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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 DECEMBER 31, 1999

                          COMMISSION FILE NO. 0-12798
                            ------------------------

                               CHIRON CORPORATION
             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                             <C>
                 DELAWARE                                       94-2754624
         (State of Incorporation)                   (IRS Employer Identification No.)
</TABLE>

                            ------------------------

                               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 29, 2000, was $5.1 billion.

    The number of shares outstanding of each of the Registrant's classes of
common stock as of February 29, 2000:

<TABLE>
<CAPTION>
       TITLE OF CLASS          NUMBER OF SHARES
-----------------------------  ----------------
<S>                            <C>
Common Stock, $0.01 par value   180,590,023
</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 25, 2000 are incorporated by reference into Part III of this Report.
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ITEM 1. BUSINESS

    THIS REPORT 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, vaccines and blood testing. 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 disease.

    The Company's products include Proleukin-Registered Trademark-
(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-Registered Trademark- (becaplermin) Gel, which is
marketed by Ortho-McNeil Pharmaceutical, Inc. ("Ortho-McNeil"), a Johnson &
Johnson ("J&J") company, as a treatment for diabetic foot ulcers. Chiron also
manufactures Betaseron-Registered Trademark- (interferon beta-1b) for Berlex
Laboratories, Inc. ("Berlex") and its parent company, Schering AG, which is
marketed by Berlex and Schering AG as a treatment for 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
cancer, infectious diseases 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 1, 2000, 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.

    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.

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PRODUCTS

BIOPHARMACEUTICALS

    The Company's leading therapeutic product is Proleukin-Registered Trademark-
(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 and function of immune cells, including
lymphocytes (white blood cells) that help fight certain cancers and may help
fight viral infections. While the precise anti-tumor mechanism of
Proleukin-Registered Trademark- is unknown, research has demonstrated that it
induces the proliferation of immune cells, including natural killer and
cytotoxic T cells that can recognize and mobilize against tumor-specific
antigens on the surface of malignant cells. Proleukin-Registered Trademark- 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-Registered Trademark-
(becaplermin) Gel, developed with Ortho-McNeil through a collaboration in growth
factor research that began in 1984. Ortho-McNeil markets Regranex-Registered
Trademark- in the United States as a treatment for diabetic foot ulcers.
Regranex-Registered Trademark- 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-Registered Trademark- was the first product demonstrated
to assist in the healing of diabetic foot ulcers. Regranex-Registered Trademark-
also has been approved for marketing in Canada, Europe, Asia and other regions
of the world.

    Chiron manufactures Betaseron-Registered Trademark- (interferon beta-1b) for
Berlex and its parent company, Schering AG of Germany. Berlex markets
Betaseron-Registered Trademark- primarily in the United States and Canada to
treat patients with relapsing remitting multiple sclerosis and in Canada to
treat patients with secondary progressive 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-Registered Trademark-, which is manufactured by Boehringer Ingelheim
and marketed by Schering AG for the treatment of patients with relapsing
remitting or secondary progressive multiple sclerosis.

    In April 1999, the FDA approved DepoCyt-Registered Trademark- for treatment
of lymphomatous meningitis, subject to a post-approval (phase IV) clinical
study. DepoCyt-Registered Trademark- consists of cytarabine (a generic
chemotherapy product) encapsulated in a novel delivery system, called
Depofoam-Registered Trademark-. The Company developed DepoCyt-Registered
Trademark- in the United States in a collaboration with SkyePharma, Inc.
(formerly DepoTech Corporation) ("SkyePharma"). SkyePharma manufactures
DepoCyt-Registered Trademark- and the Company markets it in the United States.
In October 1999, SkyePharma discovered two lots that did not meet manufacturing
specifications and, as a result, vials from these lots were recalled. Sale of
this product is on hold while the Company and SkyePharma work with the Food and
Drug Administration ("FDA") to resolve various manufacturing issues.

    Sales of Proleukin-Registered Trademark- (IL-2) accounted for approximately
15%, 13% and 12% of consolidated total revenues in 1999, 1998 and 1997,
respectively. Sales of Betaseron-Registered Trademark- (interferon beta-1b),
which include product sales to Berlex and Schering AG and royalties earned on
Schering AG's European sales of Betaferon-Registered Trademark- (interferon
beta-1b), accounted for approximately 13% (9% product sales and 4% royalties),
13% (9% product sales and 4% royalties) and 14% (10% product sales and 4%
royalties) of total revenues in 1999, 1998 and 1997, respectively. 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,

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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 currently is
marketed in Italy. The Company is seeking approval to market the adjuvanted flu
vaccine elsewhere in Europe through the European mutual recognition procedure.
See "Government Regulation" below.

    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"). The
Company has received approval from the European Medicines Evaluation Agency to
market its DTaP vaccine for infants and toddlers in Europe.

    The Company has developed a conjugate vaccine (Menjugate-TM-) against
meningococcal C disease. Invasive infection with the bacteria N. meningitidis
can lead to meningitis and septicemia (blood poisoning). Meningococcal
meningitis, which can be caused by multiple serogroups (A, B, C, Y and others),
is associated with a high mortality rate. In March 2000, the Medicines Control
Agency approved Menjugate-TM- for sale in the United Kingdom. The National
Health Service in the United Kingdom has accepted the Company's tender to supply
Menjugate-TM- in 2000.

    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 FDA for human use.

    No single vaccines product or class of vaccines products accounted for 10%
or more of consolidated total revenues of the Company in any of the last three
fiscal years.

BLOOD TESTING

    Chiron's blood testing business comprises two separate collaborations: a
joint business with Ortho-Clinical Diagnostics, Inc. ("Ortho"), an affiliate of
J&J, and an alliance with Gen-Probe Incorporated ("Gen-Probe").

    Chiron's joint business with Ortho was formed in 1989, based largely on the
screening, using immunodiagnostic technology, of blood in blood banks and other
similar settings for the potential presence of human immunodeficiency virus
("HIV") and hepatitis viruses. The joint business sells a full line of tests
required 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 manufactures viral antigens and
supplemental hepatitis tests, 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 Bio-Rad
Laboratories, Inc. and certain other licensees.

    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

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nucleic acid improves the sensitivity of detection and enables infection to be
detected earlier following infection. 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 and instrument research and development. 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 worldwide began in 1999 to develop policies or mandates for
future implementation of nucleic acid testing in blood banks and plasma centers.
The Chiron/Gen-Probe collaboration's first product, a combined test for HIV-1
and HCV using a semi-automated instrument system, is being used to screen blood
under an Investigational New Drug ("IND") clinical study 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

    Chiron has utilized a variety of approaches for developing biopharmaceutical
products. In 1999, the Company narrowed its R&D efforts to focus on those
platforms which management believes are more likely to generate new product
candidates. Going forward, Chiron expects to concentrate on two primary product
engines: recombinant proteins and small molecules, supported by biological
discovery. The Company is seeking a corporate partner for its gene therapy
program.

    GENE/BIOLOGICAL DISCOVERY.  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, including therapeutics for treatment of disease
and vaccines for prevention of 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 or specific antibodies against them can enhance the
patient's natural ability to fight disease. However, traditional methods of
isolating 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-Registered Trademark- (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-Hodgkin's lymphoma in conjunction with an approved antibody
therapeutic. 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 and peripheral 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 severe sepsis. Insulin-Like Growth Factor
("IGF"), a growth factor which can stimulate the formulation of cartilage, is in
clinical development for the treatment of osteoarthritis. Chiron and Cephalon,
Inc. ("Cephalon") have discontinued their joint collaboration to develop
Myotrophin-Registered Trademark-(mecasermin) (IGF-I) as a treatment for
amyotrophic lateral sclerosis (also known as ALS or Lou Gehrig's disease). In
1997, an FDA advisory committee found that there was not sufficient evidence of
efficacy of

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Myotrophin-Registered Trademark- as a treatment for ALS to warrant approval. In
May 1998, Chiron and Cephalon received a letter from the FDA indicating that
Myotrophin-Registered Trademark- is potentially approvable, contingent upon
additional evidence of efficacy and safety. While the new drug application
("NDA") for Myotrophin-Registered Trademark- remains pending at the FDA, Chiron
and Cephalon have no present plans to submit additional data in response to the
FDA's request. Each company has borne its own costs of this program since July
1998. In September 1998, Chiron and Cephalon withdrew their application to
market Myotrophin-Registered Trademark- (IGF-I) in Europe.

    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.

    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 clinical 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.

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. The
Company currently is conducting preclinical studies on vaccines for a number of
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. 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.

    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's
therapeutic vaccine for treatment of chronic hepatitis B infection is in
clinical development.

BLOOD TESTING

    Ortho is developing a range of hepatitis and retrovirus assays for IN-VITRO
clinical diagnostics use on its immunodiagnostics instrument system.

    The Chiron/Gen-Probe collaboration has two instrument systems in
development, both of which are designed to be used with the HIV-1 and HCV
nucleic acid assay to test human plasma. The semi-automated system is currently
operating under IND in the United States while the fully automated
Procleix-TM-Tigris-Registered Trademark- system is under development. Chiron and
Gen-Probe are widening the menu from

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HIV-1/HCV to include other transfusion transmitted agents, and Gen-Probe is
continuing development of the fully automated Procleix-TM-Tigris-Registered
Trademark- 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. The agreement provides that, through December
2000, at Chiron's request, Novartis will fund up to 100% of the development
costs incurred between January 1, 1995 and December 31, 1999 on the funded
projects. The amount of funding that Novartis is obligated to provide is subject
to an aggregate limit of $265.0 million. As of December 31, 1999, the Company
had used $252.9 million of the funding. 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, 1999, 1998
and 1997 for Company-sponsored research, including payments to collaboration
partners, was $303.4 million, $286.6 million and $256.6 million, respectively.
Of that, $49.7 million, $61.9 million and $79.5 million in 1999, 1998 and 1997,
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 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; an agreement with Merck relating to hepatitis B vaccines, an
agreement with SmithKline relating to recombinant vaccine manufacturing
technology and an agreement with Novo Nordisk A/S relating to technology used in
the manufacture of recombinant human insulin. In September 1999, Chiron granted
a license to Abbott under its HCV patents for use in nucleic acid amplification
in clinical diagnostics, excluding blood screening.

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

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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.

    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
will be 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.
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

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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-Registered Trademark- is a registered trademark of the Company and
its subsidiaries. ELVS-TM-, Polioral-TM-, Triacelluvax-TM- and Procleix-TM- are
trademarks of the Company and its subsidiaries. DepoCyt-TM- is a trademark owned
by Chiron and SkyPharma. The following registered trademarks are owned by the
indicated companies: Betaseron-Registered Trademark- and Betaferon-Registered
Trademark- (Schering AG), Myotrophin-Registered Trademark- (Cephalon),
Regranex-Registered Trademark- (J&J), Apligraf-Registered Trademark- (Novartis),
Dermagraf-Registered Trademark- (Advanced Tissue Sciences, Inc.),
Copaxone-Registered Trademark- (Teva Pharmaceutical Industries, Ltd.),
Avonex-Registered Trademark- (Biogen, Inc.), Aredia-Registered Trademark-
(Novartis), Amplicor-Registered Trademark- (Roche) and Novantrone-Registered
Trademark-(Immunex). Tigris-Registered Trademark- 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 $200.0 million. This $200.0 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. Roche's royalty obligation will expire upon the earlier of
December 31, 2000 or when Chiron recognizes royalties with an aggregate net
present value of $30.0 million as of the date of the agreement. As of
December 31, 1999, Chiron had recognized royalties with a net present value of
$13.2 million.

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 8%, 12% and
21% of total revenues in 1999, 1998 and 1997, 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 14%, 18% and 24% of total revenues in 1999,
1998 and 1997, respectively. The Company has a supply agreement with Berlex and
its parent company, Schering AG of Germany. Revenues recognized under this
agreement contributed 13%, 13% and 14% to total revenues in 1999, 1998 and 1997,
respectively.

                                       8
<PAGE>
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.

    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-Registered Trademark- 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-Registered Trademark- has
approximately a 50% market share for metastatic kidney cancer and a 25% market
share for metastatic melanoma. 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-Registered Trademark- was the first product approved by the FDA for
treatment of diabetic foot ulcers. Products that it indirectly competes with
include Dermagraft-Registered Trademark-, a product from Advanced Tissue
Sciences & Smith and Nephew, and Apligraf-Registered Trademark-, 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.

    Betaseron-Registered Trademark-, as a treatment for multiple sclerosis,
competes with Avonex-Registered Trademark-, a recombinant interferon beta sold
by Biogen, Inc., and with Copaxone-Registered Trademark- from Teva
Pharmaceuticals. In March 2000, the FDA issued an approvable letter for
Novantrone-Registered Trademark- from Immunex for the treatment of secondary
progressive multiple sclerosis. In Europe, Schering AG's product,
Betaferon-Registered Trademark-, faces competition from Ares Serono, which sells
another 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 Aventis Pasteur (formerly
Pasteur Merieux Connaught). Aventis Pasteur 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 31% and 35% market share in Germany and
Italy, respectively, and an aggregate market share of approximately 11% 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

                                       9
<PAGE>
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 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 the Chiron-Ortho joint businesses and also manufactures HCV antigens
for Abbott's immunodiagnostic assays. In the immunoassay blood testing market,
the Chiron-Ortho joint business competes with Abbott. The joint business
anticipates increased competitive pressures from Abbott with the introduction of
the Abbott PRISM-Registered Trademark- 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 Corporation, have substantial
positions in the market segment.

    Currently, there are no approved, nucleic acid-based tests for commercial
use in blood testing, other than the Chiron/Gen-Probe test for HIV-1/HCV, which
has received approval in France. The Chiron/Gen-Probe test for HIV/HCV currently
is being used under an IND in the United States, and it is estimated that
approximately 70% of the U.S. blood supply is tested with this product. The
Chiron/Gen-Probe products are expected to compete primarily with PCR-based
products supplied by Roche or developed in-house by customers (homebrew) and, in
some markets, the HCV antigen test under development by the Chiron-Ortho joint
business. The commercial market for nucleic acid testing products in the blood
banking and plasma industries is developing very rapidly as regulatory agencies
began in 1999 to develop policies and mandates that require this new technology
to be implemented as an additional measure to improve blood safety.

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 typically 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.

                                       10
<PAGE>
    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 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 blood testing and, in particular, biopharmaceutical 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 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, 1999, Chiron and its subsidiaries had 3,110 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 1, 2000, 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 55% before January 5, 2001 and thereafter will not
increase its ownership 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 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 twelve 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

                                       11
<PAGE>
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. The leased facilities include the research and
development facility in Emeryville, which is 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 a
manufacturing facility in Vacaville, California used principally in connection
with the Company's biopharmaceutical and vaccine businesses. This facility has
available capacity due to lower than expected demand for certain of the
Company's products and improved production yields from other facilities. As a
result, the Company has entered into contract manufacturing agreements to
utilize this available capacity (see Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" below). In December
1999, the Company sold its Amsterdam facility and is leasing back office and
warehouse space for some operational and administrative activities.

    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. A portion of the Claremont campus was sold in July 1999, with the
remaining portion being currently 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.

ITEM 3. LEGAL PROCEEDINGS

FEDERAL EXPRESS

    On September 3, 1999, Federal Express Corporation ("Federal Express") filed
suit in the Supreme Court of the State of New York, County of Orange against
Perseptive Biosystems, Inc., Perkin-Elmer Corporation, PE Biosystems Group, and
PE Corporation (together, the "PE Defendants") and Chiron. The matter was
removed to the United States District Court for the Southern District of New
York on motion by Chiron. The Federal Express complaint relates to a fire that
allegedly destroyed a Federal Express aircraft and the majority of its cargo in
September 1996. Federal Express claims breach of contract, negligence and
product liability with regard to equipment owned and shipped by Chiron and
designed, manufactured, packaged and prepared for shipping by the PE Defendants
and seeks damages,

                                       12
<PAGE>
interest, costs and fees. Federal Express alleges that improper packing and
shipping procedures proximately caused destruction of the plane. The National
Transportation Safety Board, an agency of the federal government investigated
the circumstances surrounding the incident and in 1999, issued a letter of no
determination as to the cause of the fire. It is not known when nor on what
basis this litigation will be concluded.

CONNAUGHT LABORATORIES, LIMITED

    Chiron was involved in litigation in Italy and The Netherlands with
Connaught Laboratories, Limited ("Connaught") relating to TriAcelluvax-TM- and
the Company's diphtheria/tetanus/acellular pertussis vaccine.

    Chiron S.p.A. 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.

    On February 25, 1998, Chiron filed suit against Connaught in Italy seeking a
declaration of invalidity of Connaught's European Patent 0 322 115 (the "'115
patent"). The '115 patent contains claims allegedly relating to pertussis toxin
mutant.

    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.

    In January 2000, all of these disputes were settled by agreement of the
parties.

F. HOFFMAN LA-ROCHE A.G.

    Chiron is involved in certain litigation in the United States, The
Netherlands, Japan, Germany and other countries with F. Hoffman-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. Hoffman-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-Registered Trademark- HCV Test and Amplicor-Registered Trademark- HCV
Monitor Test infringes Chiron's U.S. Patent Nos. 5,712,088 (the "'088 patent"),
5,714,596 (the "'596 patent") and 5,863,719 (the "'719 patent") The action also
asserts that Bradley breached a 1990 settlement agreement with Chiron, 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
Hoffman-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
Hoffman-LaRoche. The parties' cross-motions for summary judgment on Roche's
license based defenses were resolved in Chiron's favor by a Court order dated
June 23, 1999. The order, which is subject to appeal, holds that Roche has
neither express nor implied license rights to Chiron's HCV technology. The Court
found that foreign and domestic rights were assigned by Bradley to Chiron under
the 1990 settlement, that Bradley's earlier litigation against Chiron was RES
JUDICATA as to foreign rights, and that Bradley's assignment of such rights to
Roche breached his settlement agreement with Chiron. In October 1999, Roche
filed counterclaims against Chiron which challenge the validity and
enforceability of the patents in suit. Roche also seeks to recover

                                       13
<PAGE>
treble damages and an injunction against Chiron for alleged breaches of state
and federal antitrust statutes relating to Chiron's HCV licensing practices.
Discovery is ongoing.

