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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
                            ------------------------
                                   FORM 10-K
 
  /X/    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
 
                                       OR
 
  / /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934
 
                   FOR THE FISCAL YEAR ENDED JANUARY 3, 1999
 
                          COMMISSION FILE NO. 0-12798
                            ------------------------
                               CHIRON CORPORATION
 
             (Exact name of Registrant as specified in its charter)
 
                  DELAWARE                             94-2754624
          (State of Incorporation)          (IRS Employer Identification No.)
 
                            ------------------------
 
                               4560 HORTON STREET
                          EMERYVILLE, CALIFORNIA 94608
              (Address of principal executive offices) (Zip Code)
                            ------------------------
 
       Registrant's telephone number, including area code: (510) 655-8730
 
        Securities registered pursuant to Section 12(b) of the Act: None
 
          Securities registered pursuant to Section 12(g) of the Act:
 
                         COMMON STOCK, $0.01 PAR VALUE
               WARRANTS TO PURCHASE COMMON STOCK, $0.01 PAR VALUE
 
    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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
 
    The aggregate market value of voting stock held by nonaffiliates of the
Registrant as of February 28, 1999, was $2.1 billion.
 
    The number of shares outstanding of each of the Registrant's classes of
common stock as of February 28, 1999:
 
<TABLE>
<S>                               <C>
         TITLE OF CLASS                   NUMBER OF SHARES
 Common Stock, $0.01 par value              180,897,487
</TABLE>
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
    Portions of the Proxy Statement to be filed in connection with the
solicitation of proxies for the Annual Meeting of Stockholders to be held on May
13, 1999 are incorporated by reference into Part III of this Report.
 
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ITEM 1. BUSINESS
 
    THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS. THESE
INCLUDE STATEMENTS CONCERNING PLANS, OBJECTIVES, GOALS, STRATEGIES, FUTURE
EVENTS OR PERFORMANCE AND ALL OTHER STATEMENTS WHICH ARE OTHER THAN STATEMENTS
OF HISTORICAL FACT, INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING WORDS
SUCH AS "BELIEVES", "ANTICIPATES", "EXPECTS", "ESTIMATES", "PROJECTS", "WILL",
"MAY", "MIGHT", AND WORDS OF A SIMILAR NATURE. THE FORWARD-LOOKING STATEMENTS
CONTAINED IN THIS REPORT REFLECT MANAGEMENT'S CURRENT BELIEFS AND EXPECTATIONS
ON THE DATE OF THIS REPORT. ACTUAL RESULTS, PERFORMANCE OR OUTCOMES MAY DIFFER
MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS. SOME OF THE
IMPORTANT FACTORS WHICH, IN THE VIEW OF CHIRON CORPORATION ("CHIRON" OR THE
"COMPANY"), COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THOSE EXPRESSED IN THE
FORWARD-LOOKING STATEMENTS ARE DISCUSSED IN ITEM 7 OF THIS REPORT, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", UNDER
THE CAPTION "FACTORS THAT MAY AFFECT FUTURE RESULTS." THE COMPANY UNDERTAKES NO
OBLIGATION TO PUBLICLY ANNOUNCE ANY REVISIONS TO THESE FORWARD-LOOKING
STATEMENTS TO REFLECT FACTS OR CIRCUMSTANCES OF WHICH MANAGEMENT BECOMES AWARE
AFTER THE DATE HEREOF.
 
OVERVIEW AND CERTAIN RECENT DEVELOPMENTS
 
    Chiron is a biotechnology company that participates in three global
healthcare businesses: biopharmaceuticals, blood testing and vaccines.
 
    The Company's products include Proleukin(R) (aldesleukin), a recombinant
form of interleukin-2, which the Company markets as a treatment for metastatic
renal cell carcinoma and metastatic melanoma. The Company manufactures
recombinant human platelet-derived growth factor, the active ingredient in
Regranex(R) (becaplermin), which is marketed by Ortho-McNeil Pharmaceutical,
Inc. ("Ortho-McNeil"), a Johnson & Johnson ("J&J") company, as a treatment for
foot ulcers related to diabetes. Chiron also manufactures Betaseron(R)
(interferon beta-1b) for Berlex Laboratories, Inc. and its parent company,
Schering AG, which is marketed by Berlex and Schering as a treatment for relapse
remitting multiple sclerosis. In addition, the Company sells a line of
traditional pediatric and adult vaccines. The Company has an interest in a
number of other products through collaborations and joint businesses, including
a joint immunodiagnostics business with Ortho-Clinical Diagnostics, Inc., a J&J
company, which sells a full line of tests required to screen blood for hepatitis
viruses and retroviruses, and a separate collaboration with Gen-Probe
Incorporated, which is developing products using nucleic acid testing technology
to screen blood in blood banks and plasma in the plasma industry for infection
by viruses.
 
    Chiron has a strong commitment to research as an essential component of its
product development effort. The Company focuses its research and development
activities primarily on areas in which it has particular strengths, including
infectious diseases, cancer and cardiovascular diseases. An important part of
the Company's research and development effort is undertaken through
collaborations with third parties who are able to contribute significant
enabling technologies and other resources to the development and
commercialization of the product, including in some cases marketing and sales
expertise.
 
    In January 1995 the Company established an alliance with Novartis AG
("Novartis"), a life sciences company headquartered in Basel, Switzerland. As of
February 28, 1999, Novartis held shares representing approximately 44% of the
outstanding common stock of the Company. For more on the Novartis alliance, see
"Relationship With Novartis", below.
 
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    The Company recently sold certain businesses as it continued to focus on its
core activities. On November 30, 1998, the Company completed the sale of its IN
VITRO diagnostics business to Bayer Corporation ("Bayer") for approximately
$1,013.8 million in cash, subject to certain adjustments. Chiron retained its
blood testing business, including its joint business with Ortho-Clinical
Diagnostics, Inc. and its collaboration with Gen-Probe Incorporated. On December
31, 1998, the Company completed the sale of its interest in General Injectables
& Vaccines, Inc. ("GIV"), a distribution business, to Henry Schein, Inc. and
received payment in full of certain advances made by the Company to GIV, for a
total of $31.7 million in cash. On December 29, 1997, the Company completed the
sale of its ophthalmics business to Bausch & Lomb Incorporated ("Bausch & Lomb")
for approximately $300.0 million in cash.
 
    The Company was incorporated in California in 1981 and was merged into a
Delaware corporation in November 1986. The Company's principal executive offices
are located at 4560 Horton Street, Emeryville, California 94608, and its
telephone number at that address is (510) 655-8730.
 
PRODUCTS
 
BIOPHARMACEUTICALS
 
    The Company's leading therapeutic product is Proleukin(R) (aldesleukin), a
recombinant form of interleukin-2 ("IL-2"). IL-2 is a protein produced naturally
in the body in very small quantities. IL-2 stimulates the immune system to
increase the production of lymphocytes (white blood cells) that help fight
certain cancers and may help fight viral infections. While the precise mechanism
of anti-tumor action of Proleukin(R) is unknown, research has demonstrated that
it induces the proliferation of immune cells, natural killer and cytotoxic T
cells that can recognize and mobilize against tumor-specific antigens on the
surface of malignant cells. Proleukin(R) is marketed by the Company directly or
through distributors in the United States and over 40 other countries in North
America, Europe, and South America, for the treatment of metastatic renal cell
carcinoma (a type of kidney cancer) and, in the United States and Canada, for
the treatment of metastatic melanoma (a form of skin cancer).
 
    Chiron manufactures recombinant human platelet-derived growth factor
(rhPDGF-BB), the active ingredient in Regranex(R) (becaplermin) Gel, developed
with Ortho-McNeil through a collaboration in growth factor research that began
in 1984. Ortho-McNeil markets Regranex(R) in the United States as a treatment
for foot ulcers related to diabetes. Regranex(R) works by enhancing the body's
natural wound healing processes. It stimulates the migration of cells to the
site of the ulcer, encouraging the patient's body to grow new tissue that helps
heal these open wounds. Regranex(R) is the first product demonstrated to assist
in the healing of diabetic foot ulcers. Regranex(R) also has been approved for
marketing in Canada, and has been recommended by the European Union regulatory
authority, the Committee for Proprietary Medicinal Products (the "CPMP"), for
approval for marketing in Europe.
 
    Chiron manufactures Betaseron(R) (interferon beta-1b) for Berlex
Laboratories, Inc. ("Berlex") and its parent company, Schering AG of Germany.
Berlex markets Betaseron(R) primarily in the United States and Canada to treat
patients with relapsing remitting multiple sclerosis. Multiple sclerosis is an
autoimmune disease in which the patient's immune system attacks and destroys an
element of the patient's own central nervous system. The Company also receives
royalties from the sale of a similar product in Europe, Betaferon(R), which is
manufactured by Boehringer Ingelheim and marketed by Schering AG for the
treatment of patients with relapsing remitting or secondary progressive multiple
sclerosis.
 
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    Sales of Proleukin(R) (IL-2) accounted for approximately 13%, 12% and 11% of
consolidated total revenues in 1998, 1997 and 1996, respectively, and sales of
Betaseron(R) (interferon beta-1b) accounted for approximately 13% of total
revenues in 1996. No other single therapeutic product or class of therapeutic
products accounted for 10% or more of consolidated total revenues of the Company
in any of the last three fiscal years.
 
VACCINES
 
    Through its subsidiary Chiron S.p.A., based in Siena, Italy, the Company
manufactures and markets in Italy vaccines for diphtheria, tetanus, pertussis,
meningococcus, haemophilus influenzae, flu, measles, mumps, rubella, hepatitis A
and an oral polio vaccine and, under license, markets a vaccine for typhoid
fever. Through its subsidiary Chiron Behring GmbH & Co ("Chiron Behring"), based
in Marburg, Germany, the Company manufactures and markets in Germany vaccines
for diphtheria, tetanus, pertussis, flu, rabies, tick-borne encephalitis,
tuberculosis, cholera and an oral polio vaccine and, under distribution
agreements with other manufacturers, markets vaccines for hepatitis A, measles,
mumps, rubella, typhoid fever, pneumococcal disease, haemophilus influenzae type
b, an inactivated polio vaccine, an acellular pertussis vaccine and a
recombinant vaccine for hepatitis B. Certain of these vaccines are marketed in
other European countries and in the Middle East, the Far East, Africa and South
America, and to international health agencies such as the World Health
Organization. The Company markets its rabies vaccine in the United States.
 
    The Company also has developed an adjuvanted flu vaccine, which it markets
in Italy. The Company currently is considering its regulatory approval strategy
for this vaccine in other European countries and elsewhere.
 
    The Company has developed a genetically engineered acellular vaccine for
pertussis (whooping cough), which currently is marketed in Italy both as a
monovalent vaccine and in combination with diphtheria and tetanus ("DTaP"). In
February 1999, the Company announced that it had received approval from the
European Medicines Evaluation Agency to market its DTaP vaccine for infants and
toddlers in Europe, and also announced that it had withdrawn its application to
market the DTaP vaccine in the United States. Several business factors
influenced the Company's decision to withdraw the application, including the
U.S. competitive landscape and the Company's continued effort to review and
refocus its product development portfolio.
 
    In addition to revenues from the sale of the vaccine products described
above, the Company receives royalties from the sale of vaccines against
hepatitis B developed, manufactured and marketed by Merck & Co., Inc. ("Merck")
and SmithKline Beecham Biologics ("SmithKline") using technology developed by
Chiron. Merck's hepatitis B vaccine was the first vaccine produced using genetic
engineering licensed by the Food and Drug Administration ("FDA") for human use.
 
BLOOD TESTING
 
    Chiron's blood testing business comprises two separate collaborations: an
alliance with Gen-Probe Incorporated ("Gen-Probe") and a separate joint business
with Ortho-Clinical Diagnostics, Inc. ("Ortho"), an affiliate of Johnson &
Johnson.
 
                                       4
<PAGE>
    Chiron's joint business with Ortho was formed in 1989, based largely on the
screening of blood in blood banks and other similar settings for the potential
presence of human immunodeficiency virus ("HIV") and hepatitis viruses using
immunodiagnostics technology. The joint business sells a full line of tests
required to screen blood for hepatitis viruses and retroviruses, and provides
supplemental tests and microplate-based instrument systems to automate test
performance and data collection. Chiron performs certain research and antigen
manufacturing functions, while Ortho manufactures and sells assays and
instrument systems. Chiron and Ortho share equally in the pretax operating
earnings generated by the joint business. The joint business holds the
immunodiagnostic rights to Chiron's hepatitis and retrovirus technology and
receives royalties from the sale of hepatitis C virus ("HCV") and HIV tests by
Abbott Laboratories ("Abbott"), and from sales of HCV tests by Pasteur Sanofi
Diagnostics and Genelabs Diagnostic, Inc.
 
    Chiron's collaboration with Gen-Probe is focused on developing and
commercializing products using nucleic acid testing technology to screen blood
in blood banks and plasma in the plasma industry for infection by viruses.
Compared to immunodiagnostic testing, testing directly for the presence of viral
nucleic acid both improves the sensitivity of detection and enables infection to
be detected earlier in the viral lifecycle. Under the terms of the collaboration
agreement, Gen-Probe performs certain product development and assay and
instrument manufacturing functions while Chiron and Gen-Probe jointly
participate in new assay research and development and Chiron will sell the
collaboration's products. Gen-Probe will receive a fixed percentage of Chiron's
sales revenues. The commercial market for nucleic acid testing products in the
blood banking and plasma industries is developing very rapidly as regulatory
agencies begin in 1999 to require that blood banks and plasma centers implement
nucleic acid testing. The Chiron/Gen-Probe collaboration's first product, a
combined test for HIV-1 and HCV using a multiplexed assay and a semi-automated
instrument system is being used to screen blood under an Investigative New Drug
("IND") pretrial in the United States. See "Research and Development--Blood
Testing".
 
    No single blood testing product or class of blood testing products accounted
for 10% or more of consolidated total revenues of the Company in any of the last
three fiscal years.
 
RESEARCH AND DEVELOPMENT
 
    Chiron has a strong commitment to research as an essential component of its
product development effort. Technologies developed in collaborations with third
parties, as well as technologies licensed from outside parties, also are sources
of potential products.
 
BIOPHARMACEUTICALS
 
    FUNCTIONAL GENOMICS.  Genomics and other technologies are used to discover
new genes and to determine their role and the role of the encoded proteins in a
target disease. With this information, the Company then identifies and develops
potential products utilizing a variety of approaches, including recombinant
proteins, gene therapy and small molecule drug discovery for treatment of the
disease and vaccines with recombinant antigens for prevention of the disease.
 
    RECOMBINANT PROTEINS.  Proteins produced naturally by the human body play a
variety of roles in controlling disease. When administered as therapeutic
agents, certain proteins can enhance the patient's natural ability to fight
disease. However, traditional methods of isolating
 
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or producing proteins can be cost-prohibitive, particularly in the quantities
needed for pharmaceutical use. Through genetic engineering, certain proteins
which might not otherwise be available can be produced in relatively large
quantities at reasonable cost.
 
    The Company and its collaborators have a number of recombinant proteins in
clinical development. Proleukin(R) (IL-2), already approved for marketing as a
treatment for certain forms of kidney and skin cancer, is being clinically
evaluated for other indications, including treatment of patients with HIV
infection, treatment of acute myelogenous leukemia and as a treatment for
non-Hodgkins lymphoma in patients with AIDS. Fibroblast Growth Factor ("FGF"), a
growth factor which can stimulate the formation of new blood vessels, is in
clinical studies for use as a treatment for coronary artery disease. Tissue
Factor Pathway Inhibitor ("TFPI"), a coagulation inhibitor, is being developed
in collaboration with G.D. Searle & Co. ("Searle"), a subsidiary of the Monsanto
Company; the Company and Searle are conducting clinical studies on the use of
TFPI as a treatment for patients with sepsis. Myotrophin(R) (mecasermin), a
recombinant form of Insulin-Like Growth Factor-I (IGF-I), is being developed by
the Company in collaboration with Cephalon, Inc. ("Cephalon") as a treatment for
amyotrophic lateral sclerosis (also known as ALS or Lou Gehrig's disease) and is
being developed by Chiron for other indications. In 1997, an FDA advisory
committee found that there was not sufficient evidence of efficacy as a
treatment for ALS to warrant approval. In May 1998, Chiron and Cephalon received
a letter from the FDA indicating that Myotrophin(R) (IGF-I) is potentially
approvable, contingent upon additional evidence of efficacy and safety. It is
uncertain whether additional evidence satisfactory to the FDA can be delivered.
Chiron and Cephalon are continuing to work with the FDA on outstanding issues.
In September 1998, Chiron and Cephalon withdrew their application to market
Myotrophin(R) (IGF-I) in Europe.
 
    GENE THERAPY.  Traditional recombinant protein therapeutics are produced
outside the patient's body and administered to the patient, typically through
injection. Gene therapy enables the patient's own body to produce a desired
protein by inserting the gene for that protein into the patient's cells.
Currently there are no gene therapy products on the market; many studies suggest
that the technology is promising but considerable further study is required to
determine whether this technology can be safely and effectively utilized to
treat disease. An example of a potential application of gene therapy currently
in preclinical development at the Company is Factor VIII. Factor VIII is a
protein that causes blood to clot. Hemophiliacs, as a result of a hereditary
defect, are born with faulty copies of the gene that produces Factor VIII.
Through gene therapy, it may be possible to insert into a hemophiliac's cells
the normal Factor VIII gene, so that the patient's own cells can produce the
blood clotting protein.
 
    A key component of any gene therapy treatment will be the mechanism for
"inserting" the gene into the patient's cells. The Company is developing several
gene transfer systems, including retroviral and other viral vectors as well as
the Company's proprietary ELVS-TM- DNA vector system. Each gene transfer system
has different properties, including cell specificity (the type of cells it can
enter) as well as durability of expression (how long it will continue to make
the therapeutic protein). Different gene transfer systems are likely to be
required to meet different therapeutic needs. Viral vectors are derived from
viruses. The vectors have the "coat" of the original virus, which allows them to
enter the targeted cell. Certain viral genes are removed and therapeutic genes
are added so that the vector can no longer cause the disease characteristic of
the original virus and instead expresses the desired therapeutic protein. DNA
vectors include only the therapeutic gene and the control elements required to
express that
 
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gene. Studies have shown that certain types of cells, including muscle cells,
will take up the DNA and express the gene contained on the DNA.
 
    The Company also is investigating whether gene therapy may be used as part
of a two-step treatment which combines gene therapy with more traditional
therapeutics. For example, HSV-tk is a gene encoding thymidine kinase derived
from herpes simplex virus. It may be possible to use a gene transfer system to
insert the HSV-tk gene into targeted cells (such as cancer cells), and then kill
the cells that have taken up the HSV-tk gene by treating the patient with
Gancyclovir, an antiviral for herpes. The Company is conducting clinical studies
on the use of HSV-tk gene therapy for the treatment of melanoma (a form of skin
cancer) and, in collaboration with Baxter Healthcare Corporation, for the
treatment of graft-versus-host disease.
 
    SMALL MOLECULE DRUG DISCOVERY.  Chiron's small molecule drug discovery
program combines multiple disciplines, including combinatorial and computational
chemistry, robotic screening and selection, and molecular biology, to screen,
identify and refine compounds which may be used as drugs for treating medical
conditions or disorders. In addition to drug discovery against specific disease
targets of interest to the Company, from time to time the Company enters into
collaboration agreements with third parties under which the Company utilizes its
proprietary technologies to identify drug candidates directed at specific
disease targets of interest to the partner. Certain compounds which may be of
interest have been identified and are being further optimized and tested prior
to moving into clinical development.
 
    OTHER.  The Company has other products under development directly and in
collaboration with other companies, including a collaboration with DepoTech
Corporation ("DepoTech") to develop DepoCyt-TM- sustained-release
chemotherapeutic formulation. DepoCyt-TM- consists of cytarabine (a generic
chemotherapy product) encapsulated in a novel delivery system, called
Depofoam-TM-. In December 1997, an FDA advisory committee declined to recommend
approval of DepoCyt-TM- for neoplastic meningitis associated with solid tumors.
Chiron and DepoTech subsequently reached agreement with the FDA to amend the
application with additional clinical trial data from lymphomatous meningitis
patients and seek approval for this indication. In November 1998, an FDA
advisory committee recommended that DepoCyt-TM- be approved for treatment of
lymphomatous meningitis. Final FDA approval for this indication is expected in
1999 and will require a post-approval (phase IV) clinical study commitment.
 
VACCINES
 
    PROPHYLACTIC VACCINES.  Chiron is developing a new generation of vaccines
for the prevention of disease utilizing genetic engineering and other techniques
of modern biotechnology, including vaccines based on recombinant antigens as
well as DNA-based vaccines. The Company currently is conducting clinical studies
of a number of vaccine candidates, including vaccines for HCV, HIV and
meningococcus C, and is conducting preclinical studies on vaccines for a number
of other targets. The Company also is developing novel adjuvants. Adjuvants are
compounds that amplify the immune response generated by vaccine antigens. One of
Chiron's adjuvants, MF-59, is a component of Chiron's new flu vaccine, which
currently is marketed in Italy, and is also a component of a number of other
candidate vaccines currently in clinical development by Chiron. In addition,
Chiron is conducting preclinical investigations of alternative delivery systems
for vaccines that may be used in lieu of injection, such as nasally or orally
delivered vaccines.
 
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    THERAPEUTIC VACCINES.  The Company is investigating the potential use of
vaccines for therapeutic purposes, in which antigens are used to stimulate an
immune response against established infections and cancer. The Company is
collaborating with Biomira, Inc. in the development of Theratope(R) vaccine for
breast cancer. This vaccine, which is in clinical trials, consists of a
synthetic mimic of a breast cancer-associated antigen conjugated to a carrier
protein.
 
BLOOD TESTING
 
    The Chiron/Gen-Probe collaboration has two instrument systems in
development, both of which will test blood and plasma for HIV-1 and HCV nucleic
acid in a single multiplexed assay. The semi-automated component system is
currently operating under IND in the United States while the fully automated
Tigris-TM- system is under development. Gen-Probe is widening the menu from
HIV-1/HCV to include other transfusion transmitted agents and continuing
development of the fully automated Tigris-TM- instrument.
 
    Ortho is developing a range of hepatitis and retrovirus assays for IN-VITRO
clinical diagnostics use on its immunodiagnostics instrument system.
 
RESEARCH REVENUES AND EXPENSES
 
    Collaborative arrangements with third parties are also a source of revenue
for the Company. In general, collaboration revenues include fees for research
services as they are performed or completed and milestone payments upon
attainment of specified benchmarks.
 
    Novartis and the Company have entered into an agreement under which Novartis
has agreed to provide research funding for certain projects. The funded projects
currently consist of certain adult and pediatric vaccines, Insulin-Like Growth
Factor-I, Factor VIII and HSV-tk. Novartis has agreed to fund, at Chiron's
request and subject to certain annual and aggregate limits, 100% of the
development costs of these projects incurred between January 1, 1995 and
December 31, 1999. In exchange for providing this funding, Novartis has certain
co-promotion rights for certain vaccines as well as an interest in certain
royalties on sales of certain products resulting from the funded research.
 
    Research and development expense for the years ended December 31, 1998, 1997
and 1996 for Company-sponsored research, including payments to collaboration
partners, was $294.2 million, $259.4 million and $248.8 million, respectively.
Of that, $61.9 million, $79.5 million and $103.8 million in 1998, 1997 and 1996,
respectively, was reimbursed by third parties.
 
COMMERCIALIZATION
 
    Technologies arising out of the Company's research and development efforts
are commercialized in a variety of ways. Certain products are marketed and
distributed by the Company, either directly or through distributors. See
"Distribution", below. Other technologies are developed by the Company in
collaboration with third parties, and under the collaboration agreement
marketing rights may be allocated to the Company or to the collaborator or
shared by both parties. In the event marketing rights are allocated to the
collaborator, the Company generally retains the right to manufacture and supply
key raw materials to the collaborator. Still other technologies are licensed by
the Company to third parties, with the licensee assuming responsibility for
further development and the Company receiving royalties on sales of the
resulting product. Agreements under which the Company currently derives revenues
for
 
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technologies licensed to third parties include an agreement with Bayer relating
to, among other things, use of the Company's HCV and HIV technologies for IN
VITRO diagnostics; an agreement with F. Hoffman La-Roche Limited and Hoffman
La-Roche, Inc. ("Roche"), relating to polymerase chain reaction ("PCR")
technology; agreements with Merck and SmithKline relating to technology used in
their respective hepatitis B vaccines and an agreement with Novo Nordisk A/S
relating to technology used in the manufacture of recombinant human insulin.
 
DISTRIBUTION
 
    To remain competitive in an intensely competitive environment, Chiron
maintains several specialized marketing and sales forces that concentrate on
individual classes of customers.
 
    The Company's vaccine marketing organization is based in Siena, Italy and
Marburg, Germany. Direct sales efforts are focused on pediatricians and general
practitioners. Products are also sold to the public sector through tenders and
to private sector pharmacies through wholesalers and distributors.
 
    Chiron's biopharmaceuticals marketing, sales and distribution organization
for the U.S. is based in Emeryville, California and for Europe is headquartered
in Amsterdam, The Netherlands. Sales efforts are focused on specialist
physicians, principally oncologists, who are based in hospitals and large
clinics. In general, products are sold to wholesalers, distributors, and
hospital pharmacies.
 
RAW MATERIALS
 
    Raw materials and other supplies used in the manufacture of the Company's
products (both commercial and investigational) generally are available from
multiple commercial sources. Certain processes, however, use materials that are
available from sole sources or that are in short supply or that are difficult
for the supplier to produce and certify in accordance with the Company's
specifications. The Company's biopharmaceutical products are biologics; from
time to time concerns are raised with respect to potential contamination of
biological materials that are supplied to the Company for use in various
production processes. These concerns can further tighten market conditions for
materials that may be in short supply or available from limited sources.
Moreover, regulatory approvals to market the Company's products may be
conditioned upon obtaining certain materials from specified sources; the
Company's ability to substitute material from an alternate source may be subject
to delay pending regulatory approval of such alternate source. Although the
Company monitors the ability of certain suppliers to meet the Company's needs
and the market conditions for these materials, there is a risk that material
shortages could impact production.
 
PATENTS
 
    Patents are very important to the business of the Company. Chiron has a
policy of seeking patents on inventions arising from its extensive research and
development activities. The time and expense required to develop and obtain
regulatory approval to market human healthcare products is significant. Without
the protection of patents or trade secrets, competitors may be able to use the
Company's inventions to manufacture and market competing products without being
required to undertake the lengthy and expensive development efforts made by
Chiron. Chiron has a substantial number of granted patents and pending patent
applications in the United States and other important markets, and a number of
patents and patent applications owned by third parties have been licensed to
Chiron.
 
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    There can be no assurance that patents and patent applications owned or
licensed to Chiron will provide substantial protection. Important legal
questions remain to be resolved as to the extent and scope of available patent
protection for biotechnology products and processes in the United States and
other important markets. It is not known how many of the Company's pending
patent applications will be granted, nor the effective coverage of those that
grant. In the United States and other important markets, the issuance of a
patent is not conclusive as to its validity or the enforceable scope of its
claims. The Company has engaged in significant litigation to determine the scope
and validity of certain of its patents, and expects to continue to do so in the
future.
 
    Even if the Company is successful in obtaining and defending patents, there
can be no assurance that these patents will provide substantial protection.
Third parties may be able to design around the patents and develop competitive
products that do not use the inventions covered by the patents. Many countries,
including certain countries in Europe, have compulsory licensing laws under
which a patent owner may be compelled to grant licenses to third parties (for
example, the third party's product is needed to meet a threat to public health
or safety in that country, or the patent owner has failed to "work" the
invention in that country, or the third party has patented improvements), and
most countries limit the enforceability of patents against government agencies
or government contractors. In these countries, the patent owner may be limited
to monetary relief and may be unable to enjoin infringement, which could
materially diminish the value of the patent. Furthermore, most countries do not
provide discovery so the Company may not be able to meet its burden of proving
infringement; nor can it be guaranteed that the Company will even become aware
of infringement of its patents.
 
    To a lesser extent, trade secrets and confidential information are important
to Chiron's commercial success. Although the Company seeks to protect trade
secrets and confidential information, there can be no assurance that others will
not obtain access to such information or develop the same or similar information
independently, or that third parties will not obtain patent protection that
precludes Chiron from using its trade secrets or confidential information.
 
    Chiron is aware that third parties, including competitors, educational
institutions and governmental organizations, have patents and patent
applications in the United States and other significant markets that may be
useful or necessary for the manufacture, use or sale of certain of the Company's
products (commercial and investigational). There may be other such patents and
patent applications of which the Company is not currently aware. It is likely
that third parties will obtain other such patents in the future. Certain of
these patents may be sufficiently broad to prevent or delay Chiron from
practicing necessary technology, including manufacturing or marketing products
important to the Company's current and future business. The scope, validity and
enforceability of such patents, if granted, the extent to which Chiron may wish
or need to obtain licenses to such patents, and the cost and availability of
such licenses cannot be accurately predicted. If Chiron does not obtain such
licenses, products may be withdrawn from the market or delays could be
encountered in market introduction while an attempt is made to design around
such patents. Alternatively, Chiron could find that the development, manufacture
or sale of such products is foreclosed. Chiron could also incur substantial
costs in challenging the validity and scope of such patents.
 
TRADEMARKS
 
    Proleukin(R) is a registered trademark of the Company and its subsidiaries.
ELVS-TM-, Polioral-TM- and Triacelluvax-TM- are trademarks of the Company and
its subsidiaries. DepoCyt-TM- is a
 
                                       10
<PAGE>
trademark owned by Chiron and DepoTech. The following registered trademarks are
owned by the indicated companies: Betaseron(R) and Betaferon(R) (Schering AG),
Myotrophin(R) (Cephalon), Regranex(R) (J&J), Theratope(R) (Biomira, Inc.),
Apligraf(R) (Novartis), Dermagraf(R) (Advanced Tissue Sciences, Inc.),
Copaxone(R) (Teva Pharmaceutical Industries, Ltd.), Avonex(R) (Biogen, Inc.),
Aredia(R) (Novartis), and Amplicor(R) (Roche). Tigris-TM- is a trademark owned
by Gen-Probe.
 
SEASONALITY
 
    Sales of certain of the Company's vaccine products, in particular flu
vaccine, are seasonal, with higher sales in the third and fourth quarters of the
year.
 
    The Company receives royalties on sales of PCR products by Roche. Under the
terms of the Company's agreement with Roche, royalties are payable after Roche's
annual net sales of PCR products exceed $200 million. This $200 million
threshold resets at the beginning of each year. Accordingly, the Company does
not expect to receive any royalties on Roche's PCR sales until the last half of
each year.
 
MAJOR CUSTOMERS
 
    The Company has a strategic alliance with Novartis and in connection
therewith has entered into a series of arrangements with Novartis. See
"Relationship With Novartis", below. These arrangements contributed 12%, 21% and
21% of total revenues in 1998, 1997 and 1996, respectively. The Company has a
joint immunodiagnostics business with Ortho. See "Products-Blood Testing",
above. The Ortho joint business, together with certain other arrangements with
J&J and its affiliates, contributed 18%, 24%, and 23% of total revenues in 1998,
1997 and 1996, respectively. The Company has a supply agreement with Berlex and
its parent company, Schering AG of Germany. Revenues recognized under this
agreement contributed 13%, 14% and 15% to total revenues in 1998, 1997 and 1996,
respectively.
 
COMPETITION
 
    Chiron operates in a highly competitive environment, and the competition is
expected to increase. Competitors include large pharmaceutical, chemical and
blood testing companies, as well as biotechnology companies. Some of these
competitors, particularly large pharmaceutical and blood testing companies, have
greater resources than the Company. The technologies applied by the Company and
its competitors are rapidly evolving, and new developments frequently result in
price competition and product obsolescence. Substantial consolidation is
underway in the global healthcare industry, and is expected to produce greater
efficiencies and even more intense competition.
 
