** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

 

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**Amendment No. 1onFORM 10-K/A**

 

| **(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, 2003**                                              |
|            |   |                                                                                          |
| **o**           |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe transition period from         to**

 

## **Commissionfile number 001-13083**

 

**WELLPOINT HEALTH NETWORKS INC.**

(Exact name ofregistrant as specified in its charter)

 

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

 

**Securitiesregistered pursuant to Section 12(g) of the Act:**

None

 

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Indicate by check markwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ýNo o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of the Form 10-K or any amendment to thisForm 10-K.  o

 

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

 

As of June 30, 2003,the aggregate market value of the voting common stock held by non-affiliates ofthe registrant was approximately $12,124,896,313 (based on the last reportedsale price of $84.30 per share on June 30, 2003, on the New York StockExchange).

 

As of April 21, 2004,there were approximately 158,157,397 shares of Common Stock, $0.01 par value ofthe registrant outstanding.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

None.

 

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**EXPLANATORY NOTE**

 

ThisAmendment No. 1 on Form 10-K/A is being filed in order to, amongother things, amend Items 7, 10, 11, 12 and 13 of the Annual Report onForm 10-K of WellPoint Health Networks Inc. (“WellPoint” or the “Company”)for the period ended December 31, 2003 (the “Form 10-K”). TheForm 10-K as filed with the Securities and Exchange Commission on March15, 2004 omitted certain information required by Items 10, 11, 12 and 13 inreliance on General Instruction G(3) of Form 10-K.  Item 7 is being amended to includeadditional information regarding the Company’s medical claims payable.

 

2

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**WELLPOINTHEALTH NETWORKS INC.AMENDMENT NO. 1 ON FORM 10-K/A TOANNUAL REPORT ON FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2003**

 

**TABLE OFCONTENTS**

 
| **PART II**  | 4                                                                                               |
|--------------|-------------------------------------------------------------------------------------------------|
| Item 7.      | Management’s Discussion and Analysis of  Financial Condition and Results of Operations     | 4 |
|         |                                                                                            |   |
| **PART III** | 38                                                                                              |
| Item 10.     | Directors and Executive Officers of the  Registrant                                             | 38 |
| Item 11.     | Executive Compensation                                                                          | 40 |
| Item 12.     | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters | 52 |
| Item 13.     | Certain Relationships and Related Transactions                                                  | 58 |
|         |                                                                                            |   |
| **PART IV**  | 59                                                                                              |
| Item 15.     | Exhibits, Financial Statement Schedules and  Reports on Form 8-K                                | 59 |
| SIGNATURES   | 66                                                                                              |

 

3

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**PART II**

 

**Item 7****.Management’s Discussion and Analysis of Financial Condition and Results ofOperations.**

 

This discussion containsforward-looking statements, which involve risks and uncertainties. TheCompany’s actual results may differ materially from those anticipated in theseforward-looking statements as a result of certain factors including, butnot limited to, those set forth under “Factors That May Affect Future Resultsof Operations.”

 

**General**

 

The Company is one of thenation’s largest publicly traded managed health care companies. As ofDecember 31, 2003, WellPoint had approximately 15.0 million medicalmembers (including approximately 1.0 million BlueCard “host” members) andapproximately 45.6 million specialty members.  Through its subsidiaries, the Company offers a broad spectrum ofnetwork-based managed care plans to the large and small employer,individual, Medicaid and senior markets. The Company’s managed care plansinclude PPOs, HMOs, POS plans, other hybrid plans and traditional indemnityplans. In addition, the Company offers managed care services, includingunderwriting, actuarial services, network access, medical management and claimsprocessing. The Company also provides a broad array of specialty and otherproducts and services, including pharmacy benefits management, dental, vision,life insurance, preventive care, disability insurance, behavioral health, COBRAand flexible benefits account administration. With its recent acquisition ofCobalt Corporation (“Cobalt”), the Company now also offers workers’compensation insurance products and is currently the largest MedicarePart A fiscal intermediary in the nation, processing claims for providersin all 50 states. The Company markets its products in California primarilyunder the name Blue Cross of California, in Georgia primarily under the nameBlue Cross Blue Shield of Georgia, in various parts of Missouri (including thegreater St. Louis area) primarily under the name Blue Cross Blue Shield ofMissouri, in Wisconsin primarily under the names Blue Cross Blue Shield ofWisconsin and CompcareBlue and in various parts of the country under the namesUNICARE and HealthLink.

 

*Acquisitionof Cobalt*

 

On September 24,2003, the Company completed its acquisition of Cobalt (see Note 3 to theConsolidated Financial Statements). At closing, the acquisition was valued atapproximately $884.9 million, which was paid with $439.6 million in cashand approximately 7.3 million shares of WellPoint Common Stock, of whichapproximately 2.1 million shares were issued to affiliates of WellPoint.As of September 30, 2003, Cobalt served approximately 675,000 medicalmembers and offered a diverse portfolio of complementary insurance, managedcare products and administrative services to employer, individual, insurer andgovernment customers. The Cobalt merger was effective as of September 30,2003 for accounting purposes.

 

*Acquisitionof Golden West*

 

On June 30, 2003,the Company completed its acquisition of Golden West (see Note 3 to theConsolidated Financial Statements), which served over 275,000 dental and visionmembers, primarily in California, at the time of acquisition.

 

*Acquisitionof MethodistCare*

 

On April 30, 2002, theCompany completed its acquisition of MethodistCare (see Note 3 to theConsolidated Financial Statements), which served over 70,000 members inHouston, Texas and surrounding areas at the time of acquisition. Thisacquisition was intended to enable UNICARE, WellPoint’s national operatingunit, to expand its product line by offering HMO and open-access products inthe Gulf Coast and surrounding regions in Texas, including the greater Houston-Galvestonmetropolitan area. As a result of the acquisition, the Company recognized anextraordinary 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 23 to the Consolidated Financial Statements.)

 

4

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*Acquisitionof RightCHOICE*

 

On January 31, 2002,the Company completed its acquisition of RightCHOICE (see Note 3 to theConsolidated Financial Statements). At closing, the acquisition was valued atapproximately $1.5 billion, which was paid with $379.1 million incash and approximately 16.5 million shares of WellPoint Common Stock. Asof January 31, 2002, RightCHOICE served approximately 2.2 millionmedical members in Missouri, Arkansas, Illinois, Indiana, Iowa, Kentucky and WestVirginia. RightCHOICE, through its HealthLink subsidiary, also provides networkrental, administrative services, workers’ compensation managed care servicesand other non-underwritten health benefit programs.

 

*NationalExpansion and Other Recent Developments*

 

In an effort to pursuethe expansion of the Company’s business outside the state of California, theCompany acquired two businesses in 1996 and 1997, the Life and Health BenefitsManagement Division of Massachusetts Mutual Life Insurance Company and theGroup Benefits Operations (the “GBO”) of John Hancock Mutual Life InsuranceCompany. The acquisitions of Rush Prudential Health Plans and a mail-orderpharmacy, which now does business as PrecisionRx, in 2000, the acquisition ofCerulean Companies, Inc. in 2001, the acquisitions of RightCHOICE andMethodistCare in 2002 and the acquisition of Cobalt in 2003 were alsocomponents of this expansion strategy.

 

As a result of theseacquisitions, the Company has significantly expanded its operations outside ofCalifornia. In order to integrate its acquired businesses and implement itsregional expansion strategy, the Company will need to develop satisfactorynetworks of hospitals, physicians and other health care service providers,develop distribution channels for its products and successfully convertacquired books of business to the Company’s existing information systems, whichwill require continued investments by the Company.

 

In response to risingmedical and pharmacy costs, the Company has from time to time implementedpremium increases with respect to certain of its products. The Company willcontinue to evaluate the need for further premium increases, plan designchanges and other appropriate actions in the future in order to maintain orrestore profit margins. There can be no assurances, however, that the Companywill be able to take subsequent pricing or other actions or that any actionspreviously taken or implemented in the future will be successful in addressingany concerns that may arise with respect to the performance of certainbusinesses.

 

*Legislation*

 

Federal legislationenacted during the last several years seeks, among other things, to ensure theportability of health coverage and mandates minimum maternity hospital stays.California legislation enacted since 1999, among other things, establishes anexplicit duty on managed care entities to exercise ordinary care in arrangingfor the provision of medically necessary health care services and establishes asystem of independent medical review. In 1997, Texas adopted legislationpurporting to make managed care organizations such as the Company liable fortheir failure to exercise ordinary care when making health care treatmentdecisions. Similar legislation has also been enacted in Georgia. These andother proposed measures may have the effect of dramatically altering theregulation of health care and of increasing the Company’s medical care ratioand administrative costs or decreasing the affordability of the Company’sproducts.

 

**Resultsof Operations**

 

The Company’s revenuesare primarily generated from premiums earned for risk-based health care andspecialty services provided to its members; fees for administrative services,including claims processing and access to provider networks for self-insuredemployers; and investment income. Operating expenses include health careservices and other benefits expenses, consisting primarily of payments forphysicians, hospitals and other providers for health care and specialtyproducts claims; selling expenses for broker and agent commissions; general andadministrative expenses; interest expense; depreciation and amortizationexpense; and income taxes.

 

The Company’sconsolidated results of operations for the year ended December 31, 2003include its

 

5

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acquired operations of RightCHOICE for the entire year, while operatingresults for the year ended December 31, 2002 include the results ofRightCHOICE from January 31, 2002, the date of acquisition. On September 24,2003, the Company completed its acquisition of Cobalt. The Cobalt merger waseffective as of September 30, 2003 for accounting purposes. Accordingly,the Company’s consolidated results of operations for the year endedDecember 31, 2003 include the results of Cobalt from September 30,2003.

 

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

 

The following table setsforth selected operating ratios. The medical care ratio for health careservices and other benefits is shown as a percentage of premium revenue. Allother ratios are shown as a percentage of premium revenue and managementservices and other revenue combined.

 
|                                                          |   | **Year Ended  December 31,** |   |
|---------------------------------------------------------------|--------|------------------------------|--------|
|                                                          |   | **2003**                     |   | **2002** |   | **2001** |   |
|                                                          |   |                         |   |   |   |   |   |
| Operating  Revenues:                                          |   |                         |   |   |   |   |   |
| Premium revenue                                               |   | 95.3                         | %      | 95.2 | % | 95.0 | % |
| Management  services and other revenue                        |   | 4.7                          | %      | 4.8 | % | 5.0 | % |
|                                                          |   | 100.0                        | %      | 100.0 | % | 100.0 | % |
|                                                          |   |                         |   |   |   |   |   |
| Operating  Expenses:                                          |   |                         |   |   |   |   |   |
| Health care  services and other benefits (medical care ratio) |   | 80.5                         | %      | 81.5 | % | 81.5 | % |
| Selling expense                                               |   | 4.0                          | %      | 4.0 | % | 4.1 | % |
| General and  administrative expense                           |   | 12.3                         | %      | 12.7 | % | 13.7 | % |

 

**MedicalMembership(a)(b)(c)(d)**

 

The following table setsforth membership data and the percent change in membership:

 
|                        |   | **December  31,** |   |        |   |
|-----------------------------|--------|-------------------|--------|-------------|--------|
|                        |   | **2003(e)**       |   | **2002(f)** |   | **Percent  Change** |   |
|                        |   |              |   |        |   |   |   |
| California                  |   |              |   |        |   |   |   |
| Large Group                 |   | 4,839,435         |   | 4,715,458   |   | 2.6 | % |
| Individual and  Small Group |   | 1,638,189         |   | 1,617,776   |   | 1.3 | % |
| Senior                      |   | 250,026           |   | 244,790     |   | 2.1 | % |
| Total California            |   | 6,727,650         |   | 6,578,024   |   | 2.3 | % |
| Georgia                     |   |              |   |        |   |   |   |
| Large Group                 |   | 1,614,427         |   | 1,605,267   |   | 0.6 | % |
| Individual and  Small Group |   | 497,233           |   | 425,953     |   | 16.7 | % |
| Senior                      |   | 68,525            |   | 69,250      |   | -1.0 | % |
| Total Georgia               |   | 2,180,185         |   | 2,100,470   |   | 3.8 | % |
| Central  Region(g)          |   |              |   |        |   |   |   |
| Missouri                    |   |              |   |        |   |   |   |
| Large Group                 |   | 1,128,246         |   | 1,241,317   |   | -9.1 | % |
| Individual and  Small Group |   | 242,259           |   | 229,365     |   | 5.6 | % |
| Senior                      |   | 40,804            |   | 42,256      |   | -3.4 | % |
| Total Missouri              |   | 1,411,309         |   | 1,512,938   |   | -6.7 | % |
| Illinois                    |   |              |   |        |   |   |   |
| Large Group                 |   | 577,768           |   | 629,118     |   | -8.2 | % |
| Individual and  Small Group |   | 123,956           |   | 120,114     |   | 3.2 | % |
| Senior                      |   | 13,308            |   | 12,499      |   | 6.5 | % |
| Total Illinois              |   | 715,032           |   | 761,731     |   | -6.1 | % |

 

6

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| Texas                                                  |   |       |   |       |   |   |   |
|--------------------------------------------------------|--------|------------|--------|------------|--------|--------|--------|
| Large Group                                            |   | 293,570    |   | 359,599    |   | -18.4  | %      |
| Individual and  Small Group                            |   | 199,786    |   | 188,874    |   | 5.8    | %      |
| Senior                                                 |   | 6,843      |   | 520        |   | N/A    |   |
| Total Texas                                            |   | 500,199    |   | 548,993    |   | -8.9   | %      |
| Other States                                           |   |       |   |       |   |   |   |
| Large Group                                            |   | 1,749,853  |   | 1,579,216  |   | 10.8   | %      |
| Individual and  Small Group                            |   | 104,102    |   | 95,814     |   | 8.7    | %      |
| Senior                                                 |   | 30,937     |   | 24,054     |   | 28.6   | %      |
| Total Other  States                                    |   | 1,884,892  |   | 1,699,084  |   | 10.9   | %      |
| Wisconsin                                              |   |       |   |       |   |   |   |
| Large Group                                            |   | 429,309    |   | 21,114     |   | N/A    |   |
| Individual and  Small Group                            |   | 106,837    |   | 919        |   | N/A    |   |
| Senior                                                 |   | 53,736     |   | 66         |   | N/A    |   |
| Total Wisconsin                                        |   | 589,882    |   | 22,099     |   | N/A    |   |
| Total Medical  Members Excluding BlueCard Host Members |   | 14,009,149 |   | 13,223,339 |   | 5.9    | %      |
| Total BlueCard  Host Members(h)                        |   | 1,002,113  |   | 587,272    |   | 70.6   | %      |
| Total Medical  Membership                              |   | 15,011,262 |   | 13,810,611 |   | 8.7    | %      |
|                                                   |   |       |   |       |   |   |   |
| ASO  Membership(i)                                     |   |       |   |       |   |   |   |
| California                                             |   | 1,642,354  |   | 1,517,382  |   | 8.2    | %      |
| Georgia                                                |   | 833,409    |   | 865,723    |   | -3.7   | %      |
| Central  Region(g)                                     |   | 2,578,564  |   | 2,653,762  |   | -2.8   | %      |
| Wisconsin                                              |   | 167,612    |   | 13,004     |   | N/A    |   |
| BlueCard Host  Members                                 |   | 1,002,113  |   | 587,272    |   | 70.6   | %      |
|                                                   |   |       |   |       |   |   |   |
| Total ASO  Membership                                  |   | 6,224,052  |   | 5,637,143  |   | 10.4   | %      |
| Risk Membership                                        |   |       |   |       |   |   |   |
| California                                             |   | 5,085,296  |   | 5,060,642  |   | 0.5    | %      |
| Georgia                                                |   | 1,346,776  |   | 1,234,747  |   | 9.1    | %      |
| Central Region                                         |   | 1,932,868  |   | 1,868,984  |   | 3.4    | %      |
| Wisconsin                                              |   | 422,270    |   | 9,095      |   | N/A    |   |
| Total Risk  Membership                                 |   | 8,787,210  |   | 8,173,468  |   | 7.5    | %      |
| Total Medical  Membership                              |   | 15,011,262 |   | 13,810,611 |   | 8.7    | %      |

 

**State-SponsoredPrograms Membership(j)**

 
|                 |   | **December  31,** |   |      |   |
|----------------------|--------|-------------------|--------|-----------|--------|
|                 |   | **2003**          |   | **2002**  |   | **Percent  Change** |   |
|                 |   |              |   |      |   |   |   |
| Medi-Cal /  Medicaid |   |              |   |      |   |   |   |
| California           |   | 844,540           |   | 836,065   |   | 1.0 | % |
| Virginia             |   | 49,358            |   | 38,552    |   | 28.0 | % |
| Puerto Rico          |   | 265,541           |   | 288,151   |   | -7.8 | % |
| Other                |   | 104,541           |   | 69,719    |   | 49.9 | % |
| Total                |   | 1,263,980         |   | 1,232,487 |   | 2.6 | % |
| Healthy Families     |   | 279,572           |   | 255,211   |   | 9.5 | % |
| MRMIP / AIM /  IHRP  |   | 12,817            |   | 17,833    |   | -28.1 | % |
| California Kids      |   | 14,598            |   | 18,567    |   | -21.4 | % |
| Total                |   | 1,570,967         |   | 1,524,098 |   | 3.1 | % |

 

7

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(a)                                  Membershipnumbers are approximate and include some estimates based upon the number ofcontracts at the relevant date and an actuarial estimate of the number ofmembers represented by the contract.

 

(b)                                 Classificationbetween states for employer groups is determined by the zip code of thesubscriber.

 

(c)                                  Medicalmembership includes management services and network services members, which areprimarily included in the Large Group for each respective state.

 

(d)                                 Seniormembership includes members covered under both Medicare risk and Medicaresupplement products.

 

(e)                                  Medicalmembers as of December 31, 2003, excluding BlueCard Host members, include682,613 medical members from the Cobalt acquisition.

 

(f)                                    Membershipnumbers as of December 31, 2002 have been reclassified to reflect the zipcode of the subscriber of HealthLink’s commercial insurer accounts. Thesemembers were previously included in the commercial insurers’ state of domicile.As of December 31, 2002, Missouri and Illinois members would have beenhigher by 111,239 and 23,246, respectively, while California, Georgia, Texasand Other States would have been lower by 1,450, 420, 8,728 and 123,887,respectively.

 

(g)                                 CentralRegion—Large Group membership includes network access services members,primarily from HealthLink, of 1,246,775 and 1,471,639 as of December 31,2003 and December 31, 2002, respectively. As of December 31, 2003,the Company revised its methodology of calculating the number of medicalmembers represented by each subscriber contract within the Company’s rentalnetworks and a Missouri joint venture. The weighted average factor changed fromapproximately 2.4 members to 2.1 members per subscriber. The impact of thischange as of quarter end for the years ended December 31, 2002 and 2003 isto reduce membership as follows:

 
| **As of**           |   | **Illinois** |   | **Missouri** |   | **Other  States** |   | **Total** |   |
|---------------------|--------|--------------|--------|--------------|--------|-------------------|--------|-----------|--------|
|                |   |         |   |         |   |              |   |      |   |
| March 31, 2002      |   | 39,207       |   | 122,833      |   | 16,680            |   | 178,720   |   |
| June 30, 2002       |   | 38,659       |   | 120,425      |   | 16,446            |   | 175,530   |   |
| September 30,  2002 |   | 38,217       |   | 120,492      |   | 16,258            |   | 174,967   |   |
| December 31,  2002  |   | 38,312       |   | 119,827      |   | 16,298            |   | 174,437   |   |
| March 31, 2003      |   | 35,999       |   | 111,008      |   | 15,314            |   | 162,321   |   |
| June 30, 2003       |   | 35,083       |   | 108,097      |   | 14,925            |   | 158,105   |   |
| September 30,  2003 |   | 34,990       |   | 104,614      |   | 14,885            |   | 154,489   |   |
| December 31,  2003  |   | 34,377       |   | 103,013      |   | 14,624            |   | 152,014   |   |

 

Membership data as ofDecember 31, 2002 shown in the table have not been revised to reflect thischange in methodology.

 

(h)                                 TheCompany has revised its medical membership counting methodology to includeestimated “host”

 

8

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members using thenational BlueCard program. Host members are generally members who reside in astate in which a WellPoint subsidiary is the Blue Cross and/or Blue Shieldlicensee and who are covered under an employer-sponsored health planissued by a non-WellPoint controlled Blue Cross Blue Shield licensee. Hostmembers are computed using, among other things, an estimate of the averagenumber of BlueCard claims received per member per month. Total BlueCard hostmembers as of quarter end for the years ended December 31, 2002 and 2003were as follows:

 
| **As of**           |   | **BlueCard  Members** |   |
|---------------------|--------|-----------------------|--------|
|                |   |                  |   |
| March 31, 2002      |   | 567,695               |   |
| June 30, 2002       |   | 539,970               |   |
| September 30,  2002 |   | 589,188               |   |
| December 31,  2002  |   | 587,272               |   |
| March 31, 2003      |   | 748,490               |   |
| June 30, 2003       |   | 743,897               |   |
| September 30,  2003 |   | 1,009,900             |   |
| December 31,  2003  |   | 1,002,113             |   |

 

Membership data shown inthe table reflects this change in methodology.

 

(i)                                     ASOMembership represents members for which the Company provides administrativeservices only and does not assume full insurance risk.

 

(j)                                     Medi-Cal(the California Medicaid program) membership is included in California—LargeGroup. Medicaid membership for Virginia, Puerto Rico and Other are included inOther States—Large Group. Healthy Families, MRMIP (Major Risk Medical InsuranceProgram) /AIM (Access for Infants and Mothers) / IHRP (Interim High RiskProgram) and California Kids membership is included in California—Large Group.

 

**SpecialtyMembership**

 
|                          |   | **December  31,** |   |       |   |
|-------------------------------|--------|-------------------|--------|------------|--------|
|                          |   | **2003(A)**       |   | **2002**   |   | **Percent  Change** |   |
|                          |   |              |   |       |   |   |   |
| Pharmacy  Benefits Management |   | 31,152,732        |   | 34,983,224 |   | -10.9 | % |
| Dental                        |   | 3,282,492         |   | 2,704,535  |   | 21.4 | % |
| Life                          |   | 3,122,734         |   | 2,579,487  |   | 21.1 | % |
| Disability                    |   | 603,409           |   | 513,520    |   | 17.5 | % |
| Behavioral  Health            |   | 7,404,030         |   | 7,315,491  |   | 1.2 | % |
| Total                         |   | 45,565,397        |   | 48,096,257 |   | -5.3 | % |

 

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(A)                              Specialtymembership as of December 31, 2003 included 712,861 specialty members fromthe Cobalt acquisition.

 

9

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**Comparisonof Results for the Year Ended December 31, 2003 to the Year EndedDecember 31, 2002**

 

As a result of theJanuary 31, 2002 acquisition of RightCHOICE, the organizational structureof the Company changed effective February 1, 2002. As a result of thischange, the Company established the following two reportable segments: HealthCare and Specialty. (See Note 18 to the Consolidated Financial Statementsfor further discussion.) The Health Care segment provides a broad spectrum ofnetwork-based health plans, including PPOs, HMOs, POS plans, other hybridplans and traditional indemnity plans, to large and small employers andindividuals as well as other health care-related products, such as vision,preventive care, COBRA and flexible benefits account administration. TheSpecialty business is maintained as a separate segment providing an array ofspecialty products, including pharmacy benefits management, dental, lifeinsurance, disability insurance, behavioral health, workers’ compensationinsurance products and workers’ compensation managed care services.

 

The operating results forthe year ended December 31, 2003 compared to the year endedDecember 31, 2002 were impacted by the Cobalt and RightCHOICEacquisitions. Specifically, the Company’s operating results for the year endedDecember 31, 2003 included three months of operating results from theCobalt acquisition and twelve months of operating results from the RightCHOICEacquisition, whereas the Company’s operating results for the year endedDecember 31, 2002 included only eleven months (February 1, 2002through December 31, 2002) of operating results attributable to theacquired RightCHOICE business. In order to provide a more meaningful comparisonof the Company’s results of operations for the year ended December 31,2003 versus the year ended December 31, 2002, the following discussionpresents financial measures that exclude operating results attributable to theacquired RightCHOICE business for the month of January 2003 and excludeoperating results attributable to the acquired Cobalt business for the threemonths ended December 31, 2003, which we refer to as “Same-Store.” TheCompany also uses Same-Store measures for purposes of reporting comparativefinancial results to its Board of Directors.

 

The following tabledepicts premium revenue by reportable segment:

 
|         |   | **Year Ended  December 31, 2003** |       | **Less:  Acquired  RightCHOICE  Business for One  Month Ended  January 31, 2003** |   | **Less:  Acquired Cobalt  Business for the  Quarter Ended  December 31, 2003** |   | **Year Ended  December 31, 2003  (Same-Store)** |    | **Year Ended  December 31, 2002** |   |
|--------------|--------|-----------------------------------|------------|-----------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|--------|-------------------------------------------------|---------|-----------------------------------|--------|
|         |   | **(in  thousands)**               |       |
|         |   |                              |       |                                                                              |   |                                                                           |   |                                            |    |                              |   |
| Health Care  |   | $                                 | 18,564,594 |                                                                              | $      | 109,386                                                                        |   | $                                               | 318,687 |                              | $      | 18,136,521 |   | $ | 15,701,071 |   |
| Specialty    |   | 592,117                           |       | 673                                                                               |   | 39,802                                                                         |   | 551,642                                         |    | 505,090                           |   |
| Consolidated |   | $                                 | 19,156,711 |                                                                              | $      | 110,059                                                                        |   | $                                               | 358,489 |                              | $      | 18,688,163 |   | $ | 16,206,161 |   |

 

Premium revenue increased18.2%, or $2,950.5 million, to $19,156.7 million for the year endedDecember 31, 2003 from $16,206.2 million for the year endedDecember 31, 2002. Excluding premium revenue attributable to the acquiredRightCHOICE business of $110.1 million for the month of January 2003and premium revenue attributable to the acquired Cobalt business of$358.5 million for the quarter ended December 31, 2003, premiumrevenue increased $2,481.9 million or 15.3% on a Same-Store basis.Excluding insured member months attributable to the acquired Cobalt businessfor the quarter ended December 31, 2003 and the acquired RightCHOICEbusiness for the month of January 2003, insured member months increasedapproximately 4.9% for the year ended December 31, 2003 compared to theyear ended December 31, 2002. This growth in premium revenue occurred acrossall regions of the Health Care segment, but was more pronounced in theCalifornia and Georgia regions due mainly to an increase in insured membermonths and the implementation of premium increases.

 

10

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The following tabledepicts management services and other revenue by reportable segment:

 
|                 |   | **Year Ended  December 31, 2003** |    | **Less:  Acquired  RightCHOICE  Business for One  Month Ended  January 31, 2003** |   | **Less:  Acquired Cobalt  Business for the  Quarter Ended  December 31, 2003** |   | **Year Ended  December 31, 2003  (Same-Store)** |   | **Year Ended  December 31, 2002** |   |
|----------------------|--------|----------------------------------------|---------|-----------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|--------|-------------------------------------------------|--------|-----------------------------------|--------|
|                 |   | **(in  thousands)**                    |    |
|                 |   |                                   |    |                                                                              |   |                                                                           |   |                                            |   |                              |   |
| Health Care          |   | $                                      | 792,775 |                                                                              | $      | 13,288                                                                         |   | $                                               | 41,831 |                              | $      | 737,656 |   | $ | 681,512 |   |
| Specialty            |   | 148,461                                |    | 173                                                                               |   | 5,774                                                                          |   | 142,514                                         |   | 136,863                           |   |
| Corporate and  Other |   | 3,550                                  |    | —                                                                            |   | —                                                                         |   | 3,550                                           |   | —                            |   |
| Consolidated         |   | $                                      | 944,786 |                                                                              | $      | 13,461                                                                         |   | $                                               | 47,605 |                              | $      | 883,720 |   | $ | 818,375 |   |

 

Management services andother revenue increased 15.4%, or $126.4 million, to $944.8 millionfor the year ended December 31, 2003 from $818.4 million for the yearended December 31, 2002. Excluding management services and other revenueattributable to the acquired RightCHOICE business of $13.5 million for themonth of January 2003 and management services and other revenueattributable to the acquired Cobalt business of $47.6 million for thequarter ended December 31, 2003, management services and other revenueincreased $65.3 million or 8.0%. Excluding the RightCHOICE and Cobaltacquisitions, the increase in the Health Care segment was primarily due to anincrease in management services revenue from the California and Georgia regionsof $54.0 million and $31.0 million, respectively. The increase in theCalifornia region resulted from an increase in administrative services member monthsof 12.9% and an increase of 12.8% in the administrative services per member permonth rate. The increase in the Georgia region resulted primarily from a 10.7%increase in the administrative services per member per month rate. Theseincreases were partially offset by a decrease in the Central Region of$28.8 million on a Same-Store basis, which resulted primarily from adecrease in administrative services member months of 14.6%; partially offset byan increase in per member per month rates of 5.4%.

 

Investment incomeconsists of gross investment income, net of investment expenses and netrealized investment gains or losses. Investment income was $258.2 millionfor the year ended December 31, 2003, compared to $314.0 million forthe year ended December 31, 2002, a decrease of $55.8 million or17.8%. The decrease was primarily due to net realized gains for the year endedDecember 31, 2003 of $12.0 million as compared to net realized gainsfor the year ended December 31, 2002 of $55.4 million. Net realizedgains for the year ended December 31, 2002 included a pre-tax investmentgain of $64.9 million from the Company’s investment in TrigonHealthcare, Inc. Excluding net realized gains and losses, investmentincome for the year ended December 31, 2003 and 2002 was $246.2 millionand $258.6 million, respectively. The $12.4 million decline was dueto lower investment yields on higher average fixed maturity investment balancesand an increase in tax-exempt bond holdings. The Company believes thedisclosure of investment income excluding realized gains or losses is useful toinvestors because this measurement allows management and investors to analyzethe performance of the fixed- income portion of the Company’s investmentportfolio.