    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-Registered
Trademark- HCV Test and Amplicor-Registered Trademark- HCV Monitor Test by
Nippon Roche and damages. Roche has filed a counterclaim for invalidity. 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. Hoffman-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 sought a
cross-border injunction with effect in a number of European countries,
prohibiting the sale of Roche AG's Amplicor-Registered Trademark-HCV Test and
Amplicor-Registered Trademark- HCV Monitor Test. Roche AG has asserted certain
defenses and counterclaims in this matter. Following a trial in October 1998,
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-Registered Trademark- 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. The expert's
report, which was submitted in January 2000 and tended to support Roche's
interpretation of those contractual issues, will be the subject of further
briefing to the Court in the spring of 2000. In December 1998, the Company filed
a parallel, new action before the Dutch Court concerning the Amplicor-Registered
Trademark- 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. Hoffman-LaRoche AG ("Roche Germany") in the Regional Court, 4th 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 in Germany of infringing HCV immunoassay kits. Roche Germany
asserted certain claims and defenses in this matter. In April 1999, following a
trial, the Court issued a decision granting Chiron's application and entered an
injunction. Roche has appealed the decision.

    Chiron also filed a suit against Roche in Dusseldorf, Germany, for
infringement of Chiron's European Patent 0 181 150 relating to HIV probes
technology. The suit seeks injunctive relief and damages. Trial of this matter
took place in February 2000 and a judgment is expected in May 2000.

    A suit filed in October 1998 by Roche AG against Chiron and Ortho is pending
in the Federal Court of Australia, New South Wales District Registry, seeking
revocation of Australian patent number 624105, relating to HCV technology.
Discovery is ongoing.

    In May 1999, Chiron and Gen-Probe, Incorporated ("Gen-Probe") initiated
action in the Tribunal of Milan, Italy, against Roche AG and several of its
European affiliates (together, "Roche"). The lawsuit seeks a cross-border
declaration that Gen-Probe's Transcription Mediated Amplification System
("TMA"), which is used in Chiron/Gen-Probe blood screening kits, does not
infringe Roche's European Patent 0 505 012 (the "'012 patent"), which relates to
PCR technology. The plaintiffs also seek an assessment of the '012 patent and a
declaration of nullity of the Italian counterpart of the '012 patent.

ORTHO-CLINICAL DIAGNOSTICS, INC.

    On February 17, 1998, Chiron filed a lawsuit against Ortho-Clinical
Diagnostics, Inc. ("Ortho") in the United States District Court for the Northern
District of California. The suit sought to compel arbitration of certain issues
relating to the conduct of the parties' joint business. Chiron's motion to
compel

                                       14
<PAGE>
arbitration was granted by the Court in December 1998. Ortho appealed that order
to the Ninth Circuit Court of Appeals and oral argument occurred in February
2000. Thereafter, Ortho refused Chiron's demand to arbitrate in accordance with
the District Court's order. On March 31, 1999, Chiron filed a second petition in
the United States District Court for the Northern District of California to
compel arbitration. On November 1, 1999, the Court entered judgment in Chiron's
favor, ordering Ortho to submit the underlying issues to arbitration. 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 December 31, 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>
Rajen K. Dalal............................     46      Vice President; President, Chiron Blood
                                                       Testing

William G. Green, Esq.....................     55      Senior Vice President, General Counsel and
                                                       Secretary

Paul J. Hastings..........................     40      Vice President; President, Chiron
                                                       Biopharmaceuticals

Sean P. Lance.............................     52      Chairman of the Board; President and Chief
                                                       Executive Officer

Linda W. Short............................     54      Vice President, Corporate Resources

David V. Smith............................     40      Vice President, Controller

James R. Sulat............................     49      Vice President, Chief Financial Officer

Lewis T. Williams, M.D., Ph.D.............     50      Chief Scientific Officer; President,
                                                       Chiron Research & Development; Director
</TABLE>

    MR. DALAL joined the Company in December 1991 as Vice President, Corporate
Development. In 1998, he was appointed President of Chiron Blood Testing. 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.

    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.

    MR. HASTINGS joined the Company as Vice President, and President of Chiron
Biopharmaceuticals effective June 1999, responsible for sales, marketing and
strategic planning, both in the United States and internationally,
manufacturing, quality assurance and compliance and process development and
financial operations. Most recently, Mr. Hastings was the President, Chief
Executive Officer and a member of the board of LXR Biotechnology, a small,
early-stage, publicly-traded biotechnology company. From 1993 to 1998,
Mr. Hastings spent five years at Genzyme Corporation in Cambridge,
Massachusetts, as President of Genzyme Therapeutics, with operating
responsibility for the business, overseeing marketing, sales, business
development, patient services, finance and human resources. While at Genzyme, he
also served in various executive capacities, as President of Genzyme
Therapeutics Europe, and Vice President of Global Marketing, where he was
responsible for worldwide market planning. From 1989 to 1993, Mr. Hastings

                                       15
<PAGE>
held a number of marketing and sales positions with Synergen, Inc., where he was
responsible for worldwide marketing and sales, both in the United States and in
Europe.

    MR. LANCE joined the Company as President and Chief Executive Officer in May
1998, and became Chairman of the Board in May 1999 upon the resignation of
Dr. William J. Rutter. 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.

    MS. SHORT joined the Company in November 1997 as Vice President, Human
Resources. In May 1999, she was promoted to Vice President, Corporate Resources
with increased responsibilities overseeing human resources, facilities planning,
information management, organizational learning, payroll and benefits,
compensation and stock administration. Prior to joining the Company, she was the
Director of Human Resources of Industrial Indemnity from 1994 to 1997. From 1983
to 1994, Ms. Short held various managerial positions with the Bank of America.

    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 several private companies.

    DR. WILLIAMS joined the Company in August 1994 as Senior Vice President and
President of Chiron Technologies (now called "Chiron Research and Development").
In 1998, he was promoted to Chief Scientific Officer of the Company. In May
1999, he was appointed a Director of the Company serving for a two-year term
expiring at the Annual Meeting of Stockholders in 2001. 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.

                                       16
<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, 1999, there were 5,817
holders of record of Chiron common stock, 14 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 1999 and 1998 are shown
below.

<TABLE>
<CAPTION>
                                                           1999                         1998
                                                --------------------------   ---------------------------
                                                    HIGH           LOW          HIGH            LOW
                                                ------------   -----------   -----------   -------------
<S>                                             <C>            <C>           <C>           <C>
First Quarter.................................  $23 1/4        $20 7/8       $22           $16 9/16
Second Quarter................................   22 7/16        20            22            15 11/16
Third Quarter.................................   33 5/16        20 3/4        21 1/16       13 3/4
Fourth Quarter................................   43 1/4         27 1/2        26 5/8        18 1/16
</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,
                                     --------------------------------------------------------------
                                        1999         1998         1997         1996         1995
                                     ----------   ----------   ----------   ----------   ----------
                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                  <C>          <C>          <C>          <C>          <C>
Total revenues.....................  $  762,646   $  736,673   $  574,599   $  537,149   $  393,566
Income (loss) from continuing
  operations.......................     128,404       75,998       25,782       45,658     (469,802)
Basic income (loss) per common
  share from continuing
  operations.......................        0.71         0.43         0.15         0.27        (2.89)
Diluted income (loss) per common
  share from continuing
  operations.......................        0.69         0.42         0.14         0.26        (2.89)
Total assets.......................   2,458,769    2,524,264    1,768,478    1,688,670    1,489,847
Long-term debt.....................      96,958      338,158      397,217      419,589      413,248
</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, vaccines and blood testing. The
biopharmaceuticals segment consists of products and services related to
therapeutics, with an emphasis on cancer, infectious diseases and cardiovascular
diseases as well as the development and acquisition of technologies related to
recombinant proteins, small molecules and genomics. The vaccines segment
consists principally of adult and pediatric vaccines sold primarily in Germany
and Italy, as well as in other international markets. The blood testing segment
consists of Chiron's one-half interest in the pretax operating earnings of its
joint business with Ortho-Clinical Diagnostics, Inc. ("Ortho"), a Johnson &
Johnson company, and an alliance with Gen-Probe Incorporated ("Gen-Probe").
Chiron's joint business with Ortho sells a line of immunodiagnostic tests, other
than nucleic acid 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

                                       17
<PAGE>
collection. Chiron's alliance with Gen-Probe is focused on developing and
selling nucleic acid testing ("NAT") products using transcription-mediated
amplification ("TMA") technology to screen blood and plasma for infection by
viruses.

    On December 29, 1997, Chiron completed the sale of its ophthalmics business
("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"). The Company's Consolidated
Statements of Operations reflect the after-tax results of Chiron Vision and
Chiron Diagnostics 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.

RESULTS OF OPERATIONS

REVENUES

    BIOPHARMACEUTICAL PRODUCT SALES  Product sales from the biopharmaceuticals
segment were $187.6 million, $201.9 million and $150.6 million in 1999, 1998 and
1997, respectively. In 1999, 1998 and 1997, product sales consisted principally
of Proleukin-Registered Trademark- (aldesleukin, interleukin-2),
Betaseron-Registered Trademark- (interferon beta-1b) and PDGF (recombinant human
platelet-derived growth factor -rhPDGF-BB).

    PROLEUKIN-REGISTERED TRADEMARK-  Chiron sells Proleukin-Registered
Trademark- directly in the U.S. and certain international markets. Sales of
Proleukin-Registered Trademark- were $111.8 million, $93.2 million and
$70.5 million in 1999, 1998 and 1997, respectively. The overall increase in
sales from year-to-year was due to (i) continued volume growth in existing
indications; (ii) higher prices; and (iii) in 1998, the geographic expansion
into various countries and the expanded use of Proleukin-Registered Trademark-
for the new indication of metastatic melanoma. The Company continues to pursue
additional indications, including human immunodeficiency virus ("HIV"). The
Company also anticipates further geographic expansion of Proleukin-Registered
Trademark- into additional countries.

    BETASERON-REGISTERED TRADEMARK-  Chiron manufactures Betaseron-Registered
Trademark- for Berlex Laboratories, Inc. ("Berlex") and its parent company
Schering AG of Germany. Chiron earns a payment for Betaseron-Registered
Trademark- upon shipment to Berlex and Schering AG and a subsequent additional
payment upon sales by Berlex and Schering AG. Accordingly, Chiron's revenues
from Betaseron-Registered Trademark- tend to fluctuate based upon the inventory
management practices of Berlex and Schering AG. In October 1998, the contractual
rate upon which Chiron recognizes revenues decreased by 2.5% of Berlex's sales
of Betaseron-Registered Trademark-. In addition, in July 1997, the terms of
payment changed whereby the initial payment received upon shipment decreased and
the additional payment due upon sales to patients increased equivalently. The
revised payment terms resulted in a timing difference whereby Chiron recognized
a decrease in initial revenues in 1997 when compared with 1998.

    In 1999, 1998 and 1997, product sales from Betaseron-Registered Trademark-
were $66.0 million, $63.4 million and $54.8 million, respectively. In 1999, the
actual number of Betaseron-Registered Trademark- vials sold by Berlex and
Schering AG to patients increased 20% over 1998, while Chiron's shipments of
Betaseron-Registered Trademark- to Berlex and Schering AG decreased 19% over
1998. The increase in product sales in 1999 as compared with 1998 was primarily
related to the approval in 1999 of Betaseron-Registered Trademark- for secondary
progressive multiple sclerosis in Canada and Australia and overall market
expansion, offset by the decrease in the contractual rate discussed above and
the decrease in shipments of Betaseron-Registered Trademark- to Berlex and
Schering AG. In 1998, Chiron's shipments of Betaseron-Registered Trademark- to
Berlex and Schering AG increased significantly over shipments in 1997, while 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. The increase
in revenues in 1998 as compared with 1997 was primarily due to replenishing
inventories at Berlex and Schering AG and to the change in payment terms
discussed above.

                                       18
<PAGE>
    The Company also earns royalties on Schering AG's European sales of
Betaferon-Registered Trademark- (interferon beta-1b). See "Royalty and license
fee revenues--Betaseron-Registered Trademark-" below.

    PDGF  Chiron manufactures PDGF for Ortho-McNeil Pharmaceutical, Inc., a
Johnson & Johnson ("J&J") company. PDGF is the active ingredient in
Regranex-Registered Trademark-(becaplermin) Gel, a treatment for diabetic foot
ulcers. Regranex-Registered Trademark- Gel was approved by the Food and Drug
Administration ("FDA") in December 1997 and was launched commercially in early
1998. There were no commercial sales of PDGF to J&J in 1999, and sales of PDGF
were $36.4 million and $18.3 million in 1998 and 1997, respectively. Chiron's
sales of PDGF will tend to fluctuate based upon the inventory management
practices of J&J. Regranex-Registered Trademark- Gel was approved for use in the
treatment of diabetic foot ulcers in Canada in December 1998 and Europe in March
1999. However, even with these approvals, Chiron's sales through 1998 have
filled J&J's inventory requirements through 1999, and as a result, no
significant sales of PDGF to J&J are expected until the second quarter of 2000.
As a result, the decline in sales from 1998 to 1999 was due to a lack of orders
from J&J in 1999. In addition, the Company increased its product returns
allowance in 1999. The increase in the product returns allowance was primarily
due to additional historical returns information, now that Regranex-Registered
Trademark- has been in the commercial market for over 12 months. As
Regranex-Registered Trademark- is the first product of its kind, the Company
believes it will take time for the market to fully develop. As Chiron's
shipments of PDGF remained fairly constant in 1998 and 1997, the increase in
revenues between 1998 and 1997 was 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.

    VACCINE PRODUCT SALES  Chiron sells pediatric and adult vaccines in Germany,
Italy and other international markets. Certain of the Company's vaccine
products, particularly its flu vaccine, are seasonal and typically have higher
sales in the third quarter of the year. In 1999, 1998 and 1997, vaccine product
sales were $208.6 million, $176.8 million and $82.0 million, respectively. The
increase in sales in 1999 as compared with 1998 was driven by (i) the Company's
acquisition of the remaining 51% interest in, and consolidation of, Chiron
Behring in the second quarter of 1998 (see Chiron Behring below);
(ii) increased flu vaccine sales due to a one-time $4.2 million sale of adult
influenza vaccine to Argentina in the first quarter 1999 and growth in the flu
vaccine market; and (iii) increased rabies vaccine sales as the Company gained
additional market share. The increase in sales in 1998 as compared with 1997 was
primarily due to Chiron's acquisition of the remaining 51% interest in, and
consolidation of, Chiron Behring in the second quarter of 1998.

    In March 2000, the Company received approval in the United Kingdom to market
Menjugate-TM-, its conjugate vaccine against meningococcal meningitis caused by
the bacterium N. MENINGITIDIS serogroup C. The National Health Service ("NHS")
in the United Kingdom has accepted the Company's tender to supply Menjugate-TM-.
Shipments began in March 2000. The Company does not expect shipments in 2001 to
be commensurate with those in 2000.

    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.

    BLOOD TESTING PRODUCT SALES  During the second quarter 1999, the Company
began recognizing revenues from sales of its nucleic acid tests that are used to
screen blood and plasma under an investigational new drug ("IND") application in
the U.S. Evaluation studies at several non-U.S. sites also began during the
second quarter 1999. Worldwide product sales related to tests and instruments
were $7.1 million for the year ended December 31, 1999.

    In September 1999, the Company received regulatory approval in France for
the TMA assay and began selling and providing assays and renting instruments to
several regional blood testing centers. Currently, the French government is
considering the guidelines that it will adopt regarding nucleic acid testing,
and Chiron is participating in a government-sponsored evaluation at four major
testing centers to

                                       19
<PAGE>
support this decision. The outcome and impact of this upcoming decision on
future assay sales and instrument rentals to French blood testing centers is not
yet known.

    During the fourth quarter 1999, the Company signed an exclusive contract
with the Australian Red Cross Blood Service to provide blood testing products
for NAT screening. Under the contract, Chiron began recognizing product revenue
for sales of its nucleic acid tests in Australia.

    EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT BUSINESSES  In 1999, 1998 and
1997, Chiron recognized equity in earnings of unconsolidated joint businesses of
$79.3 million, $74.0 million and $106.4 million, respectively. In each of these
years, equity in earnings of unconsolidated joint businesses consisted
substantially of Chiron's 50% share of the pretax operating earnings generated
by Chiron's joint business with Ortho-Clinical Diagnostics, Inc. ("Ortho"), a
Johnson & Johnson company ("Chiron-Ortho joint business"). In 1998 and 1997,
equity in earnings of unconsolidated joint businesses also included one quarter
and four quarters, respectively, of earnings from Chiron's 49% share of the
after-tax operating results of Chiron Behring.