    To compete effectively, Chiron invests heavily in research and development,
maintains specialized sales forces that concentrate on individual classes of
customers, and spends significant amounts on advertising, promotion and selling.
 
                                       11
<PAGE>
    Important biotechnology research is performed in universities and nonprofit
research organizations. These entities are becoming more active in seeking
patent protection and licensing revenues for their discoveries. The competition
among large pharmaceutical companies and smaller biotechnology companies to
acquire technologies from these entities also is intensifying. While Chiron
actively collaborates with such entities in research, and has and will continue
to license their technologies for further development, these institutions also
compete with Chiron to recruit scientific personnel and to establish proprietary
positions in technology.
 
BIOPHARMACEUTICALS
 
    Proleukin(R) competes with alpha interferon sold by Schering Plough
Corporation and by Roche as a treatment for metastatic kidney cancer and
metastatic melanoma, although many patients are treated with both products. The
Company estimates that Proleukin(R) has approximately a 50% market share for
these indications. The principal method of competition is product performance.
Several other companies are developing immune-system-based therapies for cancers
and infectious diseases, including Roche, Genentech, Inc., Amgen, Inc., Immunex
and Immune Response/Agouron.
 
    Regranex(R) was the first product approved by the FDA for treatment of
diabetic foot ulcers. It competes with Dermagraft(R), a product from Advanced
Tissue Sciences & Smith and Nephew, and with Apligraf(R), a product from
Novartis which has been approved by the FDA for treatment of venous leg ulcers
and is in clinical trials for treatment of diabetic foot ulcers. Several other
companies, including Genzyme and Novartis, are developing transforming growth
factor-beta (TGF-Beta), which may compete with Regranex(R) in the future.
 
    Betaseron(R), as a treatment for multiple sclerosis, competes with
Avonex(R), a recombinant interferon beta sold by Biogen, Inc., and with
Copaxone(R) from Teva Pharmaceuticals. In certain European countries, Schering
AG's product, Betaferon(R), faces competition from Ares Serono, which sells an
extracted form of beta interferon that is used for, among other purposes,
treatment of multiple sclerosis. Other companies have treatments for multiple
sclerosis in clinical development.
 
VACCINES
 
    Four large companies hold the greatest share of the worldwide vaccine
market: Merck, SmithKline, Wyeth Lederle Vaccines & Pediatrics, a division of
American Home Products Corporation ("Lederle"), and Pasteur Merieux Connaught
("PMC"). PMC separately has a strategic alliance with Merck. All four of these
companies, as well as other biotechnology companies, have substantial research
and development programs. The Company estimates that it has approximately a 38%
and 37% market share in Germany and Italy, respectively, and an aggregate market
share of approximately 8% outside of the United States, Europe and Japan. The
principal methods of competition in vaccines are price and introduction of new
products, including vaccines against diseases for which no vaccine was
previously available as well as new combination vaccines that combine existing
vaccines for several diseases into a single product. Combination vaccines
frequently are favored by public health authorities, medical practitioners and
patients, particularly in the case of pediatric vaccines, because they eliminate
the need for multiple injections and may increase overall compliance with
recommended vaccination schedules. As new combination vaccines are introduced,
older combinations and single products often become obsolete. The Company may be
limited in its ability to develop and market
 
                                       12
<PAGE>
certain combination vaccines if one of the vaccines which would otherwise be
included in the combination is covered by valid and enforceable patent or other
proprietary rights held by third parties.
 
BLOOD TESTING
 
    Chiron is the sole manufacturer of HCV antigens for use in immunodiagnostic
assays of both Abbott and the Chiron-Ortho joint businesses. In the immunoassay
blood testing market, the Chiron-Ortho joint business competes with Abbott with
each having, in total, approximately 45% market share of the major world
markets. The joint business anticipates increased competitive pressures from
Abbott with the introduction of the Abbott Prism(R) instrument system. The joint
business is also developing immunodiagnostic instruments and assays to detect
hepatitis, retrovirus and other agents in clinical diagnostic applications. Many
other companies, including Roche, Abbott and Bayer have substantial positions in
the market segment.
 
    Currently, there are no approved, probe-based tests for commercial use in
blood testing. Chiron/Gen-Probe nucleic acid testing products are expected to
compete primarily with PCR-based products supplied by Roche or developed
in-house by customers (homebrew). The commercial market for nucleic acid testing
products in the blood banking and plasma industries is developing very rapidly
as regulatory agencies begin in 1999 to require that customers implement this
new technology.
 
GOVERNMENT REGULATION
 
    Regulation by governmental authorities in the United States and other
important markets is a significant factor in the manufacture and sale of the
Company's products and in its research and development activities.
 
    BIOPHARMACEUTICALS AND VACCINES.  In the United States, Chiron's therapeutic
and vaccine products (both commercial and investigational) are regulated
primarily under federal law and are subject to rigorous FDA approval procedures.
No product can be marketed in the United States until an appropriate application
is approved by the FDA. The approval procedures are applied on a
product-by-product basis and require, among other things, an extensive three-
phase human clinical testing program. In phase 1, studies are conducted with a
relatively small number of subjects to assess the safety of the product. In
phase 2, the product is evaluated in a larger group of subjects to begin to
assess efficacy. Phase 3 studies are conducted in the target population with a
number of subjects that is large enough to provide sufficient data to establish
statistically the safety and efficacy of the product. FDA approval of a product
is limited to treatment for specified medical conditions or disorders, and
further studies would be required to market the product for other indications.
All facilities used to manufacture, fill, test and distribute biologic products
are required to be inspected and approved by the FDA. If any change is made in
manufacturing facilities or processes after FDA approval is obtained, additional
regulatory review and possibly additional clinical studies may be required.
 
    Licensing procedures in Europe are comparable to those in the United States.
In 1995, the European Union ("EU") established a centralized procedure for
licensing of products derived from the use of high technology/biotechnology
processes. This procedure leads to the grant of a single license for the entire
EU. Effective January 1, 1998, the EU has also adopted a
 
                                       13
<PAGE>
decentralized procedure under which a license granted in one member state is
mutually recognized by the other member states, leading to a grant of licenses
in member states recognizing the original license. This procedure is expected to
replace independent national licensing of products in the EU. In addition, each
product must receive individual country pricing approvals before it can be
marketed in that country.
 
    BLOOD TESTING.  Blood testing products, whether based upon immunodiagnostics
or nucleic acid testing technologies, may only be used pursuant to the terms of
approval of specific license applications in which the product's safety and
effectiveness must be demonstrated based upon well controlled studies. Upon
approval of the license application, the product may be marketed for the
specific indications of use, which were identified in the approval. Facilities,
processes and operations used for the manufacture, testing, storage and
distribution of Chiron's blood testing products in the U.S. are subject to FDA
approval and periodic inspection.
 
    For both biopharmaceutical and blood testing products, the time and expense
needed to complete the required clinical studies, prepare and submit the
required applications and supporting documentation, and respond to inquiries
generated by regulatory review can far exceed the time and expense of the
research and development initially required to create the product. These factors
largely determine the speed with which a successful research program is
translated into a marketed product.
 
ENVIRONMENT
 
    Expenses for compliance with environmental laws have not had and are not
expected to have a material impact upon the Company's capital expenditures,
earnings or competitive position.
 
EMPLOYEES
 
    On December 31, 1998, Chiron and its subsidiaries had 3,247 employees.
 
RELATIONSHIP WITH NOVARTIS
 
    As noted above, the Company has an alliance with Novartis. Novartis is a
life sciences company headquartered in Basel, Switzerland which was formed as a
result of the December 1996 merger between Ciba-Geigy Limited ("Ciba") and
Sandoz Limited. Through a series of transactions that became effective in
January 1995, Ciba acquired shares of the Company's common stock which, when
combined with shares already held by Ciba, represented 49.9% of the
then-outstanding common stock of the Company. As a result of dilution stemming
primarily from the issuance of common stock under the Company's employee stock
option and stock purchase plans and in connection with certain acquisitions, as
of February 28, 1999, Novartis held shares representing approximately 44% of the
Company's outstanding common stock.
 
    In connection with these transactions, Chiron and Novartis entered into a
series of agreements which provide, among other things and subject to certain
conditions and exceptions, that Novartis will not increase its ownership
interest in the Company above 49.9% before January 5, 2000 and thereafter will
not increase its ownership interest above 55% unless it acquires all of the
outstanding capital stock of the Company in a "buy-out" transaction; that
Novartis may not propose or consummate a "buy-out transaction" before January 5,
2001; that Novartis may exceed these standstill amounts and increase its
ownership interest up to 79.9% if
 
                                       14
<PAGE>
the transaction is approved by a majority of the independent members of the
Company's Board of Directors; that Novartis has the right to nominate three
members to Chiron's eleven member Board of Directors; that Novartis will provide
certain funding to the Company for research services (see "Research and
Development--Research Revenues and Expenses" above) and will guarantee certain
bank lines of credit on behalf of the Company; that Chiron may require Novartis
to purchase shares of the Company's common stock directly from the Company at
fair market value, up to a maximum subscription amount (initially $500 million,
subject to adjustment); that Novartis has an option to purchase newly issued
shares of the Company's common stock directly from the Company at fair market
value, subject to the standstill restrictions described above; and that Chiron
and Novartis will cooperate in research, development, manufacturing and
marketing of biotechnology products on an arm's-length basis while remaining
independent to pursue other opportunities.
 
ITEM 2. PROPERTIES
 
    EMERYVILLE CAMPUS.  Chiron's principal executive offices are located in
Emeryville, California. The campus consists of 26 buildings, of which 14 are
leased and 12 are owned. In 1998, the Company completed development of a new
research and development facility in Emeryville under an operating lease
arrangement. The Emeryville facilities include research and development,
manufacturing and administrative facilities for the Company's biopharmaceutical,
vaccine and blood testing businesses.
 
    OTHER R&D AND MANUFACTURING FACILITIES.  The Company also owns manufacturing
facilities in Vacaville, California and Amsterdam, The Netherlands used
principally in connection with the Company's biopharmaceutical and vaccines
businesses. Certain of these facilities have available capacity due to lower
than expected demand for certain of the Company's products and improved
production yields from other facilities. In January 1999, the Company announced
its intention to discontinue manufacturing in the Amsterdam facility after 1999.
The Amsterdam facility currently is being marketed for sale.
 
    The Company has research and development, manufacturing and administrative
facilities in Siena, Italy and Marburg, Germany and manufacturing facilities in
Rosia, Italy relating to its vaccine operations. The Siena and Rosia facilities
are owned and the Marburg facility is leased.
 
    The Company leases research and development facilities in San Diego,
California in connection with its gene therapy activities.
 
    The Company owns research and development, manufacturing and administrative
facilities in Claremont, California. The facilities were used principally in
connection with the Company's former ophthalmic products business, which was
sold to Bausch & Lomb in December 1997. Bausch & Lomb occupies a significant
portion of the facilities under a three-year lease which expires in December
2000. The Claremont campus currently is being marketed for sale.
 
    The Company leases a number of other facilities in North America, Europe,
Asia and Australia, primarily for sales and service offices.
 
    The Company believes that its facilities are in good operating condition and
are adequate for its current needs. The Company continually evaluates future
requirements for its facilities.
 
                                       15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
 
CONNAUGHT LABORATORIES, LIMITED
 
    Chiron is involved in litigation in Italy, Germany and The Netherlands with
Connaught Laboratories, Limited ("Connaught") relating to TriAcelluvax-TM-, the
Company's diphtheria/ tetanus/acellular pertussis vaccine.
 
    Chiron manufactures and sells TriAcelluvax-TM- in Italy. Connaught alleges
that TriAcelluvax-TM- infringes the Italian counterpart of its European Patent 0
527 753 (the "'753 patent"). The '753 patent contains claims which relate to the
pertactin protein of BORDETELLA PERTUSSIS. In June 1997, Chiron S.p.A. filed an
action against Connaught in the Tribunale di Milano, Italy, challenging the
validity of the Italian counterpart of the '753 patent. Connaught subsequently
filed a claim for infringement in the Milan court and sought injunctive relief,
which was denied. The Milan court has appointed a technical expert and briefing
is ongoing.
 
    The Company does not sell TriAcelluvax-TM- in Germany. However, in July
1997, Connaught filed suit against Chiron Behring and Chiron S.p.A. in the
Landgericht Dusseldorf, Germany, asserting imminent infringement of its European
Patent 0 322 115 (the "'115 patent"). The '115 patent contains claims which
relate to pertussis toxin mutants. The '115 patent was opposed by Chiron in the
European Patent Office. In November 1998 the EPO Opposition Division upheld the
'115 patent in an amended form. In the German action, Connaught seeks damages
and an order enjoining Chiron S.p.A. from manufacturing and selling
TriAcelluvax-TM- in both Germany and Italy. A hearing on this matter took place
in August 1998 but a ruling has not yet issued. A decision is expected in the
first half of 1999.
 
    In December 1997, Chiron filed an action in the District Court of The Hague,
The Netherlands, against Connaught to revoke the Dutch counterpart of the '115
patent on grounds of invalidity. Connaught filed a motion to stay proceedings
which was denied in November 1998.
 
    It is not known when nor on what bases these matters will be resolved.
 
F. HOFFMANN LA-ROCHE A.G.
 
    Chiron is involved in certain litigation in the United States, The
Netherlands, Japan, Germany, and other countries with F. Hoffmann-LaRoche AG and
several of its affiliated companies concerning infringement and/or validity of
certain patents related to HCV technology.
 
    In January 1998, Chiron initiated an action against F. Hoffmann-LaRoche,
Ltd., several of its affiliated companies (collectively, "Roche") and Daniel
Bradley in the United States District Court for the Northern District of
California. The Company asserts that Roche's manufacture and sale of Amplicor(R)
HCV Test and Amplicor(R) HCV Monitor Test constitutes infringement of Chiron's
U.S. Patent Nos. 5,712,088 (the "'088 patent") and 5,714,596 (the "'596
patent"). The action also asserts that Bradley breached a settlement agreement,
that Roche wrongfully induced this breach, and that Bradley committed slander of
title with respect to Chiron's HCV technology. The action seeks damages,
injunctive relief, and a declaratory judgment that Chiron is the sole and
exclusive owner of its HCV technology. Roche filed a counterclaim requesting a
declaratory judgment of non-infringement and invalidity and also alleging
infringement of U.S. Patent No. 5,580,718 (the "'718 patent"), owned by
Hoffmann-
 
                                       16
<PAGE>
LaRoche, Inc., which allegedly relates to nucleic acid-based assays for the
detection of HCV. The counterclaim of infringement seeks damages and injunctive
relief. Chiron is defending on the basis of invalidity and non-infringement of
the '718 patent, and seeks a declaration of invalidity of U.S. Patent No.
5,527,669 (the "'669 patent"), a related patent also owned by Hoffmann-LaRoche.
Trial in this matter is expected to be scheduled in 2000.
 
    In April 1998, Chiron filed suit against Nippon Roche K.K. in the Tokyo
District Court in Japan for infringement of Japanese patent number 2,656,995
(the "'995 patent"), relating to HCV nucleic acid technology. The suit seeks
injunctive relief preventing the sale of Roche AG's Amplicor(R) HCV Test and
Amplicor(R) HCV Monitor Test by Nippon Roche and damages. Roche has also
challenged the validity of the '995 patent in the Japanese Patent Office.
 
    In February 1998, Chiron filed an action in The District Court of The Hague,
The Netherlands against F. Hoffmann-LaRoche AG, several of its affiliated
companies (collectively, "Roche AG"), and one of Roche AG's Dutch customers
asserting Roche AG's infringement of the Company's European Patent 0 318 216
(the "'216 patent") relating to HCV nucleic acid technology. Chiron seeks a
cross-border injunction with effect in a number of European countries,
prohibiting the sale of Roche AG's Amplicor(R) HCV Test and Amplicor(R) HCV
Monitor Test. Roche AG has asserted certain defenses and counterclaims in this
matter. Following a trial in October 1998, with respect to certain of these
issues, the Court declined to exercise jurisdiction outside The Netherlands and
therefore dismissed certain defendants from the case. For procedural reasons,
the Court limited its consideration to the Amplicor(R) HCV Monitor Test. Also,
the Court requested expert advice from the Het International Jurisch Instituut
regarding interpretation under U.S. law of certain contractual issues raised as
an affirmative defense by Roche AG. Those issues relate to Roche AG's 1991
purchase of certain Cetus Corporation assets. In December 1998, the Company
filed a parallel, new action before the Dutch Court concerning the Amplicor(R)
HCV Test. In a separate proceeding, Roche AG and Chiron are appealing the
European Patent Office's Opposition Division's decision upholding the '216
patent in amended form.
 
    In January 1997, Chiron, together with Ortho-Clinical Diagnostics, Inc.
(formerly known as "Ortho Diagnostics Systems, Inc."), filed suit against F.
Hoffmann-LaRoche AG ("Roche Germany") in the Regional Court, 4(th) Civil
Division, Dusseldorf, Germany, for infringement of immunoassay technology under
the '216 patent. The suit seeks damages and injunctive relief preventing further
manufacture or sale of infringing HCV immunoassay kits by Roche Germany. Roche
Germany has asserted certain claims and defenses in this matter. Trial was held
in March 1999; a decision is forthcoming.
 
    Roche also filed suit against Chiron in Munich seeking a pan-European
declaration of non-infringement of Chiron's European Patent number 0 181 10
relating to HIV probes technology. That suit has been dismissed by the Munich
court. Chiron had filed a countersuit in Dusseldorf for infringement and the
matter is expected to go forward during 1999.
 
    It is not known when nor on what bases any of these litigation matters will
be concluded.
 
ORTHO-CLINICAL DIAGNOSTICS, INC.
 
    On February 17, 1998, Chiron filed a lawsuit against Ortho-Clinical
Diagnostics, Inc. (formerly known as "Ortho Diagnostics Systems, Inc.") in the
United States District Court for the Northern District of California. The suit
concerns certain issues relating to the conduct of the parties' joint business
and seeks to compel arbitration of those issues. Chiron's motion to
 
                                       17
<PAGE>
compel arbitration was granted by the Court in December 1998 and the matter is
expected to proceed, pending appointment of an arbitrator, during 1999. It is
not known when nor on what basis this matter will be concluded.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    No matters were brought to a vote of Chiron's stockholders in the quarter
ended January 3, 1999.
 
                      EXECUTIVE OFFICERS OF THE REGISTRANT
 
    The executive officers of the Company, who serve at the discretion of the
Board of Directors, are as follows, in alphabetical order:
 
<TABLE>
<CAPTION>
NAME                                                AGE                       TITLE
--------------------------------------------------  --- --------------------------------------------------
<S>                                                 <C> <C>
Richard W. Barker, Ph.D...........................  50  Senior Vice President, Corporate Development
Rajen K. Dalal....................................  45  Vice President; President, Chiron Blood Testing
Renato P. Fuchs, Ph.D.............................  56  Senior Vice President, Manufacturing and Process
                                                        Development
William G. Green, Esq.............................  54  Senior Vice President, General Counsel and
                                                        Secretary
David T. Kingsbury, Ph.D..........................  58  Vice President, Chief Information Officer
Sean P. Lance.....................................  51  President and Chief Executive Officer
Philip K. Moody...................................  47  Vice President, Financial Operations
Edward E. Penhoet, Ph.D...........................  58  Vice Chairman
Heino von Prondzynski.............................  49  President, Chiron Vaccines
William J. Rutter, Ph.D...........................  70  Chairman
Linda W. Short....................................  53  Vice President, Human Resources
David V. Smith....................................  39  Vice President, Controller
James R. Sulat....................................  48  Vice President, Chief Financial Officer
Lewis T. Williams, M.D., Ph.D.....................  49  Chief Scientific Officer; President, Chiron
                                                        Technologies
</TABLE>
 
    DR. BARKER joined the Company in May 1996, as Senior Vice President, and
President of Chiron Diagnostics Corporation, a wholly-owned subsidiary of the
Company ("Diagnostics"). He served as the President of Diagnostics until
November 1998, when Diagnostics was sold to Bayer. From 1994 to 1996, he was
General Manager of IBM Worldwide Healthcare Solutions. From 1980 to 1993, Dr.
Barker served as a consultant with McKinsey & Company, leading the European
Healthcare Practice also serving healthcare clients in North America and Asia,
on issues of corporate strategy and alliances, organizational change and
international marketing. He has a Ph.D. in biophysics. Dr. Barker joined the
Board of Sunquest Information Systems in August 1996.
 
    MR. DALAL joined the Company in December 1991 as Vice President, Corporate
Development. In 1998, he was appointed President of Chiron's Blood Testing
Division. From 1983 until joining the Company, he was employed by the
international consulting firm of McKinsey & Company, where he performed general
management consulting in the firm's pharmaceuticals, medical devices and
diagnostics industries practice.
 
                                       18
<PAGE>
    DR. FUCHS joined the Company in 1993 as Senior Vice President, Manufacturing
and Development Operations, and is responsible for international operations of
the Company's manufacturing, process development, materials management, quality
control, validation and engineering activities. Such operations include
development and manufacturing of therapeutic rDNA proteins, vaccines and
antigens for diagnostics. Prior to joining Chiron, Dr. Fuchs worked for over
twenty years in the pharmaceutical industry, and served as the Vice President of
Process Development of Centocor from 1988 to 1993, where he was responsible for
development of large-scale processes for production of antibodies in cell
culture. Dr. Fuchs has a Ph.D. in biochemical engineering.
 
    MR. GREEN joined the Company as Vice President and General Counsel in
October 1990, having served as Secretary or Assistant Secretary since the
Company's inception in 1981. In February 1992, he became Senior Vice President,
General Counsel and Secretary. From 1981 to 1990, he was a partner in the San
Francisco law firm of Brobeck, Phleger & Harrison.
 
    DR. KINGSBURY joined the Company as Vice President and Chief Information
Officer in January 1997. Prior to joining Chiron, he was on the faculty at The
Johns Hopkins School of Medicine where he was the Director of the Division of
Biomedical Information Sciences, the Genome Data Base, and the Welch Biomedical
Library. Dr. Kingsbury joined Johns Hopkins University in 1993, and from 1995
until his resignation, also served as its Chief Information Officer.
 
    MR. LANCE joined the Company as President and Chief Executive Officer in May
1998. During the previous thirteen years, Mr. Lance held various executive
positions with Glaxo Holdings plc, London, England. In October 1996 he was
appointed Managing Director of Glaxo Wellcome plc and in January 1997 he was
appointed Chief Operating Officer and Chief Executive Designate of Glaxo
Wellcome plc. From 1993 to 1996, Mr. Lance was Executive Director of Glaxo
Holdings, responsible for commercial operations in the Middle East, Africa,
Europe and Latin America. Mr. Lance was also President of the International
Federation of Pharmaceutical Manufacturers Associations from October 1996 to
February 1998, an Executive Member of the International Committee of
Pharmaceutical Research and Manufacturers of America, and a director of the
British Pharma Group. He also served on the Steering Committee of Healthcare
2000.
 
    MR. MOODY joined the Company in February 1995, as Corporate Director,
Financial Planning. He was appointed Vice President, Financial Operations, in
December 1997, and served as the principal financial accounting officer of the
Company from February 1998 to February 1999, until he was appointed Divisional
Vice President, Finance and Operations. Prior to joining the Company, Mr. Moody
was the Director of Corporate Planning of APL, Ltd., from May 1988 to February
1995.
 
    DR. PENHOET, a co-founder of Chiron and a Director since its inception in
1981, served as the Chief Executive Officer of the Company from 1981 to May
1998, and became Vice Chairman, effective May 1, 1998, upon the appointment of
Sean P. Lance as President and CEO of the Company. He has been a faculty member
at the Biochemistry Department at the University of California, Berkeley for 26
years, and currently serves as the Dean of the School of Public Health at the
University of California at Berkeley. From March 1997 to January 1999, Dr.
Penhoet served as the Chairman of California Healthcare Institute, a public
policy research and advocacy organization located in La Jolla, California. He is
a member of the Board of Directors of Onyx Pharmaceuticals, Inc.
 
                                       19
<PAGE>
    MR. VON PRONDZYNSKI joined the Company as Chief Executive Officer of Chiron
Behring GmbH & Co in October 1996. He is also the Chief Executive Officer of
Chiron S.p.A., the Italian vaccine subsidiary of the Company. Prior to joining
the Company, Mr. von Prondzynski held various positions with Bayer AG from 1976
to 1996. From 1991 to 1996, he was the General Manager of Bayer Diagnostics GmbH
in Munich, Germany, responsible for Germany and Eastern Europe; from 1988 to
1991, he was Head of Healthcare Business in Brazil (Scope Manufacturing,
Marketing & Sales, Development); and from 1985 to 1988, he was the General
Manager in Austria. Since October 1998, Mr. von Prondzynski has served as a
member of the Regional Advisory Board of Commerzbank.
 
    DR. RUTTER, a co-founder of the Company, has served as its Chairman since
the Company's inception in 1981. He was Director of the Hormone Research
Institute at the University of California, San Francisco Medical Center
("UCSF"), from 1983 to May 1989, and has been on the faculty at UCSF since 1969,
becoming a Professor Emeritus in 1991. Dr. Rutter was appointed to the board of
Novartis AG in 1995, and having reached the statutory age of retirement, will
step down at Novartis AG's annual shareholders meeting in April 1999. Since
1992, Dr. Rutter has served on the Board of Overseers, Harvard University. He
has also served on the Board of Trustees, Carnegie Institution of Washington
since 1995.
 
    MS. SHORT joined the Company in November 1997, as Vice President, Human
Resources. Prior to that she was the Director of Human Resources of Industrial
Indemnity from 1994 to 1997. From 1989 to 1994, Ms. Short held various
managerial positions with the Bank of America, most recently in 1994, as Project
Manager in charge of the merger of Continental Bank into Bank of America, and as
Director of Human Resources for Wholesale Banking from 1993 to 1994, and
Director of Human Resources of the Asia Division from 1989 to 1993.
 
    MR. SMITH joined the Company as Vice President, Controller in February 1999,
and was designated the Company's principal financial accounting officer. Mr.
Smith served as the Vice President, Finance and Chief Financial Officer of
Anergen, Inc. from 1997 until he joined the Company. From 1988 to 1997, Mr.
Smith held various financial management positions with Genentech, Inc., in both
the United States and Europe, most recently as Director of Accounting.
 
    MR. SULAT joined the Company as Vice President, Chief Financial Officer in
April 1998. He was the Chief Financial Officer of Stanford Health Services, the
clinical healthcare delivery arm of the Stanford University Medical Center, from
1993 to October 1997. In November 1997, Stanford Health Services merged with the
hospital facilities of the University of California, San Francisco, and Mr.
Sulat served as the Treasurer of the merged entity, UCSF Stanford Health Care,
until joining the Company. From 1990 to 1993, Mr. Sulat was the Chief Financial
Officer and Vice President, Operations, of Esprit de Corp, a privately-owned
apparel manufacturer. Mr. Sulat is also a director of Vans, Inc., a shoe
manufacturer, and General Surgical Innovations, Inc., a medical device
manufacturer.
 
    DR. WILLIAMS joined the Company in August 1994 as Senior Vice President and
President of Chiron Technologies. In 1998, he was promoted to Chief Scientific
Officer of the Company. From 1988 until joining the Company, he was a professor
of medicine at the University of California, San Francisco. Prior to joining
UCSF, he was on the faculty of Harvard Medical School. In addition, he was a
co-founder and director of COR Therapeutics, Inc. from 1988 until joining the
Company. From 1992 to 1994, Dr. Williams served on the Scientific Advisory Board
of Geron Corporation.
 
                                       20
<PAGE>
                                    PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS
 
    The common stock of Chiron Corporation is traded in the NASDAQ National
Market System under the symbol CHIR. As of December 31, 1998, there were 6,513
holders of record of Chiron common stock, 63 remaining holders of record of
Cetus Corporation common stock and 6 remaining holders of Viagene Inc. common
stock. The Company has declared no cash dividends since its inception and does
not expect to pay any dividends in the foreseeable future. The quarterly high
and low closing sales price of Chiron common stock for 1998 and 1997 are shown
below.
 
<TABLE>
<CAPTION>
                                                                          1998                  1997
                                                                   ------------------    ------------------
                                                                    HIGH        LOW       HIGH        LOW
                                                                   -------    -------    -------    -------
<S>                                                                <C>        <C>        <C>        <C>
First Quarter..................................................... $22        $16 9/16   $21 1/4    $17 7/8
Second Quarter....................................................  22         15 11/16   21         17 1/2
Third Quarter.....................................................  21 1/16    13 3/4     24 5/16    19 7/8
Fourth Quarter....................................................  26 5/8     18 1/16    23         16 5/8
</TABLE>
 
ITEM 6. SELECTED FINANCIAL DATA
 
    The Company has not paid cash dividends on its common stock and does not
expect to do so in the foreseeable future.
 
<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                 --------------------------------------------------------------------
                                     1998          1997          1996          1995          1994
                                 ------------  ------------  ------------  ------------  ------------
                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                              <C>           <C>           <C>           <C>           <C>
Total revenues.................  $    736,673  $    574,599  $    537,149  $    393,566  $    345,211
Income (loss) from continuing
  operations...................        75,998        25,782        45,658      (469,802)       18,613
Basic income (loss) from
  continuing operations........          0.43          0.15          0.27         (2.89)         0.14
Diluted income (loss) from
  continuing operations........          0.42          0.14          0.26         (2.89)         0.14
Total assets...................     2,524,255     1,768,478     1,688,670     1,489,847     1,049,742
Long-term debt.................       338,158       397,217       419,589       413,248       338,061
</TABLE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
OVERVIEW
 
    Chiron is a biotechnology company that participates in three global
healthcare businesses: biopharmaceuticals, blood testing and vaccines. The
Company is applying a broad and integrated scientific approach to the
development of innovative products for preventing and treating cancer,
infectious diseases, and cardiovascular diseases. This approach is supported by
research strengths in recombinant proteins, genomics, small molecules, gene
therapy and vaccines. Chiron Biopharmaceuticals consists of products and
services related to therapeutics,
 
                                       21
<PAGE>
with an emphasis on oncology, serious infectious diseases and cardiovascular
diseases as well as the development and acquisition of technologies related to
recombinant technology, gene therapy, small molecule therapeutics and genomics.
Chiron's blood testing revenues primarily relate to Chiron's one-half interest
in the pretax operating earnings of its joint business with Ortho-Clinical
Diagnostics, Inc., which sells a full line of tests required to screen blood for
hepatitis viruses and retroviruses, and provides supplemental tests and
microplate-based instrument systems to automate test performance and data
collection. Chiron Vaccines consists principally of adult and pediatric vaccines
sold primarily in Germany, Italy, certain other international markets and in the
U.S.
 
    On December 29, 1997, Chiron completed the sale of its ophthalmics business
unit, Chiron Vision Corporation ("Chiron Vision"), to Bausch & Lomb Incorporated
("B&L") and on November 30, 1998, Chiron completed the sale of its IN VITRO
diagnostics business to Bayer Corporation ("Bayer"). As a result of these
transactions, the Company's Consolidated Statements of Operations reflect the
after-tax results of Chiron Vision and Chiron Diagnostics, and the related gains
on disposals thereof, as discontinued operations for all periods presented.
 
RESULTS OF OPERATIONS
 
REVENUES
 
    BIOPHARMACEUTICAL PRODUCT SALES  Product sales from Chiron
Biopharmaceuticals were $201.9 million, $150.6 million and $135.7 million in
1998, 1997 and 1996, respectively. In 1998 and 1997, product sales consisted
principally of Proleukin(R) (aldesleukin, interleukin-2), Betaseron(R)
(interferon beta-1b) and PDGF (recombinant human platelet-derived growth factor
-rhPDGF-BB). In 1996, biopharmaceutical product sales consisted primarily of
Proleukin(R) and Betaseron(R).
 
