issued an additional order certifying a nationwide class of physicians in theShanematter, setting a trial date in May 2003 and ordering
the parties to participate in non-binding mediation. In October 2002, the Company filed a motion with the 11th Circuit Court of Appeals seeking to appeal Judge
Moreno's class-certification order. In December 2002, the 11th Circuit granted the Company's motion for interlocutory review of the class-certification order. The parties are currently
conducting pre-trial discovery. A mediator has been appointed by Judge Moreno.

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 Company filed a motion (which was granted in July 2002) with the federal Judicial Panel on Multidistrict Litigation requesting that the
proceedings in this case be consolidated with a similar action brought against other managed care companies that has been consolidated with theShanelawsuit.

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. This litigation was dismissed without prejudice at the request of the plaintiffs in February 2003. 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,

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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.

Pending Transaction with CareFirst

WellPoint has entered into the Amended CareFirst Merger Agreement to acquire CareFirst. Completion of this transaction is subject to the satisfaction of a number
of conditions, including approval of the insurance regulators in each of 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. On March 5, 2003, the Maryland insurance commissioner issued an order disapproving the transaction. WellPoint has 30 days from the date of the
commissioner's order to appeal the order. 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 Amended
CareFirst Merger Agreement. As a result, there can be no
assurances that the transaction will be consummated. See "Recent Completed Transactions and Pending TransactionsPending Acquisition of CareFirst."

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 its 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 revenues, results of operations and cash flows following the CareFirst transaction, if consummated, 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 may incur additional indebtedness to fund some or all of the cash payments to be made in connection with the pending CareFirst transaction.
See "Recent Completed Transactions and Pending TransactionsPending Acquisition of CareFirst." 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.

Health Care Costs and Premium Pricing Pressures

The Company's future profitability will depend in part on its ability to accurately predict health care costs and to control future health care costs through
underwriting criteria, medical management, product design and negotiation of favorable provider and hospital contracts. Changes in utilization rates, demographic characteristics, the regulatory
environment and health care practices, inflation, new

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technologies, clusters of high-cost cases 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 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
health care services 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, Rush Prudential and
Cerulean businesses. The Company has also completed significant work on the integration of the RightCHOICE and MethodistCare businesses. Consolidation of these acquired operations into the Company's
operations 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 may not be as significant, and its provider networks may not be 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 the Amended CareFirst Merger Agreement. There can be no assurance that the Company will be able to
consummate the CareFirst transaction or 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

28

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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.

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.

State Budget Deficits

As a result of the general nationwide economic downturn, many states are currently experiencing budget deficits. State legislators are exploring a variety of
alternatives to address this situation. In order to address the budget shortfalls, various states may propose reductions in payments received by Medicaid managed care providers such as the Company.
Alternatively, state legislators may seek to impose greater state taxes. Any significant reduction in payments received by the Company in connection with its Medicare managed care business could have
a material adverse effect on the Company's results of operations or financial condition. Additionally, any increase in state taxes could prolong or exacerbate the current economic downturn, which
could in turn have a material adverse effect on the Company's results of operations or financial condition. Budget cutbacks could also result in reduced employment levels in public sector accounts for
which the Company provides insured or administrative services products.

Competition

Managed health care organizations operate in a highly competitive environment that is subject to significant change due to 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 business is in the individual and small employer group market, where the medical care ratio is significantly lower than in the large employer group
market. WellPoint has experienced increasing competition in the individual and small employer group market over the past several years, which could adversely affect WellPoint's medical care ratio and
future financial condition or results of operations. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."

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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.

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 to be 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 $696.0 million, plus interest (and possibly penalties). WellPoint and the California Foundation entered into an Indemnification Agreement that provides, with
certain exceptions, that the California 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 California Foundation
has agreed to indemnify WellPoint, there can be no assurance that the California 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 $800.0 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

30

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considering, in essence, reversing its earlier position and concluding that the $800.0 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 Internal Revenue Code, the IRS has
discretionary authority to limit the retroactive effect of any revocation of a letter ruling. In March 2002, the Company submitted a written request for such relief under
Section 7805(b).

On
April 9, 2002, the Company received a letter from the IRS notifying the Company that its request had been granted and that the September 1998 private letter ruling would
not be revoked on a retroactive basis. Based on this April 9, 2002 letter, the Company intends to continue to rely on the September 1998 private letter ruling in its treatment of the
$800.0 million cash payment made in May 1996.

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 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 revokes, modifies or decides 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 the financial condition of RightCHOICE and the Company.

Large-Scale Medical Emergencies

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 and other weapons. If the United States were to experience more widespread bioterrorist or other 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 flows.

Available Information

The Company's Internet address ishttp://www.wellpoint.com. The Company makes available free of charge through its
Internet website the Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably

31

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practicable after such reports and amendments are electronically filed with or furnished to the Securities and Exchange Commission.

Item 2. Properties.

Effective as of January 1, 1996, the Company entered into a lease for Blue Cross of California's headquarters facility in Woodland Hills, California, 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, Charlestown and Andover, Massachusetts; the greater Chicago, Illinois area; Dearborn, Michigan; and
Houston 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 Racketeer
Influenced and Corrupt Organizations Act ("RICO") 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 the Employee Retirement Income Security Act of 1974, as
amended ("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 RICO, 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. 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 was to 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

32

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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 hearing was held in
January 2002 and, in March 2002, the Court of Appeals panel issued an opinion affirming Judge Moreno's earlier action with respect to the motion to compel arbitration. The Company filed
a motion requesting a rehearing of the matter before the entire 11th Circuit Court of Appeals, which motion was denied by the 11th Circuit Court of Appeals in
June 2002. On July 29, 2002, Judge Moreno issued an order providing that discovery in the case would be allowed to re-commence on September 30, 2002. On
September 26, 2002, Judge Moreno issued an additional order certifying a nationwide class of physicians in theShanematter, setting a trial date
in May 2003 and ordering the parties to participate in non-binding mediation. In October 2002, the Company filed a motion with the 11th Circuit Court of Appeals
seeking to appeal Judge Moreno's class-certification order. In December 2002, the 11th Circuit granted the Company's motion for interlocutory review of the class-certification order. The
parties are currently conducting pre-trial discovery. A mediator has been appointed by Judge Moreno.

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 Company filed a motion (which was granted in July 2002) with the federal Judicial Panel on Multidistrict Litigation requesting that the
proceedings in this case be consolidated with a similar action brought against other managed care companies that has been consolidated with theShanelawsuit.

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. This litigation was dismissed without prejudice at the request of the plaintiffs in February 2003. 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.

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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 100% stock dividend, which was effective on March 15, 2002.

|                             |                | High |   | Low  
|---------------------------- | -------------- | ---- | - | -----
|Year Ended December 31, 2001 |                |      |   |      
|                             | First Quarter  |      | $ | 57.88
|                             | Second Quarter |      |   | 50.09
|                             | Third Quarter  |      |   | 54.97
|                             | Fourth Quarter |      |   | 61.45
|Year Ended December 31, 2002 |                |      |   |      
|                             | First Quarter  |      |   | 65.63
|                             | Second Quarter |      |   | 86.27
|                             | Third Quarter  |      |   | 81.30
|                             | Fourth Quarter |      |   | 89.20

On
March 17, 2003, the closing price on the New York Stock Exchange for the Company's Common Stock was $70.20 per share. As of March 17, 2003, there were
approximately 1,242 holders of record of Common Stock.

The
Company did not pay any dividends on its Common Stock in 2001 or 2002. 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 2003.

Information
regarding the Company's equity compensation plans is contained in Part III below under the caption "Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder MattersEquity Compensation Plan Information."

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Item 6. Selected Financial Data.

|                                  |                                                                                                                                     | Year Ended December 31,                                                                                     |           
|--------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | ----------
|
|
|Consolidated Income Statements(A) |                                                                                                                                     |                                                                                                             |           
|                                  | Revenues:                                                                                                                           |                                                                                                             |           
|                                  |                                                                                                                                     | Premium revenue                                                                                             |           
|                                  |                                                                                                                                     | Management services and other revenue                                                                       |           
|                                  |                                                                                                                                     | Investment income                                                                                           |           
|                                  |                                                                                                                                     |                                                                                                             |           
|                                  |                                                                                                                                     |                                                                                                             | 17,338,540
|                                  | Operating expenses:                                                                                                                 |                                                                                                             |           
|                                  |                                                                                                                                     | Health care services and other benefits                                                                     |           
|                                  |                                                                                                                                     | Selling expense                                                                                             |           
|                                  |                                                                                                                                     | General and administrative expense                                                                          |           
|                                  |                                                                                                                                     |                                                                                                             |           
|                                  |                                                                                                                                     |                                                                                                             | 16,059,636
|                                  |                                                                                                                                     |                                                                                                             |           
|                                  | Operating income                                                                                                                    |                                                                                                             |           
|                                  |                                                                                                                                     | Interest expense                                                                                            |           
|                                  |                                                                                                                                     | Other expense, net                                                                                          |           
|                                  |                                                                                                                                     |                                                                                                             |           
|                                  | Income from continuing operations before provision for income taxes, extraordinary items and cumulative effect of accounting change |                                                                                                             |           
|                                  |                                                                                                                                     | Provision for income taxes                                                                                  |           
|                                  |                                                                                                                                     |                                                                                                             |           
|                                  | Income from continuing operations before extraordinary items and cumulative effect of accounting change                             |                                                                                                             |           
|                                  |                                                                                                                                     | Loss from discontinued operations                                                                           |           
|                                  | Extraordinary gain from negative goodwill on acquisition                                                                            |                                                                                                             |           
|                                  | Extraordinary (loss) gain from early extinguishment of debt, net of tax                                                             |                                                                                                             |           
|                                  | Cumulative effect of accounting change, net of tax                                                                                  |                                                                                                             |           
|                                  |                                                                                                                                     |                                                                                                             |           
|                                  | Net income                                                                                                                          |                                                                                                             | $         
|                                  |                                                                                                                                     |                                                                                                             |           
|Per Share Data(B):                |                                                                                                                                     |                                                                                                             |           
|                                  |                                                                                                                                     | Income from continuing operations before net extraordinary gain and cumulative effect of accounting change: |           
|                                  |                                                                                                                                     | Earnings per share                                                                                          |           
|                                  |                                                                                                                                     | Earnings per share assuming full dilution                                                                   |           
|                                  |                                                                                                                                     | Net extraordinary gain:                                                                                     |           
|                                  |                                                                                                                                     | Earnings per share                                                                                          |           
|                                  |                                                                                                                                     | Earnings per share assuming full dilution                                                                   |           
|                                  |                                                                                                                                     | Cumulative effect of accounting change:                                                                     |           
|                                  |                                                                                                                                     | Loss per share                                                                                              |           
|                                  |                                                                                                                                     | Loss per share assuming full dilution                                                                       |           
|                                  |                                                                                                                                     | Loss from discontinued operations:                                                                          |           
|                                  |                                                                                                                                     | Loss per share                                                                                              |           
|                                  |                                                                                                                                     | Loss per share assuming full dilution                                                                       |           
|                                  | Net income:                                                                                                                         |                                                                                                             |           
|                                  |                                                                                                                                     | Earnings per share                                                                                          |           
|                                  |                                                                                                                                     | Earnings per share assuming full dilution                                                                   |           
|Operating Statistics(C):          |                                                                                                                                     |                                                                                                             |           
|                                  | Medical care ratio                                                                                                                  |                                                                                                             |           
|                                  | Selling expense ratio                                                                                                               |                                                                                                             |           
|                                  | General and administrative expense ratio                                                                                            |                                                                                                             |           
|                                  | Net income ratio                                                                                                                    |                                                                                                             |           

35

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

|                           |                                                                    | Year Ended December 31, |  
|-------------------------- | ------------------------------------------------------------------ | ----------------------- | -
|
|
|Medical Claims Payable(F): |                                                                    |                         |  
|                           | Medical claims payable as of January 1                             |                         | $
|                           | Medical claims reserves from businesses acquired during the period |                         |  
|                           | Health care services expenses incurred during period:              |                         |  
|                           |                                                                    | Related to current year |  
|                           |                                                                    | Related to prior years  |  
|                           |                                                                    |                         |  
|                           | Total Incurred                                                     |                         |  
|                           | Health care services payments during period:                       |                         |  
|                           |                                                                    | Related to current year |  
|                           |                                                                    | Related to prior years  |  
|                           |                                                                    |                         |  
|                           | Total Payments                                                     |                         |  
|                           |                                                                    |                         |  
|                           | Medical claims payable as of December 31                           |                         | $
|                           |                                                                    |                         |  

---

36

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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, 2002, WellPoint had approximately
13.2 million medical members and approximately 48.1 million specialty members. Through its subsidiaries, the Company offers a broad spectrum of network-based managed care plans to the
large and small employer, individual, Medicaid and senior markets. The Company's managed care plans include PPOs, HMOs, POS plans and other hybrid medical plans and traditional indemnity plans. In
addition, the Company offers managed care services, including underwriting, actuarial services, network access, medical management and claims processing. The Company also provides a broad array of
specialty and other products, including pharmacy, dental, vision, 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. 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
and Blue Shield names and marks.

Acquisition of MethodistCare

On April 30, 2002, the Company completed its acquisition of MethodistCare (see Note 2 to the Consolidated Financial Statements), which served over
70,000 members in Houston, Texas and surrounding areas at the time of acquisition. As a result of the acquisition, the Company recognized an extraordinary gain from negative goodwill on acquisition of
$8.9 million, or $0.06 per share assuming full dilution, for the year ended December 31, 2002. (See Note 22 to the Consolidated Financial Statements.)

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 2 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 was valued at approximately $1.5 billion on the closing date, which was paid with $379.1 million in cash and approximately 16.5 million shares of
WellPoint Common Stock. RightCHOICE, through its HealthLink subsidiary, also provides network rental, administrative services, workers' compensation managed care services and other
non-underwritten health benefit programs. 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 general and administrative expense ratio than the Company's core businesses due to its higher concentration of
administrative services business. For the year ended December 31, 2002, the RightCHOICE business experienced a higher general and administrative expense ratio than the Company's core
businesses.

37

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Acquisition of Cerulean

On March 15, 2001, the Company completed its acquisition of Cerulean, the parent company of Blue Cross and Blue Shield of Georgia, Inc. (see
Note 2 to the Consolidated Financial Statements). Cerulean, principally through its Blue Cross and Blue Shield of Georgia, Inc. subsidiary, offers insured and administrative services products
primarily in the State of Georgia. Cerulean has historically experienced a higher general and 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 care ratio than the Company's core businesses due to its higher percentage of large employer group
business and fewer managed care offerings. The Cerulean 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 also incurred $134.5 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.

The
Company's subsidiaries in Georgia currently provide administrative services for several accounts sponsored by the State of Georgia. These accounts currently comprise approximately
22% of the Company's Blue Cross Blue Shield of Georgia members and are scheduled to be transferred to an entity unaffiliated with the Company over the next two years.

Pending Acquisition of CareFirst

On November 20, 2001, WellPoint entered into a definitive agreement to acquire CareFirst, which agreement was amended and restated as of January 24,
2003. See "Item 1. BusinessRecent Completed Transactions and Pending TransactionsPending Acquisition of 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 3.2 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, Inc.

The
consummation of the CareFirst transaction is subject to a number of conditions, including the approval of the insurance regulators in Maryland, Delaware and the District of Columbia
for the conversion of CareFirst from a non-profit corporation to a for-profit entity. On March 5, 2003, the Maryland insurance commissioner issued an order disapproving
this conversion. The Maryland legislature has 90 days to review the matter and has the power to veto the commissioner's decision. The Company has 30 days from the date of the commissioner's
order to appeal the order.

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 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 Health Plans and a mail-order pharmacy, which now does business as 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. On April 30, 2002, the Company completed its acquisition of MethodistCare.

As
a result of these completed acquisitions, the Company has significantly expanded its operations outside of California. In order to integrate its acquired businesses and implement the
Company's

38

---

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 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 ensure 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. These and other proposed measures may have the
effect of dramatically altering the regulation of health care and of increasing the Company's medical care 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, 2002 include the results of RightCHOICE from January 31, 2002 and MethodistCare from
April 30, 2002, their respective dates of acquisition.

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.

39

---

The
following table sets forth selected operating ratios. The medical care 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 31,2002

2001

2000Operating Revenues:Premium revenue

95.2
%
95.0
%
95.0
%Management services and other revenue

4.8
%
5.0
%
5.0
%100.0
%
100.0
%
100.0
%Operating Expenses:Health care services and other benefits (medical care ratio)

81.5
%
81.5
%
80.8
%Selling expense

4.0
%
4.1
%
4.4
%General and administrative expense

12.7
%
13.7
%
14.0
%


40

---

Medical Membership (a)(b)(c)(d)

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

|                         |              | December 31,               |                    |            |          
|------------------------ | ------------ | -------------------------- | ------------------ | ---------- | ---------
|
|
|California               |              |                            |                    |            |          
|                         |              | Large Group                |                    | 4,716,908  |          
|                         |              | Individual and Small Group |                    | 1,617,776  |          
|                         |              | Senior                     |                    | 244,790    |          
|                         |              |                            |                    |            |          
|                         |              |                            | Total California   |            | 6,579,474
|                         |              |                            |                    |            |          
|Central Region (f)       |              |                            |                    |            |          
|                         | Missouri     |                            |                    |            |          
|                         |              | Large Group                |                    | 1,130,078  |          
|                         |              | Individual and Small Group |                    | 229,365    |          
|                         |              | Senior                     |                    | 42,256     |          
|                         |              |                            |                    |            |          
|                         |              |                            | Total Missouri     |            | 1,401,699
|                         |              |                            |                    |            |          
|                         | Illinois     |                            |                    |            |          
|                         |              | Large Group                |                    | 605,872    |          
|                         |              | Individual and Small Group |                    | 120,114    |          
|                         |              | Senior                     |                    | 12,499     |          
|                         |              |                            |                    |            |          
|                         |              |                            | Total Illinois     |            | 738,485  
|                         |              |                            |                    |            |          
|                         | Texas        |                            |                    |            |          
|                         |              | Large Group                |                    | 368,327    |          
|                         |              | Individual and Small Group |                    | 188,874    |          
|                         |              | Senior                     |                    | 520        |          
|                         |              |                            |                    |            |          
|                         |              |                            | Total Texas        |            | 557,721  
|                         |              |                            |                    |            |          
|                         | Other States |                            |                    |            |          
|                         |              | Large Group                |                    | 1,724,217  |          
|                         |              | Individual and Small Group |                    | 96,733     |          
|                         |              | Senior                     |                    | 24,120     |          
|                         |              |                            |                    |            |          
|                         |              |                            | Total Other States |            | 1,845,070
|                         |              |                            |                    |            |          
|Georgia                  |              |                            |                    |            |          
|                         |              | Large Group                |                    | 1,605,687  |          
|                         |              | Individual and Small Group |                    | 425,953    |          
|                         |              | Senior                     |                    | 69,250     |          
|                         |              |                            |                    |            |          
|                         |              |                            | Total Georgia      |            | 2,100,890
|                         |              |                            |                    |            |          
|Total Medical Membership |              | 13,223,339                 |                    | 10,528,047 |          
|                         |              |                            |                    |            |          
|ASO Membership (g)       |              |                            |                    |            |          
|                         |              | California                 |                    | 1,518,832  |          
|                         |              | Central Region             |                    | 2,664,896  |          
|                         |              | Georgia                    |                    | 866,143    |          
|                         |              |                            |                    |            |          
|Total ASO Membership     |              | 5,049,871                  |                    | 3,799,688  |          
|                         |              |                            |                    |            |          
|Risk Membership          |              |                            |                    |            |          
|                         |              | California                 |                    | 5,060,642  |          
|                         |              | Central Region             |                    | 1,878,079  |          
|                         |              | Georgia                    |                    | 1,234,747  |          
|                         |              |                            |                    |            |          
|Total Risk Membership    |              | 8,173,468                  |                    | 6,728,359  |          
|                         |              |                            |                    |            |          
|Total Medical Membership |              | 13,223,339                 |                    | 10,528,047 |          
|                         |              |                            |                    |            |          

41

---

State-Sponsored Programs Membership (h)

|                    |             | December 31, |           |           |          
|------------------- | ----------- | ------------ | --------- | --------- | ---------
|
|
|Medi-Cal / Medicaid |             |              |           |           |          
|                    | California  |              | 836,065   |           | 734,836  
|                    | Virginia    |              | 38,552    |           | 41,665   
|                    | Puerto Rico |              | 288,151   |           | 213,102  
|                    | Other       |              | 69,719    |           | 54,225   
|                    |             |              |           |           |          
|                    | Total       |              | 1,232,487 |           | 1,043,828
|Healthy Families    |             | 255,211      |           | 205,838   |          
|MRMIP / AIM / IHRP  |             | 17,833       |           | 17,542    |          
|California Kids     |             | 18,567       |           | 20,920    |          
|                    |             |              |           |           |          
|Total               |             | 1,524,098    |           | 1,288,128 |          
|                    |             |              |           |           |          

---

42

---

Specialty Membership

December 31,Percent
Change2002

2001Pharmacy

34,983,224

32,754,990

6.8
%Dental

2,704,535

2,630,225

2.8
%Life

2,579,487

2,310,030

11.7
%Disability

513,520

540,826

-5.0
%Behavioral Health

7,315,491

5,144,220

42.2
%


Comparison of Results for the Year Ended December 31, 2002 to the Year Ended December 31, 2001

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 100%
stock dividend of one additional share of WellPoint Common Stock for each share outstanding. Share and per share data for all periods presented below have been adjusted to give effect to the stock
split.

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. As a result of the January 31, 2002 acquisition of RightCHOICE, the organizational structure of the Company changed effective February 1, 2002. As a result of
these changes, the Company has the following two reportable segments: Health Care and Specialty. (See Note 20 to the Consolidated Financial Statements for further discussion.)

The
following table depicts premium revenue by reportable segment:

Year Ended December 31,2002

2001(In thousands)Health Care

$
15,701,071

$
11,107,242Specialty


505,090


469,928Consolidated

$
16,206,161

$
11,577,170


Premium
revenue increased 40.0%, or $4,629.0 million, to $16,206.2 million for the year ended December 31, 2002 from $11,577.2 million for the year ended
December 31, 2001. The RightCHOICE and Cerulean acquisitions accounted for $2,146.1 million or 46.4% of the increase. Of the $2,146.1 million increase related to the RightCHOICE
and Cerulean acquisitions, $2,119.2 million was attributable to the Health Care segment and $26.9 million to the Specialty segment. Excluding these acquisitions (which acquisitions
included $1,824.5 million of premium revenue attributable to the acquired Cerulean business for the year ended December 31, 2001), premium revenue would have increased 25.5% for the year ended
December 31, 2002. The increase, excluding these acquisitions, was primarily due to a 12.4% increase in insured member months and the implementation of premium increases overall. The majority
of the increase is attributable to the California region.

43

---

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

Year Ended December 31,2002

2001(In thousands)Health Care

$
681,512

$
491,995Specialty


136,863


117,698Consolidated

$
818,375

$
609,693


Management
services and other revenue increased 34.2%, or $208.7 million, to $818.4 million for the year ended December 31, 2002 from $609.7 million for the
year ended December 31, 2001. The increase was primarily due to an increase of $194.9 million of management services and other revenue from the RightCHOICE and Cerulean acquisitions,
$189.7 million of which was attributable to the Health Care segment and $5.2 million of which was attributable to the Specialty segment. Excluding these acquisitions (which acquisitions
included $123.6 million of management services and other revenue attributable to the acquired Cerulean business for the year ended December 31, 2001), management services and other revenue would have
increased 2.8% for the year ended December 31, 2002 due primarily to an increase in pharmacy benefit management services revenues.

Investment
income consists of gross investment income, net of investment expenses and net realized investment gains or losses. Investment income was $314.0 million for the year
ended December 31, 2002, compared to $241.8 million for the year ended December 31, 2001, an increase of $72.2 million or 29.9%. This $72.2 million increase was a
result of a net realized investment gain of $55.4 million for the year ended December 31, 2002, compared to a net realized investment loss of $4.2 million for the year ended
December 31, 2001. The net realized investment gains in 2002 were primarily due to a pre-tax investment gain of $64.9 million realized from WellPoint's investment in Trigon
Healthcare, Inc., which was acquired by Anthem, Inc. during 2002. In accordance with generally accepted accounting principles, WellPoint realized the gain related to its investment upon
completion of the Trigon transaction. Excluding this gain on the Trigon transaction, net realized investment losses for the years ended December 31, 2002 and 2001 would have been
$9.5 million and $4.2 million, respectively. This increase in net realized investment losses of $5.3 million resulted primarily from the Company's restructuring of its investment
portfolio mix in 2002. Gross investment income increased $16.1 million, or 6.4%, for the year ended December 31, 2002 from the year ended December 31, 2001 as a result of higher
average investment balances during the year ended December 31, 2002 (for which gross investment income was $267.9 million) versus the year ended December 31, 2001 (for which gross
investment income was $251.8 million). As a partial offset to this increase, net investment expenses increased by $3.5 million from $5.8 million for the year ended December 31,
2001 to $9.3 million for the year ended December 31, 2002, due primarily to higher investment manager fees.