 

The following tabledepicts health care services and other benefits by reportable segment:

 
|         |   | **Year Ended  December 31, 2003** |       | **Less:  Acquired  RightCHOICE  Business for One  Month Ended  January 31, 2003** |   | **Less:  Acquired Cobalt  Business for the  Quarter Ended  December 31, 2003** |   | **Year Ended  December 31, 2003  (Same-Store)** |    | **Year Ended  December 31, 2002** |   |
|--------------|--------|----------------------------------------|------------|-----------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|--------|------------------------------------------------------|---------|----------------------------------------|--------|
|         |   | **(in  thousands)**                    |       |
|         |   |                                   |       |                                                                              |   |                                                                           |   |                                                 |    |                                   |   |
| Health Care  |   | $                                      | 15,059,641 |                                                                              | $      | 85,730                                                                         |   | $                                                    | 270,390 |                                   | $      | 14,703,521 |   | $ | 12,865,707 |   |
| Specialty    |   | 369,122                                |       | 334                                                                               |   | 28,587                                                                         |   | 340,201                                              |    | 345,383                                |   |
| Consolidated |   | $                                      | 15,428,763 |                                                                              | $      | 86,064                                                                         |   | $                                                    | 298,977 |                                   | $      | 15,043,722 |   | $ | 13,211,090 |   |

 

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Health care services andother benefits increased 16.8%, or $2,217.7 million, to$15,428.8 million for the year ended December 31, 2003 from$13,211.1 million for the year ended December 31, 2002. Excludinghealth care services and other benefits attributable to the acquiredRightCHOICE business of $86.1 million for the month of January 2003and acquired Cobalt business of $299.0 million for the quarter endedDecember 31, 2003, health care services and other benefits increased$1,832.6 million or 13.9%, on a Same-Store basis, as compared to theincrease in premium revenue of 15.3%.

 

The Company’s medicalcare ratio was 80.5% for the year ended December 31, 2003 compared to81.5% for the year ended December 31, 2002. The medical care ratioattributable to the Health Care segment was 81.1% for the year endedDecember 31, 2003, compared to 81.9% for the year ended December 31,2002. The medical care ratio attributable to the Specialty segment was 62.3%for the year ended December 31, 2003 compared to 68.4% for the year endedDecember 31, 2002. Health care services and other benefits expense andmedical care ratio information is provided for each segment so investors cancompare the performance of each segment to the other segment and to the Companyas a whole. With respect to the Health Care segment, excluding premium revenueof $109.4 million and health care services and other benefits expense of$85.7 million attributable to the acquired RightCHOICE business for themonth of January 2003 and excluding premium revenue of $318.7 millionand health care services and other benefits expense of $270.4 millionattributable to the acquired Cobalt business for the quarter endedDecember 31, 2003, the Company’s medical care ratio attributable to theHealth Care segment for the year ended December 31, 2003 was 81.1% ascompared to 81.9% for the year ended December 31, 2002. This decrease inthe medical care ratio is attributable to the implementation of premiumincreases during the year ended December 31, 2003. The health careservices and other benefits expense includes an estimate of claims incurredduring the period that have not been reported to the Company. This estimate isactuarially determined based on a variety of factors and is inherently subjectto a number of highly variable circumstances. Consequently, the actual resultscould differ materially from the amount recorded in the consolidated financialstatements. See “Critical Accounting Policies” for a discussion of this itemand its potential effect on the Company’s reported results of operations.

 

Selling expense consistsof commissions paid to outside brokers and agents representing the Company. Theselling expense ratio remained constant at 4.0% for the years endedDecember 31, 2003 and 2002. Selling expenses were $807.7 million and$681.8 million for the years ended December 31, 2003 and 2002,respectively. The acquired Cobalt business had a lower selling expense ratio of1.6% (selling expense of $6.5 million and combined premium revenue andmanagement services and other revenue of $406.1 million for the quarterended December 31, 2003) than the Company’s core businesses due to itslarger proportion of large employer group business. The RightCHOICE businesshad a selling expense ratio of 3.8% (selling expense of $4.7 million andcombined premium revenue and management services and other revenue of$123.5 million for the one month ended January 31, 2003). Excludingthe Cobalt and RightCHOICE acquisitions, the Company’s selling expense ratiowas 4.1% for the year ended December 31, 2003 as compared to 4.0% for theyear ended December 31, 2002.

 

The general andadministrative expense ratio decreased to 12.3%, based on general andadministrative expenses of $2,477.7 million for the year endedDecember 31, 2003 from 12.7%, based on general and administrative expensesof $2,166.7 million for the year ended December 31, 2002. Excludinggeneral and administrative expense of $75.6 million and combined premiumrevenue and management services and other revenue of $406.1 millionattributable to the acquired Cobalt business for the quarter endedDecember 31, 2003 and general and administrative expense of $19.5 millionand combined premium revenue and management services and other revenue of$123.5 million attributable to the acquired RightCHOICE business for themonth of January 2003, the Company’s general and administrative expenseratio was 12.2% for the year ended December 31, 2003 compared to 12.7% forthe year ended December 31, 2002. The decrease in the general andadministrative expense ratio resulted

 

12

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from administrative efficiencies from technology investments and systemsconvergence efforts and fixed administrative costs spread over a largermembership base.

 

Interest expensedecreased $16.1 million to $50.6 million for the year endedDecember 31, 2003, compared to $66.7 million for the year endedDecember 31, 2002. Interest expense for the year ended December 31,2002 included a $6.3 million pre-tax reclassification related to theextinguishment of debt under the Company’s Zero Coupon Convertible SubordinatedDebentures that was previously recorded as an extraordinary loss (seeNote 23 to the Consolidated Financial Statements). Other than this$6.3 million reclassification, the decrease in interest expense from theyear ended December 31, 2002 to the year ended December 31, 2003 wasprimarily due to the reduction in the weighted average interest rate (whichincludes fees associated with the Company’s borrowings and interest rate swapagreements) for the year ended December 31, 2003 of 4.2%, compared to 6.0%for the year ended December 31, 2002. Partially offsetting the impact ofthe reduction in the weighted average interest rate was an increase in theCompany’s commercial paper program of approximately $230.1 million, ofwhich $125.1 million was used to partially fund the Cobalt acquisition.

 

Other expense, netdecreased $19.0 million to $36.1 million for the year endedDecember 31, 2003, compared to $55.1 million for the year endedDecember 31, 2002. Prior to 2003, results of the Company’s insurancegeneral agency subsidiary were reported on a “net basis” in other expense, net.For the year ended December 31, 2003, the results have been recorded on a“gross basis,” with external revenue reported in management services and otherrevenue, commissions reported in selling expense and other costs reported ingeneral and administrative expense. The impact of this change is a reduction of$17.7 million in other expense, net for the year ended December 31,2003. In addition, the decrease also resulted from lower losses on disposal offixed assets of approximately $9.9 million. These decreases were offset bythe following items: (i) an increase in intangible amortization ofapproximately $3.2 million during the quarter ended December 31,2003, primarily due to the amortization of intangibles acquired in the Cobaltacquisition, (ii) an increase in minority interest expense of$2.7 million related to an equity interest in the Atlanta CHPN. (See “Item1. Business—Managed Health Care Networks and Provider Relations—Blue Cross BlueShield of Georgia.”) and (iii) a decrease in income from the Company’sshare of its investments in a joint venture of $2.7 million.

 

The Company’s net incomefor the year ended December 31, 2003 was $935.2 million, compared to$703.1 million for the year ended December 31, 2002. Net income forthe year ended December 31, 2002 included a $38.9 million after-taxrealized gain ($64.9 million less $26.0 million tax) from theCompany’s investment in Trigon Healthcare, Inc. Net income for the yearended December 31, 2002 also included an extraordinary gain of$8.9 million, or $0.06 per basic and diluted share. The extraordinary gainwas related to the acquisition of MethodistCare, resulting from an excess ofthe fair value of net assets over acquisition costs. Earnings per share totaled$6.34 and $4.87 for the years ended December 31, 2003 and 2002,respectively. Earnings per share assuming full dilution totaled $6.16 and $4.67for the years ended December 31, 2003 and 2002, respectively.

 

Earnings per share forthe year ended December 31, 2003 is based upon weighted average sharesoutstanding of 147.5 million shares, excluding potential Common Stock, and151.8 million shares, assuming full dilution. Earnings per share for theyear ended December 31, 2002 is based upon 144.2 million shares,excluding potential Common Stock, and 150.9 million shares, assuming fulldilution. The increase in weighted average shares outstanding assuming fulldilution primarily resulted from the issuance of shares related to the Cobaltacquisition, RightCHOICE acquisition and the Company’s stock option and stockpurchase plans. These increases were partially offset by the redemption of theCompany’s Zero Coupon Convertible Subordinated Debentures in 2002.

 

**Comparisonof Results for the Year Ended December 31, 2002 to the Year EndedDecember 31, 2001**

 

On March 15, 2002,WellPoint effected a two-for-one split of the Company’s Common Stock. The stocksplit was in the form of a 100% stock dividend of one additional share ofWellPoint Common Stock for each share outstanding. Share and per share data for2001 have been adjusted to give effect to the stock split.

 

The operating results forthe year ended December 31, 2002 compared to the year endedDecember 31, 2001 were impacted by the RightCHOICE acquisition, which wasconsummated on January 31, 2002. Specifically,

 

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the Company’s operating results for the year ended December 31,2002 included eleven months of operating results attributable to the acquiredRightCHOICE business. Additionally, the year ended December 31, 2002included twelve months of operating results attributable to the Ceruleanacquisition while the year ended December 31, 2001 only includednine-and-a half months, from the March 15, 2001 acquisition date. In orderto provide a more meaningful comparison of the Company’s results of operationsfor the year ended December 31, 2002 versus the year endedDecember 31, 2001, the following discussion presents financial measuresthat exclude operating results attributable to the acquired RightCHOICEbusiness for the eleven months ended December 31, 2002, from theJanuary 31, 2002 acquisition date. In addition, two-and-a-half months ofoperating results attributable to acquired Cerulean business, January 1,2002 to March 15, 2002, were excluded from operating results for the yearended December 31, 2002. WellPoint refers to these adjusted measures ofoperating results as “Same-Store.” While this Same-Store methodology isconsistent with the analysis of the operating results for the year ended December 31,2003 versus the year ended December 31, 2002, it is different than themethodology employed in the Company’s annual report on Form 10-K for theyear ended December 31, 2002. In that analysis, operating resultsattributable to acquired Cerulean business were excluded from both fiscalperiods (nine-and-a half months of 2001 and twelve months of 2002). Thedifference in the methodologies does not yield any material differences. TheCompany uses the Same-Store methodology presented below for purposes of reportingcomparative financial results to its Board of Directors.

 

The following tabledepicts premium revenue by reportable segment:

 
|         |   | **Year Ended  December 31, 2002** |       | **Less:  Acquired  RightCHOICE  Business for the Eleven  Months Ended  December 31, 2002** |   | **Less:  Acquired Cerulean  Business from January 1,  2002 to March 15, 2002** |   | **Year Ended  December 31, 2002 (Same-Store)** |    | **Year Ended  December 31, 2001** |   |
|--------------|--------|----------------------------------------|------------|-------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|---------|----------------------------------------|--------|
|         |   | **(in  thousands)**                    |       |
|         |   |                                   |       |                                                                                            |   |                                                                                     |   |                                                |    |                                   |   |
| Health Care  |   | $                                      | 15,701,071 |                                                                                            | $      | 1,154,382                                                                                |   | $                                                   | 522,815 |                                   | $      | 14,023,874 |   | $ | 11,107,242 |   |
| Specialty    |   | 505,090                                |       | 3,299                                                                                           |   | 17,218                                                                                   |   | 484,573                                             |    | 469,928                                |   |
| Consolidated |   | $                                      | 16,206,161 |                                                                                            | $      | 1,157,681                                                                                |   | $                                                   | 540,033 |                                   | $      | 14,508,447 |   | $ | 11,577,170 |   |

 

Premium revenue increased40.0%, or $4,629.0 million, to $16,206.2 million for the year endedDecember 31, 2002 from $11,577.2 million for the year endedDecember 31, 2001. Excluding premium revenue attributable to the acquiredRightCHOICE business of $1,157.7 million for the eleven months endedDecember 31, 2002 and premium revenue attributable to the acquiredCerulean business of $540.0 million from January 1, 2002 toMarch 15, 2002, premium revenue increased $2,931.3 million, or 25.3%,on a Same-Store basis. The increase, excluding these acquisitions, wasprimarily due to a 12.5% increase in insured member months and theimplementation of premium increases overall. The majority of the increase isattributable to the California region.

 

The following tabledepicts management services and other revenue by reportable segment:

 
|         |   | **Year Ended  December 31, 2002** |    | **Less:  Acquired  RightCHOICE  Business for the Eleven  Months Ended  December 31, 2002** |   | **Less:  Acquired Cerulean  Business from January 1,  2002 to March 15, 2002** |   | **Year Ended  December 31, 2002 (Same-Store)** |   | **Year Ended  December 31, 2001** |   |
|--------------|--------|----------------------------------------|---------|-------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|----------------------------------------|--------|
|         |   | **(in  thousands)**                    |    |
|         |   |                                   |    |                                                                                            |   |                                                                                     |   |                                                |   |                                   |   |
| Health Care  |   | $                                      | 681,512 |                                                                                            | $      | 133,959                                                                                  |   | $                                                   | 35,935 |                                   | $      | 511,618 |   | $ | 491,995 |   |
| Specialty    |   | 136,863                                |    | 4,075                                                                                           |   | 468                                                                                      |   | 132,320                                             |   | 117,698                                |   |
| Consolidated |   | $                                      | 818,375 |                                                                                            | $      | 138,034                                                                                  |   | $                                                   | 36,403 |                                   | $      | 643,938 |   | $ | 609,693 |   |

 

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Management services andother revenue increased 34.2%, or $208.7 million, to $818.4 millionfor the year ended December 31, 2002 from $609.7 million for the yearended December 31, 2001. Excluding management services and other revenueattributable to the acquired RightCHOICE business of $138.0 million forthe eleven months ended December 31, 2002 and acquired Cerulean businessof $36.4 million from January 1, 2002 to March 15, 2002,management services and other revenue increased $34.3 million, or 5.6%, ona Same-Store basis for the year ended December 31, 2002 due primarily toan increase in pharmacy benefit management services revenues.

 

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 anet realized investment gain of $55.4 million for the year endedDecember 31, 2002, compared to a net realized investment loss of$4.2 million for the year ended December 31, 2001. The net realizedinvestment gains in 2002 were primarily due to a pre-tax investment gain of$64.9 million realized from WellPoint’s investment in TrigonHealthcare, Inc., which was acquired by Anthem, Inc. during 2002. Inaccordance with generally accepted accounting principles, WellPoint realizedthe gain related to its investment upon completion of the Trigon transaction.Excluding this gain on the Trigon transaction, net realized investment lossesfor the years ended December 31, 2002 and 2001 would have been$9.5 million and $4.2 million, respectively. This increase in netrealized investment losses of $5.3 million resulted primarily from theCompany’s restructuring of its investment portfolio mix in 2002. The Companybelieves the disclosure of net realized investment losses for the year endedDecember 31, 2002 excluding the Trigon gain is useful to investors inunderstanding the reasons, other than the Trigon gain, for the change in netrealized investment losses from the year ended December 31, 2001. TheCompany also excludes the Trigon gain for purposes of reporting comparativefinancial results to its Board of Directors. Gross investment income increased$16.1 million, or 6.4%, for the year ended December 31, 2002 from theyear ended December 31, 2001 as a result of higher average investmentbalances during the year ended December 31, 2002 (for which grossinvestment income was $267.9 million) versus the year endedDecember 31, 2001 (for which gross investment income was$251.8 million). As a partial offset to this increase, net investmentexpenses increased by $3.5 million from $5.8 million for the yearended December 31, 2001 to $9.3 million for the year endedDecember 31, 2002, due primarily to higher investment manager fees.

 

The following tabledepicts health care services and other benefits expense by reportable segment:

 
|         |   | **Year Ended  December 31, 2002** |       | **Less:  Acquired  RightCHOICE  Business for the Eleven  Months Ended  December 31, 2002** |   | **Less:  Acquired Cerulean  Business from January 1,  2002 to March 15, 2002** |   | **Year Ended  December 31, 2002  (Same-Store)** |    | **Year Ended  December 31, 2001** |   |
|--------------|--------|----------------------------------------|------------|-------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------|--------|------------------------------------------------------|---------|----------------------------------------|--------|
|         |   | **(in  thousands)**                    |       |
|         |   |                                   |       |                                                                                            |   |                                                                                     |   |                                                 |    |                                   |   |
| Health Care  |   | $                                      | 12,865,707 |                                                                                            | $      | 926,277                                                                                  |   | $                                                    | 444,051 |                                   | $      | 11,495,379 |   | $ | 9,105,251 |   |
| Specialty    |   | 345,383                                |       | 2,152                                                                                           |   | 11,196                                                                                   |   | 332,035                                              |    | 331,013                                |   |
| Consolidated |   | $                                      | 13,211,090 |                                                                                            | $      | 928,429                                                                                  |   | $                                                    | 455,247 |                                   | $      | 11,827,414 |   | $ | 9,436,264 |   |

 

The medical care ratiofor the year ended December 31, 2002 of 81.5% remained unchanged from theyear ended December 31, 2001. The medical care ratio attributable to theHealth Care segment was 81.9% for the year

 

15

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ended December 31, 2002 compared to 82.0% for the year endedDecember 31, 2001. The medical care ratio attributable to the Specialtysegment was 68.4% for the year ended December 31, 2002 compared to 70.4%for the year ended December 31, 2001. The acquired RightCHOICE businesshad a slightly lower medical care ratio than the Company’s core businesses, whilethe acquired Cerulean business experienced a higher medical care ratio than theCompany’s core businesses due to Cerulean’s higher percentage of large employergroup business and fewer managed care offerings. Excluding health care servicesand other benefits expense attributable to the acquired RightCHOICE business of$928.4 million for the eleven months ended December 31, 2002 andacquired Cerulean business of $455.2 million from January 1, 2002 toMarch 15, 2002, health care services and other benefits expense increased$2,391.2 million, or 25.3%, on a Same-Store basis, commensurate with theSame-Store increase in premium revenue. On a Same-Store basis, the medical careratio for the Company remained unchanged at 81.5% for the years endedDecember 31, 2002 and 2001.

 

The selling expense ratiofor the year ended December 31, 2002 decreased to 4.0%, compared to 4.1%for the year ended December 31, 2001. The acquired Cerulean businessexperienced a lower selling expense ratio due primarily to its lower percentageof individual and small employer group business. The acquired RightCHOICEbusiness also experienced a slightly lower selling expense ratio than theCompany’s core businesses. Excluding selling expense attributable to theacquired RightCHOICE business of $52.0 million and combined premiumrevenue and management services and other revenue of $1,295.7 million forthe eleven months ended December 31, 2002 and selling expense attributableto the acquired Cerulean business of $16.3 million and combined premiumrevenue and management services and other revenue of $576.4 million fromJanuary 1, 2002 to March 15, 2002, the selling expense ratio remainedunchanged at 4.0% and 4.1% for the years ended December 31, 2002 and 2001,respectively.

 

The general andadministrative expense ratio decreased to 12.7% for the year endedDecember 31, 2002 from 13.7% for the year ended December 31, 2001.The acquired RightCHOICE business experienced a higher general andadministrative expense ratio than the Company’s core businesses for the yearended December 31, 2002 due to integration expenses, its higherconcentration of administrative services business and certain other transaction-relatedexpenses. The acquired Cerulean business experienced an improved general andadministrative expense ratio for the year ended December 31, 2002 over theyear ended December 31, 2001. Excluding general and administrative expenseattributable to the acquired RightCHOICE business of $203.5 million andcombined premium revenue and management services and other revenue of$1,295.7 million for the eleven months ended December 31, 2002 andgeneral and administrative expense attributable to the acquired Ceruleanbusiness of $76.9 million and combined premium revenue and managementservices and other revenue of $576.4 million from January 1, 2002 toMarch 15, 2002, the general and administrative expense ratio decreased to12.4% for the year ended December 31, 2002, compared to 13.7% for the yearended December 31, 2001. This decrease was due to administrative efficienciesfrom technology investments and systems convergence efforts and fixedadministrative costs spread over a larger membership base.

 

Interest expenseincreased $16.8 million to $66.7 million for the year endedDecember 31, 2002, compared to $49.9 million for the year endedDecember 31, 2001. As mentioned earlier, interest expense for the yearended December 31, 2002 included a $6.3 million pre-taxreclassification related to the extinguishment of debt under the Company’s ZeroCoupon Convertible Subordinated Debentures that was previously recorded as anextraordinary loss (see Note 23 to the Consolidated Financial Statements).Other than this $6.3 million reclassification, the increase in interestexpense from the year ended December 31, 2001 to the year endedDecember 31, 2002 was related to the higher average debt balance for theyear ended December 31, 2002 in comparison to the year endedDecember 31, 2001, primarily due to the issuance of the$350.0 million aggregate principal amount at maturity of 6 3/8%Notes on January 16, 2002 (see Note 11 to the Consolidated FinancialStatements) as a result of the RightCHOICE acquisition. Partially offsettingthe increase in interest expense was a reduction in borrowing rates. Theweighted average interest rate for all debt for the years endedDecember 31, 2002 and 2001, including the fees associated with theCompany’s borrowings and interest rate swap agreements, was 6.0% and 6.7%,respectively.

 

Other expense, netdecreased $19.6 million to $55.1 million for the year endedDecember 31, 2002, compared to $74.7 million for the year endedDecember 31, 2001. The decrease resulted from lower amortization ofgoodwill and other intangible assets due to the implementation of Statement ofFinancial Accounting Standards No. 142, “Goodwill and Other IntangibleAssets” (“SFAS No. 142”), which accounted for $41.3 million of the

 

16

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decrease in amortization expense, an increase in income from theCompany’s share of its investments in joint ventures of $4.4 million and adecrease in minority interest expense of $3.9 million related to an equityinterest in the Atlanta CHPN. (See “Item 1. Business—Managed Health CareNetworks and Provider Relations—Blue Cross Blue Shield of Georgia.”) Thesedecreases were partially offset by the following items: (i) an increase inamortization of intangible assets with definite useful lives of$16.2 million, primarily due to recent acquisitions, (ii) an increasein losses on the disposition of fixed assets of $5.7 million and(iii) an increase in net operating expenses of $7.9 million from aninsurance general agency subsidiary owned by the Company.

 

The Company’s net incomefor the year ended December 31, 2002 was $703.1 million, compared to$414.7 million for the year ended December 31, 2001. Net income forthe year ended December 31, 2002 included net realized investment gains of$33.3 million, net of tax, which included a $38.9 million after-taxrealized gain from the Company’s investment in Trigon Healthcare, Inc. asdiscussed earlier and an extraordinary gain related to the acquisition ofMethodistCare, resulting from an excess of the fair value of net assets overacquisition costs. This extraordinary gain amounted to $8.9 million, or$0.06 per diluted share. The Company reclassified the pre-tax extraordinaryloss related to the early redemption of certain of the Company’s Zero CouponConvertible Subordinated Debentures due 2019 of $6.3 million($3.8 million, net of tax, or $0.03 per diluted share) to interest expensepursuant to Statement of Accounting Standards No. 145, “Rescission of FASBStatements No. 4, 44 and 64, Amendment of FASB Statement No. 13, andTechnical Corrections.” (See Note 23 to the Consolidated FinancialStatements.) Net income for the year ended December 31, 2002, excludingnet realized investment gains of $33.3 million and the $8.9 millionextraordinary gain, was $660.9 million, or $4.39 per diluted share. Forthe year ended December 31, 2001, adjusted for the SFAS No. 142 impactof $32.2 million, net income would have been $446.9 million or $3.39per diluted share. (See Note 7 to the Consolidated Financial Statements.)

 

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

 

Earnings per share forthe year ended December 31, 2002 is based upon weighted average sharesoutstanding of 144.2 million shares, excluding potential Common Stock, and150.9 million shares, assuming full dilution. Earnings per share for theyear ended December 31, 2001 is based on 126.9 million shares,excluding potential Common Stock, and 132.4 million shares, assuming fulldilution. The increase in weighted average shares outstanding primarilyresulted from the issuance of shares related to the RightCHOICE acquisition andthe Company’s stock option and stock purchase plans.

 

**FinancialCondition**

 

The Company’sconsolidated assets increased by $3,318.1 million, or 28.9%, to$14,788.7 million as of December 31, 2003 from $11,470.6 millionas of December 31, 2002. The increase in total assets was partiallyattributable to the acquisition of Cobalt, which accounted for$1,301.9 million, or 39.2%, of the increase. The total acquired assets ofCobalt of $1,301.9 million were reduced by acquisition-relatedadjustments of $341.1 million, primarily related to cash paid to holdersof Cobalt common stock of $427.5 million offset by debt incurred tofinance the acquisition of $125.1 million. Excluding Cobalt, the increasein total assets was primarily due to growth in cash and investments of $1,913.9 millionas a result of operating cash flows attributable to net income and an increasein advances on security lending deposits. The remaining increase in totalassets, excluding Cobalt, was driven by an increase in property and equipment,prepaid assets and other non-current assets. Cash and investments totaled$8.8 billion as of December 31, 2003, or 59.7% of total assets.

 

Overall claimsliabilities, which is composed of medical claims payable and reserves forfuture policy benefits, increased $458.8 million, or 17.0%, to$3,164.4 million as of December 31, 2003 from $2,705.6 millionas of December 31, 2002. This increase was due to claim liabilitiesassociated with the Cobalt acquisition of $294.8 million and an increasein the claims liabilities associated with the Company’s core businesses of$164.0 million, primarily resulting from a Same-Store increase in insuredmember months of 4.9% for the year ended December 31, 2003 compared to theyear ended December 31, 2002. See “Critical Accounting Policies” for a

 

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discussion of medical claims payable and reserves for future policybenefits. As of December 31, 2003, the Company’s long-term indebtednesswas $1,238.3 million, of which $459.4 million was related to theCompany’s 6 3/8% Notes due 2006 (which includes a fairvalue adjustment of $9.9 million), $349.1 million was related to theCompany’s 6 3/8% Notes due 2012 and $429.8 millionwas related to the commercial paper program. The 6 3/8%Notes due 2012, with an aggregate principal amount at maturity of$350.0 million, were issued to partially finance the RightCHOICEacquisition in 2002. The Company’s revolving credit facility indebtedness of$235.0 million at December 31, 2001 was repaid during the year endedDecember 31, 2002, with $200.0 million obtained through thecommercial paper program and operating cash of $35.0 million. During theyear ended December 31, 2003, the Company issued an additional$104.7 million in commercial paper (net of repayments made during theyear) to repurchase Common Stock of the Company. In the third quarter of 2003,the Company also issued an additional $125.1 million in commercial paperprimarily to finance the purchase of Cobalt (refer to “Liquidity and CapitalResources” below for a discussion of the potential repurchase of the Company’scommercial paper as a result of the Company’s pending merger withAnthem, Inc.).

 

Stockholders’ equitytotaled $5,429.9 million as of December 31, 2003, an increase of$1,453.2 million from $3,976.7 million as of December 31, 2002.The increase was primarily due to net income of $935.2 million for theyear ended December 31, 2003, the net issuance of 5.1 million shares,or $441.4 million, of the Company’s Common Stock related to theacquisition of Cobalt, a net increase of $382.3 million from thereissuance of treasury stock related to the Company’s employee 401(k) plan,stock option and stock purchase plans and an increase in other comprehensiveincome of $105.6 million, net of taxes. Partially offsetting theseincreases were the repurchase of 3.9 million shares of the Company’sCommon Stock for $268.6 million and net losses from the reissuance oftreasury stock of $142.7 million.

 

**Liquidityand Capital Resources**

 

As of December 31,2003, consolidated cash and investments were $8.8 billion, of which$1.4 billion was in cash and cash equivalents. The Company’s primarysources of cash are premium and management services revenues and investmentincome. The Company’s primary uses of cash include health care claims and otherbenefits, capitation payments, income taxes, repayment of long-term debt,interest expense, broker and agent commissions, administrative expenses, CommonStock repurchases and capital expenditures. In addition to the foregoing, otheruses of cash include provider network and systems development costs and costsassociated with the integration of acquired businesses.

 

The Company generallyreceives premium revenue in advance of anticipated claims for related healthcare services and other benefits. The Company’s investment policies aredesigned to provide safety and preservation of capital, sufficient liquidity tomeet cash flow needs, the integration of investment strategy with the businessoperations and objectives of the Company, and attainment of a competitiveafter-tax total return.

 

The Company’s strategyfor achieving its investment goals is broad diversification of its investments,both across and within asset classes. As of December 31, 2003, theCompany’s investment portfolio consisted primarily of investment grade fixed-incomesecurities. The Company’s portfolio also included large capitalization andsmall capitalization domestic equities, foreign equities, tax-exempt municipalbonds and a small amount of non-investment grade debt securities. The fixed-incomeassets include both short and long-duration securities with an attempt to matchthe Company’s funding needs. The Company’s investment policy containslimitations regarding concentration in individual securities and industries andgenerally prohibits speculative and leveraged investments. Cash and investmentbalances maintained by the Company are sufficient to meet applicable regulatoryfinancial stability and net worth requirements, including license requirementsof the Blue Cross and Blue Shield Association.

 

WellPoint, as the parentcompany, requires cash for debt repayment, stock repurchases, acquisitions andother general corporate purposes. A substantial portion of WellPoint’s cashrequirements is funded by dividends received from its regulated operatingsubsidiaries. Payments of dividends to WellPoint by its regulated operatingsubsidiaries are subject to certain restrictions imposed by state regulations.There is no assurance that the Company will receive any regulatory approvalsthat might be required for future dividend payments. As of December 31,2003, the Company, as a stand-alone entity, had $298.8 million incash and investments.

 

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Net cash provided byoperating activities was $1,464.1 million for the year endedDecember 31, 2003, compared with $1,401.0 million for the year endedDecember 31, 2002. Net cash provided by operating activities for the yearended December 31, 2003 was due primarily to net income of $935.2 million,an increase in medical claims payable of $138.2 million due to membershipgrowth and higher health care expenses per member per month, an increase inaccounts payable and accrued expenses of $190.6 million primarilyattributable to employee compensation related accruals, an increase in incometaxes payable of $137.9 million and an increase in other currentliabilities of $91.4 million due to timing of pharmaceutical drug andpharmacy rebate payments, increases in drug purchases and timing of otheraccruals related to normal operations. Partially offsetting these increases wasan increase in receivables, net of $172.2 million due to timing of cashreceipts, primarily related to pharmacy rebates, receivables from hospitals andgovernment agencies and membership growth.