    PROLEUKIN(R)  Chiron sells Proleukin(R) directly in the U.S. and certain
international markets. Sales of Proleukin(R) were $93.2 million, $70.5 million
and $60.9 million in 1998, 1997 and 1996, respectively. The overall increase in
sales from year-to-year is primarily due to (i) continued volume growth in
existing indications; (ii) higher prices; and (iii) in 1998, the geographic
expansion into other countries and the expanded use of Proleukin(R) for the new
indication of metastatic melanoma. The Company continues to pursue additional
indications related to human immunodeficiency virus ("HIV"), acute myelogenous
leukemia and HIV related non-Hodgkin's lymphoma. The Company also anticipates
further geographic expansion of Proleukin(R) into additional countries.
 
    BETASERON(R)  Chiron manufactures Betaseron(R) for Berlex Laboratories, Inc.
("Berlex") and its parent company Schering AG of Germany. Chiron earns a partial
payment for Betaseron(R) upon shipment to Berlex and Schering AG (the "initial
revenues") and a subsequent secondary payment upon sales by Berlex and Schering
AG (the "secondary revenues"). Accordingly, Chiron's revenues from Betaseron(R)
tend to fluctuate based upon the inventory management practices of Berlex and
Schering AG. In addition, in July 1997, the terms of payment changed whereby the
initial payment received upon shipment decreased and the secondary payment due
upon sales to patients increased equivalently. Although total revenues did not
change, the revised payment terms resulted in a timing difference whereby Chiron
recognized a decrease in initial revenues in 1997 and an increase in secondary
revenues in 1998.
 
                                       22
<PAGE>
    In 1998, 1997 and 1996, revenues from Betaseron(R) were $63.4 million, $54.8
million and $67.2 million, respectively. In 1998, Chiron's shipments of
Betaseron(R) to Berlex and Schering AG increased significantly over shipments in
1997. The actual number of vials sold by Berlex and Schering AG to patients in
1998 remained relatively constant with the number of vials sold in 1997. As a
result, the increase in revenues in 1998 as compared with 1997 is primarily due
to replenishing inventories at Berlex and Schering AG and to the change in
payment terms discussed above. In October 1998, the contractual rate upon which
Chiron recognizes revenues decreased by 2.5% of Berlex's sales. The impact of
this decrease did not impact revenues until December 1998 when Chiron began
recognizing the subsequent secondary revenues. In 1997, the decrease in revenues
as compared with 1996 is primarily due to the change in payment terms discussed
above and the introduction of a competing product in the second quarter of 1996.
 
    PDGF  Chiron manufactures PDGF for Ortho-McNeil Pharmaceutical, Inc., a
Johnson & Johnson ("J&J") company. PDGF is the active ingredient in Regranex(R)
(becaplermin) Gel, a treatment for diabetic foot ulcers. Regranex(R) Gel was
approved by the Food and Drug Administration ("FDA") in December 1997 and was
launched commercially in early 1998. Sales of PDGF were $36.4 million and $18.3
million, in 1998 and 1997, respectively. As Chiron's shipments of PDGF remained
fairly constant in 1998 and 1997, the increase in revenues between 1998 and 1997
is primarily due to retroactive price increases recognized in 1998 for shipments
made in 1997. The Company does not expect future price adjustments, if any, to
be commensurate with those in 1998.
 
    As PDGF is the first product of its kind, the Company believes it will take
time for the market to fully develop. In addition, Chiron's sales of PDGF will
tend to fluctuate based upon the inventory management practices of J&J.
Regranex(R) Gel was recently approved for use in the treatment of diabetic foot
ulcers in Canada and the Company expects European approval for the same
indication during the first half of 1999. However, even with these approvals,
Chiron's sales to date have largely filled J&J's inventory requirements, and as
a result, no sales of PDGF to J&J are expected during the first three quarters
of 1999.
 
    VACCINE PRODUCT SALES  Chiron sells pediatric and adult vaccines in Germany,
Italy, other international markets and in the U.S. Certain of the Company's
vaccine products, particularly its flu vaccine, are seasonal and have higher
sales in the third and fourth quarters of the year. In 1998, 1997 and 1996,
vaccine product sales were $176.8 million, $82.0 million and $91.9 million,
respectively. The increase in sales in 1998 as compared with 1997 is primarily
due to Chiron's acquisition of the remaining 51% interest in, and consolidation
of, Chiron Behring GmbH & Co ("Chiron Behring") in the second quarter of 1998
(see CHIRON BEHRING below). In 1997, the decrease in product sales as compared
with 1996 reflects the supply constraints related to Polioral-TM-, the Company's
pediatric oral polio vaccine, which were resolved during 1998. The Company
expects the competitive pressures related to many of its vaccine products to
continue into the foreseeable future, as a result of the introduction of
competing products into the market, including new combination vaccines.
 
    EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT BUSINESSES  In 1998, 1997 and
1996, Chiron recognized equity in earnings of unconsolidated joint businesses of
$74.0 million, $106.4 million and $102.1 million, respectively. In each of these
years, equity in earnings of unconsolidated joint businesses consisted
substantially of revenues generated by Chiron's joint businesses with
 
                                       23
<PAGE>
Ortho-Clinical Diagnostics, Inc. ("Ortho"), a Johnson & Johnson company
("Chiron-Ortho joint business") and Hoechst AG ("Chiron Behring").
 
    CHIRON-ORTHO JOINT BUSINESS  In 1998, 1997 and 1996, Chiron's 50% share of
the pretax operating earnings of the Chiron-Ortho joint business was $73.5
million, $92.9 million and $95.8 million, respectively. At the end of each year,
the joint business records an annual inventory adjustment. As Chiron recognizes
revenues from the joint business on a lag basis, this adjustment is typically
made during the first quarter of each year. In 1998, the annual inventory
adjustment for 1997 resulted in a $4.1 million charge as compared with $0.8
million of income in 1997 and $3.8 million of income in 1996. Other items
contributing to the decrease in earnings in 1998 as compared with 1997 were (i)
lower foreign profits of the joint business due to the adverse impact of changes
in foreign currency exchange rates between years and higher manufacturing costs;
(ii) certain one-time contract termination fees; and (iii) certain joint
business asset write-offs related to the implementation of certain processes to
comply with stricter FDA guidelines mandated throughout the industry.
 
    CHIRON BEHRING  On July 1, 1996, Chiron acquired a 49% interest in Chiron
Behring. On March 31, 1998, Chiron acquired the remaining 51% interest in Chiron
Behring (refer to Note 5 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS). From
July 1, 1996 through the first quarter of 1998, equity in earnings of
unconsolidated joint businesses included Chiron's 49% share of the after-tax
operating results of Chiron Behring. Chiron's share of earnings of the joint
venture, including amortization of intangibles, was $2.4 million for the three
months ended March 31, 1998, $13.8 million for the year ended December 31, 1997
and $4.2 million for the six months ended December 31, 1996. Beginning March 31,
1998, Chiron Behring's results were consolidated with those of the Company.
 
    COLLABORATIVE AGREEMENT REVENUES  Chiron recognizes collaborative agreement
revenues for fees received for research services as they are performed and fees
received upon attainment of specified milestones. Collaborative agreement
revenues tend to fluctuate based on the amount of research services performed,
the status of projects under collaboration and the achievement of milestones.
Due to the nature of the Company's collaborative agreement revenue, results in
any one year are not necessarily indicative of results to be achieved in the
future. The Company's ability to generate additional collaborative agreement
revenues may depend, in part, on its ability to initiate and maintain
relationships with potential and current collaborative partners. There can be no
assurance that such relationships will be established or that current
collaborative agreement revenues will not decline. Significant fluctuations in
collaborative agreement revenues from year-to-year are discussed below.
 
    NOVARTIS AG  Chiron and Novartis AG ("Novartis") entered into an agreement
under which Novartis agreed to provide research funding for certain projects.
The funded projects currently consist of adult and pediatric vaccines,
Insulin-Like Growth Factor-I, Factor VIII and Herpes Simplex Virus-thymidine
kinase ("HSV-tk"). Novartis has agreed to fund, at Chiron's request and subject
to certain annual and aggregate limits, up to 100% of the development costs of
these projects incurred between January 1, 1995 and December 31, 1999. Under
this agreement, in 1998, 1997 and 1996, Chiron recognized collaborative
agreement revenues of $54.4 million, $53.3 million and $72.0 million,
respectively.
 
    Under the terms of a November 1995 agreement with Novartis, Chiron granted
Novartis a license to utilize Chiron's combinatorial chemistry techniques. In
exchange for this license,
 
                                       24
<PAGE>
Novartis agreed to pay Chiron $26.0 million over a five-year period, subject to
certain adjustments. In addition, this agreement provides for research funding
by Novartis, and certain upfront, milestone and royalty payments, as well as
product commercialization rights for both parties. In connection with this
agreement, Chiron recognized collaborative agreement revenues of $6.0 million,
$10.2 million and $9.4 million, in 1998, 1997 and 1996, respectively.
 
    In November 1996, Chiron and Novartis entered into a consent order with the
Federal Trade Commission pursuant to which Chiron agreed to grant a
royalty-bearing license to Rhone-Poulenc Rorer, Inc. under certain Chiron
patents related to the HSV-tk gene in the field of gene therapy. Chiron and
Novartis entered into a separate agreement which provided, among other things,
for certain cross licenses between Chiron and Novartis, and under which,
Novartis agreed to pay Chiron up to $60.0 million over five years. In connection
with this agreement, Chiron recognized collaborative agreement revenues of $15.0
million in both 1998 and 1997.
 
    JAPAN TOBACCO  In 1996, Japan Tobacco licensed Chiron's combinatorial
chemistry technologies for use in its research and development programs. The
agreement, which was terminated in 1998, included certain funding for Chiron's
effort in transferring the technology. Revenues recognized under this agreement
were $1.0 million, $7.8 million and $7.7 million in 1998, 1997 and 1996,
respectively.
 
    GREEN CROSS OF JAPAN  In 1995, Green Cross of Japan agreed to reimburse
Chiron for certain HIV research, product development and clinical trials. In
1998, the clinical trials related to this collaboration were discontinued. In
1998, 1997 and 1996, Chiron recognized revenues related to this agreement of
$1.2 million, $5.4 million and $9.2 million, respectively.
 
    ROYALTY AND LICENSE FEE REVENUES  The Company receives royalties and license
fees for products or technologies that are marketed, distributed or used by
third parties. In 1998, 1997 and 1996, Chiron recognized royalty and license fee
revenues of $125.3 million, $50.4 million and $36.6 million, respectively.
Royalty and license fee revenues may fluctuate based on the nature of the
related agreements and the timing of receipt of license fees. Results in any one
year are not necessarily indicative of results to be achieved in the future. In
addition, the Company's ability to generate additional royalty and license fee
revenues may depend, in part, on its ability to market and capitalize on its
technologies. There can be no assurance that the Company will be able to do so
or that future royalty and license fee revenues will not decline. Significant
fluctuations in royalty and license fee revenue from year-to-year are discussed
below.
 
    ROCHE PCR AGREEMENT  In accordance with a July 1991 agreement with F.
Hoffman-LaRoche Ltd. and its affiliates ("Roche"), the Company receives
royalties on sales of polymerase chain reaction ("PCR") products sold by Roche.
In 1998, Chiron recognized $15.2 million of royalty and license fee revenues
related to this agreement. Based on the terms of the agreement, Chiron does not
earn royalties on PCR products until Roche's annual net sales of PCR products
and services exceed $200.0 million (the "threshold amount"). As the threshold
amount resets at the beginning of each year, Roche's annual net sales must
exceed $200.0 million before Chiron will earn any royalties. As a result, the
Company does not expect to recognize royalties under this agreement until the
last half of each year. This agreement expires upon the earlier of December 31,
2000 or Chiron's recognition of an aggregate net present value of $30.0 million
as of the date of the agreement (discounted at 14.0%).
 
                                       25
<PAGE>
    BAYER CROSS-LICENSE AGREEMENT  In connection with the sale of Chiron
Diagnostics to Bayer, Chiron granted to Chiron Diagnostics rights under certain
Chiron patents, including patents relating to HIV and hepatitis C virus. In
exchange for these rights, Chiron Diagnostics paid to Chiron a license fee of
$100.0 million which is refundable in decreasing amounts over a period of three
years. In 1998, Chiron recognized revenues of $13.3 million which represents the
portion of the $100.0 million payment which became non-refundable during 1998.
The Company anticipates recognizing the remaining revenue over a period of three
years as follows: $39.2 million in 1999, $29.2 million in 2000, and $18.3
million in 2001.
 
    LICENSE FEE REVENUES  In January 1998, Chiron recognized $5.0 million of
revenues from a license fee related to an exclusive collaboration to research,
develop, manufacture and commercialize therapeutic and prophylactic products for
the treatment of hepatitis C in humans. In August 1998, Chiron recognized a
$24.0 million license fee under an agreement related to certain technologies
used in human vaccine products, including hepatitis B vaccine. Chiron will
receive future royalties related to this agreement and recognized $3.7 million
of such royalties in 1998.
 
    OTHER  In 1998, Chiron recognized $9.4 million of royalty and license fee
revenues due to the acquisition and consolidation of Chiron Behring in the
second quarter of 1998. In addition, royalties earned on Schering AG's European
sales of Betaferon(R) (interferon beta-1b) increased $4.5 million in 1998 as
compared with royalties earned in 1997 due to continued market expansion. The
increase in royalty and license fee revenues in 1997 as compared with 1996 is
primarily due to (i) an increase of $10.5 million related to royalties earned on
Schering AG's European sales of Betaferon(R), which sales began in the second
quarter of 1996; and (ii) an increase of $5.7 million from royalties received
from Merck & Co., Inc. for sales of hepatitis B recombinant vaccines.
 
    OTHER REVENUES  In 1998, 1997 and 1996, Chiron recognized other revenues of
$48.3 million, $50.1 million and $33.9 million, respectively. The Company's
other revenues may fluctuate due to the nature of the revenues recognized and
the timing of events giving rise to these revenues. There can be no guarantee
that the Company will be successful in obtaining additional revenues or that
other revenues will not decline. Significant fluctuations in other revenues from
year-to-year are discussed below.
 
    COMMISSION REVENUES  In 1998, other revenues included $18.0 million of
commission revenues generated by Chiron Behring, whose operations were
consolidated with those of the Company beginning in the second quarter of 1998.
These revenues consist of commissions received on sales made by Chiron Behring
of Pasteur Merieux Merck's hepatitis B product and of Centeon Pharma GmbH's
immunoglobulines products.
 
    INFORMATICS TECHNOLOGY  In connection with the sale of Chiron Diagnostics to
Bayer, Chiron recognized net revenues of $12.5 million in exchange for granting
Bayer a license to use, reproduce and sell certain technology developed by
Chiron's informatics business. The Company does not anticipate future revenues
from this technology, if any, to be commensurate with that achieved in 1998.
 
    AREDIA(R) (PAMIDRONATE DISODIUM FOR INJECTION)  From 1994 through April
1998, Chiron promoted Aredia(R) on behalf of Novartis. In April 1998, this
arrangement was terminated. In
 
                                       26
<PAGE>
connection with this arrangement, Chiron recognized other revenues of $9.8
million, $43.6 million and $30.2 million in 1998, 1997 and 1996, respectively.
 
COSTS AND EXPENSES
 
    GROSS PROFIT  Gross profit as a percentage of net product sales was 55.4%,
55.1% and 51.8%, in 1998, 1997 and 1996, respectively. Although 1998 gross
profit as a percentage of net product sales remained relatively constant with
that in 1997, the Company's 1998 gross profit percentage was impacted by (i) a
reduction in cost of sales of $6.0 million due to a change in estimated property
tax accruals created in prior periods; and (ii) an unfavorable mix of vaccine
products which, beginning in the second quarter of 1998, includes low margin
products manufactured and sold by Chiron Behring. In 1997, improvements in gross
profit as compared with 1996 primarily related to the mix of products sold,
which reflects the Company's first sales of PDGF. The increase in gross profit
percentage was partially offset, however, by charges recorded in 1996 related to
inventory reserves and temporarily idled manufacturing facilities in Italy. The
Company's gross profit percentages may fluctuate significantly in future periods
as the Company's product mix continues to evolve.
 
    RESEARCH AND DEVELOPMENT  In 1998, 1997 and 1996, Chiron recognized research
and development expenses of $294.2 million, $259.4 million and $248.8 million,
respectively. The Company's research and development expenses may fluctuate from
year-to-year depending upon the level of clinical trial-related activities. In
1998, the increase in research and development spending as compared with 1997
was primarily related to several of the Company's projects entering into later
stage clinical development. In addition, included in research and development
expense in 1998 was $14.1 million of expense generated by Chiron Behring, which
was acquired and consolidated during the second quarter of 1998. These increases
were partially offset by decreased spending related to Myotrophin(R) (rhIGF-I or
mecasermin [recombinant DNA origin]) due to the uncertainty surrounding the
FDA's approval of this product (refer to Item 1. Business).
 
    In 1997, the Company incurred an aggregate increase of $10.6 million in
research and development expenses, as compared with 1996, related to
collaborative agreements regarding Myotrophin(R) and certain genetic targets for
the treatment of cancer. In addition, in 1997, the Company incurred increased
spending related to genomics and gene therapies research as compared with 1996.
These increases in research and development expenses in 1997 were partially
offset by decreased spending related to Tissue Factor Pathway Inhibitor (TFPI)
which was in a phase 1 clinical trial in 1996.
 
    OTHER OPERATING EXPENSES  In 1998, 1997 and 1996, Chiron recognized selling,
general and administrative ("SG&A") expenses of $140.4 million, $106.9 million
and $103.5 million, respectively. The increase in SG&A expenses in 1998 as
compared with 1997 is primarily due to the acquisition and consolidation of
Chiron Behring, which contributed $34.3 million to SG&A expenses in 1998.
 
    As circumstances dictate, the Company reviews the carrying amount of its
manufacturing facilities by comparing the facilities' projected undiscounted net
cash flows against their respective carrying values. In 1997, the Company
recognized a $31.3 million impairment loss to record the Puerto Rico facility
and related machinery and equipment assets at their individual estimated fair
market values, determined on the basis of independent appraisals. There can be
 
                                       27
<PAGE>
no assurances that future impairment losses will not be incurred as the Company
continues to assess its operational efficiencies.
 
    During 1998, Chiron incurred net restructuring and reorganization charges of
$26.8 million related to (i) the integration of the Company's worldwide vaccines
operations; (ii) the closure of the Puerto Rico and St. Louis, Missouri
facilities; and (iii) the Company's ongoing rationalization of its U.S. business
operations. The restructuring and reorganization charges consisted of $23.3
million of employee-related costs to eliminate 400 positions in sales, marketing
and other administrative, manufacturing and research and development functions
and $7.1 million of facility-related costs. These charges were partially offset
by a benefit of $3.7 million due to a revised estimate of property and other
tax-related accruals recorded in 1995 in connection with the idling of the
Puerto Rico facility. The Company anticipates that it will record additional
restructuring and reorganization liabilities in future periods as it continues
to create a simpler, more efficient operating structure for the organization.
The liabilities related to the restructuring and reorganization expenses are
expected to be substantially settled within one year of accruing the related
charges.
 
    NON-OPERATING INCOME AND EXPENSE
 
    In August 1998, Chiron completed the sale of its manufacturing facility in
St. Louis, Missouri, resulting in a gain on sale of assets of $1.5 million. In
addition, in June 1998, the Company sold its fill and finishing facility in
Puerto Rico, resulting in a gain of $6.2 million.
 
    In 1998, 1997 and 1996, Chiron recognized interest expense of $24.7 million,
$31.6 million and $29.5 million, respectively. The decrease in interest expense
in 1998 as compared with 1997 is primarily due to the repayment of $100.0
million on the Company's lines of credit in January 1998. The borrowings were
outstanding under the Company's U.S. credit facilities and were repaid with a
portion of the proceeds received from the sale of Chiron Vision.
 
    Other income, net, consists primarily of investment income on the Company's
cash and investment balances and other non-operating gains and losses. In 1998,
1997 and 1996, Chiron recognized interest income of $29.6 million, $12.0 million
and $5.9 million, respectively. The increase in interest income in 1998 as
compared with 1997 is primarily due to higher average cash and investment
balances attributable to the net cash proceeds received from the sale of Chiron
Vision in the first quarter of 1998 and Chiron Diagnostics in the fourth quarter
of 1998.
 
    In connection with its research and development collaborations, the Company
may invest in equity securities of its collaborative partners. The price of
these securities is subject to significant volatility. In 1998, 1997 and 1996,
Chiron recognized a loss attributable to the other-than-temporary impairment of
certain of these equity securities of $8.4 million, $1.2 million and $1.5
million, respectively.
 
    In 1998 and 1997, Chiron recognized gains of $4.5 million and $5.5 million
related to the sale of certain equity securities. No significant gains related
to equity securities were recognized in 1996.
 
    On December 31, 1998, Chiron completed the sale of its 30% interest in
General Injectibles & Vaccines, Inc. ("GIV"), a distribution business, to Henry
Schein, Inc. and received payment in full of certain advances made by the
Company to GIV, for a total of $31.7 million in cash. The sale resulted in a net
gain of $1.8 million. In 1996, Chiron sold its 50% interest in a
 
                                       28
<PAGE>
generic cancer chemotherapeutics business to Ben Venue Laboratories, Inc. for
$14.0 million in cash, resulting in a gain of $12.2 million.
 
    In 1998, the annual tax provision was 25.8% of pretax income from continuing
operations, excluding restructuring and reorganization charges, a financial
reporting gain on sale of the Puerto Rico facility, and $6.0 million of
financial reporting income recognized in 1998 due to a change in estimated
property tax accruals. The reported effective tax rate for 1998 was 20.0% of
pretax income from continuing operations, including the impact of certain
prepaid income subject to tax in the current year ($31.5 million), the tax
effect of the reversal of certain accruals and the tax loss on the sale of the
Puerto Rico facility ($6.0 million) and the recognition of additional domestic
deferred tax benefits ($39.7 million). The Company has utilized substantially
all of its net operating loss and tax credit carryforwards for federal income
tax purposes as a result of the sales of Chiron Vision and Chiron Diagnostics.
The actual 1997 annual effective tax rate was 20.2%, exclusive of the impact of
the impairment loss which did not create a corresponding income tax benefit. The
increase in the effective tax rate of 5.6% in 1998 as compared with 1997, as
adjusted above, is primarily due to the tax effect of certain prepaid income,
partially offset by a higher proportion of non-U.S. income subject to tax at
lower rates and additional recognition of deferred tax assets. In 1996, the
provision for income taxes consisted primarily of foreign taxes related to the
Company's vaccines operations and U.S. alternative minimum taxes.
 
NEW ACCOUNTING STANDARD
 
    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which is effective for all
quarters of fiscal years beginning after June 15, 1999. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
In accordance with SFAS 133, an entity is required to recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. The Company is currently evaluating the effect that implementation
of SFAS 133 will have on its results of operations and financial position and
anticipates that it will implement SFAS 133 during the first quarter of 2000.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    Chiron's capital requirements have generally been funded from operations,
cash and investments on hand, debt borrowings, issuance of common stock and
off-balance sheet financing. Chiron's cash and investments in marketable debt
securities, which totaled $1.6 billion at December 31, 1998, are invested in a
diversified portfolio of investment grade financial instruments, including money
market instruments, corporate notes and bonds, government or government agency
securities, and other debt securities. By policy, the amount of credit exposure
to any one institution is limited, however, these investments are generally not
collateralized and primarily mature within three years.
 
                                       29
<PAGE>
    SOURCES AND USES OF CASH  Chiron had cash and cash equivalents of $513.3
million and $98.5 million at December 31, 1998 and 1997, respectively. In 1998,
net cash provided by operating activities was $231.7 million as compared with
$149.5 million in 1997. The increase in cash provided by operating activities
was largely due to increased profitability in 1998 as compared with 1997.
 
    In 1998, net cash provided by investing activities consisted of proceeds of
$1.3 billion from the sale of Chiron Vision and Chiron Diagnostics, $282.7
million from the sale and maturity of investments in marketable debt securities
and an aggregate $62.7 million from the sale of assets, equity securities and
interest in an affiliated company. These inflows of cash were partially offset
by the purchase of Chiron Behring of $54.8 million (net of cash acquired),
capital expenditures of $126.3 million and purchases of investments in
marketable debt securities of $1.2 billion. In 1997, the Company sold its
interest in its worldwide Quality Controls business for $29.9 million and had
proceeds of $120.3 million from the sale and maturity of investments in
marketable debt securities. These inflows of cash were offset by purchases of
investments in marketable debt securities of $219.5 million and capital
expenditures of $77.5 million.
 
    In 1998, net cash used in financing activities primarily consisted of the
repayment of $137.5 million of short-term borrowings offset, in part, by $66.6
million from the issuance of common stock. In 1997, net cash provided by
financing activities consisted of $61.5 million from the issuance of common
stock and $20.6 million from the issuance of short-term debt, offset, in part,
by the repayment of $32.3 million on the Company's notes payable and capital
leases.
 
    The Company is currently evaluating a number of business development
opportunities. To the extent that the Company is successful in reaching
agreements with third parties, these transactions may involve the expenditure of
a significant amount of the Company's current investment portfolio.
 
    BORROWING ARRANGEMENTS  Under a revolving, committed, unsecured credit
agreement with a major financial institution, Chiron can borrow up to $100.0
million in the U.S. This credit facility is guaranteed by Novartis and provides
various borrowing rate options, as defined in the agreement. This credit
facility matures in February 2003. There were no borrowings outstanding under
this credit facility at December 31, 1998. The Company had an additional credit
agreement which expired unused in March 1999. Chiron also has credit facilities
outside the U.S. which allow for total borrowings of $64.2 million. Under these
credit facilities, $17.6 million of borrowings were outstanding at December 31,
1998.
 
    LEASES  Chiron leases laboratory, office and manufacturing facilities, land
and equipment under noncancelable operating leases, which expire through 2037.
Future minimum lease payments are estimated to be approximately $115.7 million
in the aggregate, excluding a residual value guarantee of $172.6 million due
upon termination of an operating lease in 2003. As of December 31, 1998,
Novartis had guaranteed $152.9 million of the Company's operating lease
commitments (refer to Note 8 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS).
 
    OTHER COMMITMENTS  Effective July 1, 1998, Chiron and International Business
Machines Corporation ("IBM") entered into a ten-year information technology
services agreement under which IBM will provide Chiron with a full range of
information services. Chiron can terminate this agreement beginning July 1,
1999, subject to certain termination charges. If Chiron does not terminate this
agreement prior to its expiration, payments to IBM are expected to be
 
                                       30
<PAGE>
approximately $138.8 million in the aggregate. Through July 1, 1999, Chiron's
payments to IBM will total $19.3 million. Payments to IBM are subject to
adjustment depending upon the level of services and infrastructure equipment
provided by IBM.
 
    In future periods, the Company expects to incur substantial capital
spending. At December 31, 1998, the Company had various firm purchase
commitments totaling approximately $3.4 million. Contingent liabilities, both
individually and in the aggregate, were insignificant at December 31, 1998.
 
    MARKET RISK MANAGEMENT  The Company's cash flow and earnings are subject to
fluctuations due to changes in foreign currency exchange rates, interest rates,
and fair value of equity securities held. The Company attempts to limit its
exposure to some or all of these market risks through the use of various
financial instruments. These activities are discussed in further detail in Item
7A., "Quantitative and Qualitative Disclosures About Market Risk."
 
    YEAR 2000  Chiron is dependent on a number of computer systems and
applications to conduct its business. In the past, many computer programs were
written using two digits rather than four to identify the relevant year. These
programs may not be able to distinguish between 21(st) and 20(th) century dates
(for example, "00" may be read as the year 1900 when the year 2000 is intended).
This could result in significant system failures or miscalculations.
Accordingly, the Company has developed a comprehensive risk-based plan designed
to make its computer hardware and communication systems, software applications,
and facilities and other non-information technology-related functions Year 2000
compliant. The plan covers three phases including (i) planning, (ii) assessment,
and (iii) implementation. The Company has completed the planning and assessment
phases, and expects to complete the implementation phase by mid-1999. With
regard to the Company's computer hardware and communication systems, Chiron is
in the process of implementing a technology refresh program which was developed
in conjunction with IBM to update and standardize the Company's computer
hardware and communication systems. As a result of this program, the Company
expects its computer hardware and communication systems to be Year 2000
compliant by mid-1999. With regard to the Company's software applications, the
Company has identified critical and non-critical software applications and is in
the process of updating and/or developing software applications or certifying,
in a test environment, that the software applications are Year 2000 compliant. A
major component of remediating non-compliant software applications is the design
and implementation of an integrated information system. The Company anticipates
that implementation of this integrated information system will be completed by
mid-1999. With regard to the Company's facilities and other non-information
technology-related functions, including research, manufacturing, and inventory
management practices, the Company has performed an assessment and has begun
remediation which is intended to make its facilities and other non-information
technology-related functions Year 2000 compliant by mid-1999.
 
    The Company is currently utilizing both internal and external resources to
prepare for the year 2000. The Company believes that it should be able to
substantially complete the implementation of critical internal aspects of its
Year 2000 plan prior to the commencement of the year 2000. However, even with
substantial completion of internal remediation plans, the Company's customers,
suppliers and distributors also present risk of their own Year 2000 compliance
over which the Company has no control. The Company has initiated communications
with its critical suppliers and other external relationships to determine the
extent to which the Company may
 
                                       31
<PAGE>
be vulnerable to such parties' failure to resolve their own Year 2000 issues.
Where practicable, the Company is assessing and attempting to mitigate its risks
with respect to the failure of these entities to be Year 2000 compliant. The
effect, if any, on the Company's results of operations from the failure of such
parties to be Year 2000 compliant, cannot be reasonably estimated.
 
    The Company is also implementing contingency plans to address any Year 2000
issues that do arise. As part of the Company's contingency plans, the Company is
implementing specific plans for each critical system to ensure that the
necessary precautions are taken to prevent and/or address an unexpected system
failure. Many of these contingency plans are already in place as they are based
on existing plans that are required for the safe and proper operation of the
Company's business, including its research and manufacturing facilities.
 
    The SEC has requested that companies disclose the most likely worst case
scenario that could occur as a result of the Year 2000. The Company believes
that its most likely worst case scenario would be delays in product shipments
due to a complete or partial manufacturing shutdown and/or the delayed
implementation of the Company's integrated information system. To address the
manufacturing shutdown scenario, the Company plans, among other things, to
increase its inventory and re-prioritize staff assignments, as needed, and does
not believe that such a scenario is likely to occur. With regard to the delayed
implementation of the Company's integrated information system, the Company has
established a contingency plan to remediate its non-compliant business systems
if scheduled milestones are not met. To date, all significant milestones have
been met, and as a result, the Company has not implemented its contingency plan.
Although the Company is maintaining its ability to implement this contingency
plan, based on the Company's progress to date, and in consideration of the
amount of resources allocated to this project, the Company believes that
implementation of its integrated information system will occur substantially as
scheduled.
 
    The Company may incur significant costs in identifying and resolving Year
2000 issues, including internal staffing costs as well as consulting and other
expenses. In addition, in certain instances, the appropriate course of action
includes replacing or upgrading systems or equipment at a substantial cost to
the Company. Failure of the Company to successfully complete its implementation
of an integrated information system, which is a key element in the Company's
Year 2000 remediation program, may have a material adverse impact on the
Company's operations. The Company currently estimates that the costs associated
with preparing for the year 2000 will approximate $7.5 million. The costs
associated with the technology refresh program and the integrated information
system are not included in the above estimates as Year 2000 compliance is
incidental to the operational benefits expected to be derived from these
programs. Costs incurred through December 31, 1998 have been funded through
operations and approximate $1.0 million. The Company anticipates that most of
its Year 2000 costs will be incurred during the first half of 1999. These costs
are anticipated to be funded with cash on hand and cash generated through
operations.
 