    CHIRON-ORTHO JOINT BUSINESS  In 1999, 1998 and 1997, Chiron's 50% share of
the pretax operating earnings of the Chiron-Ortho joint business was
$78.1 million, $73.5 million and $92.9 million, respectively. The overall
fluctuations in earnings from the joint business were primarily due to certain
adjustments made during the first quarters of 1999, 1998 and 1997. In the first
quarter of 1999, an annual inventory adjustment resulted in a charge of
$0.7 million as compared with a charge of $4.1 million recognized in the first
quarter 1998. In the first quarter 1998, an annual inventory adjustment resulted
in a charge of $4.1 million as compared with $0.8 million of income in the first
quarter 1997. 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) a one-time contract termination fee paid by
the Chiron-Ortho joint business in the first quarter 1998; 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 (see Note 5 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS). From
July 1, 1996 through the first quarter 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 from the joint
business, including amortization of intangibles, was $2.4 million for the three
months ended March 31, 1998 and $13.8 million for the year ended December 31,
1997. 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 the achievement 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 revenues, 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. In particular, the research
funding from Novartis (see below) expires on December 31, 2000, and there can be
no assurance that new relationships will be established. 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

                                       20
<PAGE>
("HSV-tk"). Novartis has agreed to fund through December 31, 2000, at Chiron's
request and subject to certain annual and aggregate limits, up to 100% of the
development costs incurred between January 1, 1995 and December 31, 1999 on
these projects. In December 1999, Chiron and Novartis amended this agreement to
increase the aggregate maximum amount of funding provided by Novartis from
$250.0 million to $265.0 million. Under this agreement, in 1999, 1998 and 1997,
Chiron recognized collaborative agreement revenues of $46.2 million,
$54.4 million and $53.3 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, 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 $4.2 million, $6.0 million and $10.2 million in 1999, 1998 and 1997,
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
$10.0 million in 1999 and $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 and $7.8 million in 1998 and 1997, respectively. The Company
has no continuing obligation under this agreement.

    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 and 1997, Chiron recognized revenues related to this agreement of
$1.2 million and $5.4 million, respectively. The Company has no continuing
obligation under this agreement.

    MEDIVIR AB  In 1999, Medivir licensed some of Chiron's combinatorial
technology-based techniques for drug discovery and optimization, for use in the
research and development of pharmaceuticals for human use. Revenue recognized
under this agreement was $2.0 million in 1999. If Medivir commercializes a
product using Chiron's combinatorial technology, Chiron will receive up to an
additional $3.6 million in royalties on product sales. However, there can be no
assurance that Medivir will commercialize a product using Chiron's combinatorial
technology.

    ROYALTY AND LICENSE FEE REVENUES  The Company receives royalties and license
fees for products or technologies that are manufactured, used or sold by third
parties. In 1999, 1998 and 1997, Chiron recognized royalty and license fee
revenues of $133.2 million, $125.3 million and $50.4 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. Significant fluctuations in royalty and license fee revenue from
year-to-year are discussed below.

    BETASERON-REGISTERED TRADEMARK-  The Company earns royalties on
Schering AG's European sales of Betaferon-Registered Trademark- (interferon
beta-lb). In 1999, 1998 and 1997, Chiron recognized $29.7 million,
$28.6 million and $24.1 million, respectively, under this arrangement. The
increase in 1999 as compared with 1998 was primarily related to the approval in
1999 of Betaseron-Registered Trademark- for secondary progressive multiple
sclerosis in Europe and

                                       21
<PAGE>
overall market expansion, offset by the decrease in the contractual rate
discussed above. The increase in 1998 as compared with 1997 was due to continued
market expansion.

    The Company also earns revenues on Betaseron-Registered Trademark- product
sales to Berlex and Schering AG. See "Biopharmaceutical product
sales--Betaseron-Registered Trademark-" above.

    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 1999 and 1998, Chiron recognized $15.8 million and $15.2 million,
respectively, 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.
Roche's royalty obligation expires upon the earlier of December 31, 2000 or when
Chiron recognizes royalties with an aggregate net present value of
$30.0 million as of the date of the agreement (discounted at 14.0%). As of
December 31, 1999, Chiron had recognized royalties with a net present value of
$13.2 million.

    BAYER CROSS-LICENSE AGREEMENT  In connection with the sale of Chiron
Diagnostics to Bayer, Chiron granted to Bayer rights under certain Chiron
patents, including rights under patents relating to HIV and hepatitis C virus
("HCV"). In exchange for these rights, Bayer paid to Chiron a license fee of
$100.0 million, which is refundable in decreasing amounts over a period of three
years. In 1999 and 1998, Chiron recognized revenues of $39.2 million and
$13.3 million, respectively, which represent the portions of the $100.0 million
payment which became nonrefundable during those years. The Company anticipates
recognizing the remaining revenue over the next two years as follows:
$29.2 million in 2000 and $18.3 million in 2001. In addition, the Company
receives royalties on sales of HIV and HCV products sold by Bayer. In 1999,
Chiron recognized $5.1 million of royalty revenue related to this agreement.

    LICENSE FEE REVENUES  In January 1998, Chiron recognized $5.0 million
related to a license fee received from Pharmacia & Upjohn Company to research,
develop, manufacture and commercialize therapeutic products for the treatment of
HCV in humans. In August 1998, Chiron recognized $24.0 million related to a
license fee received from SmithKline Beecham to use certain human vaccine
product technologies. The agreement provides for royalties on future product
sales, under which Chiron recognized $7.3 million and $3.7 million of such
royalties in 1999 and 1998, respectively.

    OTHER  In 1999 and 1998, Chiron recognized $11.3 million and $9.4 million,
respectively, of royalty and license fee revenues due to the acquisition and
consolidation of Chiron Behring in the second quarter of 1998.

    OTHER REVENUES  In 1999, 1998 and 1997, Chiron recognized other revenues of
$52.2 million, $48.3 million and $50.1 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. Significant fluctuations in
other revenues from year-to-year are discussed below.

    COMMISSION REVENUES  In 1999 and 1998, other revenues included
$13.5 million and $10.4 million, respectively, of commission revenues generated
by Chiron Behring, whose operations were consolidated with those of the Company
beginning in the second quarter 1998. These revenues consist of commissions
received on sales made by Chiron Behring of Pasteur Merieux Merck's hepatitis B
virus ("HBV") vaccine products and of Aventis Behring GmbH's (formerly Centeon
Pharma GmbH) immunoglobulin products.

    INFORMATICS TECHNOLOGY Chiron recognized net revenues of $12.5 million in
1998 in exchange for granting Bayer a license to use, reproduce and sell certain
technology developed by Chiron's informatics

                                       22
<PAGE>
business. The Company ceased all informatics activity in 1998; therefore, the
Company does not anticipate future revenues from this technology.

    AREDIA-REGISTERED TRADEMARK- (PAMIDRONATE DISODIUM FOR INJECTION)  From 1994
through April 1998, Chiron promoted Aredia-Registered Trademark- on behalf of
Novartis. In April 1998, this arrangement was terminated. In connection with
this arrangement, Chiron recognized other revenues of $9.8 million and
$43.6 million in 1998 and 1997, respectively.

    CONTRACT MANUFACTURING REVENUES  In 1999 and 1998, other revenues included
$19.2 million ($13.3 million in the biopharmaceuticals segment and $5.9 million
in the vaccines segment) and $9.0 million ($1.4 million in the
biopharmaceuticals segment and $7.6 million in the vaccines segment),
respectively, of contract manufacturing revenues. The increase was a result of
new contract manufacturing agreements, which began in 1999. The Company
anticipates that it will enter into additional contract manufacturing
agreements.

    DEPOCYT-REGISTERED TRADEMARK-  In 1999, other revenues included a
$9.7 million milestone payment related to the FDA's approval of
DepoCyt-Registered Trademark- in April 1999. In October 1999, SkyePharma, Inc.
("SkyePharma"), the manufacturer of DepoCyt-Registered Trademark-, discovered
two DepoCyt-Registered Trademark- lots that did not meet manufacturing
specifications and, as a result, all DepoCyt-Registered Trademark- vials were
recalled from these lots. The commercial supply of this product is on hold while
the Company and SkyePharma work with the FDA to resolve various issues related
to the manufacture of the product. Management of the Company does not believe
that this event will have a material impact on the results of operations for
fiscal year 2000. The impact of this event on future shipments of
DepoCyt-Registered Trademark- is not yet known.

COSTS AND EXPENSES

    GROSS PROFIT  Gross profit as a percentage of net product sales was 56.3%,
56.2% and 54.9% in 1999, 1998 and 1997, respectively. Although 1999 gross profit
as a percentage of net product sales remained relatively constant with that in
1998, the Company's 1999 gross profit percentage was impacted by (i) an increase
in biopharmaceutical products gross profit due to manufacturing efficiencies and
the conclusion of certain promotional pricing campaigns; and (ii) a slight
increase in vaccines product gross profit due to manufacturing efficiencies
resulting from increased production and a favorable mix of vaccine product
sales; offset by (iii) an inventory write-off of a portion of the Company's
tick-borne encephalitis vaccine inventory that failed to meet manufacturing
specifications for purity during the first quarter 1999; and (iv) no 1999
commercial sales of PDGF. The Company's 1998 gross profit percentage was
impacted by a reduction in cost of sales of $6.0 million due to a change in
estimated property tax accruals created in prior periods, offset by an
unfavorable mix of vaccine products which, beginning in the second quarter of
1998, included low margin products manufactured and sold by Chiron Behring.

    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 1999, 1998 and 1997, Chiron recognized research
and development expenses of $303.4 million, $286.6 million and $256.6 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 1999, the increase in research and development spending as compared with
1998 was due, in part, to $9.6 million of milestone and research funding
payments related to the Company's collaboration agreements with Medivir AB and
$5.0 million of license fees related to the Company's Fibroblast Growth Factor
("FGF") patent and license agreement with Scios, Inc. Under this agreement, in
1999, the Company also advanced Scios an additional $7.5 million in exchange for
a promissory note, which may be forgiven if certain conditions are met. The
Company may pay an additional $12.0 million in licensing fees if certain
development objectives are met. Also contributing to the increase in research
and development

                                       23
<PAGE>
expense was the furtherance of the Company's clinical trials related to
Proleukin-Registered Trademark- for HIV, Insulin-Like Growth Factor-1 ("IGF-1")
for osteoarthritis, FGF for coronary artery disease, Tissue Factor Pathway
Inhibitor ("TFPI") for sepsis and Menjugate-TM-, a conjugate vaccine against
meningococal meningitis caused by the bacterium N. MENINGITIDIS serogroup C. 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-Registered
Trademark- (rhIGF-I or mecasermin [recombinant DNA origin]) due to the
uncertainty surrounding the FDA's approval of this product (see "Item 1.
Business" above).

    SELLING, GENERAL AND ADMINISTRATIVE  In 1999, 1998 and 1997, Chiron
recognized selling, general and administrative ("SG&A") expenses of
$180.9 million, $142.6 million and $108.8 million, respectively. The increase in
SG&A expenses in 1999 as compared with 1998 was primarily due to the acquisition
and consolidation of Chiron Behring, which contributed an additional
$10.7 million to SG&A expenses in 1999. SG&A expenses also increased as a result
of the Company's worldwide implementation of its integrated information system
in April 1999, the launch of the nucleic acid testing business of its blood
testing segment and certain patent defense legal costs. The increase in SG&A
expenses in 1998 as compared with 1997 was primarily due to the acquisition and
consolidation of Chiron Behring, which contributed $34.3 million to SG&A
expenses in 1998.

    OTHER OPERATING EXPENSES  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.

    In 1999, Chiron recorded net restructuring and reorganization expenses of
$0.2 million, which included a charge of $3.9 million and a benefit of
$3.7 million. The charge of $3.9 million primarily related to termination and
other employee related costs recognized in connection with the elimination of 28
positions at the Company's Italian manufacturing facility. As of December 31,
1999, 24 of these 28 positions had been eliminated. The benefit of $3.7 million
related to revised estimates of property-related accruals recorded in connection
with the Company's ongoing rationalization of its business operations and the
idling of the St. Louis facility, as well as revised estimates of termination
and other employee-related costs recorded in connection with the elimination of
382 positions, including 36 positions at the Company's Amsterdam facility which
were transferred to the buyer in January 2000 (see below). As of December 31,
1999, 319 of these 382 positions had been eliminated. In 1998, the Company
recorded net restructuring and reorganization expenses of $26.8 million, which
included a charge of $30.5 million and a benefit of $3.7 million. The charge of
$30.5 million related to termination, other employee-related costs and facility-
related costs recorded in connection with the elimination of 400 positions. The
benefit of $3.7 million related to revised estimates of property and other
tax-related accruals recorded in connection with the idling of the Puerto Rico
facility. The liabilities related to the restructuring and reorganization
expenses are expected to be substantially settled within one year of accruing
the related charges. Management expects employee and facility-related cost
savings due to these restructuring activities in cost of sales, research and
development expense and selling, general and administrative expense through
2008. As of December 31, 1999, the Company believes that it has begun to achieve
these cost savings in the line items outlined above.

    In 1999, Chiron recognized a reduction in other operating expenses of
$13.4 million resulting from a change in estimated tax accruals related to
certain employee payments recorded in 1995 under a series of agreements between
Chiron and Novartis.

                                       24
<PAGE>
NON-OPERATING INCOME AND EXPENSE

    In December 1999, the Company sold its manufacturing facility in Amsterdam,
resulting in a gain of $0.9 million. 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 December 1999, the Company sold certain assets that it had developed or
acquired in connection with its research and development of a Cytomegalovirus
("CMV") vaccine to Aventis Pasteur and recognized a gain of $7.5 million.

    In 1999, 1998 and 1997, Chiron recognized interest expense of
$23.9 million, $24.7 million and $31.6 million, respectively. The decrease in
interest expense in 1999 as compared with 1998 was primarily due to lower
average debt balances. The decrease in interest expense in 1998 as compared with
1997 was 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 Diagnostics.

    Other income, net, consists primarily of interest and investment income on
the Company's cash and investment balances and other non-operating gains and
losses. In 1999, 1998 and 1997, Chiron recognized interest and investment income
of $83.8 million, $29.6 million and $12.0 million, respectively. The increase in
interest income in 1999 as compared with 1998 was 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 1998 and Chiron
Diagnostics in the fourth quarter 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 1999, 1998 and 1997,
Chiron recognized a loss attributable to the other-than-temporary impairment of
certain of these equity securities of $1.7 million, $8.4 million and
$1.2 million, respectively.

    In 1999, 1998 and 1997, Chiron recognized gains of $3.8 million,
$4.5 million and $5.5 million, respectively, related to the sale of certain
equity securities. In addition, in 1999, Chiron recognized an unrealized holding
gain of $3.3 million related to equity securities classified as trading.

    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.

INCOME TAXES

    In 1999, the annual tax provision was 26.2% of pretax income from continuing
operations. The reported effective tax rate for 1999 was 18.0% of pretax income
from continuing operations, including the impact of the reversal of a prior year
valuation allowance, which resulted in the recognition of additional domestic
deferred tax benefits of $12.9 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 the 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 increase in the
effective tax rate in 1999 as compared with 1998, as adjusted above, is
primarily due to the benefit of certain tax losses and other tax benefits
realized in 1998, substantially offset by a higher proportion of non-U.S. income
subject to tax at lower rates in 1999.

                                       25
<PAGE>
    In 1997, the annual tax provision was 20.2% of pretax income from continuing
operations, excluding the impact of the impairment loss on the Puerto Rico
facility, which did not create a corresponding income tax benefit in the year
recorded.

NEW ACCOUNTING STANDARD

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In June 1999, SFAS 133
was amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS 133." As a result of this
amendment, SFAS 133 shall be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000.

    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 2001.

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, investments in marketable debt
securities and short-term investment in equity securities, which totaled $1.6
billion at December 31, 1999, are invested in a diversified portfolio of
financial instruments, including money market instruments, corporate notes and
bonds, government or government agency securities, and other debt and equity
securities, issued by financial institutions of high credit standing. 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.

    SOURCES AND USES OF CASH  Chiron had cash and cash equivalents of
$363.9 million and $513.3 million at December 31, 1999 and 1998, respectively.
In 1999, net cash provided by operating activities was $20.9 million as compared
with $231.7 million in 1998. The decrease in cash provided by operating
activities was largely due to $183.4 million in estimated tax payments related
to the sale of Chiron Diagnostics, which was partially offset by $60.2 million
in federal and state tax refunds received and net income of $160.6 million.

    In 1999, net cash used in investing activities consisted of purchases of
investments in marketable debt securities of $1.2 billion, capital expenditures
of $64.6 million and other uses of cash of $16.7 million. These uses of cash
were partially offset by proceeds from the sale and maturity of investments in
marketable debt securities of $1.0 billion, proceeds from the disposal of
discontinued operations of $46.9 million and proceeds from the sale of assets,
equity securities and interest in affiliated companies of $25.5 million. In
1998, net cash provided by investing activities consisted of proceeds from the
sale of Chiron Vision and Chiron Diagnostics of $1.3 billion, proceeds from the
sale and maturity of investments in marketable debt securities of
$282.7 million and proceeds from the sale of assets, equity securities and
interest in affiliated companies of $62.7 million. These uses of cash were
partially offset by the purchase of Chiron Behring of $54.8 million (net of cash
acquired), purchases of investments in marketable debt securities of
$1.2 billion and capital expenditures of $126.3 million.

                                       26
<PAGE>
    In 1999, net cash used in financing activities consisted of $15.3 million
related to short-term borrowings, $2.4 million related to the repayment of debt
and capital leases and $140.8 million related to the acquisition of treasury
stock. These uses of cash were partially offset by proceeds of $98.2 million
from the issuance of common stock and the reissuance of treasury stock related
to stock option exercises and employee stock purchases and $6.9 million in
proceeds from the issuance of long-term debt. In 1998, net cash used in
financing activities consisted of $129.1 million related to short-term
borrowings and $9.1 million related to the repayment of debt and capital leases.
These uses of cash were partially offset by proceeds of $66.6 million from the
issuance of common stock related to stock option exercises and employee stock
purchases.