 

Net cash used ininvesting activities for the year ended December 31, 2003 totaled$2,235.9 million, compared with $1,306.5 million for the year endedDecember 31, 2002. The net cash used in investing activities during theyear ended December 31, 2003 was primarily attributable to the purchase ofinvestments of $10.7 billion, the acquisition of new businesses, primarilyCobalt and Golden West, net of cash acquired, of $425.7 million, and thepurchase of property and equipment, net of sales proceeds, of$146.7 million, which were partially offset by proceeds from investmentssold and matured of $9.0 billion.

 

Net cash provided byfinancing activities totaled $843.0 million for the year endedDecember 31, 2003, compared with $232.6 million for the year endedDecember 31, 2002. The net cash provided by financing activities for theyear ended December 31, 2003 was primarily attributable to additionaladvances on securities lending deposits of $716.7 million, additional debtof $230.1 million, of which $125.1 million was used to partiallyfinance the acquisition of Cobalt and the remaining balance was incurred topartially finance the $268.6 million repurchase of Company Common Stock,and the receipt of proceeds from the issuance of Common Stock related to theCompany’s stock option and stock purchase plans of $164.8 million.

 

Effective March 30,2001, the Company entered into two unsecured revolving credit facilitiesallowing aggregate indebtedness of $1.0 billion in principal amount. Borrowingsunder these facilities (which are generally referred to collectively as theCompany’s “revolving credit facility”) bear interest at rates determined byreference 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 ofthe Company’s senior unsecured long-term debt by specified rating agencies. Onefacility, which provides for borrowings not to exceed $750.0 million atany time outstanding, expires as of March 30, 2006, although it may beextended 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 25, 2005.  Any amount outstanding under this facilityas of March 25, 2005 may be converted into a one-year term loan at the optionof the Company and will bear interest at rates determined by reference to thebank’s base rate or LIBOR plus a margin determined by reference to the then-currentrating of the Company’s unsecured long-term debt by specified rating agencies,plus 0.125% until paid in full.  Loansunder the $250.0 million facility are made on a committed basis. Loansunder the $750.0 million facility are made on a committed basis orpursuant to an auction bid process. The $750.0 million facility alsocontains sublimits for letters of credit and “swingline” loans. Each creditagreement requires the Company to maintain certain financial ratios andcontains restrictive covenants, including restrictions on the incurrence ofadditional indebtedness and the granting of certain liens, limitations onacquisitions and investments and limitations on changes in control (seeNote 11 to the Consolidated Financial Statements). As of December 31,2003 and December 31, 2002, there were no amounts outstanding under therevolving credit facility.

 

In April 2002, theCompany commenced a commercial paper program providing for the issuance of upto $1.0 billion in aggregate maturity value of short-term indebtedness(known generally as “commercial paper”). The commercial paper is being issuedby the Company without registration under the Securities Act of 1933, asamended (the “1933 Act”) in reliance upon the exemption from registrationcontained in Section 4(2) of the 1933 Act. The commercial paper is issuedin denominations of $100,000 or integral multiples of $1,000 in excess thereofand will bear such interest rates, if interest-bearing, or will be soldat such discount from their face amounts, as agreed upon by the Company and thedealer or dealers acting in connection with the commercial paper program. Thecommercial paper may be issued with varying maturities up to a maximum of270 days from the date of issuance. The commercial paper ranks equally withall other unsecured and unsubordinated indebtedness of the Company. As ofDecember 31, 2003 and December 31, 2002, the outstanding commercialpaper borrowings totaled $429.8 million and $199.8 million,respectively, with various maturity dates and had interest rates ranging from1.10% to 1.27% as

 

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of December 31, 2003 and interest rates ranging from 1.60% to1.65% as of December 31, 2002. The weighted average yield on theoutstanding commercial paper as of December 31, 2003 and December 31,2002 was 1.25% and 1.62%, respectively. The Company intends to maintaincommercial paper borrowings of at least the amount outstanding atDecember 31, 2003 for more than one year. Accordingly, for financialreporting purposes, the commercial paper has been classified under non-currentliabilities in the Consolidated Balance Sheets. Under the Company’s mergeragreement with Anthem, Inc., however, the Company has agreed torepurchase, prior to the closing of the merger with Anthem, any outstandingcommercial paper issued by the Company or any of its subsidiaries.

 

In anticipation of thecompletion of the RightCHOICE acquisition on January 31, 2002, the Companyon January 16, 2002 issued $350.0 million aggregate principal amountat maturity of 6 3/8% 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 6 3/8%per annum, payable semi-annually in arrears on January 15 and July 15of each year commencing July 15, 2002. Interest is computed on the basisof a 360-day year of twelve 30-day months.

 

The 2012 Notes may beredeemed, in whole or in part, at the Company’s option at any time. Theredemption price for any 2012 Notes redeemed will be equal to the greater ofthe following amounts: 1) 100% of the principal amount of the 2012 Notesbeing redeemed on the redemption date; and 2) the sum of the presentvalues of the remaining scheduled payments of principal and interest on the2012 Notes being redeemed on that redemption date (not including any portion ofany payments of interest accrued to the redemption date) discounted to theredemption date on a semi-annual basis at the Treasury rate as determined bythe Reference Treasury Dealer (J.P. Morgan Securities Inc. or DeutscheBanc Alex Brown or their respective successors), plus 25 basis points. In eachcase, the redemption price will also include accrued and unpaid interest on the2012 Notes to the redemption date.

 

On June 15, 2001,the Company issued $450.0 million aggregate principal amount at maturityof 6 3/8% Notes due June 15, 2006 (the “2006Notes”). The net proceeds of this offering totaled approximately$449.0 million. The net proceeds from the sale of the 2006 Notes were usedto repay indebtedness under the Company’s revolving credit facilities. The 2006Notes bear interest at a rate of 6 3/8% per annum,payable semi-annually in arrears on June 15 and December 15 of eachyear commencing December 15, 2001. Interest is computed on the basis of a360-day year of twelve 30-day months.

 

The 2006 Notes may beredeemed, in whole or in part, at the Company’s option at any time. Theredemption price for any 2006 Notes redeemed will be equal to the greater ofthe following amounts: 1) 100% of the principal amount of the 2006 Notesbeing redeemed on the redemption date; and 2) the sum of the presentvalues of the remaining scheduled payments of principal and interest on the2006 Notes being redeemed on that redemption date (not including any portion ofany payments of interest accrued to the redemption date) discounted to theredemption date on a semi-annual basis at the Treasury rate as determined bythe designated Reference Treasury Dealer (Salomon Smith Barney Inc. or UBSWarburg LLC or their respective successors), plus 25 basis points. In eachcase, the redemption price will also include accrued and unpaid interest on the2006 Notes to the redemption date.

 

The 2006 and 2012 Notesare unsecured obligations and rank equally with all of the Company’s existingand future senior unsecured indebtedness. All existing and future liabilitiesof the Company’s subsidiaries are and will be effectively senior to the 2006and 2012 Notes. The indenture governing the 2006 and 2012 Notes contains acovenant that limits the ability of the Company and its subsidiaries to createliens on any of their property or assets to secure certain indebtedness withoutalso securing the indebtedness under the 2006 and 2012 Notes.

 

On October 2, 2002,the Company announced that it had elected to redeem its Zero Coupon ConvertibleSubordinated Debentures due 2019 (the “Debentures”) as of October 28,2002. Substantially all of the Debentures were tendered for conversion into theCompany’s Common Stock prior to the redemption date. Approximately $50,000principal amount at maturity of the Debentures were settled in cash. Thisconversion did not have an extraordinary income statement impact. (SeeNote 11 to the Consolidated Financial Statements.) Prior to the Company’sannouncement of its election to redeem the Debentures, Debentureholders in 2002converted $18.0 million in aggregate principal amount at maturity of theCompany’s Debentures with a carrying value (including accreted interest) of$12.6 million. In lieu of delivering shares of Common Stock uponconversion of

 

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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 Consolidated Income Statements in theCompany’s annual report on Form 10-K for the year ended December 31,2002. In accordance with SFAS No. 145, which was effective for fiscalyears beginning after May 15, 2002, the Company had determined that the extinguishmentof debt under the Debentures did not meet the requirements of unusual orinfrequent and therefore would not be included as an extraordinary item withthe rescission of FASB Statement No. 4. Accordingly, for the year endedDecember 31, 2002, the Company reclassified an extraordinary loss of$6.3 million, which included a tax benefit of $2.5 million, tointerest expense.

 

As a part of a hedgingstrategy to limit its exposure to variable interest rate increases, the Companyhas from time to time entered into interest rate swap agreements in order toreduce the volatility of interest expense resulting from changes in interestrates on its variable rate debt. The swap agreements were contracts to exchangevariable-rate interest payments (weighted average rate for the year endedDecember 31, 2002 of 2.25%) for fixed-rate interest payments (weightedaverage rate for the year ended December 31, 2002 of 7.08%) without theexchange of the underlying notional amounts. In 2002, the Company was party to$200.0 million of fixed-rate swap agreements, consisting of a$150.0 million notional amount swap agreement at 6.99% maturing onOctober 17, 2003 and a $50.0 million notional amount swap agreementat 7.06% maturing on October 17, 2006. In September 2002, the Companyterminated these two fixed-rate swap agreements with an aggregate cashsettlement of $17.6 million, of which $1.8 million was accruedinterest and the remaining $15.8 million represented the fair value of theswap agreements at the time of termination and is being amortized over the termof the original swap agreements. As of December 31, 2003, the remainingbalance of the unamortized $50.0 million notional amount swap agreementwas $5.4 million. (See Note 12 to the Consolidated FinancialStatements.)

 

In order to reduce theinterest expense associated with the 2006 Notes, the Company, onJanuary 15, 2002, entered into a $200.0 million notional amountinterest rate swap agreement, which matures on June 15, 2006. The swapagreement is a contract to exchange a fixed 6 3/8% ratefor a LIBOR-based floating rate (weighted average variable rate of 2.46%and 3.02% for the years ended December 31, 2003 and 2002, respectively).

 

Certain of the Company’ssubsidiaries are required to maintain minimum capital requirements prescribedby various regulatory agencies, including the California Department of ManagedHealth Care and the Departments of Insurance in various states, includingCalifornia, Georgia, Missouri, Wisconsin and Delaware. As of December 31,2003 (or the most recent date with respect to which compliance is required),those subsidiaries of the Company were in compliance with all minimum capitalrequirements.

 

The Company enters intooperating leases primarily for office space, electronic data processing andoffice equipment. The Company also enters into contracts for various goods andservices, including outsourced services, maintenance services, informationtechnology support and license fees.

 

The Company’s contractualobligations relating to debt, leases, significant purchase obligations andother long-term liabilities at December 31, 2003 were as follows:

 
|                              |   | **Payments  Due By Period** |    |
|-----------------------------------|--------|-----------------------------|---------|
|                              |   | **Total**                   |    | **2004** |   | **2005** |   | **2006** |   | **2007** |   | **2008** |   | **Thereafter** |   |
|                              |   | **(In  millions)**          |    |
|                              |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |
| 6 3/8%  Notes due 2006(A)         |   | $                           | 450.0   |   | $ | — |   | $ | — |   | $ | 450.0 |   | $ | — |   | $ | — |   | $ | — |   |
| 6 3/8%  Notes due 2012(A)         |   | 350.0                       |    | — |   | — |   | — |   | — |   | — |   | 350.0 |   |
| Commercial paper  program(A)(B)   |   | 429.8                       |    | — |   | 429.8 |   | — |   | — |   | — |   | — |   |
| Capital leases                    |   | 29.9                        |    | 12.8 |   | 9.7 |   | 5.1 |   | 1.9 |   | 0.4 |   | — |   |
| Operating leases                  |   | 548.8                       |    | 98.7 |   | 70.6 |   | 53.7 |   | 38.0 |   | 35.6 |   | 252.2 |   |
| Purchase  obligations(C)          |   | 49.4                        |    | 21.0 |   | 9.5 |   | 8.6 |   | 7.5 |   | 2.8 |   | — |   |
| Estimated  pension contributions  |   | 24.0                        |    | 24.0 |   | — |   | — |   | — |   | — |   | — |   |
| Total  contractual obligations(D) |   | $                           | 1,881.9 |   | $ | 156.5 |   | $ | 519.6 |   | $ | 517.4 |   | $ | 47.4 |   | $ | 38.8 |   | $ | 602.2 |   |

 

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(A)                              Debtobligations do not include any future scheduled interest payments.

 

(B)                                Asof December 31, 2003, outstanding borrowings under the commercial paperprogram totaled approximately $429.8 million, with an average maturity of43 days. The commercial paper may be issued with varying maturities up toa maximum of 270 days from the date of issuance. The Company intends tomaintain commercial paper borrowings of at least the amount outstanding atDecember 31, 2003 for more than one year. Accordingly, for financialreporting purposes, the commercial paper has been classified under non-currentliabilities in the Consolidated Financial Statements. (See Note 11 to theConsolidated Financial Statements.)

 

(C)                                Purchaseobligations reflected in the table above consist primarily of contracts forfixed or variable prices for outsourced services, maintenance services,information technology support and license fees. Purchase obligations that arenot significant or that contain clauses allowing for cancellation withoutsignificant penalty are not included in the table above. In addition, theCompany is subject to various contracts with certain health care providers forthe provision of health care services to its members. Such contracts involvepayments to or from the Company, generally on a monthly basis, in the ordinarycourse of business and are not included in the above table.

 

(D)                               Contractualobligations relating to other long-term liabilities on the Company’sConsolidated Balance Sheets for which payments are uncertain are not reflectedin the table above.

 

The Company’s committedcredit availability as of December 31, 2003 was as follows:

 
|                                         |   |                 |    |                 |   | **Amount of  Available Commitment  Expiration Per Period** |   |
|----------------------------------------------|--------|----------------------|---------|----------------------|--------|------------------------------------------------------------|--------|
|                                         |   | **Total  Committed** |    | **Total  Available** |   | **2004**                                                   |   | **2005** |   | **2006** |   | **2007** |   | **2008** |   |
|                                         |   | **(In  millions)**   |    |
|                                         |   |                 |    |                 |   |                                                       |   |   |   |   |   |   |   |   |   |
| Revolving  Credit-committed and available(A) |   | $                    | 1,000.0 |                 | $      | 1,000.0                                                    |   | $ | — |   | $ | 250.0 |   | $ | 750.0 |   | $ | — |   | $ | — |   |
|                                              |        |                      |         |                      |        |                                                            |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(A)                              The$250.0 million facility expires on March 25, 2005. Any amount outstanding underthis facility as of March 25, 2005 may be converted into a one-year term loanat the option of the Company.

 

The Company believes thatcash flow generated by operations and its cash and investment balances,supplemented by the Company’s ability to borrow under its existing revolvingcredit facility, commercial paper program or through public or privatefinancing sources, will be sufficient to fund continuing operations and expectedcapital requirements for the foreseeable future.

 

**Pendingand Recent Transactions**

 

*PendingMerger With Anthem*

 

On October 26, 2003,WellPoint entered into a merger agreement with Anthem, Inc. (“Anthem”).The consideration to be received by the stockholders of WellPoint will becomposed of $23.80 in cash and one share of Anthem common stock per share ofWellPoint Common Stock. Based on the closing price of Anthem’s common stock onOctober 24, 2003, the transaction was valued at approximately $16.4 billion.Upon completion of this transaction, WellPoint will merge into a wholly ownedsubsidiary of Anthem and Anthem will change its name to WellPoint, Inc.Anthem, a publicly traded company, is an independent licensee of the Blue Crossand Blue Shield Association and holds the exclusive right to use the Blue Crossand Blue Shield names and marks in the states of Indiana, Kentucky, Ohio,Connecticut, New Hampshire, Colorado, Nevada, Maine and Virginia, excluding theimmediate suburbs of Washington D.C. As of December 31, 2003, Anthemprovided health care benefits to more

 

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than 11.9 million medical members, which includes BlueCard “host”members. Headquartered in Indianapolis, Indiana, Anthem, along with its subsidiaries,offers a diverse portfolio of complementary health and group life insurance,managed care products, pharmacy benefit management and government healthprogram administration.

 

The transaction issubject to customary closing conditions, including, among other things,approval of WellPoint’s and Anthem’s shareholders, various regulatory agenciesand the Blue Cross and Blue Shield Association.

 

In connection withobtaining the approval of WellPoint’s and Anthem’s shareholders for theproposed merger, Anthem filed a preliminary registration statement onForm S-4, including the preliminary joint proxy statement/prospectusconstituting a part thereof, with the Securities and Exchange Commission onNovember 26, 2003. Anthem will file a final registration statement,including a definitive joint proxy statement/prospectus constituting a partthereof, and other documents with the Securities and Exchange Commission. Thefinal joint proxy statement/prospectus will be mailed to holders of WellPointand Anthem common stock.

 

WellPoint and Anthem havemade appropriate filings and applications with insurance and HMO regulators inCalifornia, Delaware, Georgia, Illinois, Missouri, Oklahoma, Puerto Rico,Texas, Virginia, West Virginia and Wisconsin. Pursuant to applicable insuranceand HMO laws and regulations, and before the merger may be consummated, theinsurance commissioner and, where applicable, HMO regulator, must review andapprove the acquisition of control of the insurance company or HMO subsidiarydomiciled in its respective jurisdiction. In addition to the filings with andapprovals from the domiciliary insurance and HMO regulators, pre-acquisitionnotifications of the merger under state insurance antitrust laws andregulations will be required in certain states in which insurance company orHMO subsidiaries of both WellPoint and Anthem operate.

 

The Blue Cross and BlueShield Association must approve the transfer to Anthem of WellPoint’s licensesto use the Blue Cross and Blue Shield names and marks in WellPoint’sgeographical territories. Anthem and WellPoint submitted a joint applicationrequesting that, in connection with the completion of the merger, the BlueCross and Blue Shield Association grant to Anthem the licenses for theWellPoint service area. The Blue Cross and Blue Shield Association unanimouslyapproved this application on March 18, 2004.

 

The Hart-Scott-RodinoAntitrust Improvements Act of 1976, as amended, and the rules and regulationsthereunder provide that the merger may not be completed until pre-mergernotification filings have been made with the Federal Trade Commission, and theAntitrust Division of the U.S. Department of Justice, and the specified waitingperiod thereunder has expired or is terminated. Even after the waiting period expiresor is terminated, the Department of Justice and the Federal Trade Commissionwill have the authority to challenge the merger on antitrust grounds before orafter the merger is completed. Each of Anthem and WellPoint filed anotification and report form for the merger with the Federal Trade Commissionand the Department of Justice in January 2004 and the waiting period expired onFebruary 26, 2004.

 

Following the merger,WellPoint stockholders will become shareholders of Anthem. In addition, in themerger agreement, among other things, WellPoint has agreed that Anthem willhave its corporate headquarters and principal executive offices inIndianapolis, Indiana and that Anthem’s name will be changed toWellPoint, Inc. WellPoint and Anthem have also agreed to file anapplication to have the common stock of Anthem listed on the New York StockExchange under the ticker symbol “WLP.”

 

After the merger, theboard of directors of Anthem will have 19 members, consisting of 11 currentmembers of Anthem’s board of directors designated by Anthem (including Larry C.Glasscock) and eight current members of WellPoint’s board of directorsdesignated by WellPoint (including Leonard D. Schaeffer). Also after themerger, Leonard D. Schaeffer of WellPoint will be Chairman of the Board ofDirectors of Anthem and Larry C. Glasscock of Anthem will be the President andChief Executive Officer and a director of Anthem. By the second anniversary ofthe completion of the merger, Leonard D. Schaeffer will retire as Chairman and asa director of Anthem and Larry C. Glasscock will succeed him as Chairman.

 

Either WellPoint orAnthem may terminate the merger agreement, even after the requisite shareholderapprovals have been received, if the merger has not been completed byNovember 30, 2004, and either of them may

 

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also terminate the merger agreement in certain other circumstancesspecified in the merger agreement. The Company currently expects thetransaction to close by mid-2004.

 

*CareFirstMerger Agreement*

 

In November 2001,WellPoint entered into a merger agreement with CareFirst, Inc.(“CareFirst”), which agreement was amended in January 2003. CareFirst hasthe exclusive right to use the Blue Cross and Blue Shield names and marks inMaryland, Delaware, the District of Columbia and certain counties in NorthernVirginia. Under the amended merger agreement, CareFirst would have become asubsidiary of WellPoint. The consummation of the CareFirst transaction wassubject to a number of conditions, including the approval of the insuranceregulators in Maryland, Delaware and the District of Columbia for theconversion of CareFirst from a non-profit corporation to a for-profit entity.On March 5, 2003, the Maryland insurance commissioner issued an orderdisapproving this conversion. In August 2003, the Company received anotice from CareFirst electing to terminate the amended merger agreement inaccordance with its terms.

 

In August 2003, theCompany received a Grand Jury subpoena from the United States Attorney’s officein the District of Maryland requesting various documents relating to theCareFirst transaction. The Company has responded to the request and intends tocooperate fully with the United States Attorney’s office. The Company has noreason to believe it is a target of the proceedings.

 

*TaxIssues Relating to the WellPoint and RightCHOICE Recapitalizations*

 

In connection with theRecapitalization, 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 losswas recognized by BCC for federal income tax purposes. If the ruling were to besubsequently revoked, modified or not honored by the IRS (due to a change inlaw or for any other reason), WellPoint, as the successor to BCC, could besubject to federal income tax on the difference between the value of BCC at thetime of the BCC Conversion and BCC’s tax basis in its assets at the time of theBCC Conversion. The potential tax liability to WellPoint if the BCC Conversionis treated as a taxable transaction is currently estimated to be approximately$696.0 million, plus interest (and possibly penalties). WellPoint and theCalifornia Foundation entered into an Indemnification Agreement that provides,with certain exceptions, that the California Foundation will indemnifyWellPoint against the net tax liability as a result of a revocation ormodification, in whole or in part, of the ruling by the IRS or a determinationby the IRS that the BCC Conversion constitutes a taxable transaction forfederal income tax purposes. In the event a tax liability should arise againstwhich the California Foundation has agreed to indemnify WellPoint, there can beno assurance that the California Foundation will have sufficient assets tosatisfy the liability in full, in which case WellPoint would bear all or aportion of the cost of the liability, which could have a material adverseeffect on WellPoint’s financial condition.

 

During the quarter endedSeptember 30, 1998, the Company received a private letter ruling from theIRS with respect to the treatment of certain payments made at the time of theRecapitalization and the acquisition of the commercial operations of BCC. Theruling allowed the Company to deduct as an ordinary and necessary businessexpense the $800.0 million cash payment made by BCC in May 1996 toone of two newly formed charitable foundations. As a result of and in relianceon the ruling, the Company experienced a reduction in its income tax expense of$85.5 million and the Company reduced its goodwill resulting from theRecapitalization by $194.5 million during the year ended December 31,1998. The Company filed for refund claims of approximately $198.6 millionof previous year income tax payments and reduced income tax payments during1998 and 1999 by approximately $81.4 million. In August 1999, theCompany received a cash refund (including applicable accrued interest) ofapproximately $183.0 million, which was reflected in the statement of cashflows for such year. The Company has refund claims pending of approximately$39.3 million (excluding interest).

 

In March 2002, theCompany received a letter from the IRS notifying the Company that the IRS wasconsidering revoking the September 1998 private letter ruling. The letterstated that the IRS was considering, in essence, reversing its earlier positionand concluding that the $800.0 million payment was not an ordinary andnecessary business expense. The letter further stated that the IRS waswithdrawing the private letter ruling and that the Company could no longer relyon the private letter ruling. Under Section 7805(b) of the InternalRevenue Code,

 

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the IRS has discretionary authority to limit the retroactive effect ofany revocation of a letter ruling. In March 2002, the Company submitted awritten request for such relief under Section 7805(b).

 

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

 

On November 30,2000, RightCHOICE completed a reorganization (the “RightCHOICERecapitalization”) with its majority stockholder, RightCHOICE ManagedCare, Inc., a Missouri corporation (“Old RightCHOICE”). As part of theRightCHOICE Recapitalization, the Missouri Foundation for Health (the “MissouriFoundation”) became the holder of approximately 80% of RightCHOICE commonstock. In connection with the RightCHOICE Recapitalization, the predecessor ofOld RightCHOICE, Blue Cross and Blue Shield of Missouri, received a ruling fromthe IRS that, among other things, the conversion of Blue Cross and Blue Shieldof Missouri from a non-profit corporation to a for-profit corporation qualifiedas a reorganization under the Internal Revenue Code and that Blue Cross andBlue Shield of Missouri recognized no gain or loss for federal income taxpurposes. If the IRS subsequently revokes, modifies or decides not to honor theruling due to a change in law or for any other reason, RightCHOICE, as thesuccessor to Old RightCHOICE, could be subject to federal income tax on thedifference between the value of each of Blue Cross and Blue Shield ofMissouri’s assets at the time of the RightCHOICE Recapitalization and its taxbasis in its assets at the time of the RightCHOICE Recapitalization.RightCHOICE is now a wholly owned subsidiary of WellPoint. RightCHOICE and theMissouri Foundation entered into an indemnification agreement that provides,with certain exceptions, that the Missouri Foundation will indemnifyRightCHOICE against the tax liability as a result of the IRS’s revocation ormodification, in whole or in part, of its ruling, or an IRS determination thatRightCHOICE’s conversion was a taxable transaction for federal income taxpurposes. If a tax liability should arise against which the Missouri Foundationhas agreed to indemnify RightCHOICE, the Missouri Foundation may not havesufficient assets to pay the liability. RightCHOICE would then bear all or aportion of the liability, which could have a material adverse effect on thefinancial condition of RightCHOICE and the Company.

 

**CriticalAccounting Policies**

 

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires the Company’s management to make a variety of estimates andassumptions. These estimates and assumptions affect, among other things, thereported amounts of assets and liabilities, the disclosure of contingentliabilities and the reported amounts of revenues and expenses. Actual results coulddiffer from the amounts previously estimated, which were based on theinformation available at the time the estimates were made.

 

The critical accountingpolicies described below are those that the Company believes are important tothe portrayal of the Company’s financial condition and results of operations,and which require management to make difficult, subjective or complexjudgments. Critical accounting policies cover accounting matters that areinherently uncertain because the future resolution of such matters is unknown.The Company believes that critical accounting policies include medical claimspayable, reserves for future policy benefits, goodwill and other intangibleassets and investments.

 

*MedicalClaims Payable*

 

Medical claims payableincludes claims in process as well as provisions for the estimate of incurredbut not reported claims (“IBNR”) and provisions for disputed claimsobligations. As of December 31, 2003, approximately 90% of the Company’smedical claims payable consisted of IBNR and claims in process. Such estimatesare developed using actuarial principles and assumptions that consider, amongother things, contractual requirements, historical utilization trends andpayment patterns, benefits changes, medical inflation, product mix,seasonality, membership and other relevant factors. In developing IBNR, theCompany applies different estimation methods depending on the period for whichincurred claims are being estimated. For the most recent four months, theincurred claims are estimated from the trend analysis based on per member permonth claims trends developed from the

 

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experience in preceding months. For periods prior to the most recentfour months, the key assumption used in developing the Company’s IBNR is thatthe completion factor pattern remains consistent over a rolling 12-monthperiod. The completion factor is an actuarial estimate, based upon historicalexperience, of the percentage of claims incurred during a given period thathave been adjudicated by the Company as of the date of estimation. Thisapproach is consistently applied to each period presented.

 

The completion factorsand claims per member per month trend factor are the most significant factorsused in estimating the Company’s IBNR. The following table illustrates thesensitivity of these factors using December 31, 2003 data and theestimated potential impact on the Company’s operating results caused by thesefactors:

 

| **Completion  Factor(a):**          |   | **Claims  Trend Factor(b):**                         |   |
|-------------------------------------|--------|------------------------------------------------------|--------|
| **(Decrease)  Increase in  Factor** |   | **Increase  (Decrease) in  Medical Claims  Payable** |   | **(Decrease)  Increase in  Factor** |   | **Increase  (Decrease)  in Medical Claims  Payable** |   |
|                                |   |                                                 |   |   |   |   |   |
| (3                                  | %)     | $296,000,000                                         |   | (3 | %) | $(12,000,000 | ) |
| (2                                  | %)     | 192,000,000                                          |   | (2 | %) | (8,000,000 | ) |
| (1                                  | %)     | 94,000,000                                           |   | (1 | %) | (4,000,000 | ) |
| 1                                   | %      | (89,000,000                                          | )      | 1 | % | 4,000,000 |   |
| 2                                   | %      | (174,000,000                                         | )      | 2 | % | 8,000,000 |   |
| 3                                   | %      | (255,000,000                                         | )      | 3 | % | 12,000,000 |   |

 

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(a)                                  Reflectsestimated potential changes in medical claims payable caused by changes incompletion factors in each of the most recent four months.

 

(b)                                 Reflectsestimated potential changes in medical claims payable caused by changes inannualized claims trend used for the estimation of per member per month claimsfor the most recent four months.

 

In addition, assuming ahypothetical 1% difference between the Company’s December 31, 2003estimated claims liability and the actual claims incurred, net income for theyear ended December 31, 2003 would increase or decrease by$16.5 million, while diluted net income per share would increase ordecrease by $0.11 per share.

 

Other relevant factorsinclude exceptional situations that might require judgmental adjustments insetting the outstanding reserves, such as system conversions, processinginterruptions, environmental changes or other factors. None of these factorshad a material impact on the development of the Company’s claims payableestimates during any of the periods presented. All of these factors are used inestimating IBNR and are important to the Company’s reserve methodology intrending the claims per member per month for purposes of estimating thereserves for the most recent four months.

 

In developing its bestestimate of medical claims payable, the Company consistently applies theprinciples and assumptions listed above from year to year, while also givingdue consideration to the potential variability of these factors. Becausemedical claims payable includes various actuarially developed estimates, theCompany’s actual health care services expense may be more or less than theCompany’s previously developed estimates. Claim processing expenses are alsoaccrued based on an estimate of expenses necessary to process such claims. Suchreserves are continually monitored and reviewed, with any adjustments reflectedin current operations. (See Note 8 to the Consolidated FinancialStatements for a table that provides a reconciliation of changes in medicalclaims payable.)