    EURO CONVERSION  On January 1, 1999, eleven European Union member countries
established fixed conversion rates between their existing currencies ("legacy
currencies") and one common currency, the Euro. The Euro is currently traded on
currency exchanges and can be used in business transactions. The Company's
financial systems are Euro ready as of December 31, 1998. However, the Company
is still in the process of evaluating the effect, if any, of the Euro on the
Company's product pricing and gross profit percentages.
 
                                       32
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
 
    As a biotechnology company, Chiron is engaged in a rapidly evolving and
often unpredictable business. The forward-looking statements contained in this
Report and in other periodic reports, press releases and other statements issued
by the Company from time to time reflect management's current beliefs and
expectations concerning objectives, plans, strategies, future performance and
other future events. The following discussion highlights some of the factors,
many of which are beyond the Company's control, that could cause actual results
to differ.
 
    PROMISING TECHNOLOGIES ULTIMATELY MAY NOT PROVE SUCCESSFUL
 
    The Company focuses its research and development activities on areas in
which it has particular strengths, and on technologies which appear promising.
These technologies are on the "cutting edge" of modern science. As a result, the
outcome of any research or development program is highly uncertain. Only a very
small fraction of such programs ultimately result in commercial products or even
product candidates. Product candidates which initially appear promising often
fail to yield successful products. In many cases, preclinical or clinical
studies will show that a product candidate is not efficacious (that is, it does
not have the intended therapeutic effect), or that it raises safety concerns or
has other side effects which outweigh the intended benefit. Success in
preclinical or early clinical trials (which generally focus on safety issues)
may not translate into success in large scale clinical trials (which are
designed to show efficacy), often for reasons that are not fully understood. And
even after a product is approved and launched, general usage or post-marketing
studies may identify safety or other previously unknown problems with the
product which may result in regulatory approvals being suspended, limited to
narrow indications or revoked or which otherwise prevent successful
commercialization.
 
    REGULATORY APPROVALS
 
    The Company is required to obtain and maintain regulatory approval in order
to market most of its products. Generally, these approvals are on a
product-by-product and country-by-country basis and, in the case of therapeutic
products, a separate approval is required for each therapeutic indication. See
Item 1, "Business--Government Regulation". Product candidates which appear
promising based on early, and even large scale, clinical trials may not receive
regulatory approval. The results of clinical trials often are susceptible to
varying interpretations which may delay, limit or prevent approval or result in
the need for post-marketing studies.
 
    MANUFACTURING
 
    Most of the Company's products are biologics. Manufacturing biologic
products is complex. Unlike chemical pharmaceuticals, a biologic product
generally cannot be sufficiently characterized (in terms of its physical and
chemical properties) to rely on assaying of the finished product alone to ensure
that the product will perform in the intended manner. Accordingly, it is
essential to be able to both validate and control the manufacturing process:
that is, to show that the process works, and that the product is made strictly
and consistently in compliance with that process. Slight deviations in the
manufacturing process may result in unacceptable changes in the products which
may result in lot failures. Manufacturing processes which are used to produce
the (smaller) quantities of material needed for research and
 
                                       33
<PAGE>
development purposes may not be successfully scaled up to allow production of
commercial quantities at reasonable cost or at all. All of these difficulties
are compounded when dealing with novel biologic products which require novel
manufacturing processes. Accordingly, manufacturing is subject to extensive
government regulation. Even minor changes in the manufacturing process require
regulatory approval which, in turn, may require further clinical studies.
 
    PATENTS HELD BY THIRD PARTIES MAY DELAY OR PREVENT COMMERCIALIZATION
 
    Third parties, including competitors, have patents and patent applications
in the United States and other significant markets that may be useful or
necessary for the manufacture, use or sale of certain of the Company's products
and products in development. It is likely that third parties will obtain other
such patents in the future. Certain of these patents may be sufficiently broad
to prevent or delay Chiron from manufacturing or marketing products important to
the Company's current and future business. The scope, validity and
enforceability of such patents, if granted, the extent to which Chiron may wish
or need to obtain licenses to such patents, and the cost and availability of
such licenses cannot be accurately predicted. If Chiron does not obtain such
licenses, products may be withdrawn from the market or delays could be
encountered in market introduction while an attempt is made to design around
such patents. Alternatively, Chiron could find that the development, manufacture
or sale of such products is foreclosed. Chiron could also incur substantial
costs in challenging the validity and scope of such patents.
 
    PRODUCT ACCEPTANCE
 
    The Company may experience difficulties in launching new products, many of
which are novel products based on technologies which are unfamiliar to the
healthcare community. There can be no assurance that such products will be
accepted by healthcare providers and patients. In addition, government agencies
as well as private organizations involved in healthcare from time to time
publish guidelines or recommendations to healthcare providers and patients. Such
guidelines or recommendations can be very influential, and may adversely affect
the usage of the Company's products directly (for example, by recommending a
decreased dosage of the Company's product in conjunction with a concomitant
therapy) or indirectly (for example, by recommending a competitive product over
the Company's product).
 
    COMPETITION
 
    Chiron operates in a highly competitive environment, and the competition is
expected to increase. Competitors include large pharmaceutical, chemical and
blood testing companies, as well as biotechnology companies. Some of these
competitors, particularly large pharmaceutical and blood testing companies, have
greater resources than the Company. Accordingly, even if the Company is
successful in launching a product, it may find that a competitive product
dominates the market for any number of reasons, including the possibility that
the competitor may have launched its product first; the competitor may have
greater marketing capabilities; or the competitive product may have therapeutic
or other advantages. The technologies applied by the Company and its competitors
are rapidly evolving, and new developments frequently result in price
competition and product obsolescence.
 
                                       34
<PAGE>
    CHIRON'S PATENTS MAY NOT PREVENT COMPETITION OR GENERATE REVENUES
 
    Chiron seeks to obtain patents on its inventions. Without the protection of
patents, competitors may be able to use the Company's inventions to manufacture
and market competing products without being required to undertake the lengthy
and expensive development efforts made by Chiron and without having to pay
royalties or otherwise compensate Chiron for the use of the invention.
 
    There can be no assurance that patents and patent applications owned or
licensed to Chiron will provide substantial protection. Important legal
questions remain to be resolved as to the extent and scope of available patent
protection for biotechnology products and processes in the United States and
other important markets. It is not known how many of the Company's pending
patent applications will be granted, nor the effective coverage of those that
are granted. In the United States and other important markets, the issuance of a
patent is not conclusive as to its validity or the enforceable scope of its
claims. The Company has engaged in significant litigation to determine the scope
and validity of certain of its patents, and expects to continue to do so in the
future.
 
    Even if the Company is successful in obtaining and defending patents, there
can be no assurance that these patents will provide substantial protection. The
length of time necessary to successfully resolve patent litigation may allow
infringers to gain significant market advantage. Third parties may be able to
design around the patents and develop competitive products that do not use the
inventions covered by the patents. Many countries, including certain countries
in Europe, have compulsory licensing laws under which a patent owner may be
compelled to grant licenses to third parties (for example, the third party's
product is needed to meet a threat to public health or safety in that country,
or the patent owner has failed to "work" the invention in that country, or the
third party has patented improvements.) And most countries limit the
enforceability of patents against government agencies or government contractors.
In these countries, the patent owner may be limited to monetary relief and may
be unable to enjoin infringement, which could materially diminish the value of
the patent.
 
    AVAILABILITY OF REIMBURSEMENT; GOVERNMENT AND OTHER PRESSURES ON PRICING
 
    In the United States and other significant markets, sales of the Company's
products may be affected by the availability of reimbursement from the
government or other third parties, such as insurance companies. It is difficult
to predict the reimbursement status of newly approved, novel biotechnology
products. And current reimbursement policies for existing products may change.
In certain foreign markets, governments have issued regulations relating to the
pricing and profitability of pharmaceutical companies. There have been proposals
in the United States (at both the federal and state level) to implement such
controls. The growth of managed care in the United States also has placed
pressure on the pricing of healthcare products. These pressures can be expected
to continue.
 
    COSTS ASSOCIATED WITH REFOCUSING AND EXPANDING THE BUSINESS
 
    The Company is refocusing its efforts on its core businesses and also is
focused on improving operational efficiencies. In addition, management expects
to grow the business in areas in which the Company can be most competitive,
either through in-licensing, collaborations or acquisitions of products or
companies. In connection with these efforts, the Company
 
                                       35
<PAGE>
may incur significant charges, costs and expenses which could impact the
Company's profitability, including impairment losses, restructuring charges, the
write off of in-process technology, transaction-related expenses, costs
associated with integrating new businesses, and the cost of amortizing goodwill
and other intangibles.
 
    OTHER NEW PRODUCTS AND SOURCES OF REVENUE
 
    Many products in the Company's current pipeline are in relatively early
stages of research or development. The Company's ability to grow earnings in the
near- to medium- term may depend, in part, on its ability to initiate and
maintain other revenue generating relationships with third parties, such as
licenses to certain of the Company's technologies, and on its ability to
identify and successfully acquire rights to later-stage products from third
parties. There can be no assurance that such other sources of revenue will be
established.
 
    INTEREST RATE AND FOREIGN CURRENCY EXCHANGE RATE FLUCTUATIONS
 
    In 1998, the Company sold certain businesses for cash, including its IN
VITRO clinical diagnostics and ophthalmic surgical products businesses, and as a
result has significant cash balances and short-term investments. The Company's
financial results therefore are sensitive to interest rate fluctuations in the
United States. In addition, the Company sells products in many countries
throughout the world, and its financial results could be significantly affected
by fluctuations in foreign currency exchange rates or by weak economic
conditions in foreign markets.
 
    COLLABORATION PARTNERS
 
    An important part of the Company's research and development effort is
undertaken in collaborations with third parties. As circumstances change, the
Company and its corporate partner may develop conflicting priorities or other
conflicts of interest. The Company may experience significant delays and incur
significant expenses in resolving these conflicts and may not be able to resolve
these matters on acceptable terms. Even without conflicts of interest, the
parties may differ in their views as to how best to realize the value associated
with a current product or a product in development. In some cases, the corporate
partner may have responsibility for formulating and implementing key strategic
or operational plans. Decisions by corporate partners on key clinical,
regulatory, marketing (including pricing), inventory management and other issues
may prevent successful commercialization of the product or otherwise impact the
Company's profitability.
 
    STOCK PRICE VOLATILITY
 
    The price of the Company's stock, like that of other biotechnology
companies, is subject to significant volatility. The stock price may be affected
by any number of events, both internal and external to the Company. These
include, without limitation, results of clinical trials conducted by the Company
or by its competitors; announcements by the Company or its competitors regarding
product development efforts, including the status of regulatory approval
applications; the outcome of legal proceedings, including claims filed by the
Company against third parties to enforce its patents and claims filed by third
parties against the Company relating to patents held by the third parties; the
launch of competing products; the resolution of (or failure to resolve) disputes
with collaboration partners; corporate restructuring by the
 
                                       36
<PAGE>
Company; licensing activities by the Company; and the acquisition or sale by the
Company of products, products in development, or businesses.
 
    In connection with its research and development collaborations, from time to
time the Company invests in equity securities of its corporate partners. The
price of these securities also is subject to significant volatility, and may be
affected by, among other things, the types of events which affect the Company's
stock. Changes in the market price of these securities may impact the Company's
profitability.
 
    TAX
 
    The Company is taxable principally in the United States, Germany, Italy and
The Netherlands. All of these jurisdictions have in the past and may in the
future make changes to their corporate tax rates and other tax laws which could
increase the Company's tax provision in the future. The Company has negotiated a
number of rulings regarding income and other taxes which are subject to periodic
review and renewal. If such rulings are not renewed or are substantially
modified, taxes payable in particular jurisdictions could increase. While the
Company believes that all material tax liabilities are properly reflected in its
balance sheet, the Company is presently under audit in several jurisdictions and
there can be no assurance that Chiron will prevail in all cases in the event the
taxing authorities disagree with its interpretations of the tax law. In
addition, the Company has assumed liabilities for all income taxes incurred
prior to the sales of its former subsidiaries, Chiron Vision Corporation
(subject to certain limitations) and Chiron Diagnostics Corporation. Future
levels of research and development spending, capital investment and export sales
will impact the Company's entitlement to related tax credits and benefits which
have the effect of lowering its effective tax rate.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
    FOREIGN CURRENCY RISK A significant portion of the Company's operations
consists of manufacturing and sales activities in foreign countries exposing the
Company to the effects of changes in foreign currency rates. To manage foreign
currency exchange risks, Chiron enters into forward foreign currency contracts
("forwards") and cross currency interest rate swaps ("swaps") and purchases
foreign currency option contracts ("options"). Chiron does not use any of these
derivative instruments for trading or speculative purposes. The total notional
amount of these derivative financial instruments at December 31, 1998 and 1997
was $297.1 million and $296.5 million, respectively.
 
    The Company uses forwards to hedge the impact of currency fluctuations on
certain assets and liabilities denominated in nonfunctional currencies
("transaction exposures"). Typically, these contracts have maturities of three
months or less. Chiron's objective is to minimize the transaction gains and
losses recorded in current earnings that result from remeasuring foreign
denominated assets and liabilities based on exchange rate fluctuations. The
Company's transaction exposures are primarily denominated in major European
currencies. At December 31, 1998, these exposures amounted to $13.3 million and
were offset by forwards with a notional amount of $14.7 million. Based on
exposures as of December 31, 1998, a 10% adverse movement against the Company's
portfolio of transaction exposures and hedge contracts would result in a loss of
approximately $0.2 million. A 10% movement in the value of the dollar versus the
Company's portfolio of transaction exposures has occurred in one of the last
twelve
 
                                       37
<PAGE>
quarters. Foreign currency transaction gains and losses from continuing
operations, including the impact of hedging, were not significant in 1998, 1997
or 1996.
 
    In addition, Chiron also hedges certain anticipated exposures. The Company's
primary anticipated exposures are related to intercompany inventory purchases by
subsidiaries with functional currencies denominated in major European
currencies. The Company attempts to hedge approximately 80% of anticipated
currency exposures by purchasing quarterly put options. To limit hedging costs,
the Company generally purchases out-of-the-money options. As a result, Chiron
effectively does not purchase insurance for the first 2% to 5% of the exchange
rate risk. The total notional amount of the options at December 31, 1998 and
1997 was $55.6 million and $111.3 million, respectively. The options outstanding
at December 31, 1998 expire quarterly over a six-month period, and provide
protection against decreases in the value of the Euro beyond $1.05 per Euro. The
fair market value of option contracts outstanding at December 31, 1998 was $0.3
million. The risk associated with these hedging instruments is limited to their
fair market value.
 
    The Company has entered into a series of swaps to modify the interest and/or
currency characteristics of certain assets and liabilities denominated in
nonfunctional currencies. The objective of the swaps entered into by the Company
is to fix the interest and currency rate exposures associated with the Company's
wholly owned German subsidiary. The exposures are denominated in Deutsche marks.
The notional amounts of the Company's swaps at December 31, 1998 and 1997 were
$226.8 million and $139.1 million, respectively. If the Deutsche mark
strengthened or weakened by 10%, the value of the underlying exposure would
increase or decrease, respectively, by $22.7 million. After considering the
impact of hedging with swaps, the net increase or decrease from such currency
rate fluctuation would be reduced to $7.7 million. A 10% movement in the value
of the Deutsche mark versus the U.S. dollar has occurred in 3 of the last 10
years. The fair market value of the swaps is $1.8 million as of December 31,
1998. Currency fluctuations in the value of the German subsidiary's assets and
liabilities, as well as changes in the value of related swaps, are reflected as
a component of other comprehensive income or loss.
 
    INTEREST RATE RISK  The Company has exposure to changes in interest rates in
both its investment portfolio and certain floating rate liabilities and lease
commitments. The Company maintains investment portfolio holdings of various
issuers, types and maturities. The Company also has short-term debt obligations
with interest rates tied to LIBOR.
 
    Chiron's investment portfolio amounted to approximately $1.6 billion at
December 31, 1998. As of that date, the Company also had $234.4 million of
floating rate debt tied to LIBOR. The Company has a "natural hedge" against this
exposure as a result of its portfolio holdings in floating rate fixed income
securities tied to LIBOR. The analysis below focuses on the impact of changes in
interest rates to Chiron, and is based on a net unhedged portfolio balance of
$1.4 billion.
 
    The analysis assumes an immediate parallel increase or decrease in interest
rates of 150-basis points and examines the impact to Chiron over the next twelve
months. An immediate increase in interest rates of 150-basis points results in
higher interest income over the 12-month period, partially offset by an
immediate decline in the market value of securities held. The net impact of this
scenario is an estimated increase in total return to the portfolio of $1.2
million over the 12-month period. Similarly, a 150-basis point decrease results
in a decrease in total
 
                                       38
<PAGE>
return to the portfolio of $0.9 million. The impact on reported earnings will be
greater given that unrealized changes in the value of the portfolio are reported
in other comprehensive income or loss. Chiron currently does not hedge these
exposures. The effect of these changes in interest rates on the Company's
portfolio, as measured over a 12-month period, are mitigated by the relatively
short duration of Chiron's portfolio.
 
    A 150-basis point movement in the Federal Funds rate has occurred in 4 of
the last 10 years, a 100-basis point movement has occurred in 6 of the last 10
years, and a 50-basis point movement has occurred in 9 of the last 10 years.
 
    EQUITY SECURITIES RISK  The Company has exposure to equity price risk
because of its investments in equity securities. Typically, the Company obtains
these securities through its collaboration agreements with other pharmaceutical
and biotechnology partners. These securities are generally classified as
available-for-sale and consequently, are recorded on the balance sheet at fair
value with unrealized gains or losses reported as a component of other
comprehensive income or loss. Other-than-temporary losses are recorded against
earnings in the same period the loss was deemed to have occurred. The Company
does not currently hedge this exposure and there can be no assurance that
other-than-temporary losses will not have a material adverse impact on the
Company's results of operations in the future. The Company recorded charges of
$8.4 million, $1.2 million and $1.5 million in 1998, 1997 and 1996,
respectively, to write down certain available-for-sale equity securities for
which the decline in fair value was deemed to be other-than-temporary. Changes
in share prices or in the volatility of share prices affect the value of
Chiron's equity portfolio. As of December 31, 1998, if the market price of
Chiron's equity investments decreased by 10%, the market value of the equity
portfolio would decrease by $2.4 million.
 
    COUNTERPARTY RISK  Chiron manages the risk of counterparty default on its
derivative financial instruments through the use of credit standards,
counterparty diversification and monitoring of counterparty financial condition.
All derivative financial instruments are executed with financial institutions
with strong credit ratings, which minimizes risk of loss due to nonpayment.
Chiron has not experienced any losses due to counterparty default.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    The information required by this item is incorporated by reference to the
financial statements listed in Item 14(a) of Part IV of this Report.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
    Not applicable.
 
                                       39
<PAGE>
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    Information regarding directors and executive officers of the Company is
incorporated by reference to the sections entitled "Election of Directors" and
"Section 16 (a) Beneficial Ownership Reporting Compliance" in the Company's
definitive Proxy Statement with respect to Chiron's 1999 Annual Meeting to be
filed with the Securities and Exchange Commission within 120 days of January 3,
1999 (the "Proxy Statement"). Information as to the Company's executive officers
appears at the end of Part I of this Report.
 
ITEM 11. EXECUTIVE COMPENSATION
 
    The information in the section entitled "Compensation of Directors and
Executive Officers" in the Proxy Statement is incorporated herein by this
reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    The information in the sections entitled "Certain Beneficial Owners" and
"Security Ownership of Directors and Executive Officers" in the Proxy Statement
is incorporated herein by this reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    The information in the section entitled "Certain Relationships and Related
Transactions" in the Proxy Statement is incorporated herein by this reference.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
(a) 1.  INDEX TO FINANCIAL STATEMENTS
 
    The following Financial Statements are included herein:
 
<TABLE>
<CAPTION>
                                                                                          PAGE NUMBER
                                                                                          ------------
<S>                                                                                       <C>
Report of KPMG LLP, Independent Auditors................................................      F-1
Consent of KPMG LLP, Independent Auditors...............................................      F-2
Consolidated Balance Sheets at December 31, 1998 and 1997...............................    F-3-F-4
Consolidated Statements of Operations for each of the three years ended December 31,
  1998, 1997 and 1996...................................................................    F-5-F-6
Consolidated Statements of Comprehensive Income for each of the three years ended
  December 31, 1998, 1997 and 1996......................................................      F-7
Consolidated Statements of Stockholders' Equity for each of the three years ended
  December 31, 1998, 1997 and 1996......................................................      F-8
Consolidated Statements of Cash Flows for each of the three years ended December 31,
  1998, 1997 and 1996...................................................................      F-9
Notes to Consolidated Financial Statements..............................................   F-10-F-47
</TABLE>
 
                                       40
<PAGE>
    2.  INDEX TO FINANCIAL STATEMENT SCHEDULES
 
    The following Schedule is filed as part of this Form 10-K Annual Report:
 
<TABLE>
<CAPTION>
                                                                                               PAGE
                                                                                              NUMBER
                                                                                            ----------
<S>                                                                                         <C>
  II Valuation and Qualifying Accounts and Reserves.......................................     F-48
</TABLE>
 
    All other schedules are omitted because they are not applicable, not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
 
(b) Reports on Form 8-K
 
    On December 15, 1998, the Company filed a Current Report on Form 8-K,
    reporting under Item 2 the completion of the sale of its IN VITRO
    diagnostics business to Bayer Corporation on November 30, 1998, and also
    reporting under Item 5 that in connection with that sale it had entered into
    a Cross-License Agreement with Chiron Diagnostics Corporation pursuant to
    which, among other things, Chiron granted to Chiron Diagnostics Corporation
    certain rights under certain Chiron patents, including patents relating to
    hepatitis C virus and human immunodeficiency virus.
 
(c) Exhibits
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                     EXHIBIT
------    --------------------------------------------------------------------------
<C>       <S>
  3.01    Restated Certificate of Incorporation of the Registrant, as filed with the
            Office of the Secretary of State of Delaware on August 17, 1987,
            incorporated by reference to Exhibit 3.01 of the Registrant's Form 10-K
            report for fiscal year 1996.
 
  3.02    Certificate of Amendment of Restated Certificate of Incorporation of the
            Registrant, as filed with the Office of the Secretary of State of
            Delaware on December 12, 1991, incorporated by reference to Exhibit 3.02
            of the Registrant's Form 10-K report for fiscal year 1996.
 
  3.03    Certificate of Amendment of Restated Certificate of Incorporation of the
            Registrant, as filed with the Office of the Secretary of State of
            Delaware on May 22, 1996, incorporated by reference to Exhibit 3.04 of
            the Registrant's Form 10-Q report for the period ended June 30, 1996.
 
  3.04    Bylaws of the Registrant, as amended, incorporated by reference to Exhibit
            3.03 of the Registrant's Form 10-Q report for the period ended June 28,
            1998.
 
  4.01    Indenture, dated as of May 21, 1987, between Cetus Corporation and Bankers
            Trust Company, Trustee, incorporated by reference to Exhibit 4.01 of the
            Registrant's Form 10-Q report for the period ended September 30, 1994.
 
  4.02    First Supplemental Indenture, dated as of December 12, 1991, by and among
            the Registrant, Cetus Corporation, and Bankers Trust Company,
            incorporated by reference to Exhibit 4.02 of the Registrant's Form 10-K
            for fiscal year 1997.
</TABLE>
 
                                       41
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                     EXHIBIT
------    --------------------------------------------------------------------------
<C>       <S>
  4.03    Second Supplemental Indenture, dated as of March 25, 1996, by and among
            the Registrant, Cetus Oncology Corporation (formerly Cetus Corporation),
            and Bankers Trust Company, incorporated by reference to Exhibit 4.03 of
            the Registrant's Form 10-Q report for the period ended June 30, 1996.
 
  4.04    Indenture, dated as of November 15, 1993, between the Registrant and The
            First National Bank of Boston, as Trustee.
 
 10.001   Purchase Agreement between BNP Leasing Corporation and the Registrant,
            dated June 28, 1996, incorporated by reference to Exhibit 10.90 of the
            Registrant's Form 10-Q report for the period ended June 30, 1996.
 
 10.002   Lease Agreement between BNP Leasing Corporation and the Registrant, dated
            June 28, 1996, incorporated by reference to Exhibit 10.91 of the
            Registrant's Form 10-Q report for the period ended June 30, 1996.
 
 10.003   Ground Lease between BNP Leasing Corporation and the Registrant, dated
            June 28, 1996, incorporated by reference to Exhibit 10.92 of the
            Registrant's Form 10-Q report for the period ended June 30, 1996.
 
 10.004   through 10.099 Reserved
 
 10.101   Revolving Credit Agreement, dated as of February 27, 1998, between the
            Registrant and Bank of America National Trust and Savings Association,
            incorporated by reference to Exhibit 10.101 of Registrant's Form 10-K
            for fiscal year 1997.
 
 10.102   Guaranty, dated as of September 29, 1994, made by Registrant, in favor of
            Bankers Trust Company, as trustee, incorporated by reference to Exhibit
            10.52 of the Registrant's Form 10-Q report for the period ended
            September 30, 1994.
 
 10.103   Guaranty, dated as of September 29, 1994, made by Cetus Corporation, in
            favor of The First National Bank of Boston, as trustee, incorporated by
            reference to Exhibit 10.53 of the Registrant's Form 10-Q report for the
            period ended September 30, 1994.
 
 10.104   Stock Purchase and Warrant Agreement dated May 9, 1989, between Cetus
            Corporation and Hoffmann-La Roche Inc., incorporated by reference to
            Exhibit 10.36 of the Registrant's Form 10-Q report for the period ended
            September 30, 1994.
 
 10.105   Letter Agreement, dated as of December 12, 1991, relating to Stock
            Purchase and Warrant Agreement between Registrant and Hoffmann-La Roche
            Inc., incorporated by reference to Exhibit 10.51 of Registrant's Form
            10-K report for fiscal year 1996.
 
 10.106   through 10.199 Reserved
</TABLE>
 
                                       42
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                     EXHIBIT
------    --------------------------------------------------------------------------
<C>       <S>
 10.201   Agreement between the Registrant and Ortho Diagnostic Systems, Inc., a New
            Jersey corporation, dated August 17, 1989, and Amendment to
            Collaboration Agreement between Ortho Diagnostic Systems, Inc. and
            Registrant, dated December 22, 1989 (with certain confidential
            information deleted), incorporated by reference to Exhibit 10.14 of the
            Registrant's Form 10-Q report for the period ended September 30, 1994.
 
 10.202   License and Supply Agreement between Ortho Diagnostic Systems, Inc., a New
            Jersey corporation, the Registrant and Abbott Laboratories, an Illinois
            corporation, dated August 17, 1989 (with certain confidential
            information deleted), incorporated by reference to Exhibit 10.15 of the
            Registrant's Form 10-Q report for the quarter ended June 30, 1994.
 
 10.203   Regulatory Filing, Development and Supply Agreement between the
            Registrant, Cetus Oncology Corporation, a wholly-owned subsidiary of the
            Registrant, and Schering AG, a German company, dated as of May 10, 1993.
            (Certain information has been omitted from the Agreement and filed
            separately with the Securities and Exchange Commission pursuant to a
            request by Registrant for confidential treatment pursuant to Rule 24b-2.
            The omitted confidential information has been identified by the
            following statement: "Confidential portions of material have been
            omitted and filed separately with the Securities and Exchange
            Commission".)
 
 10.204   Letter Agreement dated December 30, 1993 by and between Registrant and
            Schering AG, a German company. (Certain information has been omitted
            from the Agreement and filed separately with the Securities and Exchange
            Commission pursuant to a request by Registrant for confidential
            treatment pursuant to Rule 24b-2. The omitted confidential information
            has been identified by the following statement: "Confidential portions
            of material have been omitted and filed separately with the Securities
            and Exchange Commission".)
 
 10.205   Amendment Agreement (HDS Fees and Deeply Discounted Vials) dated as of
            September 23, 1997 between Registrant and Schering Aktiengesellschaft,
            incorporated by reference to Exhibit 10.205 of the Registrant's Form
            10-K report for fiscal year 1997. (Certain information has been omitted
            from the Agreement and filed separately with the Securities and Exchange
            Commission pursuant to a request by Registrant for confidential
            treatment pursuant to Rule 24b-2. The omitted confidential information
            has been identified by the following statement: "Confidential Treatment
            Requested".)
</TABLE>
 
                                       43
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                     EXHIBIT
------    --------------------------------------------------------------------------
<C>       <S>
 10.206   Agreement between the Registrant and Cephalon, Inc. dated as of January 7,
            1994, and Letter Agreements between the Registrant and Cephalon dated
            January 13, 1995 and May 23, 1995, incorporated by reference to Exhibit
            10.85 of the Registrant's Form 10-K report for fiscal year 1995.
            (Certain information has been omitted from the Agreements and filed
            separately with the Securities and Exchange Commission pursuant to a
            request by Registrant for confidential treatment pursuant to Rule 24b-2.
            The omitted confidential information has been identified by the
            following statement: "Confidential Treatment Requested".)
 
 10.207   Letter Agreement dated as of December 4, 1997, between the Registrant and
            Ortho Pharmaceutical Corporation and Ortho Biotech, Inc., incorporated
            by reference to Exhibit 10.207 of the Registrant's Form 10-K report for
            fiscal year 1997. (Certain information has been omitted from the
            Agreement and filed separately with the Securities and Exchange
            Commission pursuant to a request by Registrant for confidential
            treatment pursuant to Rule 24b-2. The omitted confidential information
            has been identified by the following statement: "Confidential Treatment
            Requested".)
 
 10.208   through 10.299 Reserved
 
 10.301   Settlement Agreement on Purified IL-2, made as of April 14, 1995, by and
            between Cetus Oncology Corporation, dba Chiron Therapeutics, a Delaware
            corporation, and Takeda Chemical Industries, Ltd., a Japanese
            corporation, incorporated by reference to Exhibit 10.74 of the
            Registrant's Form 10-Q report for the period ended July 2, 1995.
            (Certain information has been omitted from the Agreement pursuant to a
            request by Registrant for confidential treatment pursuant to Rule
            24b-2.)
 
 10.302   Agreement, effective as of December 21, 1988, by and between Hoffmann-La
            Roche Inc., a New Jersey corporation, and Cetus Corporation,
            incorporated by reference to Exhibit 10.70 of the Registrant's Form 10-Q
            report for the period ended April 2, 1995. (Certain information has been
            omitted from the Agreement pursuant to a request by Registrant for
            confidential treatment pursuant to Rule 24b-2.)
 
 10.303   Agreement, effective as of December 21, 1988, by and among F. Hoffmann-La
            Roche Ltd., a Swiss corporation, Cetus Corporation, and EuroCetus
            International, B.V., a Netherlands Antilles corporation, incorporated by
            reference to Exhibit 10.71 of the Registrant's Form 10-Q report for the
            period ended April 2, 1995. (Certain information has been omitted from
            the Agreement pursuant to a request by Registrant for confidential
            treatment pursuant to Rule 24b-2.)
</TABLE>
 
                                       44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                     EXHIBIT
------    --------------------------------------------------------------------------
<C>       <S>
 10.304   License Agreement made and entered into December 1, 1987, by and between
            Sloan Kettering Institute for Cancer Research, a not-for-profit New York
            corporation, and Cetus Corporation, incorporated by reference to Exhibit
            10.75 of the Registrant's Form 10-Q report for the period ended July 2,
            1995. (Certain information has been omitted from the Agreement pursuant
            to a request by Registrant for confidential treatment pursuant to Rule
            24b-2.)
 
 10.305   Cross-License Agreement dated as of November 30, 1998, between the
            Registrant and Chiron Diagnostics Corporation, incorporated by reference
            to Exhibit 10.311 of the Registrant's current report on Form 8-K dated
            November 30, 1998. (Certain information has been omitted from the
            Agreement and filed separately with the Securities and Exchange
            Commission pursuant to a request by Registrant for confidential
            treatment pursuant to Rule 24b-2. The omitted confidential information
            has been identified by the following statement "Confidential Treatment
            Requested".)
 
