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

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FORM 10-Q

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended March 31, 2001

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number 001-13083

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

Delaware(State or other jurisdiction of
incorporation or organization)

95-4635504(I.R.S. Employer Identification No.)1 WellPoint Way, Thousand Oaks, California(Address of principal executive offices)

91362(Zip Code)


(818) 234-4000Registrant's telephone number, including area code

Not Applicable(Former name, former address and former fiscal year, if changed since last report)

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

Indicate
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Title of each classCommon Stock, $0.01 par value

Outstanding at May 10, 200163,316,810 shares


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WellPoint Health Networks Inc.  Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2001  Table of Contents

|                              |         |                                                                                                |                                                                                       | PAGE
|----------------------------- | ------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ----
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. |                                                                                                | Financial Statements                                                                  |     
|                              |         | Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000                         |                                                                                       | 1   
|                              |         | Consolidated Income Statements for the Quarter Ended March 31, 2001 and 2000                   |                                                                                       | 2   
|                              |         | Consolidated Statement of Changes in Stockholders' Equity for the Quarter Ended March 31, 2001 |                                                                                       | 3   
|                              |         | Consolidated Statements of Cash Flows for the Quarter Ended March 31, 2001 and 2000            |                                                                                       | 4   
|                              |         | Notes to Consolidated Financial Statements                                                     |                                                                                       | 5   
|                              | ITEM 2. |                                                                                                | Management's Discussion and Analysis of Financial Condition and Results of Operations |     
|                              | ITEM 3. |                                                                                                | Quantitative and Qualitative Disclosures About Market Risk                            |     
|PART II. OTHER INFORMATION   
|                              | ITEM 6. |                                                                                                | Exhibits and Reports on Form 8-K                                                      |     
|SIGNATURES                    |         | 26                                                                                            

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ITEM 1. Financial Statements

WellPoint Health Networks Inc.Consolidated Balance Sheets  (Unaudited)

|(In thousands, except share data)                |                                                                                                                        | March 31,
2001             |                                            | December 31,
2000 |          
|------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ----------------- | ---------
|ASSETS                                           |                                                                                                                       
|Current Assets:                                  |                                                                                                                        |                            |                                            |                   |          
|                                                 | Cash and cash equivalents                                                                                              |                            | $                                          | 720,414           |          
|                                                 | Investment securities, at market value                                                                                 |                            |                                            | 3,450,444         |          
|                                                 | Receivables, net                                                                                                       |                            |                                            | 968,211           |          
|                                                 | Deferred tax assets                                                                                                    |                            |                                            | 76,955            |          
|                                                 | Other current assets                                                                                                   |                            |                                            | 72,820            |          
|                                                 |                                                                                                                        |                            |                                            |                   |          
|                                                 |                                                                                                                        | Total Current Assets       |                                            |                   | 5,288,844
|Property and equipment, net                      |                                                                                                                        |                            | 196,481                                    |                   |          
|Intangible assets, net                           |                                                                                                                        |                            | 451,588                                    |                   |          
|Goodwill, net                                    |                                                                                                                        |                            | 738,126                                    |                   |          
|Long-term investments, at market value           |                                                                                                                        |                            | 117,432                                    |                   |          
|Deferred tax assets                              |                                                                                                                        |                            |                                           |                   |          
|Other non-current assets                         |                                                                                                                        |                            | 97,045                                     |                   |          
|                                                 |                                                                                                                        |                            |                                            |                   |          
|                                                 |                                                                                                                        |                            | Total Assets                               |                   | $        
|                                                 |                                                                                                                        |                            |                                            |                   |          
|LIABILITIES AND STOCKHOLDERS' EQUITY             |                                                                                                                       
|Current Liabilities:                             |                                                                                                                        |                            |                                            |                   |          
|                                                 | Medical claims payable                                                                                                 |                            | $                                          | 1,818,598         |          
|                                                 | Reserves for future policy benefits                                                                                    |                            |                                            | 65,899            |          
|                                                 | Unearned premiums                                                                                                      |                            |                                            | 278,753           |          
|                                                 | Accounts payable and accrued expenses                                                                                  |                            |                                            | 799,375           |          
|                                                 | Experience rated and other refunds                                                                                     |                            |                                            | 253,472           |          
|                                                 | Income taxes payable                                                                                                   |                            |                                            | 120,893           |          
|                                                 | Other current liabilities                                                                                              |                            |                                            | 428,754           |          
|                                                 |                                                                                                                        |                            |                                            |                   |          
|                                                 |                                                                                                                        | Total Current Liabilities  |                                            |                   | 3,765,744
|Accrued postretirement benefits                  |                                                                                                                        |                            | 85,992                                     |                   |          
|Reserves for future policy benefits, non-current |                                                                                                                        |                            | 263,797                                    |                   |          
|Long-term debt                                   |                                                                                                                        |                            | 901,609                                    |                   |          
|Other non-current liabilities                    |                                                                                                                        |                            | 109,990                                    |                   |          
|                                                 |                                                                                                                        |                            |                                            |                   |          
|                                                 |                                                                                                                        |                            | Total Liabilities                          |                   |          
|Stockholders' Equity:                            |                                                                                                                        |                            |                                            |                   |          
|                                                 | Preferred Stock$0.01 par value, 50,000,000 shares authorized, none issued and outstanding                             |                            |                                            |                  |          
|                                                 | Common Stock$0.01 par value, 300,000,000 shares authorized, 71,390,971 issued at March 31, 2001 and December 31, 2000 |                            |                                            | 714               |          
|                                                 | Treasury stock, at cost, 8,226,357 and 8,566,399 shares at March 31, 2001 and December 31, 2000, respectively          |                            |                                            | (512,589          | )        
|                                                 | Additional paid-in capital                                                                                             |                            |                                            | 987,680           |          
|                                                 | Retained earnings                                                                                                      |                            |                                            | 1,238,593         |          
|                                                 | Accumulated other comprehensive income                                                                                 |                            |                                            | 47,986            |          
|                                                 |                                                                                                                        |                            |                                            |                   |          
|                                                 |                                                                                                                        | Total Stockholders' Equity |                                            |                   | 1,762,384
|                                                 |                                                                                                                        |                            |                                            |                   |          
|                                                 |                                                                                                                        |                            | Total Liabilities and Stockholders' Equity |                   | $        
|                                                 |                                                                                                                        |                            |                                            |                   |          

See
the accompanying notes to the consolidated financial statements.

1

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WellPoint Health Networks Inc.Consolidated Income Statements  (Unaudited)

|                                          |                                         | Quarter Ended March 31,
|----------------------------------------- | --------------------------------------- | -----------------------
|
|Revenues:                                 |                                         |                        
|                                          | Premium revenue                         |                        
|                                          | Management services revenue             |                        
|                                          | Investment income                       |                        
|                                          |                                         |                        
|                                          |                                         |                        
|Operating Expenses:                       |                                         |                        
|                                          | Health care services and other benefits |                        
|                                          | Selling expense                         |                        
|                                          | General and administrative expense      |                        
|                                          |                                         |                        
|                                          |                                         |                        
|                                          |                                         |                        
|Operating Income                          |                                         |                        
|                                          | Interest expense                        |                        
|                                          | Other expense, net                      |                        
|                                          |                                         |                        
|Income before Provision for Income Taxes  |                                         |                        
|                                          | Provision for income taxes              |                        
|                                          |                                         |                        
|Net Income                                |                                         | $                      
|                                          |                                         |                        
|Earnings Per Share                        |                                         | $                      
|                                          |                                         |                        
|Earnings Per Share Assuming Full Dilution |                                         | $                      
|                                          |                                         |                        

See
the accompanying notes to the consolidated financial statements.