The
medical care ratio for the year ended December 31, 2002 of 81.5% remained unchanged from the year ended December 31, 2001. The medical care ratio attributable to the
Health Care segment was 81.9% for the year ended December 31, 2002 (for which health care services and other benefits expense attributable to the Health Care segment was $12,865.7 million),
compared to 82.0% for the year ended December 31, 2001 (for which health care services and other benefits expense attributable to the Health Care segment was $9,105.3 million). The medical care
ratio attributable to the Specialty segment was 68.4% for the year ended December 31, 2002 (for which health care services and other benefits expense attributable to the Specialty segment was
$345.4 million), compared to 70.4% for the year ended December 31, 2001 (for which health care services and other benefits expense attributable to the Specialty segment was $331.0 million). The
acquired RightCHOICE business has a slightly lower medical care ratio than the Company's core businesses, while the acquired Cerulean business has experienced a higher medical care ratio than the
Company's core businesses due to Cerulean's higher

44

---

percentage of large employer group business and fewer managed care offerings. For both segments combined, health care services and other benefits expense attributable to the acquired RightCHOICE and
Cerulean businesses for the year ended December 31, 2002 was $3,313.4 million and health care services and other benefits expense attributable to the acquired Cerulean business for the year ended
December 31, 2001 was $1,551.4 million. Excluding the RightCHOICE and Cerulean acquisitions, the medical care ratio for both segments combined would have been 80.9% for the year ended
December 31, 2002 and 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. Consequently, the
actual results could differ materially from the amount recorded in the consolidated financial statements. See "Critical Accounting Policies" for a 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, 2002 decreased to
4.0%, compared to 4.1% for the year ended December 31, 2001. The acquired Cerulean business has experienced a lower selling expense ratio due primarily to its lower percentage of individual and
small employer group business. The acquired RightCHOICE business also experienced a slightly lower selling expense ratio than the Company's core businesses. Selling expense attributable to the
acquired RightCHOICE and Cerulean business for the year ended December 31, 2002 was $134.5 million and selling expense attributable to the acquired Cerulean business for the year ended December 31,
2001 was $51.4 million. Excluding these acquisitions, the selling expense ratio would have decreased to 4.3% for the year ended December 31, 2002 from 4.4% for the year ended
December 31, 2001.

The
general and administrative expense ratio decreased to 12.7% for the year ended December 31, 2002 from 13.7% for the year ended December 31, 2001. The acquired
RightCHOICE business experienced a higher general and administrative expense ratio than the Company's core businesses for the year ended December 31, 2002 due to integration expenses, its
higher concentration of administrative services business and certain other transaction-related expenses. The acquired Cerulean business experienced an improved general and administrative expense ratio
for the year ended December 31, 2002 over the year ended December 31, 2001. General and administrative expense attributable to the acquired RightCHOICE and Cerulean businesses for the
year ended December 31, 2002 was $569.9 million and
general and administrative expense attributable to the acquired Cerulean business for the year ended December 31, 2001 was $279.4 million. Excluding these acquisitions, the general and administrative
expense ratio decreased to 12.5% for the year ended December 31, 2002, compared to 13.6% for the year ended December 31, 2001, due to administrative efficiencies from technology
investments and systems convergence efforts and fixed administrative costs spread over a larger membership base.

Interest
expense increased $10.5 million to $60.4 million for the year ended December 31, 2002, compared to $49.9 million for the year ended
December 31, 2001. The increase in interest expense was related to the higher average debt balance for the year ended December 31, 2002 in comparison to the year ended
December 31, 2001, primarily due to the issuance of the $350.0 million aggregate principal amount at maturity of 63/8% Notes on January 16, 2002 (see Note 9
to the Consolidated Financial Statements) as a result of the RightCHOICE acquisition. Partially offsetting the increase in interest expense was a reduction in the borrowing rates. The weighted average
interest rate for all debt for the years ended December 31, 2002 and 2001, including the fees associated with the Company's borrowings and interest rate swap agreements, was 6.0% and 6.7%,
respectively.

Other
expense, net decreased $19.6 million to $55.1 million for the year ended December 31, 2002, compared to $74.7 million for the year ended
December 31, 2001. The decrease resulted from lower amortization of goodwill and other intangible assets due to the implementation of Statement of

45

---

Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") which accounted for $41.3 million of the decrease in amortization expense, an
increase in income from the Company's share of its investments in joint ventures of $4.4 million and a decrease in minority interest expense of $3.9 million related to an equity interest
in the Atlanta CHPN. (See "Item 1. BusinessManaged Health Care Networks and Provider RelationsBlue Cross Blue Shield of Georgia.") These decreases were partially offset by
the following items: (i) an increase in amortization of intangible assets with definite useful lives of $16.2 million, primarily due to recent acquisitions, (ii) an increase in
losses on the disposition of fixed assets of $5.7 million and (iii) an increase in net operating expenses of $7.9 million from an insurance general agency subsidiary owned by the
Company.

The
Company's net income for the year ended December 31, 2002 was $703.1 million, compared to $414.7 million for the year ended December 31, 2001. Net income
for the year ended December 31, 2002 included net realized investment gains of $33.3 million, net of tax, as discussed earlier and a net gain for two extraordinary items, a gain related
to the acquisition of MethodistCare, partially offset by a loss on early redemption of debt. The extraordinary gain amounted to $8.9 million, or $0.06 per diluted share, and was due to an
excess of the fair value of net assets over acquisition costs. The extraordinary loss was $3.8 million, net of tax, or $0.03 per diluted share, which resulted from the early redemption of
certain of the Company's Zero Coupon Convertible Subordinated Debentures due 2019. (See Note 9 to the Consolidated Financial Statements.) Net income for the year ended December 31, 2002,
excluding net realized investment gains of $33.3 million and a net gain for extraordinary items, was $664.7 million, or $4.42 per diluted share. For the year ended December 31,
2001, adjusted for the SFAS No. 142 impact of $32.2 million, net income would have been $446.9 million or $3.39 per diluted share. (See Note 7 to the Consolidated Financial
Statements.)

Earnings
per share including the extraordinary items totaled $4.87 for the year ended December 31, 2002 and $3.27 for the year ended December 31, 2001. Earnings per share
assuming full dilution including the extraordinary items totaled $4.67 for the year ended December 31, 2002 and $3.15 for the year ended December 31, 2001.

Earnings
per share for the year ended December 31, 2002 is based upon weighted average shares outstanding of 144.2 million shares, excluding potential Common Stock, and
150.9 million shares, assuming full dilution. Earnings per share for the year ended December 31, 2001 is based on 126.9 million shares, excluding potential Common Stock, and
132.4 million shares, assuming full dilution. The increase in weighted average shares outstanding primarily resulted from the issuance of shares related to the RightCHOICE acquisition and the
Company's employee stock option and purchase plans.

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 100%
stock dividend of one additional share of WellPoint Common Stock for each share outstanding. 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 reportable segment:

Year Ended December 31,2001

2000(In thousands)Health Care

$
11,107,242

$
8,168,516Specialty


469,928


415,147Consolidated

$
11,577,170

$
8,583,663


46

---

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 Cerulean and Rush Prudential acquisitions accounted for $1,905.2 million, or 63.6%, of the increase. Of the $1,905.2 million increase related to the
Cerulean and Rush Prudential acquisitions, $1,846.9 million was attributable to the Health Care segment and $58.3 million was attributable to the Specialty segment. Excluding these
acquisitions, premium revenue would have increased 12.7% for the year ended December 31, 2001 over the year ended December 31, 2000, primarily attributable to the California region's
Health Care business, resulting from a 5.8% increase of insured member months and the implementation of premium increases overall.

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

Year Ended December 31,2001

2000(In thousands)Health Care

$
491,995

$
372,656Specialty


117,698


79,191Consolidated

$
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 an increase of $124.5 million, or 78.8% of the increase, of management services and other revenue from the Cerulean
and Rush Prudential acquisitions. The Health Care and Specialty segments contributed approximately $123.2 million and $1.3 million of the increase, respectively. Excluding these
acquisitions, management services and other revenue would have increased 7.4% for the year ended December 31, 2001. The increase excluding these 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 these acquisitions, investment income would have
increased $23.5 million, or 12.2%. The increase excluding these acquisitions was primarily due to lower net realized investment losses in 2001 of $3.0 million, compared to net realized
investment losses in 2000 of $21.6 million. Additionally, gross investment income, net of investment expenses, excluding these acquisitions, increased $6.4 million to
$220.3 million for the year ended December 31, 2001, compared 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 as compared with the year ended December 31, 2000.

The
medical care ratio 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 medical care 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 medical care ratio increased slightly to 80.9% for the year ended December 31,
2001. Including Cerulean, the medical care ratio for the Health Care segment for the years ended December 31, 2001 and 2000 was 82.0% and 81.5%, respectively. Health care services and benefits
expense attributable to the Health Care segment was $9,105.3 million for the year ended December 31, 2001 and $6,653.6 million for the year ended December 31, 2000. Health
care services and benefits expense attributable to the Specialty segment was $331.0 million for the year ended December 31, 2001 and $281.8 million for the year ended
December 31, 2000. The medical care ratio attributable to the Health Care segment was 82.0% for the year ended December 31, 2001, compared to 81.5% for the year ended December 31,
2000. The medical care ratio attributable to the Specialty segment was 70.4% for the year ended December 31, 2001, compared to 67.9% for the year ended December 31, 2000.

47

---

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 general and administrative expense ratio than the Company's core businesses due to its higher percentage of administrative services business. Excluding
Cerulean, the general and administrative expense ratio would have been 13.6% for the year ended December 31, 2001. The lower general and 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 general and 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 debt balance for the year
ended December 31, 2000, primarily due to the Cerulean acquisition. The weighted average interest rate for all debt for the years ended December 31, 2001 and 2000, including the fees
associated with the Company's borrowings and interest rate swap agreements, was 6.7% and 6.2% respectively.

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.

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 that occurred on March 15,
2002.

Financial Condition

The Company's consolidated assets increased by $3,830.4 million, or 51.3%, to $11,302.5 million as of December 31, 2002 from
$7,472.1 million as of December 31, 2001. The increase in total assets was primarily due to the acquisition of RightCHOICE, which accounted for $2,013.0 million, or 52.6%, of the
increase. Excluding RightCHOICE, the increase in total assets was primarily due to growth in cash and investments of $1,432.2 million as a result of strong operating cash flows and an increase
in receivables of $231.4 million due to timing of pending securities settlements. Cash and investments totaled $6.8 billion as of December 31, 2002, or 59.9% of total assets.

Overall
claims liabilities, which is comprised of medical claims payable and reserves for future policy benefits, increased $485.8 million, or 21.9%, to $2,705.6 million as
of December 31, 2002 from $2,219.8 million as of December 31, 2001. This increase was due to claims liabilities associated with the RightCHOICE acquisition of
$156.5 million and an increase in the claims liabilities associated with the Company's core businesses of $329.3 million, primarily resulting from an increase in insured member months of
12.4% for the year ended December 31, 2002. See "Critical Accounting Policies" for a discussion of medical claims payable and reserves for future policy benefits.

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As
of December 31, 2002, the Company's long-term indebtedness was $1,011.6 million, of which $462.8 million was related to the Company's
63/8% Notes due 2006 (which includes a fair value adjustment of $13.6 million), $349.0 million was related to the Company's 63/8% Notes due 2012 and
$199.8 million was related to the commercial paper program described below. The 63/8% Notes due 2012, with an aggregate principal amount at maturity of $350.0 million,
were issued to partially finance the RightCHOICE acquisition. The Company's revolving credit facility indebtedness of $235.0 million at December 31, 2001 was repaid during the year ended
December 31, 2002, with $200.0 million obtained through the commercial paper program and operating cash of $35.0 million. As of December 31, 2001, the Company had
$153.9 million (based upon the original issue price plus accreted interest) of Zero Coupon Convertible Subordinated Debentures due 2019 (the "Debentures") outstanding. As of December 31,
2002, no Debentures were outstanding due to Debentureholders exercising their option to convert the Debentures into the Company's Common Stock and the Company's election to redeem the remaining
balance outstanding as of October 28, 2002. (See Note 9 to the Consolidated Financial Statements.)

Stockholders'
equity totaled $3,976.7 million as of December 31, 2002, an increase of $1,844.1 million from $2,132.6 million as of December 31, 2001.
The increase was primarily due to (i) the issuance of the Company's Common Stock of $1,109.1 million in connection with the RightCHOICE acquisition, (ii) net income of
$703.1 million for the year ended December 31, 2002, (iii) a net increase of $217.8 million from the reissuance of treasury stock related to the Company's employee 401(k)
plan, stock option and stock purchase plans, (iv) the issuance of the Company's Common Stock of $140.1 million related to the conversion of the Debentures, (v) net unrealized
gains from investment securities of $8.8 million, net of taxes and (vi) proceeds from sales of put options of $3.1 million. Partially offsetting these increases were
the repurchase of 4.6 million shares of the Company's Common Stock for $304.3 million and an increase in the minimum pension liability of $33.5 million.

Liquidity and Capital Resources

As of December 31, 2002, consolidated cash and investments were $6.8 billion, of which $1.4 million was in cash and cash equivalents. 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 services and other benefits, capitation
payments, income taxes, repayment and repurchases of long-term debt, interest expense, broker and agent commissions, general and administrative expenses, Common Stock repurchases and
capital expenditures. In addition to the foregoing, other uses of cash include costs of provider networks, technology investments 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.

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, 2002, the Company's
investment portfolio consisted primarily of investment grade fixed-income securities. The Company's portfolio also included large capitalization and small capitalization domestic equities, foreign
equities, tax-exempt municipal bonds 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 Company's investment policy contains limitations regarding concentration in individual securities and industries and generally
prohibits speculative and leveraged investments. Cash and investment balances maintained by the Company are currently sufficient to meet applicable regulatory

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financial stability and net worth requirements, including license requirements of the Blue Cross and Blue Shield Association.

WellPoint,
as the parent company, requires cash for debt repayment, stock repurchases, acquisitions and other general corporate purposes. A substantial portion of WellPoint's cash
requirements are funded by dividends received from its regulated operating subsidiaries. Payments of dividends to WellPoint by its regulated operating subsidiaries are subject to certain restrictions
imposed by state regulations. There is no assurance that the Company will receive regulatory approval for future dividend payments. As of December 31, 2002, the Company, as a stand-alone
entity, had $85.7 million in cash and investments.

Cash
flow provided by operating activities was $1,401.0 million for the year ended December 31, 2002, compared with $806.2 million for the year ended
December 31, 2001. Cash flow from operations for the year ended December 31, 2002 was due primarily to net income before extraordinary items of $697.9 million, an increase in
medical claims payable of $312.4 million due to membership growth and higher provider contract rates and an increase in accounts payable and accrued expenses of $258.7 million resulting
from the timing of liability payments.

Net
cash used in investing activities for the year ended December 31, 2002 totaled $1,306.5 million, compared with $857.2 million for the year ended
December 31, 2001. The net cash used in 2002 was primarily attributable to the purchase of investments of $6.5 billion, and of property and equipment, net of sales proceeds, of
$94.7 million and the purchases of RightCHOICE and MethodistCare, net of acquired cash, of $349.0 million. Proceeds from investments sold and matured totaled $5.6 billion,
partially offsetting the aforementioned purchases.

Net
cash provided by financing activities totaled $232.6 million for the year ended December 31, 2002, compared to $512.6 million for the year ended
December 31, 2001. The net cash provided in 2002 was primarily attributable to additional debt of $350.0 million in principal amount incurred to finance the RightCHOICE acquisition,
$86.6 million related to proceeds received under securities lending arrangements and the receipt of proceeds of $152.5 million from the issuance of the Company's Common Stock in
connection with the Company's employee stock option and purchase programs, less $304.3 million in Company Common Stock repurchases. During 2002, the Company repaid the entire outstanding
principal balance under the revolving credit facility of $235.0 million at December 31, 2001, funded in part by net borrowings of commercial paper totaling $199.8 million.
Additionally, approximately $304.3 million was used to repurchase the Company's Common Stock.

Effective
as of March 30, 2001, the Company entered into two new unsecured revolving credit facilities allowing aggregate indebtedness of $1.0 billion in principal amount.
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 InterBank
Offered Rate ("LIBOR") plus a margin determined by reference to the then-current rating of the Company's senior unsecured long-term debt by specified rating agencies. One
facility, which provides for borrowings not to exceed $750.0 million at any time outstanding, 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 not to exceed $250.0 million at any time outstanding, originally expired as of
March 29, 2002. In March 2002, the Company amended this facility to provide for an expiration date of March 28, 2003. Any amount outstanding under this facility as of
March 28, 2003 may be converted into a one-year term loan at the option of the Company. Loans under the $250.0 million facility are made on a committed basis. Loans under the
$750.0 million facility are made on a committed basis or 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 covenants,

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including restrictions on the incurrence of additional indebtedness and the granting of certain liens, limitations on acquisitions and investments and limitations on changes in control (see
Note 9 to the
Consolidated Financial Statements). As of December 31, 2002, there were no amounts outstanding under the revolving credit facility. The Company currently expects to negotiate an amendment to
the $250.0 million facility that would, among other things, extend the availability of the commitments thereunder to March 26, 2004.

In
April 2002, the Company commenced a commercial paper program providing for the issuance of up to $1.0 billion in aggregate maturity value of short-term
indebtedness (known generally as "commercial paper"). The commercial paper is being issued by the Company without registration under the Securities Act of 1933, as amended (the "1933 Act") in reliance
upon the exemption from registration contained in Section 4(2) of the 1933 Act. The commercial paper is issued in denominations of $100,000 or integral multiples of $1,000 in excess thereof and
will bear such interest rates, if interest-bearing, or will be sold at such discount from their face amounts, as agreed upon by the Company and the dealer or dealers acting in connection with the
commercial paper program. The commercial paper may be issued with varying maturities up to a maximum of 270 days from the date of issuance. The commercial paper ranks equally with all other
unsecured and unsubordinated indebtedness of the Company. As of December 31, 2002, the outstanding commercial paper borrowings totaled $199.8 million with various maturity dates and had
interest rates ranging from 1.60% to 1.65%. The weighted average yield on the outstanding commercial paper as of December 31, 2002 was 1.62%. The Company intends to maintain commercial paper
borrowings of at least the amount outstanding at December 31, 2002 for more than one year. Accordingly, for financial reporting purposes, the commercial paper has been classified under
non-current liabilities in the Consolidated Financial Statements.

In
anticipation of the RightCHOICE acquisition 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 "2012 Notes"). The net proceeds of this offering totaled approximately $348.9 million. The 2012 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
2012 Notes may be redeemed, in whole or in part, at the Company's option at any time. The redemption price for any 2012 Notes redeemed will be equal to the greater of the following
amounts: 1) 100% of the principal amount of the 2012 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 2012 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 2012 Notes to the redemption date.

On
June 15, 2001, the Company issued $450.0 million aggregate principal amount at maturity of 63/8% Notes due June 15, 2006 (the "2006 Notes"). The
net proceeds of this offering totaled approximately $449.0 million. The net proceeds from the sale of the 2006 Notes were used to repay indebtedness under the Company's revolving credit
facilities, which indirectly financed a portion of the Cerulean acquisition. The 2006 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
2006 Notes may be redeemed, in whole or in part, at the Company's option at any time. The redemption price for any 2006 Notes redeemed will be equal to the greater of the following
amounts:

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1) 100% of the principal amount of the 2006 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 2006 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
semi-annual 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 2006 Notes to the redemption date.

The
2006 and 2012 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 2006 and 2012 Notes. The indenture governing the 2006 and 2012 Notes contains a covenant that limits the ability of the Company and its
subsidiaries to create liens on any of their property or assets to secure certain indebtedness without also securing the indebtedness under the 2006 and 2012 Notes.

On
October 2, 2002, the Company announced that it had elected to redeem the Debentures as of October 28, 2002. Substantially all of the Debentures were tendered for
conversion into the Company's Common Stock prior to the redemption date. Approximately $50,000 principal amount at maturity of the Debentures were settled in cash. This conversion did not have an
extraordinary income statement impact. (See Note 9 to the Consolidated Financial Statements.)

Prior
to the Company's announcement of its election to redeem the Debentures, Debentureholders in 2002 converted $18.0 million in aggregate principal amount at maturity of the
Company's Debentures with a carrying value (including accreted interest) of $12.6 million. In lieu of delivering shares of Common Stock upon conversion of these Debentures, the Company elected
to pay cash of $18.9 million, which resulted in an extraordinary after-tax loss of $3.8 million, as shown on the Company's Consolidated Income Statements.

As
a part of a hedging strategy to limit its exposure to variable interest rate increases, the Company has from time to time 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, 2002 of 2.25%) for fixed-rate interest payments (weighted average rate for the year ended December 31, 2002 of 7.08%) without the exchange of the
underlying notional amounts. 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. In September 2002, the Company terminated these two
fixed-rate swap agreements with an aggregate cash settlement of $17.6 million, of which $1.8 million was
accrued interest and the remaining $15.8 million represented the fair value of the swap agreements at the time of termination. (See Note 16 to the Consolidated Financial Statements.)

In
order to reduce the interest expense associated with the 2006 Notes, the Company, on January 15, 2002, entered into a $200.0 million notional amount interest rate swap
agreement, which matures on June 15, 2006. The swap agreement is a contract to exchange a fixed 63/8% rate for a LIBOR-based floating rate (weighted average variable rate of
3.02% for the year ended December 31, 2002).

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 entered into a hedge to offset the remaining currency hedge. During 2002, the Company recognized a gain of $20,000 related to

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the remaining hedges. (See Note 16 to the Consolidated Financial Statements.) Subsequent to the implementation of Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," 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.

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, including Georgia, Missouri and Delaware. As of December 31, 2002 (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.

The
Company enters into operating leases primarily for office space, electronic data processing and office equipment. As of December 31, 2002, minimum annual rental commitments on
operating leases having initial or remaining noncancellable lease terms in excess of one year during the years 2003 through 2007 were $96.1 million, $73.5 million, $52.0 million,
$38.9 million and $30.1 million, respectively, with $227.6 million in minimum commitments thereafter.

The
Company's obligations relating to debt and leases at December 31, 2002 were as follows:

|                              |  | Total |         | 2003 |   | 2004 |  | 2005 |       | 2006 |   | 2007 |  | Thereafter
|----------------------------- |  | ----- | ------- | ---- | - | ---- |  | ---- | ----- | ---- | - | ---- |  | ----------
|
|63/8% Notes due 2006          |  | $     | 450.0   |      | $ |     |  | $    |      |      | $ |     |  | $         
|63/8% Notes due 2012          |  |       | 350.0   |      |   |     |  |      |      |      |   |     |  |           
|Commercial paper program(A)   |  |       | 199.8   |      |   |     |  |      | 199.8 |      |   |     |  |           
|Operating leases              |  |       | 518.2   |      |   | 96.1 |  |      | 73.5  |      |   | 52.0 |  |           
|                              |  |       |         |      |   |      |  |      |       |      |   |      |  |           
|Total contractual obligations |  | $     | 1,518.0 |      | $ | 96.1 |  | $    | 273.3 |      | $ | 52.0 |  | $         
|                              |  |       |         |      |   |      |  |      |       |      |   |      |  |           

---

The
Company's committed credit availability as of December 31, 2002 was as follows:

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

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
facility, commercial paper program or through public or private financing sources, will be sufficient to fund continuing operations and expected capital requirements for the foreseeable future.

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Pending Acquisition

On November 20, 2001, WellPoint entered into a definitive agreement to acquire CareFirst, which agreement was amended and restated as of January 24,
2003. The amended and restated merger agreement with CareFirst provides, among other things, that the purchase price of $1.37 billion for the transaction will consist solely of cash, if stock
and other non-cash consideration are not allowed under any applicable law or regulation. If the purchase price is paid solely in cash, the agreement allows up to $850.0 million of the purchase
price to be financed by debt or equity offerings by the Company. If applicable law allows non-cash consideration, the purchase price will be paid in cash and stock or notes. Consummation of the
CareFirst acquisition is subject to a number of conditions, including the conversion of CareFirst from a not-for-profit corporation into for-profit, stock corporation. This conversion requires the
approval of insurance regulators in Maryland, Delaware and the District of Columbia, as well as other approvals. On March 5, 2003, the Maryland insurance commissioner issued an order
disapproving the conversion of CareFirst to a for-profit entity. The Maryland legislature has 90 days to review the matter and has the power to veto the commissioner's decision. The Company has 30
days from the date of the commissioner's order to appeal the order. See "Item 1. BusinessRecent Completed Transactions and Pending TransactionsPending Acquisition of
CareFirst."

Tax Issues Relating to the WellPoint and RightCHOICE Recapitalizations

In connection with the Recapitalization (see "Item 1. BusinessMay 1996 Recapitalization and Restrictions on Ownership and Transfer of
Securities"), 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 to be 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). WellPoint and
the California HealthCare Foundation (the "California Foundation") entered into an Indemnification Agreement that provides, with certain exceptions, that the California 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 California Foundation has agreed to indemnify WellPoint, there can be no assurance that
the California 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 $800.0 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.

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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 $800.0 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. In March 2002, the Company submitted a written request for such relief under
Section 7805(b).

On
April 9, 2002, the Company received a letter from the IRS notifying the Company that its request had been granted and that the September 1998 private letter ruling would
not be revoked on a retroactive basis. Based on this April 9, 2002 letter, the Company intends to continue to rely on the September 1998 private letter ruling in its treatment of the
$800.0 million cash payment made in May 1996.

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 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 revokes, modifies or decides 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 the financial condition of RightCHOICE and the Company.

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 could 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 of operations, 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, intangible assets and goodwill and investments.

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Medical Claims Payable

Medical claims payable include claims in process as well as provisions for the estimate of incurred but not reported claims and provisions for disputed claims
obligations. Such estimates are developed using actuarial principles and assumptions that consider, among other things, contractual requirements, historical utilization trends and payment patterns,
benefits changes, medical inflation, product mix, seasonality, membership and other relevant factors. In developing its best estimate of medical claims payable, the Company consistently applies the
principles and assumptions listed above from year to year, while also giving due consideration to the potential variability of these factors. Because medical claims payable includes various
actuarially developed estimates, the Company's actual health care services expense may be more or less than the Company's previously developed estimates. 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. The Company 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.