    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.

    The Company's 1.9% convertible subordinated debentures are due in November
2000.

    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 under
a November 1994 Investment Agreement, provides various interest rate options and
matures in February 2003. There were no borrowings outstanding under this credit
facility at December 31, 1999. Chiron also has credit facilities outside the
U.S. which allow for total borrowings of $63.1 million. Under these credit
facilities, $20.3 million of borrowings were outstanding at December 31, 1999.

    In December 1999, Chiron and Novartis amended the November 1994 Investment
Agreement. This amendment reduced the maximum amount of Chiron obligations that
Novartis will guarantee from $725.0 million to $702.5 million.

    In connection with the sale of Chiron Diagnostics to Bayer, a promissory
note owed by Chiron Diagnostics to Novartis was transferred to and assumed by
the Company. The note payable to Novartis bears interest at a variable rate
based on LIBOR (approximately 5.7% and 5.6% at December 31, 1999 and 1998,
respectively). As of December 31, 1999 and 1998, the outstanding amount was
$67.8 million and $63.9 million, respectively, including accrued interest. The
note and accrued interest were paid in full on January 4, 2000.

    LEASES  Chiron leases laboratory, office and manufacturing facilities, land
and equipment under noncancelable operating leases, which expire through 2009.
Future minimum lease payments, including those for the leaseback of office and
warehouse space in the Amsterdam facility, are estimated to be approximately
$130.3 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, 1999, Novartis had guaranteed $172.6 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, payments to IBM are expected to be approximately $111.8 million.
Payments to IBM are subject to adjustment depending upon the level of services
and infrastructure equipment provided by IBM, as well as inflation.

    In future periods, the Company expects to incur substantial capital
spending. At December 31, 1999, the Company had various firm purchase and
capital project commitments totaling approximately $6.8 million. At
December 31, 1999, the Company had $5.1 million outstanding under a letter of
credit, which is

                                       27
<PAGE>
required by German law, related to ongoing legal proceedings in Germany (see
Item 3. "Legal Proceedings" above). The Company also had various performance
bonds and insurance-related letters of credit in the amount of $4.9 million
outstanding at December 31, 1999.

    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 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 Company did not experience any upsets or failures in systems
during the year-end rollover. The Company did experience some minor date
related-problems in non-critical software applications after the year-end
rollover; however, these problems were identified and resolved with no impact to
the Company's operations. As part of the Company's contingency plans, teams
monitored critical systems at each site during the year-end rollover. No backup
contingency plans required execution.

    The Company did not experience delays in shipment of products to customers
or in delivery of materials from vendors related to the Year 2000. Business
partners have not reported any Year 2000 system upsets or failures that would
impact the Company's operations.

    The Company sold its facility in Amsterdam, The Netherlands in
December 1999. This facility did not experience any upsets or failures in its
systems related to the Year 2000.

    The Company monitored its computer hardware and communication systems,
software applications and facilities and other non-information
technology-related functions for Year 2000 issues through the leap year. Except
for the minor date-related problems in non-critical software applications
mentioned above, the Company did not experience any additional Year 2000
problems. The Company intends to monitor these systems through March 31, 2000.

    As of February 29, 2000, total costs incurred to date were funded through
operations and approximated $3.6  million. The Company expects an additional
$0.1  million in Year 2000 expenditures through March 31, 2000, which it will
fund 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, 1999. 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.

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, which could cause actual results
to differ.

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<PAGE>
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 that appear promising.
These technologies often 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 that 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 or prophylactic 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 may 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 that 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 that 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 that
may result in lot failures. Manufacturing processes which are used to produce
the (smaller) quantities of material needed for research and 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 that 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 U.S. 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.

                                       29
<PAGE>
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 that are unfamiliar to the
healthcare community. There can be no assurance that healthcare providers and
patients will accept such products. 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.

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 U.S. and other
important markets. It is not known how many of the Company's pending patent
applications will be granted, or the effective coverage of those that are
granted. In the U.S. and other important markets, the issuance of a patent is
neither conclusive as to its validity nor 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.

                                       30
<PAGE>
AVAILABILITY OF REIMBURSEMENT; GOVERNMENT AND OTHER PRESSURES ON PRICING

    In the U.S. 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 U.S.
(at both the federal and state level) to implement such controls. The growth of
managed care in the U.S. also has placed pressure on the pricing of healthcare
products. These pressures can be expected to continue.

COSTS ASSOCIATED WITH EXPANDING THE BUSINESS

    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 may incur
significant charges, costs and expenses, which could impact the Company's
profitability, including impairment losses, restructuring charges, the write-off
of purchased 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 diagnostics and ophthalmics 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 U.S. 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 business strategy depends upon
collaborations with third parties, including research collaborations and joint
efforts to develop and commercialize new products. As circumstances change, the
Company and its corporate partners 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.

                                       31
<PAGE>
STOCK PRICE VOLATILITY

    The price of the Company's stock, like that of other biotechnology
companies, is subject to significant volatility. Any number of events, both
internal and external to the Company, may affect the stock price. 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 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 that affect the Company's
stock. Changes in the market price of these securities may impact the Company's
profitability.

TAXES

    The Company is taxable principally in the U.S., 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 that 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. The Company's
primary exposure to foreign exchange rates is associated with the value of the
Euro. An increase in the value of the U.S. Dollar vis-a-vis the Euro will result
in a lower value of the Company's non-U.S. Dollar based revenues. 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 principal amount of these derivative financial instruments at
December 31, 1999 and 1998 was $254.1 million and $297.1 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, 1999, these exposures amounted to $51.7 million and
were offset by forwards with a notional principal amount of $27.3 million (fair
value of $27.2 million). Based on

                                       32
<PAGE>
exposures as of December 31, 1999, a 10% adverse movement against the Company's
portfolio of transaction exposures and hedge contracts would result in a loss of
approximately $2.6 million. A 10% movement in the value of the dollar versus the
Company's portfolio of transaction exposures has occurred in 1 of the last 12
quarters. Foreign currency transaction gains and losses from continuing
operations, including the impact of hedging, were not significant in 1999, 1998
or 1997.

    Chiron may selectively hedge anticipated currency exposures by purchasing
quarterly put options. The Company's primary anticipated exposures are related
to intercompany inventory purchases by subsidiaries with functional currencies
denominated in major European currencies, as well as foreign revenues received
from selling products in the major European countries. To limit hedging costs,
the Company generally purchases out-of-the-money put options. The Company had no
option contracts outstanding at December 31, 1999. The total notional principal
amount of the options at December 31, 1998 was $55.6 million (fair value of
$0.3 million). Chiron's operational facilities in Europe have counterbalanced a
portion of the anticipated exposures associated with European sales.

    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 principal amount of the Company's swaps at December 31, 1999 and
1998 was $226.8 million. If the Deutsche mark strengthened or weakened by 10%,
the value of the underlying exposure would increase or decrease by
$21.8 million and $17.8 million, respectively. After considering the impact of
hedging with swaps, the net increase or decrease from such currency rate
fluctuation would be reduced to $9.0 million and $7.3 million, respectively. A
10% movement in the value of the Deutsche mark versus the U.S. dollar has
occurred in 4 of the last 10 years. The fair market value of the swaps is
$23.6 million as of December 31, 1999. 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 with interest rates tied to LIBOR. The Company maintains investment
portfolio holdings of various issuers, types and maturities. Changes in interest
rates do not affect interest expense incurred on the Company's long-term debt
because the Company's long-term debt issues bear interest at fixed rates.

    Chiron's investment portfolio amounted to approximately $1.6 billion at
December 31, 1999. As of that date, the Company also had $240.4 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
$1.3 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
$6.0 million over the 12-month period. Similarly, a 150-basis point decrease
results in a decrease in total return to the portfolio of $5.8 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.

                                       33
<PAGE>
    A 150-basis point movement in the Federal Funds rate has occurred in 3 of
the last 10 years, a 100-basis point movement has occurred in 5 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. A majority of these securities are 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. A portion of
these securities are classified as trading and, consequently, are recorded on
the balance sheet at fair value with unrealized gains and losses recorded in
earnings. Changes in share prices or in the volatility of share prices affect
the value of Chiron's equity portfolio. To reduce this risk, the Company has
hedged a portion of its exposure through short sales. The short sales
substantially offset the long position and, in effect, neutralize the impact of
market valuation shifts on the hedged securities. The notional principal amount
of the Company's short sales at December 31, 1999 was $4.5 million (fair value
of $4.6 million). The Company had no short sales at December 31, 1998. In the
future, the Company may use additional hedging strategies in order to mitigate
the potential adverse impact from changes in the market value of stock prices.
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 $1.7 million, $8.4 million and $1.2 million in
1999, 1998 and 1997, respectively, to write down certain available-for-sale
equity securities for which the decline in fair value was deemed to be
other-than-temporary. As of December 31, 1999, if the market price of Chiron's
equity investments, including warrants and preferred stock, decreased by 10%,
the market value of the equity portfolio would decrease by $8.0 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.

                                       34
<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 2000 Annual Meeting to be
filed with the Securities and Exchange Commission within 120 days of
December 31, 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.

                                       35
<PAGE>
                                    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>
    Independent Auditors' Report............................                   F-1
    Consolidated Balance Sheets at December 31, 1999 and
      1998..................................................                F-2 -- F-3
    Consolidated Statements of Operations for each of the
      three years ended December 31, 1999, 1998 and 1997....                F-4 -- F-5
    Consolidated Statements of Comprehensive Income for each
      of the three years ended December 31, 1999, 1998 and
      1997..................................................                   F-6
    Consolidated Statements of Stockholders' Equity for each
      of the three years ended December 31, 1999, 1998 and
      1997..................................................                   F-7
    Consolidated Statements of Cash Flows for each of the
      three years ended December 31, 1999, 1998 and 1997....                   F-8
    Notes to Consolidated Financial Statements..............               F-9 -- F-47
</TABLE>

    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

    None.

(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 report on Form 10-K 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 report on Form 10-K 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 report on Form 10-Q for the period ended
                        June 30, 1996.

        3.04            Bylaws of the Registrant, as amended, incorporated by
                        reference to Exhibit 3.04 of the Registrant's report on
                        Form 10-Q for the period ended June 30, 1999.
</TABLE>

                                       36
<PAGE>

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                                     EXHIBIT
---------------------                             -------
<C>                     <S>
        4.01            Indenture, dated as of May 21, 1987, between Cetus
                        Corporation and Bankers Trust Company, Trustee (initially
                        filed as Exhibit 4.01 of the Registrant's report on
                        Form 10-Q for the period ended September 30, 1994),
                        incorporated by reference to Registrant's report on
                        Form 10-Q for the period ended June 30, 1999.

        4.02            First Supplemental Indenture, dated as of December 12, 1991,
                        by and among the Registrant, Cetus Corporation, and Bankers
                        Trust Company (initially filed as Exhibit 4.02 of
                        Registrant's report on Form 10-K for fiscal year 1992),
                        incorporated by reference to Exhibit 4.02 of the
                        Registrant's report on Form 10-K for fiscal year 1997.

        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 report on Form 10-Q 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
                        (initially filed as Exhibit 4.03 of the Registrant's report
                        on Form 10-K for fiscal year 1993), incorporated by
                        reference to Exhibit 4.04 to the Registrant's report on
                        Form 10-K for fiscal year 1998.

       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 report on Form 10-Q 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 report on Form 10-Q 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 Registrant's report on Form 10-Q 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 report on Form 10-K for
                        fiscal year 1997.

       10.102           Guaranty, dated as of September 29, 1994, made by the
                        Registrant, in favor of Bankers Trust Company, as trustee
                        (initially filed as Exhibit 10.52 of the Registrant's report
                        on Form 10-Q for the period ended September 30, 1994),
                        incorporated by reference to Exhibit 10.102 of Registrant's
                        report on Form 10-Q for the period ended June 30, 1999.

       10.103           Guaranty, dated as of September 29, 1994, made by Cetus
                        Corporation, in favor of The First National Bank of Boston,
                        as trustee (initially filed as Exhibit 10.53 of the
                        Registrant's report on Form 10-Q for the period ended
                        September 30, 1994), incorporated by reference to
                        Exhibit 10.103 of Registrant's report on Form 10-Q for the
                        period ended June 30, 1999.

       10.104           Stock Purchase and Warrant Agreement dated May 9, 1989,
                        between Cetus Corporation and Hoffmann-La Roche Inc.
                        (initially filed as Exhibit 10.36 of the Registrant's report
                        on Form 10-Q for the period ended September 30, 1994),
                        incorporated by reference to Exhibit 10.104 of Registrant's
                        report on Form 10-Q for the period ended June 30, 1999.

       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 report on Form 10-K for fiscal
                        year 1996.

       10.106           Through 10.199 Reserved
</TABLE>

                                       37
<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),
                        (initially filed as Exhibit 10.29 to the Registrant's report
                        on Form 10-K for fiscal year 1989, and refiled as
                        Exhibit 10.14 of the Registrant's report on Form 10-Q for
                        the period ended September 30, 1994), incorporated by
                        reference to Exhibit 10.201 of Registrant's report on
                        Form 10-Q for the period ended March 31, 1999.

       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) (initially filed as Exhibit 10.31 to Registrant's
                        report on Form 10-K for fiscal year 1989, and refiled as
                        Exhibit 10.15 of the Registrant's report on Form 10-Q for
                        the quarter ended June 30, 1994), incorporated by reference
                        to Exhibit 10.202 of Registrant's report on Form 10-Q for
                        the period ended March 31, 1999.

       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 (initially filed as
                        Exhibit 10.50 to Registrant's report on Form 10-Q for period
                        ended September 30, 1993), incorporated by reference to
                        Exhibit 10.203 of Registrant's report on Form 10-K for
                        fiscal year 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 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 (initially
                        filed as Exhibit 10.51 to Registrant's report on Form 10-K
                        for fiscal year 1993), incorporated by reference to
                        Exhibit 10.204 of Registrant's report on Form 10-K for
                        fiscal year 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 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 report on 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".)

       10.206           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 (initially filed as Exhibit 10.85 to Registrant's
                        report on Form 10-K for fiscal year 1995), incorporated by
                        reference to Exhibit 10.206 of Registrant's report on
                        Form 10-Q for period ended March 31, 1999. (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".)
</TABLE>

                                       38
<PAGE>

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                                     EXHIBIT
---------------------                             -------
<C>                     <S>
       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 report on 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".)

       10.208           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 report on
                        Form 10-Q 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 report on Form 10-Q 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 report on Form 10-Q
                        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.)

       10.304           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 report on Form 10-Q 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           HCV Probe License and Option Agreement dated September 26,
                        1999, between Abbott Laboratories, an Illinois corporation,
                        and the Registrant, incorporated by reference to
                        Exhibit 10.306 of Registrant's report on Form 10-Q for the
                        period ended September 30, 1999. (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".)

       10.307           Through 10.399 Reserved
</TABLE>

                                       39
<PAGE>

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                                     EXHIBIT
---------------------                             -------
<C>                     <S>
       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 report on
                        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 report on Form 10-Q for the period ended
                        September 27, 1998.*

       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 report on Form 10-Q 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 report on Form 10-Q 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 report on Form 10-Q 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 report on
                        Form 10-K 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 (initially filed as
                        Exhibit 10.31 of the Registrant's report on Form 10-Q for
                        the period ended September 30, 1994), incorporated by
                        reference to Exhibit 10.507 of Registrant's report on
                        Form 10-Q for the period ended June 30, 1999.

       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 (initially filed as Exhibit 10.32 of the
                        Registrant's report on Form 10-Q for the period ended
                        September 30, 1994), incorporated by reference to
                        Exhibit 10.508 of Registrant's report on Form 10-Q for the
                        period ended June 30, 1999.

       10.509           Description of Chiron Corporation's 1999 Executive Officers
                        Variable Compensation Program.*
</TABLE>

                                       40
<PAGE>

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                                     EXHIBIT
---------------------                             -------
<C>                     <S>
       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 report on Form 10-K 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) (initially filed as Exhibit 10.21 of the
                        Registrant's report on Form 10-Q for the period ended
                        September 30, 1994), incorporated by reference to
                        Exhibit 10.601 of Registrant's report on Form 10-Q for the
                        period ended June 30, 1999.

       10.602           Supplemental Benefits Agreement, dated July 21, 1989,
                        between the Registrant and Dr. William J. Rutter (initially
                        filed as Exhibit 10.27 of the Registrant's report on
                        Form 10-Q for the period ended September 30, 1994),
                        incorporated by reference to Exhibit 10.602 of Registrant's
                        report on Form 10-Q for the period ended June 30, 1999.*

       10.603           Letter Agreement dated September 26, 1990 between the
                        Registrant and William G. Green (initially filed as
                        Exhibit 10.41 of the Registrant's report on Form 10-K for
                        fiscal year 1992), incorporated by reference to
                        Exhibit 10.603 of Registrant's report on Form 10-K for
                        fiscal year 1998.*

       10.604           Letter Agreements dated September 11, 1992, July 15, 1994
                        and September 14, 1994 between the Registrant and Lewis T.
                        Williams (initially filed as Exhibit 10.54 of the
                        Registrant's report on Form 10-Q for the period ended
                        September 30, 1994), incorporated by reference to
                        Exhibit 10.604 of Registrant's report on Form 10-Q for the
                        period ended June 30, 1999.*

       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 report on Form 10-K
                        for fiscal year 1997.*

       10.606           Through 10.610 Reserved

       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 report on 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, incorporated by reference to Exhibit 10.612 of
                        the Registrant's report on Form 10-K for fiscal year 1998.*

       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 report on Form 10-K for fiscal year
                        1997.*

       10.614           Letter Agreement dated May 28, 1999 between Registrant and
                        Paul J. Hastings, as supplemented by Promissory Note dated
                        July 20, 1999, executed by Mr. Hastings, incorporated by
                        reference to Exhibit 10.614 of the Registrant's report on
                        Form 10-Q for the period ended September 30, 1999.*

       10.615           Consulting Agreement dated February 25, 2000, between
                        Registrant and Dr. Edward E. Penhoet.*

       10.616           Consulting Agreement dated February 25, 2000, between
                        Registrant and Dr. William J. Rutter.*

       10.617           Through 10.699 Reserved
</TABLE>

                                       41
<PAGE>

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                                     EXHIBIT
---------------------                             -------
<C>                     <S>
       10.701           Investment Agreement dated as of November 20, 1994 among
                        Ciba-Geigy Limited, Ciba-Geigy Corporation, Ciba Biotech
                        Partnership, Inc. and Chiron Corporation (initially filed as
                        Exhibit 10.54 of the Registrant's current report on
                        Form 8-K dated November 20, 1994), incorporated by reference
                        to Exhibit 10.701 of the Registrant's report on Form 10-Q
                        for the period ended June 30, 1999.