2

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WellPoint Health Networks Inc.Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)

|                                                                |                                        |                                                                         |   | Common Stock |        |  |   |     |  |       |   |   |         
|--------------------------------------------------------------- | -------------------------------------- | ----------------------------------------------------------------------- | - | ------------ | ------ |  | - | --- |  | ----- | - | - | --------
|
|
|
|Balance as of December 31, 2000                                 |                                        | $                                                                       |  |              | 71,391 |  | $ | 714 |  | 8,566 |   | $ | (536,524
|Stock grants to employees and directors                         |                                        |                                                                         |   |              |        |  |   |     |  | (2    | ) |   | 165     
|Stock issued for employee stock option and stock purchase plans |                                        |                                                                         |   |              |        |  |   |     |  | (338  | ) |   | 23,770  
|Net losses from treasury stock reissued                         |                                        |                                                                         |   |              |        |  |   |     |  |       |   |   |         
|Comprehensive income                                            |                                        |                                                                         |   |              |        |  |   |     |  |       |   |   |         
|                                                                | Net income                             |                                                                         |   |              |        |  |   |     |  |       |   |   |         
|                                                                | Other comprehensive income, net of tax |                                                                         |   |              |        |  |   |     |  |       |   |   |         
|                                                                |                                        | Change in unrealized valuation adjustment on investment securities, net |   |              |        |  |   |     |  |       |   |   |         
|                                                                |                                        | Cash flow hedges, net                                                   |   |              |        |  |   |     |  |       |   |   |         
|                                                                |                                        | Foreign currency adjustments, net                                       |   |              |        |  |   |     |  |       |   |   |         
|                                                                |                                        |                                                                         |   |              |        |  |   |     |  |       |   |   |         
|Total comprehensive income                                      |                                        |                                                                         |   |              |        |  |   |     |  |       |   |   |         
|                                                                |                                        |                                                                         |   |              |        |  |   |     |  |       |   |   |         
|Balance as of March 31, 2001                                    |                                        | $                                                                       |  |              | 71,391 |  | $ | 714 |  | 8,226 |   | $ | (512,589
|                                                                |                                        |                                                                         |   |              |        |  |   |     |  |       |   |   |         

See
the accompanying notes to the consolidated financial statements.

3

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WellPoint Health Networks Inc.Consolidated Statements of Cash Flows  (Unaudited)

|                                                     |                                                                                   | Quarter Ended March 31,                                                  |                                                                    
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | -------------------------------------------------------------------
|
|Cash flows from operating activities:                |                                                                                   |                                                                          |                                                                    
|                                                     | Net Income                                                                        |                                                                          | $                                                                  
|                                                     | Adjustments to reconcile net income to net cash provided by operating activities: |                                                                          |                                                                    
|                                                     |                                                                                   | Depreciation and amortization, net of accretion                          |                                                                    
|                                                     |                                                                                   | Loss on sales of assets, net                                             |                                                                    
|                                                     |                                                                                   | Amortization of deferred gain on sale of building                        |                                                                    
|                                                     |                                                                                   | Accretion of interest on zero coupon convertible subordinated debentures |                                                                    
|                                                     |                                                                                   | (Increase) decrease in certain assets:                                   |                                                                    
|                                                     |                                                                                   |                                                                          | Receivables, net                                                   
|                                                     |                                                                                   |                                                                          | Other current assets                                               
|                                                     |                                                                                   |                                                                          | Other non-current assets                                           
|                                                     |                                                                                   | Increase (decrease) in certain liabilities:                              |                                                                    
|                                                     |                                                                                   |                                                                          | Medical claims payable                                             
|                                                     |                                                                                   |                                                                          | Reserves for future policy benefits                                
|                                                     |                                                                                   |                                                                          | Unearned premiums                                                  
|                                                     |                                                                                   |                                                                          | Accounts payable and accrued expenses                              
|                                                     |                                                                                   |                                                                          | Experience rated and other refunds                                 
|                                                     |                                                                                   |                                                                          | Income taxes payable                                               
|                                                     |                                                                                   |                                                                          | Other current liabilities                                          
|                                                     |                                                                                   |                                                                          | Accrued postretirement benefits                                    
|                                                     |                                                                                   |                                                                          | Other non-current liabilities                                      
|                                                     |                                                                                   |                                                                          |                                                                    
|                                                     |                                                                                   |                                                                          |                                                                    
|                                                     |                                                                                   |                                                                          |                                                                    
|Cash flows from investing activities:                |                                                                                   |                                                                          |                                                                    
|                                                     |                                                                                   |                                                                          | Investments purchased                                              
|                                                     |                                                                                   |                                                                          | Proceeds from investments sold and matured                         
|                                                     |                                                                                   |                                                                          | Property and equipment purchased                                   
|                                                     |                                                                                   |                                                                          | Proceeds from property and equipment sold                          
|                                                     |                                                                                   |                                                                          | Acquisition of new businesses, net of cash acquired                
|                                                     |                                                                                   |                                                                          |                                                                    
|                                                     |                                                                                   |                                                                          |                                                                    
|                                                     |                                                                                   |                                                                          |                                                                    
|Cash flows from financing activities:                |                                                                                   |                                                                          |                                                                    
|                                                     |                                                                                   |                                                                          | Net borrowing of long-term debt under the revolving credit facility
|                                                     |                                                                                   |                                                                          | Proceeds from issuance of common stock                             
|                                                     |                                                                                   |                                                                          | Common stock repurchased                                           
|                                                     |                                                                                   |                                                                          |                                                                    
|                                                     |                                                                                   |                                                                          |                                                                    
|                                                     |                                                                                   |                                                                          |                                                                    
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                                          | 153,525                                                            
|Cash and cash equivalents at beginning of period     |                                                                                   |                                                                          | 566,889                                                            
|                                                     |                                                                                   |                                                                          |                                                                    
|Cash and cash equivalents at end of period           |                                                                                   | $                                                                        | 720,414                                                            
|                                                     |                                                                                   |                                                                          |                                                                    

See
the accompanying notes to the consolidated financial statements.