 10.306   through 10.399 Reserved
 
 10.401   Stock Purchase Agreement, dated as of October 21, 1997, between Bausch &
            Lomb Incorporated and Registrant, incorporated by reference to Exhibit
            99.1 of the Registrant's current report on Form 8-K dated January 12,
            1998.
 
 10.402   Stock Purchase Agreement, dated as of September 17, 1998, among Bayer
            Corporation, the Registrant and Chiron Diagnostics Corporation, and
            Exhibits thereto, incorporated by reference to Exhibit 10.402 of the
            Registrant's Form 10-Q for the period ended September 27, 1998. (Certain
            information has been omitted from the Agreement and filed separately
            with the Securities and Exchange Commission pursuant to a request by
            Registrant for confidential treatment pursuant to Rule 24b-2. The
            omitted confidential information has been identified by the following
            statement "Confidential Treatment Requested".)
 
 10.403   Asset Transfer Agreement dated November 30, 1998, among the Registrant,
            Chiron Diagnostics Corporation and Bayer Corporation, incorporated by
            reference to Exhibit 10.403 of the Registrant's current report on Form
            8-K dated November 30, 1998.
 
 10.404   Through 10.499 Reserved
 
 10.501   Chiron 1991 Stock Option Plan, as amended, incorporated by reference to
            Annex 2 of the Registrant's Proxy Statement dated April 11, 1997.*
 
 10.502   Form of Stock Option Agreement, Chiron 1991 Stock Option Plan, as amended,
            for Employees of the Registrant, incorporated by reference to Exhibit
            10.510 of the Registrant's Form 10-Q report for the period ended
            September 27, 1998.*
</TABLE>
 
                                       45
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                     EXHIBIT
------    --------------------------------------------------------------------------
<C>       <S>
 10.503   Form of Stock Option Agreement, Chiron 1991 Stock Option Plan, as amended,
            for Non-Employee Directors of the Registrant, incorporated by reference
            to Exhibit 10.511 of the Registrant's Form 10-Q report for the period
            ended September 27, 1998.*
 
 10.504   Form of Automatic Share Right Agreement, Chiron 1991 Stock Option Plan, as
            amended, incorporated by reference to Exhibit 10.19 of Registrant's Form
            10-Q report for the period ended September 29, 1996.*
 
 10.505   Forms of Option Agreements, Cetus Corporation Amended and Restated Common
            Stock Option Plan, incorporated by reference to Exhibit 10.27 of
            Registrant's Form 10-Q report for the period ended March 30, 1997.*
 
 10.506   Forms of Supplemental Letter concerning the assumption of Cetus
            Corporation options by the Registrant, incorporated by reference to
            Exhibit 10.27 of Registrant's Form 10-K report for fiscal year 1996.*
 
 10.507   Form of Option Agreement (with Purchase Agreements attached thereto)
            between Cetus Corporation and each former limited partner of Cetus
            Healthcare Limited Partnership, a California limited partnership,
            incorporated by reference to Exhibit 10.31 of the Registrant's Form 10-Q
            report for the period ended September 30, 1994.
 
 10.508   Form of Option Agreement (with forms of Purchase Agreements attached
            thereto), dated December 30, 1986, between Cetus Corporation and each
            former limited partner of Cetus Healthcare Limited Partnership II, a
            California limited partnership, incorporated by reference to Exhibit
            10.32 of the Registrant's Form 10-Q report for the period ended
            September 30, 1994.
 
 10.509   Description of Chiron Corporation's 1998 Executive Officers Variable
            Compensation Program.*
 
 10.510   Form of Performance Unit Agreement, Chiron 1991 Stock Option Plan, as
            amended, incorporated by reference to Exhibit 10.94 of the Registrant's
            Form 10-K report for fiscal year 1996.*
 
 10.511   through 10.599 Reserved
 
 10.601   Indemnification Agreement between the Registrant and Dr. William J.
            Rutter, dated as of February 12, 1987 (which Form of agreement is used
            for each member of Registrant's Board of Directors), incorporated by
            reference to Exhibit 10.21 of the Registrant's Form 10-Q report for the
            period ended September 30, 1994.
 
 10.602   Supplemental Benefits Agreement, dated July 21, 1989, between the
            Registrant and Dr. William J. Rutter, incorporated by reference to
            Exhibit 10.27 of the Registrant's Form 10-Q report for the period ended
            September 30, 1994.*
 
 10.603   Letter Agreement dated September 26, 1990 between the Registrant and
            William G. Green.*
</TABLE>
 
                                       46
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                     EXHIBIT
------    --------------------------------------------------------------------------
<C>       <S>
 10.604   Letter Agreements dated September 11, 1992, July 15, 1994 and September
            14, 1994 between the Registrant and Lewis T. Williams, incorporated by
            reference to Exhibit 10.54 of the Registrant's Form 10-Q report for the
            period ended September 30, 1994.*
 
 10.605   Letter Agreement dated January 27, 1998, between the Registrant and Lewis
            T. Williams, incorporated by reference to Exhibit 10.605 of the
            Registrant's Form 10-K for fiscal year 1997.*
 
 10.606   Letters dated May 6, 1996 and May 25, 1996 to Magnus Lundberg,
            incorporated by reference to Exhibit 10.61 of the Registrant's Form 10-Q
            report for the period ended September 29, 1996.*
 
 10.607   Letter dated January 8, 1997 to Magnus Lundberg, incorporated by reference
            to Exhibit 10.65 of the Registrant's Form 10-K report for fiscal year
            1996.*
 
 10.608   Letter dated March 17, 1998 to Magnus Lundberg, incorporated by reference
            to Exhibit 10.608 of the Registrant's Form 10-K for fiscal year 1997.*
 
 10.609   Letter Agreement between the Registrant and Dr. Richard W. Barker, dated
            May 1, 1996, incorporated by reference to Exhibit 10.88 of the
            Registrant's Form 10-Q report for the period ended June 30, 1996.*
 
 10.610   Letter Agreement dated July 8, 1998, between the Registrant and Richard W.
            Barker, Ph.D., incorporated by reference to Exhibit 10.613 of the
            Registrant's Form 10-Q report for the period ended September 27, 1998.*
            (Certain information has been omitted from the Agreement and filed
            separately with the Securities and Exchange Commission pursuant to a
            request by Registrant for confidential treatment pursuant to Rule 24b-2.
            The omitted confidential information has been identified by the
            following statement "Confidential Treatment Requested".)
 
 10.611   Letter Agreement dated March 18, 1998 between Registrant and Sean P.
            Lance, incorporated by reference to Exhibit 10.611 of the Registrant's
            Form 10-K for fiscal year 1997.*
 
 10.612   Amended and Restated Promissory Note dated as of August 7, 1998, executed
            by Sean P. Lance for the benefit of Registrant.*
 
 10.613   Letter Agreement dated March 19, 1998 between Registrant and James R.
            Sulat, incorporated by reference to Exhibit 10.612 of the Registrant's
            Form 10-K for fiscal year 1997.*
 
 10.614   through 10.699 Reserved
 
 10.701   Investment Agreement dated as of November 20, 1994 among Ciba-Geigy
            Limited, Ciba-Geigy Corporation, Ciba Biotech Partnership, Inc. and
            Chiron Corporation, incorporated by reference to Exhibit 10.54 of the
            Registrant's current report on Form 8-K dated November 20, 1994.
</TABLE>
 
                                       47
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                     EXHIBIT
------    --------------------------------------------------------------------------
<C>       <S>
 10.702   Governance Agreement dated as of November 20, 1994 among Ciba-Geigy
            Limited, Ciba-Geigy Corporation and Chiron Corporation, incorporated by
            reference to Exhibit 10.55 of the Registrant's current report on Form
            8-K dated November 20, 1994.
 
 10.703   Subscription Agreement dated as of November 20, 1994 among Ciba-Geigy
            Limited, Ciba-Geigy Corporation, Ciba Biotech Partnership, Inc. and
            Chiron Corporation, incorporated by reference to Exhibit 10.56 of the
            Registrant's current report on Form 8-K dated November 20, 1994.
 
 10.704   Cooperation and Collaboration Agreement dated as of November 20, 1994,
            between Ciba-Geigy Limited and Chiron Corporation, incorporated by
            reference to Exhibit 10.57 of the Registrant's current report on Form
            8-K dated November 20, 1994.
 
 10.705   Registration Rights Agreement dated as of November 20, 1994 between Ciba
            Biotech Partnership, Inc. and Chiron Corporation, incorporated by
            reference to Exhibit 10.58 of the Registrant's current report on Form
            8-K dated November 20, 1994.
 
 10.706   Market Price Option Agreement dated as of November 20, 1994 among Ciba-
            Geigy Limited, Ciba-Geigy Corporation, Ciba Biotech Partnership, Inc.
            and Chiron Corporation, incorporated by reference to Exhibit 10.59 of
            the Registrant's current report on Form 8-K dated November 20, 1994.
 
 10.707   Amendment dated as of January 3, 1995 among Ciba-Geigy Limited, Ciba-Geigy
            Corporation, Ciba Biotech Partnership, Inc. and Chiron Corporation,
            incorporated by reference to Exhibit 10.60 of the Registrant's current
            report on Form 8-K dated January 4, 1995.
 
 10.708   Supplemental Agreement dated as of January 3, 1995 among Ciba-Geigy
            Limited, Ciba-Geigy Corporation, Ciba Biotech Partnership, Inc. and
            Chiron Corporation, incorporated by reference to Exhibit 10.61 of the
            Registrant's current report on Form 8-K dated January 4, 1995.
 
 10.709   Amendment with Respect to Employee Stock Option Arrangements dated as of
            January 3, 1995 among Ciba-Geigy Limited, Ciba-Geigy Corporation, Ciba
            Biotech Partnership, Inc. and Chiron Corporation, incorporated by
            reference to Exhibit 10.62 of the Registrant's current report on Form
            8-K dated January 4, 1995.*
 
 10.710   Agreement, dated November 27, 1996, between Ciba-Geigy Limited and the
            Registrant, incorporated by reference to Exhibit 10.92 of the
            Registrant's Form 8-K report filed with the Commission on December 17,
            1996.
 
 10.711   Amendment dated March 26, 1997, to Agreement dated November 27, 1996,
            between Novartis Pharma AG and the Registrant, incorporated by reference
            to Exhibit 10.44 of the Registrant's Form 10-Q report for the period
            ended March 30, 1997.
</TABLE>
 
                                       48
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                     EXHIBIT
------    --------------------------------------------------------------------------
<C>       <S>
 10.712   Letter Agreement dated December 19, 1997, between Novartis Pharma AG and
            the Registrant, incorporated by reference to Exhibit 10.712 of the
            Registrant's Form 10-K for fiscal year 1997.
 
 10.713   Letter Agreement dated December 24, 1997, between Novartis Corporation and
            the Registrant, incorporated by reference to Exhibit 10.713 of the
            Registrant's Form 10-K for fiscal year 1997. (Certain information has
            been omitted from the Agreement and filed separately with the Securities
            and Exchange Commission pursuant to a request by Registrant for
            confidential treatment pursuant to Rule 24b-2. The omitted confidential
            information has been identified by the following statement:
            "Confidential Treatment Requested".)
 
 10.714   Letter Agreement, dated May 6, 1996, as to consent to assignment of
            contracts to Novartis Limited, among the Registrant, Ciba-Geigy Limited,
            Ciba-Geigy Corporation and Ciba Biotech Partnership, Inc., incorporated
            by reference to Exhibit 10.43 of the Registrant's Form 10-K report for
            fiscal year 1996.
 
 10.715   Letter Agreement, dated December 19, 1996, regarding compensation paid by
            the Registrant for director services performed by employees of
            Ciba-Geigy Limited, incorporated by reference to Exhibit 10.44 of the
            Registrant's Form 10-K report for fiscal year 1996.*
 
 10.716   [Reserved.]
 
 10.717   Chiron Funding L.L.C. Limited Liability Company Agreement, entered into
            and effective as of December 28, 1995, among the Registrant, Chiron
            Biocine Company and Biocine S.p.A. and Ciba-Geigy Corporation,
            incorporated by reference to Exhibit 10.80 of the Registrant's Form 10-K
            report for fiscal year 1995. (Certain information has been omitted from
            the Agreement and filed separately with the Securities and Exchange
            Commission pursuant to a request by Registrant for confidential
            treatment pursuant to Rule 24b-2. The omitted confidential information
            has been identified by the following statement: "Confidential Treatment
            Requested".)
 
 10.718   Agreement between Ciba-Geigy Limited and the Registrant made November 15,
            1995, incorporated by reference to Exhibit 10.81 of the Registrant's
            Form 10-K report for fiscal year 1995. (Certain information has been
            omitted from the Agreement and filed separately with the Securities and
            Exchange Commission pursuant to a request by Registrant for confidential
            treatment pursuant to Rule 24b-2. The omitted confidential information
            has been identified by the following statement: "Confidential Treatment
            Requested".)
 
 10.719   Reimbursement Agreement dated as of March 24, 1995, between Ciba-Geigy
            Limited, a Swiss corporation, and the Registrant, incorporated by
            reference to Exhibit 10.76 of the Registrant's Form 10-Q report for the
            period ended July 2, 1995.
</TABLE>
 
                                       49
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                     EXHIBIT
------    --------------------------------------------------------------------------
<C>       <S>
 10.720   Reimbursement Agreement, dated as of June 28, 1996, between Ciba-Geigy
            Limited, a Swiss corporation, and the Registrant, incorporated by
            reference to Exhibit 10.94 of the Registrant's Form 10-Q report for the
            period ended June 30, 1996.
 
 10.721   Reimbursement Agreement, dated as of July 12, 1996, between Ciba-Geigy
            Limited, a Swiss corporation, and the Registrant, incorporated by
            reference to Exhibit 10.93 of the Registrant's Form 10-Q report for the
            period ended June 30, 1996.
 
 10.722   Royalty Projects Agreement by and between Ciba Corning Diagnostics Corp.,
            a Delaware corporation, and Ciba-Geigy Limited, a Swiss corporation,
            incorporated by reference to Exhibit 10.87 of the Registrant's Form 10-Q
            report for the period ended September 29, 1996. (Certain confidential
            information has been omitted from the Agreement and filed separately
            with the Securities and Exchange Commission pursuant to a request by
            Registrant for confidential treatment pursuant to Rule 24b-2.)
 
 10.723   Form of Debenture Purchase Agreement between the Registrant and Ciba-
            Geigy, Limited, a Swiss corporation, dated June 22, 1990.
 
 10.724   Chiron Corporation 1.90% Convertible Subordinated Note due 2000, Series B.
 
 10.725   Promissory Note, as amended and restated, dated January 1, 1995 by Ciba
            Corning Diagnostics Corp., incorporated by reference to Exhibit 10.83 of
            the Registrant's Form 10-K report for fiscal year 1995.
 
 10.726   through 10.799 Reserved
 
 10.801   through 10.899 Reserved
 
 21       List of Subsidiaries of the Registrant.
 
 23.1     Consent of KPMG LLP, Independent Auditors. The consent set forth on page
            F-2 is incorporated herein by reference.
 
 24       Power of Attorney. The Power of Attorney set forth on pages 51 and 52 is
            incorporated herein by reference.
 
 27.1     Financial Data Schedule for Fiscal Year ended January 3, 1999.
 
 27.2     Financial Data Schedule for Fiscal Year ended December 28, 1997.
 
 27.3     Financial Data Schedule for Fiscal Year ended December 29, 1996.
</TABLE>
 
------------------------
 
*   Management contract, compensatory plan or arrangement.
 
                                       50
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
Date: March 15, 1999
 
<TABLE>
<S>                             <C>  <C>
                                CHIRON CORPORATION
 
                                By               /s/ SEAN P. LANCE
                                         ----------------------------------
                                                   Sean P. Lance
                                       PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
 
                               POWER OF ATTORNEY
 
KNOW ALL MEN BY THESE PRESENTS:
 
    That the undersigned officers and directors of Chiron Corporation, a
Delaware corporation, do hereby constitute and appoint Sean P. Lance and William
J. Rutter, Ph.D., and each of them, the lawful attorney and agent or attorneys
and agents, with full power and authority to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, and any one
of them, determine may be necessary or advisable or required to enable said
corporation to comply with the Securities Exchange Act of 1934, as amended, and
any rules or regulations or requirements of the Securities and Exchange
Commission in connection with this Form 10-K Report. Without limiting the
generality of the foregoing power and authority, the powers granted include the
power and authority to sign the names of the undersigned officers and directors
in the capacities indicated below to this Form 10-K report or amendments or
supplements thereto, and each of the undersigned hereby ratifies and confirms
all that said attorneys and agents or either of them, shall do or cause to be
done by virtue hereof. This Power of Attorney may be signed in several
counterparts.
 
    IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated opposite his name.
 
                                       51
<PAGE>
    Pursuant to the requirements of the Securities Exchange Act of 1934, the
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
          SIGNATURE                       TITLE                    DATE
------------------------------  --------------------------  -------------------
 
<C>                             <S>                         <C>
                                President and Chief
      /s/ SEAN P. LANCE           Executive Officer;
------------------------------    Director (Principal         March 15, 1999
        Sean P. Lance             Executive Officer)
 
                                Vice President, Chief
      /s/ JAMES R. SULAT          Financial Officer
------------------------------    (Principal Financial        March 15, 1999
        James R. Sulat            Officer)
 
      /s/ DAVID V. SMITH        Vice President, Controller
------------------------------    (Principal Accounting       March 15, 1999
        David V. Smith            Officer)
 
    /s/ WILLIAM J. RUTTER
------------------------------  Chairman of the Board of      March 15, 1999
   William J. Rutter, Ph.D.       Directors
 
     /s/ VAUGHN D. BRYSON
------------------------------  Director                      March 15, 1999
       Vaughn D. Bryson
 
     /s/ LEWIS W. COLEMAN
------------------------------  Director                      March 15, 1999
       Lewis W. Coleman
 
     /s/ PIERRE E. DOUAZE
------------------------------  Director                      March 15, 1999
       Pierre E. Douaze
 
     /s/ DONALD A. GLASER
------------------------------  Director                      March 15, 1999
   Donald A. Glaser, Ph.D.
 
     /s/ PAUL L. HERRLING
------------------------------  Director                      March 15, 1999
   Paul L. Herrling, Ph.D.
 
       /s/ ALEX KRAUER
------------------------------  Director                      March 15, 1999
      Alex Krauer, Ph.D.
 
    /s/ EDWARD E. PENHOET
------------------------------  Director                      March 15, 1999
   Edward E. Penhoet, Ph.D.
 
     /s/ JACK W. SCHULER
------------------------------  Director                      March 15, 1999
       Jack W. Schuler
 
   /s/ PIETER J. STRIJKERT
------------------------------  Director                      March 15, 1999
  Pieter J. Strijkert, Ph.D.
</TABLE>
 
                                       52
<PAGE>
                          INDEPENDENT AUDITOR'S REPORT
 
The Board of Directors and Stockholders
  Chiron Corporation:
 
    We have audited the accompanying consolidated balance sheets of Chiron
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, comprehensive income, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule as listed in
the accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Chiron
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles. Also in our opinion, the related consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
 
                                           /s/ KPMG LLP
 
San Francisco, California
February 4, 1999
 
                                      F-1
<PAGE>
                                                                    EXHIBIT 23.1
 
                   CONSENT OF KPMG LLP, INDEPENDENT AUDITORS
 
    We consent to the incorporation by reference in the Registration Statements
(File Numbers 33-20181, 33-35182, 2-90595, 33-23899, 33-58305, 33-44477,
33-65024, 33-65177, 333-10419, 333-28257, 333-42469, 33-45822 and 33-63297 on
Form S-8 and File Number 33-43574 on Form S-3) of Chiron Corporation of our
reports dated February 4, 1999, relating to the consolidated balance sheets of
Chiron Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, comprehensive income,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998 and the related schedule, which reports appear in
the December 31, 1998 annual report on Form 10-K of Chiron Corporation.
 
                                           /s/ KPMG LLP
 
San Francisco, California
 
March 15, 1999
 
                                      F-2
<PAGE>
                               CHIRON CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
 
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,
                                                                             ------------------------
                                                                                1998         1997
                                                                             -----------  -----------
<S>                                                                          <C>          <C>
Current assets:
  Cash and cash equivalents................................................  $   513,315  $    98,483
  Short-term investments in marketable debt securities.....................      716,630       84,588
                                                                             -----------  -----------
    Total cash and short-term investments..................................    1,229,945      183,071
  Accounts receivable, net of allowances of $16,190 in 1998 and $22,918 in
    1997:
    Related parties........................................................       49,256       56,672
    Unrelated parties......................................................      119,842      287,372
                                                                             -----------  -----------
                                                                                 169,098      344,044
Inventories................................................................       79,869      165,652
Other current assets:
  Related parties..........................................................          245          288
  Unrelated parties........................................................      152,482       76,997
                                                                             -----------  -----------
                                                                                 152,727       77,285
                                                                             -----------  -----------
    Total current assets...................................................    1,631,639      770,052
Noncurrent investments in marketable debt securities.......................      360,069       75,401
Property, plant, equipment and leasehold improvements, at cost:
  Land and buildings.......................................................      141,452      218,509
  Laboratory, production and office equipment..............................      236,803      422,278
  Leasehold improvements...................................................       84,607      123,379
  Construction in progress.................................................       38,328       67,355
                                                                             -----------  -----------
                                                                                 501,190      831,521
  Less accumulated depreciation and amortization...........................     (197,812)    (277,623)
                                                                             -----------  -----------
  Net property, plant, equipment and leasehold improvements................      303,378      553,898
Purchased technology, net of accumulated amortization of $20,500 in 1998
  and $34,111 in 1997......................................................       14,753       45,903
Other intangible assets, net of accumulated amortization of $69,285 in 1998
  and $44,617 in 1997......................................................      166,699       79,955
Investments in equity securities and affiliated companies:
  Related parties..........................................................           --      139,305
  Unrelated parties........................................................       27,456       37,546
                                                                             -----------  -----------
                                                                                  27,456      176,851
Other assets:
  Related parties..........................................................        3,134       15,777
  Unrelated parties........................................................       17,127       50,641
                                                                             -----------  -----------
                                                                                  20,261       66,418
                                                                             -----------  -----------
                                                                             $ 2,524,255  $ 1,768,478
                                                                             -----------  -----------
                                                                             -----------  -----------
</TABLE>
 
                                  (Continued)
The accompanying Notes to Consolidated Financial Statements are an integral part
                               of this statement.
 
                                      F-3
<PAGE>
                               CHIRON CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
 
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
                      LIABILITIES AND STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,
                                                                             ------------------------
                                                                                1998         1997
                                                                             -----------  -----------
<S>                                                                          <C>          <C>
Current liabilities:
  Accounts payable.........................................................  $    44,999  $    79,339
  Accrued compensation and related expenses................................       40,034       59,405
  Short-term borrowings....................................................       17,554      154,700
  Note payable to Novartis.................................................       63,945           --
  Current portion of unearned revenue......................................       41,893       13,361
  Taxes payable............................................................      180,088       37,191
  Other current liabilities................................................      168,905      127,190
                                                                             -----------  -----------
    Total current liabilities..............................................      557,418      471,186
Long-term debt:
  Related parties..........................................................        9,601       69,934
  Unrelated parties........................................................      328,557      327,283
                                                                             -----------  -----------
                                                                                 338,158      397,217
Other noncurrent liabilities...............................................       82,877       26,130
                                                                             -----------  -----------
    Total liabilities......................................................      978,453      894,533
                                                                             -----------  -----------
Commitments and contingencies
Stockholders' equity:
  Preferred stock, $0.01 par value; 5,000,000 shares authorized; none
    outstanding............................................................           --           --
  Common stock, $0.01 par value; 499,500,000 shares authorized; 179,925,000
    outstanding (175,659,000 outstanding at December 31, 1997).............        1,799        1,757
  Restricted common stock, $0.01 par value; 500,000 shares authorized; none
    outstanding............................................................           --           --
Additional paid-in capital.................................................    1,979,615    1,853,591
Accumulated deficit........................................................     (437,873)    (961,986)
Accumulated other comprehensive income (loss)..............................        2,261      (18,808)
Notes receivable for stock purchases.......................................           --         (609)
                                                                             -----------  -----------
    Total stockholders' equity.............................................    1,545,802      873,945
                                                                             -----------  -----------
                                                                             $ 2,524,255  $ 1,768,478
                                                                             -----------  -----------
                                                                             -----------  -----------
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                               of this statement.
 
                                      F-4
<PAGE>
                               CHIRON CORPORATION
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                                   ----------------------------------
                                                                      1998        1997        1996
                                                                   ----------  ----------  ----------
<S>                                                                <C>         <C>         <C>
Revenues:
  Product sales, net:
    Related parties..............................................  $    1,086  $       --  $       --
    Unrelated parties............................................     398,165     252,729     242,640
                                                                   ----------  ----------  ----------
                                                                      399,251     252,729     242,640
  Equity in earnings of unconsolidated joint businesses..........      73,969     106,356     102,061
  Collaborative agreement revenues:
    Related parties..............................................      75,352      78,770      81,440
    Unrelated parties............................................      14,506      36,284      40,527
                                                                   ----------  ----------  ----------
                                                                       89,858     115,054     121,967
  Royalty and license fee revenues...............................     125,263      50,368      36,606
  Other revenues:
    Related parties..............................................      10,103      43,624      32,387
    Unrelated parties............................................      38,229       6,468       1,488
                                                                   ----------  ----------  ----------
                                                                       48,332      50,092      33,875
                                                                   ----------  ----------  ----------
      Total revenues.............................................     736,673     574,599     537,149
                                                                   ----------  ----------  ----------
Expenses:
  Cost of sales:
    Related parties..............................................         485          --          --
    Unrelated parties............................................     177,578     113,612     116,899
                                                                   ----------  ----------  ----------
                                                                      178,063     113,612     116,899
  Research and development.......................................     294,249     259,370     248,847
  Selling, general and administrative............................     140,436     106,947     103,470
  Write-off of purchased in-process technologies.................       1,645          --          --
  Impairment loss on long-lived assets...........................          --      31,300          --
  Restructuring and reorganization charges.......................      26,754          --          --
  Other operating expenses.......................................      10,631       4,275       5,222
                                                                   ----------  ----------  ----------
      Total expenses.............................................     651,778     515,504     474,438
                                                                   ----------  ----------  ----------
 
  Income from operations.........................................      84,895      59,095      62,711
</TABLE>
 
                                  (Continued)
The accompanying Notes to Consolidated Financial Statements are an integral part
                               of this statement.
 
                                      F-5
<PAGE>
                               CHIRON CORPORATION
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                                   ----------------------------------
                                                                      1998        1997        1996
                                                                   ----------  ----------  ----------
<S>                                                                <C>         <C>         <C>
Income from operations...........................................      84,895      59,095      62,711
Gain on sale of assets...........................................       7,751          --          --
Interest expense.................................................     (24,673)    (31,610)    (29,486)
Other income, net................................................      27,010      12,721      18,640
                                                                   ----------  ----------  ----------
Income from continuing operations before income taxes............      94,983      40,206      51,865
Provision for income taxes.......................................      18,985      14,424       6,207
                                                                   ----------  ----------  ----------
Income from continuing operations................................      75,998      25,782      45,658
                                                                   ----------  ----------  ----------
Discontinued operations:
  Income from discontinued operations............................       7,121      30,280       9,487
  Gain on disposals of discontinued operations...................     440,994      15,157          --
                                                                   ----------  ----------  ----------
Net income.......................................................  $  524,113  $   71,219  $   55,145
                                                                   ----------  ----------  ----------
                                                                   ----------  ----------  ----------
Basic earnings per common share:
  Income from continuing operations..............................  $     0.43  $     0.15  $     0.27
                                                                   ----------  ----------  ----------
                                                                   ----------  ----------  ----------
  Net income.....................................................  $     2.95  $     0.41  $     0.33
                                                                   ----------  ----------  ----------
                                                                   ----------  ----------  ----------
Diluted earnings per common share:
  Income from continuing operations..............................  $     0.42  $     0.14  $     0.26
                                                                   ----------  ----------  ----------
                                                                   ----------  ----------  ----------
  Net income.....................................................  $     2.90  $     0.40  $     0.31
                                                                   ----------  ----------  ----------
                                                                   ----------  ----------  ----------
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                               of this statement.
 
                                      F-6
<PAGE>
                               CHIRON CORPORATION
 
                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                                   ----------------------------------
                                                                      1998        1997        1996
                                                                   ----------  ----------  ----------
<S>                                                                <C>         <C>         <C>
Net income.......................................................  $  524,113  $   71,219  $   55,145
Other comprehensive income (loss):
  Foreign currency translation adjustment:
    Change in foreign currency translation adjustment during the
      period.....................................................      33,830     (21,486)     (7,039)
    Reclassification adjustment for net gain included in
      discontinued operations....................................      (7,819)         --          --
                                                                   ----------  ----------  ----------
    Net foreign currency translation adjustment..................      26,011     (21,486)     (7,039)
                                                                   ----------  ----------  ----------
  Unrealized loss from investments:
    Unrealized holding loss arising during the period............      (6,715)    (16,818)     (3,641)
    Reclassification adjustment for net loss (gain) included in
      net income (net of tax provision (benefit) of $1,400,
      ($1,553) and $536, in 1998, 1997 and 1996, respectively)...       2,490      (2,760)        953
                                                                   ----------  ----------  ----------
    Net unrealized loss from investments.........................      (4,225)    (19,578)     (2,688)
                                                                   ----------  ----------  ----------
    Minimum pension liability adjustment (net of tax benefit of
      $136 in 1998)..............................................        (717)         --          --
                                                                   ----------  ----------  ----------
  Other comprehensive income (loss)..............................      21,069     (41,064)     (9,727)
                                                                   ----------  ----------  ----------
Comprehensive income.............................................  $  545,182  $   30,155  $   45,418
                                                                   ----------  ----------  ----------
                                                                   ----------  ----------  ----------
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                               of this statement.
 
                                      F-7
<PAGE>
                               CHIRON CORPORATION
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                                         NOTES
                                      COMMON STOCK       ADDITIONAL                      OTHER        RECEIVABLE
                                 ----------------------    PAID-IN    ACCUMULATED    COMPREHENSIVE     FOR STOCK
                                  SHARES      AMOUNT       CAPITAL      DEFICIT      INCOME (LOSS)     PURCHASES      TOTAL
                                 ---------  -----------  -----------  ------------  ---------------  -------------  ---------
<S>                              <C>        <C>          <C>          <C>           <C>              <C>            <C>
Balances at December 31,
  1995.........................     41,738   $     417    $1,727,711   $(1,087,699)    $  31,983       $    (351)   $ 672,061
Exercise of stock options......      2,219          22       25,083            --             --              --       25,105
Tax benefits from employee
  stock plans..................         --          --        1,398            --             --              --        1,398
Exercise of warrants...........         61          --        1,570            --             --              --        1,570
Employee stock purchase plan...      1,443          15       19,897            --             --              --       19,912
Additional shares issued in
  four-for-one stock split.....    125,214       1,253       (1,253)           --             --              --           --
Foreign currency translation
  adjustment...................         --          --           --            --         (7,039)             --       (7,039)
Unrealized loss from
  investments..................         --          --           --            --         (2,688)             --       (2,688)
Loans to employees for stock
  purchases....................         --          --           --            --             --            (609)        (609)
Net income.....................         --          --           --        55,145             --              --       55,145
                                 ---------  -----------  -----------  ------------  ---------------        -----    ---------
Balances at December 31,
  1996.........................    170,675       1,707    1,774,406    (1,032,554)        22,256            (960)     764,855
Exercise of stock options......      3,632          36       41,235            --             --              --       41,271
Tax benefits from employee
  stock plans..................         --          --       17,923            --             --              --       17,923
Employee stock purchase plan...      1,352          14       20,027            --             --              --       20,041
Foreign currency translation
  adjustment...................         --          --           --            --        (21,486)             --      (21,486)
Unrealized loss from
  investments..................         --          --           --            --        (19,578)             --      (19,578)
Collection of a loan to
  employee for stock
  purchases....................         --          --           --            --             --             351          351
Elimination of one-month lag in
  reporting of Chiron
  Behring......................         --          --           --          (651)            --              --         (651)
Net income.....................         --          --           --        71,219             --              --       71,219
                                 ---------  -----------  -----------  ------------  ---------------        -----    ---------
Balances at December 31,
  1997.........................    175,659       1,757    1,853,591      (961,986)       (18,808)           (609)     873,945
Exercise of stock options......      3,308          33       51,341            --             --              --       51,374
Tax benefits from employee
  stock plans..................         --          --       60,119            --             --              --       60,119
Employee stock purchase plan...        958           9       14,564            --             --              --       14,573
Foreign currency translation
  adjustment...................         --          --           --            --         26,011              --       26,011
Unrealized loss from
  investments..................         --          --           --            --         (4,225)             --       (4,225)
Minimum pension liability
  adjustment...................         --          --           --            --           (717)             --         (717)
Collection of a loan to
  employee for stock
  purchases....................         --          --           --            --             --             609          609
Net income.....................         --          --           --       524,113             --              --      524,113
                                 ---------  -----------  -----------  ------------  ---------------        -----    ---------
Balances at December 31,
  1998.........................    179,925   $   1,799    $1,979,615   $ (437,873)     $   2,261       $      --    $1,545,802
                                 ---------  -----------  -----------  ------------  ---------------        -----    ---------
                                 ---------  -----------  -----------  ------------  ---------------        -----    ---------
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                               of this statement.
 