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 Company's 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.

For
many of the Company's HMO plans (including substantially all of its California HMO plans), the Company contracts with physicians, hospitals and other health care providers through
capitation fee arrangements as a means to manage health care costs. The Company has two general types of
capitation arrangements. The predominant type is the so-called "professional" capitation arrangement. Under professional capitation arrangements, the Company pays the health care provider,
such as a participating medical group, a fixed amount per member per month, and the health care provider assumes the risk of the member's utilization of certain specified health care services.
Typically, under professional capitation arrangements, the health care provider does not assume the risk of the member's utilization of any hospital-based services. The second type is the
so-called "global" capitation arrangement. Under global capitation arrangements, the Company also pays the health care provider, such as a participating medical group, a fixed amount per
member per month. However, under global capitation arrangements, the health care provider generally assumes the risk of the member's utilization of all health care services (subject to certain limited
exceptions and state regulatory requirements). As of December 31, 2002, 2001 and 2000, the Company had approximately 10, 16 and 29 global capitation arrangements, respectively, covering
approximately 2.1 million, 2.2 million and 3.2 million member months, respectively. In addition, one of the Company's subsidiaries owns a 51% equity interest in a community health
partnership network (the "CHPN") operating in the greater Atlanta area (see "Item 1. BusinessManaged Health Care Networks and Provider RelationsBlue Cross Blue Shield of
Georgia"). The CHPN is a locally based equity venture between the Company's subsidiary and local physician and hospital groups. The Company's subsidiary has entered into a global capitation

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arrangement with the CHPN. As of December 31, 2002, 2001 and 2000, approximately 535,000, 479,000 and 424,000 members, respectively, were covered by this arrangement.

For
the years ended December 31, 2002, 2001 and 2000, the Company's capitation expenses of $1,496.9 million, $1,198.0 million and $1,074.1 million represented
11.3%, 12.7% and 15.5%, respectively, of the Company's total health care services and other benefits expense. As of December 31, 2002 and 2001, the Company's capitation expenses payable of
$137.0 million and $99.8 million represented 5.7% and 5.2%, respectively, of the Company's total medical claims payable.

The
Company's future results of operations will depend in part on its ability to predict and control health care costs through underwriting criteria, medical management, product design
and negotiation of favorable provider and hospital contracts. The Company'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 estimate of reserves for future policy benefits relates 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 that the Company expects to pay within one year. The Company
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. As of December 31, 2002 and 2001, the reserves for
future policy benefits were $283.2 million and $285.1 million, respectively.

Intangible Assets and Goodwill

The Company has made several acquisitions in the past several years that included a significant amount of goodwill and other intangible assets. 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.

In
June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141") and Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 be accounted for using the purchase method. The provisions of SFAS No. 141 also apply to all business combinations consummated after June 30, 2001. SFAS
No. 142, which became effective for fiscal years beginning after December 15, 2001, eliminates amortization of goodwill and other intangible assets with indefinite useful lives. Rather,
these assets are subject to impairment tests at least annually. The Company is required to make estimates of fair value and apply certain assumptions, such as a discount factor in applying these
annual impairment tests. Such estimates could produce significantly different results if other assumptions, which could also be considered reasonable, were to be used. Intangible assets with definite
useful lives are being amortized using a straight-line basis or the timing of related cash flows over periods ranging from five to 25 years. An intangible asset subject to amortization must be
reviewed for impairment

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pursuant to Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."

The
Company adopted SFAS No. 142 on January 1, 2002 and, accordingly, no longer amortizes goodwill and other intangible assets with indefinite useful lives. In accordance
with SFAS No. 142, the Company completed the transitional evaluation of its goodwill and other intangible assets at January 1, 2002 and the annual evaluation at December 31, 2002,
and determined that there was no impairment loss. As of December 31, 2002 and 2001, total goodwill and other intangible assets were $2.4 billion and $1.1 billion, respectively.
(See Note 7 to the Consolidated Financial Statements for further discussion of the Company's goodwill and other intangible assets.)

Investments

As of December 31, 2002, the Company's investment securities at market value, totaled $5.3 billion, of which 89.6% was invested in fixed-income
securities and the remaining 10.4% was invested in equity securities. As of December 31, 2001, the Company's investment securities at market value totaled $3.8 billion, of which 87.5%
was invested in fixed-income securities and the remaining 12.5% was invested in equity securities. These investment securities are generally used to support current operations and, accordingly, have
been classified as current assets. The Company's long-term investments as of December 31, 2002 and 2001 were $134.3 million and $124.6 million, respectively, and
consisted primarily of restricted assets, certain equities and other investments. Total current and long-term investments comprised 47.9% and 53.0% of total assets as of
December 31, 2002 and 2001, respectively.

With
the majority of investments in fixed-income securities, the Company maintains an investment portfolio that is primarily structured to maximize investment income while preserving the
principal asset base and provide a source of liquidity for operating needs. The Company records investment income when earned, and realized gains or losses when sold, as determined using the
first-in-first-out method.

The
Company regularly evaluates 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. The Company performs a quarterly evaluation of its investment securities, using both quantitative and qualitative factors to determine whether a decline in investment value is
other-than-temporary. When a decline in an investment's fair value is determined to be other-than-temporary, a loss is recorded against investment
income. When determining whether a decline in an investment's fair value is other-than-temporary, the Company considers the extent and duration to which a security's market
value has been less than its cost, the financial condition and future earnings potential of the issuer, recommendations and opinions from outside investment managers and the current economic
environment. For the years ended December 31, 2002, 2001 and 2000, the Company recorded investment losses that the Company believed to be other-than-temporary of
approximately $41.9 million, $21.1 million and $18.3 million, respectively. The Company believes that it has performed an adequate review for impairment of the investment
portfolio and that investments are carried at fair value. Changing economic and market conditions in the future, however, may cause the Company to reassess its judgment regarding impairment, which
could result in realized losses relating to other-than-temporary declines being charged against future income.

As
of December 31, 2002 and 2001, net unrealized gains from the Company's fixed-maturity securities totaled $184.5 million and $56.0 million, respectively, primarily
resulting from a general decrease in interest rates. The Company had a net unrealized loss in its equity securities portfolio as of December 31, 2002 of $49.5 million and an unrealized
gain of $70.0 million as of December 31, 2001. The Company believes that these fluctuations are temporary as a result of current market conditions.

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For
further discussion, see "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" and Note 4 to the Consolidated Financial Statements.

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
Statement of Financial Accounting Standards No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." Under SFAS No. 141, all business combinations must be
accounted for using the purchase method and the use of the pooling of interests method is prohibited. The provisions of the new standard apply to all business combinations initiated after
June 30, 2001. The adoption of SFAS No. 141 by the Company did not have a material effect on the consolidated 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 that evaluates it for impairment. Amortization of goodwill, including previously recorded goodwill, ended upon adoption of the new
rules by the Company. The new rules also eliminate amortization of other intangibles with indefinite useful lives, but these assets are also subject to impairment tests. SFAS No. 142 became
effective for fiscal years beginning after December 15, 2001. Upon adoption of SFAS No. 142 on January 1, 2002, and again on December 31, 2002, the Company completed the
evaluation of its goodwill and other intangible assets and determined that there was no impairment loss. Amortization of goodwill and other intangibles for the years ended December 31, 2002,
2001 and 2000 totaled $38.0 million, $63.1 million and $38.1 million, respectively. Adoption of SFAS No. 142 accounted for $41.3 million of the amortization decrease
in the year ended December 31, 2002 as compared to the year ended December 31, 2001, offset by a net increase in amortization of intangible assets with definite useful lives of
$16.2 million, which was primarily due to the RightCHOICE and Cerulean acquisitions. The increase in amortization of goodwill and other intangibles in 2001 as compared to 2000 was primarily due
to the Cerulean acquisition.

In
June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS
No. 143 became effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company adopted 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 adoption of SFAS No. 143 did not have a material effect on the consolidated financial statements of the Company.

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 became effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 on
January 1, 2002. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes Statement of Financial Accounting
Standards 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" ("APB Opinion No. 30") 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

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that can be clearly distinguished from the rest of the entity. The adoption of SFAS No. 144 did not have any impact on the Company's financial results for the year ended December 31,
2002.

In
April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections as of April 2002" ("SFAS No. 145"). With the rescission of FASB Statement No. 4, gains and losses from the extinguishment of debt should
be classified as extraordinary items only if they meet the criteria in APB Opinion No. 30. Applying the provisions of APB Opinion No. 30 will distinguish transactions that are part of an
entity's recurring operations from those that are unusual or infrequent or that meet the criteria for classification as an extraordinary item. The provisions of SFAS No. 145 related to the
rescission of FASB Statement No. 4 are required to be applied for fiscal years beginning after May 15, 2002. The Company has determined that the extinguishment of debt under its
Debentures, which were redeemed as of October 28, 2002, does not meet the requirements of unusual or infrequent and therefore would not be included as an extraordinary item with the rescission
of FASB Statement No. 4. The Company does not believe the other provisions within SFAS No. 145 will have a material effect on its consolidated financial statements.

In
June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
No. 146"), which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF
No. 94-3"). The Company will adopt the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002. SFAS No. 146 requires that the
liability for costs associated with an exit or disposal activity be recognized when the liability is incurred rather than at the date of a commitment to an exit or disposal plan. Under EITF
No. 94-3, a liability for an exit cost was recognized at the date of a company's commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially
be measured and recorded at fair value. The Company does not believe the adoption of SFAS No. 146 will have a material effect on its consolidated financial statements.

In
October 2002, the FASB amended the rules regarding accounting for certain acquisitions of financial institutions under Statement of Financial Accounting Standards
No. 72, "Accounting for Certain
Acquisitions of Banking or Thrift Institutions" ("SFAS No. 72"), SFAS No. 144 and FASB Interpretation No. 9, through the issuance of Statement of Financial Accounting Standards
No. 147, "Acquisitions of Certain Financial Institutions" ("SFAS No. 147"). Except for transactions between two or more mutual enterprises, SFAS No. 147 removes acquisitions of
financial institutions from the scope of both SFAS No. 72 and FASB Interpretation No. 9 and requires that those transactions be accounted for in accordance with SFAS No. 141 and
SFAS No. 142. In addition, SFAS No. 147 amends SFAS No. 144 to include in its scope long-term customer-relationship intangible assets of financial institutions. SFAS
No. 147 became effective on October 1, 2002. The Company believes that the adoption of SFAS No. 147 will have no significant impact on its results of operations or financial
position.

In
December 2002, the FASB amended the transition and disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), through the issuance of Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based CompensationTransition and
Disclosure" ("SFAS No. 148"). SFAS No. 148 amends the disclosures that a company is required to make in its annual financial statements and requires, for the first time, certain
disclosures in interim financial reports. In addition to the disclosures required by SFAS No. 123, a company must disclose additional information as part of its Summary of Significant
Accounting Policies. These disclosures are required regardless of whether a company is using the intrinsic value method under APB Opinion No. 25, "Accounting for Stock Issued to Employees" or
the fair value based method under SFAS No. 123 to account for its stock-based employee compensation. SFAS No. 148 also provides alternative methods of transition for a voluntary change
to the fair value

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based method of accounting for stock-based employee compensation. SFAS No. 148 is effective for fiscal years ending after December 15, 2002. The Company plans to continue to account for
stock-based employee compensation under the intrinsic value based method and to provide disclosure of the impact of the fair value based method on reported income.

Factors That May Affect Future Results of Operations

Certain statements contained herein, such as statements concerning potential or future medical care ratios, pending acquisitions 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, as amended). Such statements involve a number of risks and
uncertainties that could cause actual results to differ materially from those projected. Factors that could cause actual results to differ materially from those projected 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 Medicare and Medicaid beneficiaries in various states,
including 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 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 by 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 may 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. Completion of the CareFirst transaction is subject to a number of conditions, including approval of
the insurance regulators in 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. On
March 5, 2003, the Maryland insurance commissioner issued an order disapproving the conversion of CareFirst to a for-profit entity. The Company has 30 days from the date of the commissioner's
order to appeal the order. If all conditions to closing are not satisfied on or before November 20, 2004, WellPoint and CareFirst will have the right to terminate the Amended CareFirst Merger
Agreement. As a result, there can be no assurances that the transaction will be consummated.

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As a condition to approval of the CareFirst 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.

As
part of the Company's business strategy, the Company has acquired substantial operations in new geographic markets over the last seven 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 Cerulean, RightCHOICE and
MethodistCare, the Company has continued to work extensively on the integration of these businesses. 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 acquired businesses. 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 California, Georgia and Missouri
Departments of Insurance, various other state Departments of Insurance and the Blue Cross and Blue Shield Association. Although the Company believes that it is currently in compliance in all material
respects with all applicable requirements, there can be no assurances that applicable 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 Blue Cross of California ("BCC"). The lawsuit alleges that BCC
violated the Racketeer Influenced and Corrupt Organizations Act ("RICO") 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 the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), federal and state "prompt pay" regulations and certain common law claims. In October 2000, the federal Judicial Panel on Multidistrict

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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 RICO, 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. 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 was to 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 hearing was held in January 2002 and, in March 2002, the Court of Appeals panel issued an opinion affirming Judge Moreno's earlier action with
respect to the motion to compel arbitration. The Company filed a motion requesting a rehearing of the matter before the entire 11th Circuit Court of Appeals, which motion was denied by
the 11th Circuit Court of Appeals in June 2002. On July 29, 2002, Judge Moreno issued an order providing that discovery in the case would be allowed to
re-commence on September 30, 2002. On September 26, 2002, Judge Moreno issued an additional order certifying a nationwide class of physicians in the Shanematter, setting a trial date in
May 2003 and ordering the parties to participate in non-binding mediation. In
October 2002, the Company filed a motion with the 11th Circuit Court of Appeals seeking to appeal Judge Moreno's class-certification order. In December 2002, the
11th Circuit granted the Company's motion for interlocutory review of the class-certification order. The parties are currently conducting pre-trial discovery. A mediator has
been appointed by Judge Moreno.

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 Company filed a motion (which was granted in July 2002) with the federal Judicial Panel on Multidistrict Litigation requesting that the
proceedings in this case be consolidated
with a similar action brought against other managed care companies that has been consolidated with theShanelawsuit.

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. This litigation was dismissed without prejudice at the request of the plaintiffs in February 2003. 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.

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The
Company's future results will depend in part on its ability to accurately predict health care costs and to control future health care costs through product and benefit design,
underwriting criteria, medical management and negotiation of favorable provider contracts. Changes in utilization rates, demographic characteristics, the regulatory environment and health care
practices, inflation, new pharmaceuticals/technologies, clusters of high-cost cases 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. In recent 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 health care services 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 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 (including competition from market entrants
offering
Internet-based products and services) could adversely affect the Company's financial condition, cash flows or results of operations.

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.

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

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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.

One
of the Company's wholly owned subsidiaries operates as a pharmacy benefit manager ("PBM") under the trade name WellPoint Pharmacy Management. The PBM industry faces a number of risks
and uncertainties in addition to those facing the Company's core health plan business. Such risks and uncertainties include the application of federal and state anti-remuneration laws
(generally known as "anti-kickback" laws), whether PBMs operate as fiduciaries under the Employee Retirement Income Security Act of 1974 ("ERISA") and are in compliance with their
fiduciary obligations under ERISA in connection with the development and implementation of items such as formularies, preferred drug listings and therapeutic intervention programs, and potential
liability regarding the use of patient-identifiable medical information. In addition, a number of federal and state legislative proposals are being considered that could affect a variety of PBM
industry practices, such as the receipt of rebates
from pharmaceutical manufacturers. The Company believes that its PBM business is currently being conducted in compliance in all material respects with applicable legal requirements. However, there can
be no assurance that the Company's PBM business will not be subject to challenge under various laws and regulations, or that any such challenge will not have a material adverse effect upon the
Company's results of operations or financial condition. In addition, future legislative enactments affecting the PBM industry could have a material adverse effect upon the Company's results of
operations and financial condition.

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.

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.

In
December 2000, a wholly owned subsidiary of the Company completed its acquisition of certain mail order pharmaceutical service assets and now 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. The failure to properly adhere to these and other applicable regulations could result in the imposition

65

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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 and other weapons. If the United States were to experience more widespread bioterrorist or other 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.

In
April and May 2002, one of the Company's wholly owned subsidiaries acting as a pharmacy benefit management business under the trade name WellPoint Pharmacy Management received
two administrative subpoenas duces tecum issued by the U.S. Attorney's Office in Boston Massachusetts. The Company does not believe that its pharmacy benefit management business is presently a target
of investigation by the U.S. Attorney. The subpoenas appear to focus primarily on WellPoint Pharmacy Management's relationship with TAP Pharmaceuticals, including TAP's drugs Lupron and Prevacid. The
Company has responded to the subpoenas by producing certain requested documents. The Company believes that it is in compliance in all material respects with all laws and regulations applicable to the
pharmacy benefit management business.

As
a result of the general nationwide economic downturn, many states are currently experiencing budget deficits. State legislators are exploring a variety of alternatives to address this
situation. In order to address the budget shortfalls, various states may propose reductions in payments received by Medicaid managed care providers such as the Company. Alternatively, state
legislators may seek to impose greater state taxes. Any significant reduction in payments received by the Company in connection with its Medicare managed care business could have a material adverse
effect on the Company's results of operations or financial condition. Additionally, any increase in state taxes could prolong or exacerbate the current economic downturn, which could in turn have a
material adverse effect on the Company's results of operations or financial condition. Budget cutbacks could also result in reduced employment levels in public sector accounts for which the Company
provides insured or administrative services products.

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.

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 liquidated its
non-dollar foreign bond

66

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holdings as of December 31, 2001. 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.

From
time to time, the Company has entered into interest rate swap agreements primarily 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. The Company believes that this allows it to better anticipate its interest
payments while helping to manage the asset-liability relationship.

Interest Rate Risk

The Company is exposed to market rate risks associated with its investments and borrowings. Market risk represents the risk of loss in value of a financial
instrument resulting from changes in interest rates and equity prices.

As
of December 31, 2002, the Company's investment securities at market value, totaled $5.3 billion, of which 89.6% was invested in fixed-income securities and the remaining
10.4% was invested in equity securities. As of December 31, 2001, the Company's investment securities at market value totaled $3.8 billion, of which 87.5% was invested in fixed-income
securities and the remaining 12.5% was invested in equity securities. 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
forward-looking mortgage market research and judgments about future prepayment behavior. Changes in the fair value of the investment portfolio, net of tax, are reflected in the balance sheet through
stockholders' equity. The results of this analysis as of December 31, 2002 are shown in the table below. The table also shows the change in valuation of the $200.0 million notional
amount 63/8% fixed for LIBOR-based floating interest rate swap agreement for the year ended December 31, 2002.

|                                          |  | Increase (decrease) in fair value
given an interest rate increase of: |       
|----------------------------------------- |  | --------------------------------------------------------------------- | ------
|
|
|Fixed-Income Portfolio                    |  | $                                                                     | (119.5
|Valuation of Interest Rate Swap Agreement |  |                                                                       | (5.9  
|                                          |  |                                                                       |       
|                                          |  | $                                                                     | (125.4
|                                          |  |                                                                       |       

Results
as of December 31, 2001 are shown in the table below. The table also shows the cumulative change in valuation of the $150.0 million and $50.0 million
notional amount floating-for-fixed interest rate swap agreements for the year ended December 31, 2001.

|                                           |  | Increase (decrease) in fair value
given an interest rate increase of: |       
|------------------------------------------ |  | --------------------------------------------------------------------- | ------
|
|
|Fixed Income Portfolio                     |  | $                                                                     | (120.0
|Valuation of Interest Rate Swap Agreements |  |                                                                       | 4.8   
|                                           |  |                                                                       |       
|                                           |  | $                                                                     | (115.2
|                                           |  |                                                                       |       

67

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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 Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" 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

On January 15, 2002, the Company entered into a $200.0 million notional amount interest rate swap agreement with respect to its 2006 Notes. The swap
agreement is a contract to exchange a fixed 63/8% rate for a LIBOR-based floating rate. For the year ended December 31, 2002, the Company recognized settlement income of
$6.5 million from this swap agreement. (See Note 9 to the Consolidated Financial Statements.)

The
Company has from time to time entered into additional 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 $200.0 million of floating to fixed-rate swap agreements, which consisted of a $150.0 million notional amount swap agreement at
6.99% and a $50.0 million notional amount swap agreement at 7.06%. As of December 31, 2001, the Company also had $235.0 million of LIBOR-based floating rate debt outstanding. In
September 2002, the Company terminated these two fixed-rate swap agreements with an aggregate cash settlement of $17.6 million, of which $1.8 million was accrued interest and the
remaining $15.8 million represented the fair value of the swap agreements at the time of termination. (See Note 16 to the Consolidated Financial Statements for further discussion.)

Equity Price Risk

As of December 31, 2002 and 2001, the Company's equity securities were comprised primarily of domestic stocks. Assuming an immediate decrease of 10% in
market value, as of December 31, 2002 and 2001, the hypothetical pre-tax loss in fair value of stockholders' equity is estimated to be approximately $54.9 million and
$47.8 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. 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 pre-tax loss in fair value as of December 31, 2002 and 2001, was estimated to be $8.4 million and $6.6 million, respectively.

68

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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 and extraordinary items |                                           |                                
|Income before extraordinary items                                |                                           |                                
|Net income                                                       |                                           | $                              
|                                                                 |                                           |                                
|Per Share Data:                                                  |                                           |                                
|Income before extraordinary items:                               |                                           |                                
|                                                                 | Earnings per share                        |                                
|                                                                 |                                           |                                
|                                                                 | Earnings per share assuming full dilution |                                
|                                                                 |                                           |                                
|Net income:                                                      |                                           |                                
|                                                                 | Earnings per share                        |                                
|                                                                 |                                           |                                
|                                                                 | Earnings per share assuming full dilution |                                
|                                                                 |                                           |                                
|Medical membership(A)                                            |                                           |                                
|                                                                 |                                           |                                

|                                         |                                           | As of and for the Quarter Ended
|---------------------------------------- | ----------------------------------------- | -------------------------------
|
|
|                                         |                                           |                                
|Total revenues                           |                                           | $                              
|Operating income                         |                                           |                                
|Income before provision for income taxes |                                           |                                
|Net income                               |                                           | $                              
|                                         |                                           |                                
|Per Share Data(B):                       |                                           |                                
|                                         | Earnings per share                        |                                
|                                         |                                           |                                
|                                         | Earnings per share assuming full dilution |                                
|                                         |                                           |                                
|Medical membership(C)                    |                                           |                                
|                                         |                                           |                                

69

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---

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

70

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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 2003 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Executive Officers of the Registrant."

Item 11. Executive Compensation.

The information required by Item 11 will be contained in the Company's proxy statement for its 2003 Annual Meeting of Stockholders and is incorporated herein by
reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Except as set forth below, the information required by Item 12 will be contained in the Company's proxy statement for its 2003 Annual Meeting of Stockholders and
is incorporated herein by reference.

Equity Compensation Plan Information

The following table provides, as of December 31, 2002, the number of securities issuable upon exercise of outstanding options, warrants or rights, the average
exercise price of such options, warrant and rights and the number of securities remaining available for issuance under the Company's various equity compensation plans.

|Plan Category                                                 |  | (a)
No. of securities to be issued upon exercise of outstanding options, warrants and rights |              | (b)
Weighted-average exercise price of outstanding warrants, options and rights |       | (c)
No. of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |          
|------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------- | ------------ | ------------------------------------------------------------------------------- | ----- | -------------------------------------------------------------------------------------------------------------------------------------------- | ---------
|Equity compensation plans approved by securityholders         |  | 10,213,999                                                                                   | (1)(2)(3)(4) | $                                                                               | 43.15 |                                                                                                                                              | 8,240,221
|Equity compensation plans not approved by securityholders (7) |  | 7,031,513                                                                                    |              | $                                                                               | 55.04 |                                                                                                                                              | 1,409,023
|Total                                                         |  | 17,245,512                                                                                   |              | $                                                                               | 48.14 |                                                                                                                                              | 9,649,244

---

71

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Description of 2000 Employee Stock Option Plan

Purpose

The purpose of the 2000 Employee Stock Option Plan (the "Employee Plan") is to enable the Company to offer stock options to employees of the Company, or any
affiliate of the Company linked
to the Company by a 50% or greater chain of ownership or in which the Company has a significant ownership interest, who is not an executive officer of the Company.

Administration

The Employee Plan is administered by a committee appointed by the Board, consisting of two or more members of the Board. The committee is generally authorized to
construe and interpret the Employee Plan, to select eligible individuals for participation and to specify the terms of awards under the Employee Plan.

Shares and Terms

Stock subject to awards granted under the Employee Plan is the Company's authorized but unissued or reacquired Common Stock. The number of shares of Common Stock
that may currently be issued under the Employee Plan will not exceed approximately 9.1 million shares, subject to certain adjustments. To the extent that an option expires or is
terminated, cancelled or forfeited for any reason without having been exercised in full, any remaining shares allocable to the unexercised portion of such option will again become available for
subsequent grants under the Employee Plan. Any shares held by an award holder that are delivered to the Company or that are otherwise withheld from shares issuable under an award in payment of all or
a portion of the exercise price or tax withholding obligations for such award will be available for subsequent grants and awards.