4

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WellPoint Health Networks Inc.  Notes to Consolidated Financial Statements  (Unaudited)

1. Organization

WellPoint Health Networks Inc. (the "Company" or "WellPoint") is one of the nation's largest publicly traded managed health care companies. As of
March 31, 2001, WellPoint had approximately 9.8 million medical members and approximately 41.6 million specialty members. The Company offers a broad spectrum of network-based
managed care plans. WellPoint provides these plans to the large and small employer, individual and senior markets. The Company's managed care plans include preferred provider organizations ("PPOs"),
health maintenance organizations ("HMOs"), point-of-service ("POS") plans, other hybrid medical plans and traditional indemnity plans. In addition, the Company offers managed
care services, including underwriting, actuarial service, network access, medical cost management and claims processing. The Company also provides a broad array of specialty and other products and
services including pharmacy, dental, utilization management, life insurance, preventive care, disability, behavioral health, COBRA and flexible benefits account administration. The Company markets its
products in California primarily under the name Blue Cross of California, in Georgia primarily under the name Blue Cross Blue Shield of Georgia and in other states primarily under the name UNICARE.
Historically, the Company's primary market for managed care products has been California. The Company holds the exclusive right to market its products under the Blue Cross name and mark in California
and under the Blue Cross Blue Shield name and mark in Georgia.

2. Basis of Presentation

The accompanying unaudited consolidated financial statements of WellPoint, in the opinion of management, reflect all material adjustments (which are of a
normal recurring nature) necessary for a fair statement of its financial position as of March 31, 2001, the results of its operations for the quarter ended March 31, 2001 and 2000, cash
flows for the quarter ended March 31, 2001 and 2000 and its changes in stockholders' equity for the quarter ended March 31, 2001. The results of operations for the interim periods
presented are not necessarily indicative of the operating results for the full year.

3. Acquisitions

On March 15, 2001, the Company completed its acquisition of Cerulean Companies, Inc. ("Cerulean"), the parent company of Blue Cross Blue Shield
of Georgia, Inc., which serves approximately 1.9 million medical members in the state of Georgia as of March 31, 2001. This acquisition was accounted for under the purchase method
of accounting and accordingly, the consolidated results of operations of the Company include the results of Cerulean from the date of acquisition. The cash purchase price was $700.0 million.

As
a result of the acquisition of Cerulean, the Company estimates that it will incur $114.2 million in expenses primarily related to change in control payments to Cerulean
management and transaction costs. Generally accepted accounting principles require that these estimated expenses, which are not associated with the generation of future revenues and have no future
economic benefit, be reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired.

Cash
of $200.0 million and debt of $500.0 million were used to purchase net assets with a fair value of approximately $314.2 million. Goodwill and other
intangibles totaling $618.9 million includes $118.9 million of deferred taxes and $114.2 million of the aforementioned assumed liabilities. Goodwill and other intangibles are
being amortized on a straight-line basis over 20 years for goodwill and ranging from five to 40 years for other intangible assets. The purchase price allocation between goodwill and
identifiable intangible assets has not been finalized as of March 31, 2001.

5

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

On
December 5, 2000, the Company completed its acquisition of a mail order pharmacy fulfillment facility from RxAmerica LLC ("RxAmerica"). RxAmerica is a pharmacy benefits
management joint venture between Albertson's, Inc. and Longs Drugs Stores California, Inc. Subsequent to the acquisition, the business was re-named PrecisionRx. This
acquisition was accounted for under the purchase method of accounting.

In
accordance with the requirements of APB Opinion No. 16, "Business Combinations," the following unaudited pro forma summary presents revenues, net income and per share data
of WellPoint as if the acquisitions of Cerulean, Rush Prudential and Precision Rx had occurred on January 1, 2000. The pro forma information includes the results of operations for the period
prior to the acquisition, adjusted for interest expense on long-term debt incurred to fund the acquisitions, amortization of goodwill and intangible assets and the related income tax
effects.

The
pro forma financial information is presented for informational purposes only and may not be indicative of the results of operations had the Company been a single entity during the
quarter ended March 31, 2001 and 2000, nor is it necessarily indicative of future results of operations. Pro forma earnings per share assuming full dilution is based on 65.7 million and
65.1 million weighted average shares for the quarter ended March 31, 2001 and 2000, respectively.

Quarter Ended
March 31,(In thousands, except per share data)

2001

2000Revenues

$
3,096,514

$
2,724,117Net Income

$
103,456

$
76,472Earnings Per Share Assuming Full Dilution

$
1.58

$
1.18


4. Long Term Debt

Effective as of March 30, 2001, the Company entered into two new unsecured revolving credit facilities allowing aggregate indebtedness of
$1.0 billion. Upon execution of these facilities, the Company terminated its prior $1.0 billion unsecured revolving facility. Borrowings under these facilities (which are generally
referred to collectively in this Quarterly Report on Form 10-Q as the Company's "revolving credit facility") bear interest at rates determined by reference to the bank's base rate or to the
London Inter Bank Offered Rate ("LIBOR") plus a margin determined by reference to the then-current rating of the Company's unsecured long-term debt by specified rating agencies. One facility, which
provides for borrowings of up to $750,000,000, expires as of March 30, 2006, although it may be extended for up to two additional one-year periods under certain circumstances. The other
facility, which provides for borrowings of up to $250,000,000, expires as of March 30, 2002. Any amount outstanding under this facility as of March 30, 2002 may be converted into a
one-year term loan at the

6

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option of the Company. Borrowings under the facilities are made on a committed basis or, in the case of the $750.0 million facility, pursuant to an auction bid process. The
$750.0 million facility also contains sublimits for letters of credit and "swingline" loans. Each credit agreement requires the Company to maintain certain financial ratios and contains
restrictive covenants, including restrictions on the occurrence of additional indebtedness and the granting of certain liens, limitations on acquisitions and investments and limitations on changes in
control. The total amount outstanding under these facilities was $750.0 million as of March 31, 2001. The total amount outstanding under the Company's prior revolving credit facility was
$250.0 million as of December 31, 2000.

5. Earnings Per Share

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

|                                                                                |  | Quarter Ended
March 31,
|------------------------------------------------------------------------------- |  | -----------------------
|
|Basic Earnings Per Share Calculation:                                           |  |                        
|Numerator                                                                       |  |                        
|Net Income                                                                      |  | $                      
|                                                                                |  |                        
|Denominator                                                                     |  |                        
|Weighted average shares outstanding                                             |  |                        
|                                                                                |  |                        
|Earnings Per Share                                                              |  | $                      
|                                                                                |  |                        
|Earnings Per Share Assuming Full Dilution Calculation:                          |  |                        
|Numerator                                                                       |  |                        
|Net Income                                                                      |  | $                      
|Interest expense on zero coupon convertible subordinated debentures, net of tax |  |                        
|                                                                                |  |                        
|Adjusted Net Income                                                             |  | $                      
|                                                                                |  |                        
|Denominator                                                                     |  |                        
|Weighted average shares outstanding                                             |  |                        
|Net effect of dilutive stock options                                            |  |                        
|Assumed conversion of zero coupon convertible subordinated debentures           |  |                        
|                                                                                |  |                        
|Fully diluted weighted average shares outstanding                               |  |                        
|                                                                                |  |                        
|Earnings Per Share Assuming Full Dilution                                       |  | $                      
|                                                                                |  |                        

7

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6. Comprehensive Income

The following summarizes comprehensive income reclassification adjustments for the quarter ended March 31, 2001, included in the statement of changes in
stockholders' equity:

(In thousands)

March 31,
2001Investment Securities:Holding gain on investment securities arising during the period (net of tax expense of $6,837)