 

The following table shows the variance between totalas-reported claims expense for each of 2002, 2001 and 2000 (shown as “TotalIncurred” on page 44 of the Form 10-K that was filed by the Company on March15, 2004)

 

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and the incurred claims for such years had it been determinedretrospectively (computed as the difference between “Health care servicesexpenses incurred during period — related to current year” for the year shownand “Health care services expenses incurred during period — related to prioryears” for the immediately following year) (amounts in thousands):

 
|                        |   | **2002**   |       | **2001**  |   | **2000**  |   |
|-----------------------------|--------|------------|------------|-----------|--------|-----------|--------|
|                        |   |       |       |      |   |      |   |
| As reported  basis          |   | $          | 12,929,043 |      | $      | 9,146,443 |   | $ | 6,660,988 |   |
| Retrospective  basis        |   | 12,909,818 |       | 9,013,033 |   | 6,508,781 |   |
| Variance                    |   | $          | 19,225     |      | $      | 133,410   |   | $ | 152,207 |   |
|                        |   |       |       |      |   |      |   |
| Variance to total  incurred |   | 0.1        | %          | 1.5       | %      | 2.3       | %      |

 

Management expects that substantially all of thedevelopment of the 2003 estimate of medical claims payable will be known during2004.  This table shows that theCompany’s estimates of this liability have approximated the actual development.

 

Health care claims areusually described as having a “short tail,” which means that they are generallypaid within a few months of the member receiving service from the physician orother health care provider. Based on the Company’s historical claim paymentpatterns, less than 5% of the medical claims payable as of the end of any givenyear is outstanding at the end of the following year. Management expects thatsubstantially all of the development of the estimate of medical claims payableas of December 31, 2003 will be known by the end of 2004.

 

Capitation costsrepresent monthly fees paid one month in advance to physicians, certain othermedical service providers and hospitals in the Company’s HMO networks asretainers for providing continuing medical care. The Company maintains variousprograms that provide incentives to physicians, certain other medical serviceproviders and hospitals participating in its HMO networks through the use ofrisk-sharing agreements and other programs. Payments under such agreements aremade based on the providers’ performance in managing health care costs whileproviding quality health care. Expenses related to these programs, which arebased in part on estimates, are recorded in the period in which the relatedservices are rendered. The Company believes that its reserves for medicalclaims payable are adequate to satisfy its ultimate claim liability. However,these estimates are inherently subject to a number of highly variablecircumstances. Consequently, the actual results could differ materially fromthe amount recorded in the Consolidated Financial Statements.

 

Health care services andother benefits expense includes the costs of health care services, capitationexpenses and expenses related to risk-sharing agreements with participatingphysicians, medical groups and hospitals and incurred losses on the Company’sdisability and life products. The costs of health care services are accrued asservices are rendered, including an estimate for claims incurred but not yetreported.

 

For many of the Company’sHMO plans (including substantially all of its California HMO plans), theCompany contracts with physicians, hospitals and other health care providersthrough capitation fee arrangements as a means to manage health care costs. TheCompany has two general types of capitation arrangements. The predominant typeis the so-called “professional” capitation arrangement. Under professionalcapitation arrangements, the Company pays the health care provider, such as a participatingmedical group, a fixed amount per member per month, and the health careprovider assumes the risk of the member’s utilization of certain specifiedhealth care services. Typically, under professional capitation arrangements,the health care provider does not assume the risk of the member’s utilizationof any hospital-based services. The second type is the so-called “global”capitation arrangement. Under global capitation arrangements, the Company alsopays the health care provider, such as a participating medical group, a fixedamount per member per month. However, under global capitation arrangements, thehealth care provider generally assumes the risk of the member’s utilization ofall health care services (subject to

 

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certain limited exceptions and state regulatory requirements). As ofDecember 31, 2003, 2002 and 2001, the Company had approximately eight, 10and 16 global capitation arrangements, respectively, covering approximately161,000, 179,000 and 185,000 members, respectively. In addition, one of theCompany’s subsidiaries owns a 51% equity interest in a community healthpartnership network (the “CHPN”) operating in the greater Atlanta area (see“Item 1. Business—Managed Health Care Networks and Provider Relations—BlueCross Blue Shield of Georgia”). The CHPN is a locally based equity venturebetween the Company’s subsidiary and a local physician group. The Company’ssubsidiary has entered into a global capitation arrangement with the CHPN. Asof December 31, 2003, 2002 and 2001, approximately 560,000, 535,000 and479,000 members, respectively, were covered by this arrangement.

 

For the years endedDecember 31, 2003, 2002 and 2001, the Company’s capitation expenses of$1,626.5 million, $1,496.9 million and $1,198.0 millionrepresented 10.5%, 11.3% and 12.7%, respectively, of the Company’s total healthcare services and other benefits expense. As of December 31, 2003 and2002, the Company’s capitation expenses payable of $145.9 million and $137.0 millionrepresented 5.3% and 5.7%, respectively, of the Company’s total medical claimspayable. Medical claims payable attributable to the acquired Cobalt business asof December 31, 2003 was $168.1 million, including $0.3 millionof capitation expenses payable.

 

The Company’s futureresults of operations will depend in part on its ability to predict and managehealth care costs through underwriting criteria, medical management, productdesign and negotiation of favorable provider and hospital contracts. TheCompany’s ability to contain such costs may be adversely affected by changes inutilization rates, demographic characteristics, the regulatory environment,health care practices, inflation, new technologies, clusters of high-costcases, continued consolidation of physician, hospital and other providergroups, acts of terrorism and bioterrorism or other catastrophes, including warand numerous other factors. The Company’s inability to mitigate any or all ofthe above-listed or other factors may adversely affect the Company’sfuture profitability.

 

*Reservesfor Future Policy Benefits*

 

The estimate of reservesfor future policy benefits relates to life and disability insurance policieswritten in connection with health care contracts. Reserves for future lifebenefit coverage are based on projections of past experience. Reserves forfuture policy and contract benefits for certain long-term disability productsand group paid-up life products are based upon interest, mortality andmorbidity assumptions from published actuarial tables, modified based upon theCompany’s experience. Reserves are continually monitored and reviewed, and assettlements are made or reserves adjusted, differences are reflected in currentoperations. The current portion of reserves for future policy benefits relatesto the portion of such reserves that the Company expects to pay within oneyear. The Company believes that its reserves for future policy benefits areadequate to satisfy its ultimate benefit liability. However, these estimatesare inherently subject to a number of highly variable circumstances.Consequently, the actual results could differ materially from the amountrecorded in the consolidated financial statements. As of December 31, 2003and 2002, the reserves for future policy benefits were $417.3 million and$283.2 million, respectively. The reserves as of December 31, 2003included reserves for future policy benefits attributable to the acquiredCobalt business of $119.7 million.

 

*IntangibleAssets and Goodwill*

 

The Company has madeseveral acquisitions in the past several years that included a significantamount of goodwill and other intangible assets. Under generally acceptedaccounting principles in effect through December 31, 2001, these assetswere amortized over their useful lives and were tested periodically todetermine if they were recoverable from operating earnings on an undiscountedbasis over their useful lives.

 

In June 2001, theFinancial Accounting Standards Board issued Statement of Financial AccountingStandards No. 141, “Business Combinations” (“SFAS No. 141”) andStatement of Financial Accounting Standards No. 142, “Goodwill and OtherIntangible Assets” (“SFAS No. 142”). SFAS No. 141 requires that allbusiness combinations initiated after June 30, 2001 be accounted for usingthe purchase method. The provisions of SFAS No. 141 also apply to allbusiness combinations consummated after June 30, 2001. SFAS No. 142,which became

 

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effective for fiscal years beginning after December 15, 2001,eliminates amortization of goodwill and other intangible assets with indefiniteuseful lives. Rather, these assets are subject to impairment tests at leastannually. The Company is required to make estimates of fair value and applycertain assumptions, such as a discount factor in applying these annualimpairment tests. Such estimates could produce significantly different resultsif other assumptions, which could also be considered reasonable, were to beused. Intangible assets with definite useful lives are being amortized using astraight-line basis or the timing of related cash flows over periods rangingfrom 1.5 to 25 years. An intangible asset subject to amortization must bereviewed for impairment pursuant to Statement of Financial Accounting StandardsNo. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

 

The Company adopted SFASNo. 142 on January 1, 2002 and, accordingly, no longer amortizesgoodwill and other intangible assets with indefinite useful lives. Inaccordance with SFAS No. 142, the Company completed the transitionalevaluation of its goodwill and other intangible assets at January 1, 2002and the annual evaluation at December 31, 2003 and 2002, and determinedthat there was no impairment loss. As of December 31, 2003 and 2002, totalgoodwill and other intangible assets were $3.3 billion and$2.4 billion, respectively. The Cobalt acquisition added$849.1 million of goodwill and other intangible assets to the balance atDecember 31, 2003. The Company uses an independent valuation company todetermine the allocation of the intangible assets obtained in its majoracquisitions. (See Note 7 to the Consolidated Financial Statements forfurther discussion of the Company’s goodwill and other intangible assets.)

 

*Investments*

 

As of December 31,2003, the Company’s current investment securities (including securities on loanpursuant to securities lending transactions) at fair value, totaled$7.2 billion, of which 88.5% was invested in fixed-income securitiesand the remaining 11.5% was invested in equity securities. As ofDecember 31, 2002, the Company’s current investment securities (includingsecurities on loan pursuant to securities lending transactions) at fair valuetotaled $5.3 billion, of which 89.6% was invested in fixed-incomesecurities and the remaining 10.4% was invested in equity securities. Theseinvestment securities are generally used to support current operations and,accordingly, have been classified as current assets. The Company’s long-terminvestments as of December 31, 2003 and December 31, 2002 were$161.8 million and $134.3 million, respectively, and consistedprimarily of restricted assets, certain equities and other investments. Totalcurrent and long-term investments composed 50.1% and 47.2% of total assets asof December 31, 2003 and December 31, 2002, respectively.

 

With the majority ofinvestments in fixed-income securities, the Company maintains aninvestment portfolio that is primarily structured to maximize total returnwhile preserving the principal asset base and provide a source of liquidity foroperating needs. The Company records investment income when earned, andrealized gains or losses when sold, as determined using the first-in-first-outmethod.

 

The Company regularlyevaluates the appropriateness of investments relative to its internalinvestment guidelines. The Company operates within these guidelines bymaintaining a well-diversified portfolio, both across and within asset classes.The Company has from time to time retained an independent consultant to advisethe Company on the appropriateness of its investment policy. The Companyperforms a quarterly evaluation of its investment securities, using bothquantitative and qualitative factors to determine whether a decline ininvestment value is other-than-temporary. When a decline in an investment’sfair value is determined to be other-than-temporary, a loss is recorded againstinvestment income. When determining whether a decline in an investment’s fairvalue is other-than-temporary, the Company considers the extent and duration towhich a security’s market value has been less than its cost, the financialcondition and future earnings potential of the issuer, recommendations andopinions from outside investment managers and the current economic environment.For the years ended December 31, 2003, 2002 and 2001, the Company recordedinvestment losses that the Company believed to be other-than-temporary ofapproximately $31.2 million, $41.9 million and $21.1 million,respectively. The Company believes that it has performed an adequate review forimpairment of the investment portfolio and that investments are carried at fairvalue. Changing economic and market conditions in the future, however, maycause the Company to reassess its judgment regarding impairment, which couldresult in realized losses relating to other-than-temporary declines beingcharged against future income.

 

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As of December 31,2003 and 2002, net unrealized gains from the Company’s fixed-incomesecurities totaled $131.6 million and $184.5 million, respectively,primarily resulting from a general decrease in interest rates. The Company hada net unrealized gain in its equity securities portfolio as ofDecember 31, 2003 of $157.2 million and a net unrealized loss of$49.5 million as of December 31, 2002. The Company believes thatfluctuations in the Company’s net unrealized gains or losses from year to yearare temporary as a result of current market conditions.

 

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

 

**NewAccounting Pronouncements**

 

In April 2002, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 145, “Rescission of FASB Statements No. 4,44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections”(“SFAS No. 145”). With the rescission of FASB Statement No. 4, gainsand losses from the extinguishment of debt should be classified asextraordinary items only if they meet the criteria in APB Opinion No. 30.The provisions of APB Opinion No. 30 distinguish between transactions thatare part of an entity’s recurring operations and those that are unusual orinfrequent or that meet the criteria for classification as an extraordinaryitem. The provisions of SFAS No. 145 related to the rescission of FASBStatement No. 4 are required to be applied for fiscal years beginning afterMay 15, 2002. The Company has determined that the extinguishment of debtunder its Zero Coupon Convertible Subordinated Debentures, which were redeemedas of October 28, 2002, does not meet the requirements of unusual orinfrequent and therefore would not be included as an extraordinary item withthe rescission of FASB Statement No. 4. For the year endedDecember 31, 2002, WellPoint reclassified an extraordinary loss of$6.3 million, which included a tax benefit of $2.5 million, tointerest expense. The adoption of the other provisions of SFAS No. 145 didnot have a material effect on the Company’s consolidated financial statements.

 

In November 2002,the FASB issued Interpretation No. 45, “Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others” (“FIN No. 45”). FIN No. 45 requires that uponissuance of certain guarantees, a guarantor must recognize a liability for thefair value of the obligation assumed under the guarantee. The recognitionprovisions of FIN No. 45 are effective for guarantees issued or modifiedafter December 31, 2002. Refer to Note 20 of the Notes to theConsolidated Financial Statements regarding the Company’s joint ventureproviding Medicaid services in Puerto Rico. The adoption of FIN No. 45 didnot have a material impact on the Company’s financial condition or results ofoperations.

 

In December 2002,the FASB amended the transition and disclosure requirements of Statement ofFinancial Accounting Standards No. 123, “Accounting for Stock-BasedCompensation” (“SFAS No. 123”), through the issuance of Statement ofFinancial Accounting Standards No. 148, “Accounting for Stock-BasedCompensation-Transition and Disclosure” (“SFAS No. 148”). SFASNo. 148 amends the disclosures that a company is required to make in itsannual and interim financial statements. These disclosures are requiredregardless of whether a company is using the intrinsic value method under APBOpinion No. 25, “Accounting for Stock Issued to Employees” or the fairvalue based method under SFAS No. 123 to account for its stock-basedemployee compensation. SFAS No. 148 also provides alternative methods oftransition for a voluntary change to the fair value based method of accountingfor stock-based employee compensation. SFAS No. 148 is effective forfiscal years ending after December 15, 2002. The Company plans to continueto account for stock-based employee compensation under the intrinsicvalue-based method.

 

In January 2003, theFASB issued Interpretation No. 46, “Consolidation of Variable InterestEntities—an interpretation of ARB No. 51” (“FIN No. 46”). FINNo. 46 expands upon existing accounting guidance that addresses when acompany should include in financial statements the assets, liabilities and activitiesof another entity. FIN No. 46 requires an enterprise to consolidate avariable interest entity if that enterprise has a variable interest that willabsorb a majority of the entity’s expected losses, receive a majority of theentity’s expected residual returns or both. This interpretation appliesimmediately to variable interest entities created or obtained afterJanuary 31, 2003. For those variable interest entities in existence priorto January 31, 2003, the consolidation provisions of FIN No. 46 areeffective July 1, 2003. In December 2003, the FASB issuedInterpretation No. 46

 

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(revised December 2003), “Consolidation of Variable InterestEntities—an interpretation of ARB No. 51” (“FIN No. 46R”). FINNo. 46R clarifies some of the provisions of FIN No. 46 and exemptscertain entities from its requirements. FIN No. 46R is effective at theend of the interim period ending after March 15, 2004 for variableinterest entities other than special purpose entities. The adoption of FINNo. 46 did not have a material impact on the Company’s consolidatedfinancial statements. The Company believes the adoption of FIN No. 46Rwill not have a significant impact on its results of operations or financialposition.

 

In April 2003, theFASB amended and clarified financial accounting and reporting for derivativeinstruments, including certain derivative instruments embedded in othercontracts and hedging activities under Statement of Financial AccountingStandards No. 133, “Accounting for Derivative Instruments and HedgingActivities” (“SFAS No. 133”), through the issuance of Statement ofFinancial Accounting Standards No. 149, “Amendment of Statement 133 onDerivative Instruments and Hedging Activities” (“SFAS No. 149”). SFASNo. 149 is effective for contracts entered into or modified afterJune 30, 2003 and for hedging relationships designated after June 30,2003. The adoption of SFAS No. 149 did not have a material effect on theconsolidated financial statements of the Company.

 

In May 2003, theFASB issued Statement of Financial Accounting Standards No. 150,“Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity” (“SFAS No. 150”). SFAS No. 150 modifies theaccounting for certain financial instruments that, under previous guidance,issuers could account for as equity. SFAS No. 150 requires that thoseinstruments be classified as liabilities in statements of financial position.Most of the guidance in SFAS No. 150 is effective for all financialinstruments entered into or modified after May 31, 2003 or otherwise iseffective at the beginning of the first interim period beginning afterJune 15, 2003. The adoption of SFAS No. 150 did not have a materialimpact on the Company’s financial condition or results of operations.

 

In December 2003,the FASB issued Statement of Financial Accounting Standards No. 132(revised 2003), “Employers’ Disclosures about Pensions and Other PostretirementBenefits-an amendment of FASB Statements No. 87, 88, and 106” (“SFASNo. 132R”). SFAS No. 132R retains the disclosure requirementscontained in FASB Statement No. 132, “Employers’ Disclosures about Pensions andOther Postretirement Benefits” (“SFAS No. 132”), and also requiresadditional disclosures to those in the original SFAS No. 132 about theassets, obligations, cash flows and net periodic benefit cost of definedbenefit pension plans and other defined benefit postretirement plans. Except asnoted, disclosures required by SFAS No. 132R are effective for financial statementswith fiscal years ending after December 15, 2003. The disclosure ofestimated future benefit payments required by SFAS No. 132R is effectivefor fiscal years ending after June 15, 2004.

 

On December 8, 2003,the Medicare Prescription Drug, Improvement and Modernization Act of 2003(“MMA”) was signed into law. MMA introduced a voluntary Medicare Part Dprescription drug benefit and created a new 28% federal subsidy for thesponsors of the postretirement prescription drug benefits that are at leastactuarially equivalent to the new Medicare Part D benefit. InJanuary 2004, the FASB issued FASB Staff Position No. FAS 106-1,“Accounting and Disclosure Requirements Related to the Medicare PrescriptionDrug, Improvement and Modernization Act of 2003” (“FSP FAS 106-1”). UnderFSP FAS 106-1, which guidance is based on FASB Statement of FinancialAccounting Standards No. 106, “Accounting for Postretirement BenefitsOther Than Pensions,” sponsors must consider the two new features of MMA in measuringthe accumulated postretirement benefit obligation (“APBO”) and net periodicpostretirement benefit cost. In accordance with FSP FAS 106-1, the Companymade a one-time election to recognize the impact of MMA. Accordingly, anymeasures of APBO and net periodic postretirement benefit cost in the Company’sconsolidated financial statements and the related footnotes for the year endedDecember 31, 2003 include the effects of MMA. The adoption of the FSPFAS 106-1 did not have a material effect on the consolidated financialstatements of the Company. Currently, specific authoritative guidance on theaccounting for the federal subsidy is pending and that guidance, when issued,could require the Company to change previously reported information.

 

**FactorsThat May Affect Future Results of Operations**

 

Certain statementscontained in “Item 7. Management’s Discussion and Analysis of FinancialCondition and

 

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Results of Operations,” such as statements concerning the Company’s geographicexpansion and other business strategies, the effect of recent health carereform legislation, changes in the competitive environment and small groupmembership growth and other statements contained herein regarding matters thatare not historical facts, are forward-looking statements (as such term isdefined in the Securities Exchange Act of 1934, as amended). Such statementsinvolve a number of risks and uncertainties that may cause actual results todiffer from those projected. Factors that could cause actual results to differmaterially include, but are not limited to, those discussed below. Readers arecautioned not to place undue reliance on these forward-lookingstatements, which speak only as of the date hereof.

 

Completion of theCompany’s pending merger with Anthem is contingent upon, among other things,receipt of necessary approvals from certain federal and state agencies and fromthe stockholders of both companies on or before November 30, 2004. Broadlatitude in administering the applicable regulations is given to the federaland state agencies from which WellPoint and Anthem must seek approvals. Therecan be no assurance that the companies will obtain these approvals. As acondition to approval of the transaction, regulatory agencies may seek toimpose requirements or limitations or costs on the way that the combinedcompany conducts business after consummation of the transaction. If the Companyor Anthem were to agree to any material requirements or limitations in order toobtain any necessary approvals, such requirements or limitations or additionalcosts could adversely affect the combined company’s ability to integrate theoperations of the Company with those of Anthem, and could result in a materialadverse effect on the combined company’s revenues or results of operations. Inaddition, achieving the anticipated benefits of the merger will depend in partupon whether the two companies integrate their businesses in an efficient andeffective manner. Because of the complex nature of the integration process,WellPoint cannot provide any assurances regarding the ultimate success of theseintegration activities.

 

A stockholder classaction lawsuit was filed in the Superior Court of Ventura County, California onOctober 28, 2003 against the Company and its board of directors. Thelawsuit, which is entitled *Abrams v.WellPoint Health Networks Inc., et al.*, alleges that theCompany’s directors breached their fiduciary duties to stockholders byapproving an Agreement and Plan of Merger with Anthem while in possession ofnon-public information regarding the Company’s financial results for the thirdquarter of 2003. The lawsuit seeks to enjoin the Company from consummating themerger with Anthem, unless the Company adopts and implements a process forobtaining the highest possible price for stockholders, and to rescind any termsof the Agreement and Plan of Merger that have already been implemented. TheCompany believes the lawsuit is without merit and intends to vigorously contestit.

 

The Company’s operationsare subject to substantial regulation by federal, state and local agencies inall jurisdictions in which the Company operates. Many of these agencies haveincreased their scrutiny of managed health care companies in recent periods orare expected to increase their scrutiny as newly passed legislation becomeseffective. From time to time, the Company and its subsidiaries receive requestsfor information from regulatory agencies or are notified that such agencies areconducting reviews, investigations or other proceedings with respect to certainof the Company’s activities. The Company also provides insurance products toMedicare and Medicaid beneficiaries in various states, including to Medi-Calbeneficiaries in various California counties under contracts with theCalifornia Department of Health Services (or delegated local agencies), andprovides administrative services to the Centers for Medicare and MedicaidServices in various capacities (including serving as the largest MedicarePart A fiscal intermediary). There can be no assurance that acting as agovernment contractor in these circumstances will not increase the risk ofheightened scrutiny by such government agencies or that such scrutiny will nothave a material adverse effect on the Company, either through negativepublicity about the Company or through an adverse impact on the Company’sresults of operations. In addition, profitability from this business may beadversely affected by inadequate premium rate increases due to governmental budgetaryissues. Future actions by any regulatory agencies may have a material adverseeffect on the Company’s business.

 

In connection with theRightCHOICE, Cerulean, and Cobalt transactions, the Company incurredsignificant additional indebtedness to fund the cash payments made to theacquired companies’ stockholders. In addition, the Company may incur additionalindebtedness to fund potential future acquisitions. This existing or newindebtedness may result in a significant percentage of the Company’s cash flowbeing applied to the payment of interest, and there can be no assurance thatthe Company’s operations will generate sufficient future cash flow to servicethis indebtedness. The Company’s current indebtedness, as well as anyindebtedness that the Company may incur in the

 

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future (such as indebtedness incurred to fund repurchases of its CommonStock or to fund potential future acquisitions), may adversely affect theCompany’s ability to finance its operations and could limit the Company’sability to pursue business opportunities that may be in the best interests ofthe Company and its stockholders.

 

As part of the Company’sbusiness strategy, the Company has acquired substantial operations in new geographicmarkets over the last seven years. These businesses, some of which includesubstantial indemnity-based insurance operations, have experiencedvarying profitability or losses in recent periods. Since the relevant dates ofacquisition of Cerulean, RightCHOICE, MethodistCare and Cobalt, the Company hascontinued to work extensively on the integration of these businesses. However,there can be no assurances regarding the ultimate success of the Company’sintegration efforts or regarding the ability of the Company to maintain orimprove the results of operations of the acquired businesses. The Company hasincurred and will, among other things, need to continue to incur considerableexpenditures for provider networks, distribution channels and information systemsin 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 issuesthat may negatively affect the Company’s relationship with its customers andcontribute to increased attrition of such customers. The Company’s results ofoperations could be adversely affected in the event that the Companyexperiences such problems or is otherwise unable to implement fully itsexpansion strategy.

 

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

 

From time to time, theCompany and certain of its subsidiaries are parties to various legalproceedings, many of which involve claims for coverage encountered in theordinary course of business. The Company, like HMOs and health insurersgenerally, 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 restricttreatment or reimbursement for certain services. The loss of even one suchclaim, if it results in a significant punitive damage award, could have amaterial adverse effect on the Company. In addition, the risk of potentialliability under punitive damage theories may increase significantly thedifficulty of obtaining reasonable settlements of coverage claims.

 

In May 2000, theCalifornia Medical Association filed a lawsuit in U.S. district court in SanFrancisco against BCC. The lawsuit alleges that BCC violated the RacketeerInfluenced and Corrupt Organizations Act (“RICO”) through variousmisrepresentations to and inappropriate actions against health care providers.In late 1999, a number of class-action lawsuits were brought against severalof the Company’s competitors alleging, among other things, variousmisrepresentations regarding their health plans and breaches of fiduciaryobligations to health plan members. In August 2000, the Company was addedas a party to *Shane v. Humana, et al.*,a class-action lawsuit brought on behalf of health care providersnationwide. In addition to the RICO claims brought in the California MedicalAssociation lawsuit, this lawsuit also alleges violations of ERISA, federal andstate “prompt pay” regulations and certain common law claims. InOctober 2000, the federal Judicial Panel on Multidistrict Litigationissued an order consolidating the California Medical Association lawsuit, the *Shane* lawsuit and various other pendingmanaged care class-action lawsuits against other companies beforeDistrict Court Judge Federico Moreno in the Southern District of Florida forpurposes of the pretrial proceedings. In March 2001, Judge Morenodismissed the plaintiffs’ claims based on violation of RICO, although the dismissalwas made without prejudice to the plaintiffs’ ability to subsequently refiletheir claims. Judge Moreno also dismissed, with prejudice, the plaintiffs’federal prompt pay law claims. On March 26, 2001, the plaintiffs filed anamended complaint in its lawsuit, alleging, among other things, revised RICOclaims and violations of California law. On May 3, 2001, the defendantsfiled a motion to dismiss this amended complaint. On May 9, 2001, JudgeMoreno issued an order requiring that all discovery in the litigation becompleted by December 2001, with the exception of discovery related toexpert witnesses, which was to be completed by March 15, 2002. InJune 2001, the federal Court of Appeals for the 11th Circuit issued a stayof Judge Moreno’s discovery order, pending a hearing before the Court ofAppeals on the Company’s appeal of its motion to compel arbitration (which hadearlier been granted in part and denied in part by Judge Moreno). The

 

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hearing was held in January 2002 and, in March 2002, theCourt of Appeals panel issued an opinion affirming Judge Moreno’s earlieraction with respect to the motion to compel arbitration. The Company filed amotion requesting a rehearing of the matter before the entire 11th CircuitCourt of Appeals, which motion was denied by the 11th Circuit Court of Appealsin June 2002. On July 29, 2002, Judge Moreno issued an orderproviding that discovery in the case would be allowed to re-commence onSeptember 30, 2002. On September 26, 2002, Judge Moreno issued anadditional order certifying a nationwide class of physicians in the *Shane* matter, setting a trial date inMay 2003 and ordering the parties to participate in non-binding mediation.In October 2002, the defendants, among other things, moved to compelarbitration of most claims (which motion was granted in part in September2003). In October 2002, the Company also filed a motion with the 11thCircuit Court of Appeals seeking to appeal Judge Moreno’s class-certificationorder. The motion was granted. The 11th Circuit heard oral argument onSeptember 11, 2003 on the Company’s appeal. A mediator has been appointedby Judge Moreno and the parties are currently conducting court-orderedmediation. In January 2004, Judge Moreno set a new trial date inSeptember 2004 and extended the deadline for discovery to March 31,2004, which may be further extended.

 

In March 2002, theAmerican Dental Association and three individual dentists filed a lawsuit inU.S. district court in Chicago against the Company and BCC. This lawsuitalleges that WellPoint and BCC engaged in conduct that constituted a breach ofcontract under ERISA, trade libel and tortious interference with contractualrelations and existing and prospective business expectancies. The lawsuit seeksclass-action status. The Company filed a motion (which was granted inJuly 2002) with the federal Judicial Panel on Multidistrict Litigationrequesting that the proceedings in this case be consolidated with a similaraction brought against other managed care companies that has been consolidatedwith the *Shane* lawsuit. The caseis currently stayed.

 

In May 2003, alawsuit entitled *Thomas, et al. v. BlueCross and Blue Shield Association, et al.* was filed in the U.S.District Court in the Southern District of Florida. The attorneys representingthe plaintiffs in the lawsuit are primarily the attorneys representing theplaintiffs in the *Shane*litigation described above. The defendants in *Thomas*are the Company’s Blue Cross and Blue Shield-licensed subsidiaries, theBCBSA and all of the other current Blue Cross and Blue Shield licensees. Thelawsuit alleges that each of the defendants engaged in similar activities andconduct as that alleged in the *Shane*litigation. The case has been assigned to Judge Moreno. The defendants havemoved to compel arbitration and to dismiss the complaint.

 

In July 2001, twoindividual physicians seeking to represent a class of physicians, hospitals andother providers brought suit in the Circuit Court of Madison County, Illinoisagainst HealthLink, Inc., which is now a subsidiary of the Company as aresult of the acquisition of RightCHOICE. The physicians allege that HealthLinkbreached the contracts with these physicians by engaging in the practices of “bundling”and “down-coding” in its processing and payment of provider claims. The reliefsought includes an injunction against these practices and damages in anunspecified amount. This litigation was dismissed without prejudice at therequest of the plaintiffs in February 2003. A similar lawsuit was broughtby physicians (including one of the physicians in the case described above) inthe same court in Madison County, Illinois, on behalf of a nationwide class ofproviders who contract with Blue Cross and Blue Shield plans against the BCBSAand another Blue Cross Blue Shield plan. The complaint recites that it isbrought against those entities and their “unnamed subsidiaries, licensees, andaffiliates,” listing a large number of Blue Cross and Blue Shield plans, including“Alliance Blue Cross Blue Shield of Missouri.” The plaintiffs also allege thatthe plans have systematically engaged in practices known as “short paying,”“bundling” and “down-coding” in their processing and payment of subscriberclaims. Blue Cross Blue Shield of Missouri has not been formally named orserved as a defendant in this lawsuit. The BCBSA was dismissed as a defendantin this lawsuit in August 2002. In early 2004, a class of providers inIllinois was certified. The certified class does not include any Illinoisproviders that contract with the Company.