72

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Stock Option Awards

The Committee may only grant non-statutory stock options, which are not intended to satisfy the requirement for incentive stock options under
Section 422 of the Internal Revenue Code, as amended, under the Employee Plan.

The
exercise price of an option will be determined by the Committee. There is no limit on the duration of an option. The exercise price will generally be payable in full in cash or, at
the Committee's discretion, in previously owned shares held for the requisite period to avoid a charge to earnings, under certain conditions, by the proceeds of a same-day sale of the
award shares or by the extension of credit.

Under
the Employee Plan, any option granted may provide that upon exercise of the option, the optionholder will automatically be granted a reload option covering the number of shares
equal to (i) the number of shares delivered to the Company by the optionholder or withheld from shares otherwise issuable to the optionholder upon exercise in payment of the exercise price of
the option or the applicable tax withholding obligation and/or (ii) that number of shares with a then-fair market value equal to the amount of withholding obligations paid in cash
by the holder.

Adjustments

If there is a change in the Common Stock due to a change in the corporate or capital structure of the issuer of the Common Stock, the Committee will make
appropriate adjustments to the maximum number and class of shares subject to Employee Plan and to the number and class of shares and price per share of Common Stock subject to outstanding awards. The
Committee's determination will be conclusive.

Corporate Transactions

Under the Employee Plan, the Committee may determine and set forth in any award the effect, if any, that any sale of stock or assets, merger, combination,
spin-off, reorganization or liquidation of the Company will have upon the term, exerciseability or vesting of outstanding awards, provided that any awards that are continued, assumed or
replaced with comparable awards in connection with any transaction will be appropriately adjusted.

Tax Withholding

The Committee may, in its discretion and on such terms and conditions as it deems appropriate, require or permit award holders to elect to have a portion of the
shares of Common Stock otherwise issuable to them under the Employee Plan withheld in satisfaction of federal, state and local employment and income taxes incurred in connection with the acquisition
of those shares. Award holders may also be granted the right to deliver previously acquired shares of Common Stock held for the requisite period to avoid a charge to earnings in satisfaction of those
taxes. The withheld or delivered shares will be valued at fair market value on the applicable determination date for the taxes.

Amendment or Termination

The Employee Plan provides that the Board may amend, suspend or discontinue the Employee Plan at any time. To the extent not consistent with the Employee Plan,
the Committee may modify or waive the
terms of any outstanding award, provided that no modification or waiver may adversely effect a holder's rights without the holder's consent.

Item 13. Certain Relationships and Related Transactions.

The information required by Item 13 will be contained in the Company's proxy statement for its 2003 Annual Meeting of Stockholders and is incorporated herein by
reference.

73

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Item 14. Controls and Procedures.

The Company maintains "disclosure controls and procedures," as such term is defined under Rule 13a-14(c) of the rules and regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). These disclosure controls and procedures are designed to ensure that information required to be disclosed in the Company's Exchange
Act reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. The Company
has carried out an evaluation, within the 90 days prior to the date of filing of this annual report on Form 10-K, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures.
Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective in ensuring that material
information relating to the Company is made known to the Chief Executive Officer and Chief Financial Officer by others within the Company during the period in which this annual report on
Form 10-K was being prepared.

There
have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date the Company completed
its evaluation.

74

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PART IV

Item 15. Exhibits, Financial Statement 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.

3) Exhibits

|Exhibit
Number |  |                                                                                                                                                                                                                                                                                                                                  
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 to the 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 to 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. and RWP Acquisition Corp., incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on
Form S-4 (Registration No. 333-73382).                                                   
|2.04           |  | Amended and Restated Agreement and Plan of Merger dated as of January 24, 2003 by and among the Registrant, CareFirst, Inc. and Congress Acquisition Corp., incorporated by reference to Exhibit 99.2 to the Registrant's Current Report on
Form 8-K dated January 24, 2003.                                                     
|3.01           |  | Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K dated August 4, 1997 (File No. 001-13083).                                                                                                                                      
|3.02           |  | Bylaws of the Registrant, incorporated by reference to Exhibit 4.2 to the Registrant's Registrant Statement on Form S-8 (Registration No. 333-90701).                                                                                                                                                                            
|4.01           |  | Specimen of Common Stock certificate of the Registrant.                                                                                                                                                                                                                                                                          
|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           |  | Amended and Restated 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.                                                                                          
|4.05           |  | 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.                                                                                                                                                      
|4.06           |  | Form of Note evidencing the Registrant's 63/8% Notes due 2012, incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated January 11, 2002.                                                                                                                                                   
|               |  |                                                                                                                                                                                                                                                                                                                                  

75

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|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 to the Registrant's Form S-1 Registration
Statement No. 33-54898.                                                                                                             
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.02* |  | Supplemental Pension Plan of Blue Cross of California, incorporated by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (File No. 1-11628).                                                                                                                                                               
|10.03* |  | Form of Indemnification Agreement between the Registrant and its Directors and Officers, incorporated by reference to Exhibit 10.17 to 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 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1993 (File No. 1-11628).                                                                                                                    
|10.05  |  | Orders Approving Notice of Material Modification and Undertakings dated September 7, 1995 by Blue Cross of California, the Registrant and the Registrant's subsidiaries to the California Department of Corporations, incorporated by reference to
Exhibit 10.47 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 1-11628).
|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 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 (File No. 1-11628).                                                                                                 
|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 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 (File No. 1-11628).                                                           
|10.08* |  | Letter dated November 13, 1995 from the Registrant to Thomas C. Geiser regarding severance benefits, incorporated by reference to Exhibit 10.49 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (File No. 1-11628).                                                                                                                 
|10.09  |  | Amended and Restated Undertakings dated March 5, 1996 by Blue Cross of California, the Registrant and certain of its subsidiaries to the California Department of Corporations, incorporated by reference to Exhibit 99.1 to the Registrant's
Current Report on Form 8-K dated March 5, 1996 (File No. 1-11628).                                                               
|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 to the Registrant's
Current Report on Form 8-K dated May 20, 1996 (File No. 333-03292-01).                                                                  
|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 to the Registrant's Current Report on
Form 8-K dated August 4, 1997 (File No. 001-13083).                                                                                     
|10.12  |  | Blue Cross License Agreement effective as of January 31, 2002 by and among the Registrant and the Blue Cross and Blue Shield Association (the "BCBSA"), incorporated by reference to Exhibit 10.12 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001.                                                                                 
|       |  |                                                                                                                                                                                                                                                                                                                                                                                

76

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|10.13  |  | Blue Cross 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 dated August 4, 1997
(File No. 001-13083).                                                                 
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 to the Registrant's Current Report on Form 8-K
dated August 4, 1997 (File No. 001-13083).                                                   
|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 to
the Registrant's Current Report on Form 8-K dated August 4, 1997 (File No. 001-13083).
|10.16  |  | Undertakings dated July 31, 1997 by the Registrant, Blue Cross of 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 dated August 4, 1997 (File No. 001-13083).                      
|10.17* |  | 401(k) Retirement Savings Plan (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 fiscal year ended December 31, 2000.                                                                                                                  
|10.18* |  | WellPoint 2003 Officer Benefit Enrollment Guide Brochure, as amended.                                                                                                                                                                                                                                                        
|10.19  |  | 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 dated June 12, 1998 (File No. 333-31599).              
|10.20* |  | WellPoint Health Networks Inc. Officer Change-in-Control Plan (as amended and restated through December 4, 2001), incorporated by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001.                                                                     
|10.21* |  | WellPoint Health Networks Inc. Officer Severance Plan (as adopted December 4, 2001), incorporated by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.                                                                                                  
|10.22* |  | WellPoint Health Networks Inc. Management Bonus Plan effective as of January 1, 2000, incorporated by reference to Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
2000.                                                                                                 
|10.23* |  | WellPoint Health Networks Inc. Board of Directors Deferred Compensation Plan, incorporated by reference to Exhibit 10.52 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File
No. 001-13083).                                                                                    
|10.24* |  | Amended and Restated Employment Agreement dated as of December 31, 2002 by and between the Registrant and Leonard D. Schaeffer, incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated
December 31, 2002.                                                                            
|10.25* |  | Amended and Restated Special Executive Retirement Plan dated as of December 31, 2002 by and between the Registrant and Leonard D. Schaeffer, incorporated by reference to Exhibit 99.2 to the Registrant's Current Report on Form 8-K
dated December 31, 2002.                                                               
|10.26* |  | WellPoint Health Networks Inc. 1999 Stock Incentive Plan (as amended through December 6, 2000), incorporated by reference to Exhibit 10.37 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
2000.                                                                                       
|       |  |                                                                                                                                                                                                                                                                                                                              

77

---

|10.27* |  | WellPoint Health Networks Inc. 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.                                                                                                                                                                                                                                                                                    
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.28* |  | WellPoint Health Networks Inc. Comprehensive Executive Non-Qualified Retirement Plan (as amended through February 1, 2001), incorporated by reference to Exhibit 10.39 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000.                                                                                                                                                                                                              
|10.29* |  | WellPoint Health Networks Inc. 1996 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.                                                                                                                                                                                                                                   
|10.30* |  | WellPoint Health Networks Inc. 2000 Employee Stock Option Plan (as amended through October 19, 2001), incorporated by reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001.                                                                                                                                                                                                                                    
|10.31* |  | WellPoint Health Networks Inc. Supplemental Executive Retirement Plan (as restated effective December 4, 2001), incorporated by reference to Exhibit 10.35 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001.                                                                                                                                                                                                                          
|10.32* |  | Promissory Note Secured by Deed of Trust dated September 22, 2000 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.                                                                                                                                                                                                        
|10.33  |  | 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 31, 2001.
|10.34  |  | Credit Agreement ($250,000,000 364-Day Revolving Credit 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 31, 2001.                          
|10.35  |  | First Amendment to 364-Day Credit Agreement dated as of March 29, 2002 by and among the Registrant, the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, and JPMorgan, a division of Chase Securities,
 Inc., as syndication agent, incorporated by reference to Exhibit 10.01 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002.                                                                  
|10.36  |  | 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.                                                                                                                                                        
|10.37  |  | 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.                                                                                                                                                                                                       
|10.38  |  | Blue Cross Controlled Affiliate License Agreement dated as of March 15, 2001 by and among the BCBSA, Blue Cross Blue Shield Healthcare 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 31, 2001.                                                                                                                                            
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

78

---

|10.39  |  | 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 31, 2001.                                                                    
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.40  |  | Blue Cross Controlled Affiliate License Agreement Applicable to Life Insurance Companies 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 31, 2001.
|10.41  |  | Blue Shield Controlled Affiliate License Agreement Applicable to Life Insurance Companies 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 31, 2001.                                      
|10.42* |  | 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.                                                                                                          
|10.43  |  | California Blue Cross License Addendum amended and restated as of January 31, 2002 by and among the Registrant and the BCBSA, incorporated by reference to Exhibit 10.46 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001.                                                                             
|10.44  |  | California Blue Shield License Addendum amended and restated as of January 31, 2002 by and among the Registrant and the BCBSA, incorporated by reference to Exhibit 10.47 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001.                                                                            
|10.45  |  | 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, incorporated by reference to Exhibit 10.48 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 2001.                                 
|10.46  |  | Blue Shield Controlled Affiliate License Agreement dated as of January 31, 2002 by and among the BCBSA, RightCHOICE and the Registrant, incorporated by reference to Exhibit 10.49 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001.                                                                   
|10.47  |  | 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, incorporated by reference to Exhibit 10.50 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 2001.                              
|10.48  |  | Blue Shield Controlled Affiliate License Agreement dated as of January 31, 2002 by and among the BCBSA, HALIC and the Registrant, incorporated by reference to Exhibit 10.51 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001.                                                                         
|10.49  |  | 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, incorporated by reference to Exhibit 10.52 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 2001.                                            
|10.50  |  | Blue Shield Controlled Affiliate License Agreement dated as of January 31, 2002 by and among the BCBSA, HMO Missouri and the Registrant, incorporated by reference to Exhibit 10.53 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001.                                                                  
|       |  |                                                                                                                                                                                                                                                                                                                                                  

79

---

|10.51* |  | Amendment No. 2 to the WellPoint 401(k) Retirement Savings Plan (as amended through January 1, 2001), incorporated by reference to Exhibit 10.55 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001.                       
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.52* |  | Amendment No. 3 to the WellPoint 401(k) Retirement Savings Plan (as amended through January 1, 2001), incorporated by reference to Exhibit 10.56 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001.                       
|10.53* |  | Amendment No. 4 to the WellPoint 401(k) Retirement Savings Plan (as amended through January 1, 2001), incorporated by reference to Exhibit 10.57 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001.                       
|10.54  |  | Blue Shield License Agreement effective as of January 31, 2002 by and between the Registrant and the BCBSA, incorporated by reference to Exhibit 10.58 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001.                 
|10.55* |  | RightCHOICE Managed Care, Inc. 2001 Stock Incentive Plan effective May 1, 2001, incorporated by reference to Exhibit 10 to the Registration Statement on Form S-8 of RightCHOICE Managed Care, Inc. (File
No. 333-62898).                                          
|10.56* |  | RightCHOICE Managed Care, Inc. 1994 Equity Incentive Plan, incorporated by reference to Exhibit 4(c) of the Post-Effective Amendment No. 2 on Form S-8 to Registration Statement on Form S-4 of RightCHOICE Managed Care,
 Inc. (File No. 333-34750).              
|10.57* |  | RightCHOICE Managed Care, Inc. Nonemployee Directors' Stock Option Plan, incorporated by reference to Exhibit 10.16 to the Registration Statement on Form S-1 of RightCHOICE Managed Care, Inc., a Missouri corporation (File
No. 33-77798).                       
|10.58* |  | Restatement of the RightCHOICE Managed Care, Inc. Executive Deferred Compensation Plan, incorporated by reference to Exhibit 4(c) of the Registration Statement on Form S-8 of RightCHOICE Managed Care, Inc. (File
No. 333-51336).                                
|10.59* |  | RightCHOICE Managed Care, Inc. Supplemental Executive Retirement Plan as restated effective October 10, 2001, incorporated by reference to Exhibit 10.06 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002.                   
|10.60* |  | Letter agreement dated February 4, 2002 between the Registrant and John A. O'Rourke, incorporated by reference to Exhibit 10.07 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
2002.                                            
|10.61* |  | Amendment No. 1 to RightCHOICE Managed Care, Inc. Executive Deferred Compensation Plan effective as of October 15, 2001, incorporated by reference to Exhibit 10.08 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002.        
|10.62* |  | Amendment to the WellPoint 401(k) Retirement Savings Plan effective as of April 30, 2002, incorporated by reference to Exhibit 10.01 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
2002.                                        
|10.63* |  | WellPoint Health Networks Inc. Comprehensive Executive Non-Qualified Retirement Plan (as amended through September 1, 2002), incorporated by reference to Exhibit 10.01 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002.
|10.64* |  | Amendment to the WellPoint 401(k) Retirement Savings Plan effective as of September 1, 2002, incorporated by reference to Exhibit 10.02 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
2002.                                
|       |  |                                                                                                                                                                                                                                                                    

80

---

|10.65* |  | Amendment to the WellPoint 401(k) Retirement Savings Plan effective as of November 17, 2002, incorporated by reference to Exhibit 10.03 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
2002.
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.66* |  | Amendment to the WellPoint 401(k) Retirement Savings Plan (as amended through March 1, 2002) dated March 16, 2003.                                                                                                                 
|10.67  |  | Blue Cross Controlled Affiliate License Agreement Applicable to Life Insurance Companies dated October 4, 2002 by and between the BCBSA and HALIC.                                                                                 
|10.68  |  | Blue Shield Controlled Affiliate License Agreement Applicable to Life Insurance Companies dated October 4, 2002 by and between the BCBSA and HALIC.                                                                                
|10.69* |  | EGTRRA Amendment to the WellPoint 401(k) Retirement Savings Plan (as amended through March 1, 2002) dated December 4, 2002.                                                                                                        
|21     |  | List of Subsidiaries of the Registrant.                                                                                                                                                                                            
|23.1   |  | Consent of Independent Accountants.                                                                                                                                                                                                
|24     |  | Power of Attorney (included on Signature Page).                                                                                                                                                                                    
|99.1   |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                       
|99.2   |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                       

---

b. Reports on Form 8-K

On October 10, 2002, the Company filed a Current Report on Form 8-K dated October 10, 2002, which reported that Blue Cross of
California, the Company's primary operating subsidiary in California, intended to introduce a one-year pilot program, designated the PPO Physician Quality and Incentive Program (the
"PQIP"), which would provide financial and non-financial incentives to selected physicians serving Blue Cross of California's PPO members to improve the quality of care and service
delivered. The Company also reported that it did not expect the PQIP to result in a material increase in the Company's medical expenses.

On
December 31, 2002, the Company filed a Current Report on Form 8-K dated December 31, 2002, which reported that the Company had entered into an Amended
and Restated Employment Agreement dated as of such date with Leonard D. Schaeffer, the Company's current Chairman and Chief Executive Officer, and an Amended and Restated Special Executive Retirement
Plan with Mr. Schaeffer as of such date.

81

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

|                     |  |                                |                                                                                                           
|-------------------- |  | ------------------------------ | ----------------------------------------------------------------------------------------------------------
|                     |  | WELLPOINT HEALTH NETWORKS INC.
|                     |  |                                |                                                                                                           
|Date: March 26, 2003 |  | By:                            | /s/LEONARD D. SCHAEFFERLeonard D. Schaeffer Chairman
of the Board of Directors
and Chief Executive Officer

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, as amended, this 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 26, 2003
|/s/DAVID C. COLBYDavid C. Colby             |  | Executive Vice President and Chief Financial Officer (Principal Financial Officer)           |  | March 26, 2003
|/s/KENNETH C. ZUREKKenneth C. Zurek         |  | Senior Vice President, Controller and Taxation (Principal Accounting Officer)                |  | March 26, 2003
|                                            |  |                                                                                              |  |               

82

---

|/s/W. TOLIVER BESSONW. Toliver Besson       |  | Director |  | March 26, 2003
|------------------------------------------- |  | -------- |  | --------------
|/s/ROGER E. BIRKRoger E. Birk               |  | Director |  | March 26, 2003
|/s/SHEILA P. BURKESheila P. Burke           |  | Director |  | March 26, 2003
|/s/WILLIAM H.T. BUSHWilliam H.T. Bush       |  | Director |  | March 26, 2003
|/s/JULIE A. HILLJulie A. Hill               |  | Director |  | March 26, 2003
|/s/WARREN Y. JOBEWarren Y. Jobe             |  | Director |  | March 26, 2003
|/s/JANE G. PISANOJane G. Pisano             |  | Director |  | March 26, 2003
|/s/ELIZABETH A. SANDERSElizabeth A. Sanders |  | Director |  | March 26, 2003

83

---

CERTIFICATIONS

I, Leonard D. Schaeffer, certify that:





|Date: March 26, 2003 | /s/LEONARD D. SCHAEFFERLeonard D. Schaeffer Chairman of the Board of
Directors
and Chief Executive Officer |  | 
|-------------------- | ---------------------------------------------------------------------------------------------------------- |  | 
|                     |                                                                                                            |  | 

84

---

I, David C. Colby, certify that:





|Date: March 26, 2003 | /s/DAVID C. COLBYDavid C. Colby Executive Vice President and
Chief Financial Officer |  | 
|-------------------- | ------------------------------------------------------------------------------------ |  | 
|                     |                                                                                      |  | 

85

---

INDEX TO FINANCIAL STATEMENTS
WELLPOINT HEALTH NETWORKS INC.

|                                                                                                                |  | Page
|--------------------------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Accountants                                                                               |  | F-2 
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                                    |  | F-3 
|Consolidated Income Statements for the Years Ended December 31, 2002, 2001 and 2000                             |  | F-4 
|Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2002, 2001 and 2000 |  | F-5 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000                      |  | F-6 
|Notes to Consolidated Financial Statements                                                                      |  | F-7 

F-1

---

Report of Independent Accountants

To
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, 2002 and 2001, and the results of
its operations and its cash flows for each of the three years in the period ended December 31, 2002, 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 7 to the Consolidated Financial Statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets. Accordingly, the Company ceased amortizing goodwill and indefinite lived intangible assets as of January 1,
2002.

|/s/PRICEWATERHOUSECOOPERS LLP                                                                                            
|-------------------------------------------------------------------------------------------------------------------------
|PricewaterhouseCoopers LLP
Los Angeles, California
January 31, 2003, except Note 24 as to which the date is March 5, 2003

F-2

---

WellPoint Health Networks Inc.
Consolidated Balance Sheets

|                                                                                                                                                |                                        | December 31,                               |          
|----------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ------------------------------------------ | ---------
|
|
|ASSETS                                                                                                                                          |                                        |                                            |          
|Current Assets:                                                                                                                                 |                                        |                                            |          
|                                                                                                                                                | Cash and cash equivalents              |                                            | $        
|                                                                                                                                                | Investment securities, at market value |                                            |          
|                                                                                                                                                | Receivables, net                       |                                            |          
|                                                                                                                                                | Deferred tax assets, net               |                                            |          
|                                                                                                                                                | Other current assets                   |                                            |          
|                                                                                                                                                |                                        |                                            |          
|                                                                                                                                                |                                        | Total Current Assets                       |          
|Property and equipment, net                                                                                                                     |                                        |                                            | 346,351  
|Intangible assets, net                                                                                                                          |                                        |                                            | 737,461  
|Goodwill, net                                                                                                                                   |                                        |                                            | 1,691,771
|Long-term investments, at market value                                                                                                          |                                        |                                            | 134,274  
|Deferred tax assets, net                                                                                                                        |                                        |                                            |         
|Other non-current assets                                                                                                                        |                                        |                                            | 180,083  
|                                                                                                                                                |                                        |                                            |          
|                                                                                                                                                |                                        | Total Assets                               |          
|                                                                                                                                                |                                        |                                            |          
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                            |                                        |                                            |          
|Current Liabilities:                                                                                                                            |                                        |                                            |          
|                                                                                                                                                | Medical claims payable                 |                                            | $        
|                                                                                                                                                | Reserves for future policy benefits    |                                            |          
|                                                                                                                                                | Unearned premiums                      |                                            |          
|                                                                                                                                                | Accounts payable and accrued expenses  |                                            |          
|                                                                                                                                                | Experience rated and other refunds     |                                            |          
|                                                                                                                                                | Income taxes payable                   |                                            |          
|                                                                                                                                                | Security trades pending payable        |                                            |          
|                                                                                                                                                | Other current liabilities              |                                            |          
|                                                                                                                                                |                                        |                                            |          
|                                                                                                                                                |                                        | Total Current Liabilities                  |          
|Accrued postretirement benefits                                                                                                                 |                                        |                                            | 123,042  
|Reserves for future policy benefits, non-current                                                                                                |                                        |                                            | 214,328  
|Long-term debt                                                                                                                                  |                                        |                                            | 1,011,578
|Deferred tax liabilities, net                                                                                                                   |                                        |                                            | 18,924   
|Other non-current liabilities                                                                                                                   |                                        |                                            | 206,117  
|                                                                                                                                                |                                        |                                            |          
|                                                                                                                                                |                                        | Total Liabilities                          |          
|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, 149,748,101 and 135,307,637 issued at December 31, 2002 and 2001, respectively (A) |                                        |                                            | 1,497    
|Treasury stock, at cost, 2,697,958 and 7,474,305 shares at December 31, 2002 and 2001, respectively                                             |                                        |                                            | (173,842 
|Additional paid-in capital                                                                                                                      |                                        |                                            | 1,812,004
|Retained earnings                                                                                                                               |                                        |                                            | 2,315,254
|Accumulated other comprehensive income                                                                                                          |                                        |                                            | 21,784   
|                                                                                                                                                |                                        |                                            |          
|                                                                                                                                                | Total Stockholders' Equity             |                                            |          
|                                                                                                                                                |                                        |                                            |          
|                                                                                                                                                |                                        | Total Liabilities and Stockholders' Equity |          
|                                                                                                                                                |                                        |                                            |          

---

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                                                  |                        
|                                                                 |                                                                    |                        
|                                                                 |                                                                    |                        
|Operating Expenses:                                              |                                                                    |                        
|                                                                 | Health care services and other benefits                            |                        
|                                                                 | Selling expense                                                    |                        
|                                                                 | General and administrative expense                                 |                        
|                                                                 |                                                                    |                        
|                                                                 |                                                                    |                        
|                                                                 |                                                                    |                        
|Operating Income                                                 |                                                                    |                        
|                                                                 | Interest expense                                                   |                        
|                                                                 | Other expense, net                                                 |                        
|                                                                 |                                                                    |                        
|Income before Provision for Income Taxes and Extraordinary Items |                                                                    |                        
|                                                                 | Provision for income taxes                                         |                        
|                                                                 |                                                                    |                        
|Income before Extraordinary Items                                |                                                                    |                        
|Extraordinary Items:                                             |                                                                    |                        
|                                                                 | Gain from negative goodwill on acquisition                         |                        
|                                                                 | Loss on early extinguishment of debt, net of tax benefit of $2,534 |                        
|                                                                 |                                                                    |                        
|                                                                 |                                                                    |                        
|                                                                 |                                                                    |                        
|Net Income                                                       |                                                                    | $                      
|                                                                 |                                                                    |                        
|Earnings Per Share(A):                                           |                                                                    |                        
|                                                                 | Income before Extraordinary Items                                  |                        
|                                                                 | Extraordinary gain from negative goodwill on acquisition           |                        
|                                                                 | Extraordinary loss on early extinguishment of debt, net of tax     |                        
|                                                                 |                                                                    |                        
|                                                                 | Net income                                                         |                        
|                                                                 |                                                                    |                        
|Earnings Per Share Assuming Full Dilution(A):                    |                                                                    |                        
|                                                                 | Income before Extraordinary Items                                  |                        
|                                                                 | Extraordinary gain from negative goodwill on acquisition           |                        
|                                                                 | Extraordinary loss on early extinguishment of debt, 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, 2000                                                      |                                                                                                        | $ |  |              | 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
|Stock grants to employees and directors                                            |                                                                                                        |   |   |              |         |  |   |       |  | (78    | ) |   | 4,944   
|Stock issued for employee stock option and stock purchase plans                    |                                                                                                        |   |   |              |         |  |   |       |  | (3,787 | ) |   | 232,384 
|Stock repurchased, at cost                                                         |                                                                                                        |   |   |              |         |  |   |       |  | 4,625  |   |   | (304,342
|Proceeds from sale of put options                                                  |                                                                                                        |   |   |              |         |  |   |       |  |        |   |   |         
|Stock issued in connection with acquisition of RightCHOICE Managed Care, Inc.      |                                                                                                        |   |   |              | 2,718   |  |   | 27    |  | (5,536 | ) |   | 358,977 
|100% Stock Dividend on March 15, 2002                                              |                                                                                                        |   |   |              | 72,921  |  |   | 729   |  |        |   |   |         
|Stock issued under zero coupon convertible subordinated debentures redemption call |                                                                                                        |   |   |              | 2,718   |  |   | 27    |  |        |   |   |         
|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 |   |   |              |         |  |   |       |  |        |   |   |         
|                                                                                   | Minimum pension liability adjustment, net of tax                                                       |   |   |              |         |  |   |       |  |        |   |   |         
|                                                                                   |                                                                                                        |   |   |              |         |  |   |       |  |        |   |   |         
|Total comprehensive income (loss)                                                  |                                                                                                        |   |   |              |         |  |   |       |  |        |   |   |         
|                                                                                   |                                                                                                        |   |   |              |         |  |   |       |  |        |   |   |         
|Balance as of December 31, 2002                                                    |                                                                                                        | $ |  |              | 149,748 |  | $ | 1,497 |  | 2,698  |   | $ | (173,842
|                                                                                   |                                                                                                        |   |   |              |         |  |   |       |  |        |   |   |         

See the accompanying notes to the consolidated financial statements.