$
10,693Reclassification adjustment for realized loss on investment securities (net of tax benefit of $4,851)


(7,587
)3,106Fair Value Hedges:Holding loss related to foreign exchange transactions (net of tax benefit of $902)


(1,411
)Transition adjustment (net of tax expense of $167)


262Reclassification adjustment related to foreign exchange gain on investment securities (net of tax expense of $524)


820(329
)Cash Flow Hedges:Holding gain related to swaps transactions (net of tax expense of $270)


422Transition adjustment (net of tax benefit of $4,442)


(6,948
)(6,526
)Net loss recognized in other comprehensive income (net of tax benefit of $2,397)

$
(3,749
)


7. Contingencies

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

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

8

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October 2000, the federal Judicial Panel on Multidistrict Litigation issued an order consolidating the California Medical Association lawsuit, the Shanelawsuit and various other pending managed
care class-action lawsuits against other companies before District Court Judge Federico Moreno in the
Southern District of Florida for purposes of the pretrial proceedings. In March 2001, Judge Moreno dismissed the plaintiffs' claims based on violation of the RICO Act, although the dismissal
was made without prejudice to the plaintiffs' ability to subsequently refile their claims. Judge Moreno also dismissed, with prejudice, the plaintiffs' federal prompt pay law claims. On
March 26, 2001, the California Medical Association filed an amended complaint in its lawsuit, alleging, among other things, revised RICO claims and violations of California law. A hearing on
the plaintiffs' motion to certify a class was held in early May 2001. On May 9, 2001, Judge Moreno issued an order requiring that all discovery in the litigation be completed by
December 2001, with the exception of discovery related to expert witnesses, which must be completed by March 15, 2002. The financial and operational impact that these and other evolving
theories of recovery will have on the managed care industry generally, or the Company in particular, is at present unknown.

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

8. Business Segment Information

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

9

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The following tables present segment information for the Large Employer Group and Individual and Small Employer Group for the quarter ended March 31, 2001 and 2000, respectively.

Quarter Ended March 31, 2001

|(In thousands)                        |  | Large
Employer
Group |           | Individual and
Small Employer
Group |   | Corporate
and
Other |  | Consolidated
|------------------------------------- |  | -------------------- | --------- | ----------------------------------- | - | ------------------- |  | ------------
|Premium revenue                       |  | $                    | 1,543,128 |                                     | $ | 744,286             |  | $           
|Management services revenue           |  |                      | 103,407   |                                     |   | 125                 |  |             
|                                      |  |                      |           |                                     |   |                     |  |             
|Total revenue from external customers |  |                      | 1,646,535 |                                     |   | 744,411             |  |             
|Intercompany revenues                 |  |                      | 5,519     |                                     |   |                     |  |             
|Segment net income                    |  | $                    | 72,902    |                                     | $ | 39,785              |  | $           
|                                      |  |                      |           |                                     |   |                     |  |             
|Segment assets                        |  | $                    | 3,502,683 |                                     | $ | 975,747             |  | $           
|                                      |  |                      |           |                                     |   |                     |  |             

Quarter Ended March 31, 2000

|(In thousands)                        |  | Large
Employer
Group |           | Individual and
Small Employer
Group |   | Corporate
and
Other |   | Consolidated
|------------------------------------- |  | -------------------- | --------- | ----------------------------------- | - | ------------------- | - | ------------
|Premium revenue                       |  | $                    | 1,144,117 |                                     | $ | 719,846             |   | $           
|Management services revenue           |  |                      | 93,172    |                                     |   | 966                 |   |             
|                                      |  |                      |           |                                     |   |                     |   |             
|Total revenue from external customers |  |                      | 1,237,289 |                                     |   | 720,812             |   |             
|Intercompany revenues                 |  |                      | 619       |                                     |   | (250                | ) |             
|Segment net income                    |  | $                    | 55,266    |                                     | $ | 48,887              |   | $           
|                                      |  |                      |           |                                     |   |                     |   |             
|Segment assets                        |  | $                    | 2,147,990 |                                     | $ | 977,713             |   | $           
|                                      |  |                      |           |                                     |   |                     |   |             

9. Hedging Activities

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

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

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

The
Company uses interest rate swap agreements and foreign currency contracts to manage interest rate and foreign currency exposures. The principal objective of such contracts is to
minimize

10

---

the risks and/or costs associated with financial and investing activities. The Company does not use derivative financial instruments for speculative purposes. The counterparties to these contractual
arrangements are major financial institutions with which the Company also has other financial relationships. These counterparties expose the Company to credit loss in the event of non-performance.
However, the Company does not anticipate non-performance by the other parties.

Fair Value Hedges

As part of the Company's investment strategy to diversify its investment portfolio, the Company has invested in certain fixed maturity securities denominated
in foreign currencies. In order to mitigate the foreign currency risk, the Company has entered into foreign currency derivative instruments. Gains and losses related to such instruments are recognized
in the Company's income statement.

The
transition provisions of SFAS No. 133, state that any gain or loss previously reported in accumulated other comprehensive income on a derivative that hedged an
available-for-sale security, together with the gain or loss on the related security shall be reclassified to earnings as a cumulative effect type adjustment of both net income and accumulated other
comprehensive income. On January 1, 2001, the Company recorded a transition adjustment as a charge to other income of $300,000 net of
tax, which represents a gain of $2.0 million on the available-for-sale bonds related to the Company's foreign exchange contracts offset by a loss of $1.7 million on the related hedges.

For
the quarter ended March 31, 2001, the Company recognized a net gain of $1.6 million, included in other income on the statement of operations, which represented the
ineffective portion of all the Company's fair value hedges. All components of each derivative's gain or loss were included in the assessment of hedge effectiveness.

Cash Flow Hedges

The Company uses interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate debt under its revolving credit facility.
The swap agreements are contracts to exchange variable-rate for fixed-rate interest payments without the exchange of the underlying notional amounts. During the quarter ended March 31, 2001,
the Company recognized a net loss of $70,000 reported in other income in the consolidated income statement, which represents the total ineffectiveness of all cash flow hedges.

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

Events
that are expected to occur over the next twelve months and will necessitate reclassifying the derivative losses into earnings related primarily to the repricing of variable
rate debt. The Company does not expect that the amounts that will be reclassified will be material.

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

Notional Amount

Strike Rate

Expiration Date$150,000

6.99
%
October 17, 2003$ 50,000

7.06
%
October 17, 2006


As
of March 31, 2001, the Company has recognized derivative liabilities of $11.1 million which are included in other liabilities on the balance sheet and derivative
assets of $7.1 million, included in net receivables on the balance sheet.