       10.702           Governance Agreement dated as of November 20, 1994 among
                        Ciba-Geigy Limited, Ciba-Geigy Corporation and Chiron
                        Corporation (initially filed as Exhibit 10.55 of the
                        Registrant's current report on Form 8-K dated November 20,
                        1994), incorporated by reference to Exhibit 10.702 of the
                        Registrant's report on Form 10-Q for the period ended
                        June 30, 1999.

       10.703           Subscription Agreement dated as of November 20, 1994 among
                        Ciba-Geigy Limited, Ciba-Geigy Corporation, Ciba Biotech
                        Partnership, Inc. and Chiron Corporation (initially filed as
                        Exhibit 10.56 of the Registrant's current report on
                        Form 8-K dated November 20, 1994), incorporated by reference
                        to Exhibit 10.703 of the Registrant's report on Form 10-Q
                        for the period ended June 30, 1999.

       10.704           Cooperation and Collaboration Agreement dated as of
                        November 20, 1994, between Ciba-Geigy Limited and Chiron
                        Corporation (initially filed as Exhibit 10.57 of the
                        Registrant's current report on Form 8-K dated November 20,
                        1994), incorporated by reference to Exhibit 10.704 of the
                        Registrant's report on Form 10-Q for the period ended
                        June 30, 1999.

       10.705           Registration Rights Agreement dated as of November 20, 1994
                        between Ciba Biotech Partnership, Inc. and Chiron
                        Corporation (initially filed as Exhibit 10.58 of the
                        Registrant's current report on Form 8-K dated November 20,
                        1994), incorporated by reference to Exhibit 10.705 of the
                        Registrant's report on Form 10-Q for the period ended
                        June 30, 1999.

       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 (initially
                        filed as Exhibit 10.59 of the Registrant's current report on
                        Form 8-K dated November 20, 1994), incorporated by reference
                        to Exhibit 10.706 of the Registrant's report on Form 10-Q
                        for the period ended June 30, 1999.

       10.707           Amendment dated as of January 3, 1995 among Ciba-Geigy
                        Limited, Ciba-Geigy Corporation, Ciba Biotech Partnership,
                        Inc. and Chiron Corporation (initially filed as
                        Exhibit 10.60 of the Registrant's current report on
                        Form 8-K dated January 4, 1995), incorporated by reference
                        to Exhibit 10.707 of the Registrant's report on Form 10-Q
                        for the period ended September 30, 1999.

       10.708           Supplemental Agreement dated as of January 3, 1995 among
                        Ciba-Geigy Limited, Ciba-Geigy Corporation, Ciba Biotech
                        Partnership, Inc. and Chiron Corporation (initially filed as
                        Exhibit 10.61 of the Registrant's current report on
                        Form 8-K dated January 4, 1995), incorporated by reference
                        to Exhibit 10.708 of the Registrant's report on Form 10-Q
                        for the period ended September 30, 1999.

       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, (initially filed as Exhibit 10.62 of the
                        Registrant's current report on Form 8-K dated January 4,
                        1995), incorporated by reference to Exhibit 10.709 of the
                        Registrant's report on Form 10-Q for the period ended
                        September 30, 1999.*

       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 current report on
                        Form 8-K filed with the Commission on December 17, 1996.
</TABLE>

                                       42
<PAGE>

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                                     EXHIBIT
---------------------                             -------
<C>                     <S>
       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 report on Form 10-Q for the period ended
                        March 30, 1997.

       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 report on 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 report on 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 report on Form 10-K 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 report on
                        Form 10-K for fiscal year 1996.*

       10.716           Letter Agreement dated September 30, 1999, between Novartis
                        Corporation and the Registrant, incorporated by reference to
                        Exhibit 10.716 of the Registrant's report on Form 10-Q for
                        the period ended September 30, 1999. (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".)

       10.717           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 report on Form 10-K 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 report on Form 10-K 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 report on Form 10-Q for the period ended
                        July 2, 1995.

       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 report on Form 10-Q for the period ended
                        June 30, 1996.
</TABLE>

                                       43
<PAGE>

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER                                     EXHIBIT
---------------------                             -------
<C>                     <S>
       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 report on Form 10-Q for the period ended
                        June 30, 1996.

       10.722           Letter Agreement dated December 31, 1999 between Novartis
                        Corporation and the Registrant.

       10.723           Form of Debenture Purchase Agreement between the Registrant
                        and Ciba-Geigy, Limited, a Swiss corporation, dated
                        June 22, 1990 (initially filed as Exhibit 10.25 of the
                        Registrant's report on Form 10-K for fiscal year 1994),
                        incorporated by reference to Exhibit 10.723 of Registrant's
                        report on Form 10-K for fiscal year 1998.

       10.724           Chiron Corporation 1.90% Convertible Subordinated Note due
                        2000, Series B (initially filed as Exhibit 10.25 of the
                        Registrant's report on Form 10-K for fiscal year 1993),
                        incorporated by reference to Exhibit 10.724 of Registrant's
                        report on Form 10-K for fiscal year 1998.

       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 report on
                        Form 10-K 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.

       24               Power of Attorney. The Power of Attorney set forth on
                        pages 45 and 46 is incorporated herein by reference.

       27.1             Financial Data Schedule for Fiscal Year ended December 31,
                        1999.

       27.2             Financial Data Schedule for Fiscal Year ended January 3,
                        1999.

       27.3             Financial Data Schedule for Fiscal Year ended December 28,
                        1997.
</TABLE>

------------------------

*   Management contract, compensatory plan or arrangement.

                                       44
<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 9, 2000

<TABLE>
<S>                                                    <C> <C>
                                                       CHIRON CORPORATION

                                                       By               /s/ SEAN P. LANCE
                                                           ------------------------------------------
                                                                          Sean P. Lance
                                                                   CHIEF EXECUTIVE OFFICER AND
                                                                PRESIDENT; CHAIRMAN OF THE BOARD
</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.

    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>
                                                       Chief Executive Officer and
                  /s/ SEAN P. LANCE                      President; Chairman of
     -------------------------------------------         the Board; Director          March 9, 2000
                    Sean P. Lance                        (Principal Executive
                                                         Officer)

                                                       Vice President, Chief
                 /s/ JAMES R. SULAT                      Financial Officer
     -------------------------------------------         (Principal Financial         March 9, 2000
                   James R. Sulat                        Officer)

                 /s/ DAVID V. SMITH                    Vice President, Controller
     -------------------------------------------         (Principal Accounting        March 9, 2000
                   David V. Smith                        Officer)
</TABLE>

                                       45
<PAGE>

<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                          <C>
                  /s/ RAYMUND BREU
     -------------------------------------------       Director                       March 9, 2000
                 Raymund Breu, Ph.D.

                /s/ VAUGHN D. BRYSON
     -------------------------------------------       Director                       March 9, 2000
                  Vaughn D. Bryson

                /s/ LEWIS W. COLEMAN
     -------------------------------------------       Director                       March 9, 2000
                  Lewis W. Coleman

                /s/ PIERRE E. DOUAZE
     -------------------------------------------       Director                       March 9, 2000
                  Pierre E. Douaze

                /s/ DONALD A. GLASER
     -------------------------------------------       Director                       March 9, 2000
               Donald A. Glaser, Ph.D.

                /s/ PAUL L. HERRLING
     -------------------------------------------       Director                       March 9, 2000
               Paul L. Herrling, Ph.D.

                /s/ EDWARD E. PENHOET
     -------------------------------------------       Director                       March 9, 2000
              Edward E. Penhoet, Ph.D.

                /s/ WILLIAM J. RUTTER
     -------------------------------------------       Director                       March 9, 2000
              William J. Rutter, Ph.D.

                 /s/ JACK W. SCHULER
     -------------------------------------------       Director                       March 9, 2000
                   Jack W. Schuler

               /s/ PIETER J. STRIJKERT
     -------------------------------------------       Director                       March 9, 2000
             Pieter J. Strijkert, Ph.D.

                /s/ LEWIS T. WILLIAMS
     -------------------------------------------       Director                       March 9, 2000
           Lewis T. Williams, M.D., Ph.D.
</TABLE>

                                       46
<PAGE>
                          INDEPENDENT AUDITORS' 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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, 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
January 31, 2000

                                      F-1
<PAGE>
                               CHIRON CORPORATION

                          CONSOLIDATED BALANCE SHEETS

                       (IN THOUSANDS, EXCEPT SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 1999         1998
                                                              ----------   ----------
<S>                                                           <C>          <C>
Current assets:
  Cash and cash equivalents.................................  $  363,865   $  513,315
  Short-term investments in marketable debt securities......     640,027      716,619
  Short-term investments in equity securities...............       3,315           --
                                                              ----------   ----------
    Total cash and short-term investments...................   1,007,207    1,229,934
  Accounts receivable, net of allowances of $16,998 in 1999
    and $18,160 in 1998:
    Related parties.........................................      23,117       49,256
    Unrelated parties.......................................     138,766      118,332
                                                              ----------   ----------
                                                                 161,883      167,588
  Current portion of note receivable........................       3,233           --
  Inventories...............................................      84,724       79,862
  Other current assets:
    Related parties.........................................       1,160          245
    Unrelated parties.......................................      81,093      153,313
                                                              ----------   ----------
                                                                  82,253      153,558
                                                              ----------   ----------
      Total current assets..................................   1,339,300    1,630,942
Noncurrent investments in marketable debt securities........     547,580      360,069
Property, plant, equipment and leasehold improvements, at
  cost:
  Land and buildings........................................     132,861      141,452
  Laboratory, production and office equipment...............     291,503      236,803
  Leasehold improvements....................................      73,143       84,607
  Construction in progress..................................      23,894       38,321
                                                              ----------   ----------
                                                                 521,401      501,183
  Less accumulated depreciation and amortization............    (222,566)    (198,102)
                                                              ----------   ----------
  Net property, plant, equipment and leasehold
    improvements............................................     298,835      303,081
Purchased technology, net of accumulated amortization of
  $22,933 in 1999 and $20,500 in 1998.......................      11,722       14,753
Other intangible assets, net of accumulated amortization of
  $59,790 in 1999 and $48,497 in 1998.......................     143,320      167,534
Investments in equity securities and affiliated companies...      63,021       27,456
Notes receivable............................................      13,967           --
Other assets:
  Related parties...........................................       1,115        3,134
  Unrelated parties.........................................      39,909       17,295
                                                              ----------   ----------
                                                                  41,024       20,429
                                                              ----------   ----------
                                                              $2,458,769   $2,524,264
                                                              ==========   ==========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
                               of this statement.

                                      F-2
<PAGE>
                               CHIRON CORPORATION

                    CONSOLIDATED BALANCE SHEETS (CONTINUED)

                       (IN THOUSANDS, EXCEPT SHARE DATA)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 1999         1998
                                                              ----------   ----------
<S>                                                           <C>          <C>
Current liabilities:
  Accounts payable:
    Related parties.........................................  $    2,649   $       --
    Unrelated parties.......................................      43,538       44,833
                                                              ----------   ----------
                                                                  46,187       44,833
  Accrued compensation and related expenses.................      45,102       40,727
  Short-term borrowings.....................................      20,300       17,554
  Current portion of long-term debt:
    Related parties.........................................       9,845           --
    Unrelated parties.......................................     239,689        1,652
                                                              ----------   ----------
                                                                 249,534        1,652
  Note payable to Novartis..................................      67,791       63,945
  Current portion of unearned revenue:
    Related parties.........................................          86           --
    Unrelated parties.......................................      42,438       41,893
                                                              ----------   ----------
                                                                  42,524       41,893
  Taxes payable.............................................      19,118      180,536
  Other current liabilities:
    Related parties.........................................         180           --
    Unrelated parties.......................................     122,195      166,295
                                                              ----------   ----------
                                                                 122,375      166,295
    Total current liabilities...............................     612,931      557,435
Long-term debt:
    Related parties.........................................          --        9,601
    Unrelated parties.......................................      96,958      328,557
                                                              ----------   ----------
                                                                  96,958      338,158
Other noncurrent liabilities:
    Related parties.........................................         232           --
    Unrelated parties.......................................      55,811       82,869
                                                              ----------   ----------
                                                                  56,043       82,869
                                                              ----------   ----------
    Total liabilities.......................................     765,932      978,462
                                                              ----------   ----------
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; 181,863,000 outstanding in 1999 and
      179,925,000 outstanding in 1998.......................       1,819        1,799
    Restricted common stock, $0.01 par value; 500,000 shares
      authorized; none outstanding..........................          --           --
Additional paid-in capital..................................   2,057,418    1,979,615
Accumulated deficit.........................................    (323,037)    (437,873)
Accumulated other comprehensive income......................       3,351        2,261
Treasury stock, at cost (1,230,000 shares)..................     (46,714)          --
                                                              ----------   ----------
    Total stockholders' equity..............................   1,692,837    1,545,802
                                                              ----------   ----------
                                                              $2,458,769   $2,524,264
                                                              ==========   ==========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
                               of this statement.

                                      F-3
<PAGE>
                               CHIRON CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Revenues:
  Product sales, net:
    Related parties.........................................  $  1,927   $  1,086   $     --
    Unrelated parties.......................................   419,750    398,165    252,729
                                                              --------   --------   --------
                                                               421,677    399,251    252,729
  Equity in earnings of unconsolidated joint businesses.....    79,320     73,969    106,356
  Collaborative agreement revenues:
    Related parties.........................................    60,417     75,352     78,770
    Unrelated parties.......................................    15,769     14,506     36,284
                                                              --------   --------   --------
                                                                76,186     89,858    115,054
  Royalty and license fee revenues..........................   133,215    125,263     50,368
  Other revenues:
    Related parties.........................................        --     10,103     43,624
    Unrelated parties.......................................    52,248     38,229      6,468
                                                              --------   --------   --------
                                                                52,248     48,332     50,092
                                                              --------   --------   --------
      Total revenues........................................   762,646    736,673    574,599
                                                              --------   --------   --------
Operating expenses:
  Cost of sales:
    Related parties.........................................       752        485         --
    Unrelated parties.......................................   183,662    174,318    114,063
                                                              --------   --------   --------
                                                               184,414    174,803    114,063
  Research and development..................................   303,399    286,622    256,582
  Selling, general and administrative.......................   180,937    142,563    108,792
  Write-off of purchased in-process technologies............        --      1,645         --
  Impairment loss on long-lived assets......................        --         --     31,300
  Restructuring and reorganization charges..................       197     26,754         --
  Other operating expenses..................................    11,382     19,391      4,767
                                                              --------   --------   --------
      Total operating expenses..............................   680,329    651,778    515,504
                                                              --------   --------   --------
  Income from operations....................................    82,317     84,895     59,095
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
                               of this statement.

                                      F-4
<PAGE>
                               CHIRON CORPORATION

               CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Income from operations......................................  $ 82,317   $ 84,895   $ 59,095
Gain on sale of assets......................................       872      7,751         --
Gain on sale of intangible assets...........................     7,490         --         --
Interest expense:
  Related parties...........................................    (3,691)    (3,379)    (3,413)
  Unrelated parties.........................................   (20,201)   (21,294)   (28,197)
                                                              --------   --------   --------
                                                               (23,892)   (24,673)   (31,610)
Other income, net...........................................    89,857     27,010     12,721
                                                              --------   --------   --------
Income from continuing operations before income taxes.......   156,644     94,983     40,206
Provision for income taxes..................................    28,240     18,985     14,424
                                                              --------   --------   --------
Income from continuing operations...........................   128,404     75,998     25,782
                                                              --------   --------   --------
Discontinued operations:
  Income from discontinued operations.......................        --      7,121     30,280
  Gain on disposal of discontinued operations...............    32,173    440,994     15,157
                                                              --------   --------   --------
Net income..................................................  $160,577   $524,113   $ 71,219
                                                              ========   ========   ========
Basic earnings per common share:
  Income from continuing operations.........................  $   0.71   $   0.43   $   0.15
                                                              ========   ========   ========
  Net income................................................  $   0.89   $   2.95   $   0.41
                                                              ========   ========   ========
Diluted earnings per common share:
  Income from continuing operations.........................  $   0.69   $   0.42   $   0.14
                                                              ========   ========   ========
  Net income................................................  $   0.86   $   2.90   $   0.40
                                                              ========   ========   ========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
                               of this statement.