 

On March 26, 2003, alawsuit entitled *Irwin v. AdvancePCS, et al.*was filed in the California Superior Court in Alameda County, California.WellPoint and certain of its wholly owned subsidiaries are named as defendantsin the lawsuit. The complaint alleges that the defendants violated CaliforniaBusiness and Professions Code Section 17200 by engaging in unfair,fraudulent and unlawful business practices. The complaint alleges, among otherthings, that pharmacy benefit management companies (such as the Company’ssubsidiary that does business under the tradename WellPoint PharmacyManagement) engage in unfair practices such as negotiating discounts in pricesof drugs from pharmacies and negotiating rebates from drug manufacturers andretaining such discounts and

 

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rebates for their own benefit. The complaint also alleges that drugsare included in formularies in exchange for rebates and that the defendantscharge patient co-payments that exceed the actual cost of generic drugs.

 

In early 2003, a lawsuitentitled *Knecht v. Cigna, et al.*was filed in U.S. District Court in Oregon. This litigation has subsequentlybeen transferred to Judge Moreno of the U.S. District Court for the SouthernDistrict of Florida. This litigation is a putative class action lawsuit onbehalf of chiropractors in the western United States. The Company is a nameddefendant in the lawsuit. The lawsuit alleges that each of the defendantsengaged in similar activities and conduct as that alleged in the *Shane* litigation.

 

In October 2003, alawsuit entitled *Solomon, et al. v. Cigna,et al.* was filed in the U.S. District Court in the Southern Districtin Florida. The Company is a named defendant in this lawsuit, although theCompany has not yet been served. This lawsuit is also a putative class actionbrought on behalf of chiropractors, podiatrists and certain other types ofhealth care practitioners nationwide. This lawsuit also alleges that thedefendants engaged in similar activities and conduct as that alleged in the *Shane* litigation. On December 15,2003, this lawsuit was transferred to Judge Moreno, and the case wasconsolidated with the *Knecht*lawsuit for pre-trial purposes. Both of these cases are currently stayed.In December 2003, the plaintiffs in *Solomon,et al. v. Cigna, et al.* filed a similar lawsuit against the Company,the Company’s Blue Cross and Blue Shield-licensed subsidiaries, the BCBSAand all of the other current Blue Cross and Blue Shield licensees. The lawsuitis entitled *Solomon, et al. v. Blue Crossand Blue Shield Association, et al.* and was filed in the U.S.District Court in the Southern District in Florida. On January 7, 2004,this lawsuit was transferred to Judge Moreno. On March 9, 2004, JudgeMoreno issued an order restoring this case to the active docket and placing iton a coordinated track with the *Thomas*lawsuit.

 

The financial andoperational impact that these and other evolving theories of recovery will haveon the managed care industry generally, or the Company in particular, is atpresent unknown.

 

The Company’s futureresults will depend in part on its ability to accurately predict health carecosts and to manage future health care costs through product and benefitdesign, underwriting criteria, medical management and negotiation of favorableprovider 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 controlof any health plan provider and may adversely affect the Company’s ability topredict and control health care costs and claims, as well as the Company’s financialcondition, results of operations or cash flows. Periodic renegotiations ofhospital and other provider contracts, coupled with continued consolidation ofphysician, hospital and other provider groups, may result in increased healthcare costs and limit the Company’s ability to negotiate favorable rates. Inrecent years, large physician practice management companies have experiencedextreme financial difficulties, including bankruptcy, which may subject theCompany to increased credit risk related to provider groups and cause theCompany to incur duplicative health care services expense. Additionally, theCompany faces competitive pressure to contain premium prices. Fiscal concernsregarding the continued viability of government-sponsored programs suchas Medicare and Medicaid may cause decreasing reimbursement rates for theseprograms. Any limitation on the Company’s ability to increase or maintain itspremium levels, design products, implement underwriting criteria or negotiatecompetitive provider contracts may adversely affect the Company’s financialcondition or results of operations.

 

Managed careorganizations, both inside and outside California, operate in a highlycompetitive environment that has undergone significant change in recent yearsas a result of business consolidations, new strategic alliances, aggressivemarketing practices by competitors and other market pressures. Additionalincreases in competition (including competition from market entrants offeringInternet-based products and services) could adversely affect theCompany’s financial condition, cash flows or results of operations.

 

The Company is dependenton the services of independent agents and brokers in the marketing of itshealth care plans, particularly with respect to individuals, seniors and smallemployer group members. Such independent agents and brokers are typically notexclusively dedicated to the Company and may frequently also market health careplans of the Company’s competitors. The Company faces intense competition forthe services and allegiance of independent agents and brokers.

 

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As a result of theCompany’s acquisitions, the Company operates on a select geographic basisnationally and offers a spectrum of health care and specialty products throughvarious risk-sharing arrangements. The Company’s health care products include avariety of managed care offerings as well as traditional fee-for-servicecoverage. With respect to product type, fee-for-service products are generallyless profitable than managed care products. A component of the Company’sexpansion strategy is to transition over time the traditional insurance membersof the Company’s acquired businesses to more managed care products.

 

With respect to the risk-sharingnature of products, managed care products that involve greater potential riskto the Company generally tend to be more profitable than management servicesproducts and those managed care products where the Company is able to shiftrisks to employer groups. Individuals and small employer groups are more likelyto purchase the Company’s higher-risk managed care products because suchpurchasers are generally unable or unwilling to bear greater liability forhealth care expenditures. Typically, government-sponsored programsinvolve the Company’s higher-risk managed care products. Over the past fewyears, the Company has experienced a slight decline in margins in itshigher-risk managed care products and to a lesser extent on its lower-riskmanaged care and management services products. This decline is primarilyattributable to product mix change, product design, competitive pressure andgreater regulatory restrictions applicable to the small employer group market.From time to time, the Company has implemented price increases in certain ofits managed care businesses. While these price increases are intended toimprove profitability, there can be no assurance that this will occur.Subsequent unfavorable changes in the relative profitability between theCompany’s various products could have a material adverse effect on theCompany’s results of operations and on the continued merits of the Company’sgeographic expansion strategy.

 

One of the Company’swholly owned subsidiaries operates as a pharmacy benefit manager (“PBM”) underthe trade name WellPoint Pharmacy Management. The PBM industry faces a numberof risks and uncertainties in addition to those facing the Company’s corehealth plan business. Such risks and uncertainties include the application of federaland state anti-remuneration laws (generally known as “anti-kickback” laws),whether PBMs operate as fiduciaries under the Employee Retirement IncomeSecurity Act of 1974 (“ERISA”) and are in compliance with their fiduciaryobligations under ERISA in connection with the development and implementationof items such as formularies, preferred drug listings and therapeuticintervention programs, and potential liability regarding the use of patient-identifiablemedical information. In addition, a number of federal and state legislativeproposals are being considered that could affect a variety of PBM industrypractices, such as the receipt of rebates from pharmaceutical manufacturers.The Company believes that its PBM business is currently being conducted incompliance in all material respects with applicable legal requirements.However, there can be no assurance that the Company’s PBM business will not besubject to challenge under various laws and regulations, or that any suchchallenge will not have a material adverse effect upon the Company’s results ofoperations or financial condition. In addition, future legislative enactmentsaffecting the PBM industry could have a material adverse effect upon theCompany’s results of operations and financial condition.

 

Substantially all of theCompany’s investment assets are in interest-yielding debt securities ofvarying maturities or equity securities. The value of fixed- incomesecurities is highly sensitive to fluctuations in short- and long-terminterest rates, with the value decreasing as such rates increase and increasingas such rates decrease. In addition, the value of equity securities canfluctuate significantly with changes in market conditions. Changes in the valueof the Company’s investment assets, as a result of interest rate fluctuations,can affect the Company’s results of operations and stockholders’ equity. Therecan be no assurances that interest rate fluctuations will not have a materialadverse effect on the results of operations or financial condition of theCompany.

 

The Company’s operationsare dependent on retaining existing employees, attracting additional qualifiedemployees and achieving productivity gains from the Company’s investment intechnology. The Company faces intense competition for qualified informationtechnology personnel and other skilled professionals. There can be noassurances that an inability to retain existing employees or attract additionalemployees will not have a material adverse effect on the Company’s results of operations.

 

Prior to the Company’sacquisition of the GBO, John Hancock Mutual Life Insurance Company (“JohnHancock”) entered into a number of reinsurance arrangements with respect topersonal accident insurance and the

 

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occupational accident component of workers’ compensation insurance, aportion of which was originated through a pool managed by UnicoverManagers, Inc. Under these arrangements, John Hancock assumed risks as areinsurer and transferred certain of such risks to other companies. Thesearrangements have become the subject of disputes, including a number of legalproceedings to which John Hancock is a party. The Company is currently inarbitration with John Hancock regarding these arrangements. The Companybelieves that it has a number of defenses to avoid any ultimate liability withrespect to these matters and believes that such liabilities were nottransferred to the Company as part of the GBO acquisition. However, if theCompany were to become subject to such liabilities, the Company could sufferlosses that might have a material adverse effect on its financial condition,results of operations or cash flows.

 

In December 2000, awholly owned subsidiary of the Company completed its acquisition of certainmail order pharmaceutical service assets and now conducts business as a mailorder pharmacy. The pharmacy business is subject to extensive federal, stateand local regulations that are in many instances different from those underwhich the Company’s core health plan business currently operates. The failureto properly adhere to these and other applicable regulations could result inthe imposition of civil and criminal penalties, which could adversely affectthe Company’s results of operations or financial condition. In addition,pharmacies are exposed to risks inherent in the packaging and distribution ofpharmaceuticals and other health care products. Although the Company currentlymaintains and intends to continue to maintain professional liability and errorsand omissions liability insurance, there can be no assurances that the coveragelimits under such insurance programs will be adequate to protect against futureclaims or that the Company will be able to maintain insurance on acceptable termsin the future.

 

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

 

In April andMay 2002, one of the Company’s wholly owned subsidiaries acting as a pharmacybenefit management business under the trade name WellPoint Pharmacy Managementreceived two administrative subpoenas duces tecum issued by the U.S. Attorney’sOffice in Boston Massachusetts. The Company does not believe that its pharmacybenefit management business is presently a target of investigation by the U.S.Attorney. The subpoenas appear to focus primarily on WellPoint PharmacyManagement’s relationship with TAP Pharmaceuticals, including TAP’s drugsLupron and Prevacid. The Company has responded to the subpoenas by producingcertain requested documents. The Company believes that it is in compliance inall material respects with all laws and regulations applicable to the pharmacybenefit management business.

 

As a result of thegeneral nationwide economic downturn, many states are currently experiencingbudget deficits. State legislators are exploring a variety of alternatives toaddress this situation. In order to address the budget shortfalls, variousstates may propose reductions in payments received by Medicaid managed careproviders such as the Company. For instance, the California Legislature in 2003enacted legislation reducing rates paid for Medi-Cal (California’s Medicaidprogram) coverage. Alternatively, state legislators may seek to impose greaterstate taxes. Any significant reduction in payments received by the Company inconnection with its Medicaid managed care business could have a materialadverse effect on the Company’s results of operations or financial condition.Additionally, any increase in state taxes could prolong or exacerbate thecurrent economic downturn, which could in turn have a material adverse effecton the Company’s results of operations or financial condition. Budget cutbackscould also result in reduced employment levels in public sector accounts forwhich the Company provides insured or administrative services products or couldresult in public sector accounts switching from insured products toadministrative services products.

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## **PARTIII**

 

**Item 10.****Directors and Executive Officersof the Registrant.**

 

A.  Directors of the Company.

 

The directors of the Company are asfollows:

 

**Roger E. Birk**, age73, a Class I director, has been a director of the Company since April 1993.He is retired. Mr. Birk served as President of the Federal NationalMortgage Association (“Fannie Mae”) from 1987 to 1992 and as Chairman and ChiefExecutive Officer of Merrill Lynch & Co., Inc. from 1982 to 1986.Mr. Birk currently serves as a director of Penske Corporation.Mr. Birk serves on the Audit Committee and the Nominating & GovernanceCommittee of the Board of Directors of the Company (the “Board”).

 

**Sheila P. Burke**,age 53, a Class I director, has been a director of the Company since April 1997.Since July 2000, Ms. Burke has been the Undersecretary for AmericanMuseums & National Programs of the Smithsonian Institution. FromDecember 1996 until July 2000, Ms. Burke served as an ExecutiveDean of the John F. Kennedy School of Government, Harvard University.Previously in 1996, Ms. Burke was a senior advisor to the Dole forPresident Campaign. From 1986 until June 1996, Ms. Burke was thechief of staff for the Office of the Republican Leader of the United StatesSenate. Ms. Burke currently serves on the Board of Directors of ChubbCorp. Ms. Burke serves as the chair of the Compensation Committee of theBoard.

 

**William H. T. Bush**,age 65, a Class II director, has been a director of the Company sinceJanuary 2002.  Mr. Bush was electedupon completion of the Company’s merger with RightCHOICE ManagedCare, Inc. (“RightCHOICE”). Mr. Bush served as a director ofRightCHOICE from April 1994 to January 2002. He served on the BlueCross and Blue Shield of Missouri board of directors from 1989 to 1994 and asSecretary of the Blue Cross and Blue Shield of Missouri board of directors from1990 to 1994. Mr. Bush is the Chairman of Bush-O’Donnell &Company, Inc. of St. Louis, an investment management and financialadvisory firm he founded in 1986. Prior to 1986, Mr. Bush served asPresident and as a director of The Boatmen’s National Bank of St. Louis.Mr. Bush currently is a director of D.T. Industries, Inc., the LordAbbett Affiliated Fund, Inc. and Engineered Support Systems, Inc. Mr. Bushserves on the Audit Committee and the Nominating & GovernanceCommittee of the Board.

 

**Julie A. Hill**, age57, a Class III director, has been a director of the Company sinceMarch 1994. Ms. Hill has been an independent business consultant sinceDecember 2003.  From December 2002 untilDecember 2003, she was owner of Hillsdale Development Corp.  From December 1998 to December 2002,Ms. Hill was the President and owner of Hiram-Hill Development Company, aresidential real estate development firm. Ms. Hill was President and ChiefExecutive Officer of Costain Homes Inc. (“Costain”) from January 1991until November 1998. During 1998, Ms. Hill also served as Chairman ofthe Board of Costain. Costain was a division of London-based Costain Group PLCand built single-family detached residential communities.  Ms. Hill currently is a director ofResources Connection, Inc., Lord Abbett Affiliated Fund, Inc. and Holcim (US),Inc.  Ms. Hill serves on theCompensation Committee and the Nominating & Governance Committee of theBoard.

 

**Warren Y. Jobe**, age63, a Class II director, has been a director of the Company sinceMarch 2001.  Mr. Jobe was electedupon completion of the Company’s merger with Cerulean Companies, Inc.(“Cerulean”). Mr. Jobe served as a director of Cerulean and Blue Cross andBlue Shield of Georgia, Inc. from April 1999 to March 2001. Heis retired. Mr. Jobe was Senior Vice President of Southern Companyresponsible for Corporate Development from 1998 until 2001. During such time,Mr. Jobe also was Executive Vice President of Georgia Power Company.Mr. Jobe was Executive Vice President and Chief Financial Officer ofGeorgia Power Company from 1982 to 1998, during which time he was also a memberof its Board of Directors. Mr. Jobe currently serves on the board of directorsof UniSource Energy Corporation. He is a certified public accountant and amember of the American Institute of Certified Public Accountants. Mr. Jobeserves as the chair of the Audit Committee of the Board.

 

**Ramiro G. Peru**, age48, a Class III director, has been a director of the Company since May2003. Mr. Peru is Senior Vice President and Chief Financial Officer ofPhelps Dodge Corporation (“Phelps Dodge”), a mining and manufacturing company.Mr. Peru joined Phelps Dodge in 1979 and has held various finance andaccounting positions with Phelps Dodge and its affiliates. He was appointed tohis current position at Phelps Dodge in May 1999. Mr. Peru serves on the AuditCommittee and the Compensation Committee of the Board.

 

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**Jane G. Pisano**, age59, a Class II director. has been a director of the Company sinceJune 2002. Since November 2001, Ms. Pisano has been Presidentand Director of the Natural History Museum of Los Angeles County. From1998 until November 2001, she was the Senior Vice President, ExternalRelations of the University of Southern California. From 1994 to 1998, sheserved as the Vice President, External Relations of the University of SouthernCalifornia and, from 1991 until 1998, she was the Dean of the University ofSouthern California’s School of Public Administration. From 1986 to 1991, shewas President, Los Angeles 2000 Committee and The 2000 Partnership.Ms. Pisano serves on the Compensation Committee and the Nominating &Governance Committee of the Board.

 

**Elizabeth A. Sanders**, age58, a Class I director, has been a director of the Company sinceMay 1996. Ms. Sanders has been a consultant to executive managementfrom 1990 to the present. She was employed by Nordstrom, Inc. from 1971 to1990 and served as Vice President and General Manager of Nordstrom, Inc.from 1981 to 1990. Ms. Sanders is a founder of the National Bank ofSouthern California and was on its board of directors from 1983 to 1990. Shecurrently serves on the following boards of directors: WashingtonMutual Inc., Wolverine Worldwide, Inc. and Denny’s Corporation.Ms. Sanders serves as the chair of the Nominating & GovernanceCommittee of the Board and also serves on the Compensation Committee of theBoard.

 

**Leonard D. Schaeffer**,age 58, a Class III director, has been Chairman of the Board of Directorsand Chief Executive Officer of the Company since August 1992. From 1986 to2002, Mr. Schaeffer served as Chief Executive Officer of Blue Cross ofCalifornia (“BCC”) and has served as Chairman of its Board of Directors of BCCsince 1989. From 1982 to 1986, Mr. Schaeffer served as President of GroupHealth, Inc., an HMO in the midwestern United States. Prior to joiningGroup Health, Inc., Mr. Schaeffer was the Executive Vice President andChief Operating Officer of the Student Loan Marketing Association, a financialinstitution that provides a secondary market for student loans, from 1980 to1981. From 1978 to 1980, Mr. Schaeffer was the Administrator of the HealthCare Financing Administration (now known as the Centers for Medicare andMedicaid Services), which administers the federal Medicare and Medicaidprograms. Mr. Schaeffer currently serves as a director ofAllergan, Inc. and Amgen Inc.

 

B.  Executive Officers of the Company.

 

Information regarding theCompany’s executive officers is contained in Part I of the Form 10-K thatwas filed by the Company on March 15, 2004 under the caption “Item 1.Business—Executive Officers of the Registrant.”

 

C.  Code of Ethics for Senior Financial Officers.

 

The Company has adopted aCode of Ethics for Senior Financial Officers as required by Section 406 ofthe Sarbanes-Oxley Act of 2002 and the rules and regulations promulgatedthereunder. The Company’s Code of Ethics for Senior Financial Officers isposted on the Company’s website at www.wellpoint.com. Amendments to and waiversfrom any provision of the Company’s Code of Ethics for Senior FinancialOfficers that applies to the Company’s principal executive officer, principalfinancial officer, principal accounting officer or controller or personsperforming similar functions and relates to any element of the code of ethicsdefinition enumerated in Item 406(b) of Regulation S-K will be posted onthe Company’s website.

 

D. Section 16(a) Beneficial Ownership Reporting Compliance.

 

Section 16(a)of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)requires the Company’s directors, executive officers and beneficial owners ofmore than 10 percent of the Company’s Common Stock to file reports ofownership and changes in ownership with the Securities and Exchange Commission(“SEC”). Officers, directors and greater than 10 percent beneficial ownersare required by SEC regulations to furnish the Company with copies of allSection 16(a) forms they file.

 

Based solely on a review of the copies of such formsreceived by it, or written representations from certain reporting persons, theCompany believes that during the year ended December 31, 2003, the Company’sofficers,

 

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directors and greater than 10 percent beneficial owners complied withall applicable filing requirements, except (i) John S. Watts, Jr. who reportedlate three transactions occurring in January 2003 involving the acquisition ofan aggregate of approximately seven shares under a Company benefit plan and(ii) Ronald J. Ponder who reported late three transactions occurring in January2003 involving the acquisition of an aggregate of approximately 75 shares undera Company benefit plan and one transaction occurring in June 2003 involving theautomatic withholding of 286 shares upon vesting of a restricted stock award,due to an administrative error.

 

E.  AuditCommittee Financial Expert.

 

The Board has determined that the following members ofthe Audit Committee of the Board are “audit committee financial experts” asdefined in Item 401 of Regulation S-K under the Exchange Act:  Roger E. Birk, William H. T. Bush, Warren Y.Jobe and Ramiro G. Peru.  Each of theforegoing persons is “independent” as that term is used in Item 7(d)(3)(iv) ofSchedule 14A under the Exchange Act.

 

**Item 11.****Executive Compensation.**

 

**Compensationof Directors**

 

Allnon-employee directors of the Company are entitled to the followingcompensation: (i) $23,000 per year paid in quarterly installments (withthe chair of each committee receiving an additional $5,000 annual retainer);and (ii) $1,500 per Board meeting and $1,000 per committee meeting (withthe chair of the Audit Committee receiving an additional $2,000 per AuditCommittee meeting). The meeting fee is $500 for any telephonic Board orcommittee meeting (with the chair of the Audit Committee receiving anadditional $1,000 per telephonic Audit Committee meeting). Non-employeedirectors of the Company are also entitled to receive a Company-paid annualphysical examination.

 

Non-employee directors may elect to defer the receiptof all or a portion of their fees. Under the Company’s Board of DirectorsDeferred Compensation Plan (the “Directors’ Deferred Compensation Plan”),amounts deferred may be credited with earnings at a rate equal to the actualrate of return of a range of investment vehicles authorized by the CompensationCommittee of the Board. Alternatively, fees may be foregone in return for thegrant of a non-statutory stock option. The number of shares of Common Stocksubject to such option is equal to the dollar amount of cash compensationdeferred divided by the product of the fair market value of the Company’sCommon Stock on the option grant date and 25%. The automatic stock awardsdiscussed in the following paragraph may also be deferred under the Directors’Deferred Compensation Plan or may be foregone in exchange for stock options ata rate of four shares for each share foregone.

 

On each date on which annual grants are made toofficers of the Company subject to the short-swing profit liability provisionsof Section 16 of the Exchange Act (usually in January or February, priorto the Company’s release of earnings for the fourth quarter of the precedingyear), continuing non-employee directors who have served for at least six fullcalendar months automatically receive 1,600 shares of Common Stock and a4,000-share stock option grant under the Company’s 1999 Stock Incentive Plan.The 1,600-share grant is immediately vested and the 4,000-share stock optiongrant vests on the third anniversary of the grant date. Each newly electednon-employee director is also entitled to receive a 16,000-share stock optiongrant on the date of such director’s election. This 16,000-share grant isimmediately vested with respect to 4,000 shares, with the remaining sharesvesting ratably on the first three anniversaries of the grant date.

 

In January 2002, the Board amended itsnon-employee director compensation program to provide that each non-employeedirector, on the date of his or her election to the Board, will receive a grantof 3,500 shares of Common Stock and a cash award equivalent to the fair marketvalue of 1,500 shares of Common Stock as of such date. The stock grant is madeunder the Company’s 1999 Stock Incentive Plan and is immediately vested. At thetime of such amendment to the non-employee director compensation program, eachthen-current non-employee director also received such stock and cash awards.

 

In order to more closely align the interests of thedirectors with those of the Company’s stockholders, the

 

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Board has adopted stock ownership guidelines for persons serving on theBoard. This policy was last amended in January 2002. Each non-employeedirector is required to own Common Stock having a fair market value equal to 10times the annual cash retainer paid to such director within five years of hisor her election to the Board. At the time of the January 2002 stock grantto existing non-employee directors referenced in the immediately precedingparagraph, each of the directors agreed that such stock grant would not betransferred until such time as such director had met the stock ownership guidelinesapplicable to directors.

 

**CompensationCommittee Interlocks and Insider Participation**

 

TheCompensation Committee of the Board of Directors is currently composed of Mses.Burke, Hill, Pisano and Sanders and Mr. Peru. The Company’s CompensationCommittee does not include any present or former officers or employees of theCompany or any of its subsidiaries.

 

**Summaryof Certain Compensation**

 

The following table provides certain summaryinformation concerning compensation paid or accrued by the Company and its subsidiariesto or on behalf of the Company’s Chief Executive Officer and each of the fourother most highly compensated executive officers of the Company (determined forthe year ended December 31, 2003) (collectively, with the Chief ExecutiveOfficer, the “Named Executive Officers”) for the years ended December 31,2001, 2002 and 2003:

 

## **SummaryCompensation Table**

 
|                                |   |     |   | **Annual  Compensation** |      | **Long-Term  Compensation  Awards** |   |                                    |    |
|-------------------------------------|--------|----------|--------|--------------------------|-----------|-------------------------------------|--------|-----------------------------------------|---------|
| **Name and  Principal Position**    |   | **Year** |   | **Salary  ($)**          |      | **Bonus  ($)**                      |   | **Other  Annual  Compensation  ($)(1)** |    | **Restricted  Stock  ($)** |   | **Securities  Underlying  Options  (#)** |   | **All Other  Compensation  ($)(2)** |   |
|                                |   |     |   |                     |      |                                |   |                                    |    |   |   |   |   |   |   |
| Leonard D. Schaeffer                |   | 2003     |   | $                        | 1,310,000 |                                | $      | 6,037,031                               |    | $ | 4,320,880 | (3) | 0 |   | 612,918 |   | $ | 227,444 |   |
| Chairman and                        |   | 2002     |   | 1,246,155                |      | 5,690,916                           |   | $                                       | 140,342 | (4) | 0 |   | 553,042 |   | 207,382 |   |
| Chief Executive Officer             |   | 2001     |   | 1,176,925                |      | 4,437,500                           | (5)    | 135,559                                 | (6)     | 0 |   | 636,762 |   | 169,688 |   |
|                                |   |     |   |                     |      |                                |   |                                    |    |   |   |   |   |   |   |
| David C. Colby                      |   | 2003     |   | $                        | 583,846   |                                | $      | 1,481,800                               |    | $ | 4,893 | (7) | 0 |   | 115,000 |   | $ | 65,540 |   |
| Executive Vice President            |   | 2002     |   | 541,231                  |      | 1,335,000                           |   | 5,377                                   | (7)     | 0 |   | 108,000 |   | 58,675 |   |
| and Chief Financial Officer         |   | 2001     |   | 502,239                  |      | 1,106,000                           | (5)    | 5,165                                   | (7)     | 0 |   | 140,400 |   | 48,771 |   |
|                                |   |     |   |                     |      |                                |   |                                    |    |   |   |   |   |   |   |
| John A. O’Rourke(8)            |   | 2003     |   | $                        | 645,750   |                                | $      | 1,307,644                               |    | $ | 5,966 | (7) | 0 |   | 95,000 |   | $ | 76,251 |   |
| Executive Vice President,           |   | 2002     |   | 591,938                  |      | 959,595                             |   | 3,910                                   | (7)     | $ | 2,251,841 | (9) | 71,326 |   | 73,190 |   |
| Central Business Region             |   | 2001     |   | N/A                      |      | N/A                                 |   | N/A                                     |    | N/A |   | N/A |   | N/A |   |
|                                |   |     |   |                     |      |                                |   |                                    |    |   |   |   |   |   |   |
| David S. Helwig                     |   | 2003     |   | $                        | 516,154   |                                | $      | 1,341,563                               |    | $ | 4,893 | (7) | 0 |   | 236,289 |   | $ | 59,700 |   |
| Executive Vice President,           |   | 2002     |   | 454,712                  |      | 1,040,670                           |   | 5,377                                   | (7)     | 0 |   | 199,242 |   | 53,012 |   |
| Blue Cross of California Businesses |   | 2001     |   | 400,308                  |      | 783,031                             | (5)    | 5,165                                   | (7)     | 0 |   | 220,506 |   | 40,160 |   |
|                                |   |     |   |                     |      |                                |   |                                    |    |   |   |   |   |   |   |
| Thomas C. Geiser                    |   | 2003     |   | $                        | 527,035   |                                | $      | 1,256,344                               |    | $ | 4,893 | (7) | 0 |   | 115,000 |   | $ | 60,379 |   |
| Executive Vice President,           |   | 2002     |   | 501,577                  |      | 1,138,613                           |   | $                                       | 5,377   | (7) | 0 |   | 108,000 |   | 55,615 |   |
| General Counsel and Secretary       |   | 2001     |   | 473,770                  |      | 998,213                             | (5)    | 5,165                                   | (7)     | 0 |   | 140,400 |   | 47,886 |   |
|                                     |        |          |        |                          |           |                                     |        |                                         |         |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)                                  Excludes perquisites and other personalbenefits that do not exceed the lesser of $50,000 or 10% of the total

 

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annualsalary and bonus for any Named Executive Officer.

 

(2)                                  For the year ended December 31, 2003,“All Other Compensation” includes the following:

 

•                                          Contributions on behalf of Leonard D.Schaeffer, David C. Colby, John A. O’Rourke, David S. Helwig and Thomas C.Geiser in the amount of $11,560, $10,360, $6,262, $11,562 and $8,895,respectively, to the 401(k) plan to match pre-tax elective deferralcontributions (included under “Salary”) made by each to such plan during 2003and an award of 20 shares of Common Stock in the 401(k) Plan made to all eligibleemployees.

 

•                                          Contributions on behalf of Leonard D.Schaeffer, David C. Colby, John A. O’Rourke, David S. Helwig and Thomas C.Geiser in the amount of $186,737, $46,973, $47,805, $41,292 and $42,641,respectively, to match pre-tax elective deferral contributions (included under“Salary”) made by each to WellPoint’s deferred compensation plan during 2003;and

 

•                                          Life insurance premiums paid on behalf ofLeonard D. Schaeffer, David C. Colby, John A. O’Rourke, David S. Helwig andThomas C. Geiser in the amount of $29,139, $8,207, $22,184, $6,846 and $8,842,respectively.