11

---

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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

General

The Company is one of the nation's largest publicly traded managed health care companies. As of March 31, 2001, WellPoint had approximately
9.8 million medical members and approximately 41.6 million specialty members. As a result of the March 15, 2001 closing of the Cerulean transaction, the Company's medical
membership increased by approximately 1.9 million members. The Company offers a broad spectrum of network-based managed care plans. WellPoint provides these plans to the large and small
employer, individual and senior markets. The Company's managed care plans include HMOs, PPOs, POS plans, other hybrid medical plans and traditional indemnity plans. In addition, the Company offers
managed care services, including underwriting, actuarial services, network access, medical cost management and claims processing. The Company also provides a broad array of specialty and other
products, including pharmacy, dental, utilization management, life insurance, preventive care, disability insurance, behavioral health, COBRA and flexible benefits account administration. The Company
markets its products in California primarily under the name Blue Cross of California, in Georgia primarily under the name Blue Cross Blue Shield of Georgia and in other states primarily under the name
UNICARE. Historically, the Company's primary market for managed care products has been California. The Company holds the exclusive right to market its products under the Blue Cross name and mark in
California and under the Blue Cross Blue Shield name and mark in Georgia.

National Expansion and Other Recent Developments

In an effort to pursue the expansion of the Company's business outside the state of California, the Company acquired two businesses in 1996 and 1997, the Life
and Health Benefits Management Division ("MMHD") of Massachusetts Mutual Life Insurance Company and the Group Benefits Operations (the "GBO") of John Hancock Mutual Life Insurance Company. The
Cerulean, Rush Prudential and PrecisionRx acquisitions described below are each components of this expansion strategy.

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

In
January 2001, the Company introduced new benefit plans (known as PlanScape) to all of its individual PPO members in California. All of the Company's existing individual PPO
plans were converted into newly designed plans, offering an array of premium levels, deductibles, cost sharing features and out-of-pocket limits. Although the precise effects
of these plans will not be known for some time due to the natural time lag in the receipt of claims, the Company expects that this portion of its business will be subject to less seasonality than
traditionally experienced. In connection with the introduction of these plans, the Company has announced that it will not increase premiums for certain members during portions of 2001. These plan
changes will not affect any of the Company's PPO plans under employer-sponsored arrangements.

In
response to rising medical and pharmacy costs, the Company has from time to time implemented premium increases with respect to certain of its products. The Company will continue to

12

---

evaluate the need for further premium increases, plan design changes and other appropriate actions in the future in order to maintain or restore profit margins. There can be no assurances, however,
that the Company will be able to take subsequent pricing or other actions or that any actions previously taken or implemented in the future will be successful in addressing any concerns that may arise
with respect to the performance of certain businesses. In this regard, as mentioned in the previous paragraph, the Company has committed that it will not increase premiums for certain California
individual PPO members for certain periods during 2001.

Acquisition of Cerulean

On July 9, 1998, the Company entered into an Agreement and Plan of Merger with Cerulean Companies, Inc. ("Cerulean") (See Note 3 to the
Consolidated Financial Statements). On March 15, 2001, the Company completed this transaction, pursuant to which Cerulean has become a wholly owned subsidiary of the Company. The transaction,
which was financed with cash from operations and debt from the Company's existing revolving credit facility, is valued at approximately $700.0 million, excluding deferred taxes and assumed
liabilities. Cerulean, principally through its Blue Cross and Blue Shield of Georgia subsidiary, offers insured and administrative services products primarily in the State of Georgia. Cerulean has
historically experienced a higher administrative expense ratio than the Company's core businesses due to its higher concentration of administrative services business. Cerulean has also historically
experienced a higher medical loss ratio than the Company's core businesses due to its higher percentage of Large Employer Group business and fewer managed care offerings.
Accordingly, it is expected that Cerulean's higher loss and administrative expense ratios will ultimately contribute to an increase in those ratios for the Company.

Acquisition of PrecisionRx

On December 5, 2000, the Company completed its acquisition of a mail order pharmacy fulfillment facility (See Note 3 to the Consolidated
Financial Statements). The facility, located in Fort Worth Texas, now operates under the new name of PrecisionRx. The acquisition was accounted for under the purchase method of accounting.

Acquisition of Rush Prudential

On March 1, 2000, the Company completed its acquisition of Rush Prudential Health Plans ("Rush Prudential") (See Note 3 to the Consolidated
Financial Statements). Rush Prudential offers a broad array of products and services ranging from HMO products to traditional PPO products and has been primarily integrated into the Company's existing
Large Employer Group business. Rush Prudential has historically experienced a higher loss ratio than the Company's core business, which may result in an increase in the Company's overall loss ratio.
The acquisition had significantly increased the Company's Illinois medical membership to nearly 600,000 members as of March 31, 2000. Subsequent to the acquisition, the acquired business has
been operated as UNICARE Health Plans. The transaction, which was financed with cash from operations and debt from the Company's existing revolving credit facility, is valued at approximately
$202.6 million, subject to certain post-closing adjustments. This acquisition was accounted for under the purchase method of accounting.

Legislation

Federal legislation enacted during the last five years seeks, among other things, to insure the portability of health coverage and mandates minimum maternity
hospital stays. California legislation enacted since 1999, among other things, establishes an explicit duty on managed care entities to exercise ordinary care in arranging for the provision of
medically necessary health care services and establishes a system of independent medical review. In 1997, Texas adopted legislation purporting to make managed care organizations such as the Company
liable for their failure to exercise ordinary care

13

---

when making health care treatment decisions. Similar legislation has also been enacted in Georgia. These and other proposed measures may have the effect of dramatically altering the regulation of
health care and of increasing the Company's loss ratio and administrative costs or decreasing the affordability of the Company's products.

Consolidated Results of Operations

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

The
Company's consolidated results of operations for the quarter ended March 31, 2001 include a full quarter of earnings for Rush Prudential and PrecisionRx and include
earnings for Cerulean from March 15, 2001 its date of acquisition. The results of operations for the quarter ended March 31, 2000 include the results of Rush Prudential for the period
from March 1, 2000, its date of acquisition.

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

Quarter Ended
March 31,2001

2000Operating Revenues:Premium revenue

94.9
%
94.7
%Management services revenue

5.1
%
5.3
%100.0
%
100.0
%Operating Expenses:Health care services and other benefits (loss ratio)

80.8
%
81.0
%Selling expense

4.4
%
4.4
%General and administrative expense

14.0
%
14.2
%


14

---

Membership

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

Medical Membership (a) (b) (c):