                                      F-5
<PAGE>
                               CHIRON CORPORATION

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net income..................................................  $160,577   $524,113   $ 71,219
Other comprehensive income (loss):
  Foreign currency translation adjustment:
    Change in foreign currency translation adjustment during
      the period............................................   (28,779)    33,830    (21,486)
    Reclassification adjustment for gain included in
      discontinued operations...............................        --     (7,819)        --
                                                              --------   --------   --------
    Net foreign currency translation adjustment.............   (28,779)    26,011    (21,486)
                                                              --------   --------   --------
  Unrealized gains (losses) from investments:
    Unrealized holding gains (losses) arising during the
      period................................................    33,926     (6,715)   (16,818)
    Reclassification adjustment for net losses (gains)
      included in net income, net of tax benefit (provision)
      of ($1,556), $1,400 and ($1,553) in 1999, 1998 and
      1997, respectively....................................    (3,783)     2,490     (2,760)
                                                              --------   --------   --------
    Net unrealized gains (losses) from investments..........    30,143     (4,225)   (19,578)
                                                              --------   --------   --------
  Minimum pension liability adjustment (net of tax benefit
    of $80 and $136 in 1999 and 1998, respectively).........      (274)      (717)        --
                                                              --------   --------   --------
  Other comprehensive income (loss).........................     1,090     21,069    (41,064)
                                                              --------   --------   --------
Comprehensive income........................................  $161,667   $545,182   $ 30,155
                                                              ========   ========   ========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
                               of this statement.

                                      F-6
<PAGE>
                               CHIRON CORPORATION

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                             ACCUMULATED
                                             COMMON STOCK       ADDITIONAL                      OTHER           TREASURY STOCK
                                          -------------------    PAID-IN     ACCUMULATED    COMPREHENSIVE    --------------------
                                           SHARES     AMOUNT     CAPITAL       DEFICIT      INCOME (LOSS)     SHARES     AMOUNT
                                          --------   --------   ----------   ------------   --------------   --------   ---------
<S>                                       <C>        <C>        <C>          <C>            <C>              <C>        <C>
Balances at December 31, 1996...........   170,675    $1,707    $1,774,406   $(1,032,554)      $ 22,256           --    $      --
Exercise of stock options...............     3,632        36       41,235             --             --           --           --
Tax benefits from employee stock
  plans.................................        --        --       17,923             --             --           --           --
Employee stock purchase plan............     1,352        14       20,027             --             --           --           --
Foreign currency translation
  adjustment............................        --        --           --             --        (21,486)          --           --
Unrealized loss from investments........        --        --           --             --        (19,578)          --           --
Collection of a loan to employee for
  stock purchases.......................        --        --           --             --             --           --           --
Elimination of one-month lag in
  reporting of Chiron Behring...........        --        --           --           (651)            --           --           --
Net income..............................        --        --           --         71,219             --           --           --
                                          --------    ------    ----------   -----------       --------      -------    ---------
Balances at December 31, 1997...........   175,659     1,757    1,853,591       (961,986)       (18,808)          --           --
Exercise of stock options...............     3,308        33       51,341             --             --           --           --
Tax benefits from employee stock
  plans.................................        --        --       60,119             --             --           --           --
Employee stock purchase plan............       958         9       14,564             --             --           --           --
Foreign currency translation
  adjustment............................        --        --           --             --         26,011           --           --
Unrealized loss from investments........        --        --           --             --         (4,225)          --           --
Minimum pension liability adjustment....        --        --           --             --           (717)          --           --
Collection of a loan to employee for
  stock purchases.......................        --        --           --             --             --           --           --
Net income..............................        --        --           --        524,113             --
                                          --------    ------    ----------   -----------       --------      -------    ---------
Balances at December 31, 1998...........   179,925     1,799    1,979,615       (437,873)         2,261           --           --
Repurchase of treasury stock............        --        --           --             --             --       (4,838)    (150,425)
Exercise of stock options...............     1,742        18       31,502        (38,868)            --        3,419       98,575
Tax benefits from employee stock
  plans.................................        --        --       42,803             --             --           --           --
Employee stock purchase plan............       196         2        3,498         (1,640)            --          189        5,136
Foreign currency translation
  adjustment............................        --        --           --             --        (28,779)          --           --
Unrealized gain from investments........        --        --           --             --         30,143           --           --
Minimum pension liability adjustment....        --        --           --             --           (274)          --           --
Elimination of one-month lag in
  reporting of Chiron S.p.A.............        --        --           --         (5,233)            --           --           --
Net income..............................        --        --           --        160,577             --           --           --
                                          --------    ------    ----------   -----------       --------      -------    ---------
Balances at December 31, 1999...........   181,863    $1,819    $2,057,418   $  (323,037)      $  3,351       (1,230)   $ (46,714)
                                          ========    ======    ==========   ===========       ========      =======    =========

<CAPTION>
                                            NOTES
                                          RECEIVABLE
                                          FOR STOCK
                                          PURCHASES      TOTAL
                                          ----------   ----------
<S>                                       <C>          <C>
Balances at December 31, 1996...........    $(960)     $  764,855
Exercise of stock options...............       --          41,271
Tax benefits from employee stock
  plans.................................       --          17,923
Employee stock purchase plan............       --          20,041
Foreign currency translation
  adjustment............................       --         (21,486)
Unrealized loss from investments........       --         (19,578)
Collection of a loan to employee for
  stock purchases.......................      351             351
Elimination of one-month lag in
  reporting of Chiron Behring...........       --            (651)
Net income..............................       --          71,219
                                            -----      ----------
Balances at December 31, 1997...........     (609)        873,945
Exercise of stock options...............       --          51,374
Tax benefits from employee stock
  plans.................................       --          60,119
Employee stock purchase plan............       --          14,573
Foreign currency translation
  adjustment............................       --          26,011
Unrealized loss from investments........       --          (4,225)
Minimum pension liability adjustment....       --            (717)
Collection of a loan to employee for
  stock purchases.......................      609             609
Net income..............................       --         524,113
                                            -----      ----------
Balances at December 31, 1998...........       --       1,545,802
Repurchase of treasury stock............       --        (150,425)
Exercise of stock options...............       --          91,227
Tax benefits from employee stock
  plans.................................       --          42,803
Employee stock purchase plan............       --           6,996
Foreign currency translation
  adjustment............................       --         (28,779)
Unrealized gain from investments........       --          30,143
Minimum pension liability adjustment....       --            (274)
Elimination of one-month lag in
  reporting of Chiron S.p.A.............       --          (5,233)
Net income..............................       --         160,577
                                            -----      ----------
Balances at December 31, 1999...........    $  --      $1,692,837
                                            =====      ==========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
                               of this statement.

                                      F-7
<PAGE>
                               CHIRON CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                              -------------------------------------
                                                                 1999          1998         1997
                                                              -----------   -----------   ---------
<S>                                                           <C>           <C>           <C>
Cash flows from operating activities:
  Net income................................................  $   160,577   $   524,113   $  71,219
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Depreciation and amortization...........................       68,895       107,861     102,589
    Impairment loss on long-lived assets....................           --            --      31,300
    Gain on sale of assets..................................         (872)       (7,751)     (3,440)
    Gain on sale of intangible assets.......................       (7,490)           --          --
    Gain on disposal of discontinued operations.............      (32,173)     (440,994)    (15,157)
    Gain on sale of equity securities.......................       (3,783)       (4,475)     (5,541)
    Gain on sale of interests in affiliated companies.......           --        (1,815)         --
    Unrealized gain on trading securities...................       (3,352)           --          --
    Write-off of purchased in-process technologies..........           --         1,645          --
    Write-off of property, plant, equipment and leasehold
      improvements..........................................          767         5,141       4,291
    Write-down of investments...............................        1,716         8,365       1,206
    Changes in reserves.....................................       17,056        18,412      30,046
    Changes in estimated liabilities........................       (2,911)       (5,666)    (17,596)
    Deferred income taxes...................................       (5,864)      (43,180)    (20,556)
    Tax benefits from employee stock plans..................       42,803        60,119      17,923
    Undistributed earnings of affiliates....................       (1,193)         (263)    (14,473)
    Other, net..............................................       11,132         8,910      10,408
  Changes, excluding effect of acquisitions and
    dispositions, to:
    Accounts receivable.....................................      (15,797)      (10,540)    (12,974)
    Inventories.............................................      (37,357)      (17,985)    (40,635)
    Other current assets....................................         (327)      (48,826)      8,355
    Accounts payable and accrued expenses...................     (111,918)      (29,998)     (2,062)
    Current portion of unearned revenue.....................      (18,142)       38,527      (5,907)
    Other current liabilities...............................      (38,233)       14,273       5,890
    Other noncurrent liabilities............................       (2,649)       55,796       4,626
                                                              -----------   -----------   ---------
      Net cash provided by operating activities.............       20,885       231,669     149,512
                                                              -----------   -----------   ---------
Cash flows from investing activities:
  Purchases of investments in marketable debt securities....   (1,155,363)   (1,206,797)   (219,522)
  Proceeds from sale and maturity of investments in
    marketable debt securities..............................    1,047,429       282,658     120,306
  Business acquired, net of cash acquired...................           --       (54,770)         --
  Capital expenditures......................................      (64,594)     (126,303)    (77,524)
  Proceeds from sale of assets..............................       21,751        38,570      29,928
  Proceeds from disposal of discontinued operations.........       46,912     1,292,164          --
  Purchases of equity securities and interests in affiliated
    companies...............................................           --        (1,284)    (10,942)
  Proceeds from sale of equity securities and interests in
    affiliated companies....................................        3,783        24,161       5,596
  Increase (decrease) in other assets.......................      (16,745)        6,410     (16,804)
                                                              -----------   -----------   ---------
      Net cash (used in) provided by investing activities...     (116,827)      254,809    (168,962)
                                                              -----------   -----------   ---------
Cash flows from financing activities:
  Net proceeds from (repayment of) short-term borrowings....      (15,332)     (129,133)     20,589
  Repayment of debt and capital leases......................       (2,443)       (9,069)    (32,272)
  Proceeds from issuance of debt............................        6,936            --          --
  Proceeds from issuance of common stock....................       35,020        66,556      61,502
  Payments to acquire treasury stock........................     (140,819)           --          --
  Proceeds from reissuance of treasury stock................       63,130            --          --
                                                              -----------   -----------   ---------
      Net cash (used in) provided by financing activities...      (53,508)      (71,646)     49,819
                                                              -----------   -----------   ---------
      Net (decrease) increase in cash and cash
        equivalents.........................................     (149,450)      414,832      30,369
Cash and cash equivalents at beginning of the year..........      513,315        98,483      68,114
                                                              -----------   -----------   ---------
Cash and cash equivalents at end of the year................  $   363,865   $   513,315   $  98,483
                                                              ===========   ===========   =========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
                               of this statement.

                                      F-8
<PAGE>
                               CHIRON CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1999

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 cancer, infectious diseases and
cardiovascular diseases; (ii) adult and pediatric vaccines; and (iii) blood
testing. 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, small molecules, genomics and
vaccines.

    On December 29, 1997, Chiron completed the sale of its ophthalmics business,
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") (see
Note 4). As a result of these transactions, the Company's Consolidated
Statements of Operations reflect the after-tax results of Chiron Vision and
Chiron Diagnostics 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"), not previously owned, from Hoechst AG. Beginning in the
second quarter of 1998, the results of Chiron Behring were consolidated with
those of the Company (see Note 5).

    Prior to fiscal year 1999, the results of Chiron's Italian subsidiary
("Chiron S.p.A.") were reported on a one-month lag. In the first quarter of
1999, the results of Chiron S.p.A. were brought current. As a result, during
fiscal year 1999, the Company recorded a loss of $5.2 million for the month of
December 1998 as a component of "Accumulated deficit" in the Consolidated
Balance Sheets.

FISCAL YEAR

    Effective with the beginning of fiscal year 1999, the Company changed its
fiscal year from a 52 or 53-week year ending on the Sunday nearest the last day
in December to coincide with a calendar year ending on December 31. In 1998, the
Company's fiscal year was a 53-week year ending on January 3, 1999, and in 1997,
the Company's fiscal year was a 52-week year ending on December 28, 1997. For
presentation purposes, dates used in the consolidated financial statements and
notes thereto refer to the fiscal year end.

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 or cost
method. Certain 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

                                      F-9
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company's consolidated financial statements and notes thereto. Actual results
could differ materially from those estimates.

    The Consolidated Financial Statements for 1997 have been reclassified to
separately identify the results of Chiron's discontinued operations. In
addition, during 1999, the Company completed the implementation of an integrated
information system. As a result, certain previously reported amounts have been
reclassified to conform with the current period presentation.

CASH EQUIVALENTS, INVESTMENTS IN MARKETABLE DEBT SECURITIES AND INVESTMENTS IN
  EQUITY 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.

    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 equity securities as trading and in certain debt and equity
securities as available-for-sale. Trading securities are recorded at fair value
based upon year-end quoted market prices and unrealized gains and losses are
included in results of operations. Available-for-sale securities are recorded at
fair value based upon year-end quoted market prices and unrealized gains and
losses, deemed by the Company as temporary in nature, are reported as a separate
component of other comprehensive income or loss.

INVENTORIES

    Inventories are stated at the lower of cost or market using the moving
weighted-average cost method as of December 31, 1999. For the period ended
December 31, 1998, Chiron S.p.A.'s vaccine inventories were valued using the
last-in, first-out ("LIFO") method. In the second quarter of 1999, the Company
changed its inventory valuation methodology for these vaccine inventories from
LIFO to the moving weighted-average cost method. The effect of this change in
methodology was not material to the financial statements. Inventories consist of
the following at December 31:

<TABLE>
<CAPTION>
                                                              1999       1998
                                                            --------   --------
                                                              (IN THOUSANDS)
<S>                                                         <C>        <C>
Finished goods............................................  $16,614    $12,301
Work in process...........................................   49,193     54,333
Raw materials.............................................   18,917     13,228
                                                            -------    -------
                                                            $84,724    $79,862
                                                            =======    =======
</TABLE>

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 10

                                      F-10
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1999, 1998 and 1997 was $17.3 million, $15.7 million and $7.0
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 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.

TREASURY STOCK

    Treasury stock is stated at cost. Gains on reissuance of treasury stock are
credited to additional paid-in capital. Losses on reissuance of treasury stock
are charged to additional paid-in capital to the extent of available net gains
on reissuance of treasury stock. Otherwise, losses are charged to accumulated
deficit. For the year ended December 31, 1999, the Company charged losses of
$40.5 million to accumulated deficit.

REVENUE RECOGNITION

    "Product sales, net" primarily consist of revenues from product shipments.
For sales of Betaseron-Registered Trademark-(interferon beta-1b), the Company
recognizes revenues upon shipment to its marketing partner and additional
revenues upon the marketing partner's subsequent sale of Betaseron-Registered
Trademark- to patients. Beginning in July 1997, the contractual terms under
which Chiron recognizes Betaseron-Registered Trademark- 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
unincorporated 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 $49.7 million, $61.9 million
and $79.5 million in 1999, 1998 and 1997, respectively. "Royalty and license fee
revenues" consist of product royalty payments and fees under license agreements
and are recognized when earned. Nonrefundable fees associated with royalty and
license arrangements where the Company has no continuing performance obligations
are recognized in income when received. In situations where continuing
performance obligations exist, up-front nonrefundable fees are deferred and
amortized over the performance period. Milestones, if any, related to scientific
achievement are recognized in income when the milestone is accomplished. "Other
revenues" consist primarily of fees for sales and marketing services performed,
commission fees and grants from government agencies and are recognized when
earned. In 1997, "Other revenues" also included revenue related to Chiron's co-

                                      F-11
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
promotion of Novartis AG's product, Aredia-Registered Trademark-, which was
recognized, in part, based on the percentage of effort expended.

CONTRACT MANUFACTURING REVENUES AND EXPENSES

    Contract manufacturing revenues are recognized upon completion of the
specified contract milestones and are recorded in "Other revenues" in the
Consolidated Statements of Operations. Contract manufacturing expenses are
expensed as incurred and are recorded in "Other operating expenses" in the
Consolidated Statements of Operations.

RESEARCH AND DEVELOPMENT EXPENSE AND WRITE-OFF OF PURCHASED IN-PROCESS
  TECHNOLOGIES

    In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 2, "Accounting for Research and Development Costs" ("SFAS 2"), research and
development costs are charged to expense when incurred. Purchased in-process
technologies represent the value assigned or paid for acquired research and
development for which there is no alternative future use as of the date of
acquisition. In accordance with SFAS 2, as clarified by FASB Interpretation
No. 4, amounts assigned to purchased in-process technologies meeting the above
stated criteria are charged to expense as part of the allocation of the purchase
price of the business combination.

ADVERTISING EXPENSES

    The Company expenses the costs of advertising, including promotional
expenses, as incurred. Advertising expenses for the years ended December 31,
1999, 1998 and 1997 were $10.0 million, $12.2 million and $7.1 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 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 common share
as if SFAS 123 had been applied in measuring compensation expense for all
periods presented.

                                      F-12
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.

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. The
Company also uses short sales to reduce equity securities risk. 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 financial institutions of high credit standing. 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 Consolidated Statements of
Comprehensive Income. No tax effect has been provided on the foreign currency
translation component for any period as the undistributed earnings of the
Company's foreign investments are expected to be continually reinvested.

                                      F-13
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 2--EARNINGS PER COMMON SHARE

    Basic earnings per common share is based upon the weighted-average number of
common shares outstanding. Diluted earnings per common share is based upon the
weighted-average number of common shares and dilutive potential common shares
outstanding. Dilutive potential common shares could result from (i) the assumed
exercise of outstanding stock options, warrants and equivalents, which are
included under the treasury-stock method; (ii) performance units (see Note 12)
to the extent that dilutive shares are assumed issuable; and (iii) convertible
subordinated debentures, which are included under the if-converted method.