 

(3)                                  Includes$2,243,670 in loan forgiveness.  Inconnection with the execution of Mr. Schaeffer’s prior employment agreement inFebruary 1999, the Company made a special loan to Mr. Schaeffer that wassubject to forgiveness in February 2003 assuming the price of the Company’sCommon Stock was at or above specified levels (see “Employment Contracts, Termination of Employment and Change inControl Arrangements—Amended and Restated Employment Agreement with Leonard D.Schaeffer”).  Also includes a$2,000,000 special bonus paid in February 2003 in connection with the executionof Mr. Schaeffer’s current employment agreement, $26,250 with respect tofinancial and tax planning services, $11,802 of imputed interest income on theloan mentioned previously in this paragraph and $17,022 for the reimbursementof tax obligations with respect to certain financial planning services providedby the Company.

 

(4)                                  Includes $105,677 of imputed interest incomeon a loan from the Company and $5,377 for reimbursement of tax obligations withrespect to certain financial planning services provided by the Company.

 

(5)                                  Includes restricted share right grants vestingin equal installments on March 15, 2003, 2004 and 2005 to Leonard D.Schaeffer, David C. Colby, David S. Helwig and Thomas C. Geiser in the amountof $2,187,494, $529,939, $368,648 and $491,036, respectively. As ofDecember 31, 2003, the shares underlying these grants (two-thirds of whichwere vested) had a fair market value of approximately $3,435,871, $832,368,$579,030 and $771,264, respectively, not accounting for vesting restrictions.The unvested shares underlying this grant are subject to forfeiture in certaininstances and to accelerated vesting upon a change in control or involuntarytermination. Dividends will not be paid on any shares prior to the lapsing ofvesting restrictions.

 

(6)                                  Includes$105,677 of imputed interest income on a loan from the Company and $5,165 forreimbursement of tax obligations with respect to certain financial planningservices provided by the Company.

 

(7)                                  Represents reimbursement of taxobligations with respect to financial and tax planning services provided by theCompany.

 

(8)                                  Mr. O’Rourke has been Executive Vice President,Central Business Region since February 2002. From February 1997 to January2002, Mr. O’Rourke was Chairman and Chief Executive Officer ofRightCHOICE.  He joined the Companyafter the Company’s acquisition of RightCHOICE.

 

(9)                                  Upon joining the Company on February 1,2002, Mr. O’Rourke was granted restricted stock in exchange for, among otherthings, the termination of his right to receive potential severance paymentsunder a previously existing agreement

 

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withRightCHOICE.  This restricted stockvests in three equal installments on the first, second and third anniversariesof the date of grant.  As of December31, 2003, the 35,518 shares (after adjusting for the Company’s two-for-onestock split in the form of a 100% stock dividend effective on March 15, 2002)underlying this grant (11,840 of which were vested) had a fair market value ofapproximately $3,444,891 (based upon the closing price of $96.99 per share onDecember 31, 2003) as of December 31, 2003, not accounting for vestingrestrictions.

 

**Option/SARGrants in Last Fiscal Year**

 

The following table sets forth certain informationwith respect to stock options granted to the Named Executive Officers during2003. Annual stock option grants are usually made to officers of the Companysubject to the short-swing profit liability provisions of Section 16 ofthe Exchange Act, including the Named Executive Officers, in January orFebruary, prior to the Company’s release of earnings for the fourth quarter ofthe preceding year.  In 2003, the annualstock option grant was made on****February4, 2003. No stock appreciation rights (“SARs”) were granted in 2003.

 
|                  |   |                                                            |   | **Individual  Grants**                                                 |   |                    |        |                       |     |
|-----------------------|--------|-----------------------------------------------------------------|--------|------------------------------------------------------------------------|--------|-------------------------|-------------|----------------------------|----------|
| **Name**              |   | **Number of  Shares********Underlying********Options  Granted** |   | **Percent of********Total Options********Granted to********Employees** |   | **Exercise Price** |        | **Expiration********Date** |     | **Grant Date  Present********Value(1)** |   |
| Leonard D.  Schaeffer |   | 400,000                                                         |   | 5.93                                                                   | %      | $                       | 68.33       |                       | 2/4/2013 |   | $ | 9,004,503 |   |
|                  |   | 19,018                                                          |   | 0.28                                                                   |   | 68.01                   |        | 3/3/2006                   |     | 366,000 |   |
|                  |   | 65,575                                                          |   | 0.97                                                                   |   | 85.34                   |        | 3/3/2006                   |     | 1,415,030 |   |
|                  |   | 16,307                                                          |   | 0.24                                                                   |   | 78                      |        | 3/3/2006                   |     | 294,679 |   |
|                  |   | 18,491                                                          |   | 0.27                                                                   |   | 93.49                   |        | 1/1/2004                   |     | 54,828 |   |
|                  |   | 86,322                                                          |   | 1.28                                                                   |   | 93.49                   |        | 2/11/2008                  |     | 2,143,065 |   |
|                  |   | 7,205                                                           |   | 0.11                                                                   |   | 93.49                   |        | 3/3/2006                   |     | 129,348 |   |
| David C. Colby        |   | 115,000                                                         |   | 1.7                                                                    | %      | $                       |  68.33 |                       | 2/4/2013 |   | $ | 2,591,640 |   |
| John A. O’Rourke |   | 95,000                                                          |   | 1.41                                                                   | %      | $                       |  68.33 |                       | 2/4/2013 |   | $ | 2,140,920 |   |
| David S. Helwig       |   | 115,000                                                         |   | 1.7                                                                    | %      | $                       |  68.33 |                       | 2/4/2013 |   | $ | 2,591,640 |   |
|                  |   | 7,084                                                           |   | 0.1                                                                    |   | 85.34                   |        | 3/26/2011                  |     | 186,085 |   |
|                  |   | 6,739                                                           |   | 0.1                                                                    |   | 85.34                   |        | 2/6/2012                   |     | 177,022 |   |
|                  |   | 4,893                                                           |   | 0.07                                                                   |   | 85.34                   |        | 2/11/2010                  |     | 128,531 |   |
|                  |   | 8,206                                                           |   | 0.12                                                                   |   | 85.34                   |        | 2/10/2007                  |     | 206,953 |   |
|                  |   | 3,107                                                           |   | 0.05                                                                   |   | 85.34                   |        | 2/11/2009                  |     | 81,616 |   |
|                  |   | 7,904                                                           |   | 0.12                                                                   |   | 85.34                   |        | 2/12/2008                  |     | 207,625 |   |
|                  |   | 3,220                                                           |   | 0.05                                                                   |   | 85.34                   |        | 12/1/2010                  |     | 84,584 |   |
|                  |   | 12,155                                                          |   | 0.18                                                                   |   | 85.34                   |        | 1/31/2011                  |     | 319,291 |   |
|                  |   | 7,362                                                           |   | 0.11                                                                   |   | 85.34                   |        | 2/10/2010                  |     | 193,387 |   |
|                  |   | 1,127                                                           |   | 0.02                                                                   |   | 93.49                   |        | 2/11/2009                  |     | 27,979 |   |
|                  |   | 12,227                                                          |   | 0.18                                                                   |   | 93.49                   |        | 5/20/2006                  |     | 303,552 |   |
|                  |   | 5,201                                                           |   | 0.08                                                                   |   | 93.49                   |        | 2/10/2007                  |     | 129,122 |   |
|                  |   | 33,329                                                          |   | 0.49                                                                   |   | 93.49                   |        | 2/6/2012                   |     | 827,439 |   |
|                  |   | 8,735                                                           |   | 0.13                                                                   |   | 93.49                   |        | 6/3/2011                   |     | 216,859 |   |
| Thomas C. Geiser      |   | 115,000                                                         |   | 1.7                                                                    | %      | $                       |  68.33 |                       | 2/4/2013 |   | $ | 2,591,640 |   |

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(1)                                  Grant date present values were calculated usingthe Black-Scholes option valuation model with the following assumptions:

 
| •   Expected life of options |   | Four years |   |
|--------------------------------------------------|--------|------------|--------|
| •   Volatility               |   | 27-35      | %      |
| •   Dividend yield           |   | 0          | %      |

 

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| •   Risk-free interest rate: |   |   |   |
|--------------------------------------------------|--------|--------|--------|
| For grants made  on February 5, 2003             |   | 3.82   | %      |
| For grants made  on March 1, 2003                |   | 3.82   | %      |
| For grants made  on June 1, 2003                 |   | 2.57   | %      |
| For grants made  on September 1, 2003            |   | 3.14   | %      |
| For grants made  on December 1, 2003             |   | 3.25   | %      |

 

The actual value, if any, that a Named ExecutiveOfficer may realize will be based upon the difference between the market priceof the Company’s Common Stock on the date of exercise and the exercise price.There is no assurance that the actual realized value, if any, will be at ornear the value estimated by the Black-Scholes model. The Black-Scholes model isonly one method of valuing options, and the Company’s use of the model shouldnot be construed as an endorsement of its accuracy.

 

The options shown for each individual may includeannual grants of incentive stock options and nonqualified stock options as wellas so-called “reload” grants of stock options resulting from a stock-for-stockoption exercise. Reload options are granted when a stock option is exercisedwith the payment of the option price in the form of previously owned shares ofthe Company’s Common Stock. The first grant shown for each individual in thetable is the annual grant. Each annual grant made in 2003 vests in sixapproximately equal semi-annual installments beginning on the six-monthanniversary of the grant date. Each grant contains provisions for earliervesting in full upon a change in control. Any additional grants shown representreload stock options. These reload options are immediately vested and retainthe expiration date of the original annual stock option grant.

 

**Aggregated Option/SAR Exercises in LastFiscal Year and Year-End Option/SAR Values**

 

The following table sets forth information withrespect to exercises by the Named Executive Officers of stock options during2003 and the value of all unexercised employee stock options as ofDecember 31, 2003 held by the Named Executive Officers. No SARs wereexercised or outstanding in 2003.

 
|                  |   |                              |   |                |       | **Number of  Shares Underlying  Unexercised Options at Fiscal  Year-End** |      | **Value of  Unexercised  In-The-Money  Options at Fiscal Year-End(1)** |    |
|-----------------------|--------|-----------------------------------|--------|---------------------|------------|---------------------------------------------------------------------------|-----------|------------------------------------------------------------------------|---------|
| **Name**              |   | **Shares  Acquired  On Exercise** |   | **Value  Realized** |       | **Exercisable**                                                           |      | **Unexercisable**                                                      |    | **Exercisable** |   | **Unexercisable** |   |
|                  |   |                              |   |                |       |                                                                      |      |                                                                   |    |   |   |   |   |
| Leonard D.  Schaeffer |   | 416,287                           |   | $                   | 25,166,071 |                                                                      | 2,440,153 |                                                                   | 720,002 |   | $ | 116,214,151 |   | $ | 24,968,565 |   |
| David C. Colby        |   | 0                                 |   | 0                   |       | 664,113                                                                   |      | 196,633                                                                |    | 39,675,569 |   | 6,721,061 |   |
| John A. O’Rourke |   | 0                                 |   | 0                   |       | 51,495                                                                    |      | 114,831                                                                |    | 1,597,114 |   | 3,349,631 |   |
| David S. Helwig       |   | 158,689                           |   | 5,275,225           |       | 222,636                                                                   |      | 185,837                                                                |    | 3,593,581 |   | 6,281,963 |   |
| Thomas C. Geiser      |   | 0                                 |   | 0                   |       | 432,769                                                                   |      | 196,663                                                                |    | 24,436,945 |   | 6,721,061 |   |
|                       |        |                                   |        |                     |            |                                                                           |           |                                                                        |         |  |  |  |  |  |  |  |

 

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(1)                                  In accordance with SEC rules, value at fiscalyear-end is calculated as the difference between (i) the aggregate tradingprice as of December 31, 2003 of all shares subject to the options, and(ii) the aggregate option exercise price. The actual amount realized fromunexercised options is dependent upon the price of the Company’s Common Stockat the time shares obtained upon exercise of such options are sold and, as tounexercisable options, whether restrictions on exercise of such options lapse.

 

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**PensionPlans**

 

##### ***Pension Accumulation Plan***

 

The Company sponsors the WellPoint HealthNetworks Inc. Pension Accumulation Plan (the “Pension Plan”), a cashbalance plan that is designed to be a qualified defined benefit pension planunder the Internal Revenue Code of 1986, as amended (the “Internal RevenueCode”). The benefit payable under the Pension Plan is generally equal to theamount of annual annuity that could be purchased at age 65 (based on certainactuarial assumptions) with the balance of an account that is credited with thefollowing amounts for each calendar year after 1986: (i) 3% of theparticipant’s compensation for that year, *plus*(ii) 1% of the participant’s compensation for that year, if theparticipant has at least 10 years of service, *plus*(iii) 1% of the participant’s compensation forthat year if the participant has at least 20 years of service, *plus*(iv) interest on the balance ofsuch account at a rate equal to the 5-year Treasury Bill average yield for theimmediately preceding December (but not less than 21⁄2%). The Pension Plan became effectiveon January 1, 1987 as a successor plan to the Non-Contributory RetirementProgram for Certain Employees of Blue Cross of California (the “Prior Plan”).Certain participants in the Pension Plan are also eligible to receiveretirement benefits under the Prior Plan.

 

InOctober 2003, the Company amended the Pension Plan effective January 1, 2004.Beginning January 1, 2004, employees who are of age 50 and over, with combinedage and service totaling 65 or higher as of December 31, 2003, will continue toearn future contributions based on compensation under the Pension Plan. Messrs.Schaeffer and O’Rourke will continue to earn contributions under this formula.For other employees, the funds in their pension account earned through December31, 2003 will continue to accrue interest. However, there will be no additionalcontributions based on the employee’s earnings after December 31, 2003. Oncethe employee becomes vested (after five years of service), the employee will beeligible to receive a benefit from the Pension Plan at retirement ortermination based on his or her account balance as of December 31, 2003 plusaccrued interest.  Messrs. Colby, Helwigand Geiser will continue to accrue interest on their pension accounts underthis formula.

 

TheCompany also sponsors the WellPoint Health Networks Inc. ComprehensiveExecutive Non-Qualified Retirement Plan (the “Supplemental Plan”), whichcontains a feature that provides additional benefits payable out of generalcorporate assets to certain employees equal to the benefits these employeescannot receive under the Pension Plan because of Internal Revenue Code limitson benefits and restrictions on participation by highly compensatedemployees.  Mr. O’Rourke, who joined theCompany in February 2002 following the Company’s acquisition of RightCHOICE,will receive additional benefits under the RightCHOICE Managed Care, Inc.Executive Deferred Compensation Plan (the “RightCHOICE Deferred CompensationPlan”), which is currently sponsored by the Company.

 

The estimated annual benefit payable upon retirementat age 65 under the Pension Plan and the Supplemental Plan (or, in the case ofMr. O’Rourke, the Supplemental Plan and the RightCHOICE Deferred CompensationPlan) for the Named Executive Officers as of December 31, 2003 based onservice and compensation to such date and as projected at age 65 was: LeonardD. Schaeffer, $31,017 and $42,711; David C. Colby, $6,761 and $17,541; John O’Rourke,$25,593 and $369,419; David S. Helwig, $24,237 and $43,890 and Thomas C.Geiser, $10,782 and $32,513. Mr. Schaeffer is also entitled to anadditional annual annuity of $5,135 from the Prior Plan.

 

*SpecialExecutive Retirement Plan for Leonard D. Schaeffer*

 

TheCompany maintains a Special Executive Retirement Plan (the “LDS SERP”) withrespect to Mr. Schaeffer. The LDS SERP, as amended and restated as ofDecember 31, 2002, provides the retirement, death and spousal deathbenefits described below. The Company’s obligations under the LDS SERP aresecured by a trust to which the Company makes periodic, irrevocablecontributions. Based upon fiscal 2003 base salary and target annual incentivelevels, the estimated annual benefit payable to Mr. Schaeffer under theLDS SERP upon retirement at age 65 is $3,682,803.

 

If Mr. Schaeffer’s employment with the Company isterminated (other than by his death) on or after the date that he has attainedage 65, he will be entitled to a monthly retirement benefit for the remainderof his lifetime (“Normal Retirement Benefit”), commencing within 30 daysafter his termination date. The Normal Retirement Benefit will be equal to 80%of Mr. Schaeffer’s “Targeted Annual Compensation” (the “Base Amount”),reduced by the monthly benefits provided by the Pension Plan, the Prior Planand the Supplemental Plan described above. The percentage described in theimmediately preceding sentence is reduced to 66 2 / 3% in the event thatMr. Schaeffer, without the prior written approval of the CompensationCommittee of the Board of Directors of the Company or its 

 

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successor, engages in or has any interest in any business competitivewith the Company’s business at the time his employment with the Company or itssuccessor is terminated. Targeted Annual Compensation is defined as the sum of(1) average monthly base salary for the twelve-consecutive-month period ofMr. Schaeffer’s employment with the Company during which such average monthlybase salary is the highest and (2) one-twelfth of the largest annualtarget incentive bonus established at any time for Mr. Schaeffer by theBoard of Directors of the Company or the Compensation Committee thereof. Forpurposes of the LDS SERP, base salary for any calendar month beginning afterDecember 31, 1997 will be deemed to be the higher of(A) Mr. Schaeffer’s actual monthly base salary for such period and(B) Mr. Schaeffer’s monthly base salary as of the December 31prior to such period, increased by five percent. In addition, ifMr. Schaeffer is employed by the Company on February 10, 2005 or hisemployment is earlier terminated other than for Cause or by reason of aVoluntary Termination (as those terms are defined in the LDS SERP), the LDSSERP provides that Mr. Schaeffer’s annual target incentive bonus will notbe less than 135% of his base salary for calendar year 2002 and thereafter willbe increased by 5% annually to a maximum of 150% of his base salary.

 

If Mr. Schaeffer’s employment with the Company isterminated (other than by his death) before the date that he has attained age65, he will be entitled to a monthly retirement benefit for the remainder ofhis lifetime (“Early Retirement Benefit”). Early Retirement Benefits willcommence within 30 days after Mr. Schaeffer’s termination date,unless his employment is terminated due to disability and he elects to commencereceiving Early Retirement Benefits on the earlier of the date he attains age65 and the date his disability benefits cease (the “Commencement Date”). TheEarly Retirement Benefit will be calculated by reducing the Base Amount by(x) a specified percentage for each month by which the Commencement Dateis earlier than the date Mr. Schaeffer would attain age 60 and(y) the amount of the monthly benefits that would be payable overMr. Schaeffer’s lifetime as a single life annuity with payments guaranteedfor a period of 10 years under the Pension Plan, the Prior Plan and theSupplemental Plan if all benefit payments under such plans were to begin on theCommencement Date.

 

If Mr. Schaeffer’s employment with the Companyterminates on or after February 10, 2005 or his employment is earlierterminated other than for cause or by reason of a voluntary termination, otherthan after a change in control (as those terms are defined in the LDS SERP),Mr. Schaeffer (or his designated beneficiary) will be entitled to be paidthe Normal Retirement Benefit or the Early Retirement Benefit, as the case maybe, in a lump sum cash payment on the January 15 following his terminationdate, together with accrued interest from the termination date to the lump sumpayment date, unless he elects otherwise in a written notice to the Company oneyear prior to his termination date.

 

If Mr. Schaeffer dies prior to the commencementof Normal Retirement Benefits or Early Retirement Benefits,Mr. Schaeffer’s designated beneficiary will be entitled to a monthly deathbenefit equal to 100% of the Normal Retirement Benefit for 120 months,commencing within 30 days after Mr. Schaeffer’s death, andMr. Schaeffer’s spouse will be entitled to a monthly spousal death benefitequal to 50% of the Normal Retirement Benefit for the remainder of herlifetime, commencing within 30 days after the date of the last payment ofmonthly death benefits to Mr. Schaeffer’s designated beneficiary.

 

If Mr. Schaeffer dies after the commencement ofNormal Retirement Benefits or Early Retirement Benefits, but before he hasreceived Normal Retirement Benefits or Early Retirement Benefits for120 months, Mr. Schaeffer’s designated beneficiary will be entitledto a monthly death benefit equal to 100% of the amount that Mr. Schaefferwas receiving under the LDS SERP for the remainder of the 120 monthperiod, commencing within 30 days after Mr. Schaeffer’s death. Mr. Schaeffer’sspouse will be entitled to a monthly spousal death benefit equal to 50% of theamount that Mr. Schaeffer was receiving under the LDS SERP for theremainder of her lifetime, commencing within 30 days after the date of thelast payment of monthly death benefits to Mr. Schaeffer’s designatedbeneficiary.

 

IfMr. Schaeffer dies after he has received 120 payments of Normal RetirementBenefits or Early Retirement Benefits, Mr. Schaeffer’s spouse will beentitled to a monthly spousal death benefit equal to 50% of the amount thatMr. Schaeffer was receiving under the LDS SERP for the remainder of herlifetime, commencing within 30 days after Mr. Schaeffer’s death.

 

In the event of a change in control (as defined in theLDS SERP), or if Mr. Schaeffer’s employment with the

 

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Company is terminated without cause (as defined in Mr. Schaeffer’semployment agreement with the Company as described below) or if there is aconstructive termination (as defined in Mr. Schaeffer’s employmentagreement with the Company as described below) prior to a change in control,but within 90 days prior to or at any time after the execution of adefinitive agreement for such change in control, any benefit to which Mr. Schaefferor his beneficiary becomes entitled under the LDS SERP shall be computed, ifbeneficial to Mr. Schaeffer, as if Mr. Schaeffer were three yearsolder than his actual age, as if he remained employed through the thirdanniversary of his actual termination and as if he has at least five years ofvesting service.

 

*SupplementalExecutive Retirement Plan*

 

TheCompany maintains a Supplemental Executive Retirement Plan (the “SERP”) withrespect to Messrs. Colby, Helwig and Geiser. The SERP provides that eachparticipant will receive a retirement benefit if the participant’s employmentwith the Company is terminated on or after reaching age 62 and after completingfive years of service with the Company. The retirement benefit is equal toeither 50% or 60% (as determined by the Compensation Committee when selectingan individual for participation in the SERP) of the participant’s finalfive-year average salary and target incentive compensation. Each participant’sbenefit is reduced by 3.33% per year (4% per year for participants with a 60%benefit) for each year of service less than 15 years that has beencompleted by the participant. Participants with five years of service but whoare at least 55 years old may also elect to receive a reduced benefit. Ifa participant is terminated in a manner that entitles the participant tobenefits under the Company’s Officer Change in Control Plan (which is describedin the following section), then the participant will become fully vested in hisor her benefits under the SERP and will be deemed to have, in the case ofExecutive Vice Presidents, an additional three years of service with theCompany for purposes of computing benefits under the SERP. Amounts payableunder the SERP are reduced by amounts provided by the Pension Plan, the PriorPlan, the Supplemental Plan, any other defined benefit pension plan maintainedby the Company and, in the discretion of the Compensation Committee, anydefined benefit pension plans of a participant’s predecessor employers.Payments under the SERP will be made monthly, at each participant’s election,in the form of (i) a single life annuity payable during the participant’slifetime, or (ii) a joint and survivor annuity payable during theparticipant’s lifetime, with benefits continued at a rate equal to 50% or 100%during a surviving spouse’s lifetime. If a participant with at least five yearsof service dies before beginning to receive retirement benefits under the SERP,the participant’s surviving spouse will be entitled to receive a benefit equal tothe benefit that such person would have received had his or her deceased spouseelected a 50% joint and survivor annuity. Any benefits being paid to aparticipant under the SERP will cease if the participant engages in or has aninterest in any business competitive with the Company’s business at the time ofthe participant’s termination of employment. Based upon year 2003 base salaryand target annual incentive levels, as of December 31, 2003, the estimatedannual benefit payable under the SERP to each participant upon retirement atage 62 is: Mr. Colby, $510,298; Mr. Helwig, $395,623; andMr. Geiser, $516,355.

 

*RightCHOICE Managed Care, Inc.Supplemental Executive Retirement Plan*

 

Mr.O’Rourke, who joined the Company in February 2002 following the Company’sacquisition of RightCHOICE, will receive additional benefits under theRightCHOICE Managed Care, Inc. Supplemental Executive Retirement Plan (the“RightCHOICE Supplemental Plan”), which is currently sponsored by the Company.The RightCHOICE Supplemental Plan provides for an annual retirement benefitequal to 2.5% of final average earnings, multiplied by years of service up to20, offset by certain benefits under other qualifying pension plans andannuities.  The estimated annual benefitpayable under the RightCHOICE Supplemental Plan to Mr. O’Rourke uponretirement at age 65 is $171,590.

 

**EmploymentContracts, Termination of Employment and Change in Control Arrangements**

 

*Amendedand Restated Employment Agreement with Leonard D. Schaeffer*

 

As of December 31, 2002, the Company entered intoan amended and restated employment agreement with Leonard D. Schaeffer.The term of the employment agreement is five years, ending on December 31,2007, unless earlier terminated in accordance with the agreement as describedbelow. Under the agreement, Mr. Schaeffer is entitled to receive an annualbase salary of $1,260,000, which can be adjusted upward as determined by theBoard of

 

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Directors of the Company or the Compensation Committee thereof.Mr. Schaeffer’s annual base salary as of March 15, 2004 was$1,384,625. Mr. Schaeffer is also entitled to earn targeted bonuses withrespect to each year of the term of the agreement that Mr. Schaeffer isemployed, beginning with the plan year that commenced on January 1, 2002,of at least 135% of base salary. Mr. Schaeffer’s annual target bonuscompensation for 2004 is $1,938,475. In addition, the employment agreemententitles Mr. Schaeffer to participate, at levels determined each calendaryear in connection with Mr. Schaeffer’s annual performance review, in theCompany’s current long- and short-term incentive programs, including the stockoption plan, and any other incentive programs established for senior officersof the Company in the future (subject to modifications that the CompensationCommittee of the Board of Directors of the Company determine are necessary andappropriate to preserve the deductibility of bonus amounts).

 

The employment agreement with Mr. Schaefferprovides that the Company will provide the following benefits toMr. Schaeffer: (a) full medical and dental coverage forMr. Schaeffer and his family during the term of the employment agreement,including any extensions, and following termination of Mr. Schaeffer’semployment with the Company under certain circumstances, (b) lifeinsurance in an amount totaling three times Mr. Schaeffer’s then-currentbase salary during the term of the employment agreement, including anyextensions, (c) long-term disability benefits at an annual level equal toMr. Schaeffer’s then-current base salary, but reduced by the amount ofretirement benefits, if any, Mr. Schaeffer receives under the LDS SERP, tobe paid upon a disability that prevents Mr. Schaeffer from performing hisduties as Chairman of the Board of Directors and Chief Executive Officer andcontinuing until Mr. Schaeffer attains at least age 65, or if earlier, thedate that the disability ceases, (d) the lease of an automobile forMr. Schaeffer’s use and payment of all operating, maintenance andinsurance expenses in connection therewith, (e) three memberships inluncheon, professional or athletic clubs of Mr. Schaeffer’s choice,(f) financial, legal and tax counseling services costing up to $10,000 percalendar year during the term of the agreement, plus a tax-gross up for anyimputed income resulting from such benefit, in addition to financial and taxcounseling, if any, available to Mr. Schaeffer under a standard programmaintained by the Company for senior officers of the Company, (g) fourweeks of paid vacation per calendar year and other holiday, sick leave andtime-off benefits and payment for unused vacation per existing Company policyfor other employees, and (h) a special bonus of $2,000,000, which was paidon February 10, 2003, to assist Mr. Schaeffer in paying income taxeswith respect to performance-based compensation earned under the agreement. Theemployment agreement also entitles Mr. Schaeffer to participate in anyexisting or future retirement or deferred compensation programs or otherexisting or future employee benefit programs (other than any severance payprograms, including the Company’s Officer Change in Control Plan describedbelow) of the Company.

 

The employment agreement may be terminated prior toDecember 31, 2007 (i) by mutual agreement of Mr. Schaeffer andthe Board of Directors of the Company upon such terms as Mr. Schaeffer andthe Board shall agree, (ii) upon the death of Mr. Schaeffer,(iii) upon written notice from Mr. Schaeffer or the Company ifMr. Schaeffer has become so physically or mentally disabled as to havebeen incapable of satisfactorily performing the duties of the Chairman of theBoard of Directors and Chief Executive Officer for a period of 180 consecutivedays, (iv) for cause by the Company upon the adoption of resolutions ofthe Board of Directors of the Company by the affirmative vote of not less thantwo-thirds of the members of the Board of Directors, excludingMr. Schaeffer, (v) without cause by the Company following ten days’written notice to Mr. Schaeffer, (vi) voluntarily byMr. Schaeffer following ten days’ written notice to the Company for anyreason other than constructive termination, and (vii) due to constructivetermination.

 

If the employment agreement is terminated due toMr. Schaeffer’s death or disability, Mr. Schaeffer (or his estate ordesignated beneficiary, if applicable) will be entitled to his earned butunpaid base salary through the date of termination, any accrued but unpaidvacation, any unpaid bonus for any fiscal year that ends on or before thetermination date, a prorata portion of any bonus that Mr. Schaeffer wouldotherwise have received for the year of termination, continued medical anddental coverage, for 48 months following termination (or longer in certaincircumstances), full title and ownership of the automobile then provided toMr. Schaeffer, continued financial counseling benefits for five calendaryears following the year of termination, office space and clerical support for60 months following termination, such other benefits as are determined inaccordance with the Company’s employee benefit plans and retiree healthbenefits (in addition to any other health benefits) in accordance withMr. Schaeffer’s current “grandfathered” arrangement status. In the case ofdisability, Mr. Schaeffer will also be entitled to continued

 

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group life insurance coverage for 48 months following termination.

 

If the employment agreement is terminated for cause (asdefined in the employment agreement), Mr. Schaeffer will be entitled tohis earned but unpaid base salary through the date of termination, any accruedbut unpaid vacation, any unpaid bonus for any fiscal year that ends on orbefore the termination date, a prorata portion of any bonus thatMr. Schaeffer would otherwise have received for the year of termination,continued medical and dental coverage for 120 days following terminationand such other benefits as are determined in accordance with the Company’semployee benefit plans.