|                                     |                      | As of March 31, |                                           |          
|------------------------------------ | -------------------- | --------------- | ----------------------------------------- | ---------
|
|
|Large Employer Group (d)             |                      |                 |                                           |          
|                                     | California           |                 |                                           |          
|                                     |                      | HMO             |                                           | 1,833,975
|                                     |                      | PPO and Other   |                                           | 2,034,006
|                                     |                      |                 |                                           |          
|                                     |                      |                 | Total California                          |          
|                                     |                      |                 |                                           |          
|                                     | Texas                |                 | 207,345                                   |          
|                                     | Georgia              |                 | 1,497,240                                 |          
|                                     | Illinois             |                 | 454,050                                   |          
|                                     | Other States         |                 | 1,241,001                                 |          
|                                     |                      |                 |                                           |          
|                                     |                      |                 | Total Large Employer Group                |          
|                                     |                      |                 |                                           |          
|Individual and Small Employer Group  |                      |                 |                                           |          
|                                     | California           |                 |                                           |          
|                                     |                      | HMO             |                                           | 345,868  
|                                     |                      | PPO and Other   |                                           | 1,231,698
|                                     |                      |                 |                                           |          
|                                     |                      |                 | Total California                          |          
|                                     |                      |                 |                                           |          
|                                     | Texas                |                 | 161,590                                   |          
|                                     | Georgia              |                 | 299,910                                   |          
|                                     | Illinois             |                 | 68,252                                    |          
|                                     | Other States         |                 | 78,924                                    |          
|                                     |                      |                 |                                           |          
|                                     |                      |                 | Total Individual and Small Employer Group |          
|                                     |                      |                 |                                           |          
|Senior (e)                           |                      |                 |                                           |          
|                                     | California           |                 |                                           |          
|                                     |                      | HMO             |                                           | 30,351   
|                                     |                      | PPO and Other   |                                           | 175,417  
|                                     |                      |                 |                                           |          
|                                     |                      |                 | Total California                          |          
|                                     |                      |                 |                                           |          
|                                     | Texas                |                 | 334                                       |          
|                                     | Georgia              |                 | 78,655                                    |          
|                                     | Illinois             |                 | 10,758                                    |          
|                                     | Other States         |                 | 14,455                                    |          
|                                     |                      |                 |                                           |          
|                                     |                      |                 | Total Senior                              |          
|                                     |                      |                 |                                           |          
|Total Medical Membership             |                      | 9,763,829       |                                           | 7,541,027
|                                     |                      |                 |                                           |          
|Membership by Network (f)            |                      |                 |                                           |          
|                                     | Proprietary Networks |                 | 7,927,504                                 |          
|                                     | Affiliate Networks   |                 | 962,646                                   |          
|                                     | Non-Network          |                 | 873,679                                   |          
|                                     |                      |                 |                                           |          
|Total Medical Membership             |                      | 9,763,829       |                                           | 7,541,027
|                                     |                      |                 |                                           |          
|Management Services Membership       |                      |                 |                                           |          
|                                     | California           |                 | 1,324,467                                 |          
|                                     | Other States         |                 | 2,095,436                                 |          
|                                     |                      |                 |                                           |          
|Total Management Services Membership |                      | 3,419,903       |                                           | 2,518,274
|                                     |                      |                 |                                           |          

---

15

---

Specialty Membership

As of March 31,Percent
Change2001

2000Pharmacy

29,663,058

22,124,812

34.1
%Dental

2,674,520

2,230,771

19.9
%Utilization Management

1,801,192

2,296,530

-21.6
%Life

2,060,268

2,002,113

2.9
%Disability

552,972

571,335

-3.2
%Behavioral Health (a)

4,837,156

2,215,127

118.4
%


---

Comparison of Results for the First Quarter 2001 to the First Quarter 2000

The following table depicts premium revenue by business segment:

Quarter Ended March 31,(In thousands)

2001

2000Large Employer Group

$
1,543,128

$
1,144,117Individual and Small Employer Group


744,286


719,846Corporate and Other


145,714


126,466Consolidated

$
2,433,128

$
1,990,429


Premium
revenue increased 22.2%, or $442.7 million, to $2,433.1 million for the quarter ended March 31, 2001 from $1,990.4 million for the quarter ended
March 31, 2000. The increase was primarily due to $89.4 million and $80.7 million of premium revenue related to the Cerulean and Rush Prudential acquisitions, respectively,
representing 38.4% of the increase. Also contributing to the increase was an increase in insured member months of approximately 10.5% primarily in the Large Employer Group and Individual and Small
Employer Group business segments in addition to the implementation of price increases in both segments.

The
following table depicts management services revenue by business segment:

Quarter Ended March 31,(In thousands)

2001

2000Large Employer Group

$
103,407

$
93,172Individual and Small Employer Group


125


966Corporate and Other


25,992


16,286Consolidated

$
129,524

$
110,424


Management
services revenue increased 17.3% or $19.1 million to $129.5 million for the quarter ended March 31, 2001 from $110.4 million for the quarter
ended March 31, 2000. The increase was primarily due to $7.3 million and $0.9 million of management services revenue from the Cerulean and Rush Prudential acquisitions,
respectively, representing 42.9% of the increase. In addition, pharmacy management services revenues contributed $9.0 million or 47.1% of the increase.

Investment
income increased to $52.8 million for the quarter ended March 31, 2001 compared to $44.4 million for the quarter ended March 31, 2000, an
increase of $8.4 million or 18.9%. The

16

---

Cerulean and Rush Prudential acquisitions accounted for $1.1 million and $1.2 million, respectively, representing 27.4% of the increase. The increase in investment income, excluding the
acquisitions, was primarily due to net interest and dividend income, which increased $10.2 million to $59.3 million for the quarter ended March 31, 2001 in comparison to
$49.1 million for the quarter ended March 31, 2000. This increase resulted from higher average investment balances in the first quarter of 2001 versus the first quarter of 2000,
partially offset by an increase in net realized losses of $1.8 million.

The
loss ratio attributable to managed care and related products for the quarter ended March 31, 2001 decreased to 80.8% compared to 81.0% for the quarter ended
March 31, 2000. The slight decrease was due primarily to the effect of price increases within the Large Employer Group and the Individual and Small Employer Group business.

Selling
expense consists of commissions paid to outside brokers and agents representing the Company. The selling expense ratio remained unchanged for the quarter ended
March 31, 2001, in comparison to the quarter ended March 31, 2000.

The
administrative expense ratio decreased to 14.0% for the quarter ended March 31, 2001 from 14.2% for the quarter ended March 31, 2000. The overall decline is
primarily attributable to savings from the integration of information systems centers related to acquired businesses on the Company's information systems platform, economies of scale associated with
premium revenue growth in relation to fixed corporate administrative expenses in addition to technology investments made by the Company (e.g., electronic claims submission, internet
self-service and interactive voice response).

Interest
expense increased $2.7 million to $8.2 million for the quarter ended March 31, 2001 compared to $5.5 million for the quarter ended
March 31, 2000. The increase in interest expense was related to the higher average debt balance for the quarter ended March 31, 2001 in comparison to the quarter ended March 31,
2000, primarily due to the Cerulean acquisition. The weighted average interest rate for all debt for the quarter ended March 31, 2001, including the fees associated with the Company's
borrowings and interest rate swap agreements, was 6.11%.

The
Company's net income for the quarter ended March 31, 2001 was $96.5 million, compared to $79.6 million for the quarter ended March 31, 2000. Earnings
per share totaled $1.53 and $1.27 for the quarters ended March 31, 2001 and 2000, respectively. Earnings per share assuming full dilution totaled $1.48 and $1.23 for quarters ended
March 31, 2001 and 2000, respectively.

Earnings
per share for the quarter ended March 31, 2001 is based upon weighted average shares outstanding of 63.0 million shares, excluding potential common stock, and
65.7 million shares, assuming full dilution. Earnings per share for the quarter ended March 31, 2000 is based on 62.8 million shares, excluding potential common stock, and
65.1 million shares, assuming full dilution. The increase in weighted average shares outstanding primarily resulted from the issuance of shares related to the Company's employee stock option
and purchase plans.