                                      F-8
<PAGE>
                               CHIRON CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                                   ----------------------------------
                                                                      1998        1997        1996
                                                                   ----------  ----------  ----------
<S>                                                                <C>         <C>         <C>
Cash flows from operating activities:
  Net income.....................................................  $  524,113  $   71,219  $   55,145
  Adjustments to reconcile net income to net cash provided by
    operating activities:
    Depreciation and amortization................................     107,861     102,589     105,080
    Impairment loss on long-lived assets.........................          --      31,300          --
    Gain on sale of assets.......................................      (7,751)    (18,597)         --
    Gain on disposals of discontinued operations.................    (440,994)         --          --
    Gain on sale of equity securities............................      (4,475)     (5,541)         --
    Gain on sale of interests in affiliated companies............      (1,815)         --     (12,226)
    Write-off of purchased in-process technologies...............       1,645          --          --
    Write-off of property, plant, equipment and leasehold
      improvements...............................................       5,141       4,291       5,031
    Write-down of investments....................................       8,365       1,206       1,529
    Changes in reserves..........................................      18,412      30,046      16,895
    Changes in estimated liabilities.............................      (5,666)    (17,596)         --
    Deferred income taxes........................................     (43,180)    (20,556)      6,972
    Tax benefits from employee stock plans.......................      60,119      17,923       1,398
    Undistributed earnings of affiliates.........................        (263)    (14,473)     (6,841)
    Other, net...................................................       8,910      10,408      15,864
  Changes, excluding effect of acquisitions and dispositions, to:
    Accounts receivable..........................................     (10,540)    (12,974)    (75,825)
    Inventories..................................................     (17,985)    (40,635)    (48,545)
    Other current assets.........................................     (48,826)      8,355     (20,187)
    Accounts payable and accrued expenses........................     (29,998)     (2,062)     11,427
    Current portion of unearned revenue..........................      38,527      (5,907)     (1,162)
    Other current liabilities....................................      14,273       5,890       1,921
    Other noncurrent liabilities.................................      55,796       4,626       6,253
                                                                   ----------  ----------  ----------
      Net cash provided by operating activities..................     231,669     149,512      62,729
                                                                   ----------  ----------  ----------
Cash flows from investing activities:
  Purchases of investments in marketable debt securities.........  (1,206,797)   (219,522)    (55,008)
  Proceeds from sale and maturity of investments in marketable
    debt securities..............................................     282,658     120,306     143,922
  Businesses acquired, net of cash acquired......................     (54,770)         --        (374)
  Capital expenditures...........................................    (126,303)    (77,524)   (120,162)
  Proceeds from sale of assets...................................      38,570      29,928          --
  Proceeds from disposals of discontinued operations.............   1,292,164          --          --
  Proceeds from sale of equity securities and interests in
    affiliated companies.........................................      24,161       5,596      14,000
  Purchases of investments in equity securities and affiliated
    companies....................................................      (1,284)    (10,942)   (130,308)
  Decrease (increase) in other assets............................       6,410     (16,804)    (43,351)
                                                                   ----------  ----------  ----------
      Net cash provided by (used in) investing activities........     254,809    (168,962)   (191,281)
                                                                   ----------  ----------  ----------
Cash flows from financing activities:
  Proceeds from issuance of short-term debt......................       8,368      20,589     100,000
  Proceeds from issuance of common stock.........................      66,556      61,502      44,597
  Repayment of short-term borrowings.............................    (137,501)         --     (12,606)
  Repayment of notes payable and capital leases..................      (9,069)    (32,272)     (9,643)
                                                                   ----------  ----------  ----------
      Net cash (used in) provided by financing activities........     (71,646)     49,819     122,348
                                                                   ----------  ----------  ----------
      Net increase (decrease) in cash and cash equivalents.......     414,832      30,369      (6,204)
Cash and cash equivalents at beginning of the year...............      98,483      68,114      74,318
                                                                   ----------  ----------  ----------
Cash and cash equivalents at end of the year.....................  $  513,315  $   98,483  $   68,114
                                                                   ----------  ----------  ----------
                                                                   ----------  ----------  ----------
</TABLE>
 
The accompanying Notes to Consolidated Financial Statements are an integral part
                               of this statement.
 
                                      F-9
<PAGE>
                               CHIRON CORPORATION
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1998
 
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    THE COMPANY AND BASIS OF PRESENTATION
 
    Chiron Corporation ("Chiron" or the "Company") is a biotechnology company
that develops, manufactures and markets human healthcare products for the
prevention and treatment of disease utilizing innovations in biology and
chemistry. Chiron participates in three human healthcare businesses: (i)
biopharmaceuticals, with an emphasis on oncology, serious infectious diseases
and cardiovascular diseases; (ii) blood testing; and (iii) adult and pediatric
vaccines. The Company is applying a broad and integrated scientific approach to
the development of innovative products for preventing and treating cancer,
infectious diseases and cardiovascular diseases. This approach is supported by
research strengths in recombinant proteins, genomics, small molecules, gene
therapy and vaccines.
 
    On December 29, 1997, Chiron completed the sale of its ophthalmic business
unit, Chiron Vision Corporation ("Chiron Vision"), to Bausch & Lomb Incorporated
("B&L") and on November 30, 1998, Chiron completed the sale of its IN VITRO
diagnostics business ("Chiron Diagnostics") to Bayer Corporation ("Bayer"). As a
result of these transactions, the Company's consolidated statements of
operations reflect the after-tax results of Chiron Vision and Chiron
Diagnostics, and the related gains on disposals thereof, as discontinued
operations for all periods presented.
 
    On March 31, 1998, in an acquisition accounted for under the purchase method
of accounting, Chiron acquired the remaining 51% interest in Chiron Behring GmbH
& Co ("Chiron Behring") from Hoechst AG. Beginning in the second quarter of
1998, the results of Chiron Behring were consolidated with those of the Company.
 
    FISCAL YEAR
 
    The fiscal year of the Company is a 52 or 53-week year ending on the Sunday
nearest the last day in December of each year. As a result, the 1998, 1997 and
1996 fiscal years ended on January 3, 1999, December 28, 1997 and December 29,
1996, respectively. In 1998, the fiscal year was 53 weeks long as compared with
1997 and 1996, where the fiscal years were 52 weeks long. For presentation
purposes, dates used in the consolidated financial statements and notes thereto
refer to the fiscal year end. Effective with fiscal year 1999, the Company will
change its year end to coincide with a calendar year ending on December 31.
 
    PRINCIPLES OF CONSOLIDATION
 
    The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Investments in
joint ventures, partnerships and interests in which Chiron has an equity
interest of 50% or less are accounted for using either the equity
 
                                      F-10
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
or cost method. Certain foreign subsidiaries and investments in affiliated
companies are accounted for either on a one-month or one-quarter lag.
 
    USE OF ESTIMATES AND RECLASSIFICATIONS
 
    The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the Company's consolidated
financial statements and notes thereto. Actual results could differ materially
from those estimates. The accompanying Consolidated Financial Statements for
1997 and 1996 have been reclassified to separately identify the results of
Chiron's discontinued operations. In addition, certain other amounts which were
previously reported have been reclassified to conform with the current period
presentation.
 
    CASH EQUIVALENTS AND INVESTMENTS IN MARKETABLE DEBT SECURITIES
 
    All highly liquid investments with a maturity of three months or less from
the date of purchase are considered to be cash equivalents. Cash equivalents and
short-term investments in marketable debt securities consist principally of
money market instruments including corporate notes and bonds, commercial paper
and government agency securities. Noncurrent investments in marketable debt
securities consist principally of corporate notes and bonds and government
agency securities. The cost of securities sold is based on the specific
identification method for debt securities and on the average cost method for
equity securities.
 
    INVENTORIES
 
    Pharmaceutical inventories are stated at the lower of cost or market using
the average cost method or, in the case of certain vaccine products, using the
last-in, first-out ("LIFO") method. Diagnostic and ophthalmic (see Note 4), and
certain other vaccine products are valued at cost, using the first-in, first-out
("FIFO") method, which is less than market value. Inventories consist of the
following at December 31:
 
<TABLE>
<CAPTION>
                                                               1998        1997
                                                            ----------  ----------
                                                                (IN THOUSANDS)
<S>                                                         <C>         <C>
Finished goods............................................  $   12,301  $   82,896
Work in process...........................................      54,333      47,417
Raw materials.............................................      13,235      35,339
                                                            ----------  ----------
                                                            $   79,869  $  165,652
                                                            ----------  ----------
                                                            ----------  ----------
</TABLE>
 
                                      F-11
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    PROPERTY, PLANT, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
 
    Property, plant, equipment and leasehold improvements are recorded at cost
less accumulated depreciation. Depreciation on property, plant and equipment,
including assets held under capital leases, is computed using the straight-line
method over the estimated useful lives of the assets, ranging from 3 to 20 years
for equipment and 15 to 40 years for buildings. Leasehold improvements are
amortized on a straight-line basis over the shorter of the asset's useful life
or remaining lease term.
 
    INTANGIBLE AND OTHER LONG-LIVED ASSETS
 
    Intangible assets consist principally of purchased technologies, goodwill
and patents and are amortized on a straight-line basis over their estimated
useful lives, ranging from 3 to 20 years. Amortization expense for the years
ended December 31, 1998, 1997 and 1996 was $15.7 million, $7.0 million and $8.3
million, respectively. Amortization of purchased technologies and goodwill is
primarily included in "Other operating expenses" and amortization of patents is
primarily included in "Research and development" in the accompanying
Consolidated Statements of Operations.
 
    As circumstances dictate, the Company assesses the recoverability of its
intangible and other long-lived assets by comparing the projected undiscounted
net cash flows associated with such assets against their respective carrying
values. Impairment, if any, is based on the excess of the carrying value over
the fair value.
 
    REVENUE RECOGNITION
 
    "Product sales, net" primarily consists of revenues from product shipments.
For sales of Betaseron(R) (interferon beta-1b), the Company recognizes a partial
share of revenues upon shipment to its marketing partner and an additional share
upon the marketing partner's subsequent sale of Betaseron(R) to patients.
Beginning in July 1997, the contractual terms under which Chiron recognizes
Betaseron(R) revenues changed, with a larger portion of revenues recognized when
the marketing partner realizes sales, rather than upon Chiron's initial
shipment.
 
    "Equity in earnings of unconsolidated joint businesses" represents the
Company's share of the operating results generated by its commercial joint
businesses. "Collaborative agreement revenues" are earned and recognized based
upon work performed or upon the attainment of specified milestones. Under
contracts where reimbursement is based upon work performed, the related research
and development expenses were $61.9 million, $79.5 million and $103.8 million in
1998, 1997 and 1996, respectively. "Royalty and license fee revenues" consist of
product royalty payments and fees under license agreements and are recognized
when earned. "Other revenues" consist primarily of fees for sales and marketing
services performed, commission fees
 
                                      F-12
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and grants from government agencies, and are recognized when earned. In 1997,
"Other revenues" also included revenue related to Chiron's co-promotion of
Novartis AG's product Aredia(R) which was recognized, in part, based on the
percentage of effort expended.
 
    ADVERTISING EXPENSES
 
    The Company expenses the costs of advertising, which also includes
promotional expenses, as incurred. Advertising expenses for the years ended
December 31, 1998, 1997 and 1996 were $12.2 million, $7.1 million and $11.0
million, respectively.
 
    INCOME TAXES
 
    Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. No provision is made for U.S. income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely reinvested
in foreign operations.
 
    STOCK-BASED COMPENSATION
 
    As permitted by Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company
measures compensation expense for its stock-based employee compensation plans
using the intrinsic method prescribed by Accounting Principles Board ("APB") No.
25, "Accounting for Stock Issued to Employees" ("APB 25"). In accordance with
SFAS 123, the Company has provided in Note 12 the pro forma disclosures of the
effect on net income and earnings per share as if SFAS 123 had been applied in
measuring compensation expense for all periods presented.
 
    FOREIGN CURRENCY TRANSLATION
 
    The financial statements of the Company's foreign subsidiaries and equity
investments are generally measured using the local currency as the functional
currency. Accordingly, the assets and liabilities of the Company's foreign
subsidiaries and equity investments are translated into U.S. dollars using the
exchange rates in effect at the end of the period. Revenues and expenses are
translated using the average exchange rates for the period. Adjustments
resulting from currency translations are included in "Other comprehensive income
(loss)." Gains and losses resulting from currency transactions are recognized in
current operations.
 
                                      F-13
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    DERIVATIVE FINANCIAL INSTRUMENTS
 
    The Company utilizes derivative financial instruments, including forward
foreign currency contracts, foreign currency option contracts and cross currency
interest rate swaps, to reduce foreign exchange and interest rate risks.
Derivative financial instruments are not used for trading or speculative
purposes. The Company's control environment includes policies and procedures for
risk assessment and the approval, reporting and monitoring of foreign currency
hedging activities. Counterparties to the Company's hedging agreements are major
financial institutions. The Company manages the risk of counterparty default on
its derivative financial instruments through the use of credit standards,
counterparty diversification and monitoring of counterparty financial
conditions. Chiron has not experienced any losses due to counterparty default.
 
    CONCENTRATION OF CREDIT RISK
 
    Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of cash investments and trade
accounts receivable. The Company invests cash, which is not required for
immediate operating needs, in a diversified portfolio of financial instruments
issued by institutions with investment-grade credit ratings. By policy, the
amount of credit exposure to any one institution is limited. These investments
are generally not collateralized and primarily mature within three years. The
Company has not realized any significant losses on these investments.
 
    The Company has not experienced any significant credit losses from its
accounts receivable from joint business partners or collaborative research
agreements, and none are currently expected. Other accounts receivable arise
from product sales to customers. The Company performs ongoing credit evaluations
of these customers and generally does not require collateral. The Company
maintains reserves for potential trade receivable credit losses, and such losses
have been within management's expectations.
 
    COMPREHENSIVE INCOME
 
    In accordance with SFAS No. 130, "Reporting Comprehensive Income" ("SFAS
130"), the Company has displayed the components of "Other comprehensive income
(loss)" and "Comprehensive income," in the accompanying Consolidated Statements
of Comprehensive Income. Unless otherwise noted, the components of the Company's
"Other comprehensive income (loss)" and "Comprehensive income" have no tax
effect as the Company makes no provision for U.S. income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely reinvested
in foreign operations.
 
                                      F-14
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 2--EARNINGS PER COMMON SHARE
 
    Basic earnings per share is based upon the weighted-average number of common
shares outstanding. Diluted earnings per share is based upon the
weighted-average number of common shares and dilutive potential common shares
outstanding. Dilutive potential common shares result from (i) the assumed
exercise of outstanding stock options, warrants and equivalents which are
included under the treasury-stock method; and (ii) performance units (see Note
12) to the extent that dilutive shares are assumed issuable.
 
    The following table sets forth the computation for basic and diluted
earnings per share for the years ended December 31:
 
<TABLE>
<CAPTION>
                                                                         1998       1997       1996
                                                                       ---------  ---------  ---------
                                                                               (IN THOUSANDS)
<S>                                                                    <C>        <C>        <C>
Weighted-average common shares outstanding...........................    177,587    173,524    169,347
Effect of dilutive securities:
  Options and equivalents............................................      2,956      4,219      7,450
  Warrants...........................................................        190        204        297
  Performance units..................................................         --         41         10
                                                                       ---------  ---------  ---------
Weighted-average common shares outstanding plus assumed
  conversions........................................................    180,733    177,988    177,104
                                                                       ---------  ---------  ---------
                                                                       ---------  ---------  ---------
</TABLE>
 
    Options to purchase 10.1 million shares, 7.8 million shares and 2.1 million
shares with exercise prices greater than the average market prices of common
stock were outstanding during the years ended December 31, 1998, 1997 and 1996,
respectively. These options were excluded from the respective computations of
diluted earnings per share as their inclusion would be antidilutive.
 
    Also excluded from the computations of diluted earnings per share were 12.0
million shares of common stock issuable upon conversion of the Company's
convertible subordinated debentures (see Note 10) as the average conversion
price was greater than the average market price for all periods presented.
 
                                      F-15
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 3--SUPPLEMENTAL CASH FLOW INFORMATION
 
<TABLE>
<CAPTION>
                                                                    1998         1997         1996
                                                                 -----------  -----------  -----------
                                                                            (IN THOUSANDS)
<S>                                                              <C>          <C>          <C>
Interest paid..................................................  $    14,322  $    19,973  $    19,354
Income taxes paid..............................................  $    18,350  $    10,792  $    14,505
 
Noncash investing and financing activities:
  Acquisitions:
    Cash acquired..............................................  $    57,119  $        --  $        --
    Fair value of all other assets acquired....................      206,922           --        2,143
    Liabilities assumed........................................      (33,815)          --       (1,769)
    Acquisition costs..........................................       (1,180)          --           --
    Carrying value of original investment......................     (117,157)          --           --
                                                                 -----------  -----------  -----------
  Total cash paid..............................................  $   111,889  $        --  $       374
                                                                 -----------  -----------  -----------
                                                                 -----------  -----------  -----------
</TABLE>
 
NOTE 4--DISCONTINUED OPERATIONS
 
    On November 30, 1998, Chiron completed the sale of Chiron Diagnostics to
Bayer for $1,013.8 million in cash, subject to certain post-closing adjustments.
The sale was completed under the terms of a Stock Purchase Agreement (the
"Agreement"), dated September 17, 1998, among Chiron, Chiron Diagnostics and
Bayer. In accordance with APB No. 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions,"
Chiron Diagnostics is reported as a discontinued operation for all periods
presented in the accompanying Consolidated Statements of Operations. Chiron has
agreed to provide customary indemnities under the terms of the Agreement.
 
    In connection with the sale of Chiron Diagnostics, Chiron granted to Chiron
Diagnostics rights under certain Chiron patents, including non-exclusive rights
to patents relating to human immunodeficiency virus ("HIV") and hepatitis C
virus. In exchange for these rights, Chiron Diagnostics paid to Chiron $100.0
million which is refundable in decreasing amounts over a period of three years.
In 1998, Chiron recognized revenues of $13.3 million which represents the
portion of the $100.0 million payment which became non-refundable during 1998.
The Company anticipates recognizing the remaining revenue over a period of three
years as follows: $39.2 million in 1999, $29.2 million in 2000 and $18.3 million
in 2001. Also in connection with the sale of Chiron Diagnostics, Chiron
recognized net revenues of $12.5 million in exchange for granting Bayer a
license to use, reproduce and sell certain technology developed by Chiron's
informatics business.
 
    As a result of the sale of Chiron Diagnostics, certain technology rights,
which the Company had utilized in its blood testing and diagnostics businesses,
were no longer being utilized across
 
                                      F-16
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 4--DISCONTINUED OPERATIONS (CONTINUED)
a broad base of technology. These rights, which had been capitalized as
intangible assets, were expensed against the gain on disposal of discontinued
operations as the impairment of the rights was a direct result of the sale of
Chiron Diagnostics. At the time of sale, these rights had a net book value of
$9.5 million. Under the terms of the Agreement, Chiron and Bayer agreed to share
certain future milestone payments related to this technology. Chiron's portion
of these future milestone payments will be expensed as incurred.
 
    In connection with the sale of Chiron Diagnostics, the Company recorded
deferred tax assets of $20.0 million. The Company also recorded a corresponding
valuation allowance of $20.0 million to offset these deferred tax assets. The
future recognition of these deferred tax assets will be reported as a component
of "Income (loss) from discontinued operations." Chiron reduced its valuation
allowance related to Chiron Diagnostics' domestic and foreign deferred tax
assets by $45.5 million in the third quarter of 1998, as the sale to Bayer made
it more likely than not that the deferred tax assets would be realized. Included
in the $45.5 million was $3.7 million of foreign deferred tax assets recognized
in accordance with Emerging Issues Task Force ("EITF") Issue No. 93-17,
"Recognition of Deferred Tax Assets for a Parent Company's Excess Tax Basis in
the Stock of a Subsidiary That Is Accounted for as a Discontinued Operation"
("EITF 93-17").
 
    On December 29, 1997, Chiron completed the sale of all of the outstanding
capital stock of Chiron Vision to B&L for approximately $300.0 million in cash,
subject to certain post-closing adjustments. The sale was completed under the
terms of a Stock Purchase Agreement, dated October 21, 1997, between Chiron and
B&L. Chiron Vision's cash and cash equivalents totaling $2.7 million, certain
Chiron Vision real estate assets (the "real estate assets") with a carrying
value of $25.1 million and Chiron Vision's future noncancelable operating lease
costs totaling $1.1 million were retained by the Company upon the completion of
the sale. Additionally, the Company agreed to provide customary indemnities
under the terms of the agreement.
 
    For a period of three years following the completion of the sale, Chiron
Vision has the right to use a portion of the real estate assets which were
occupied at closing on a rent-free basis. As of December 31, 1998, the real
estate assets are recorded in the accompanying Consolidated Balance Sheets as
"Other current assets." In the first quarter of 1998, the Company recorded a
$13.6 million adjustment to record the real estate assets at their estimated
fair value, determined on the basis of independent appraisals, less costs to
sell. This adjustment was recorded as a reduction to the "Gain on disposals of
discontinued operations" in the accompanying Consolidated Statements of
Operations for the year ended December 31, 1998.
 
    In 1998, Chiron Diagnostics recognized total revenues of $527.7 million. In
1997 and 1996, Chiron Diagnostics and Chiron Vision, collectively, recognized
total revenues of $800.2 million and $775.7 million, respectively. "Income from
discontinued operations" in the accompanying Consolidated Statements of
Operations is reported net of income tax provisions of $0.1 million, $2.9
million and $18.6 million in 1998, 1997 and 1996, respectively. In addition,
included in
 
                                      F-17
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 4--DISCONTINUED OPERATIONS (CONTINUED)
"Income from discontinued operations" is approximately $16.4 million of net
income recognized by Chiron Diagnostics from September 17, 1998 to November 30,
1998 and $3.8 million of net income recognized by Chiron Vision from October 21,
1997 to December 28, 1997. "Gain on disposals of discontinued operations" in the
accompanying Consolidated Statements of Operations for the year ended December
31, 1998 is reported net of a provision for income taxes of $200.7 million on
the disposals of Chiron Vision and Chiron Diagnostics. "Gain on disposals of
discontinued operations" in the accompanying Consolidated Statements of
Operations for the year ended December 31, 1997 represents deferred tax benefits
of $15.2 million related to the disposal of Chiron Vision. The accompanying
Consolidated Balance Sheets include the net assets of discontinued operations,
including the Chiron Vision real estate assets, as follows at December 31:
 
<TABLE>
<CAPTION>
                                                                                 1998         1997
                                                                              -----------  -----------
                                                                                   (IN THOUSANDS)
<S>                                                                           <C>          <C>
Accounts receivable, net....................................................  $        --  $   191,701
Inventories.................................................................           --      122,160
Other current assets (assets held for sale).................................       11,500           --
Property, plant, equipment and leasehold improvements, net..................           --      254,001
Purchased technology, net...................................................           --       25,068
Other intangible assets, net................................................           --       53,925
Accounts payable and other current liabilities..............................           --     (113,518)
Other assets and liabilities, net...........................................           --      (71,157)
                                                                              -----------  -----------
                                                                              $    11,500  $   462,180
                                                                              -----------  -----------
                                                                              -----------  -----------
</TABLE>
 
    Basic income per common share from discontinued operations was $2.52, $0.26
and $0.06 for the years ended December 31, 1998, 1997 and 1996, respectively.
Diluted income per common share from discontinued operations was $2.48, $0.26
and $0.05 for the years ended December 31, 1998, 1997 and 1996, respectively.
 
NOTE 5--ACQUISITION OF CHIRON BEHRING
 
    Effective July 1, 1996, Chiron purchased a 49% interest in the human vaccine
business of Behringwerke AG, which subsequently merged into its parent company,
Hoechst AG. The total acquisition price, which was paid in cash, was
approximately $120.0 million, including costs directly related to the
acquisition. This amount was reflected as a component of "Investments in equity
securities and affiliated companies" in the accompanying Consolidated Balance
Sheet as of December 31, 1997. Of the total acquisition price, approximately
$97.0 million was allocated to various intangible assets such as goodwill,
trademarks and patents, and is being amortized on a straight-line basis over
lives ranging from 5 to 20 years.
 
                                      F-18
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 5--ACQUISITION OF CHIRON BEHRING (CONTINUED)
 
    From July 1, 1996 through March 31, 1998 (period of mutual ownership),
Chiron and Hoechst AG operated the vaccine business as a joint venture under the
name Chiron Behring GmbH & Co. Chiron accounted for its 49% interest under the
equity method and recognized revenue of $2.4 million, $13.8 million and $4.2
million as components of "Equity in earnings of unconsolidated joint businesses"
in the accompanying Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996, respectively.
 
    On March 31, 1998, in an acquisition accounted for under the purchase method
of accounting, Chiron acquired the remaining 51% interest in Chiron Behring from
Hoechst AG. The purchase price of approximately $113.1 million, including
acquisition costs, was allocated to the acquired assets and liabilities assumed
based upon their estimated fair value on the date of acquisition. In connection
with the acquisition, liabilities assumed were as follows:
 
<TABLE>
<CAPTION>
                                                                    (IN THOUSANDS)
                                                                    --------------
<S>                                                                 <C>
Cash acquired.....................................................   $     57,119
Fair value of all other assets acquired...........................        206,922
Carrying value of original investment in Chiron Behring...........       (117,157)
Cash paid.........................................................       (111,889)
Acquisition costs.................................................         (1,180)
                                                                    --------------
Liabilities assumed...............................................   $     33,815
                                                                    --------------
                                                                    --------------
</TABLE>
 
    At the time of acquisition, Chiron expensed $1.6 million of purchased
in-process technologies (the "non-recurring charge"). Other purchased intangible
assets of approximately $135.0 million, including goodwill, trademarks, patents
and customer list, are being amortized over their estimated useful lives of 4 to
17 years on a straight-line basis. Chiron Behring's operating results were
included in Chiron's consolidated operating results beginning in the second
quarter of 1998.
 
    The following unaudited pro forma information presents the results of
continuing operations of Chiron and Chiron Behring for the years ended December
31, 1998 and 1997, respectively, with pro forma adjustments as if Chiron's
acquisition of the remaining 51% interest in Chiron Behring had been consummated
as of January 1, 1997. The pro forma information does not purport to be
indicative of what would have occurred had the acquisition
 
                                      F-19
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 5--ACQUISITION OF CHIRON BEHRING (CONTINUED)
been made as of those dates or of results which may occur in the future. The
unaudited pro forma information is as follows:
 
<TABLE>
<CAPTION>
                                                                               1998         1997
                                                                            ----------  -------------
                                                                                 (IN THOUSANDS,
                                                                             EXCEPT PER SHARE DATA)
                                                                                   (UNAUDITED)
<S>                                                                         <C>         <C>
Total revenues............................................................  $  770,634   $   733,855
Income from continuing operations before the non-recurring charge.........  $   78,128   $    34,282
Pro forma income per share from continuing operations before the
  non-recurring charge:
  Basic...................................................................  $     0.44   $      0.20
  Diluted.................................................................  $     0.43   $      0.19
</TABLE>
 
NOTE 6--RESTRUCTURING AND REORGANIZATION CHARGES
 
    During 1998, Chiron incurred restructuring and reorganization charges
related to the integration of the Company's worldwide vaccines operations, the
closure of the Company's Puerto Rico and St. Louis, Missouri facilities, as well
as the Company's ongoing rationalization of its business operations. As a result
of these initiatives, Chiron recognized net restructuring and reorganization
expenses from continuing operations of $26.8 million, consisting primarily of
termination and other employee-related costs related to the elimination of 400
positions in sales, marketing and other administrative, manufacturing, research
and development functions and facility-related costs. Employee termination costs
include wage continuation, advance notice pay and medical and other benefits. As
of December 31, 1998, 167 employees had been terminated. Facility-related costs
include losses on disposal of property, plant and equipment, lease payments and
other related costs. In addition, the Company recognized a $3.7 million benefit
due to a revised estimate of property and other tax-related accruals recorded in
1995 in connection with the idling of the Puerto Rico facility. There were no
other significant non-cash adjustments to the Company's restructuring and
reorganization liabilities during 1998.
 
    Included in "Income from discontinued operations" in the accompanying
Consolidated Statements of Operations were restructuring and reorganization
charges of $19.1 million and $3.3 million in 1998 and 1997, respectively. These
charges related to the rationalization of the Company's IN VITRO diagnostics
business operations and primarily consisted of employee termination costs
related to the termination of 331 employees, all of which were terminated as of
December 31, 1998. The Company retained $4.5 million of accrued restructuring
charges upon the completion of the sale of Chiron Diagnostics to Bayer.
 
                                      F-20
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 6--RESTRUCTURING AND REORGANIZATION CHARGES (CONTINUED)
    The current status of the accrued restructuring charges is summarized as
follows:
 
<TABLE>
<CAPTION>
                                                                                AMOUNT
                                                                AMOUNT OF      UTILIZED     AMOUNT TO
                                               RESTRUCTURING      TOTAL        THROUGH     BE UTILIZED
                                                  ACCRUAL     RESTRUCTURING    DEC. 31,     IN FUTURE
                                               DEC. 31, 1997     CHARGE          1998        PERIODS
                                               -------------  -------------  ------------  -----------
<S>                                            <C>            <C>            <C>           <C>
Employee-related costs.......................   $        --    $    23,334    $    7,944    $  15,390
Puerto Rico facility.........................         3,695         (3,695)           --           --
Other facility-related costs.................            --          7,115         3,184        3,931
                                               -------------  -------------  ------------  -----------
                                                      3,695         26,754        11,128       19,321
Discontinued operations......................         3,162         19,068        17,755        4,475
                                               -------------  -------------  ------------  -----------
                                                $     6,857    $    45,822    $   28,883    $  23,796
                                               -------------  -------------  ------------  -----------
                                               -------------  -------------  ------------  -----------
</TABLE>
 
    The Company's restructuring and reorganization accruals, which are included
as a component of "Other current liabilities" in the accompanying Consolidated
Balance Sheets, are expected to be substantially settled within twelve months of
accruing the related charges. The Company anticipates that it will record
additional restructuring and reorganization liabilities in future periods as it
continues to create a simpler, more efficient operating structure for the
organization.
 