    The following table sets forth the computation for basic and diluted
earnings per common share on income from continuing operations for the years
ended December 31:

<TABLE>
<CAPTION>
                                                                 1999          1998          1997
                                                              -----------   -----------   -----------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                           <C>           <C>           <C>
Income (Numerator):
Income from continuing operations available to common
  stockholders..............................................   $128,404      $ 75,998      $ 25,782
Plus: Interest on 1.9% convertible debentures, net of
  taxes.....................................................      1,936            --            --
                                                               --------      --------      --------
Income available to common stockholders, plus assumed
  conversions...............................................   $130,340      $ 75,998      $ 25,782
                                                               --------      --------      --------

Shares (Denominator):
Weighted-average common shares outstanding..................    181,162       177,587       173,524

Effect of dilutive securities:
Options and equivalents.....................................      4,279         2,956         4,219
Warrants....................................................        288           190           204
Performance units...........................................         --            --            41
1.9% convertible debentures.................................      2,196            --            --
                                                               --------      --------      --------
Weighted-average common shares outstanding, plus assumed
  conversions...............................................    187,925       180,733       177,988
                                                               --------      --------      --------
Basic earnings per common share.............................   $   0.71      $   0.43      $   0.15
                                                               ========      ========      ========
Diluted earnings per common share...........................   $   0.69      $   0.42      $   0.14
                                                               ========      ========      ========
</TABLE>

                                      F-14
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 2--EARNINGS PER COMMON SHARE (CONTINUED)

    The following table sets forth the computation for basic and diluted
earnings per common share on net income for the years ended December 31:

<TABLE>
<CAPTION>
                                                                 1999          1998          1997
                                                              -----------   -----------   -----------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                           <C>           <C>           <C>
Income (Numerator):
Net income available to common stockholders.................   $160,577      $524,113      $ 71,219
Plus: Interest on 1.9% convertible debentures, net of
  taxes.....................................................      1,936            --            --
                                                               --------      --------      --------
Income available to common stockholders, plus assumed
  conversions...............................................   $162,513      $524,113      $ 71,219
                                                               --------      --------      --------

Shares (Denominator):
Weighted-average common shares outstanding..................    181,162       177,587       173,524

Effect of dilutive securities:
Options and equivalents.....................................      4,279         2,956         4,219
Warrants....................................................        288           190           204
Performance units...........................................         --            --            41
1.9% convertible debentures.................................      2,196            --            --
                                                               --------      --------      --------
Weighted-average common shares outstanding, plus assumed
  conversions...............................................    187,925       180,733       177,988
                                                               --------      --------      --------
Basic earnings per common share.............................   $   0.89      $   2.95      $   0.41
                                                               ========      ========      ========
Diluted earnings per common share...........................   $   0.86      $   2.90      $   0.40
                                                               ========      ========      ========
</TABLE>

    Options to purchase 6.0 million shares, 10.1 million shares and 7.8 million
shares with exercise prices greater than the average market prices of common
stock were outstanding during the years ended December 31, 1999, 1998 and 1997,
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 9.8
million shares, 12.0 million shares and 12.0 million shares for the years ended
December 31, 1999, 1998 and 1997, respectively, of common stock issuable upon
conversion of the Company's convertible subordinated debentures (see Note 10) as
the interest, net of tax, per common share obtainable on conversion exceeds
basic earnings per share.

                                      F-15
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 3--SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                1999       1998        1997
                                                              --------   ---------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>         <C>
Interest paid...............................................  $ 11,607   $  14,322   $19,973
Income taxes paid...........................................   186,707      18,350    10,792
Noncash investing and financing activities:
  Acquisitions:
    Cash acquired...........................................  $     --   $  57,119   $    --
    Fair value of all other assets acquired.................        --     206,922        --
    Liabilities assumed.....................................        --     (33,815)       --
    Acquisition costs.......................................        --      (1,180)       --
    Carrying value of original investment...................        --    (117,157)       --
                                                              --------   ---------   -------
  Total cash paid...........................................  $     --   $ 111,889   $    --
                                                              ========   =========   =======
</TABLE>

NOTE 4--DISCONTINUED OPERATIONS

    On November 30, 1998, Chiron completed the sale of its IN VITRO diagnostics
business 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 "Bayer Agreement"), dated as of September 17, 1998, between
Chiron and Bayer. The results of operations for Chiron Diagnostics are reported
as a discontinued operation for all periods presented in the Consolidated
Statements of Operations. Chiron has provided customary indemnities under the
terms of the Bayer 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 ("HCV"). In exchange for these rights, Chiron Diagnostics paid to Chiron
$100.0 million, which is refundable in decreasing amounts through 2001. In 1999
and 1998, Chiron recognized revenues of $39.2 million and $13.3 million,
respectively, which represent the portions of the $100.0 million payment which
became nonrefundable during those periods. The revenues were recorded as a
component of "Royalty and license fee revenues" in the Consolidated Statements
of Operations. The Company anticipates recognizing the remaining revenue as
follows: $29.2 million in 2000 and $18.3 million in 2001.

    As a result of the sale of Chiron Diagnostics, the Company assigned certain
technology rights, which it had utilized in its blood testing and diagnostics
businesses, to Bayer. The assigned rights, which had been capitalized as
intangible assets and had a net book value of $9.5 million at the time of
assignment, were expensed against the "Gain on disposal of discontinued
operations" in 1998. Under the terms of the Agreement, Chiron and Bayer agreed
to share certain future milestone payments related to these technology rights.
Accordingly, Chiron made a milestone payment of $8.5 million in December 1999.
Since the Company received regulatory approval in France for the
transcription-mediated amplification ("TMA") combination HCV/HIV-I test in
September 1999, the Company ascertained that there is future value in these
technology rights and, therefore, has capitalized the related milestone payment
of $8.5 million, to be amortized over 5 years.

                                      F-16
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 4--DISCONTINUED OPERATIONS (CONTINUED)
    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 (the "B&L Agreement"), dated as of 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. The Company has provided
customary indemnities under the terms of the B&L Agreement. In 1999, the Company
reversed approximately $8.3 million reserved for contractual obligations to
indemnify B&L against certain potential claims, as such obligations had expired.
This was recorded as a component of "Gain on disposal of discontinued
operations."

    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, 1999 and 1998, the
real estate assets of $1.9 million and $11.5 million, respectively, which
represent all of the remaining net assets of Chiron's discontinued operations,
are recorded in the Consolidated Balance Sheets as "Other current assets." In
July 1999, the Company recognized a gain of $4.8 million, which included a net
income tax benefit of $2.9 million related to cumulative differences in the
basis of the assets sold, upon sale of a portion of these real estate assets.
This gain is recorded as a component of "Gain on disposal of discontinued
operations."

    In connection with the sale of Chiron Diagnostics and Chiron Vision, the
Company recorded cumulative net deferred tax assets of $26.0 million and $20.0
million in 1999 and 1998, respectively, principally attributable to the timing
of the deduction of certain expenses associated with these sales. The Company
also recorded corresponding valuation allowances of $26.0 million and $20.0
million in 1999 and 1998, respectively, to offset these deferred tax assets, as
management does not believe that it is more likely than not that the deferred
tax assets to which the valuation allowance relates will be realized. The future
recognition of these deferred tax assets will be reported as a component of
"Gain on disposal of discontinued operations."

    Prior to the sale of Chiron Diagnostics in 1998, Chiron reduced its
valuation allowance related to Chiron Diagnostics' domestic and foreign deferred
tax assets by $45.5 million, as the sale to Bayer in 1998 made it more likely
than not that these deferred tax assets would be realized. Included in this
amount 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").

    In 1998, Chiron Diagnostics recognized total revenues of $527.7 million. In
1997, Chiron Diagnostics and Chiron Vision, collectively, recognized total
revenues of $800.2 million. "Income from discontinued operations" in the
Consolidated Statements of Operations was reported net of income tax provisions
of $0.1 million and $2.9 million in 1998 and 1997, respectively. In addition,
included in "Income from discontinued operations" was 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 disposal of discontinued
operations" in the Consolidated Statements of Operations included the sale of
the real estate assets and an income tax benefit (provision) of $20.4 million,
$(200.7) million and $15.2 million for the years ended December 31, 1999, 1998
and 1997, respectively.

                                      F-17
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 4--DISCONTINUED OPERATIONS (CONTINUED)
    Basic earnings per common share from discontinued operations was $0.18,
$2.52 and $0.26 for the years ended December 31, 1999, 1998 and 1997,
respectively. Diluted earnings per common share from discontinued operations was
$0.17, $2.48 and $0.26 for the years ended December 31, 1999, 1998 and 1997,
respectively.

NOTE 5--ACQUISITION OF CHIRON BEHRING

    Effective July 1, 1996, Chiron purchased a 49% interest in the human vaccine
business of Behringwerke AG, a subsidiary of Hoechst AG. The total acquisition
price, which was paid in cash, was approximately $120.0 million, including costs
directly related to the acquisition. Of the 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.

    From July 1, 1996 through March 31, 1998 (period of joint 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 revenues of $2.4 million and $13.8 million as components
of "Equity in earnings of unconsolidated joint businesses" in the Consolidated
Statements of Operations for the years ended December 31, 1998 and 1997,
respectively.

    In the second quarter of 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. 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

                                      F-18
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 5--ACQUISITION OF CHIRON BEHRING (CONTINUED)
would have occurred had the acquisition been made as of those dates or of
results that 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.......................  $ 78,128    $ 34,282
Pro forma earnings per common share from continuing
  operations:
  Basic.................................................  $   0.44    $   0.20
  Diluted...............................................  $   0.43    $   0.19
</TABLE>

NOTE 6--RESTRUCTURING AND REORGANIZATION CHARGES

    In 1999 and 1998, the Company recorded restructuring and reorganization
charges related to the integration of its worldwide vaccines operations, the
closure of its Puerto Rico and St. Louis, Missouri facilities and the ongoing
rationalization of its business operations. The integration of its worldwide
vaccines operations consisted of termination and other employee-related costs
recognized in connection with the elimination of 28 positions in the Company's
Italian manufacturing facility and facility-related costs. The closure of its
Puerto Rico and St. Louis facilities and the ongoing rationalization of its
business operations consisted of termination and other employee-related costs
recognized in connection with the elimination of 400 positions in manufacturing,
research and development, sales, marketing, and other administrative functions,
and facility-related costs. During 1999, the Company decided to retain 18 of
those 400 positions to support future contract manufacturing activities and,
therefore, adjusted the number of positions for elimination to 382. Included in
this amount were 36 positions at the Company's Amsterdam facility. These
positions were transferred to the buyer in January 2000 (see Note 8).

    For the year ended December 31, 1999, the Company recorded restructuring and
reorganization expenses of $0.2 million, which included a charge of $3.9 million
and a benefit of $3.7 million. The charge of $3.9 million primarily related to
termination and other employee-related costs recognized in connection with the
elimination of 28 positions at the Company's Italian manufacturing facility. As
of December 31, 1999, 24 of these 28 positions had been eliminated. The benefit
of $3.7 million related to revised estimates of property-related accruals
recorded in connection with the Company's ongoing rationalization of its
business operations and the idling of the St. Louis facility, as well as revised
estimates of termination and other employee-related costs recorded in connection
with the elimination of 382 positions. As of December 31, 1999, 319 of these 382
positions had been eliminated.

    For the year ended December 31, 1998, the Company recorded net restructuring
and reorganization charges of $26.8 million related to the integration of its
worldwide vaccines operations, the closure of its Puerto Rico and St. Louis
facilities and the ongoing rationalization of its business operations.

    Included in "Gain on disposal of discontinued operations" in the
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

                                      F-19
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 6--RESTRUCTURING AND REORGANIZATION CHARGES (CONTINUED)
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 responsibility for $4.5 million of
accrued restructuring charges upon the completion of the sale of Chiron
Diagnostics to Bayer.

    The current status of the accrued restructuring and reorganization charges
is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                  AMOUNT OF       AMOUNT OF                          AMOUNT TO
                                                    TOTAL           TOTAL        AMOUNT UTILIZED    BE UTILIZED
                               ACCRUAL AT       RESTRUCTURING   RESTRUCTURING        THROUGH         IN FUTURE
                            DECEMBER 31, 1998      CHARGE          BENEFIT      DECEMBER 31, 1999     PERIODS
                            -----------------   -------------   -------------   -----------------   -----------
<S>                         <C>                 <C>             <C>             <C>                 <C>
Employee-related costs....       $15,390           $2,826          $(2,697)          $11,747           $3,772
Other facility-related
  costs...................         3,931            1,099           (1,031)            2,368            1,631
                                 -------           ------          -------           -------           ------
                                  19,321            3,925           (3,728)           14,115            5,403
Discontinued operations...         4,475               --               --             4,190              285
                                 -------           ------          -------           -------           ------
                                 $23,796           $3,925          $(3,728)          $18,305           $5,688
                                 =======           ======          =======           =======           ======
</TABLE>

    The Company's restructuring and reorganization accruals, which were included
as a component of "Other current liabilities" in the Consolidated Balance
Sheets, are expected to be substantially settled within 12 months of accruing
the related charges.

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 as follows:
2000--$11.1 million; 2001--$2.5 million; 2002--$1.3 million;
2003--$0.3 million; and 2004--$0.3 million.

    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 1999, 1998 and
1997, Chiron recognized losses of $1.7 million, $8.4 million and $1.2 million,
respectively, attributable to the other-than-temporary impairment of certain of
these equity securities.

    On April 1, 1999, the Company received a $9.7 million promissory note in
consideration for payment under a biopharmaceutical collaboration agreement. The
note bears interest at LIBOR plus 3% (9.0% at December 31, 1999). The interest
is due quarterly and the principal is due in three equal installments, which are
payable on June 30, 2000, June 30, 2001 and June 30, 2002. The Company recorded
$3.2 million as "Current portion of note receivable" and $6.5 million as "Notes
receivable" in the Consolidated Balance Sheets. The note is collateralized by
the payor's right, title and interest in all amounts payable by the Company
under the biopharmaceutical collaboration agreement.

                                      F-20
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 7--RESEARCH AND DEVELOPMENT ARRANGEMENTS (CONTINUED)
    On November 1, 1999, the Company entered into a patent and license
agreement. Under this agreement, the Company paid $5.0 million of license fees,
which were recorded as "Research and development" in the Consolidated Statements
of Operations, and advanced $7.5 million in return for a promissory note, which
was recorded as "Note receivables" in the Consolidated Balance Sheets. The note
bears interest at the prime rate (8.5% at December 31, 1999), is due with
accrued interest on December 31, 2006 and will be forgiven (principal and
accrued interest) if the U.S. Food and Drug Administration ("FDA") approves any
product covered by the patent and license agreement for marketing in the U.S.
prior to December 31, 2006. The Company may pay additional milestone payments if
certain development objectives are met. In addition, the Company will pay
royalties on future net product sales of the product under the patent and
license agreement.

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,
1999.

    In January 1995, Chiron and Novartis entered into a Governance Agreement
whereby 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"). This agreement provides that, through
December 31, 2000, at Chiron's request, Novartis will fund up to 100% of the
development costs incurred between January 1, 1995 and December 31, 1999 on
these projects. The amount of funding that Novartis is obligated to provide is
subject to an aggregate limit of $265.0 million. Under this agreement, in 1999,
1998 and 1997, Chiron recognized collaborative agreement revenues of $46.2
million, $54.4 million and $53.3 million, respectively. In 2000, the amount of
R&D funding provided by Novartis is limited to $12.1 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

                                      F-21
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 8--RELATED PARTY TRANSACTIONS AND JOINT BUSINESS ARRANGEMENT (CONTINUED)
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. 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 $402.5 million. 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 $172.6
million of Chiron's operating lease commitments as of December 31, 1999 (see
Note 11).

    In connection with the sale of Chiron Diagnostics to Bayer, a promissory
note owed by Chiron Diagnostics to Novartis was transferred to and assumed by
the Company. The note payable to Novartis bears interest at a variable rate
based on LIBOR (approximately 5.7% and 5.6% at December 31, 1999 and 1998,
respectively). As of December 31, 1999 and 1998, the outstanding amount was
$67.8 million and $63.9 million, respectively, including accrued interest. The
note and accrued interest were paid in full on January 4, 2000.

    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 $4.2 million, $6.0 million
and $10.2 million in 1999, 1998 and 1997, 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 connection with the agreement, Chiron recognized collaborative
agreement revenues of $10.0 million in 1999 and $15.0 million in both 1998 and
1997.

                                      F-22
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 8--RELATED PARTY TRANSACTIONS AND JOINT BUSINESS ARRANGEMENT (CONTINUED)

    In December 1999, the Company sold certain assets that it had developed or
acquired in connection with its research and development of a Cytomegalovirus
("CMV") vaccine to Aventis Pasteur (formerly Pasteur Merieux Connaught) for
$10.0 million and licensed certain technology to Aventis Pasteur for use in
connection with the CMV vaccine. The sale of these assets resulted in a gain of
$7.5 million, which was included in "Gain on sale of intangible assets" in the
Consolidated Statement of Operations. Under the terms of the agreements, in the
event Aventis Pasteur successfully develops a CMV vaccine, it will pay the
Company royalties on net sales of such vaccine and will grant the Company
marketing rights to such vaccine in Germany and Italy. Novartis had provided
research funding for the Company's CMV vaccine research and development program.
In connection with this sale, Novartis waived its co-promotion rights for the
CMV vaccine in return for royalties equal to 25% of fees and royalties received
by the Company related to the CMV vaccines. At December 31, 1999, the Company
recorded in "Accounts payable" in the Consolidated Balance Sheets an amount
payable to Novartis of $2.5 million, which represents 25% of the Company's $10.0
million payment from Aventis Pasteur.