17

---

Financial Condition

The
Company's consolidated assets increased by $1,384.8 million, or 25.2%, from $5,504.7 million as of December 31, 2000 to $6,889.5 million as of
March 31, 2001. The increase in total assets was primarily due to the acquisition of Cerulean, which accounted for $731.3 million or 52.8% of the increase. Excluding Cerulean, the
increase in total assets was primarily due to growth in cash and investments of $625.1 million or 45.4%. Cash and investments totaled $4.3 billion as of March 31, 2001, or 62.2%
of total assets.

Overall
claims liabilities increased $256.1 million, or 13.5%, from $1,892.2 million as of December 31, 2000 to $2,148.3 million as of March 31,
2001. This increase is primarily due to the Cerulean acquisition.

As
of March 31, 2001, the Company's long-term indebtedness was $901.6 million, of which $151.6 million was related to the Company's Zero Coupon
Convertible Subordinated Debentures (the "Debentures") and $750.0 million was related to the Company's revolving credit facility. As a result of the Cerulean acquisition, the Company incurred
$500.0 million of indebtedness under its revolving credit facility. As of March 31, 2000, the Company's long-term indebtedness was $400.9 million, of which
$250.0 million was related to the Company's revolving credit facility and $150.9 million was related to the Debentures.

Stockholders'
equity totaled $1,762.4 million as of March 31, 2001, an increase of $118.0 million from $1,644.4 million as of December 31, 2000. The
increase was primarily due to net income of $96.5 million for the quarter ended March 31, 2001 in addition to $25.2 million of net proceeds from the reissuance of stock related to
the Company's employee stock option and purchase plans, partially offset by a decrease in other comprehensive income of $3.7 million, related to the adoption of SFAS No. 133 (See
Note 6 to the Consolidated Financial Statements).

Liquidity and Capital Resources

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

The
Company generally receives premium revenue in advance of anticipated claims for related health care services and other benefits. The Company's investment policies are designed to
provide liquidity, preserve capital and maximize yield. Cash and investment balances maintained by the Company are sufficient to meet applicable regulatory financial stability and net worth
requirements, including license requirements of the Blue Cross Blue Shield Association. As of March 31, 2001, the Company's investment portfolio consisted primarily of investment grade
fixed-maturity securities.

Cash
flow provided by operating activities was $148.8 million for the quarters ended March 31, 2001 and 2000, respectively. Cash flow from operations for the quarter
ended March 31, 2001 was due primarily to net income, of $96.5 million, and an increase in income taxes payable of $50.1 million primarily due to the current income tax provision
of approximately $62.6. In addition, increases in accounts payable of $36.9 million added to the overall operating cash flow, resulting from the timing of liability payments, partially offset
by an increase in receivables of $81.8 million.

Net
cash used in investing activities for the quarter ended March 31, 2001 totaled $520.5 million, compared with $302.6 million for the quarter ended
March 31, 2000. The cash used in the first quarter of 2001 was attributable primarily to the purchase of investments and property and equipment, net of

18

---

sales proceeds of $875.3 million and $17.6 million, respectively, and the purchase of Cerulean net of acquired cash of $473.6 million. Proceeds from investments sold and matured
totaled $846.0 million, partially offsetting the aforementioned purchases.

Net
cash provided by financing activities totaled $525.2 million in the first quarter of 2001 compared to $39.9 million in the quarter ended March 31, 2000. The
increase was primarily related to additional debt incurred to finance the Cerulean acquisition of $500.0 million, in addition to the receipt of proceeds from the issuance of stock related to
the Company's Employee Stock Option/Purchase program of $25.2 million.

Effective
as of March 30, 2001, the Company entered into two new unsecured revolving credit facilities allowing aggregate indebtedness of $1.0 billion. Upon execution of
these facilities, the Company terminated its prior $1.0 billion unsecured revolving facility. Borrowings under these facilities (which are generally referred to collectively in this Quarterly
Report on Form 10-Q as the Company's "revolving credit facility") bear interest at rates determined by reference to the bank's base rate or to the London Inter Bank Offered Rate
("LIBOR") plus a margin determined by reference to the then-current rating of the Company's unsecured long-term debt by specified rating agencies. One facility, which provides
for
borrowings of up to $750,000,000, expires as of March 30, 2006, although it may be extended for up to two additional one-year periods under certain circumstances. The other
facility, which provides for borrowings of up to $250,000,000, expires as of March 30, 2002. Any amount outstanding under this facility as of March 30, 2002 may be converted into a
one-year term loan at the option of the Company. Borrowings under the facilities are made on a committed basis or, in the case of the $750.0 million facility, pursuant to an auction
bid process. The $750.0 million facility also contains sublimits for letters of credit and "swingline" loans. Each credit agreement requires the Company to maintain certain financial ratios and
contains restrictive convenants, including restrictions on the occurrence of additional indebtedness and the granting of certain liens, limitations on acquisitions and investments and limitations on
changes in control. (See Note 4 to the Consolidated Financial Statements). The total amount outstanding under these facilities was $750.0 million as of March 31, 2001. The total
amount outstanding under the Company's prior revolving credit facility was $250.0 million as of December 31, 2000.

As
a part of a hedging strategy to limit its exposure to variable interest rate increases, the Company entered into interest rate swap agreements in order to reduce the volatility of
interest expense resulting from changes in interest rates. The swap agreements are contracts to exchange variable-rate interest payments (weighted average rate for the quarter ended
March 31, 2001 of 5.8%) for fixed-rate interest payments (weighted average rate for the quarter ended March 31, 2001 of 5.9%) without the exchange of the underlying notional
amounts. As of March 31, 2001, the Company had entered into $200 million of fixed rate swap agreements, which consisted of a $150 million notional amount swap agreement at 6.99%
maturing on October 17, 2003 and a $50 million notional amount swap agreement at 7.06% maturing on October 17, 2006.

The
Company has entered into foreign currency forward exchange contracts for each of the fixed maturity securities on hand as of March 31, 2001 denominated in foreign
currencies in order to hedge asset positions with respect to currency fluctuations related to these securities. Subsequent to the implementation of SFAS No. 133, all gains and losses from both
effective and ineffective forward exchange contracts will be reflected in investment income offset by the related gains and losses on the Company's available-for-sale foreign
securities (See Note 9 to the Consolidated Financial Statements). In addition, the Company has entered into forward exchange contracts to hedge the foreign currency risk between the trade date
and the settlement date when a foreign currency denominated bond is purchased. Gains and losses from these contracts are recognized in income.

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On March 15, 2001, WellPoint completed the acquisition of Cerulean. The purchase price of $700.0 million was financed through $500.0 million of borrowings under
the Company's revolving credit facility and $200.0 million in operating cash.

Certain
of the Company's subsidiaries are required to maintain minimum capital requirements prescribed by various regulatory agencies, including the California Department of Managed
Health
Care and the Departments of Insurance in various states. As of March 31, 2001, those subsidiaries of the Company were in compliance with all minimum capital requirements.