F-5

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WellPoint Health Networks Inc.
Consolidated Statements of Cash Flows

|                                               |                                                                                                          | Year Ended December 31,                                                                                                    |                                                                                
|---------------------------------------------- | -------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------
|
|
|Cash flows from operating activities:          |                                                                                                          |                                                                                                                            |                                                                                
|                                               | Income before extraordinary items                                                                        |                                                                                                                            | $                                                                              
|                                               | Adjustments to reconcile income before extraordinary items to net cash provided by operating activities: |                                                                                                                            |                                                                                
|                                               |                                                                                                          | Depreciation and amortization, net of accretion                                                                            |                                                                                
|                                               |                                                                                                          | (Gain) loss on sales of assets, net                                                                                        |                                                                                
|                                               |                                                                                                          | (Benefit) provision 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 due 2012 and 63/8% Notes due 2006 |                                                                                
|                                               |                                                                                                          | (Increase) decrease in certain assets:                                                                                     |                                                                                
|                                               |                                                                                                          |                                                                                                                            | Receivables, net                                                               
|                                               |                                                                                                          |                                                                                                                            | 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                                      
|                                               |                                                                                                          |                                                                                                                            | Acquisition of new businesses, net of cash acquired                            
|                                               |                                                                                                          |                                                                                                                            |                                                                                
|                                               |                                                                                                          |                                                                                                                            |                                                                                
|                                               |                                                                                                          |                                                                                                                            |                                                                                
|Cash flows from financing activities:          |                                                                                                          |                                                                                                                            |                                                                                
|                                               |                                                                                                          |                                                                                                                            | Net (repayment) borrowing of long-term debt under the revolving credit facility
|                                               |                                                                                                          |                                                                                                                            | Net borrowing of commercial paper                                              
|                                               |                                                                                                          |                                                                                                                            | Net borrowing of long-term debt under 63/8% Notes due 2006                     
|                                               |                                                                                                          |                                                                                                                            | Net borrowing of long-term debt under 63/8% Notes due 2012                     
|                                               |                                                                                                          |                                                                                                                            | Cash paid on redemption of Zero Coupon Convertible Subordinated Debentures     
|                                               |                                                                                                          |                                                                                                                            | Change in advances on securities lending deposits                              
|                                               |                                                                                                          |                                                                                                                            | Proceeds from issuance of Common Stock                                         
|                                               |                                                                                                          |                                                                                                                            | Proceeds from sale of put options                                              
|                                               |                                                                                                          |                                                                                                                            | Common Stock repurchased                                                       
|                                               |                                                                                                          |                                                                                                                            |                                                                                
|                                               |                                                                                                          |                                                                                                                            |                                                                                
|                                               |                                                                                                          |                                                                                                                            |                                                                                
|Net increase in cash and cash equivalents      |                                                                                                          |                                                                                                                            | 327,140                                                                        
|Cash and cash equivalents at beginning of year |                                                                                                          |                                                                                                                            | 1,028,476                                                                      
|                                               |                                                                                                          |                                                                                                                            |                                                                                
|Cash and cash equivalents at end of year       |                                                                                                          | $                                                                                                                          | 1,355,616                                                                      
|                                               |                                                                                                          |                                                                                                                            |                                                                                

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, 2002, WellPoint had approximately 13.2 million medical members and approximately 48.1 million specialty members. Through its subsidiaries, the Company offers a broad
spectrum of network-based managed care 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"), 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 management and claims processing. The Company also provides a broad array of specialty and other products and
services including pharmacy, dental, vision, life insurance, preventive care, disability, 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. 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 and Blue Shield names and marks. The
Company's customer base is diversified, with extensive membership among large and small employer groups and individuals and in the Medicare and Medicaid markets.

2.    ACQUISITIONS

In 1996, the Company began pursuing a nationwide expansion strategy through selective acquisitions and start-up activities in key geographic areas.
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 Methodist
Care, Inc. ("MethodistCare") and RightCHOICE Managed Care, Inc. ("RightCHOICE") in 2002 and Cerulean Companies, Inc. ("Cerulean") in 2001.

On
April 30, 2002, the Company completed the acquisition of MethodistCare, which served over 70,000 members in Houston, Texas and surrounding areas at the time of acquisition. As
a result of the acquisition, the Company recognized an extraordinary gain of $8.9 million, or $0.06 per share assuming full dilution, for the year ended December 31, 2002, due to an
excess of the fair value of net assets over acquisition costs.

On
January 31, 2002, WellPoint completed its merger, through its wholly owned subsidiary, RWP Acquisition Corp., with RightCHOICE, the parent company of Blue Cross and Blue Shield
of Missouri, which served approximately 2.2 million medical members as of January 31, 2002. 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 approximately $379.1 million in cash and 16.5 million shares of WellPoint Common Stock. WellPoint issued
approximately 11.1 million shares from treasury stock and the remaining 5.4 million shares from newly issued shares of WellPoint Common Stock. The total purchase price of approximately
$1,503.7 million was used to purchase net assets with a fair value of approximately $308.8 million. 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 RightCHOICE from the date of acquisition. As a result of the acquisition of RightCHOICE, the

F-7

---

Company estimates that it will incur $53.2 million in expenses primarily related to change-in-control payments to RightCHOICE 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. Goodwill and other intangibles totaling $1,338.4 million includes $108.4 million of deferred and current
tax liabilities relating to identified intangibles. With the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"),
goodwill and other intangible assets with indefinite useful lives are no longer amortized, but are instead subject to impairment tests. Identified intangibles with definite useful lives are being
amortized on a straight-line basis or the timing of related cash flows over 15 to 20 years. The valuation process is not yet complete, pending completion of the Company's
integration plan in the first quarter of 2003. As a result, the useful lives and method of amortization are only preliminary estimates. The current estimated purchase price allocation between goodwill
and identifiable intangible assets is $1,072.3 million and $266.1 million, respectively. The entire goodwill amount of $1,072.3 million is not deductible for tax purposes. The
following table summarizes the estimated fair values of the assets acquired and liabilities assumed at date of acquisition.

As of January 31, 2002
(In millions)

Current assets

$
601.9Property, plant, and equipment


107.1Intangible assets


266.1Goodwill


1,072.3Other long-term assets


32.8Total assets acquired


2,080.2Current liabilities


419.8Long-term deferred tax liability


95.6Other long-term liabilities


61.1Total liabilities assumed


576.5Net assets acquired

$
1,503.7


On
March 15, 2001, the Company completed its acquisition of Cerulean, the parent company of Blue Cross and 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 incurred $134.5 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.

F-8

---

Goodwill and other intangibles totaling $602.9 million includes $149.1 million of deferred and current tax liabilities relating to identified intangibles. Other intangibles with
definite useful lives are being amortized using a straight-line basis or the timing of related cash flows over five to 25 years. The purchase price allocation between goodwill and
identifiable intangible assets is $235.3 million and $367.6 million, respectively.

In
accordance with the requirements of Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141"), the following unaudited pro forma
summary presents revenues, net income and per share data of WellPoint as if the acquisitions of Cerulean, RightCHOICE and MethodistCare had occurred on January 1, 2001. The pro forma
information includes the results of operations for each acquired entity for the period prior to its acquisition, adjusted for interest expense on long-term debt incurred to fund the
acquisitions, amortization of goodwill and intangible assets and the related income tax effects. The pro forma financial information for the year ended December 31, 2001 is presented under the
requirements of APB Opinion No. 16, "Business Combinations," which allows for amortization of goodwill and other intangible assets with indefinite useful lives. The pro forma financial
information for the year ended December 31, 2002 is presented under the requirements of SFAS No. 142, which eliminates the amortization of goodwill and other intangible assets with
indefinite useful lives. For comparability purposes, the pro forma financial information for the year ended December 31, 2001 has also been presented under the requirements of SFAS
No. 141.

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, 2002 and 2001, nor is it necessarily indicative of future results of operations. Pro forma earnings per share is based on 145.6 million and 143.4 million
pro forma weighted average shares outstanding for years ended December 31, 2002 and 2001, respectively. Pro forma earnings per share assuming full dilution is based on 152.3 million and
150.1 million pro forma weighted average shares outstanding for the years ended December 31, 2002 and 2001, respectively.

|                            |                                                      | Year Ended December 31,
|--------------------------- | ---------------------------------------------------- | -----------------------
|
|
|Revenues                    |                                                      | $                      
|                            | Adjusted Pro Forma Income before Extraordinary Items |                        
|                            | Adjusted Pro Forma Net Income                        |                        
|Earnings Per Share:         |                                                      |                        
|                            | Adjusted Pro Forma Income before Extraordinary Items |                        
|                            | Adjusted Pro Forma Net Income                        |                        
|Diluted Earnings Per Share: |                                                      |                        
|                            | Adjusted Pro Forma Income before Extraordinary Items |                        
|                            | Adjusted Pro Forma Net Income                        |                        

For
the year ended December 31, 2001, the adjusted pro forma income before extraordinary items and adjusted pro forma net income includes a $14.0 million
after-tax gain resulting from MethodistCare's sale of its investment in a limited liability partnership operating a large multi-practice medical group.

F-9

---

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 and have been consistently applied. The
preparation of financial statements in conformity with generally accepted accounting principles in the United States 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 the Company believes that the carrying value of such assets and liabilities is
adequate as of December 31, 2002 and 2001, actual results could differ from the estimates upon which the carrying values were based.

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 on a
periodic basis. 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, certain equities and other investments. Restricted assets, at market value, included in long-term
investments at December 31, 2002 and 2001 were $104.0 million and $106.6 million, respectively, and consisted of investments on deposit with the California Department of Managed
Health Care ("DMHC"). These deposits consisted primarily of

F-10

---

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 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 first in-first out method is used in determining the cost of debt and equity securities sold.

The
Company evaluates all of its investments based on current market prices and 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. For the years ended December 31, 2002, 2001 and 2000 the Company
recorded adjustments of approximately $41.9 million, $21.1 million and $18.3 million, respectively, related to these declines.

The
Company participates in securities lending programs whereby marketable securities in the Company's portfolio are transferred to an independent broker or dealer in exchange for
collateral initially equal to at least 102% of the market value of securities on loan. The broker or dealer is required to deliver additional collateral if the market value of the collateral initially
delivered falls below 100% of the market value of securities on loan.

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 Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
ActivitiesDeferral of the Effective Date of FASB Statement No. 133an amendment of FASB Statement No. 133" and Statement of Financial Accounting Standards No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging Activitiesan amendment of FASB Statement No. 133," 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 uses 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

F-11

---

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

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS
No. 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that all business
combinations initiated after June 30, 2001 be accounted for using the purchase method. The provisions of SFAS No. 141 also apply to all business combinations consummated after
June 30, 2001. SFAS No. 142, which became effective for fiscal years beginning after December 15, 2001, eliminates amortization of goodwill and other intangible assets with
indefinite useful lives. Rather, these assets are subject to impairment tests at least annually. Intangible assets with definite useful lives are being amortized using a straight-line
basis or the timing of related cash flows over periods ranging from
5 to 25 years. An intangible asset subject to amortization must be reviewed for impairment pursuant to Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" (See Note 7 for further discussion of the Company's intangible assets and goodwill.)

The
Company adopted SFAS No. 142 on January 1, 2002 and no longer amortizes goodwill and other intangible assets with indefinite useful lives. In accordance with SFAS
No. 142, the Company completed the transitional evaluation of its goodwill and other intangible assets at January 1, 2002 and the annual evaluation at December 31, 2002, and
determined that there was no impairment loss.

Medical Claims Payable

Medical claims payable include claims in process as well as provisions for the estimate of incurred but not reported claims and provisions for disputed claims
obligations. Such estimates are developed using actuarial principles and assumptions that consider, among other things, contractual requirements,

F-12

---

historical utilization trends and payment patterns, benefits changes, medical inflation, product mix, seasonality, membership and other relevant factors. In developing its best estimate of medical
claims payable, the Company consistently applies the principles and assumptions listed above from year to year, while also giving due consideration to the potential variability of these factors.
Because medical claims payable includes various actuarially developed estimates, the Company's actual health care services expense may be more or less than the Company's previously developed
estimates. 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 of the Company.

The
Company's future results of operations will depend in part on its ability to predict and control health care costs through underwriting criteria, medical management, product design
and negotiation of favorable provider and hospital contracts. The Company'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 estimate of reserves for future policy benefits relates 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 that the Company expects to pay within one year. The Company 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 of the Company.

F-13

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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 has used interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate debt under its revolving credit facility. The interest rate 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. In September 2002, the Company terminated and settled its interest rate swap
agreements related to its floating rate debt under its revolving credit facility.

In
order to reduce interest expense associated with the 63/8% Notes due 2006, the Company, on January 15, 2002, entered into an interest rate swap agreement. The
swap agreement is a contract to exchange a fixed 63/8% rate for a LIBOR-based floating rate.

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 consolidated financial
statements as measured by the provision of currently enacted tax laws and rates applicable to future periods.

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

F-14

---

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. There is no specified
commitment period for individual members under the health, life and disability contracts. Since the company assumes the risk of both medical and administrative costs for its members in return for
premium revenue, contracts with overdue payments are generally automatically cancelled to the extent permitted under applicable law. For small and large employer groups, the commitment period is
generally one year. The Company has the ability at a minimum to 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, 2002, 2001 and 2000 were $308.1 million, $200.3 million
and $11.0 million, respectively. The pharmaceutical costs for the years ended December 31, 2002, 2001 and 2000 were $278.3 million, $186.8 million and $10.3 million,
respectively.

The
Company owns a pharmacy benefit management company, which generates revenues by negotiating lower drug costs for the Company as well as other external health plan sponsors. The
member generally pays a copayment to the retail pharmacy and the pharmacist fills the prescription. The Company does not record the copayments as part of its revenue or costs.

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-15

---

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.

Acquisition Costs

Acquisition costs are those costs, such as commissions and other costs, that vary with and are primarily related to the acquisition of new and renewal insurance
contracts. Commissions paid to outside brokers and agents representing the Company associated with health contracts are not deferred, but rather, expensed as incurred in accordance with the AICPA
Audit and Accounting Guide for Health Care Organizations. The Company's life and disability product offerings have traditional insurance aspects, which require consideration under Statement of
Financial Accounting Standards No. 60, "Accounting and Reporting by Insurance Enterprises" ("SFAS No. 60"). These products, however, are primarily offered to large group employers where
selling expense is not incremental because the Company's existing staff supports all marketing efforts and, therefore, the selling expense of these products does not qualify for deferral under SFAS
No. 60.

Advertising Costs

The Company uses print and broadcast advertising to promote its products. The cost of advertising is expensed as incurred and totaled approximately
$76.3 million, $59.6 million and $61.8 million for the years ended December 31, 2002, 2001 and 2000, 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 Common Stock for each share outstanding. Except for the Consolidated Statements of Changes in Stockholders' Equity, all share and per share data for all
periods presented herein have been adjusted to give effect to the stock split.

Stock-Based Compensation

At December 31, 2002, the Company had three stock-based employee compensation plans: the 1999 Stock Incentive Plan, the 2000 Employee Stock Option Plan and
the Employee Stock Purchase Plan.
The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related FASB interpretations.
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 Common Stock at the date of the grant over the
amount

F-16

---

an employee must pay to acquire the stock. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market
value of the underlying Common Stock on the date of grant. The following table illustrates the pro forma effect on net income and earnings per share if the Company had applied the fair value
recognition provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" for the years ended December 31, 2002, 2001 and 2000.

|                                                                                                                                          |  | 2002 |       | 2001 |   | 2000  |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | ----- | -
|
|Net incomeas reported                                                                                                                    |  | $    | 703.1 |      | $ | 414.7 |  
|Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |  |      | (53.1 | )    |   | (33.0 | )
|                                                                                                                                          |  |      |       |      |   |       |  
|Net incomepro forma                                                                                                                      |  | $    | 650.0 |      | $ | 381.7 |  
|                                                                                                                                          |  |      |       |      |   |       |  
|Earnings per shareas reported                                                                                                            |  | $    | 4.87  |      | $ | 3.27  |  
|Earnings per sharepro forma                                                                                                              |  | $    | 4.51  |      | $ | 3.01  |  
|Earnings per share assuming full dilutionas reported                                                                                     |  | $    | 4.67  |      | $ | 3.15  |  
|Earnings per share assuming full dilutionpro forma                                                                                       |  | $    | 4.32  |      | $ | 2.90  |  

The
above pro forma disclosures may not be representative of the effects on reported pro forma net income for future years. (See Note 12 for information regarding activity in the
Company's stock plans and the assumptions used in the fair value based method depicted above.)

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.

Reclassifications

Certain amounts in the prior years consolidated financial statements have been reclassified to conform to the 2002 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
Statement of Financial Accounting Standards No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." Under SFAS No. 141, all business combinations must be
accounted for using the purchase method and the use of the pooling of interests method is prohibited. The provisions of the new standard apply to all business combinations initiated after
June 30, 2001. The adoption of SFAS No. 141 by the Company did not have a material effect on the consolidated financial statements of the Company.

F-17

---

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 that evaluates it for impairment. Amortization of goodwill, including previously recorded goodwill, ended upon adoption of the new
rules by the Company. The new rules also eliminate amortization of other intangibles with indefinite useful lives, but these assets are also subject to impairment tests. SFAS No. 142 became
effective for fiscal years beginning after December 15, 2001. Upon adoption of SFAS No. 142 on January 1, 2002, and again on December 31, 2002, the Company completed the
evaluation of its goodwill and other intangible assets and determined that there was no impairment loss. Amortization of goodwill and other intangibles for the years ended December 31, 2002,
2001 and 2000 totaled $38.0 million, $63.1 million and $38.1 million, respectively. Adoption of SFAS No. 142 accounted for $41.3 million of the amortization decrease
in the year ended December 31, 2002 as compared to the year ended December 31, 2001, offset by a net increase in amortization of intangible assets with definite useful lives of
$16.2 million, which was primarily due to the RightCHOICE and Cerulean acquisitions. The increase in amortization of goodwill and other intangibles in 2001 as compared to 2000 was primarily due
to the Cerulean acquisition.

In
June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS
No. 143 became effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company adopted 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 adoption of SFAS No. 143 did not have a material effect on the consolidated financial statements of the Company.

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 became effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 on
January 1, 2002. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes Statement of Financial Accounting
Standards 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" ("APB Opinion No. 30") 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 adoption of SFAS No. 144 did not have any impact on the
Company's financial results for the year ended December 31, 2002.

In
April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections as of April 2002" ("SFAS No. 145"). With the rescission of FASB Statement No. 4, gains and losses from the extinguishment of debt should
be classified as extraordinary items only if they meet the criteria in APB Opinion No. 30. Applying the provisions of APB Opinion No. 30 will distinguish

F-18

---

transactions that are part of an entity's recurring operations from those that are unusual or infrequent or that meet the criteria for classification as an extraordinary item. The provisions of SFAS
No. 145 related to the rescission of FASB Statement No. 4 are required to be applied for fiscal years beginning after May 15, 2002. The Company has determined that the
extinguishment of debt under its Zero Coupon Convertible Subordinated Debentures, which were redeemed as of October 28, 2002, does not meet the requirements of unusual or infrequent and
therefore would not be included as an extraordinary item with the rescission of FASB Statement No. 4. The Company does not believe the other provisions within SFAS No. 145 will have a
material effect on its consolidated financial statements.

In
June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS
No. 146"), which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF
No. 94-3"). The Company will adopt the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002. SFAS No. 146 requires that the
liability for costs associated with an exit or disposal activity be recognized when the liability is incurred rather than at the date of a commitment to an exit or disposal plan. Under EITF
No. 94-3, a liability for an exit cost was recognized at the date of a company's commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially
be measured and recorded at fair value. The Company does not believe the adoption of SFAS No. 146 will have a material effect on its consolidated financial statements.

In
October 2002, the FASB amended the rules regarding accounting for certain acquisitions of financial institutions under Statement of Financial Accounting Standards
No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions" ("SFAS No. 72"), SFAS No. 144 and FASB Interpretation No. 9, through the issuance of
Statement of Financial Accounting Standards No. 147, "Acquisitions of Certain Financial Institutions" ("SFAS No. 147"). Except for transactions between two or more mutual enterprises,
SFAS No. 147 removes acquisitions of financial institutions from the scope of both SFAS No. 72 and FASB Interpretation No. 9 and requires that those transactions be accounted for
in accordance with SFAS No. 141 and SFAS No. 142. In addition, SFAS No. 147 amends SFAS No. 144 to include in its scope long-term customer-relationship
intangible assets of financial institutions. SFAS No. 147 became effective on October 1, 2002. The Company believes that the adoption of SFAS No. 147 will have no significant
impact on its results of operations or financial position.

In
December 2002, the FASB amended the transition and disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), through the issuance of Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based CompensationTransition and
Disclosure" ("SFAS No. 148"). SFAS No. 148 amends the disclosures that a company is required to make in its annual financial statements and requires, for the first time, certain
disclosures in interim financial reports. In addition to the disclosures required by SFAS No. 123, a company must disclose additional information as part of its Summary of Significant
Accounting Policies. These disclosures are required regardless of whether a company is using the intrinsic value method under APB Opinion No. 25, "Accounting for Stock Issued to Employees" or
the fair value based method under SFAS No. 123 to account for its stock-based employee compensation. SFAS No. 148 also provides alternative methods of transition for a voluntary change
to the fair value

F-19

---

based method of accounting for stock-based employee compensation. SFAS No. 148 is effective for fiscal years ending after December 15, 2002. The Company plans to continue to account for
stock-based employee compensation under the intrinsic value based method and to provide disclosure of the impact of the fair value based method on reported income.

4.    INVESTMENTS

Investment Securities

The Company's investment securities consisted of the following:

December 31, 2002Gross UnrealizedCost or
Amortized
Cost

Estimated
Fair ValueGains

Losses(In thousands)U.S. Treasury and agency securities

$
673,443

$
17,599

$
165

$
690,877Municipal securities


102,756


2,961


56


105,661Mortgage-backed securities


1,436,689


42,811


706


1,478,794Corporate and other securities


2,335,978


129,615


7,512


2,458,081Total debt securities


4,548,866


192,986


8,439


4,733,413Equity and other investments


599,065


16,299


65,890


549,474Total investment securities

$
5,147,931

$
209,285

$
74,329

$
5,282,887




December 31, 2001Gross UnrealizedCost or
Amortized
Cost

Estimated
Fair ValueGains

Losses(In thousands)U.S. Treasury and agency securities

$
427,013

$
12,901

$
421

$
439,493Municipal securities


730


21





751Mortgage-backed securities


906,022


15,413


1,459


919,976Corporate and other securities


1,964,773


42,106


12,572


1,994,307Total debt securities


3,298,538


70,441


14,452


3,354,527Equity and other investments


408,450


88,863


18,858


478,455Total investment securities

$
3,706,988

$
159,304

$
33,310

$
3,832,982


The
amortized cost and estimated fair value of debt securities as of December 31, 2002, based on contractual maturity dates, are summarized below. Expected maturities for
mortgage-backed securities

F-20

---

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(In thousands)Due in one year or less

$
193,138

$
197,310Due after one year through five years


1,660,367


1,724,033Due after five years through ten years


1,211,159


1,277,851Due after ten years


1,484,202


1,534,219Total debt securities

$
4,548,866

$
4,733,413


For
the years ended December 31, 2002, 2001 and 2000, proceeds from the sales and maturities of debt securities were $5,106.6 million, $4,534.7 million and
$2,760.8 million, respectively. For the year ended December 31, 2002, gross realized gains and gross realized losses from sales of debt securities were $84.8 million and
$84.2 million, respectively. Gross gains of $54.2 million and gross losses of $41.6 million were realized on the sales of debt securities for the year ended December 31,
2001. In 2000, gross realized gains and gross realized losses from sales of debt securities were $12.0 million and $28.8 million, respectively. For debt security investments with
declines in fair value below cost, which the Company judged to be other than temporary, the Company recorded write-downs of approximately $27.9 million, $9.0 million and
$2.5 million, for the years ended December 31, 2002, 2001 and 2000, respectively.