NOTE 7--RESEARCH AND DEVELOPMENT ARRANGEMENTS
 
    Chiron participates in a number of research and development arrangements
with other pharmaceutical and biotechnology companies to develop and market
certain technologies and products. Chiron and its collaborative partners
generally contribute certain technologies and research efforts, and commit,
subject to certain limitations and cancellation clauses, to share costs related
to certain research and development activities, including those related to
clinical trials. Chiron may also be required to make payments to certain
collaborative partners upon their achievement of specified milestones. Aggregate
annual funding commitments under collaborative arrangements are $9.2 million in
1999, $5.0 million in 2000 and an insignificant amount thereafter.
 
    In connection with certain research and development arrangements, the
Company may invest in equity securities of its collaborative partners. The price
of these securities is subject to significant volatility. In 1998, 1997 and
1996, Chiron recognized losses of $8.4 million, $1.2 million and $1.5 million,
respectively, attributable to the other-than-temporary impairment of certain of
these equity securities.
 
                                      F-21
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 8--RELATED PARTY TRANSACTIONS AND JOINT BUSINESS ARRANGEMENT
 
    NOVARTIS AG
 
    The Company has an alliance with Novartis AG ("Novartis"), a life sciences
company headquartered in Basel, Switzerland. Novartis was formed as a result of
a December 1996 merger between Ciba-Geigy Limited ("Ciba") and Sandoz Limited.
Under a series of agreements between Chiron and Novartis, effective January
1995, Novartis increased its ownership interest in the Company to 49.9%. As a
result of subsequent stock issuances by the Company, Novartis' ownership
interest in Chiron has been reduced to approximately 44% as of December 31,
1998.
 
    In January 1995, Chiron and Novartis entered into a Governance Agreement
whereby Novartis agreed not to increase its ownership interest in the Company
above 49.9% before January 15, 2000. Thereafter, Novartis agreed not to increase
its ownership interest in the Company above 55% unless it acquires all of
Chiron's outstanding capital stock in a "buy-out transaction"; such buy-out
transaction cannot occur before January 5, 2001. Novartis may exceed these
standstill amounts and increase its ownership interest up to 79.9% if the
transaction is approved by a majority of the independent members of Chiron's
Board of Directors. Under the terms of the Governance Agreement, Novartis is
permitted to designate three members of Chiron's Board of Directors.
 
    In December 1995, Chiron and Novartis entered into a Limited Liability
Company agreement (the "R&D Funding Agreement"). Under the terms of this
agreement, Novartis agreed to fund certain research and development projects
including certain adult and pediatric vaccines and Insulin-Like Growth Factor-I
("IGF-I"). In December 1997, this agreement was amended to include research and
development activities related to Factor VIII gene therapy and Herpes Simplex
Virus-thymidine kinase ("HSV-tk"). Under this agreement, in 1998, 1997 and 1996,
Chiron recognized collaborative agreement revenues of $54.4 million, $53.3
million and $72.0 million, respectively.
 
    In accordance with the terms of the R&D Funding Agreement, the amount of
funding provided by Novartis is subject to annual limits, not to exceed an
aggregate $250.0 million. At Chiron's option, this aggregate limit may be
increased to $300.0 million, in exchange for a reduction in the maximum
borrowing amount under the credit facilities that are guaranteed by Novartis. In
1999, the amount of R&D funding provided by Novartis is limited to $43.3
million.
 
    In consideration of the funding provided by Novartis under the R&D Funding
Agreement, Novartis has an interest in a stream of variable royalties in future
worldwide sales from certain adult and pediatric vaccines, IGF-I, Factor VIII
and HSV-tk (the "Products"), if any, which are successfully developed. Novartis
also has co-promotional rights, in countries other than in North America and
Europe, for certain adult vaccines. Royalties on all specified products will be
paid for a minimum of 10 years from the later of October 1, 2001 or the date of
the first commercial sale of individual products covered by the R&D Funding
Agreement, as amended.
 
                                      F-22
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 8--RELATED PARTY TRANSACTIONS AND JOINT BUSINESS ARRANGEMENT (CONTINUED)
Chiron has the right, but not the obligation, to buy-out Novartis' interests in
the Products for a price equal to the aggregate amount of R&D funding provided
by Novartis, less any payments to or profits earned by Novartis in connection
with the Products, plus interest at the London Interbank Offered Rate ("LIBOR").
Chiron must notify Novartis by January 1, 2002 as to whether it will exercise
its buy-out right and will have until January 1, 2005 to tender the purchase
price for the buy-out.
 
    Under the terms of an Investment Agreement, Novartis agreed to guarantee
certain obligations of the Company under one or more revolving credit facilities
through January 1, 2008. The principal amount of indebtedness under the
guaranteed credit facilities may not exceed $425.0 million and may be reduced by
$1.50 for each $1.00 of additional R&D funding requested by Chiron (up to $50.0
million of additional funding under the R&D Funding Agreement discussed above).
In November 1996, Chiron and Novartis agreed that Chiron could increase the
maximum borrowing amount under the guaranteed credit facilities by up to $300.0
million. In exchange for this increase, the amount of Chiron's common stock
required to be purchased by a Novartis affiliate (at Chiron's request) would be
reduced by an equal amount. Under the Investment Agreement, Novartis had
guaranteed $152.9 million of Chiron's operating lease commitments as of December
31, 1998.
 
    In connection with the sale of Chiron Diagnostics to Bayer, a promissory
note originated between Chiron Diagnostics and Novartis was transferred to and
assumed by the Company. The note payable to Novartis bears interest at a
variable rate based on LIBOR (approximately 5.6% and 6.0% at December 31, 1998
and 1997, respectively) and is due on January 1, 2000. As of December 31, 1998
and 1997, the outstanding amount was $63.9 million and $60.6 million,
respectively, including accrued interest.
 
    Under the terms of a November 1995 agreement with Novartis, Novartis agreed
to pay $26.0 million over a five-year period, subject to certain adjustments, in
exchange for a non-exclusive license to utilize Chiron's combinatorial chemistry
techniques. In addition, the parties agreed to collaborate to utilize
combinatorial chemistry technology to identify potential products in selected
target areas. The agreement provides for research funding by Novartis, and
certain upfront milestone and royalty payments, as well as product
commercialization rights for both parties. In connection with this agreement,
Chiron recognized collaborative agreement revenues of $6.0 million, $10.2
million and $9.4 million, in 1998, 1997 and 1996, respectively.
 
    In November 1996, in connection with the U.S. Federal Trade Commission's
review of the merger between Ciba and Sandoz Limited, which created Novartis,
Chiron and Novartis entered into a consent order pursuant to which Chiron agreed
to grant a royalty-bearing license to Rhone-Poulenc Rorer, Inc. under certain
Chiron patents relating to the HSV-tk gene in the field of gene therapy. Chiron
and Novartis entered into a separate agreement which provides, among other
things, for certain cross licenses between Chiron and Novartis, and under which,
beginning in 1997, Novartis agreed to pay Chiron up to $60.0 million over five
years. In
 
                                      F-23
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 8--RELATED PARTY TRANSACTIONS AND JOINT BUSINESS ARRANGEMENT (CONTINUED)
connection with the agreement, Chiron recognized collaborative agreement
revenues of $15.0 million in both 1998 and 1997.
 
    From 1994 through April 1998, Chiron promoted Aredia(R) (pamidronate
disodium for injection) on behalf of Novartis. In April 1998, the arrangement
was terminated. In connection with the arrangement, in 1998, 1997 and 1996,
Chiron recognized other revenues of $9.8 million, $43.6 million and $30.2
million, respectively.
 
    LOAN TO EXECUTIVE OFFICER
 
    In June 1998, the Company provided a loan of $1.0 million to a senior
executive officer. The loan, which is non-interest bearing, is secured by a
primary deed of trust on real estate. Principal is payable in annual
installments of $0.05 million over a period of ten years, with the outstanding
principal balance due in full on June 22, 2008. As of December 31, 1998, the
amount outstanding on the loan was $1.0 million.
 
    ORTHO-CLINICAL DIAGNOSTICS, INC.
 
    In 1989, Chiron entered into an agreement with Ortho-Clinical Diagnostics,
Inc. ("Ortho"), a Johnson & Johnson ("J&J") company, to jointly develop,
manufacture and market certain immunoassay diagnostic products. Under the terms
of the agreement, Chiron receives 50% of the pretax operating profits of the
joint business and is reimbursed for its continuing research, development and
manufacturing costs. The joint business sells a full line of tests required to
screen blood for hepatitis viruses and retroviruses, and provides supplemental
tests and microplate-based instrument systems to automate test performance and
data collection. The joint business also holds the immunodiagnostic rights to
Chiron's hepatitis and retrovirus technology and receives royalties from several
companies, including Abbott Laboratories, Pasteur Sanofi Diagnostics and
Genelabs Diagnostic, Inc., for their sales of certain tests.
 
    Chiron records its share of profits from the Chiron-Ortho joint business on
a one-month lag using estimates provided by Ortho. At the end of each year, the
joint business records an annual inventory adjustment. Included in Chiron's
share of the profits in 1998, 1997 and 1996, were annual inventory adjustments
of ($4.1) million, $0.8 million and $3.8 million, respectively. Profit sharing
distributions are payable to Chiron within 90 days after the end of each
quarter. At December 31, 1998 and 1997, $22.1 million and $22.8 million,
respectively, were due from Ortho for profit sharing and reimbursement of costs.
In 1998, 1997 and 1996, Chiron's 50% share of the profits from the joint
business, which is recorded as a component of "Equity in earnings of
unconsolidated joint businesses," was $73.5 million, $92.9 million and $95.8
million, respectively. Revenues recognized under the cost reimbursement portion
of the agreement in 1998, 1997 and 1996 for product sales were $20.6 million,
$20.1 million and $15.0 million, respectively, and for collaborative research
were $5.0 million, $7.1 million and $8.6 million, respectively.
 
                                      F-24
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 9--FAIR VALUE OF FINANCIAL INSTRUMENTS
 
    MARKETABLE SECURITIES
 
    In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" ("SFAS 115"), the Company has classified its investments
in certain debt and equity securities as "available-for-sale." Such investments
are recorded at fair value based upon year-end quoted market prices, with
unrealized gains and losses, deemed by the Company as temporary in nature,
reported as a separate component of other comprehensive income or loss.
 
    Available-for-sale securities consist of the following at December 31:
 
<TABLE>
<CAPTION>
                                                      1998                                            1997
                                ------------------------------------------------  --------------------------------------------
                                 ADJUSTED   UNREALIZED   UNREALIZED      FAIR     ADJUSTED  UNREALIZED   UNREALIZED     FAIR
                                   COST       GAINS        LOSSES       VALUE       COST      GAINS        LOSSES      VALUE
                                ----------  ----------   ----------   ----------  --------  ----------   ----------   --------
                                                                        (IN THOUSANDS)
<S>                             <C>         <C>          <C>          <C>         <C>       <C>          <C>          <C>
U.S. Government...............  $  184,992    $   61      $  (213)    $  184,840  $ 22,606   $     8      $   (37)    $ 22,577
Mortgage-backed...............          --        --           --             --     1,998        --           (1)       1,997
Corporate debt................   1,311,446       416         (847)     1,311,015   180,132        12         (132)     180,012
                                ----------  ----------   ----------   ----------  --------  ----------   ----------   --------
                                 1,496,438       477       (1,060)     1,495,855   204,736        20         (170)     204,586
Equity........................      13,973     6,358       (1,004)        19,327    21,804    12,529       (3,383)      30,950
                                ----------  ----------   ----------   ----------  --------  ----------   ----------   --------
                                $1,510,411    $6,835      $(2,064)    $1,515,182  $226,540   $12,549      $(3,553)    $235,536
                                ----------  ----------   ----------   ----------  --------  ----------   ----------   --------
                                ----------  ----------   ----------   ----------  --------  ----------   ----------   --------
</TABLE>
 
    These securities are classified in the accompanying Consolidated Balance
Sheets as follows at December 31:
 
<TABLE>
<CAPTION>
                                                            1998          1997
                                                        ------------  ------------
<S>                                                     <C>           <C>
                                                              (IN THOUSANDS)
Cash equivalents......................................  $    419,156  $     44,597
Short-term investments in marketable debt
  securities..........................................       716,630        84,588
Noncurrent investments in marketable debt
  securities..........................................       360,069        75,401
Investments in equity securities......................        19,327        30,950
                                                        ------------  ------------
                                                        $  1,515,182  $    235,536
                                                        ------------  ------------
                                                        ------------  ------------
</TABLE>
 
                                      F-25
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 9--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
    The cost and estimated fair value of available-for-sale debt securities by
contractual maturity consist of the following at December 31, 1998:
 
<TABLE>
<CAPTION>
                                                          ADJUSTED        FAIR
                                                            COST         VALUE
                                                        ------------  ------------
<S>                                                     <C>           <C>
                                                              (IN THOUSANDS)
Due in one year or less...............................  $  1,135,950  $  1,135,786
Due in one to five years..............................       360,488       360,069
                                                        ------------  ------------
                                                        $  1,496,438  $  1,495,855
                                                        ------------  ------------
                                                        ------------  ------------
</TABLE>
 
    OTHER FINANCIAL INSTRUMENTS
 
    The carrying amounts and fair values of the Company's financial instruments,
other than those accounted for in accordance with SFAS 115, are as follows at
December 31:
 
<TABLE>
<CAPTION>
                                                    1998                  1997
                                            --------------------  --------------------
                                            CARRYING     FAIR     CARRYING     FAIR
                                             AMOUNT      VALUE     AMOUNT      VALUE
                                            ---------  ---------  ---------  ---------
                                                          (IN THOUSANDS)
<S>                                         <C>        <C>        <C>        <C>
ON-BALANCE SHEET FINANCIAL INSTRUMENTS:
Nonmarketable equity investments
  (accounted for under the cost method)...  $   8,129  $  12,916  $   6,596  $   9,694
  Notes receivable........................      2,317      2,317     14,697     14,497
  Deposits................................      2,633      2,209      4,449      3,936
  Foreign currency option contracts.......        260        260      2,929      2,929
  Due from cross currency interest rate
    swaps.................................      8,506      7,440     19,236     15,807
  Long-term debt:
    Convertible subordinated debentures...    335,070    354,206    327,243    334,078
    Notes payable.........................     68,541     68,541     67,062     67,062
 
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
  Cross currency interest rate swaps......         --      1,808         --     16,002
  Due from forward foreign currency
    contracts.............................         --         --         --        569
</TABLE>
 
    The fair value estimates provided above are based on information available
at December 31, 1998 and 1997. Considerable judgment is required in interpreting
market data to develop the estimates of fair value. As such, these estimated
fair values are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
 
    The fair value of nonmarketable equity investments that are accounted for
under the cost method is primarily based on estimated market prices determined
by a broker. The carrying
 
                                      F-26
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 9--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
values of variable rate notes receivable and notes payable approximate fair
value due to the market-based nature of these instruments. The fair value of the
deposits is based on the discounted value of expected future cash flows using
current rates for assets with similar maturities. The fair value of the
receivables from cross currency interest rate swaps is based on the discounted
value of expected future cash flows using current rates. The fair value of
convertible subordinated debentures is based on the market price at the close of
business on the last day of the fiscal year. The fair values of the foreign
currency option contracts and the cross currency interest rate swaps are based
on estimated market prices, determined by a broker. The carrying value of the
receivables from forward foreign currency contracts approximates fair value
based on the short-term nature of these contracts. Included in current assets
and current liabilities are certain other financial instruments whose carrying
values approximate fair value due to the short-term nature of such instruments.
 
    FOREIGN CURRENCY CONTRACTS
 
    A significant portion of the Company's operations consists of manufacturing
and sales activities in western European countries. As a result, the Company's
financial results may be affected by changes in the foreign currency exchange
rates of those related countries.
 
    Forward foreign currency contracts ("forwards"), generally having average
maturities of three months or less, are used to hedge material foreign currency
denominated receivables and payables. Forwards are generally marked-to-market at
the end of each quarter with gains or losses recorded as a component of "Other
income, net," in the accompanying Consolidated Statements of Operations to
offset gains or losses on foreign currency denominated receivables and payables.
Outstanding notional amounts of the Company's forwards were $14.7 million and
$46.1 million at December 31, 1998 and 1997, respectively.
 
    Foreign currency transaction gains and losses from continuing operations,
net of the impact of hedging, were not significant in 1998, 1997 or 1996.
 
    The Company purchases foreign currency option contracts ("options") to
reduce the exchange rate impact of a strengthening U.S. dollar on the underlying
hedged amounts. These options are designated and effective as hedges of a
portion of probable foreign currency exposure on anticipated intercompany
inventory purchases over the next six months by subsidiaries with functional
currencies other than the U.S. dollar. The cost of the options, which is
recorded as a component of "Other current assets" in the accompanying
Consolidated Balance Sheets, is deferred and amortized over the relevant term of
the period hedged. The Company's financial exposure is limited to the amount
paid for the options. Any resulting gains from these option contracts are
deferred until the designated intercompany transactions are recorded, and are
recognized as a component of "Other income, net," in the accompanying
Consolidated Statements of Operations. Outstanding notional amounts of the
Company's options were $55.6 million and $111.3 million at December 31, 1998 and
1997, respectively.
 
                                      F-27
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 9--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
    CROSS CURRENCY INTEREST RATE SWAPS
 
    The Company selectively enters into cross currency interest rate swaps
("swaps") with major financial institutions to modify the interest and/or
currency characteristics of certain assets and liabilities. These swap
agreements involve the exchange of interest payments denominated in different
currencies, based upon the terms described in the swap agreements. The net
difference between the interest amounts paid and received is recognized as a
component of "Other income, net," in the accompanying Consolidated Statements of
Operations. The related interest amount payable or receivable from the major
financial institutions is included as a component of other current liabilities
or assets. Currency translation fluctuations in the underlying assets and
liabilities, as well as changes in the value of the related swaps are reflected
in other comprehensive income or loss. Outstanding notional amounts of the
Company's swaps were $226.8 million and $139.1 million at December 31, 1998 and
1997, respectively, as described below.
 
    In April 1998, the Company entered into a series of swap agreements to fix
the interest and currency exchange rate exposures associated with the Company's
wholly owned German subsidiary. The swaps mature in April 2003 and are based on
an aggregate notional amount of $114.2 million. There is no exchange of
principal amounts upon maturity. The agreements provide for quarterly interest
payments based on a fixed Deutsche mark rate of 4.7% while receiving quarterly
interest payments based on a fixed U.S. dollar rate of 4.8%.
 
    In November 1998, in connection with the sale of Chiron Diagnostics, the
Company terminated a swap agreement that was entered into in June 1997. The
agreement originally had a maturity date of June 2002 with a notional amount of
$26.5 million.
 
    In July 1996, the Company also entered into swap agreements that mature in
July 2001 with an aggregate notional amount of $112.6 million. There is an
exchange of principal amounts upon maturity. The Company effectively created a
fixed rate Deutsche mark liability to fund certain Deutsche mark assets. The
agreements provide for the Company to make quarterly interest payments based on
a fixed Deutsche mark rate of 6.2% while receiving interest based on a variable
rate tied to three-month U.S. dollar LIBOR plus 0.5% (5.8% and 6.2% at December
31, 1998 and 1997, respectively).
 
                                      F-28
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 10--DEBT OBLIGATIONS AND CAPITAL LEASES
 
    Long-term debt consists of the following at December 31:
 
<TABLE>
<CAPTION>
                                                               1998        1997
                                                            ----------  ----------
<S>                                                         <C>         <C>
                                                                (IN THOUSANDS)
1.9% convertible subordinated debentures..................  $  242,074  $  236,202
5.25% convertible subordinated debentures.................      92,996      91,041
Capital lease obligations.................................         144       4,316
Note payable to Novartis..................................      63,945      60,566
Other notes payable.......................................       4,596       9,347
                                                            ----------  ----------
                                                               403,755     401,472
Less current portion......................................     (65,597)     (4,255)
                                                            ----------  ----------
                                                            $  338,158  $  397,217
                                                            ----------  ----------
                                                            ----------  ----------
</TABLE>
 
    CONVERTIBLE SUBORDINATED DEBENTURES
 
    In 1993, Chiron issued 1.9% convertible subordinated debentures with a face
value of $253.9 million and a yield to maturity of 4.5%. The notes are
convertible, at the holders' option, into common stock at 34.6 shares per $1,000
principal amount and are due in November 2000. Interest is paid semi-annually.
The Company may redeem the debentures at any time, at a redemption price
starting at $905.78 per $1,000 principal amount increasing to a redemption price
equal to 100% of the principal amount at maturity. The debentures are carried
net of an initial issue discount of $39.3 million, which is being accreted over
the life of the debentures using the interest method. At December 31, 1998 and
1997, Novartis held debentures with a carrying value of $9.6 million and $9.4
million, respectively.
 
    As a result of the 1991 acquisition of Cetus Corporation ("Cetus"), the
Company has outstanding 5.25% convertible subordinated debentures with a face
value of $100.0 million. The notes are convertible at the holder's option at any
time into common stock at 32.4 shares per $1,000 principal amount and are due in
2002. Interest is paid annually. At the option of the Company, the debentures
may be redeemed at any time at face value. In 1991, these debentures were
recorded at their then fair market value which resulted in a discount of $20.0
million. This discount is being accreted over the life of the debentures using
the interest method.
 
    CAPITAL LEASE OBLIGATIONS
 
    At December 31, 1998 and 1997, the gross book value of land, buildings and
equipment leased under noncancelable capital leases, exclusive of amounts
related to discontinued operations, totaled $3.3 million. As of December 31,
1998 and 1997, accumulated depreciation totaled $2.8 million and $2.3 million,
respectively.
 
                                      F-29
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 10--DEBT OBLIGATIONS AND CAPITAL LEASES (CONTINUED)
    NOTES PAYABLE
 
    The note payable to Novartis bears interest at a variable rate based on
LIBOR (approximately 5.6% and 6.0% at December 31, 1998 and 1997, respectively)
and is due with accrued interest on January 1, 2000.
 
    The Company has various other notes payable with an average interest rate of
4.2% and 5.0% at December 31, 1998 and 1997, respectively. Maturities range from
2001 to 2003. Future maturities of other notes payable are as follows:
1999--$1.5 million, 2000--$1.5 million, 2001-- $1.5 million and $0.1 million
thereafter.
 
    SHORT-TERM BORROWINGS
 
    Under a revolving, committed, unsecured credit agreement with a major
financial institution, Chiron can borrow up to $100.0 million in the U.S. This
credit facility is guaranteed by Novartis (refer to Note 8) and provides various
borrowing rate options, as defined in the agreement. This credit facility
matures in February 2003. There were no borrowings outstanding under this credit
facility at December 31, 1998. The Company had an additional credit agreement
which expired unused, in March 1999.
 
    Additionally, the Company has credit facilities available outside the U.S.
that allow for total borrowings of $64.2 million as of December 31, 1998. These
revolving facilities are unsecured and are primarily maintained for Chiron's
Italian subsidiary. At December 31, 1998, $17.6 million was outstanding under
these credit facilities. In 1998 and 1997, the average interest rates on the
outstanding borrowings related to continuing operations were approximately 4.4%
and 6.5%, respectively.
 
NOTE 11--COMMITMENTS AND CONTINGENCIES
 
    LEASES
 
    Chiron leases laboratory, office and manufacturing facilities, land and
equipment under noncancelable operating leases which expire through 2037. Rent
expense from continuing operations was $22.3 million, $12.3 million and $12.0 in
1998, 1997 and 1996, respectively. Future minimum lease payments under these
leases are as follows: 1999--$26.6 million, 2000-- $27.0 million, 2001--$21.4
million, 2002--$15.5 million, 2003--$10.8 million and thereafter-- $14.4
million. Total future minimum rentals to be received under noncancelable
subleases approximate $6.3 million as of December 31, 1998.
 
    In addition, in June 1996, the Company entered into a seven-year lease
agreement with a group of financial institutions to rent a research and
development facility. The total cost of the facility covered by this lease is
estimated to be $172.6 million of which $152.9 million had been incurred as of
December 31, 1998. The lease provides for a substantial residual value guarantee
 
                                      F-30
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED)
in the event of market value declines which is due upon termination of the lease
in 2003. At the end of the lease, the Company can either exercise its purchase
option or cause the facility to be sold to a third party. This lease is
accounted for as an operating lease. The future minimum lease payments stated
above exclude any payment related to this guarantee. As of December 31, 1998,
Novartis had guaranteed $152.9 million of this lease commitment (refer to Note
8).
 
    CETUS HEALTHCARE LIMITED PARTNERSHIPS
 
    In 1987 and 1990, Cetus and its affiliate, EuroCetus International N.V.,
exercised their options to repurchase all of the limited partnership interests
in Cetus Healthcare Limited Partnership ("CHLP") and Cetus Healthcare Limited
Partnership II ("CHLP II"). Under the CHLP purchase agreements, which expire on
December 31, 2001, the Company is obligated to pay royalties on sales of certain
therapeutic products in the U.S. and certain diagnostic products worldwide, as
well as a portion of license, distribution or other fees with respect to such
products, to the former limited partners of CHLP. Under the CHLP II purchase
agreements, which expire on December 31, 2005, the Company is obligated to pay
royalties and a portion of other income with respect to sales of certain
products in Europe to the former limited partners of CHLP II. The Company is
unable to estimate future costs subject to this obligation due to the inherent
uncertainties as to the likelihood of any product specified in the agreements
continuing to be commercially viable.
 
    OTHER COMMITMENTS
 
    Effective July 1, 1998, Chiron and International Business Machines
Corporation ("IBM") executed a ten-year information technology services
agreement. Under this agreement, IBM agreed to provide Chiron with a full range
of information services. Chiron can terminate this agreement beginning July 1,
1999 subject to certain termination charges. If Chiron does not terminate this
agreement prior to expiration, payments to IBM are expected to be approximately
$138.8 million in the aggregate. Through July 1, 1999, Chiron's payments to IBM
will total $19.3 million. Payments to IBM are subject to adjustment depending
upon the levels of services and infrastructure equipment provided by IBM.
 
    The Company has various firm purchase commitments totaling approximately
$3.4 million at December 31, 1998. Contingent liabilities, both individually and
in the aggregate, are insignificant at December 31, 1998.
 
                                      F-31
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 12--STOCKHOLDERS' EQUITY
 
    STOCK SPLIT
 
    In 1996, Chiron's Board of Directors declared a 4-for-1 stock split effected
in the form of a dividend on the Company's common stock that was distributed on
August 2, 1996, to stockholders of record on July 19, 1996. As a result, the
Company increased its common stock balance by $1.3 million for the par value of
the common stock issued to effect the stock split and correspondingly reduced
additional paid-in capital. The exercise prices for all warrants and stock
options and the convertible bond conversion rates were adjusted for the effect
of the split.
 
    STOCK COMPENSATION PLANS
 
    At December 31, 1998, the Company has two stock-based compensation plans,
which are described below. The Company applies APB 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation
expense has been recognized for its stock-based compensation plans other than
for performance-based awards and share rights.
 
    Had compensation cost for the Company's stock-based plans been determined
based upon the fair value method prescribed under SFAS 123, the Company's net
income and related net income per share would have been reduced to the following
pro forma amounts:
 
<TABLE>
<CAPTION>
                                                        1998       1997       1996
                                                      ---------  ---------  ---------
                                                           (IN THOUSANDS, EXCEPT
                                                              PER SHARE DATA)
<S>                                                   <C>        <C>        <C>
Net income:
  As reported.......................................  $ 524,113  $  71,219  $  55,145
  Pro forma.........................................  $ 500,681  $  46,318  $  27,579
Basic net income per share:
  As reported.......................................  $    2.95  $    0.41  $    0.33
  Pro forma.........................................  $    2.82  $    0.27  $    0.16
Diluted net income per share:
  As reported.......................................  $    2.90  $    0.40  $    0.31
  Pro forma.........................................  $    2.77  $    0.26  $    0.16
</TABLE>
 
    FIXED STOCK OPTION PLAN
 
    The Company's fixed stock option plan provides for the grant to employees of
either nonqualified or incentive options and provides for the grant to
directors, consultants and contractors of nonqualified options. Incentive
options are to be granted at not less than the fair market value of common stock
at the date of grant and nonqualified options at not less than 85% of such fair
market value. Options are exercisable based on vesting terms determined by
Chiron's Board of Directors (generally 4 years) and option terms cannot exceed
ten years.
 
                                      F-32
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
 
    At the annual meeting of stockholders in May 1997, the stockholders approved
an amendment to the Company's stock option plan, increasing the maximum number
of shares that may be issued by 13.0 million shares to 50.3 million shares. Of
the 13.0 million share increase, 5.0 million shares were registered with the
Securities and Exchange Commission in 1997. At December 31, 1998, 7.9 million
shares were available for grant.
 
    A summary of the stock option activity is as follows:
 
<TABLE>
<CAPTION>
                                                              1998           1997           1996
                                                          -------------  -------------  -------------
<S>                                                       <C>            <C>            <C>
Outstanding options at January 1,.......................     24,094,166     26,298,373     23,337,652
  Granted...............................................      4,688,253      6,011,061      6,582,769
  Forfeited.............................................     (4,785,345)    (3,792,954)    (1,159,973)
  Surrendered against payment by Novartis...............       (564,337)      (790,430)      (363,525)
  Exercised.............................................     (3,307,756)    (3,631,884)    (2,098,550)
                                                          -------------  -------------  -------------
Outstanding options at December 31,.....................     20,124,981     24,094,166     26,298,373
                                                          -------------  -------------  -------------
                                                          -------------  -------------  -------------
Options exercisable at December 31,.....................     12,159,676     12,351,700     11,411,534
                                                          -------------  -------------  -------------
                                                          -------------  -------------  -------------
Average exercise price of:
  Outstanding options at December 31,...................  $       17.68  $       18.08  $       16.80
  Options granted.......................................  $       17.54  $       20.96  $       22.25
  Options forfeited.....................................  $       20.35  $       19.72  $       19.11
  Options exercised.....................................  $       15.29  $       11.76  $       11.02
  Weighted-average grant-date fair value of options
    granted during the year calculated pursuant to SFAS
    123.................................................  $        7.66  $        9.34  $        8.90
</TABLE>
 
    The weighted-average grant-date fair value of each option grant is estimated
using the Black-Scholes option-pricing model and the following weighted-average
assumptions: expected volatility of 37% for 1998 and 1997 and 35% for 1996;
risk-free interest rates of 5.2%, 6.2% and 6.3% for 1998, 1997 and 1996,
respectively; and an average expected life of 5 years for 1998, 1997 and 1996.
No dividends were factored into the calculation in 1998, 1997 or 1996.
 
                                      F-33
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
    The following table summarizes information concerning outstanding and
exercisable options at December 31, 1998:
 
<TABLE>
<CAPTION>
                                                  OPTIONS OUTSTANDING
                                       ------------------------------------------     OPTIONS EXERCISABLE
                                                        WEIGHTED-                  -------------------------
                                                         AVERAGE       WEIGHTED-                  WEIGHTED-
                                                        REMAINING       AVERAGE                    AVERAGE
                                          NUMBER       CONTRACTUAL     EXERCISE       NUMBER      EXERCISE
RANGE OF EXERCISE PRICES               OUTSTANDING        LIFE           PRICE     OUTSTANDING      PRICE
-------------------------------------  ------------  ---------------  -----------  ------------  -----------
<S>                                    <C>           <C>              <C>          <C>           <C>
Less than $15........................     6,214,533          6.39      $   12.95      3,591,204   $   11.92
$15 to $19...........................     5,470,994          6.40      $   17.51      4,206,561   $   17.20
$19 to $21...........................     5,197,995          8.34      $   20.75      1,827,118   $   20.70
Greater than $21.....................     3,241,459          7.05      $   24.57      2,534,793   $   24.52
                                       ------------           ---     -----------  ------------  -----------
                                         20,124,981          7.03      $   17.68     12,159,676   $   17.69
                                       ------------                                ------------
                                       ------------                                ------------
</TABLE>
 
    In 1996, the stockholders approved an amendment to the Company's stock
option plan, allowing certain executives to receive performance units.
Performance units are stock awards for which vesting is contingent upon the
attainment of certain pre-established performance goals over a specified period,
as established by the Compensation Committee of the Board of Directors
("Compensation Committee"). Currently, the performance units are based on total
shareholder return over a three-year period as measured against certain
published benchmark indices that are representative of the Company's peer group.
 