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

Factors That May Affect Future Results of Operations

Certain statements contained herein, such as statements concerning potential or future loss ratios, pending acquisitions and other statements regarding matters
that are not historical facts, are forward-looking statements (as such term is defined in the Securities Exchange Act of 1934). Such statements involve a number of risks and uncertainties that may
cause actual results to differ from those projected. Factors that can cause actual results to differ materially include, but are not limited to, those discussed below and those discussed from time to
time in the Company's various filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K.

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

In
connection with the Cerulean transaction, WellPoint incurred significant indebtedness to fund the transaction. This indebtedness may result in a significant percentage of the
Company's cash flow being applied to the payment of interest, and there can be no assurance that the Company's operations will generate sufficient cash flow to service the indebtedness. This
indebtedness, as well as any indebtedness the Company may incur in the future, may adversely affect the Company's ability to finance its operations and could limit its ability to pursue business
opportunities that may be in the best interests of the Company and its stockholders.

As
part of the Company's business strategy, the Company has acquired substantial operations in new geographic markets over the last five years. These businesses, some of which include
substantial indemnity-based insurance operations, have experienced varying profitability or losses in recent periods. Since the relevant dates of acquisition of MMHD and GBO, the Company has continued
to work extensively on the integration of these businesses. The Company has also begun its integration of the

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Rush Prudential and Cerulean businesses. However, there can be no assurances regarding the ultimate success of the Company's integration efforts or regarding the ability of the Company to maintain or
improve the results of operations of the businesses of completed or pending transactions as the Company pursues its strategy of motivating the acquired members to select managed care products. In
order to implement this business strategy, the Company has incurred and will, among other things, need to continue to incur considerable expenditures for provider networks, distribution channels and
information systems in addition to the costs associated with the integration of these acquisitions. The integration of these complex businesses may result in, among other things, temporary increases
in claims inventory or other service-related issues that may negatively affect the Company's relationship with its customers and contribute to increased attrition of such customers. The Company's
results of operations could be adversely affected in the event that the Company experiences such problems or is otherwise unable to implement fully its expansion strategy.

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

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

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

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The Company's future results will depend in large part on accurately predicting health care costs incurred on existing business and upon the Company's ability to control future health
care costs through product and benefit design, underwriting criteria, utilization management and negotiation of favorable provider contracts. Changes in mandated benefits, utilization rates,
demographic characteristics, health care practices, provider consolidation, inflation, new pharmaceuticals/ technologies, clusters of high-cost cases, the regulatory environment and
numerous other factors are beyond the control of any health plan provider and may adversely affect the Company's ability to predict and control health care costs and claims, as well as the Company's
financial condition, results of operations or cash flows. Periodic renegotiations of hospital and other provider contracts coupled with continued consolidation of physician, hospital and other
provider groups may result in increased health care costs and limit the Company's ability to negotiate favorable rates. In recent years, large physician practice management companies have experienced
extreme financial difficulties, including bankruptcy, which may subject the Company to increased credit risk related to provider groups and cause the Company to incur duplicative claims expense.
Additionally, the Company faces competitive pressure to contain premium prices. In connection with the introduction of new individual PPO plans in California in January 2001, the Company has
announced that it will not raise premiums to certain members during portions of 2001. Fiscal concerns regarding the continued viability of government-sponsored programs such as Medicare and Medicaid
may cause decreasing reimbursement rates for these programs. Any limitation on the Company's ability to increase or maintain its premium levels, design products, implement underwriting criteria or
negotiate competitive provider contracts may adversely affect the Company's financial condition or results of operations.

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

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

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

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between the Company's various products could have a material adverse effect on the Company's results of operations and on the continued merits of the Company's geographic expansion strategy.

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

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

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

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risk from that disclosed in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.

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PART IIOTHER INFORMATION

ITEM 6.  Exhibits and Reports on Form 8-K

|      |  |                                                                                                                                                                                                                                                                                                                                              
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)   |  | Exhibits                                                                                                                                                                                                                                                                                                                                     
|2.01  |  | Amended and Restated Recapitalization Agreement dated as of March 31, 1995 by and among the Registrant, Blue Cross of California, Western Health Partnership and Western Foundation for Health Improvement, incorporated by reference to
Exhibit 2.1 of the Registrant's Registration Statement on Form S-4 dated April 8, 1996              
|2.02  |  | Amended and Restated Agreement and Plan of Merger dated as of November 29, 2000, by and among Cerulean Companies, Inc., the Registrant and Water Polo Acquisition Corp., incorporated by reference to Exhibit 2.01 of the Registrant's
Current Report on Form 8-K dated March 15, 2001                                                       
|3.01  |  | Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed on August 5, 1997.                                                                                                                                                                    
|3.02  |  | Bylaws of the Registrant, incorporated by reference to Exhibit 4.2 of the Registrant's Registration Statement on Form S-8, Registration No. 333-90791                                                                                                                                                                                        
|4.01  |  | Specimen of common stock certificate of WellPoint Health Networks Inc., incorporated by reference to Exhibit 4.4 of Registrant's Registration Statement on Form 8-B, Registration No. 001-13083                                                                                                                                              
|4.02  |  | Restated Certificate of Incorporation of the Registrant (included in Exhibit 3.01)                                                                                                                                                                                                                                                           
|4.03  |  | Bylaws of the Registrant (included in Exhibit 3.02)                                                                                                                                                                                                                                                                                          
|4.04  |  | Indenture dated as of July 2, 1999 by and between the Registrant and The Bank of New York, as trustee (including the form of Debenture attached as Exhibit A thereto), incorporated by reference to Exhibit 4.04 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.                                     
|10.01 |  | 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 form 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.
|10.02 |  | 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.                         
|10.03 |  | Blue Cross Controlled Affiliate License Agreement dated as of March 15, 2001 by and among the Blue Cross and Blue Shield Association (the "BCBSA"), Blue Cross and Blue Shield of Georgia, Inc. ("Georgia Blue") and the Registrant.                                                                                                         
|10.04 |  | Blue Shield Controlled Affiliate License Agreement dated as of March 15, 2001 by and among the BCBSA, Georgia Blue and the Registrant.                                                                                                                                                                                                       

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|10.05 |  | Blue Cross Controlled Affiliate License Agreement dated as of March 15, 2001 by and among the BCBSA, Blue Cross Blue Shield Health Care Plan of Georgia, Inc. ("Georgia Blue HMO") and the Registrant.        
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.06 |  | Blue Shield Controlled Affiliate License Agreement dated as of March 15, 2001 by and among the BCBSA, Georgia Blue HMO and the Registrant.                                                                    
|10.07 |  | 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.
|10.08 |  | 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                                       
|10.09 |  | 1999 Executive Officer Annul Incentive Plan, incorporated by reference to Annex II to the Registrant's definitive Proxy Statement on Schedule 14A dated March 28, 2001.                                       



On
March 27, 2001, the Company filed a Current Report on Form 8-K which reported that the Company had completed its acquisition of Cerulean
Companies, Inc.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                   |  | WELLPOINT HEALTH NETWORKS INC.Registrant
|------------------ |  | ----------------------------------------
|Date: May 14, 2001 |  | By:                                     
|Date: May 14, 2001 |  | By:                                     
|Date: May 14, 2001 |  | By:                                     

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