For
the years ended December 31, 2002, 2001 and 2000, proceeds from the sales of equity securities were $531.9 million, $168.4 million and $310.3 million,
respectively. In 2002, gross realized gains and gross realized losses on the sales of equity securities were $105.7 million and $50.9 million, respectively. Gross gains of
$6.4 million and gross losses of $23.3 million were realized on the sales of equity securities in 2001. For 2000, gross realized gains and gross realized losses on the sales of equity
securities were $11.0 million and $15.3 million, respectively. For equity and other investments with declines in fair value below cost, which the Company judged to be other than
temporary, the Company recorded write-downs of approximately $14.0 million, $12.1 million and $15.8 million, for the years ended December 31, 2002, 2001 and 2000,
respectively.

Securities
on loan under the Company's securities lending programs are included in its cash and investment portfolio shown on the accompanying consolidated balance sheets. Under these
programs,
brokers and dealers who borrow securities 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, 2002 and 2001 was $197.4 million and $110.8 million, respectively, and income earned on security lending transactions for the years ended December 31, 2002,
2001 and 2000 was $0.3 million for each of such years.

F-21

---

Long-term Investments

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

Gross UnrealizedDecember 31, 2002Cost or
Amortized
Cost

Gains

Losses

Estimated
Fair Value(In thousands)Mortgage-backed securities

$
42,599

$
1,134

$


$
43,733Money market funds


60,231








60,231Equity and other investments


30,310








30,310Total long-term investments

$
133,140

$
1,134

$


$
134,274




Gross UnrealizedDecember 31, 2001Cost or
Amortized
Cost

Gains

Losses

Estimated
Fair Value(In thousands)Mortgage-backed securities

$
97,365

$
2,779

$


$
100,144Equity and other investments


24,467








24,467Total long-term investments

$
121,832

$
2,779

$


$
124,611


At
December 31, 2002, the Company's debt securities with contractual maturity dates occurring through 2007 had an amortized cost of $42.6 million and a market value of
$43.7 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. Long-term investments consist primarily of restricted assets, certain equities and other investments.

5.    RECEIVABLES, NET

Receivables consisted of the following:

December 31,2002

2001(In thousands)Premiums receivable

$
595,219

$
442,503Investment income and other receivables


729,754


487,7451,324,973


930,248Less: allowance for doubtful accounts


101,741


88,526Receivables, net

$
1,223,232

$
841,722


F-22

---



6.    PROPERTY AND EQUIPMENT, NET

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

December 31,Useful Life

2002

2001(In thousands)Equipment

5 years

$
164,799

$
135,863Software

5 years


263,056


186,158Leasehold improvements

Term of Lease


88,829


75,630Furniture and fixtures

8 years


99,546


81,658Building

30 years


86,112


14,427Land




7,454


1,429709,796


495,165Less: accumulated depreciation and amortization




363,445


273,085Property and equipment, net



$
346,351

$
222,080


Depreciation
and amortization expense for the years ended December 31, 2002, 2001 and 2000 was $64.8 million, $45.4 million and $38.5 million, respectively.

7.    GOODWILL AND OTHER INTANGIBLE ASSETS

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS
No. 141"), and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that all business
combinations initiated after June 30, 2001 be accounted for using the purchase method. The provisions of SFAS No. 141 also apply to all business combinations consummated after
June 30, 2001. SFAS No. 142, which became effective for fiscal years beginning after December 15, 2001, eliminates amortization of goodwill and other intangible assets with
indefinite useful lives. Rather, these assets are subject to impairment tests at least annually.

The
Company adopted SFAS No. 142 on January 1, 2002 and no longer amortizes goodwill and other intangible assets with indefinite useful lives. In accordance with SFAS
No. 142, the Company completed the transitional evaluation of its goodwill and other intangible assets at January 1, 2002 and the annual evaluation at December 31, 2002, and
determined that there was no impairment loss. The

F-23

---

following table shows net income and earnings per share adjusted to reflect the adoption of the non-amortization provisions of SFAS No. 142 as of the beginning of the respective
periods:

Year Ended December 31,2002

2001

2000(In thousands, except
per share amounts)Reported net income

$
703,079

$
414,746

$
342,287Add back: Amortization of goodwill and other intangibles with indefinite useful lives, net of tax effect





32,173


14,681Adjusted net income

$
703,079

$
446,919

$
356,968Reported earnings per share

$
4.87

$
3.27

$
2.74Add back: Amortization of goodwill and other intangibles with indefinite useful lives, net of tax effect





0.25


0.12Adjusted earnings per share

$
4.87

$
3.52

$
2.86Reported earnings per share assuming full dilution

$
4.67

$
3.15

$
2.64Add back: Amortization of goodwill and other intangibles with indefinite useful lives, net of tax effect





0.24


0.11Adjusted earnings per share assuming full dilution

$
4.67

$
3.39

$
2.75


The
changes in the carrying amount of goodwill by reportable segment are as follows:

|                                                                                         |  | Health Care |           | Specialty |   | Consolidated |  
|---------------------------------------------------------------------------------------- |  | ----------- | --------- | --------- | - | ------------ | -
|
|Balance as of January 1, 2001                                                            |  | $           | 402,297   |           | $ | 15,823       |  
|Goodwill acquired during 2001                                                            |  |             | 282,674   |           |   |             |  
|Final purchase accounting adjustments for Rush Prudential goodwill                       |  |             | (1,611    | )         |   |             |  
|2001 goodwill amortization expense                                                       |  |             | (36,985   | )         |   | (852         | )
|                                                                                         |  |             |           |           |   |              |  
|Balance as of December 31, 2001                                                          |  | $           | 646,375   |           | $ | 14,971       |  
|Goodwill acquired during 2002                                                            |  |             | 1,074,322 |           |   |             |  
|Final allocation of Cerulean goodwill and acquired intangibles                           |  |             | (47,361   | )         |   |             |  
|Reclassification from other intangible assets, net of accumulated amortization of $2,005 |  |             | 3,464     |           |   |             |  
|                                                                                         |  |             |           |           |   |              |  
|Balance as of December 31, 2002                                                          |  | $           | 1,676,800 |           | $ | 14,971       |  
|                                                                                         |  |             |           |           |   |              |  

Upon
adoption of SFAS No. 141, the Company reclassified $3.5 million of other intangible assets to goodwill since they did not meet the criteria for recognition apart from
goodwill. The reclassification is for the assembled workforce intangible assets acquired from previous acquisitions.

On
January 31, 2002, WellPoint completed its merger with RightCHOICE as discussed in Note 2. As a result of the acquisition of RightCHOICE, the Company recorded
$1,072.3 million of goodwill

F-24

---

and $266.1 million of identifiable intangible assets. As of December 31, 2002, the valuation process was not yet complete and, therefore, the allocation between goodwill and other
intangible assets recorded as of such date represented an estimate. The Company assumes no residual value for its amortizable intangible assets. Based on the preliminary valuation, the following table
presents details of the acquired amortized and non-amortized intangible assets of RightCHOICE at cost as of December 31, 2002:

(In thousands)

Estimated
Value

Useful
Life
(in years)

Weighted
Average
Useful Life
(in years)Amortized intangible assets:Provider relationships with physicians

$
4,377

20

20.0Customer contracts and related customer relationships


90,613

15

15.0Total amortized intangible assets


94,990



15.2Non-amortized intangible assets:Provider relationships with hospitals and ancillary facilities


5,072

Indefinite

IndefiniteTrade names and service marks


166,000

Indefinite

IndefiniteTotal non-amortized intangible assets


171,072Total other intangible assets

$
266,062


On
March 15, 2001, the Company completed its acquisition of Cerulean as discussed in Note 2. As a result of the acquisition of Cerulean, the Company recorded
$235.3 million of goodwill and $367.6 million of identifiable intangible assets. The Company assumes no residual value for its amortizable intangible assets. The following table presents
details of the acquired amortized and non-amortized intangible assets of Cerulean at cost as of December 31, 2002:

(In thousands)

Estimated
Value

Useful
Life
(in years)

Weighted
Average
Useful Life
(in years)Amortized intangible assets:Software

$
7,510

5

5.0Provider relationships


12,050

20 to 25

23.0Customer contracts and relationships


98,000

15

15.0Total amortized intangible assets


117,560



15.2Non-amortized intangible assets:Provider relationships


12,050

Indefinite

IndefiniteTrade names and service marks


238,000

Indefinite

IndefiniteTotal non-amortized intangible assets


250,050Total other intangible assets

$
367,610


F-25

---

The
gross carrying value, accumulated amortization and net carrying value of other intangible assets as of December 31, 2002 and 2001 were as follows (amounts in thousands):

|As of December 31, 2002                               |  | Gross
Carrying
Value |         | Accumulated
Amortization |   | Net
Carrying
Value |  | Amortization
Period
(in years)
|----------------------------------------------------- |  | -------------------- | ------- | ------------------------ | - | ------------------ |  | ------------------------------
|Amortized intangible assets:                          |  |                      |         |                          |   |                    |  |                               
|Provider relationships                                |  | $                    | 29,974  |                          | $ | 3,871              |  | $                             
|Customer contracts and related customer relationships |  |                      | 352,699 |                          |   | 73,761             |  |                               
|Other                                                 |  |                      | 21,967  |                          |   | 7,929              |  |                               
|                                                      |  |                      |         |                          |   |                    |  |                               
|Total amortized intangible assets                     |  |                      | 404,640 |                          |   | 85,561             |  |                               
|Non-amortized intangible assets:                      |  |                      |         |                          |   |                    |  |                               
|Provider relationships                                |  |                      | 17,122  |                          |   | 98                 |  |                               
|Trade names and service marks                         |  |                      | 404,000 |                          |   | 2,642              |  |                               
|                                                      |  |                      |         |                          |   |                    |  |                               
|Total non-amortized intangible assets                 |  |                      | 421,122 |                          |   | 2,740              |  |                               
|                                                      |  |                      |         |                          |   |                    |  |                               
|Total other intangible assets                         |  | $                    | 825,762 |                          | $ | 88,301             |  | $                             
|                                                      |  |                      |         |                          |   |                    |  |                               



|As of December 31, 2001                               |  | Gross
Carrying
Value |         | Accumulated
Amortization |   | Net
Carrying
Value |  | Amortization
Period
(in years)
|----------------------------------------------------- |  | -------------------- | ------- | ------------------------ | - | ------------------ |  | ------------------------------
|Amortized intangible assets:                          |  |                      |         |                          |   |                    |  |                               
|Provider relationships                                |  | $                    | 23,547  |                          | $ | 2,509              |  | $                             
|Customer contracts and related customer relationships |  |                      | 285,819 |                          |   | 39,285             |  |                               
|Trade names and service marks                         |  |                      | 135,000 |                          |   | 2,642              |  |                               
|Other                                                 |  |                      | 38,477  |                          |   | 7,919              |  |                               
|                                                      |  |                      |         |                          |   |                    |  |                               
|Total amortized intangible assets                     |  | $                    | 482,843 |                          | $ | 52,355             |  | $                             
|                                                      |  |                      |         |                          |   |                    |  |                               

For
the years ended December 31, 2002, 2001 and 2000, amortization expense relating to goodwill and other intangible assets was $38.0 million, $63.1 million and
$38.1 million, respectively. The following table presents the Company's estimated annual amortization expense for amortized intangible assets for each of the years ending December 31,
2003, 2004, 2005, 2006 and 2007 (amounts in thousands). These estimates were calculated based on the gross carrying value of amortized intangible assets as of December 31, 2002 using the
applicable amortization period.

For year ending December 31, 2003

$
36,258For year ending December 31, 2004


33,839For year ending December 31, 2005


31,657For year ending December 31, 2006


27,318For year ending December 31, 2007


24,394


F-26

---



8.    MEDICAL CLAIMS PAYABLE

The following table represents a reconciliation of changes in medical claims payable:

2002

2001

2000(In thousands)Medical claims payable as of January 1

$
1,934,620

$
1,566,569

$
1,142,183Medical claims reserves from businesses acquired during the period


175,359


258,375


57,197Health care services expenses incurred during period:Related to current year


13,338,984


9,422,974


6,785,312Related to prior years


(409,941
)

(276,531
)

(124,324
)Total Incurred


12,929,043


9,146,443


6,660,988Health care services payments during period:Related to current year


11,426,772


8,061,957


5,527,954Related to prior years


1,189,919


974,810


765,845Total Payments


12,616,691


9,036,767


6,293,799Medical claims payable as of December 31

$
2,422,331

$
1,934,620

$
1,566,569


The
table above shows the components of changes in medical claims payable for the periods indicated. Medical claims payable includes claims in process as well as provisions for the
estimate of incurred but not reported claims and provisions for disputed claims obligations. Such estimates are developed using actuarial principles and assumptions that consider, among other things,
contractual requirements, historical utilization trends and payment patterns, benefits changes, medical inflation, product mix, seasonality, membership and other relevant factors. In developing its
best estimate of medical claims payable, the Company consistently applies the principles and assumptions listed above from year to year, while also giving due consideration to the potential
variability of these factors.

Because
medical claims payable includes various actuarially developed estimates, the Company's actual health care services expense may be more or less than the Company's previously
developed estimates. As shown in the table above, for each of the years ended December 31, 2002, 2001 and 2000, the amount shown on the line labeled "Health care services expenses incurred
during period: Related to prior years" is negative, meaning that the Company's actual health care services expenses related to prior years were less than the estimates previously made by the Company.
These changes in reserves are generally the result of ongoing analysis of recent loss development trends. Adjustments of prior-year estimates may result in additional health care services
expenses or, as the Company experienced during each of the last three years, a reduction in health care services expenses in the period an adjustment is made. The impact of any reduction in health
care services expenses may be offset as the Company establishes its accrual for current-year health care services expenses.

The
above medical claims payable table includes payables for capitated payment arrangements. The Company has two general types of capitation arrangements. The predominant type is the
so-called "professional" capitation arrangement. Under professional capitation arrangements, the Company pays the health care provider, such as a participating medical group, a fixed
amount per member per month,

F-27

---

and the health care provider assumes the risk of the member's utilization of certain specified health care services. Typically, under professional capitation arrangements, the health care provider
does not assume the risk of the member's utilization of any hospital-based services. The second type is the so-called "global" capitation arrangement. Under global capitation arrangements,
the Company also pays the health care provider, such as a participating medical group, a fixed amount per member per month. However, under global capitation arrangements, the health care provider
generally assumes the risk of the member's utilization of all health care services (subject to certain limited exceptions and state regulatory requirements). As of December 31, 2002, the
Company had approximately 10 global capitation arrangements, covering approximately 2.1 million member months. In addition, one of the Company's subsidiaries owns a 51% equity interest in a
community health partnership network (the "CHPN") operating in the greater Atlanta area (see "Item 1. BusinessManaged Health Care Networks and Provider RelationsBlue Cross
Blue Shield of Georgia"). The CHPN is a locally based equity venture between the Company's subsidiary and local physician and hospital groups. The Company's subsidiary has entered into a global
capitation arrangement with the CHPN. As of December 31, 2002, 2001 and 2000, approximately 535,000, 479,000 and 424,000 members, respectively, were covered by this arrangement.

For
the years ended December 31, 2002, 2001 and 2000, the Company's capitation expenses of $1,496.9 million, $1,198.0 million and $1,074.1 million represented
11.3%, 12.7% and 15.5%, respectively, of the Company's total health care services and other benefits expense. As of December 31, 2002 and 2001, the Company's capitation expenses payable of
$137.0 million and $99.8 million represented 5.7% and 5.2%, respectively, of the Company's total medical claims payable.

9.    LONG-TERM DEBT

The carrying amount of the Company's long-term indebtedness consisted of the following:

December 31,2002

2001(In thousands)63/8% Notes due 2006

$
462,838

$
449,07063/8% Notes due 2012


348,982


Commercial paper program


199,758


Zero coupon convertible subordinated debentures





153,887Revolving credit facility





235,000Total long-term debt

$
1,011,578

$
837,957


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 "2012 Notes"). The net proceeds of this offering totaled approximately $348.9 million. The net proceeds from the sale of the 2012 Notes were used to partially finance the RightCHOICE
merger discussed in Note 2. The 2012 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. At December 31, 2002, the Company had
$349.0 million (based upon the principal amount of

F-28

---

$350.0 million less unamortized discount) of 2012 Notes outstanding. The related interest expense and amortization of discount and issue costs for the year ended December 31, 2002
totaled $22.2 million.

The
2012 Notes may be redeemed, in whole or in part, at the Company's option at any time. The redemption price for any 2012 Notes redeemed will be equal to the greater of the following
amounts: 1) 100% of the principal amount of the 2012 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 2012 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 2012 Notes to the redemption date.

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 "2006 Notes"). The net proceeds of this offering totaled approximately $449.0 million. The net proceeds from the sale of the 2006 Notes were used for repayment of indebtedness under the
Company's revolving credit facilities. The 2006 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, 2002 and 2001, the Company
had $449.3 million and $449.1 million (based upon the principal amount of $450.0 million less unamortized discount) of 2006 Notes outstanding. The related interest expense and
amortization of discount and issue costs for the years ended December 31, 2002 and 2001 totaled $30.1 million and $16.4 million, respectively.

The
2006 Notes may be redeemed, in whole or in part, at the Company's option at any time. The redemption price for any 2006 Notes redeemed will be equal to the greater of the following
amounts: 1) 100% of the principal amount of the 2006 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 2006 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
semi-annual 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 2006 Notes to the redemption date.

With
the intention of reducing the interest expense associated with its 2006 Notes, the Company, on January 15, 2002, entered into a $200.0 million notional amount interest
rate swap agreement. The swap agreement is a contract to exchange a fixed 63/8% rate for a LIBOR-based floating rate. The swap agreement expires June 15, 2006. As of
December 31, 2002, the Company recognized a liability adjustment, for the change in the fair value of the interest rate swap agreement, of $13.6 million to the 2006 Notes. The Company
recognized settlement income of $6.5 million for the year ended December 31, 2002 from this interest rate swap, which offset the Company's interest expense during 2002 (see
Note 16).

F-29

---

The
2012 and 2006 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 2012 and 2006 Notes. The indenture governing the 2012 and 2006 Notes contains a covenant that limits the ability of the Company and its
subsidiaries to create liens on any of their property or assets to secure certain indebtedness without also securing the indebtedness under the 2012 and 2006 Notes.

Revolving Credit Facility

Effective as of March 30, 2001, the Company entered into two unsecured revolving credit facilities allowing aggregate indebtedness of $1.0 billion
in principal amount. Upon execution of these facilities (collectively, the "revolving credit facility"), the Company terminated its prior $1.0 billion unsecured revolving facility. Borrowings
under these facilities bear interest at rates determined by reference to the bank's base rate or London InterBank 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 not to exceed $750.0 million at
any time outstanding, 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 not to exceed $250.0 million at any time outstanding, expires on March 28, 2003. Any amount outstanding under this facility as of March 28, 2003 may be
converted into a one-year term loan at the option of the Company.

Loans
under the $250.0 million facility are made on a committed basis. Loans under the $750.0 million facility are made on a committed basis or 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 covenants, including restrictions on the incurrence of additional indebtedness and the granting of certain liens, limitations on acquisitions and investments and limitations on
changes in control. During the year ended December 31, 2002, the Company repaid the entire outstanding principal balance under the revolving credit facility of $235.0 million at
December 31, 2001, which had an effective interest rate at the time of repayment of 2.76%. This repayment was funded in part by the Company's incurrence of indebtedness described below under
the heading "Commercial Paper Program."

Each
credit agreement provides for interest on borrowings at rates determined by reference to the bank's base rate or to LIBOR plus a margin determined by reference to the Company's
senior unsecured long-term debt rating by specified rating agencies. A facility fee based on the facility amount, regardless of utilization, is payable quarterly. The facility fee rate is
also determined by the senior unsecured long-term debt ratings by specified rating agencies.

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 accreted interest at a yield to maturity of 2.0% per year compounded semi-annually.
Holders had 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 had the option to pay cash for the Debentures in an amount equal to the last reported sales

F-30

---

price of its Common Stock on the trading day preceding the conversion date. The Debentures were subordinated 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
year ended December 31, 2001.

As
of December 31, 2001, the Company had $153.9 million (based upon the original issue price plus accreted interest) of Debentures outstanding. As of December 31,
2001, accreted interest related to the Debentures since the issuance date was $7.5 million.

During
the nine months ended September 30, 2002, Debentureholders converted $18.0 million in aggregate principal amount at maturity of the Company's Debentures with a
carrying value (including accreted interest) of $12.6 million. In lieu of delivering shares of Common Stock upon conversion of these Debentures, the Company elected to pay cash of
$18.9 million, which resulted in an extraordinary after-tax loss of $3.8 million, as shown on the Company's Consolidated Income Statements.

On
October 2, 2002, the Company announced that it had elected to redeem the Debentures as of October 28, 2002. Substantially all of the Debentures outstanding at that time,
which approximated $200.0 million principal amount at maturity, were tendered for conversion into 2.7 million shares of the Company's Common Stock prior to the redemption date of
October 28, 2002. The market value of the Common Stock valued upon conversion totaled approximately $229.5 million (based upon the fair market value of the Common Stock at the time of
conversion). Approximately $50,000 principal amount at maturity of the Debentures were settled in cash. This conversion did not have an extraordinary income statement impact.

For
the years ended December 31, 2002 and 2001, $2.5 million and $3.0 million, respectively, of interest related to the Debentures was accreted.

Commercial Paper Program

In April 2002, the Company commenced a commercial paper program providing for the issuance of up to $1.0 billion in aggregate maturity value of
short-term indebtedness (known generally as "commercial paper"). The commercial paper is being issued by the Company without registration under the Securities Act of 1933, as amended (the
"1933 Act") in reliance upon the exemption from registration contained in Section 4(2) of the 1933 Act. The commercial paper is issued in denominations of $100,000 or integral multiples of
$1,000 in excess thereof and will bear such interest rates, if interest-bearing, or will be sold at such discount from their face amounts, as agreed upon by the Company and the dealer or dealers
acting in connection with the commercial paper program. The commercial paper may be issued with varying maturities up to a maximum of 270 days from the date of issuance. As of
December 31, 2002, outstanding commercial paper totaled approximately $199.8 million, with an average maturity of 54 days. The weighted average yield on the outstanding commercial
paper as of December 31, 2002 was 1.62%. The Company intends to maintain commercial paper borrowings of at least the amount outstanding at December 31, 2002 for more than one year. For
financial reporting purposes, the commercial paper has been classified under non-current liabilities in the accompanying Consolidated Balance Sheets. The related interest expense for the
year ended December 31, 2002 totaled $2.4 million.

F-31

---

Maturities

As of December 31, 2002, the Company's long-term debt maturities were as follows: 2003zero;
2004$199.8 million; 2005zero; 2006$450.0 million; 2007zero; 2012$350.0 million.

Debt Covenants

The Company's revolving credit facility requires the maintenance of certain financial ratios and contains other restrictive covenants, including restrictions on
the incurrence of additional indebtedness and the granting of certain liens, limitations on acquisitions and investments and limitations on changes in control. As of December 31, 2002, the
Company was in compliance with the requirements in these agreements.

Interest Rate Swaps

As described above and in Note 16, as of December 31, 2002, the Company was party to a $200.0 million notional amount interest rate swap
agreement on its 2006 Notes. As of December 31, 2001, the Company was a party to two separate interest rate swap agreements totaling $200.0 million notional amount on its floating rate
debt under its revolving credit facility. In September 2002, the Company terminated and settled the interest rate swap agreements on the revolving credit facility (see Note 16).

Interest Paid

Interest paid on long-term debt for the years ended December 31, 2002, 2001 and 2000 was $51.4 million, $43.0 million and
$21.5 million, respectively.