    In order to qualify for a payout, Chiron's shareholder return must be within
15% of the three-year rolling weighted-average of the benchmark indices. In
accordance with APB 25, compensation expense related to these awards is based on
the extent to which the performance criteria are met. In 1997, the Company
recognized $0.6 million of expense related to these performance units. No such
expense was recognized in 1998 or 1996.
 
    There were no performance units awarded in 1998. In 1997 and 1996, the
Company awarded performance units of 158,738 and 64,400 shares of common stock,
respectively. No awards were exercisable at December 31, 1998. Pursuant to SFAS
123, the weighted-average fair value of the awards in 1997 and 1996 was $6.71
and $7.57 per unit, respectively. The weighted-average fair values were based on
the following assumptions: expected volatility of 37% and 35% for 1997 and 1996,
respectively; a risk-free interest rate of 6.0% for 1997 and 1996; and an
average expected life of 3 years for 1997 and 1996. No dividends were factored
into the calculation in 1997 or 1996.
 
    In 1996, the stockholders also approved an amendment to the Company's stock
option plan, permitting the award of share rights to certain key individuals and
non-employee
 
                                      F-34
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
directors, allowing them the right to receive shares of the Company's common
stock, subject to certain vesting terms.
 
    In 1998, the Compensation Committee awarded non-employee directors an
aggregate of 9,840 share rights that vest over five years, and also awarded
certain key individuals an aggregate of 271,300 share rights that vest over four
years. In 1997, the Compensation Committee awarded non-employee directors an
aggregate of 12,043 share rights that vest over five years, and also awarded
certain key individuals an aggregate of 319,700 share rights that vest over four
years. In 1996, the Compensation Committee awarded non-employee directors an
aggregate of 10,320 share rights that vest over five years and a key executive
40,000 share rights that vest at the end of five years. The value of the share
rights are recognized ratably over the related vesting periods and, in 1998,
1997 and 1996, the Company recognized $2.4 million, $0.8 million and $0.1
million of compensation expense, respectively.
 
    EMPLOYEE STOCK PURCHASE PLAN
 
    Chiron has a stock purchase plan for U.S. employees in which eligible
employees may participate through payroll deductions. At the end of each
quarter, funds deducted from participating employees' salaries are used to
purchase common stock at 85% of the lower of market value at the quarterly
purchase date or the employees' eligibility date for participation. Purchases of
shares made under the plan were 0.8 million, 1.4 million and 1.4 million in
1998, 1997 and 1996, respectively. In 1997, the stockholders approved a new
employee stock purchase plan which effectively replaced the existing plan which
was to expire in March 1998. The terms and provisions of the new plan are
substantially similar to those of Chiron's previous plan. Under the new plan,
8.6 million shares have been reserved for issuance, of which 0.6 million shares
represent the remaining shares reserved for issuance under Chiron's previous
plan.
 
    Under SFAS 123, pro forma compensation cost is recognized for the fair value
of the employees' purchase rights, which was estimated using the Black-Scholes
model and the following assumptions: expected volatility of 35%, 28% and 35% for
1998, 1997 and 1996, respectively; risk-free interest rates of 5.1%, 5.6% and
5.7% for 1998, 1997 and 1996, respectively; and an average expected life of one
year for 1998, 1997 and 1996. No dividends were factored into the calculation in
1998, 1997 or 1996. The weighted-average fair value of the purchase rights
granted was $5.71, $5.28 and $4.78 per share, in 1998, 1997 and 1996,
respectively.
 
    COMMON STOCK WARRANTS
 
    As a result of the acquisition of Cetus, warrants to purchase 600,000 shares
of Chiron common stock were outstanding at December 31, 1998. The exercise price
of the warrants is $13.13 and the warrants expire in July 2001. The warrants are
currently exercisable.
 
                                      F-35
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
    NOTES RECEIVABLE FOR STOCK PURCHASES
 
    The notes receivable for stock purchases were due from certain key employees
and resulted from the exercise of stock options. The notes were full-recourse
promissory notes, bearing interest at a rate of approximately 6.0% and were
primarily collateralized by the stock issued upon the exercise of the stock
options. As of December 31, 1998, there were no amounts outstanding relating to
notes receivable for stock purchases.
 
    STOCK REPURCHASE PROGRAM
 
    In February 1999, the Company's Board of Directors authorized the purchase
of up to 2.5 million shares of Chiron common stock from time to time on the open
market to offset the dilution associated with the operation of the Company's
stock option and employee stock purchase plans and the granting of share rights.
The Board of Directors has authorized such purchases through March 2000.
 
NOTE 13--OTHER EMPLOYEE BENEFIT PLANS
 
    RETIREMENT SAVINGS PLAN
 
    The Company sponsors a defined-contribution savings plan under Section
401(k) of the Internal Revenue Code covering substantially all full-time U.S.
employees. Participating employees may contribute up to 15% of their eligible
compensation up to the annual Internal Revenue Service contribution limit. The
Company matches employee contributions according to a specified formula and
contributed $4.2 million, $3.7 million and $2.7 million in 1998, 1997 and 1996,
respectively.
 
    PENSION PLAN
 
    The Company has a non-contributory retirement program (the "program")
covering substantially all employees of its wholly owned German subsidiary. The
benefits for this program are based primarily on years of service and employee
compensation. The program is considered to be a defined-benefit pension plan for
accounting purposes and is not externally funded. The total pension cost was
approximately $2.4 million for the year ended December 31, 1998. The assumptions
used to measure the projected benefit obligation are a discount rate of 5.5% and
increased compensation levels of 2.5%. Adjustments recorded to recognize the
excess minimum liability resulted in a charge to other comprehensive income of
$0.7 million, net of
 
                                      F-36
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 13--OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
income taxes of $0.1 million. Changes in the projected benefit obligation are as
follows (in thousands):
 
<TABLE>
<S>                                                         <C>
Projected benefit obligation at March 31, 1998 (date of
  acquisition)............................................  $   5,722
Service cost of benefits earned during the period.........        436
Interest cost of projected benefit obligation.............        431
Amortization of prior service cost........................         24
Benefits paid.............................................        (21)
Additional minimum pension liability......................        853
Other pension-related costs...............................        298
Foreign currency translation..............................        347
                                                            ---------
Projected benefit obligation at December 31, 1998.........  $   8,090
                                                            ---------
                                                            ---------
</TABLE>
 
    The components of net periodic pension cost for the year ended December 31,
1998 are as follows (in thousands):
 
<TABLE>
<S>                                                           <C>
Service cost of benefits earned during the period...........  $     436
Interest cost of projected benefit obligation...............        431
Amortization of prior service cost..........................         24
                                                              ---------
                                                              $     891
                                                              ---------
                                                              ---------
</TABLE>
 
    POSTEMPLOYMENT BENEFITS OTHER THAN TO RETIREES
 
    Effective October 1, 1997, the Company adopted the Chiron Corporation
Severance Plan (the "plan") which provides certain postemployment salary and
employee benefits to employees who are involuntarily terminated as a result of a
workforce reduction or job elimination.
 
    Benefits payable under the plan are accrued when it is probable that
employees will be entitled to benefits and the amount can be reasonably
estimated in accordance with SFAS No. 112, "Employers' Accounting for
Postemployment Benefits" (see Note 6).
 
NOTE 14--NON-OPERATING INCOME AND EXPENSE
 
    In August 1998, the Company sold its St. Louis, Missouri facility and
related machinery and equipment assets to Genetics Institute, Inc. for $19.8
million in cash. The sale of the St. Louis facility resulted in a net gain of
$1.5 million, which was included in "Gain on sale of assets" in the Consolidated
Statements of Operations for the year ended December 31, 1998. At the time of
the sale, the carrying amount of the St. Louis facility was $18.3 million. In
1998,
 
                                      F-37
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 14--NON-OPERATING INCOME AND EXPENSE (CONTINUED)
1997 and 1996, Chiron recognized operating expenses related to the St. Louis
facility of $3.2 million, $11.4 million and $11.7 million, respectively.
 
    In December 1998, the Company completed the sale of its 30% interest in
General Injectables & Vaccines, Inc. ("GIV"), to Henry Schein, Inc. and received
payment in full of certain advances made by the Company to GIV, for a total of
$31.7 million in cash. The sale resulted in a net gain of $1.8 million, which
was included in "Other income, net" in the Consolidated Statements of Operations
for the year ended December 31, 1998.
 
    In September 1997, management determined that it could not find a suitable
use for the Puerto Rico facility consistent with its previous expectations for
the facility's use as a contract manufacturing plant. As a result, the Company
reviewed the carrying amount of the Puerto Rico facility and related machinery
and equipment assets for recoverability and in accordance with SFAS 121 recorded
a $31.3 million impairment loss to record the facility and related machinery at
their individual estimated fair market values, determined on the basis of
independent appraisals. In June 1998, the Company sold the facility and related
machinery and equipment assets to IPR Pharmaceuticals, Inc. for $18.5 million in
cash. The sale of the Puerto Rico facility resulted in a net gain of $6.2
million, which was included in "Gain on sale of assets" in the accompanying
Consolidated Statements of Operations. At the time of the sale, the carrying
amount of the Puerto Rico facility was $11.1 million. In 1998, 1997 and 1996,
Chiron recognized operating expenses related to the Puerto Rico facility of $2.1
million, $7.9 million and $8.1 million, respectively.
 
    Effective May 1, 1996, Chiron sold its 50% interest in a generic cancer
chemotherapeutics business to Ben Venue Laboratories, Inc. for $14.0 million in
cash. This sale resulted in a $12.2 million gain, which was included in "Other
income, net" in the Consolidated Statements of Operations for the year ended
December 31, 1996.
 
    "Interest expense" in the accompanying Consolidated Statements of Operations
consists of the following for the years ended December 31:
 
<TABLE>
<CAPTION>
                                                   1998        1997        1996
                                                ----------  ----------  ----------
                                                          (IN THOUSANDS)
<S>                                             <C>         <C>         <C>
Interest expense and related costs on
  convertible debentures......................  $  (18,682) $  (18,384) $  (18,103)
Interest expense on the note payable to
  Novartis....................................      (3,379)     (3,413)     (3,407)
Other interest expense........................      (2,612)     (9,813)     (7,976)
                                                ----------  ----------  ----------
                                                $  (24,673) $  (31,610) $  (29,486)
                                                ----------  ----------  ----------
                                                ----------  ----------  ----------
</TABLE>
 
                                      F-38
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 14--NON-OPERATING INCOME AND EXPENSE (CONTINUED)
 
    "Other income, net" in the accompanying Consolidated Statements of
Operations consists of the following for the years ended December 31:
 
<TABLE>
<CAPTION>
                                                     1998       1997       1996
                                                   ---------  ---------  ---------
                                                           (IN THOUSANDS)
<S>                                                <C>        <C>        <C>
Interest and dividend income.....................  $  29,586  $  11,960  $   5,954
Write-down of investments........................     (8,365)    (1,206)    (1,529)
Gain on sale of investments......................      4,475      5,541         --
Gain on sale of interests in affiliated
  companies......................................      1,815         --     12,226
Net realized gain (loss) on foreign exchange
  transactions...................................        203        (58)     2,797
Other............................................       (704)    (3,516)      (808)
                                                   ---------  ---------  ---------
                                                   $  27,010  $  12,721  $  18,640
                                                   ---------  ---------  ---------
                                                   ---------  ---------  ---------
</TABLE>
 
NOTE 15--SEGMENT INFORMATION
 
    In 1998, Chiron implemented SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which establishes standards
for reporting financial and descriptive information about an enterprise's
operating segments. Application of the disclosure requirements of SFAS 131 did
not impact the Company's consolidated financial position, results of operations
or earnings per share data.
 
    Chiron is organized based on the products and services that it offers. Under
this organizational structure, the Company has the following three reportable
segments: (i) biopharmaceuticals, (ii) blood testing and (iii) vaccines. The
biopharmaceuticals segment consists of products and services related to
therapeutics, with an emphasis on oncology, serious infectious diseases and
cardiovascular diseases as well as the development and acquisition of
technologies related to recombinant technology, gene therapy, small molecule
therapeutics and genomics. The blood testing segment consists primarily of
Chiron's one-half interest in the pretax operating earnings of its joint
business with Ortho which sells a full line of tests required to screen blood
for hepatitis viruses and retroviruses, and provides supplemental tests and
microplate-based instrument systems to automate test performance and data
collection. The vaccines segment consists principally of products and services
related to adult and pediatric vaccines sold primarily in Germany, Italy,
certain other international markets and in the U.S. Certain revenues and
expenses, particularly Novartis R&D funding, certain royalty revenues and
unallocated corporate expenses, are not viewed by management as belonging to any
one reportable segment. As a result, these items have been aggregated into an
"Other" segment, as permitted by SFAS 131.
 
                                      F-39
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 15--SEGMENT INFORMATION (CONTINUED)
    The accounting policies of the Company's reportable segments are the same as
those described in Note 1--The Company and Summary of Significant Accounting
Policies. Chiron evaluates the performance of its segments based on each
segment's income (loss) from operations, excluding certain special items, such
as restructuring and reorganization charges, impairment losses on long-lived
assets, and the write-off of purchased in-process technologies, which are shown
as reconciling items in the table below. The following segment information
excludes all significant intersegment transactions as these transactions are
eliminated for management reporting purposes:
 
<TABLE>
<CAPTION>
                                                                      1998        1997        1996
                                                                   ----------  ----------  ----------
                                                                             (IN THOUSANDS)
<S>                                                                <C>         <C>         <C>
REVENUES
  Biopharmaceuticals, includes ($1,039) and $1,925 of equity in
    earnings of unconsolidated joint businesses in 1997 and 1996,
    respectively.................................................  $  305,435  $  302,456  $  246,739
  Blood testing, includes $73,527, $92,923 and $95,815 of equity
    in earnings of unconsolidated joint businesses in 1998, 1997
    and 1996, respectively.......................................      98,878     120,140     119,475
  Vaccines, includes $442, $14,472 and $4,321 of equity in
    earnings of unconsolidated joint businesses in 1998, 1997 and
    1996, respectively...........................................     236,877      98,703      98,935
  Other..........................................................      95,483      53,300      72,000
                                                                   ----------  ----------  ----------
      Total revenues.............................................  $  736,673  $  574,599  $  537,149
                                                                   ----------  ----------  ----------
                                                                   ----------  ----------  ----------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                      1998        1997        1996
                                                                   ----------  ----------  ----------
                                                                             (IN THOUSANDS)
<S>                                                                <C>         <C>         <C>
INCOME FROM CONTINUING OPERATIONS
  Biopharmaceuticals.............................................  $   17,504  $   46,034  $    8,598
  Blood testing..................................................      68,419      88,002      79,576
  Vaccines.......................................................     (24,681)    (58,518)    (75,924)
  Other..........................................................      52,052      14,877      50,461
                                                                   ----------  ----------  ----------
  Segment income from operations.................................     113,294      90,395      62,711
  Reconciling items:
    Write-off of purchased in-process technologies...............      (1,645)         --          --
    Impairment loss on long-lived assets.........................          --     (31,300)         --
    Restructuring and reorganization charges.....................     (26,754)         --          --
                                                                   ----------  ----------  ----------
  Income from operations.........................................      84,895      59,095      62,711
    Gain on sale of assets.......................................       7,751          --          --
    Interest expense.............................................     (24,673)    (31,610)    (29,486)
    Other income, net............................................      27,010      12,721      18,640
                                                                   ----------  ----------  ----------
      Income from continuing operations before income taxes......  $   94,983  $   40,206  $   51,865
                                                                   ----------  ----------  ----------
                                                                   ----------  ----------  ----------
</TABLE>
 
                                      F-40
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 15--SEGMENT INFORMATION (CONTINUED)
    SEGMENT ASSETS AND DEPRECIATION AND AMORTIZATION EXPENSES
 
    The Company does not specifically identify or allocate assets among its
reportable segments. However, for management reporting purposes, depreciation
and amortization expenses for property, plant, equipment and leasehold
improvements and intangible assets, respectively, are included with other
operating expenses and allocated to each segment based upon each segment's
utilization of employees. Depreciation and amortization expenses for each
reportable segment are as follows:
 
<TABLE>
<CAPTION>
                                                            1998        1997        1996
                                                         ----------  ----------  ----------
                                                                   (IN THOUSANDS)
<S>                                                      <C>         <C>         <C>
DEPRECIATION AND AMORTIZATION EXPENSES
  Biopharmaceuticals...................................  $   30,544  $   27,496  $   28,509
  Blood testing........................................         887       1,179       3,187
  Vaccines.............................................      31,200      19,559      26,508
  Other (including discontinued operations)............      45,230      54,355      46,876
                                                         ----------  ----------  ----------
      Total depreciation and amortization expenses.....  $  107,861  $  102,589  $  105,080
                                                         ----------  ----------  ----------
                                                         ----------  ----------  ----------
</TABLE>
 
<TABLE>
<CAPTION>
                                                            1998        1997        1996
                                                         ----------  ----------  ----------
                                                                   (IN THOUSANDS)
<S>                                                      <C>         <C>         <C>
CAPITAL EXPENDITURES
  Biopharmaceuticals...................................  $    9,636  $    7,529  $   22,221
  Blood testing........................................         946          --          --
  Vaccines.............................................      38,877          --      31,165
  Other (including discontinued operations)............      76,844      69,995      66,776
                                                         ----------  ----------  ----------
      Total capital expenditures.......................  $  126,303  $   77,524  $  120,162
                                                         ----------  ----------  ----------
                                                         ----------  ----------  ----------
</TABLE>
 
                                      F-41
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 15--SEGMENT INFORMATION (CONTINUED)
    REVENUES BY GEOGRAPHIC AREA
 
    Revenues by geographic area are based on the customers' country of domicile
rather than the customers' shipping locations.
 
<TABLE>
<CAPTION>
                                                  1998        1997        1996
                                               ----------  ----------  ----------
                                                         (IN THOUSANDS)
<S>                                            <C>         <C>         <C>
REVENUES
  Domestic...................................  $  331,863  $  246,330  $  229,344
  Switzerland................................      98,050     121,256     110,655
  Germany....................................     144,234      60,263      37,973
  Italy......................................      47,616      47,776      53,131
  Other......................................     114,910      98,974     106,046
                                               ----------  ----------  ----------
      Total revenues.........................  $  736,673  $  574,599  $  537,149
                                               ----------  ----------  ----------
                                               ----------  ----------  ----------
</TABLE>
 
<TABLE>
<CAPTION>
                                                  1998        1997        1996
                                               ----------  ----------  ----------
                                                         (IN THOUSANDS)
<S>                                            <C>         <C>         <C>
LONG-LIVED ASSETS
  Domestic...................................  $  249,496  $  297,303  $  333,531
  Germany....................................     152,863          --          --
  Italy......................................      62,633      43,394      46,295
  Other (including discontinued
    operations)..............................      19,838     339,059     346,039
                                               ----------  ----------  ----------
      Total long-lived assets................  $  484,830  $  679,756  $  725,865
                                               ----------  ----------  ----------
                                               ----------  ----------  ----------
</TABLE>
 
    MAJOR CUSTOMERS
 
    Three significant customers accounted for 18.4%, 11.6% and 12.9% of total
revenues in 1998, 24.4%, 21.3% and 14.2% of total revenues in 1997 and 22.6%,
20.9% and 15.2% of total revenues in 1996. Revenues from the Company's
biopharmaceuticals segment consisted of 53.1%, 55.9% and 49.5% of revenues from
major customers in 1998, 1997 and 1996, respectively. Revenues from the
Company's blood testing segment consisted entirely of revenues from major
customers in 1998, 1997 and 1996. Revenues from the Company's other segment
consisted of 57.0% of revenues from major customers in 1998, and 100.0% in both
1997 and 1996.
 
                                      F-42
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 16--INCOME TAXES
 
    For financial reporting purposes, "Income from continuing operations before
income taxes" included the following components for the years ended December 31:
 
<TABLE>
<CAPTION>
                                                   1998        1997        1996
                                                ----------  ----------  ----------
                                                          (IN THOUSANDS)
<S>                                             <C>         <C>         <C>
Domestic......................................  $   80,706  $   35,624  $   72,840
Foreign.......................................      14,277       4,582     (20,975)
                                                ----------  ----------  ----------
                                                $   94,983  $   40,206  $   51,865
                                                ----------  ----------  ----------
                                                ----------  ----------  ----------
</TABLE>
 
    COMPONENTS OF PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS
 
    Significant components of the provision for income taxes from continuing
operations are as follows for the years ended December 31:
 
<TABLE>
<CAPTION>
                                                   1998        1997        1996
                                                ----------  ----------  ----------
                                                          (IN THOUSANDS)
<S>                                             <C>         <C>         <C>
Current:
  Domestic....................................  $   57,747  $   15,140  $    2,520
  Foreign.....................................       4,418       6,972       2,668
                                                ----------  ----------  ----------
                                                    62,165      22,112       5,188
                                                ----------  ----------  ----------
Deferred:
  Domestic....................................     (39,696)     (6,708)         --
  Foreign.....................................      (3,484)         --          --
                                                ----------  ----------  ----------
                                                   (43,180)     (6,708)         --
                                                ----------  ----------  ----------
Charge in lieu of taxes resulting from
  recognition of acquired tax benefits that
  are allocated to (increase) reduce
  noncurrent intangible assets related to the
  acquired entity.............................          --        (980)      1,019
                                                ----------  ----------  ----------
Provision for income taxes from continuing
  operations..................................  $   18,985  $   14,424  $    6,207
                                                ----------  ----------  ----------
                                                ----------  ----------  ----------
</TABLE>
 
    The benefit related to tax deductions for the Company's stock option plans
is recorded as an increase to additional paid-in capital when realized. In 1998,
1997 and 1996, the Company realized tax benefits of approximately $60.1 million,
$17.9 million and $1.4 million, respectively.
 
                                      F-43
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 16--INCOME TAXES (CONTINUED)
    RATE RECONCILIATION
 
    The reconciliation of the provision for income taxes, computed at the
statutory U.S. income tax rate, to the reported amounts, is as follows for
continuing operations for the years ended December 31:
 
<TABLE>
<CAPTION>
                                                              1998    1997    1996
                                                              -----   -----   -----
<S>                                                           <C>     <C>     <C>
Federal tax provision at statutory rates....................   35.0%   35.0%   35.0%
State taxes, net of federal benefit.........................    2.3%    7.1%    2.4%
Net impact of foreign tax rates and credits.................   (4.3%)   5.4%   21.3%
Disposition and write-down of Puerto Rico facility..........   (6.3%)  27.2%     --
Amortization of intangible assets...........................    0.7%    1.9%    1.5%
Change in the valuation allowance for deferred tax assets
  allocated to income tax expense...........................  (41.8%) (16.7%)    --
Increase in (utilization of) deferred tax assets and
  corresponding valuation allowance not previously
  benefited:
  Prepaid income............................................   33.2%     --      --
  Other temporary differences...............................    1.1%  (21.0%) (50.1%)
Utilization of tax credits..................................     --    (6.1%)    --
Foreign sales corporation, net of tax.......................   (0.8%)  (0.5%)    --
Other.......................................................    0.9%    3.6%    1.9%
                                                              -----   -----   -----
Provision for income taxes from continuing operations.......   20.0%   35.9%   12.0%
                                                              -----   -----   -----
                                                              -----   -----   -----
</TABLE>
 
    SUMMARY OF DEFERRED INCOME TAXES
 
    Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and the tax effects of net
operating loss and credit carryforwards.
 
    As they more likely than not will be realized, net deferred tax assets have
been recognized for U.S. federal and state purposes based on management's
estimates of future taxable income and for certain foreign jurisdictions in
which the Company's operations have historically been profitable. Such estimates
are subject to change based upon future events and accordingly, the amount of
deferred tax assets recognized may increase or decrease from period to period.
 
                                      F-44
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 16--INCOME TAXES (CONTINUED)
 
    Significant components of the Company's deferred income tax liabilities and
assets from continuing operations are as follows at December 31:
 
<TABLE>
<CAPTION>
                                                             1998         1997
                                                          -----------  -----------
                                                               (IN THOUSANDS)
<S>                                                       <C>          <C>
Deferred income tax liabilities:
  Basis differences--purchase accounting................  $     9,631  $    10,298
  Patent costs expensed for tax purposes................       12,358       10,491
  Depreciation and purchased technologies...............        9,539        5,217
  Other.................................................        1,527        2,399
                                                          -----------  -----------
                                                               33,055       28,405
Deferred income tax assets:
  Basis differences--purchase accounting and
    intangibles.........................................       72,672       75,989
  Prepaid income........................................       37,800           --
  Reserves and expense accruals.........................       63,866       71,823
  Net operating loss carryforwards......................       46,762       82,192
  Business credit carryforwards.........................        9,034       35,146
  Other.................................................        2,360        3,053
                                                          -----------  -----------
                                                              232,494      268,203
  Less valuation allowance..............................     (144,338)    (231,914)
                                                          -----------  -----------
                                                               88,156       36,289
                                                          -----------  -----------
  Net deferred income tax asset.........................  $    55,101  $     7,884
                                                          -----------  -----------
                                                          -----------  -----------
</TABLE>
 
    The net (decrease) increase in the valuation allowance for the years ended
December 31, 1998, 1997 and 1996, was ($87.6) million, ($1.7) million and $11.0
million, respectively.
 
    Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets at December 31, 1998 will be allocated as follows (in
thousands):
 
<TABLE>
<S>                                                       <C>
Income tax benefit......................................  $ 134,745
Goodwill and other noncurrent intangible assets.........      9,593
                                                          ---------
                                                          $ 144,338
                                                          ---------
                                                          ---------
</TABLE>
 
                                      F-45
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 16--INCOME TAXES (CONTINUED)
    TAX OPERATING LOSS AND CREDIT CARRYFORWARDS
 
    At December 31, 1998, the Company had foreign net operating loss
carryforwards of approximately $118.0 million, principally available to offset
future taxable income indefinitely and state tax credit carryforwards of $9.0
million, expiring in 2012.
 
NOTE 17--LEGAL PROCEEDINGS
 
    The Company is party to various claims, investigations and legal proceedings
arising out of the normal course of its business. These claims, investigations
and legal proceedings relate to intellectual property rights, contractual rights
and obligations, employment matters, shareholder derivative claims, claims of
product liability, and other issues. While there can be no assurance that an
adverse determination of any such matters could not have a material adverse
impact in any future period, management does not believe, based upon information
known to it, that the final resolution of any of these matters will have a
material adverse effect upon the Company's consolidated financial position and
annual results of operations and cash flows.
 
NOTE 18--QUARTERLY FINANCIAL DATA (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                            1998
                                                       ----------------------------------------------
                                                        DEC. 31     SEPT. 30    JUNE 30     MAR. 31
                                                       ----------  ----------  ----------  ----------
                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                    <C>         <C>         <C>         <C>
Total revenues.......................................  $  224,526  $  215,970  $  162,890  $  133,287
Gross margin from net product sales..................      64,014      63,206      52,825      41,143
Income from continuing operations:
  Income.............................................      14,440      33,914      20,102       7,542
  Basic income per share.............................        0.08        0.19        0.11        0.04
  Diluted income per share...........................        0.08        0.19        0.11        0.04
Net income:
  Income.............................................     359,810      84,435      25,387      54,481
  Basic income per share.............................        2.01        0.47        0.14        0.31
  Diluted income per share...........................        1.96        0.47        0.14        0.31
Revenue from discontinued operations.................     114,843     134,570     142,642     135,618
Gross margin from discontinued operations............      60,102      74,038      82,308      74,348
</TABLE>
 
                                      F-46
<PAGE>
                               CHIRON CORPORATION
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
NOTE 18--QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                            1997
                                                       ----------------------------------------------
                                                        DEC. 31     SEPT. 30    JUNE 30     MAR. 31
                                                       ----------  ----------  ----------  ----------
                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                    <C>         <C>         <C>         <C>
Total revenues.......................................  $  161,031  $  146,425  $  132,133  $  135,010
Gross margin from net product sales..................      47,996      32,060      29,584      29,477
Income (loss) from continuing operations:
  Income (loss)......................................      24,486     (19,454)      8,402      12,348
  Basic income (loss) per share......................        0.14       (0.11)       0.05        0.07
  Diluted income (loss) per share....................        0.14       (0.11)       0.05        0.07
Net income (loss):
  Income (loss)......................................      52,822     (12,681)     15,742      15,336
  Basic income (loss) per share......................        0.30       (0.07)       0.09        0.09
  Diluted income (loss) per share....................        0.29       (0.07)       0.09        0.09
Revenue from discontinued operations.................     212,171     191,108     201,630     195,273
Gross margin from discontinued operations............     116,944     106,275     119,672     113,320
</TABLE>
 
    Historically, the contribution to total revenues generated by Chiron's
operating activities have varied considerably from period to period due to the
nature of Chiron's collaborative, royalty and licensing arrangements and to the
seasonality of the Company's vaccine products. In addition, the mix of products
sold and the introduction of new products will affect the comparability of gross
margins from quarter to quarter. As a consequence, Chiron's results in any one
quarter are not necessarily indicative of results to be expected for a full
year. Accordingly, the Company should be evaluated on the basis of annual
financial information.
 
    Net income in the third quarter of 1998 and the fourth quarter of 1997
included deferred tax benefits resulting from the gains on disposals of
discontinued operations of $45.5 million and $15.2 million, respectively.
 
    The results of continuing operations for the third quarter of 1998 included
a gain on the sale of assets of $1.5 million (refer to Note 14) and a $3.3
million reduction in cost of sales resulting from a change in estimated accruals
created in prior periods. The results of continuing operations for the second
quarter of 1998 included a gain on the sale of assets of $6.2 million, a $6.0
million reduction in cost of sales due to a change in estimated property tax
accruals created in prior periods and a $3.7 million reduction in restructuring
and reorganization charges due to a revised estimate of property and other
tax-related accruals recorded in 1995 in connection with the idling of the
Puerto Rico facility. The results of continuing operations for the third quarter
of 1997 included a $31.3 million impairment loss on long-lived assets. The
results of continuing operations for the second quarter of 1997 included a $3.2
million reduction in operating expenses due to changes in estimated accruals
created in prior periods.
 
                                      F-47
<PAGE>
                                                                     SCHEDULE II
 
                               CHIRON CORPORATION
 
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
 
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                                              ADDITIONS
                                                BALANCE AT   CHARGED TO      CHARGED                                       BALANCE
                                                BEGINNING     COSTS AND     TO OTHER                                      AT END OF
DESCRIPTION                                      OF YEAR     EXPENSES(2)    ACCOUNTS     DEDUCTIONS   RECLASSIFICATIONS     YEAR
----------------------------------------------  ----------   -----------   -----------   ----------   -----------------   ---------
                                                                                  (IN THOUSANDS)
<S>                                             <C>          <C>           <C>           <C>          <C>                 <C>
1998:
Accounts receivable...........................   $22,918       $14,370     $(13,322)(1)   $ (7,776)       $--              $16,190
Restructuring reserve.........................     6,857        45,822        --           (28,883)        --               23,796
 
1997:
Accounts receivable...........................    20,692        10,227        --            (8,001)        --               22,918
Restructuring reserve.........................     7,357         3,336        --            (3,836)        --                6,857
 
1996:
Accounts receivable...........................    18,524         8,848        --            (6,680)        --               20,692
Restructuring reserve.........................    13,618        --            --            (6,261)        --                7,357
</TABLE>
 
------------------------
 
(1) Represents accounts receivable allowances as of the disposal date related to
    disposed businesses.
 
(2) Includes amounts charged to discontinued operations.
 
                                      F-48