 

If the employment agreement is terminated withoutcause (as defined above) or due to constructive termination, Mr. Schaefferwill be entitled to an immediate lump sum cash severance payment equal to threetimes his then-current base salary plus three times his then-current annualtarget bonus compensation, his earned but unpaid base salary through the dateof termination, any accrued but unpaid vacation, any unpaid bonus for anyfiscal year that ends on or before the termination date, a prorata portion ofany bonus that Mr. Schaeffer would otherwise have received for the year oftermination, continued indemnification by the Company of Mr. Schaeffer’sacts during his employment with the Company, continued medical, dental, lifeinsurance, long-term disability, retirement and deferred compensation and clubmembership benefits for 48 months following termination, full title andownership of the automobile then provided to Mr. Schaeffer, continuedfinancial counseling benefits for five calendar years following the year oftermination, office space and clerical support for 60 months followingtermination, the immediate exercisability of any options granted toMr. Schaeffer on or after January 22, 1997, such other benefits asare determined in accordance with the Company’s employee benefit plans andretiree health benefits (in addition to any other health benefits) inaccordance with Mr. Schaeffer’s current “grandfathered” arrangementstatus. Constructive termination includes a reduction in title, a materialreduction in duties or responsibilities, a reduction in total annual cashcompensation that Mr. Schaeffer is entitled to receive immediately beforethe reduction, a change in Mr. Schaeffer’s principal place of employmentwith the Company that increases Mr. Schaeffer’s one-way commute by morethan 35 miles, a material increase in travel required in connection with theperformance of his duties following a change in control (as defined in theemployment agreement), the failure of any successor of the Company by merger,consolidation or acquisition of all or substantially all of the business of theCompany to assume the Company’s obligations under the employment agreement, amaterial breach by the Company of its obligations under the employmentagreement and Mr. Schaeffer being removed from, or not being re-electedto, the Board of Directors of the Company.

 

If Mr. Schaeffer voluntarily terminates hisemployment with the Company other than by reason of constructive termination,his base salary will continue until his termination date and he will also beentitled to his earned but unpaid base salary through the date of termination,any accrued but unpaid vacation, any unpaid bonus for any fiscal year that endson or before the termination date, continued medical and dental coverage andcontinued life insurance and long-term disability benefits for six monthsfollowing the date of Mr. Schaeffer’s notice of voluntary termination tothe Company, full title and ownership of the automobile then provided toMr. Schaeffer, continued financial counseling benefits for five calendaryears following the year of termination, office space and clerical support for60 months following termination, such other benefits as are determined inaccordance with the Company’s employee benefit plans and retiree healthbenefits (in addition to any other health benefits) in accordance withMr. Schaeffer’s current “grandfathered” arrangement status.

 

If the Company agrees to a change in control (asdefined in the employment agreement), the employment agreement withMr. Schaeffer provides that the rights and privileges under the agreementmay not be affected. In addition, Mr. Schaeffer will be entitled toreceive (1) as soon as practicable, any earned but unpaid bonus or otherincentive compensation for a prior completed period, (2) for the fiscalyear in which the change in control occurs, a guaranteed bonus determined inaccordance with the employment agreement, or a prorated portion of suchguaranteed bonus if Mr. Schaeffer involuntarily terminates his employmentwith the Company (other than by reason of cause, death or disability) orvoluntarily terminates his employment with the Company due to constructivetermination after the announcement of, or execution of a definitive agreementfor, a change in control, to be paid in a lump sum on the earlier of the normaltime for payment under the applicable incentive plan or as soon as practicablefollowing Mr. Schaeffer’s termination date, and (3) a change incontrol completion bonus equal to 100% of Mr. Schaeffer’s base salary andplan bonus (as defined in the employment agreement) to be paid in two equal

 

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installments on the first and second anniversaries of the change incontrol if Mr. Schaeffer remains employed with the Company, an affiliateor its successor through such date, provided that if Mr. Schaeffer’semployment with the Company is terminated due to involuntary termination (otherthan by reason of cause, death or disability), constructive termination orexpiration of the term of the employment agreement on or afterDecember 31, 2007 and before the next scheduled change in controlcompletion bonus installment payment date, Mr. Schaeffer will be entitledto receive any remaining installments at the time of his termination. Paymentof the change in control completion bonus to Mr. Schaeffer may reducecertain severance benefits that Mr. Schaeffer is otherwise entitled toreceive under the employment agreement.

 

The employment agreement also entitlesMr. Schaeffer to receive specified severance benefits if(x) Mr. Schaeffer’s employment with the Company is terminated withoutcause (other than by death or disability) or if there is a constructivetermination prior to a change in control, but within 90 days prior to orat any time after the execution of a definitive agreement for such change incontrol, or (y) within 36 full calendar months after a change in control,Mr. Schaeffer is subject to a constructive termination or an involuntarytermination (other than by reason of cause, death or disability).

 

To the extent that any such payment (alone or withother compensation payable to Mr. Schaeffer) would subjectMr. Schaeffer to an excise tax under Section 4999 of the InternalRevenue Code or any similar tax by any taxing authority, the Company will makean additional cash payment to Mr. Schaeffer such that Mr. Schaeffer’snet after-tax compensation is not reduced by such excise or similar tax.

 

At the time of the execution of Mr. Schaeffer’sprevious employment agreement in January 1997, the Company also agreedthat Mr. Schaeffer would receive 17,642 shares of the Company’s CommonStock upon termination of Mr. Schaeffer’s employment with the Company forany reason. At the time of the termination of certain cash-based performanceunits in May 1996, the Company granted Mr. Schaeffer deferred sharerights with respect to an additional 110,732 shares of the Company’s CommonStock. All of the 128,374 shares underlying these deferred share rights wereissued to Mr. Schaeffer in February 1999 in connection with theexecution of an amendment to his previous 1997 employment agreement.

 

In connection with the issuance of such shares inFebruary 1999, the Company made an interest-free loan to Mr. Schaefferof $2,243,670, representing the federal and state tax obligations associatedwith the value of such shares. The loan was subject to full or partialforgiveness on February 10, 2003, provided that Mr. Schaefferremained employed with the Company and the price of the Company’s Common Stockwas at or above specified levels. The loan was fully forgiven as ofFebruary 10, 2003 in accordance with its original terms.

 

*LetterAgreement with John O’Rourke*

 

The Company and Mr.O’Rourke are parties to a letter agreement dated February 4, 2002 regarding theterms of Mr. O’Rourke employment with the Company. The letter agreementprovides, among other things, that Mr. O’Rourke shall be paid an annual basesalary of $645,570, which may not be reduced during the term of his employmentwith the Company unless such a reduction is generally applicable to otherofficers subject to Section 16 of the Securities Exchange Act of 1934, asamended.  The letter agreement alsoprovides that Mr. O’Rourke is entitled to participate in the Executive OfficerAnnual Incentive Plan with a target bonus amount equal to 55% of annual basesalary and a maximum annual award of three times the target bonus amount.  The target bonus percentage of 55% may notbe reduced prior to 2005.  Mr. O’Rourkewas also granted restricted share rights with respect to 35,518 shares ofCommon Stock, with such rights vesting in three equal annual installments.  The letter agreement also provides forcertain severance benefits, which are described in the immediately followingparagraph.  The Company is alsoobligated to provide to Mr. O’Rourke certain specified perquisites and otherbenefits, including that Mr. O’Rourke will continue to participate in theRightCHOICE Supplemental Plan.

 

*OfficerSeverance Plan*

 

The Company maintains an Officer Severance Plan forthe benefit of officers not otherwise covered by employment agreements orspecial officer severance agreements. Each of Messrs. Colby, O’Rourke,Helwig and Geiser participates in this plan or has a separate agreement withthe Company regarding severance benefits. With respect to persons holding thetitle of Executive Vice President, the plan generally provides for a lump-sumpayment, if an officer is involuntarily terminated (other than for cause),equal to 12 months salary and 100% of the previous fiscal year’s targetbonus, plus continuation for 12 months of health, dental, vision and lifeinsurance benefits paid by the Company. In the event of involuntary termination(other than for cause), Mr. Geiser is entitled to receive 18 monthssalary and 150% of the previous fiscal year’s target bonus plus benefitscontinuation for 18 months. In the event of involuntary termination (otherthan for cause), Mr. O’Rourke is entitled to receive 15 months salary and100% of the greater of his target bonuses or prior year’s actual bonus plusbenefits continuation for 12 months.

 

*Changein Control Plan*

 

The Company has adopted the WellPoint HealthNetworks Inc. Officer Change in Control Plan (the “Change in ControlPlan”) to provide officers of WellPoint and affiliates controlled by WellPointwith benefits in the event of a “Change in Control.” The Change in Control Plandefines a Change in Control as:

 

•                                          theacquisition, directly or indirectly by any person or related group of persons(as such term is used in Sections 13(d) and 14(d) of the Exchange Act), butother than the Company or a person

 

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that directly or indirectly controls, is controlledby, or is under, control with the Company, of beneficial ownership (as definedin Rule 13d-3 of the Exchange Act) of securities of the Company that results insuch person or related group of persons beneficially owning securitiesrepresenting 40% or more of the combined voting power of the Company’sthen-outstanding securities;

 

•                                          amerger, recapitalization, consolidation or similar transaction to which theCompany is a party or the sale, transfer or other disposition of all orsubstantially all of the Company’s assets if, in either case, the beneficialowners of the Company’s securities immediately before the transaction do nothave, immediately after the transaction, beneficial ownership of securitiesrepresenting at least 60% of the combined voting power of the then-outstandingsecurities of the surviving entity or the entity acquiring the Company’sassets, as the case may be, or a parent thereof;

 

•                                          amerger, recapitalization, consolidation or similar transaction to which theCompany is a party or the sale, transfer or other disposition of all orsubstantially all of the Company’s assets if, in either case, the directors ofthe Company immediately prior to consummation of the transaction do not, uponconsummation of the transaction, constitute at least a majority of the board ofdirectors of the surviving entity or the entity acquiring the Company’s assets,as the case may be, or a parent thereof (for this purpose, any change indirector composition that is anticipated or pursuant to an understanding oragreement in connection with a transaction will be deemed to have occurred atthe time of the transaction); or

 

•                                          achange in the composition of the Board of Directors of the Company (the“Board”) over a period of thirty-six (36) consecutive months or less such thata majority of the Board members ceases by reason of one or more contestedelections for Board membership, to be comprised of individuals who either (a)have been Board members since the beginning of such period or (b) have beenelected or nominated for election as Board members during such period by atleast a majority of the Board members described in clause (a) who were still inoffice at the time the Board approved such election or nomination.

 

If a Change in Control occurs, an officer will receiveany bonus or other incentive compensation for any prior period that has beenearned but is still unpaid, a guaranteed annual bonus and a completion bonus.

 

The guaranteed annual bonus will be equal to thegreater of (i) an officer’s target bonus for the fiscal year in which theChange in Control occurs, (ii) the average of the annual bonus paid tosuch officer for the preceding two fiscal years or (iii) the bonus that isdetermined in the ordinary course under the Company bonus plan for officers forthe fiscal year in which the Change in Control occurs. This guaranteed bonus isprorated if the Company or any Affiliate (as defined in the Change in ControlPlan) involuntarily terminates (other than for cause) or constructivelydischarges the officer after the announcement of, or the execution of adefinitive agreement to effect, a Change in Control and before the end of thefiscal year in which the Change in Control occurs. An officer is deemedconstructively discharged for purposes of the Change in Control Plan if(i) the Company significantly reduces the officer’s duties,responsibilities, status, reporting responsibilities, titles or offices,(ii) reduces the officer’s aggregate salary and target bonus,(iii) changes the officer’s principal place of employment such that his orher one-way commute is increased by more than 35 miles, (iv) requires theofficer to spend an average of two or more days per week at a place ofemployment other than his or her principal place of employment if the averageground commute to such additional place of employment from the officer’sprimary residence is longer than two hours or (v) the successor companyfails to assume the Company’s obligations under the Plan.

 

The change in control completion bonus will be equalto 100% of the officer’s Base Salary and Plan Bonus. “Base Salary” is definedunder the Change in Control Plan to be the highest annualized base salarypayable at any time to an officer during the period beginning five years beforethe announcement of the relevant Change in Control and ending immediatelypreceding the officer’s termination date. “Plan Bonus” is defined under theChange in Control Plan to mean an amount equal to (i) an officer’s BaseSalary multiplied by (ii) the highest percentage target bonus for theofficer during the period beginning five years before the announcement of therelevant Change in Control and ending immediately before the officer’stermination date, multiplied by (iii) the greater of (A) 100% or

 

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(B) the average percentage, for the two consecutive fiscal yearswithin the period beginning five years before the announcement of the relevantChange in Control and ending immediately before the officer’s termination datefor which such average percentage is the highest, that the officer’s actualannual bonus for a fiscal year represented as a percentage of the officer’starget bonus for such fiscal year.

 

Officers will be eligible to receive additional Changein Control Plan severance benefits if the Company or any Affiliate (as definedin the Change in Control Plan) involuntarily terminates (other than for cause)or constructively discharges the officer within 36 months after a Changein Control or if the officer experiences an involuntary termination after executionof a definitive agreement to effect, but before consummation of, a Change inControl. The basic severance benefit is 300% of Base Salary plus 300% of PlanBonus then in effect for an Executive Vice President. Officers also receivevarious additional benefits including, in the case of Executive VicePresidents, contributions to the Company’s Pension Accumulation Plan and 401(k)Plan and deferred compensation plan as if such officer had remained employed bythe Company for an additional three years and made the maximum salary deferralsand supplementary salary deferrals eligible for matching and supplementalmatching contributions under such plans. Officers at the level of ExecutiveVice President participating in the SERP described above will also become immediatelyvested in the benefits under such plan and will be credited with an additionalthree years of service for purposes of benefits under such plan. Finally,officers will continue to receive financial planning services, outplacementservices and, in the case of Executive Vice Presidents, health and welfarebenefits for a period of up to three years. Each of Messrs. Colby,O’Rourke, Helwig and Geiser currently participates in the Change in ControlPlan.

 

The Change in Control Plan also provides that, if anyperson holding a title of Senior Vice President or above receives compensationfrom the Company that subjects such person to an excise tax underSection 4999 of the Internal Revenue Code, the Company will make anadditional payment to such person that, net of all such taxes, fully reimbursesthe employee for the amount of such excise tax.

 

An officer who is to receive other severance benefitsfrom an Affiliate (as defined in the Change in Control Plan) will not receivebenefits under the Change in Control Plan unless the other severance benefitplan so provides or the officer waives benefits under the other severancebenefit plan. The Compensation Committee may amend or terminate the Change inControl Plan at any time, provided that termination of the Change in ControlPlan or any amendment that adversely affects the rights of participants will beeffective no sooner than one year after the approval of such amendment ortermination by the Compensation Committee.

 

Inaddition to the benefits under the Change in Control Plan, options andrestricted share right awards granted under the Company’s stock incentiveplans, including grants to the Named Executive Officers under the Company’s1999 Stock Incentive Plan, contain provisions for immediate acceleration ofvesting upon a change in control.

 

**Item 12.****Security Ownership of CertainBeneficial Owners and Management and Related Stockholder Matters.**

 

Thefollowing table sets forth the beneficial ownership of Common Stock of theCompany as of March 31, 2004 (or such other date as indicated) by (a) eachperson known by the Company to own beneficially more than five percent of theoutstanding Common Stock; (b) the Chief Executive Officer of the Company;(c) each of the four other Named Executive Officers; (d) each directorof the Company; and (e) all directors and executive officers as a group:

 
| **Name and  Address**                                                    |   | **Number of  Shares  Beneficially  Owned(1)** |   | **Percent  of Class(2)** |   | **Number of  Shares  Supplementally  Owned** |   | **Total  Shares  Beneficially and  Supplementally Owned** |   | **Percent  of Class** |   |
|--------------------------------------------------------------------------|--------|-----------------------------------------------|--------|--------------------------|--------|----------------------------------------------|--------|-----------------------------------------------------------|--------|-----------------------|--------|
|                                                                     |   |                                          |   |                     |   |                                         |   |                                                      |   |                  |   |
| AXA Financial,  Inc.(3)  1290 Avenue of the Americas  New York, NY 10104 |   | 11,518,966                                    |   | 7.4                      | %      | —                                       |   | 11,518,966                                                |   | 7.4                   | %      |
| Leonard D.  Schaeffer                                                    |   | 3,199,215                                     | (4)    | 2.0                      | %      | 104,737                                      | (5)    | 3,303,952                                                 |   | 2.1                   | %      |
| David C. Colby                                                           |   | 818,365                                       | (6)    | *                        |   | 27,196                                       | (7)    | 845,561                                                   |   | *                     |   |
| John A. O’Rourke                                                    |   | 85,329                                        | (8)    | *                        |   | 45,731                                       | (9)    | 131,060                                                   |   | *                     |   |
| David S. Helwig                                                          |   | 352,686                                       | (10)   | *                        |   | 29,667                                       | (11)   | 382,353                                                   |   | *                     |   |
| Thomas C. Geiser                                                         |   | 546,987                                       | (12)   | *                        |   | 15,840                                       | (13)   | 562,827                                                   |   | *                     |   |
| Roger E. Birk                                                            |   | 74,904                                        | (14)   | *                        |   | —                                       |   | 74,904                                                    |   | *                     |   |
| Sheila P. Burke                                                          |   | 40,900                                        | (15)   | *                        |   | —                                       |   | 40,900                                                    |   | *                     |   |
| William H. T.  Bush                                                      |   | 29,420                                        | (16)   | *                        |   | —                                       |   | 29,420                                                    |   | *                     |   |
| Julie A. Hill                                                            |   | 37,245                                        | (17)   | *                        |   | 4,800                                        | (18)   | 42,045                                                    |   | *                     |   |
| Warren Y. Jobe                                                           |   | 24,300                                        | (19)   | *                        |   | —                                       |   | 24,300                                                    |   | *                     |   |
| Ramiro G. Peru                                                           |   | 9,100                                         | (20)   | *                        |   | —                                       |   | 9,100                                                     |   | *                     |   |
| Jane G. Pisano                                                           |   | 14,700                                        | (21)   | *                        |   | —                                       |   | 14,700                                                    |   | *                     |   |
| Elizabeth A.  Sanders                                                    |   | 41,763                                        | (22)   | *                        |   | 3,200                                        | (23)   | 44,963                                                    |   | *                     |   |
| All executive  officers and directors as a group (22 persons)            |   | 7,134,135                                     | (24)   | 4.4                      | %      | 339,352                                      | (25)   | 7,473,487                                                 |   | 4.6                   | %      |

 

52

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* Less than one percent.

 

(1)                                  Except as indicated in footnotes to this table,the stockholders named in this table are known to the Company to have solevoting and investment power with respect to all shares of Common Stock shown asbeneficially owned by them, subject to community property laws whereapplicable. Shares shown as beneficially owned by any person have beendetermined in accordance with the requirements of Rule 13d-3 promulgatedunder the Exchange Act.

 

(2)                                  Calculation based on approximately 157,839,582shares of Common Stock outstanding as of March 31, 2004.

 

(3)                                  Based solely on aSchedule 13G report filed with the SEC prepared as of December 31, 2003.  The shares are also reported as beneficiallyowned by the following affiliates of AXA Financial, Inc.: AXA AssurancesI.A.R.D. Mutuelle and AXA Assurances Vie Mutuelle, each with an address at 370,rue Saint Honore, 75001 Paris, France; AXA Courtage Assurance Mutuelle, with anaddress at 26, rue Louis le Grand, 75002 Paris, France; and AXA, with anaddress at 25, avenue Matignon, 75008 Paris, France (collectively, the “AXAGroup”).  Of the reported shares, theAXA Group reports that it has sole voting power with respect to 4,229,717shares, that it shares voting power with respect to 3,797,614 shares, that ithas sole dispositive power with respect to 11,492,309 shares and shareddispositive power with respect to 20,206 shares.  The AXA Group reports that its shares are deemed to bebeneficially owned by the following subsidiaries of AXA: AXA InvestmentManagers Paris (France) (1,826 shares), AHA Investment Managers Den Haag (3,425shares) and AXA Rosenberg Investment Management LLC (700 shares) and by thefollowing subsidiaries of AXA Financial, Inc.: Alliance Capital Management L.P.(11,223,103 shares) and The Equitable Life Assurance Society of the UnitedStates (269,206 shares).

 

(4)                                  Includes 40 shares held in a 401(k) account forthe benefit of Mr. Schaeffer. Includes 2,449,175 shares subject topresently exercisable options, options that become exercisable within 60 daysand restricted share right grants that vest within 60 days.

 

(5)                                  Includes a restricted share right grant withrespect to 36,100 shares that vests in three equal installments on January 26,2005, January 26, 2006 and January 26, 2007, all of which are in a deferredcompensation account.  Includes arestricted share right grant with respect to 11,808 shares that vests on March15, 2005, all of which are in a deferred compensation account.  Includes deferred rights to 56,829 sharesheld in a deferred compensation account for the benefit of Mr. Schaeffer.

 

(6)                                  Includes 921 shares held in a 401(k) account forthe benefit of Mr. Colby, 3,366 shares held in an irrevocable

 

53

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trust,of which Mr. Colby is trustee, 253,165 shares owned by the Colby Family Trust,of which Mr. Colby is trustee and 546,993 shares subject to presentlyexercisable options, options that become exercisable within 60 days andrestricted share right grants that vest within 60 days.

 

(7)                                  Includes a restricted share right grant withrespect to 10,600 shares that vests in three equal installments on January 26,2005, January 26, 2006 and January 26, 2007, all of which are in a deferredcompensation account. Includes a restricted share right grant with respect to2,860 shares that vests on March 15, 2005, all of which are in a deferredcompensation account.  Includes deferredrights to 13,736 shares held in a deferred compensation account for the benefitof Mr. Colby.

 

(8)                                  Includes 925 shares held in a 401(k) account forthe benefit of Mr. O’Rourke and 79,216 shares subject to presently exercisableoptions, options that become exercisable within 60 days and restricted shareright grants that vest within 60 days.

 

(9)                                  Includes a restricted share right grant withrespect to 10,000 shares that vests in three equal installments on January 26,2005, January 26, 2006 and January 26, 2007, all of which are in a deferredcompensation account.  Includes deferredrights to 35,731 shares held in a deferred compensation account for the benefitof Mr. O’Rourke.

 

(10)                            Includes 3,729 shares held in a 401(k) account forthe benefit of Mr. Helwig, 45,493 shares owned by the Helwig Family Trust, ofwhich Mr. Helwig is trustee, 342 shares owned by Mr. Helwig’s son and 227shares owned by Mr. Helwig’s daughter. Includes 285,139 shares subject to presently exercisable options,options that become exercisable within 60 days and restricted share grants thatvest within 60 days.

 

(11)                            Includes a restricted share right grant withrespect to 10,600 shares that vests in three equal installments on January 26,2005, January 26, 2006 and January 26, 2007, all of which are in a deferredcompensation account. Includes a restricted share right grant with respect to1,990 shares that vests on March 15, 2005, all of which are in a deferredcompensation account.  Includes deferredrights to 17,077 shares held in a deferred compensation account for the benefitof Mr. Helwig.

 

(12)                            Includes 529 shares held in a 401(k) account for the benefit ofMr. Geiser, 45,722 shares held in the Geiser Schweers Family Trust, ofwhich Mr. Geiser is trustee and 500,736 shares subject to presently exercisableoptions, options that become exercisable within 60 days and restrictedshare right grants that vest within 60 days.

 

(13)                            Includes a restricted share right grant with respect to 10,600 sharesthat vests in three equal installments on January 26, 2005, January 26, 2006and January 26, 2007, all of which are in a deferred compensation account.Includes a restricted share right grant with respect to 2,650 shares that vestson March 15, 2005, of which 397 shares are in a deferred compensationaccount.  Includes deferred rights to2,590 shares held in a deferred compensation account for the benefit of Mr.Geiser.

 

(14)         Includes 34,034 shares subject topresently exercisable options.

 

(15)         Includes 28,000 shares subject topresently exercisable options.

 

(16)         Includes 21,856 shares subject topresently exercisable options.

 

(17)         Includes 20,566 shares subject topresently exercisable options.

 

(18)                            Represents deferred rights to 4,800 shares under the Company’s Board ofDirectors Deferred Compensation Plan. See “Compensation of Directors.”

 

(19)                            Includes 16,000 shares subject to presently exercisable options.

 

54

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(20)         Includes 4,000 shares subject topresently exercisable options.

 

(21)                            Includes 8,000 shares subject to presently exercisable options.

 

(22)                            Includes 35,023 shares subject to presently exercisable options.

 

(23)                            Represents deferred rights to 3,200 shares under the Company’s Board ofDirectors Deferred Compensation Plan. See “Compensation of Directors.”

 

(24)                            Includes 5,582,830 sharessubject to presently exercisable options, options that become exercisablewithin 60 days or restricted share right grants that vest within60 days.

 

(25)                            Includes deferred rights to 15,965 shares.  Includes restricted share right grants with respect to 78,400shares that vest in three equal installments on January 26, 2005, January 26,2006 and January 26, 2007, all of which are in deferred compensationaccounts.  Includes restricted shareright grants with respect to 4,187 shares that vest on March 15, 2005, all ofwhich are in deferred compensation accounts. Includes restricted share right grants with respect to 9,629 shares.

 

**EquityCompensation Plan Information**

 

The following tableprovides, as of December 31, 2003, the number of securities issuable uponexercise of outstanding options, warrants or rights, the average exercise priceof such options, warrant and rights and the number of securities remainingavailable 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        |   | 12,517,549                                                                                           | (1)(2)(3)(4) | $54.48                                                                                  |   | 5,207,829                                                                                                                                            | (1)(2)(5)(6) |
| Equity compensation plans not approved by securityholders(7) |   | 6,479,877                                                                                            |         | $59.22                                                                                  |   | 622,253                                                                                                                                              | (6)          |
| Total                                                        |   | 18,997,426                                                                                           |         | $56.81                                                                                  |   | 5,830,082                                                                                                                                            | (6)          |

 

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(1)                                  Theshare numbers given reflect awards made pursuant to the Company’s 1999 StockIncentive Plan, which was approved by the stockholders of the Company at ameeting held on May 11, 1999, as well as awards and shares available forissuance under the Company’s predecessor plans at the time of adoption of the1999 Stock Incentive Plan.

 

(2)                                  Pursuantto the 1999 Stock Incentive Plan, the number of shares of Common Stockavailable for issuance under such plan are automatically increased (up to amaximum of 30.0 million shares) by the number of shares of Common Stockthat are repurchased by the Company after May 11, 1999 (the “RepurchasedShares”) on the open market or in private transactions, so long as the aggregateprice paid for the Repurchased Shares does not exceed the cumulative amountreceived in cash by the Company after May 11, 1999 for the exercise ofoptions or issuance of awards granted under the Plan.

 

55

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(3)                                  Excludesshares issuable under the Company’s amended and restated Employee StockPurchase Plan (“ESPP”), which was approved by the stockholders of the Companyat a meeting held on May 9, 2000. Under the ESPP, eligible employees ofthe Company are offered Common Stock of the Company for purchase through aseries of successive offering periods beginning on January 1 andJuly 1 of each calendar year. On the first day of each offering period,each eligible employee who has elected to participate in the ESPP is granted apurchase right to purchase up to a fixed number of shares of Common Stockdetermined as of such date by dividing the total amount anticipated to becollected from such person during the offering period, together with any amountcarried over from any preceding offering period, by 100% of the fair marketvalue of the Company’s Common Stock on the first day of the offering period andmultiplying the result by one and one-half. On the final day of the offeringperiod, the purchase right is exercised and each participant purchases the fullnumber of purchasable shares under such purchase right at a price per shareequal to the lower of 85% of the fair market value on the first day of theoffering period and 85% of the fair market value on the purchase date. OnDecember 31, 2003, all purchase rights then outstanding under the ESPPwere exercised. For the offering period commencing January 1, 2004 andending June 30, 2004, there are purchase rights outstanding under the ESPPwith respect to a maximum number of 202,522 shares.

 

(4)                                  Includessecurities to be issued upon exercise of outstanding awards under variousRightCHOICE plans, which were approved by RightCHOICE’s stockholders prior tothe Company’s merger with RightCHOICE on January 31, 2002, and under theCobalt Corporation Equity Incentive Plan, which was approved by Cobalt’sshareholders prior to the Company’s merger with Cobalt on September 24,2003.

 

(5)                                  Includesapproximately 1,325,293 shares remaining available for issuance as of December 31,2003 in the form of restricted stock or restricted share right awards under the1999 Stock Incentive Plan and approximately 1,239,998 shares remainingavailable for issuance as of December 31, 2003 under the ESPP.

 

(6)                                  Underthe 1999 Stock Incentive Plan and the 2000 Employee Stock Option Plan, only thenet number of shares actually issued is deducted from the number of sharesremaining available for issuance under each plan. Accordingly, if option sharesare exercised pursuant to a stock-for-stock exercise (including “reloads,”which allow an optionee to pay the purchase price of options to be exercised inshares of WellPoint Common Stock already owned by such optionee and tosimultaneously receive an award for a number of option shares equal to the numberof shares of Common Stock tendered for payment of the exercised options), onlythe difference of the number of option shares exercised less the number ofshares of Common Stock tendered in payment of such exercise (including sharestendered or withheld to pay for tax withholding obligations) is deducted fromthe number of shares remaining available for issuance under each plan.

 

(7)                                  Reflectssecurities to be issued upon exercise of outstanding awards and securitiesremaining available for future issuance under the Company’s 2000 Employee StockOption Plan.

 

**Descriptionof 2000 Employee Stock Option Plan**

 

*Purpose*

 

The purpose of the 2000Employee Stock Option Plan (the “Employee Plan”) is to enable the Company tooffer stock options to employees of the Company, or any affiliate of theCompany linked to the Company by a 50% or greater chain of ownership or inwhich the Company has a significant ownership interest, who is not an executiveofficer of the Company.

 

*Administration*

 

The Employee Plan isadministered by a committee appointed by the Board, consisting of two or moremembers of the Board (the “Committee”). The Committee is generally authorizedto construe and interpret the Employee Plan, to select eligible individuals forparticipation and to specify the terms of awards under the Employee Plan.

 

56

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*Sharesand Terms*

 

Stock subject to awardsgranted under the Employee Plan is the Company’s authorized but unissued orreacquired Common Stock. The maximum number of shares of Common Stock that maybe issued under the Employee Plan is 9.0 million shares, subject tocertain 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 willagain become available for subsequent grants under the Employee Plan. Anyshares held by an award holder that are delivered to the Company or that areotherwise withheld from shares issuable under an award in payment of all or aportion of the exercise price or tax withholding obligations for such awardwill be available for subsequent grants and awards.