F-32

---

10.    INCOME TAXES

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

Year Ended December 31,2002

2001

2000(In thousands)Current:Federal

$
427,221

$
224,380

$
226,606State


71,734


43,541


56,608498,955


267,921


283,214Deferred:Federal


(33,363
)

13,180


(54,552
)State


280


2,735


(8,383
)(33,083
)

15,915


(62,935
)Valuation allowance


(401
)




1,747Provision for income taxes

$
465,471

$
283,836

$
222,026


The
overall effective tax rate differed from the statutory federal tax rate as follows (percent of pre-tax income from continuing operations):

Year Ended
December 31,2002

2001

2000Tax provision based on the federal statutory rate

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

4.1

4.3

5.6Non-deductible expenses/non-taxable items

(0.1
)
1.2

(0.1
)Change in valuation allowance





0.3Other, net

1.0

0.1

(1.5
)Effective tax rate

40.0
%
40.6
%
39.3
%


F-33

---

Net
deferred tax assets were comprised of the following:

December 31,2002

2001(In thousands)Gross deferred tax assets:Net operating loss

$
13,974

$
6,028Investment basis difference


20,610


39,696Vacation and holiday accruals


15,364


9,322Incurred claim reserve discounting


23,398


19,587Provision for doubtful accounts


38,473


33,530Unearned premium reserve


36,301


24,424State income taxes


19,672


15,942Postretirement benefits


48,458


37,161Deferred gain on building





1,653Pension liability


38,680


18,486Deferred compensation


92,836


33,836Expenses not currently deductible


133,882


95,699Intangible asset impairment


4,196


5,689Capital loss carryover


3,932


5,676Start-up costs


753


2,540Deferred acquisition costs


9,840


9,321Other, net


2,883


4,509Total gross deferred tax assets


503,252


363,099Gross deferred tax liabilities:Market valuation on investment securities


(44,670
)

(51,376
)Depreciation and amortization


(10,157
)

(2,827
)Internally developed software


(36,333
)

(25,216
)Purchased intangibles


(271,784
)

(138,272
)Lease expense


(10,879
)

(6,221
)Other, net


(2,902
)

(1,935
)Total gross deferred tax liabilities


(376,725
)

(225,847
)Valuation allowance:Net operating loss carryover


(1,337
)

(1,337
)Capital loss carryover


(1,965
)

(2,366
)(3,302
)

(3,703
)Net deferred tax assets

$
123,225

$
133,549


In
connection with the acquisition of RightCHOICE, the Company acquired $108.4 million of deferred tax liabilities and $36.5 million of net deferred tax assets. The net
result was an increase to goodwill of $71.9 million. In connection with the acquisition of MethodistCare, the Company acquired $15.0 million of net deferred tax assets. In connection
with the acquisition of Cerulean, the Company acquired $143.0 million of deferred tax liabilities and $65.9 million of net deferred tax assets. The net result was an increase to goodwill
of $77.1 million. In connection with the acquisition of Rush

F-34

---

Prudential, the Company acquired $32.3 million of deferred tax liabilities and $7.4 million of net deferred tax assets. The net result was an increase to goodwill of approximately
$24.9 million, which included a $4.3 million valuation allowance for certain operating loss carryforwards acquired in the Rush Prudential transaction.

As
of December 31, 2002, the Company had $25.0 million of federal net operating loss carryforwards acquired from MethodistCare, $19.1 million of federal net
operating loss carryforwards acquired from Cerulean and $8.6 million of federal net operating loss carryforwards acquired from Rush Prudential. The federal net operating loss carryforward
acquired from Rush Prudential begins to expire in 2014. 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. The Company reduced the Rush Prudential valuation allowance from $4.3 million to $1.3 million in 2001 and recorded the change as
a reduction to goodwill.

As
of December 31, 2002, the Company had a state capital loss carryforward of $63.8 million. The Company established a valuation allowance of $2.4 million related to
this carryforward. However, in 2002, the Company decreased the valuation allowance to $2.0 million because it 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 of the Company. 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 for the years ended December 31, 2002, 2001 and 2000 were $394.6 million, $271.3 million and $283.8 million, respectively.

11.    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 collective 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 requirements of the Employee Retirement Income Security Act of 1974 and applicable income tax
regulations. The Company uses the projected unit credit method of cost determination.

F-35

---



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. In conjunction with the merger
of RightCHOICE, the Company merged RightCHOICE's Non-Contributory Retirement Program for substantially all employees who met the plan requirements as to age and length of service on
April 30, 2002 into the WellPoint Pension Accumulation Plan. HealthLink employees, who were not participants in the RightCHOICE Non-Contributory Retirement Program, are now
participants in the WellPoint Pension Accumulation Plan, subject to the plan requirements.

The
funded status of the plans was as follows:

December 31,2002

2001(In thousands)Change in Benefit ObligationBenefit obligation at beginning of year

$
175,355

$
86,680Service cost


15,278


10,987Interest cost


15,809


10,353Amendments


375


Actuarial loss


36,951


13,699Acquisitions


49,167


65,814Benefits paid


(18,671
)

(12,178
)Benefit obligation at end of year

$
274,264

$
175,355Change in Plan AssetsFair value at beginning of year

$
145,199

$
72,180Actual return on fair value


(19,436
)

(5,028
)Employer contributions


25,921


24,455Acquisitions


41,936


65,770Benefits paid


(18,671
)

(12,178
)Fair value at end of year

$
174,949

$
145,199Funded status

$
(99,315
)
$
(30,156
)Unrecognized prior service cost


656


377Unrecognized actuarial loss


119,231


48,037Net amount recognized

$
20,572

$
18,258


F-36

---

Amounts
recognized in the Consolidated Balance Sheets consisted of:

December 31,2002

2001(In thousands)Prepaid benefit cost

$
20,572

$
18,258Additional minimum liability


(95,290
)

(38,523
)Intangible asset


656


377Accumulated other comprehensive income


94,634


38,146Net amount recognized

$
20,572

$
18,258


As
of December 31, 2002, the WellPoint Pension Accumulation Plan and the Restated Employees' Retirement Plan of Blue Cross of California had accumulated benefits in excess of plan
assets. As of December 31, 2001, only the WellPoint Pension Accumulation Plan had accumulated benefits in excess of plan assets. Both plans are summarized as follows:

December 31,2002

2001(In thousands)Pension Accumulation PlanProjected benefit obligation

$
258,323

$
163,386Accumulated benefit obligation


235,044


156,510Fair value of assets


163,310


133,758Restated Employees' Retirement PlanProjected benefit obligation

$
15,941


N/AAccumulated benefit obligation


14,624


N/AFair value of assets


11,639


N/AWeighted Average AssumptionsDiscount rate


6.50
%

7.25
%Expected return on plan assets


9.00
%

9.50
%Rate of compensation increases


4.50
%

4.50
%


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

Year Ended December 31,2002

2001

2000(In thousands)Service costbenefits earned during the year

$
15,278

$
10,987

$
8,008Interest cost on projected benefits obligations


15,809


10,353


6,456Expected return on plan assets


(17,114
)

(10,736
)

(6,946
)Amortization of prior service cost


96


47


15Recognized net actuarial loss


2,926


1,677


286Net periodic pension expense

$
16,995

$
12,328

$
7,819


F-37

---

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 in cash equal to 75%
of the employee's contribution. Matching contributions are immediately vested. Prior to November 17, 2002, generally one third of the employer contribution was in the form of 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. For payroll periods ending on or after November 17, 2002, a participant's matching
contributions are made in cash and credited to that participant's matching contributions account. 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 $23.5 million, $20.2 million and $16.5 million for the years ended December 31, 2002, 2001 and 2000, 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. In conjunction with the merger of RightCHOICE on January 31, 2002, the Company merged the RightCHOICE and HealthLink 401(k) Plans into the Company's 401(k) Plan.

Postretirement Benefits

The Company currently provides certain health care and life insurance benefits to eligible retirees and their dependents. Employees outside of California (except
as provided in the following sentences) 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 are currently 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. RightCHOICE provides certain health care and life insurance benefits for retired and terminated employees (excluding HealthLink employees). All eligible
employees of RightCHOICE acquired as a result of the merger are currently covered under the RightCHOICE postretirement plans. RightCHOICE employees hired, rehired or reinstated after
January 31, 2002 are not eligible to be covered under any RightCHOICE postretirement plan or any WellPoint retiree plan. All other Company employees are 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 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.

F-38

---

The
accumulated postretirement benefit obligation ("APBO") and the accrued postretirement benefits as of December 31, 2002 and 2001 were as follows:

December 31,2002

2001(In thousands)Benefit obligation at the beginning of the year

$
93,268

$
59,291Service cost


3,241


2,312Interest cost


8,061


5,950Actuarial loss


23,866


9,711Acquisitions


21,179


19,568Benefits paid


(5,034
)

(3,564
)Accumulated postretirement benefits obligation


144,581


93,268Unrecognized net (loss) gain from accrued postretirement benefit cost


(21,539
)

856Accrued postretirement benefits

$
123,042

$
94,124


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 6.50% and 7.25% for 2002 and 2001, respectively. For the year ended December 31, 2001, the medical
trend rate assumed a decline from 10.0% for the year 2002 to 5.0% by the year 2007. This medical trend rate was re-evaluated for the year ended December 31, 2002 and modified to
9.0% for the year 2003 with a gradual decline to 4.75% by the year 2008. 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, 2002 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,
2002 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.

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

Year Ended December 31,2002

2001

2000Service cost

$
3,241

$
2,312

$
1,520Interest cost


8,061


5,950


4,234Net amortization and deferral


7


(213
)

(689
)Net periodic postretirement benefit cost

$
11,309

$
8,049

$
5,065


F-39

---

12.    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 WellPoint 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 the 1999 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 Employee 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, 2002, the maximum number of shares issuable under the Plan, subject to subsequent adjustments for certain changes in the Company's
capital structure, was 16.2 million plus an additional 11.5 million shares incorporated into the Plan from the Predecessor Plans. The maximum number of shares available for issuance
under the Plan is automatically increased (up to a maximum of 30.0 million shares) by the number of shares of WellPoint Common Stock repurchased by
the Company after May 11, 1999 (the "Repurchased Shares") on the open market or in private transactions, so long as the aggregate price paid for the Repurchased Shares does not exceed the
cumulative amount received in cash by the Company after May 11, 1999 for the exercise of options or issuance of awards granted under the Plan.

Effective
as of February 17, 2000, the Company adopted the 2000 Employee Stock Option Plan (the "Employee Plan") for employees and non-executive officers of the
Company. The exercise price and maximum term of any stock option granted under the Employee Plan are determined by the plan administrator. Options granted will vest in accordance with the terms of
each grant. As of December 31, 2002, the maximum number of shares issuable under the Employee Plan, subject to subsequent adjustments for certain changes in the Company's capital structure, was
approximately 9.1 million shares.

Under
the 1999 Stock Incentive Plan and the 2000 Employee Stock Option Plan, only the net number of shares actually issued is deducted from the number of shares remaining available for
issuance under each plan. Accordingly, if option shares are exercised pursuant to a stock-for-stock exercise (including "reloads," which allow an optionee to pay the purchase
price of options to be exercised in shares of WellPoint Common Stock already owned by such optionee and to simultaneously receive an award for a number of option shares equal to the number of shares
of Common Stock

F-40

---

tendered for payment of the exercised options), only the difference of the number of option shares exercised less the number of shares of Common Stock tendered in payment of such exercise (including
shares tendered to pay for tax withholding obligations) is deducted from the number of shares remaining available for issuance under each plan.

On
January 31, 2002, as a result of the merger with RightCHOICE, the Company assumed all of the obligations of RightCHOICE with regard to the outstanding options granted under the
RightCHOICE 1994 Equity Incentive Plan, the 2001 Stock Incentive Plan and the Nonemployee Directors Stock Option Plan (collectively, the "RightCHOICE Plans") pursuant to an executed Stock Assumption
Agreement. Under the Stock Assumption Agreement, 1.9 million options held by employees or directors to purchase RightCHOICE common stock under the RightCHOICE Plans were exchanged for
1.2 million options to purchase WellPoint Common Stock. The Stock Assumption Agreement did not change the value of the options granted. In accordance with their original grant terms, all
RightCHOICE options became fully vested and exercisable upon the close of the merger. All other provisions that govern either the exercise or the termination of the assumed RightCHOICE options remain
the same as set forth in the respective grant agreements under the applicable RightCHOICE Plan. The exercise price of each option issued under the RightCHOICE Plans equaled the market price of
RightCHOICE's common stock on the date of grant and an option's maximum term is 10 years.

The
following summarizes activity in the Company's stock option plans for the years ended December 31, 2002, 2001 and 2000:

Shares

Weighted Average
Exercise Price
Per ShareOutstanding at January 1, 2000

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


39.45Transferred in

1,159,920


15.89Granted

6,009,419


65.03Canceled

(573,247
)

50.93Exercised

(4,562,322
)

34.06Outstanding at December 31, 2002

16,741,578


48.14Exercisable at:December 31, 2000

4,924,224


30.99December 31, 2001

5,993,936


34.02December 31, 2002

8,086,961


42.10


F-41

---

The
options outstanding at December 31, 2002 had exercise prices ranging from $7.82 to $86.67 per share.

|             |  | Options Outstanding |  | Options Exercisable
|------------ |  | ------------------- |  | -------------------
|
|$7.8235.34  |  | 4,701,724           |  | 5.9                
|$35.9148.24 |  | 5,432,848           |  | 7.8                
|$48.4060.81 |  | 1,075,433           |  | 6.9                
|$61.6186.67 |  | 5,531,573           |  | 8.7                
|             |  |                     |  |                    
|             |  | 16,741,578          |  | 7.5                
|             |  |                     |  |                    

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 WellPoint 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, 2002, 2001 and 2000, approximately 266,040, 218,000, and 222,800 shares of Common Stock, respectively, were purchased under the ESPP. There are offering periods for
the first half and second half of the year and accordingly, two purchase prices. For the year ended December 31, 2002, the purchase prices were $49.66 and $60.49 per share. 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.

SFAS No. 123 Disclosure

In accordance with the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the Company applies
APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock-based compensation plans. 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 Common Stock at the date of the grant over the amount an employee must pay to acquire the Common
Stock. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on
the date of grant. (See Note 3 for the pro forma effect on net income and earnings per share had the Company elected to recognize and measure compensation expense for its stock option grants to
its employees based on the fair value method.)

F-42

---



The weighted average fair value of options granted in 2002, 2001 and 2000 was $18.85, $14.46, and $13.09 per share, respectively, using the Black-Scholes
option-pricing model and the following assumptions.

2002

Officers

Non-officer
EmployeesAssumptionsExpected dividend yield



Risk-free interest rate

3.82
%
3.10
%Expected stock price volatility

35.00
%
35.00
%Expected life of options

four years

three years


2001

Officers

Non-officer
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

Non-officer
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


Treasury Stock

As of December 31, 2002, the Company was authorized to repurchase approximately 30.5 million shares of its Common Stock. As of December 31,
2002, 25.4 million shares of Common Stock had been repurchased pursuant to this authorization.

13.    EARNINGS PER SHARE

The following is an illustration of the dilutive effect of the Company's potential Common Stock on earnings per share ("EPS"). For the years ended December 31,
2002, 2001 and 2000, there were outstanding stock options to purchase approximately 756,500, 829,900 and 861,900 shares of Common Stock, respectively, for which the exercise price was greater than the
average market per share price of

F-43

---

Common Stock during the period presented. Since the effect of these options is antidilutive, they have been excluded from the computation of the diluted earnings per share below.

|                                                                                |  | Year Ended December 31,
|------------------------------------------------------------------------------- |  | -----------------------
|
|
|Basic Earnings Per Share Calculation:                                           |  |                        
|Numerator                                                                       |  |                        
|Income before extraordinary items                                               |  | $                      
|Extraordinary gain from negative goodwill on acquisition                        |  |                        
|Extraordinary loss on early extinguishment of debt, net of tax benefit          |  |                        
|                                                                                |  |                        
|Net Income                                                                      |  | $                      
|                                                                                |  |                        
|Denominator                                                                     |  |                        
|Weighted average shares outstanding                                             |  |                        
|                                                                                |  |                        
|Earnings Per Share                                                              |  |                        
|Income before extraordinary items                                               |  | $                      
|Extraordinary gain from negative goodwill on acquisition                        |  |                        
|Extraordinary loss on early extinguishment of debt, net of tax benefit          |  |                        
|                                                                                |  |                        
|Net Income                                                                      |  | $                      
|                                                                                |  |                        
|Earnings Per Share Assuming Full Dilution Calculation:                          |  |                        
|Numerator                                                                       |  |                        
|Income before extraordinary items                                               |  | $                      
|Interest expense on zero coupon convertible subordinated debentures, net of tax |  |                        
|                                                                                |  |                        
|Adjusted income before extraordinary items                                      |  |                        
|Extraordinary gain from negative goodwill on acquisition                        |  |                        
|Extraordinary loss on early extinguishment of debt, net of tax benefit          |  |                        
|                                                                                |  |                        
|Adjusted Net Income                                                             |  | $                      
|                                                                                |  |                        
|Denominator                                                                     |  |                        
|Weighted average shares outstanding                                             |  |                        
|Net effect of dilutive stock options                                            |  |                        
|Assumed conversion of zero coupon convertible subordinated debentures           |  |                        
|                                                                                |  |                        
|Diluted weighted average shares outstanding                                     |  |                        
|                                                                                |  |                        
|Earnings Per Share Assuming Full Dilution                                       |  |                        
|Income before extraordinary items                                               |  | $                      
|Extraordinary gain from negative goodwill on acquisition                        |  |                        
|Extraordinary loss on early extinguishment of debt, net of tax benefit          |  |                        
|                                                                                |  |                        
|Net Income                                                                      |  | $                      
|                                                                                |  |                        

14.    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 pays a
contingent amount based upon annual changes in the consumer price index. The

F-44

---

Company paid $30.0 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 various options to renew. Certain lease agreements provide for escalation of payments that 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, 2002 are
as follows:

Year Ending December 31,

Operating Leases(In thousands)2003

$
96,1132004


73,4822005


51,9962006


38,8732007


30,068Thereafter


227,620Total minimum payments required

$
518,152


Rental
expense for the years ended December 31, 2002, 2001, and 2000 for all operating leases was $76.7 million, $66.3 million and $47.5 million,
respectively. Contingent rentals included in the above rental expense for the years ended December 31, 2002, 2001 and 2000 were $1.9 million, $1.5 million and $1.2 million,
respectively.

15.    FAIR VALUE OF FINANCIAL INSTRUMENTS

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

Cash and Cash Equivalents.The carrying amount approximates fair value, based on the short-term maturities of
these instruments.

Investment Securities.The carrying amount approximates fair value, based on quoted market prices for the same or similar
instruments.

Long-term Investments.The carrying amount approximates fair value, based on quoted market prices for the same or
similar instruments.

Revolving Credit Facility.The carrying amount for the revolving credit facility approximates fair value as the underlying
instruments have variable interest rates at market value.

Zero Coupon Convertible Subordinated Debentures.The fair value for the convertible debt is based upon quoted market prices.
The carrying value is based on the face value adjusted for accretion of original issue discount.

63/8% Notes due 2006.The fair value of the notes payable is based on quoted market prices. The carrying value
is based on face value adjusted for the discount and a fair value adjustment related to the interest rate hedge.

F-45

---

63/8% Notes due 2012.The fair value of the notes payable is based on quoted market prices. The carrying value
is based on face value adjusted for the discount.

Interest Rate Swaps.The fair value of the interest rate swaps is based on the quoted market prices by the financial
institutions that are the counterparties to the swaps.

Forward Exchange Contracts.The carrying value for forward exchange contracts represents the fair value of such contracts
that exceed the fair value of the related foreign denominated bond position. The fair value of such contracts is determined by the counterparties to the contracts.

Commercial Paper.The carrying amount for the commercial paper approximates fair value as the underlying instruments have
variable interest rates at market value.

Put / Call Options.The carrying amount approximates fair value, based on quoted market prices.

The
carrying amounts and estimated fair values of the Company's financial instruments as of December 31, 2002 and 2001 are summarized below:

2002Carrying
Amount

Estimated
Fair Value(In thousands)Assets:Cash and cash equivalents

$
1,355,616

$
1,355,616Investment securities


5,282,887


5,282,887Long-term investments


134,274


134,274Interest rate swap on 63/8% Notes due 2006


13,582


13,582Put / Call Options


123


123Liabilities:63/8% Notes due 2006


462,838


482,17563/8% Notes due 2012


348,982


378,875Commercial Paper


199,758


199,758




2001Carrying
Amount

Estimated
Fair Value(In thousands)Assets:Cash and cash equivalents

$
1,028,476

$
1,028,476Investment securities


3,832,982


3,832,982Long-term investments


124,611


124,611Forward exchange contracts


775


775Liabilities:Revolving credit facility


235,000


235,000Zero Coupon Convertible Subordinated Debentures


153,887


185,28063/8% Notes due 2006


449,070


458,955Interest rate swap on revolving credit facility


14,085


14,558


F-46

---

16.    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 Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging ActivitiesDeferral of the Effective Date of FASB Statement No. 133an amendment of FASB Statement No. 133" and Statement of Financial
Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activitiesan amendment of FASB Statement No. 133," 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.

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. As of December 31, 2002, the Company reported a derivative asset of
$13.6 million related to a fair value hedge. The cash flow hedges on the floating rate debt under the revolving credit facility were terminated and settled in September 2002 and are
discussed in further detail below.

Fair Value Hedges

With the intention of reducing the interest expense associated with its 2006 Notes, the Company, on January 15, 2002, entered into a $200.0 million
notional amount interest rate swap agreement. The swap agreement is a contract to exchange a fixed 63/8% rate for a LIBOR-based floating rate. The swap agreement expires June 15,
2006. For the year ended December 31, 2002, the Company recognized $6.5 million of income from this swap, which was recorded as a reduction to interest expense. As of December 31,
2002, the Company recognized a derivative asset of $13.6 million related to this swap agreement.

F-47

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As part of the Company's investment strategy to diversify its investment portfolio, the Company previously invested in certain fixed-maturity securities
denominated in foreign currencies. In order to mitigate the foreign currency risk associated with such securities, the Company 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 a loss of $0.5 million from such hedging activities for
the years ended December 31, 2001 and 2000, respectively. As of December 31, 2001, the Company had liquidated its non-dollar foreign bond holdings and, as a result, entered
into a derivative to offset the remaining currency derivative. During 2002, the Company recognized a gain of approximately $20,000, all within the quarter ended March 31, 2002, related to the
remaining derivatives.

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.

Cash Flow Hedges

The Company has 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 variable-rate for fixed-rate interest payments without the exchange of the underlying notional amounts. During the years
ended December 31, 2002 and 2001, the Company recognized net gains of $0.1 million and $0.1 million, respectively, as reported in the Company's Consolidated Income Statements,
which represented the total ineffectiveness of all cash flow hedges during such periods.

In
September 2002, the Company terminated and settled its $150.0 million and $50.0 million notional amount interest rate swap agreements with original expiration
dates of October 17, 2003 and October 17,
2006, respectively. At termination, the Company paid $17.6 million, of which $1.8 million was accrued interest and the remaining $15.8 million represented the fair value of the
swap agreements at the time of termination. The fair value of the swap agreements was reflected in accumulated other comprehensive income and will be amortized as a reduction to investment income on a
straight-line basis over the shorter of the original expiration dates of the interest rate swap agreements or the expected cash flows of the commercial paper program. The fair value of the
$150.0 million and $50.0 million notional amount swap agreements, at termination, were $8.0 million and $7.8 million, respectively. Amortization of other comprehensive
income related to the terminated swaps on a pre-tax basis for the year ended December 31, 2002 totaled $2.3 million, or $1.4 million after-tax. The
unamortized amounts in other comprehensive income related to the $150.0 million and $50.0 million notional amount swap agreements as of December 31, 2002 totaled
$6.2 million and $7.3 million, respectively. An aggregate after-tax amount of $4.8 million on the terminated swaps is expected to be amortized during the year ended
December 31, 2003.

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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.

In
December 2002, the Company decided to hedge a portion of its unrealized gain on an available-for-sale equity investment by entering into a
zero-cost equity collar. The Company's intent is to limit any cash flow impact caused by any downside price movement in the stock with its anticipated sale. As a result, the Company has
designated the equity collar as a cash flow hedge. The collar was created by combining a purchased put option with a written call option. As of December 31, 2002, the price of the equity
investment remained within the range of the equity collar and, as a result of the changes in fair value of the option contracts (time value), the Company recorded approximately $122,000 of a net
derivative asset and a corresponding gain in other comprehensive income.

17.    CONTINGENCIES

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 Blue Cross of California ("BCC"). The lawsuit alleges that BCC
violated the Racketeer Influenced and Corrupt Organizations Act ("RICO") 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 the Employee Retirement
Income Security Act of 1974, as amended ("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 RICO, 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. 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 was to 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

F-49

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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 hearing was held in January 2002 and, in March 2002, the Court of Appeals panel issued an opinion affirming Judge Moreno's earlier action with respect to the motion to compel
arbitration. The Company filed a motion requesting a rehearing of the matter before the entire 11th Circuit Court of Appeals, which motion was denied by the 11th Circuit
Court of Appeals in June 2002. On July 29, 2002, Judge Moreno issued an order providing that discovery in the case would be allowed to re-commence on September 30,
2002. On September 26, 2002, Judge Moreno issued an additional order certifying a nationwide class of physicians in theShanematter, setting a
trial date in May 2003 and ordering the parties to participate in non-binding mediation. In October 2002, the Company filed a motion with the 11th Circuit Court
of Appeals seeking to appeal Judge Moreno's class-certification order. In December 2002, the 11th Circuit granted the Company's motion for interlocutory review of the class-
certification order. The parties are currently conducting pre-trial discovery. A mediator has been appointed by Judge Moreno.

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 Company filed a motion (which was granted in July 2002) with the federal Judicial Panel on Multidistrict Litigation requesting that the
proceedings in this case be consolidated with a similar action brought against other managed care companies that has been consolidated with theShanelawsuit.

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. This litigation was dismissed without prejudice at the request of the plaintiffs in February 2003. 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.

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

F-50

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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.

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, 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.

The
Company and its subsidiaries are party to a variety of agreements entered into in the ordinary course of business that contain standard indemnity provisions obligating the Company or
such subsidiary to indemnify third parties for certain costs and expenses incurred by such parties in connection with such agreements. These agreements include, for example, vendor contracts,
underwriting and loan agreements, consulting agreements and agreements for other services, such as custodial arrangements with respect to certain of the Company's assets. The maximum amount of
potential future payments pursuant to these standard indemnity provisions cannot be estimated because the amount of costs and expenses that may be incurred by the indemnified parties is unknown.