 

*StockOption Awards*

 

The Committee may onlygrant non-statutory stock options, which are not intended to satisfy therequirement for incentive stock options under Section 422 of the InternalRevenue Code, as amended, under the Employee Plan.

 

The exercise price of anoption will be determined by the Committee. There is no limit on the durationof 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 therequisite period to avoid a charge to earnings, under certain conditions, bythe proceeds of a same-day sale of the award shares or by the extension ofcredit.

 

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

 

*Adjustments*

 

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

 

*CorporateTransactions*

 

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

 

*TaxWithholding*

 

The Committee may, in itsdiscretion and on such terms and conditions as it deems appropriate, require orpermit award holders to elect to have a portion of the shares of Common Stockotherwise issuable to them under the Employee Plan withheld in satisfaction offederal, state and local employment and income taxes incurred in connectionwith the acquisition of those shares. Award holders may also be granted theright to deliver previously acquired shares of Common Stock held for therequisite 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 theapplicable determination date for the taxes.

 

57

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*Amendmentor Termination*

 

The Employee Planprovides that the Board may amend, suspend or discontinue the Employee Plan atany time. To the extent not consistent with the Employee Plan, the Committeemay modify or waive the terms of any outstanding award, provided that no modificationor waiver may adversely effect a holder’s rights without the holder’s consent.

 

**Item 13.****CertainRelationships and Related Transactions.**

 

*RelocationLoan*

 

In connection with the purchase of a residence byWoodrow A. Myers, Jr., M.D., Executive Vice President and Chief MedicalOfficer, in 2000, the Company made an interest-free loan of $200,000 toDr. Myers, forgivable in five annual installments of $40,000, so long ashe remains employed by the Company. If Dr. Myers voluntarily terminateshis employment or if the Company terminates his employment for cause before theentire balance of the loan is forgiven, the remaining unpaid, unforgivenbalance would become due. As of April 27, 2004, the outstanding principalbalance of this loan was $80,000.

 

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**PARTIV**

 

**Item 15.****Exhibits, Financial Statement Schedules and Reportson Form 8-K.**

 

**a.****                                       1) FinancialStatements**

 

The consolidatedfinancial statements are contained in the Form 10-K filed by the Company onMarch 15, 2004.

 

**2)Financial Statement Schedules**

 

All of the financialstatement schedules for which provision is made in the applicable accountingregulations of the Commission are not required under the applicableinstructions or are not applicable and therefore have been omitted.

 

**3)Exhibits**

** **
| **Exhibit****Number** |   | **Exhibit**                                                                                                                                                                                                                                                                                                                                |
|-----------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |   |                                                                                                                                                                                                                                                                                                                                       |
| 2.01                  |   | Amended and Restated  Recapitalization Agreement dated as of March 31, 1995 by and among the  Registrant, Blue Cross of California, Western Health Partnerships and Western  Foundation for Health Improvement, incorporated by reference to Exhibit 2.1  to the Registrant’s Registration Statement on Form S-4 dated April 8, 1996. |
| 2.02                  |   | 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).                                                    |
| 2.03                  |   | Amended and Restated  Agreement and Plan of Merger effective as of October 26, 2003 among Anthem,  Inc., Anthem Holding Corp. and the Registrant, incorporated by reference to  Appendix A to the Registration Statement on Form S-4 (Registration  No. 333-110830) filed by Anthem, Inc.                                             |
| 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  Registration Statement on Form S-8 (Registration No. 333-112933).                                                                                                                                                                            |
| 4.01                  |   | Specimen of Common  Stock certificate of the Registrant, incorporated by reference to Exhibit  4.01 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2002.                                                                                                                                      |
| 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).                                                                                                                                                                                                                                                                                      |

 

59

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| 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 6 3/8% 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 6 3/8% 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).                                                                                                                           |
| 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*† |   | WellPoint 2004 Officer  Benefits Guide, as amended.                                                                                                                                                                                                                                                                                                                                            |

 

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| 10.18  |   | 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).                                                                                                                                                                    |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.19* |   | 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.                                                                                                                                                                                                                                                         |
| 10.20* |   | 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.                                                                                                                                                                                                                                                        |
| 10.21* |   | 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).                                                                                                                                                                                                                                           |
| 10.22* |   | 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.                                                                                                                                                                                                                                   |
| 10.23* |   | 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.                                                                                                                                                                                                                     |
| 10.24* |   | 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.                                                                                                                                                                                                                                              |
| 10.25* |   | 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.                                                                                                                                                                                                                                                                                        |
| 10.26* |   | 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.                                                                                                                                                                                                                                       |
| 10.27* |   | 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.                                                                                                                                                                                                                                        |
| 10.28* |   | 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.                                                                                                                                                                                                           |
| 10.29  |   | 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. |
| 10.30  |   | 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.                           |
| 10.31  |   | 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.                                                                    |
| 10.32  |   | 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.                                                                                                                                                 |
| 10.33  |   | 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.                                                                                                                                                                                                          |
| 10.34  |   | 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.                                                                                                                                    |
| 10.35  |   | 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.                                                                                                                                                                                                      |
| 10.36  |   | 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                                                                                                                                                                                                                                                 |

 

61

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|   |   | reference to Exhibit  10.07 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended  March 31, 2001.                                                                                                                                                                                                              |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.37  |   | 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.                   |
| 10.38  |   | 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.                                                          |
| 10.39  |   | 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.                                                         |
| 10.40  |   | 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.    |
| 10.41  |   | 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.                                                |
| 10.42  |   | 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. |
| 10.43  |   | 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.                                                      |
| 10.44  |   | 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.               |
| 10.45  |   | 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.                                               |
| 10.46  |   | 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.                                                                             |
| 10.47* |   | 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).                                                                                                           |
| 10.48* |   | 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).                                                                                |
| 10.49* |   | 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).                                                                                   |
| 10.50* |   | 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).                                                                                                 |
| 10.51* |   | 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.                                                                              |
| 10.52* |   | 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.                                                                                                   |
| 10.53* |   | 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.                                                                   |
| 10.54* |   | 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.                                                                                                    |
| 10.55* |   | 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.                                                           |

 

62

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| 10.56* |   | 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.                                                                                                                                                                                             |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.57* |   | 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.                                                                                                                                                                                             |
| 10.58* |   | Amendment to the  WellPoint 401(k) Retirement Savings Plan (as amended through March 1, 2002)  dated March 16, 2003, incorporated by reference to Exhibit 10.66 to the  Registrant’s Annual Report on Form 10-K for the fiscal year ended December  31, 2002.                                                                                                                                                                      |
| 10.59  |   | Blue Cross Controlled  Affiliate License Agreement Applicable to Life Insurance Companies dated  October 4, 2002 by and between the BCBSA and HALIC, incorporated by reference  to Exhibit 10.67 to the Registrant’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2002.                                                                                                                                      |
| 10.60  |   | Blue Shield Controlled  Affiliate License Agreement Applicable to Life Insurance Companies dated  October 4, 2002 by and between the BCBSA and HALIC, incorporated by reference  to Exhibit 10.68 to the Registrant’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2002.                                                                                                                                     |
| 10.61* |   | EGTRRA Amendment to the  WellPoint 401(k) Retirement Savings Plan (as amended through March 1, 2002)  dated December 4, 2002, incorporated by reference to Exhibit 10.69 to the  Registrant’s Annual Report on Form 10-K for the fiscal year ended December  31, 2002.                                                                                                                                                             |
| 10.62  |   | Second Amendment to  364-Day Credit Agreement dated as of March 28, 2003, by and among the  Registrant, the lenders from time to time party thereto, Bank of America,  N.A., as administrative agent, and JPMorgan Chase Bank, 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, 2003.                                          |
| 10.63  |   | First Amendment to Five  Year Credit Agreement dated as of March 28, 2003, by and among the  Registrant, the lenders from time to time party thereto, Bank of America,  N.A., as administrative agent, and JPMorgan Chase Bank, as syndication agent,  incorporated by reference to Exhibit 10.02 to the Registrant’s Quarterly  Report on Form 10-Q for the quarter ended March 31, 2003.                                         |
| 10.64* |   | Cobalt Corporation  Equity Incentive Plan, incorporated by reference to Exhibit 10.7 of Cobalt  Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30,  2002.                                                                                                                                                                                                                                                  |
| 10.65  |   | Blue Cross Controlled  Affiliate License Agreement dated September 24, 2003 by and among the Blue  Cross and Blue Shield Association (the “BCBSA”), Blue Cross Blue Shield of  Wisconsin (formerly named Blue Cross & Blue Shield United of Wisconsin)  and the Registrant, incorporated by reference to Exhibit 10.02 to the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended September  30, 2003. |
| 10.66  |   | Blue Shield Controlled  Affiliate License Agreement dated September 24, 2003 by and among the BCBSA,  Blue Cross Blue Shield of Wisconsin (formerly named Blue Cross & Blue  Shield United of Wisconsin) and the Registrant, incorporated by reference to  Exhibit 10.03 to the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2003.                                                          |
| 10.67  |   | Blue Cross Controlled  Affiliate License Agreement dated September 24, 2003 by and among the BCBSA,  United Government Services, LLC and the Registrant, incorporated by reference  to Exhibit 10.04 to the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2003.                                                                                                                                  |
| 10.68  |   | Blue Shield Controlled  Affiliate License Agreement dated September 24, 2003 by and among the BCBSA,  United Government Services, LLC and the Registrant, incorporated by reference  to Exhibit 10.05 to the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2003.                                                                                                                                 |
| 10.69  |   | Blue Cross Controlled  Affiliate License Agreement dated September 24, 2003 by and among the BCBSA,  Compcare Health Services Insurance Corporation and the Registrant,  incorporated by reference to Exhibit 10.06 to the Registrant’s Quarterly  Report on Form 10-Q for the quarter ended September 30, 2003.                                                                                                                   |
| 10.70  |   | Blue Shield Controlled  Affiliate License Agreement dated September 24, 2003 by and among the BCBSA,  Compcare Health Services Insurance Corporation and the Registrant,  incorporated by reference to Exhibit 10.07 to the Registrant’s Quarterly  Report on Form 10-Q for the quarter ended September 30, 2003.                                                                                                                  |
| 10.71  |   | Blue Cross Controlled  Affiliate License Agreement dated October 6, 2003 by and among the BCBSA,  Claim Management Services, Inc. and the Registrant, incorporated by reference  to Exhibit 10.08 to the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2003.                                                                                                                                     |
| 10.72  |   | Blue Shield Controlled  Affiliate License Agreement dated October 6, 2003 by and among the BCBSA,  Claim Management Services, Inc. and the Registrant, incorporated by reference  to Exhibit 10.09 to the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2003.                                                                                                                                    |
| 10.73* |   | WellPoint 401(k)  Retirement Savings Plan Generally Effective January 1, 2002 (As Amended  through March 1, 2002) executed on October 10, 2003, incorporated by  reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q                                                                                                                                                                                      |

 

63

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|         |   | for the quarter ended  September 30, 2003.                                                                                                                                                                                                                                                         |
|--------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.74*       |   | Distribution Option  Amendment to the WellPoint 401(k) Retirement Savings Plan dated July 24,  2003, incorporated by reference to Exhibit 10.11 to the Registrant’s  Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.                                                  |
| 10.75*       |   | Amendment to the  WellPoint 401(k) Retirement Savings Plan dated October 10, 2003, incorporated  by reference to Exhibit 10.12 to the Registrant’s Quarterly Report on Form  10-Q for the quarter ended September 30, 2003.                                                                   |
| 10.76*       |   | WellPoint Health  Networks Inc. Officer Change-in-Control Plan (As amended and restated through  December 4, 2001) (as revised in October 2003), incorporated by reference to  Exhibit 10.13 to the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2003.     |
| 10.77*       |   | WellPoint Health  Networks Inc. Supplemental Executive Retirement Plan (As restated effective  December 4, 2001) (As amended October 24, 2003), incorporated by  reference to Exhibit 10.14 to the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended September 30, 2003. |
| 10.78*       |   | Amendment to the  WellPoint 401(k) Retirement Savings Plan (As Amended Through October 10,  2003) dated November 13, 2003, incorporated by reference to Exhibit 10.15 to  the Registrant’s Quarterly Report on Form 10-Q for the quarter ended  September 30, 2003.                           |
| 10.79*       |   | Description of HTH  Manager Long-Term Incentive Plan for D. Mark Weinberg dated September 2003,  incorporated by reference to Exhibit 10.16 to the Registrant’s Quarterly  Report on Form 10-Q for the quarter ended September 30, 2003.                                                      |
| 10.80*† |   | Amendment to the  WellPoint 401(k) Retirement Savings Plan (As Amended Through December 31,  2003) dated December 31, 2003.                                                                                                                                                                        |
| 10.81*† |   | Amendment to the  WellPoint 401(k) Retirement Savings Plan (As Amended Through December 31,  2003) dated January 15, 2004.                                                                                                                                                                         |
| 10.82*† |   | Letter agreement dated  December 30, 2003 between the Registrant and Leonard D. Schaeffer.                                                                                                                                                                                               |
| 10.83*† |   | Form of letter  agreement dated February 2004 between the Registrant and executive officers  of the Registrant.                                                                                                                                                                                    |
| 10.84        |   | Third Amendment to  364-Day Credit Agreement dated as of March 26, 2004, by and among the  Registrant, the lenders from time to time party thereto, Bank of America,  N.A., as administrative agent, and JPMorgan Chase Bank, as syndication agent.                                                |
| 21†     |   | List of Subsidiaries of  the Registrant.                                                                                                                                                                                                                                                           |
| 23.1†   |   | Consent of Independent  Accountants.                                                                                                                                                                                                                                                               |
| 24†     |   | Power of Attorney  (included on Signature Page).                                                                                                                                                                                                                                                   |
| 31.01        |   | Certifications.                                                                                                                                                                                                                                                                                    |
| 32.01        |   | Certification of Chief  Executive Officer Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                      |
| 32.02        |   | Certification of Chief  Financial Officer Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                      |
|         |   |                                                                                                                                                                                                                                                                                               |

 

----

*              Management contract or compensatory plan or arrangement

†              Previously filed.

 

**b.****                                       Reports onForm 8-K**

 

On October 28, 2003,the Company filed a current report on Form 8-K dated October 27,2003, which attached a copy of the Company’s joint press release with Anthem, Inc.(“Anthem”) dated October 27, 2003 announcing that the Company had enteredinto an Agreement and Plan of Merger (the “Merger Agreement”) with Anthem andAnthem Holding Corp., a wholly owned direct subsidiary of Anthem. Such currentreport on Form 8-K also attached a copy of the Merger Agreement.

 

On October 30, 2003,the Company furnished a current report on Form 8-K dated October 27,2003, which attached a copy of the Company’s press release datedOctober 27, 2003 regarding the Company’s earnings for the quarter endedSeptember 30, 2003 and a transcript of a joint conference call held by theCompany and Anthem on October 27, 2003.

 

On November 5, 2003,the Company furnished a current report on Form 8-K dated November 5,2003, which attached the text of certain information provided and to beprovided by the Company during various investor conferences.

 

64

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The information includedin the current reports on Form 8-K furnished on October 30, 2003 andNovember 5, 2003 was intended to be furnished under Item 12 ofForm 8-K and is not to be considered “filed” under the Securities ExchangeAct of 1934, as amended, nor shall it be incorporated by reference into thisfiling or future filings by the Company under the Securities Act of 1933, asamended or under the Securities Exchange Act of 1934, as amended, unless theCompany expressly sets forth in such future filing that such information is tobe considered “filed” or incorporated by reference therein.

 

65

----

 

## **SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, as amended, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized.

 
|                 | WELLPOINT HEALTH  NETWORKS INC. |
|----------------------|---------------------------------|
|                 |                            |
| Date: April 29, 2004 | By:                             | /s/ LEONARD D.  SCHAEFFER* |   |
|                 |                            | Leonard D.  Schaeffer |   |
|                 |                            | *Chairman  of the Board of Directors**and Chief Executive Officer* |   |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, as amended, this reporthas been signed below by the following persons on behalf of the registrant andin the capacities and on the dates indicated.

 
| **Signature**              |   | **Title**                                                       |   | **Date**       |
|----------------------------|--------|-----------------------------------------------------------------|--------|----------------|
|                       |   |                                                            |   |           |
| /s/ LEONARD D.  SCHAEFFER* |   | Chairman of the Board  of Directors and Chief Executive Officer |   | April 29, 2004 |
| Leonard D.  Schaeffer      |   | (Principal Executive  Officer)                                  |   |           |
|                       |   |                                                            |   |           |
| /s/ DAVID C.  COLBY*       |   | Executive Vice  President and Chief Financial Officer           |   | April 29, 2004 |
| David C. Colby             |   | (Principal Financial  Officer)                                  |   |           |
|                       |   |                                                            |   |           |
| /s/ KENNETH C.  ZUREK*     |   | Senior Vice President,  Controller and Taxation                 |   | April 29, 2004 |
| Kenneth C. Zurek           |   | (Principal Accounting  Officer)                                 |   |           |
|                       |   |                                                            |   |           |
| /s/ ROGER E.  BIRK*        |   | Director                                                        |   | April 29, 2004 |
| Roger E. Birk              |   |                                                            |   |           |
|                       |   |                                                            |   |           |
| /s/ SHEILA P.  BURKE*      |   | Director                                                        |   | April 29, 2004 |
| Sheila P. Burke            |   |                                                            |   |           |
|                       |   |                                                            |   |           |
| /s/ WILLIAM H.  T. BUSH*   |   | Director                                                        |   | April 29, 2004 |
| William H. T.  Bush        |   |                                                            |   |           |
|                       |   |                                                            |   |           |
| /s/ JULIE A.  HILL*        |   | Director                                                        |   | April 29, 2004 |
| Julie A. Hill              |   |                                                            |   |           |
|                       |   |                                                            |   |           |
| /s/ AWARREN Y.  JOBE*      |   | Director                                                        |   | April 29, 2004 |
| Warren Y. Jobe             |   |                                                            |   |           |
|                       |   |                                                            |   |           |
| /s/ RAMIRO G.  PERU*       |   | Director                                                        |   | April 29, 2004 |
| Ramiro G. Peru             |   |                                                            |   |           |
|                       |   |                                                            |   |           |
| /s/ JANE G.  PISANO*       |   | Director                                                        |   | April 29, 2004 |
| Jane G. Pisano             |   |                                                            |   |           |
|                       |   |                                                            |   |           |
| /s/ ELIZABETH  SANDERS*    |   | Director                                                        |   | April 29, 2004 |
| Elizabeth A.  Sanders      |   |                                                            |   |           |

## ** **

66

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| ***By:** | **/s/ THOMAS C. GEISER**               |   |   |
|----------|----------------------------------------|--------|--------|
|     | **Thomas C. Geiser, Attorney-in-Fact** |   |   |
|     |                                   |

## ** **

67

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**EXHIBITINDEX**

** **
| **Exhibit****Number** |   | **Exhibit**                                                                                                                                                                                                                                                                                                                                                                                    |
|-----------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |   |                                                                                                                                                                                                                                                                                                                                                                                           |
| 2.01                  |   | Amended and Restated  Recapitalization Agreement dated as of March 31, 1995 by and among the  Registrant, Blue Cross of California, Western Health Partnerships and Western  Foundation for Health Improvement, incorporated by reference to Exhibit 2.1  to the Registrant’s Registration Statement on Form S-4 dated April 8, 1996.                                                     |
| 2.02                  |   | 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).                                                                                                        |
| 2.03                  |   | Amended and Restated  Agreement and Plan of Merger effective as of October 26, 2003 among Anthem,  Inc., Anthem Holding Corp. and the Registrant, incorporated by reference to  Appendix A to the Registration Statement on Form S-4 (Registration  No. 333-110830) filed by Anthem, Inc.                                                                                                 |
| 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  Registration Statement on Form S-8 (Registration No. 333-112933).                                                                                                                                                                                                                                |
| 4.01                  |   | Specimen of Common  Stock certificate of the Registrant, incorporated by reference to Exhibit  4.01 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2002.                                                                                                                                                                                          |
| 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 6 3/8% 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 6 3/8% 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).                                                                                                                           |
| 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                                                                                                                                          |

 

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|         |   | 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*† |   | WellPoint 2004 Officer  Benefits Guide, as amended.                                                                                                                                                                                                                                                                                                                |
| 10.18        |   | 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).                                           |
| 10.19*       |   | 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.                                                                                                                                |
| 10.20*       |   | 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.                                                                                                                               |
| 10.21*       |   | 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).                                                                                                                  |
| 10.22*       |   | 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.                                                                                                          |
| 10.23*       |   | 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.                                                                                            |
| 10.24*       |   | 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.                                                                                                                     |
| 10.25*       |   | 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.                                                                                                                                                               |
| 10.26*       |   | 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.                                                                                                              |
| 10.27*       |   | 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.                                                                                                               |
| 10.28*       |   | 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.                                                                                  |
| 10.29        |   | 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 |

 

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|   |   | reference to Exhibit  10.01 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended  March 31, 2001.                                                                                                                                                                                                                                                                                                                                         |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.30  |   | 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. |
| 10.31  |   | 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.                                          |
| 10.32  |   | 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.                                                                                                                       |
| 10.33  |   | 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.                                                                                                                                                                                |
| 10.34  |   | 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.                                                                                                          |
| 10.35  |   | 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.                                                                                                                                                                            |
| 10.36  |   | 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.                                                                                             |
| 10.37  |   | 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.                                                                                                                                              |
| 10.38  |   | 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.                                                                                                                                                                                     |
| 10.39  |   | 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.                                                                                                                                                                                    |
| 10.40  |   | 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.                                                                                                                               |
| 10.41  |   | 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.                                                                                                                                                                           |
| 10.42  |   | 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.                                                                                                                            |
| 10.43  |   | 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.                                                                                                                                                                                 |
| 10.44  |   | 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.                                                                                                                                          |
| 10.45  |   | 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.                                                                                                                                                                          |
| 10.46  |   | 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.                                                                                                                                                                                                        |

 

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| 10.47* |   | 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).                                                                                                                                                                                                            |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.48* |   | 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).                                                                                                                                                                                 |
| 10.49* |   | 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).                                                                                                                                                                                    |
| 10.50* |   | 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).                                                                                                                                                                                                  |
| 10.51* |   | 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.                                                                                                                                                                               |
| 10.52* |   | 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.                                                                                                                                                                                                    |
| 10.53* |   | 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.                                                                                                                                                                    |
| 10.54* |   | 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.                                                                                                                                                                                                     |
| 10.55* |   | 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.                                                                                                                                                            |
| 10.56* |   | 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.                                                                                                                                                                                             |
| 10.57* |   | 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.                                                                                                                                                                                             |
| 10.58* |   | Amendment to the  WellPoint 401(k) Retirement Savings Plan (as amended through March 1, 2002) dated  March 16, 2003, incorporated by reference to Exhibit 10.66 to the  Registrant’s Annual Report on Form 10-K for the fiscal year ended December  31, 2002.                                                                                                                                                                      |
| 10.59  |   | Blue Cross Controlled  Affiliate License Agreement Applicable to Life Insurance Companies dated  October 4, 2002 by and between the BCBSA and HALIC, incorporated by reference  to Exhibit 10.67 to the Registrant’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2002.                                                                                                                                      |
| 10.60  |   | Blue Shield Controlled  Affiliate License Agreement Applicable to Life Insurance Companies dated  October 4, 2002 by and between the BCBSA and HALIC, incorporated by reference  to Exhibit 10.68 to the Registrant’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2002.                                                                                                                                     |
| 10.61* |   | EGTRRA Amendment to the  WellPoint 401(k) Retirement Savings Plan (as amended through March 1, 2002)  dated December 4, 2002, incorporated by reference to Exhibit 10.69 to the  Registrant’s Annual Report on Form 10-K for the fiscal year ended December  31, 2002.                                                                                                                                                             |
| 10.62  |   | Second Amendment to  364-Day Credit Agreement dated as of March 28, 2003, by and among the  Registrant, the lenders from time to time party thereto, Bank of America,  N.A., as administrative agent, and JPMorgan Chase Bank, 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, 2003.                                          |
| 10.63  |   | First Amendment to Five  Year Credit Agreement dated as of March 28, 2003, by and among the  Registrant, the lenders from time to time party thereto, Bank of America,  N.A., as administrative agent, and JPMorgan Chase Bank, as syndication agent,  incorporated by reference to Exhibit 10.02 to the Registrant’s Quarterly  Report on Form 10-Q for the quarter ended March 31, 2003.                                         |
| 10.64* |   | Cobalt Corporation  Equity Incentive Plan, incorporated by reference to Exhibit 10.7 of Cobalt  Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30,  2002.                                                                                                                                                                                                                                                  |
| 10.65  |   | Blue Cross Controlled  Affiliate License Agreement dated September 24, 2003 by and among the Blue  Cross and Blue Shield Association (the “BCBSA”), Blue Cross Blue Shield of  Wisconsin (formerly named Blue Cross & Blue Shield United of Wisconsin)  and the Registrant, incorporated by reference to Exhibit 10.02 to the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended September  30, 2003. |
| 10.66  |   | Blue Shield Controlled  Affiliate License Agreement dated September 24, 2003 by and among the BCBSA,  Blue Cross                                                                                                                                                                                                                                                                                                                        |

 

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|         |   | Blue Shield of  Wisconsin (formerly named Blue Cross & Blue Shield United of Wisconsin)  and the Registrant, incorporated by reference to Exhibit 10.03 to the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended September  30, 2003.                                                         |
|--------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.67        |   | Blue Cross Controlled  Affiliate License Agreement dated September 24, 2003 by and among the BCBSA,  United Government Services, LLC and the Registrant, incorporated by reference  to Exhibit 10.04 to the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2003.                 |
| 10.68        |   | Blue Shield Controlled  Affiliate License Agreement dated September 24, 2003 by and among the BCBSA,  United Government Services, LLC and the Registrant, incorporated by reference  to Exhibit 10.05 to the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2003.                |
| 10.69        |   | Blue Cross Controlled  Affiliate License Agreement dated September 24, 2003 by and among the BCBSA,  Compcare Health Services Insurance Corporation and the Registrant,  incorporated by reference to Exhibit 10.06 to the Registrant’s Quarterly  Report on Form 10-Q for the quarter ended September 30, 2003.  |
| 10.70        |   | Blue Shield Controlled  Affiliate License Agreement dated September 24, 2003 by and among the BCBSA,  Compcare Health Services Insurance Corporation and the Registrant,  incorporated by reference to Exhibit 10.07 to the Registrant’s Quarterly  Report on Form 10-Q for the quarter ended September 30, 2003. |
| 10.71        |   | Blue Cross Controlled  Affiliate License Agreement dated October 6, 2003 by and among the BCBSA,  Claim Management Services, Inc. and the Registrant, incorporated by reference  to Exhibit 10.08 to the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2003.                    |
| 10.72        |   | Blue Shield Controlled  Affiliate License Agreement dated October 6, 2003 by and among the BCBSA,  Claim Management Services, Inc. and the Registrant, incorporated by reference  to Exhibit 10.09 to the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2003.                   |
| 10.73*       |   | WellPoint 401(k)  Retirement Savings Plan Generally Effective January 1, 2002 (As Amended  through March 1, 2002) executed on October 10, 2003, incorporated by  reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended September 30, 2003.                          |
| 10.74*       |   | Distribution Option  Amendment to the WellPoint 401(k) Retirement Savings Plan dated July 24,  2003, incorporated by reference to Exhibit 10.11 to the Registrant’s  Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.                                                                      |
| 10.75*       |   | Amendment to the  WellPoint 401(k) Retirement Savings Plan dated October 10, 2003, incorporated  by reference to Exhibit 10.12 to the Registrant’s Quarterly Report on Form  10-Q for the quarter ended September 30, 2003.                                                                                       |
| 10.76*       |   | WellPoint Health  Networks Inc. Officer Change-in-Control Plan (As amended and restated through  December 4, 2001) (as revised in October 2003), incorporated by reference to  Exhibit 10.13 to the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2003.                         |
| 10.77*       |   | WellPoint Health  Networks Inc. Supplemental Executive Retirement Plan (As restated effective  December 4, 2001) (As amended October 24, 2003), incorporated by  reference to Exhibit 10.14 to the Registrant’s Quarterly Report on Form 10-Q  for the quarter ended September 30, 2003.                     |
| 10.78*       |   | Amendment to the  WellPoint 401(k) Retirement Savings Plan (As Amended Through October 10,  2003) dated November 13, 2003, incorporated by reference to Exhibit 10.15 to  the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September  30, 2003.                                               |
| 10.79*       |   | Description of HTH  Manager Long-Term Incentive Plan for D. Mark Weinberg dated September 2003,  incorporated by reference to Exhibit 10.16 to the Registrant’s Quarterly  Report on Form 10-Q for the quarter ended September 30, 2003.                                                                          |
| 10.80*† |   | Amendment to the  WellPoint 401(k) Retirement Savings Plan (As Amended Through December 31,  2003) dated December 31, 2003.                                                                                                                                                                                            |
| 10.81*† |   | Amendment to the  WellPoint 401(k) Retirement Savings Plan (As Amended Through December 31,  2003) dated January 15, 2004.                                                                                                                                                                                             |
| 10.82*† |   | Letter agreement dated  December 30, 2003 between the Registrant and Leonard D. Schaeffer.                                                                                                                                                                                                                   |
| 10.83*† |   | Form of letter  agreement dated February 2004 between the Registrant and executive officers  of the Registrant.                                                                                                                                                                                                        |
| 10.84        |   | Third Amendment to 364-Day  Credit Agreement dated as of March 26, 2004, by and among the Registrant, the  lenders from time to time party thereto, Bank of America, N.A., as  administrative agent, and JPMorgan Chase Bank, as syndication agent.                                                                    |
| 21†     |   | List of Subsidiaries of  the Registrant.                                                                                                                                                                                                                                                                               |
| 23.1†   |   | Consent of Independent  Accountants.                                                                                                                                                                                                                                                                                   |
| 24†     |   | Power of Attorney  (included on Signature Page).                                                                                                                                                                                                                                                                       |
| 31.01        |   | Certifications.                                                                                                                                                                                                                                                                                                        |
| 32.01        |   | Certification of Chief  Executive Officer Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                          |

 

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| 32.02 |   | Certification of Chief  Financial Officer Pursuant to 18 U.S.C. Section 1350. |
|-------|--------|-------------------------------------------------------------------------------|

 

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*              Management contract or compensatory plan or arrangement

†              Previouslyfiled.

 

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