In
connection with the formation of a joint venture providing Medicaid services in Puerto Rico in 2000, the Company agreed under certain circumstances to provide additional funds to the
joint-venture entity. The Company agreed that it would make a capital contribution to the joint venture of up to 80% of any amount necessary to increase the entity's capital to meet minimum regulatory
capital requirements if (i) applicable law or regulation requires an increase in the entity's capital and the entity does not then have capital sufficient to meet the increased requirement or
(ii) the entity's medical care ratio is 100% or greater during any 180-day period and the entity does not then meet statutory capital requirements under the Puerto Rico Insurance Code. The
amount of this guarantee will not exceed 80% of the amount necessary to provide the entity with a 12 to 1 premium-to-capital ratio. As of December 31, 2002, the Company's maximum potential
liability pursuant to this guarantee was $24.6 million. Since the formation of the joint venture in 2000, the Company has not been required to make any payments under this guarantee and the
Company does not currently expect that any such payments will be made.

18.    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. With respect to the Company's statutory regulated subsidiaries, the minimum amount of capital required is based on formulas established by the state insurance departments. As of
December 31, 2002, 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

F-51

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Department of Insurance. As of December 31, 2002 and 2001, the minimum statutory requirements (excluding the Blue Cross of California subsidiary) totaled $29.4 million and
$19.1 million, respectively. These statutorily regulated subsidiaries had total capital and surplus of $1,267.0 million and $862.9 million as of December 31, 2002 and 2001,
respectively. The maximum dividend payable by WellPoint's licensed insurance company subsidiaries (which do not include the Company's Blue Cross of California subsidiary) in 2003 without prior
approval is estimated to be $334.2 million.

19.    FISCAL INTERMEDIARY FUNCTION

Under an agreement with the Blue Cross and Blue Shield Association, 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 received administrative fees of approximately $39.1 million for the year ended December 31, 2000. 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. ("Georgia Blue"). For the year ended December 31, 2002, Georgia Blue disbursed approximately $3.8 billion and received administrative fees of approximately
$11.8 million. Georgia Blue 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.

20.    BUSINESS SEGMENT INFORMATION

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. As a result of the January 31, 2002 acquisition of RightCHOICE, the organizational structure of the Company changed effective February 1, 2002. As a result of these changes, the
Company has the following two reportable segments: Health Care and Specialty. The Health Care segment is an aggregation of four operating segments: California, Central, Georgia and
Senior/State-Sponsored programs. These Health Care operating segments all have similar characteristics and meet the following five aggregation criteria as defined under paragraph 17 of
Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information":



F-52

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The
Company's focus on regional concentration allows management to understand and meet customer needs while effectively managing the cost structure. The Company's chief operating
decision maker (Chief Executive Officer) reviews the results of operations on a regular basis and holds each Division President accountable for his or her segment's operating results. These operating
segments comprising the Health Care segment provide a broad spectrum of network-based health plans, including PPOs, HMOs, POS plans, other hybrid plans and traditional indemnity products to large and
small employers and individuals. The Specialty business is maintained as a separate segment providing an array of specialty and other products, including pharmacy, dental, vision, life insurance,
preventive care, disability insurance, behavioral health, COBRA and flexible benefits account administration. Amounts under the heading "Corporate" include net investment income, general and
administrative expense and interest expense not allocable to the reportable segments. The accounting policies of the segments are consistent with generally accepted accounting principles in the United
States.

The
following tables present segment information for the Health Care and Specialty segments for the years ended December 31, 2002, 2001 and 2000, respectively, as if the Company's new
organizational structure had been effective on January 1, 2000:

2002

|                                      |  | Health
Care |            | Specialty |   | Corporate |  | Consolidated
|------------------------------------- |  | ----------- | ---------- | --------- | - | --------- |  | ------------
|
|Premium revenue                       |  | $           | 15,701,071 |           | $ | 505,090   |  | $           
|Management services and other revenue |  |             | 681,512    |           |   | 136,863   |  |             
|                                      |  |             |            |           |   |           |  |             
|Total revenue from external customers |  |             | 16,382,583 |           |   | 641,953   |  |             
|Investment income                     |  |             | 218,697    |           |   | 22,039    |  |             
|Interest expense (income)             |  |             | 109,183    |           |   |          |  |             
|Depreciation and amortization expense |  |             | 103,933    |           |   | 8,251     |  |             
|Income tax expense                    |  |             | 418,942    |           |   | 16,316    |  |             
|Extraordinary items                   |  |             |           |           |   |          |  |             
|Segment net income                    |  | $           | 644,522    |           | $ | 27,331    |  | $           
|                                      |  |             |            |           |   |           |  |             
|Segment assets                        |  | $           | 7,983,395  |           | $ | 611,269   |  | $           
|                                      |  |             |            |           |   |           |  |             

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2001

|                                      |  | Health
Care |            | Specialty |   | Corporate |  | Consolidated
|------------------------------------- |  | ----------- | ---------- | --------- | - | --------- |  | ------------
|
|Premium revenue                       |  | $           | 11,107,242 |           | $ | 469,928   |  | $           
|Management services and other revenue |  |             | 491,995    |           |   | 117,698   |  |             
|                                      |  |             |            |           |   |           |  |             
|Total revenue from external customers |  |             | 11,599,237 |           |   | 587,626   |  |             
|Investment income                     |  |             | 164,187    |           |   | 24,817    |  |             
|Interest expense                      |  |             | 33,311     |           |   |          |  |             
|Depreciation and amortization expense |  |             | 100,232    |           |   | 8,959     |  |             
|Income tax expense (benefit)          |  |             | 271,599    |           |   | 14,848    |  |             
|Segment net income                    |  | $           | 380,540    |           | $ | 22,556    |  | $           
|                                      |  |             |            |           |   |           |  |             
|Segment assets                        |  | $           | 5,051,343  |           | $ | 623,101   |  | $           
|                                      |  |             |            |           |   |           |  |             

2000

|                                      |  | Health
Care |           | Specialty |   | Corporate |  | Consolidated
|------------------------------------- |  | ----------- | --------- | --------- | - | --------- |  | ------------
|
|Premium revenue                       |  | $           | 8,168,516 |           | $ | 415,147   |  | $           
|Management services and other revenue |  |             | 372,656   |           |   | 79,191    |  |             
|                                      |  |             |           |           |   |           |  |             
|Total revenue from external customers |  |             | 8,541,172 |           |   | 494,338   |  |             
|Investment income                     |  |             | 106,255   |           |   | 21,127    |  |             
|Interest expense                      |  |             | 159       |           |   |          |  |             
|Depreciation and amortization expense |  |             | 68,792    |           |   | 5,863     |  |             
|Income tax expense                    |  |             | 208,186   |           |   | 13,221    |  |             
|Segment net income                    |  | $           | 292,774   |           | $ | 18,928    |  | $           
|                                      |  |             |           |           |   |           |  |             
|Segment assets                        |  | $           | 3,184,421 |           | $ | 547,142   |  | $           
|                                      |  |             |           |           |   |           |  |             

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21.    COMPREHENSIVE INCOME

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

|                                                                                                                                                           |  | Year Ended December 31, |        
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------
|
|
|Investment Securities:                                                                                                                                     |  |                         |        
|Net holding (loss) gain on investment securities arising during the period, net of tax benefit (expense) of $23,336, $(18,272) and $(53,624), respectively |  | $                       | (24,845
|Reclassification adjustment for realized gain (loss) on investment securities, net of tax (expense) benefit of $(22,153), $2,420 and $10,004, respectively |  |                         | 33,231 
|                                                                                                                                                           |  |                         |        
|                                                                                                                                                           |  |                         | 8,386  
|Fair Value Hedges:                                                                                                                                         |  |                         |        
|Holding gain related to foreign exchange transactions, net of tax expense of $222                                                                          |  |                         |       
|Reclassification adjustment related to foreign exchange losses on investment securities, net of tax benefit of $163 and $204, respectively                 |  |                         |       
|                                                                                                                                                           |  |                         |        
|                                                                                                                                                           |  |                         |       
|Cash Flow Hedges:                                                                                                                                          |  |                         |        
|Holding gain (loss) related to swap transactions, net of tax (expense) benefit of $(263) and $5,787, respectively                                          |  |                         | 380    
|Other:                                                                                                                                                     |  |                         |        
|Net change in pension liability, net of tax benefit of $22,970 and $15,640, respectively                                                                   |  |                         | (33,518
|                                                                                                                                                           |  |                         |        
|Net (loss) gain recognized in other comprehensive income, net of tax benefit (expense) of $23,890, $5,738 and $(43,638), respectively                      |  | $                       | (24,752
|                                                                                                                                                           |  |                         |        

22.    EXTRAORDINARY ITEMS

During 2002, the Company recorded two extraordinary items, a gain related to the acquisition of MethodistCare and a loss related to the early redemption of
certain of the Debentures. For the year ended December 31, 2002, the Company recognized an extraordinary gain of $8.9 million, or $0.06 per
share assuming full dilution, from its acquisition of MethodistCare, reflecting the additional excess of the fair value of net assets acquired over acquisition costs. Prior to the Company's
announcement of its election to redeem the Debentures as of October 28, 2002, Debentureholders converted $18.0 million in aggregate principal amount at maturity of the Company's
Debentures with a carrying value (including accreted interest) of $12.6 million. The total purchase price paid by the Company of $18.9 million resulted in an extraordinary
after-tax loss of $3.8 million or $0.03 per share assuming full dilution, as shown on the Company's Consolidated Income Statements.

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23.    RELATED PARTY TRANSACTIONS

In December 2000, the Company formed The WellPoint Foundation ("Foundation"), a non-profit organization exempt from federal taxation under
Section 501(c)(3) of the Internal Revenue Code. The purpose of the Foundation is to improve the health and well-being of individuals in the communities served by the Company and its
subsidiaries. The Foundation's Board of Directors is comprised solely of persons who are also officers of the Company. For the years ended December 31, 2002 and 2001, the Company contributed or
committed to contribute $45.0 million and $15.0 million, respectively, to the Foundation. The Company had an outstanding commitment payable to the Foundation of $15.0 million as
of December 31, 2001. The Company did not have any outstanding commitments payable to the Foundation as of December 31, 2002. The Company has no current legal obligations for any future
commitments to the Foundation.

24.    PENDING ACQUISITION

On November 20, 2001, the Company entered into a definitive agreement (the "Original 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, 2002, CareFirst served approximately 3.2 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, Inc. 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 benefits plan in the nation. CareFirst affiliate companies also offer third-party administrative services and claims processing
for self-insured groups.

The
Original CareFirst Merger Agreement provided that a wholly owned subsidiary of the Company would merge with and into CareFirst. As a result of the merger, the outstanding shares of
common stock of CareFirst would be converted into the right to receive an aggregate purchase price of $1.3 billion, at least $450.0 million of which the Company would pay 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 would have the option to 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 would rankpari
passuwith the Company's Zero Coupon Convertible Subordinated Debentures due 2019, which were redeemed as of October 28, 2002.

In
April 2002, the Maryland legislature adopted legislation that would, among other things, require that the consideration paid by the Company in the CareFirst transaction consist
entirely of cash, prohibit certain change-in-control payments to CareFirst management previously approved by CareFirst's Board of Directors and delay for 90 days the
effectiveness of any decision by the Maryland Insurance Administration regarding CareFirst's for-profit conversion and consummation of the CareFirst transaction in order to allow the
Maryland legislature to review the decision.

As
a result of the Maryland legislation, the Company and CareFirst entered into an Amended and Restated Agreement and Plan of Merger (the "Amended CareFirst Merger Agreement") on
January 24, 2003. The Amended CareFirst Merger Agreement provides, among other things, that the consideration for the transaction will consist solely of cash, if stock and other
non-cash consideration

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are not allowed under any applicable law or regulation, and requires the termination of certain change-in-control payments as a condition to closing the transaction. In
addition, the purchase price of $1.3 billion in the Original CareFirst Merger Agreement was increased by $70.0 million to $1.37 billion in the Amended CareFirst Merger Agreement.
If the purchase price is paid solely in cash, the Amended CareFirst Merger Agreement allows up to $850.0 million of the purchase price to be financed by debt or equity offerings by the Company.
If applicable law allows non-cash consideration, the purchase price will be paid in cash and stock or notes as provided in the Original CareFirst Merger Agreement. Before the CareFirst
transaction is completed, CareFirst and certain of 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. If the transaction is
consummated, 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.

The
conversion will require the approval of insurance regulators in Maryland, Delaware and the District of Columbia, where CareFirst and its affiliates are domiciled. 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 is also subject to antitrust clearance by the U.S. Department of Justice and
the Federal Trade Commission and the receipt of a private letter ruling from the Internal Revenue Service 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.

On
March 5, 2003, the Maryland insurance commissioner issued an order disapproving the conversion of CareFirst to a for-profit entity. The Maryland legislature has
90 days to review the matter and has the power to veto the commissioner's decision. The Company has 30 days from the date of the commissioner's order to appeal the order. WellPoint
intends to review the decision in greater detail and decide what actions, if any, are appropriate.

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EXHIBIT INDEX

|Exhibit
Number |  |                                                                                                                                                                                                                                                                                                                                  
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 to the 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 to 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. and RWP Acquisition Corp., incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form S-4
(Registration No. 333-73382).                                                   
|2.04           |  | Amended and Restated Agreement and Plan of Merger dated as of January 24, 2003 by and among the Registrant, CareFirst, Inc. and Congress Acquisition Corp., incorporated by reference to Exhibit 99.2 to the Registrant's Current Report on Form 8-K
dated January 24, 2003.                                                     
|3.01           |  | Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K dated August 4, 1997 (File No. 001-13083).                                                                                                                                      
|3.02           |  | Bylaws of the Registrant, incorporated by reference to Exhibit 4.2 to the Registrant's Registrant Statement on Form S-8 (Registration No. 333-90701).                                                                                                                                                                            
|4.01           |  | Specimen of Common Stock certificate of the Registrant.                                                                                                                                                                                                                                                                          
|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           |  | Amended and Restated 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.                                                                                          
|4.05           |  | 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.                                                                                                                                                      
|4.06           |  | Form of Note evidencing the Registrant's 63/8% Notes due 2012, incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated January 11, 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 to the Registrant's Form S-1 Registration Statement
No. 33-54898.                                                               
|10.02*         |  | Supplemental Pension Plan of Blue Cross of California, incorporated by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (File No. 1-11628).                                                                                                                 
|10.03*         |  | Form of Indemnification Agreement between the Registrant and its Directors and Officers, incorporated by reference to Exhibit 10.17 to 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 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993
(File No. 1-11628).                                                                      
|               |  |                                                                                                                                                                                                                                                                                                                                  

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|10.05  |  | Orders Approving Notice of Material Modification and Undertakings dated September 7, 1995, by Blue Cross of California, the Registrant and the Registrant's subsidiaries to the California Department of Corporations, incorporated by reference to
Exhibit 10.47 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 1-11628).
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (File No. 1-11628).                                                                                                  
|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 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 (File No. 1-11628).                                                            
|10.08* |  | Letter dated November 13, 1995 from the Registrant to Thomas C. Geiser regarding severance benefits, incorporated by reference to Exhibit 10.49 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (File
No. 1-11628).                                                                                                                  
|10.09  |  | Amended and Restated Undertakings dated March 5, 1996 by Blue Cross of California, the Registrant and certain of its subsidiaries to the California Department of Corporations, incorporated by reference to Exhibit 99.1 to the Registrant's Current
Report on Form 8-K dated March 5, 1996 (File No. 1-11628).                                                                
|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 to the Registrant's Current Report on
Form 8-K dated May 20, 1996 (File No. 333-03292-01).                                                                   
|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 to the Registrant's Current Report on Form 8-K dated
August 4, 1997 (File No. 001-13083).                                                                                      
|10.12  |  | Blue Cross License Agreement effective as of January 31, 2002 by and among the Registrant and the Blue Cross and Blue Shield Association (the "BCBSA"), incorporated by reference to Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001.                                                                                  
|10.13  |  | Blue Cross 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 dated August 4, 1997 (File No.
001-13083).                                                                                                                    
|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 to the Registrant's Current Report on Form 8-K dated August 4,
1997 (File No. 001-13083).                                                                                                      
|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 to the
Registrant's Current Report on Form 8-K dated August 4, 1997 (File No. 001-13083).                                                   
|10.16  |  | Undertakings dated July 31, 1997 by the Registrant, Blue Cross of 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 dated August 4, 1997 (File No. 001-13083).                                                                         
|10.17* |  | 401(k) Retirement Savings Plan (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 fiscal year ended December 31, 2000.                                                                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                                                                                                                                 

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|10.18* |  | WellPoint 2003 Officer Benefit Enrollment Guide Brochure, as amended.                                                                                                                                                                                                                                          
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.19  |  | 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 dated June 12, 1998 (File No. 333-31599).
|10.20* |  | WellPoint Health Networks Inc. Officer Change-in-Control Plan (as amended and restated through December 4, 2001), incorporated by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001.                                                       
|10.21* |  | WellPoint Health Networks Inc. Officer Severance Plan (as adopted December 4, 2001), incorporated by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001.                                                                                    
|10.22* |  | WellPoint Health Networks Inc. Management Bonus Plan effective as of January 1, 2000, incorporated by reference to Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.                                                                                   
|10.23* |  | WellPoint Health Networks Inc. Board of Directors Deferred Compensation Plan, incorporated by reference to Exhibit 10.52 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No.
001-13083).                                                                      
|10.24* |  | Amended and Restated Employment Agreement dated as of December 31, 2002 by and between the Registrant and Leonard D. Schaeffer, incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K dated December 31,
2002.                                                              
|10.25* |  | Amended and Restated Special Executive Retirement Plan dated as of December 31, 2002 by and between the Registrant and Leonard D. Schaeffer, incorporated by reference to Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated
December 31, 2002.                                                 
|10.26* |  | WellPoint Health Networks Inc. 1999 Stock Incentive Plan (as amended through December 6, 2000), incorporated by reference to Exhibit 10.37 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
2000.                                                                         
|10.27* |  | WellPoint Health Networks Inc. 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.                                                                                                                   
|10.28* |  | WellPoint Health Networks Inc. Comprehensive Executive Non-Qualified Retirement Plan (as amended through February 1, 2001), incorporated by reference to Exhibit 10.39 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000.                                             
|10.29* |  | WellPoint Health Networks Inc. 1996 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.                                                                  
|10.30* |  | WellPoint Health Networks Inc. 2000 Employee Stock Option Plan (as amended through October 19, 2001), incorporated by reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.                                                                   
|10.31* |  | WellPoint Health Networks Inc. Supplemental Executive Retirement Plan (as restated effective December 4, 2001), incorporated by reference to Exhibit 10.35 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001.                                                         
|10.32* |  | Promissory Note Secured by Deed of Trust dated September 22, 2000 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.                                       
|       |  |                                                                                                                                                                                                                                                                                                                

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|10.33  |  | 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 31, 2001.
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.34  |  | Credit Agreement ($250,000,000 364-Day Revolving Credit 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 31, 2001.                          
|10.35  |  | First Amendment to 364-Day Credit Agreement dated as of March 29, 2002, by and among the Registrant, the lenders from time to time party thereto, Bank of America, N.A., as administrative agent, and JPMorgan, a division of Chase Securities, Inc., as
syndication agent, incorporated by reference to Exhibit 10.01 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002.                                                                  
|10.36  |  | 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.                                                                                                                                                        
|10.37  |  | 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.                                                                                                                                                                                                       
|10.38  |  | Blue Cross Controlled Affiliate License Agreement dated as of March 15, 2001 by and among the BCBSA, Blue Cross Blue Shield Healthcare 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 31, 2001.                                                                                                                                            
|10.39  |  | 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 31, 2001.                                                                                                                                                                                                   
|10.40  |  | Blue Cross Controlled Affiliate License Agreement Applicable to Life Insurance Companies 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 31, 2001.                                                                                                                               
|10.41  |  | Blue Shield Controlled Affiliate License Agreement Applicable to Life Insurance Companies 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 31, 2001.                                                                                                                                                                     
|10.42* |  | 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.                                                                                                                                                                                                                                         
|10.43  |  | California Blue Cross License Addendum amended and restated as of January 31, 2002 by and among the Registrant and the BCBSA, incorporated by reference to Exhibit 10.46 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001.                                                                                                                                                                                                            
|10.44  |  | California Blue Shield License Addendum amended and restated as of January 31, 2002 by and among the Registrant and the BCBSA, incorporated by reference to Exhibit 10.47 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001.                                                                                                                                                                                                           
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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|10.45  |  | 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, incorporated by reference to Exhibit 10.48 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001.   
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.46  |  | Blue Shield Controlled Affiliate License Agreement dated as of January 31, 2002 by and among the BCBSA, RightCHOICE and the Registrant, incorporated by reference to Exhibit 10.49 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001.                                     
|10.47  |  | 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, incorporated by reference to Exhibit 10.50 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 2001.
|10.48  |  | Blue Shield Controlled Affiliate License Agreement dated as of January 31, 2002 by and among the BCBSA, HALIC and the Registrant, incorporated by reference to Exhibit 10.51 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001.                                           
|10.49  |  | 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, incorporated by reference to Exhibit 10.52 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001.              
|10.50  |  | Blue Shield Controlled Affiliate License Agreement dated as of January 31, 2002 by and among the BCBSA, HMO Missouri and the Registrant, incorporated by reference to Exhibit 10.53 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001.                                    
|10.51* |  | Amendment No. 2 to the WellPoint 401(k) Retirement Savings Plan (as amended through January 1, 2001), incorporated by reference to Exhibit 10.55 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.                                                                       
|10.52* |  | Amendment No. 3 to the WellPoint 401(k) Retirement Savings Plan (as amended through January 1, 2001), incorporated by reference to Exhibit 10.56 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.                                                                       
|10.53* |  | Amendment No. 4 to the WellPoint 401(k) Retirement Savings Plan (as amended through January 1, 2001), incorporated by reference to Exhibit 10.57 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.                                                                       
|10.54  |  | Blue Shield License Agreement effective as of January 31, 2002 by and between the Registrant and the BCBSA, incorporated by reference to Exhibit 10.58 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.                                                                 
|10.55* |  | RightCHOICE Managed Care, Inc. 2001 Stock Incentive Plan effective May 1, 2001, incorporated by reference to Exhibit 10 to the Registration Statement on Form S-8 of RightCHOICE Managed Care, Inc. (File No. 333-62898).                                                                                          
|10.56* |  | RightCHOICE Managed Care, Inc. 1994 Equity Incentive Plan, incorporated by reference to Exhibit 4(c) of the Post-Effective Amendment No. 2 on Form S-8 to Registration Statement on Form S-4 of RightCHOICE Managed Care, Inc. (File No.
333-34750).                                                               
|10.57* |  | RightCHOICE Managed Care, Inc. Nonemployee Directors' Stock Option Plan, incorporated by reference to Exhibit 10.16 to the Registration Statement on Form S-1 of RightCHOICE Managed Care, Inc., a Missouri corporation (File No.
33-77798).                                                                       
|10.58* |  | Restatement of the RightCHOICE Managed Care, Inc. Executive Deferred Compensation Plan, incorporated by reference to Exhibit 4(c) of the Registration Statement on Form S-8 of RightCHOICE Managed Care, Inc. (File No. 333-51336).                                                                                
|       |  |                                                                                                                                                                                                                                                                                                                    

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|10.59* |  | RightCHOICE Managed Care, Inc. Supplemental Executive Retirement Plan as restated effective October 10, 2001, incorporated by reference to Exhibit 10.06 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
2002.                   
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.60* |  | Letter agreement dated February 4, 2002 between the Registrant and John A. O'Rourke, incorporated by reference to Exhibit 10.07 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002.                                            
|10.61* |  | Amendment No. 1 to RightCHOICE Managed Care, Inc. Executive Deferred Compensation Plan effective as of October 15, 2001, incorporated by reference to Exhibit 10.08 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002.        
|10.62* |  | Amendment to the WellPoint 401(k) Retirement Savings Plan effective as of April 30, 2002, incorporated by reference to Exhibit 10.01 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.                                        
|10.63* |  | WellPoint Health Networks Inc. Comprehensive Executive Non-Qualified Retirement Plan (as amended through September 1, 2002), incorporated by reference to Exhibit 10.01 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002.
|10.64* |  | Amendment to the WellPoint 401(k) Retirement Savings Plan effective as of September 1, 2002, incorporated by reference to Exhibit 10.02 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.                                
|10.65* |  | Amendment to the WellPoint 401(k) Retirement Savings Plan effective as of November 17, 2002, incorporated by reference to Exhibit 10.03 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.                                
|10.66* |  | Amendment to the WellPoint 401(k) Retirement Savings Plan (as amended through March 1, 2002) dated March 16, 2003.                                                                                                                                                 
|10.67  |  | Blue Cross Controlled Affiliate License Agreement Applicable to Life Insurance Companies dated October 4, 2002 by and between the BCBSA and HALIC.                                                                                                                 
|10.68  |  | Blue Shield Controlled Affiliate License Agreement Applicable to Life Insurance Companies dated October 4, 2002 by and between the BCBSA and HALIC.                                                                                                                
|10.69* |  | EGTRRA Amendment to the WellPoint 401(k) Retirement Savings Plan (as amended through March 1, 2002) dated December 4, 2002.                                                                                                                                        
|21     |  | List of Subsidiaries of the Registrant.                                                                                                                                                                                                                            
|23.1   |  | Consent of Independent Accountants.                                                                                                                                                                                                                                
|24     |  | Power of Attorney (included on Signature Page).                                                                                                                                                                                                                    
|99.1   |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                       
|99.2   |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                       

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