    From 1994 through April 1998, Chiron promoted Aredia-Registered Trademark-
(pamidronate disodium for injection) on behalf of Novartis. In April 1998, the
arrangement was terminated. In connection with the arrangement, in 1998 and
1997, Chiron recognized other revenues of $9.8 million and $43.6 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, 1999 and
1998, the amount outstanding on the loan was $0.9 million and $1.0 million,
respectively.

SALE OF THE AMSTERDAM MANUFACTURING FACILITY

    In December 1999, the Company sold its Amsterdam manufacturing facility and
related machinery and equipment assets to Synco B.V., a company owned by a
director of the Company, for $15.0 million in cash. The sale of the Amsterdam
manufacturing facility resulted in a gain of $1.2 million, of which $0.9 million
was included in "Gain on sale of assets" in the Consolidated Statements of
Operations and $0.3 million was deferred as a result of the leaseback described
below. The Company will amortize the unearned revenue as a reduction to rent
expense over the lease term.

    The Company is leasing back office and warehouse space in the Amsterdam
facility for some operational and administrative activities. The lease is a
noncancelable operating lease, which expires in 2004 and may be extended for a
period of two consecutive years (see Note 11). Annual rent is NLG 1.4 million
($0.6 million at December 31, 1999). At its option, the Company may lease
certain equipment under the same terms as the office and warehouse lease. As of
December 31, 1999, the Company had not exercised this option. Also, at the
option of the new owner, the Company may provide various administrative services
to the new owner. And, at the option of the Company, the new owner may provide
various quality control services to the Company. As of December 31, 1999, no
such services were being provided under these agreements.

                                      F-23
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 8--RELATED PARTY TRANSACTIONS AND JOINT BUSINESS ARRANGEMENT (CONTINUED)
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, Bio-Rad Laboratories, Inc. 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 1999, 1998 and 1997 were annual inventory adjustments of
$(0.7) million, $(4.1) million and $0.8 million, respectively. Profit sharing
distributions are payable to Chiron within 90 days after the end of each
quarter. At December 31, 1999 and 1998, $14.1 million and $22.1 million,
respectively, were due from Ortho for profit sharing and reimbursement of costs.
In 1999, 1998 and 1997, Chiron's 50% share of the profits from the joint
business, which was recorded as a component of "Equity in earnings of
unconsolidated joint businesses," was $78.1 million, $73.5 million and $92.9
million, respectively. Revenues recognized under the cost reimbursement portion
of the agreement in 1999, 1998 and 1997 for product sales were $18.4 million,
$20.6 million and $20.1 million, respectively, and for collaborative research
were $8.3 million, $5.0 million and $7.1 million, respectively.

NOTE 9--FAIR VALUE OF FINANCIAL INSTRUMENTS

MARKETABLE SECURITIES

    At December 31, 1999, trading securities consisted of $3.3 million in equity
securities and were classified as "Short term investments in equity securities"
in the Consolidated Balance Sheets. For the year ended December 31, 1999, the
Company recorded an unrealized gain of $3.3 million as part of "Other income,
net" in the Consolidated Statements of Operations. The Company had no
investments in equity securities classified as trading during 1998 and 1997.

    Available-for-sale securities consisted of the following at December 31:

<TABLE>
<CAPTION>
                                             1999                                                1998
                       -------------------------------------------------   -------------------------------------------------
                        ADJUSTED    UNREALIZED   UNREALIZED      FAIR       ADJUSTED    UNREALIZED   UNREALIZED      FAIR
                          COST        GAINS        LOSSES       VALUE         COST        GAINS        LOSSES       VALUE
                       ----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
                                        (IN THOUSANDS)                                      (IN THOUSANDS)
<S>                    <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
U.S. Government......  $  258,521    $ 25,383    $ (28,937)   $  254,967   $  184,992     $   61       $  (213)   $  184,840
Corporate Debt.......   1,169,783     105,408     (108,344)    1,166,847    1,311,446        405          (847)    1,311,004
Other................      44,863          --           --        44,863           --         --            --            --
                       ----------    --------    ---------    ----------   ----------     ------       -------    ----------
                        1,473,167     130,791     (137,281)    1,466,677    1,496,438        466        (1,060)    1,495,844
Equity...............      15,036      41,441           --        56,477       13,973      6,358        (1,004)       19,327
                       ----------    --------    ---------    ----------   ----------     ------       -------    ----------
                       $1,488,203    $172,232    $(137,281)   $1,523,154   $1,510,411     $6,824       $(2,064)   $1,515,171
                       ==========    ========    =========    ==========   ==========     ======       =======    ==========
</TABLE>

                                      F-24
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 9--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
    Available-for-sale securities were classified in the Consolidated Balance
Sheets as follows at December 31:

<TABLE>
<CAPTION>
                                                          1999         1998
                                                       ----------   ----------
                                                           (IN THOUSANDS)
<S>                                                    <C>          <C>
Cash equivalents.....................................  $  279,070   $  419,156
Short-term investments in marketable debt
  securities.........................................     640,027      716,619
Noncurrent investments in marketable debt
  securities.........................................     547,580      360,069
Investments in equity securities.....................      56,477       19,327
                                                       ----------   ----------
                                                       $1,523,154   $1,515,171
                                                       ==========   ==========
</TABLE>

    The cost and estimated fair value of available-for-sale debt securities by
contractual maturity consisted of the following at December 31, 1999:

<TABLE>
<CAPTION>
                                                        ADJUSTED       FAIR
                                                          COST        VALUE
                                                       ----------   ----------
                                                           (IN THOUSANDS)
<S>                                                    <C>          <C>
Due in one year or less..............................  $  921,113   $  919,097
Due in one to five years.............................     552,054      547,580
                                                       ----------   ----------
                                                       $1,473,167   $1,466,677
                                                       ==========   ==========
</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, were as follows at
December 31:

<TABLE>
<CAPTION>
                                                              1999                    1998
                                                      ---------------------   ---------------------
                                                      CARRYING                CARRYING
                                                       AMOUNT    FAIR VALUE    AMOUNT    FAIR VALUE
                                                      --------   ----------   --------   ----------
                                                                     (IN THOUSANDS)
<S>                                                   <C>        <C>          <C>        <C>
ON-BALANCE SHEET FINANCIAL INSTRUMENTS:
Nonmarketable equity investments (accounted for
  under the cost method)............................  $  6,544    $ 20,617    $  8,129    $ 12,916
  Notes receivable..................................    20,043      20,043       2,317       2,317
  Deposits..........................................     4,829       4,045       2,633       2,209
  Foreign currency option contracts.................        --          --         260         260
  Due from cross currency interest rate swaps.......    26,593      24,213       8,506       7,440
  Long-term debt:
    Convertible subordinated debentures.............   343,210     510,318     335,070     354,206
    Notes payable...................................    80,843      80,843      68,541      68,541
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
  Due from forward foreign currency contracts.......        --      27,164          --          --
  Cross currency interest rate swaps................        --      23,558          --       1,808
  Due from short sales..............................        --       4,562          --          --
</TABLE>

                                      F-25
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 9--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
    The fair value estimates provided above are based on information available
at December 31, 1999 and 1998. 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 based primarily on estimated market prices determined
by a broker. The carrying 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 forward foreign currency contracts, the cross currency
interest rate swaps and the short sales are based on estimated market prices,
determined by a broker. 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 Consolidated Statements of Operations to offset gains or
losses on foreign currency denominated receivables and payables. Outstanding
notional principal amounts of the Company's forwards were $27.3 million and
$14.7 million at December 31, 1999 and 1998, respectively.

    Foreign currency transaction gains and losses from continuing operations,
net of the impact of hedging, were not significant in 1999, 1998 or 1997.

    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 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 Consolidated Statements of Operations.
There were no options outstanding at December 31, 1999. Outstanding notional
principal amounts of the Company's options were $55.6 million at December 31,
1998.

                                      F-26
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

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 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 principal amounts of the
Company's swaps were $226.8 million at December 31, 1999 and 1998, 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 principal 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 July 1996, the Company also entered into swap agreements associated with
the Company's wholly-owned German subsidiary that mature in July 2001 with an
aggregate notional principal 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% (6.3% and 5.8% at December 31,
1999 and 1998, respectively).

SHORT SALES

    The Company selectively enters into short sales with major financial
institutions. Short sales substantially offset long positions and, in effect,
neutralize the impact of market valuation shifts on the hedged securities. Short
sales are generally marked-to-market at the end of each quarter with gains or
losses recorded in a manner consistent with the accounting for gains or losses
on the underlying securities. In other words, if the underlying securities are
classified as trading, the gain or loss on the short sales is recorded as a
component of "Other income, net" in the Consolidated Statements of Operations.
If the underlying securities are classified as available-for-sale, the gain or
loss on short sales is recorded as a component of "Other comprehensive income
(loss)" in the Consolidated Statements of Comprehensive Income. Outstanding
notional principal amounts of the Company's short sales were $4.5 million at
December 31, 1999, as described below. The Company had no short sales during
1998.

    In late December 1999, the Company entered into two short sales to hedge
securities classified as trading and available-for-sale. The Company intends to
cover in the near term the short position for the underlying securities
classified as trading. The Company does not intend to cover in the near term the
short position for the securities classified as available-for-sale. In addition,
the Company entered into two margin account agreements in relation to the short
sales. The agreements require the Company to deposit cash, in an amount equal to
50% of the market value of the hedged investments on the date of the short

                                      F-27
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 9--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
sales, into the margin accounts. Cash in the margin accounts earns interest at
the prevailing market rate (5.0% at December 31, 1999) and is restricted for use
until the short position is covered. At December 31, 1999, the Company had a
cash balance of $2.2 million in the margin accounts, of which $1.1 million was
recorded in "Other current assets" and $1.1 million was recorded in "Other
assets" in the Consolidated Balance Sheets. The interest on this cash balance
was not significant for the year ended December 31, 1999.

NOTE 10--DEBT OBLIGATIONS AND CAPITAL LEASES

    Long-term debt consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                           1999        1998
                                                         ---------   --------
                                                            (IN THOUSANDS)
<S>                                                      <C>         <C>
1.9% convertible subordinated debentures...............  $ 248,216   $242,074
5.25% convertible subordinated debentures..............     94,994     92,996
Capital lease obligations..............................         --        144
Other notes payable....................................      3,282      4,596
                                                         ---------   --------
                                                           346,492    339,810
Less current portion...................................   (249,534)    (1,652)
                                                         ---------   --------
                                                         $  96,958   $338,158
                                                         =========   ========
</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, 1999 and 1998, Novartis held debentures with a carrying value of $9.8
million and $9.6 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, 1999 and 1998, 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.

                                      F-28
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 10--DEBT OBLIGATIONS AND CAPITAL LEASES (CONTINUED)
As of December 31, 1999, the assets leased under noncancelable capital leases
were fully depreciated. As of December 31, 1998, accumulated depreciation
totaled $2.8 million.

OTHER NOTES PAYABLE

    The Company has various other notes payable with an average interest rate of
3.3% and 4.2% at December 31, 1999 and 1998, respectively. Maturities range from
2001 to 2003. Future maturities of other notes payable are as follows:
2000--$1.3 million, 2001--$1.9 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), provides various
interest rate options and matures in February 2003. There were no borrowings
outstanding under this credit facility at December 31, 1999.

    Additionally, the Company has credit facilities available outside the U.S.
which allow for total borrowings of $63.1 million as of December 31, 1999. These
revolving facilities are unsecured and are primarily maintained for Chiron's
Italian subsidiary. At December 31, 1999, $20.3 million was outstanding under
these credit facilities. In 1999 and 1998, the average interest rates on the
outstanding borrowings related to continuing operations were approximately 3.6%
and 4.4%, respectively.

NOTE PAYABLE TO NOVARTIS

    At December 31, 1999 and 1998, the note payable to Novartis totaled $67.8
million and $63.9 million, respectively. It bears interest at a variable rate
based on LIBOR (approximately 5.7% and 5.6% at December 31, 1999 and 1998,
respectively). The note and accrued interest were paid in full on January 4,
2000.

NOTE 11--COMMITMENTS AND CONTINGENCIES

LEASES

    Chiron leases laboratory, office and manufacturing facilities, land and
equipment under noncancelable operating leases, which expire through 2009. Rent
expense from continuing operations was $24.6 million, $22.3 million and $12.3
million in 1999, 1998 and 1997, respectively. Future minimum lease payments
under these leases are as follows: 2000--$24.9 million, 2001--$22.5 million,
2002--$20.8 million, 2003--$20.3 million, 2004--$13.0 million and
thereafter--$28.8 million. Total future minimum rentals to be received under
noncancelable subleases approximate $4.4 million as of December 31, 1999.

    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, which was under construction until its completion in 1999.
The total cost of the facility covered by this lease is $172.6 million. The
lease provides for a substantial residual value guarantee 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, 1999, Novartis had
guaranteed $172.6 million of this lease commitment (see Note 8).

                                      F-29
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED)

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 since these costs are
based on future sales of products.

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, payments to IBM are expected to be approximately $111.8 million.
Payments to IBM are subject to adjustment depending upon the levels of services
and infrastructure equipment provided by IBM, as well as inflation.

    The Company has various firm purchase and capital project commitments
totaling approximately $6.8 million at December 31, 1999. At December 31, 1999,
the Company has $5.1 million outstanding under a letter of credit, which is
required by German law, related to ongoing legal proceedings in Germany. The
Company also has various performance bonds and insurance-related letters of
credit in the amount of $4.9 million outstanding at December 31, 1999.

NOTE 12--STOCKHOLDERS' EQUITY

STOCK COMPENSATION PLANS

    At December 31, 1999, 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 for shares issued to employees.
Accordingly, no compensation expense has been recognized for its stock-based
compensation plans other than for performance-based awards and share rights.

                                      F-30
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
    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 common share would have been reduced to the
following pro forma amounts:

<TABLE>
<CAPTION>
                                                   1999       1998       1997
                                                 --------   --------   --------
                                                     (IN THOUSANDS, EXCEPT
                                                        PER SHARE DATA)
<S>                                              <C>        <C>        <C>
Net income--basic:
  As reported..................................  $160,577   $524,113   $71,219
  Pro forma....................................  $139,760   $500,681   $46,318
Net income--diluted
  As reported..................................  $162,513   $524,113   $71,219
  Pro forma....................................  $141,696   $500,681   $46,318
Basic net income per common share:
  As reported..................................  $   0.89   $   2.95   $  0.41
  Pro forma....................................  $   0.77   $   2.82   $  0.27
Diluted net income per common share:
  As reported..................................  $   0.86   $   2.90   $  0.40
  Pro forma....................................  $   0.75   $   2.77   $  0.26
</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.

    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, 1999, 5.3 million
shares were available for grant.

                                      F-31
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
    A summary of stock option activity is as follows:

<TABLE>
<CAPTION>
                                                              1999         1998         1997
                                                           ----------   ----------   ----------
<S>                                                        <C>          <C>          <C>
Outstanding options at January 1,........................  20,124,981   24,094,166   26,298,373
  Granted................................................   4,271,138    4,688,253    6,011,061
  Forfeited..............................................  (1,885,992)  (4,785,345)  (3,792,954)
  Surrendered against payment by Novartis................    (120,503)    (564,337)    (790,430)
  Exercised..............................................  (5,161,434)  (3,307,756)  (3,631,884)
                                                           ----------   ----------   ----------
Outstanding options at December 31,......................  17,228,190   20,124,981   24,094,166
                                                           ==========   ==========   ==========
Options exercisable at December 31,......................  10,033,910   12,159,676   12,351,700
                                                           ==========   ==========   ==========
Weighted average exercise price of:
  Outstanding options at December 31,....................  $    21.00   $    17.68   $    18.08
  Options granted........................................  $    28.16   $    17.54   $    20.96
  Options forfeited......................................  $    19.55   $    20.35   $    19.72
  Options exercised......................................  $    17.37   $    15.29   $    11.76
  Weighted-average grant-date fair value of options
    granted during the year calculated pursuant to SFAS
    123..................................................  $    12.57   $     7.66   $     9.34
</TABLE>

    The weighted-average grant-date fair value of each option grant was
estimated using the Black-Scholes option-pricing model and the following
weighted-average assumptions: expected volatility of 37% for 1999, 1998 and
1997; risk-free interest rates of 5.6%, 5.2% and 6.2% for 1999, 1998 and 1997,
respectively; and an average expected life of 5 years for 1999, 1998 and 1997.
No dividends were factored into the calculation in 1999, 1998 or 1997.

    The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:

<TABLE>
<CAPTION>
                                                    OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                                      -----------------------------------------------   ----------------------------
                                                    WEIGHTED-AVERAGE     WEIGHTED-                      WEIGHTED-
                                        NUMBER         REMAINING          AVERAGE         NUMBER         AVERAGE
RANGE OF EXERCISE PRICES              OUTSTANDING   CONTRACTUAL LIFE   EXERCISE PRICE   OUTSTANDING   EXERCISE PRICE
------------------------              -----------   ----------------   --------------   -----------   --------------
<S>                                   <C>           <C>                <C>              <C>           <C>
Less than $15.......................   3,695,090          6.35             $14.31        2,852,544        $12.40
$15 to $19..........................   4,181,912          5.97              17.75        3,183,855         17.40
$19 to $21..........................   3,299,022          7.48              21.01        1,657,080         20.87
$21 to $23..........................   2,463,894          7.50              22.44        1,477,854         22.36
$23 to $28..........................   1,108,443          6.84              27.30          861,628         27.67
$28 to $32..........................   2,371,779          9.67              31.88              749         31.88
Greater than $32....................     108,050          7.75              39.60              200         37.64
                                      ----------          ----             ------       ----------        ------
                                      17,228,190          7.14             $21.00       10,033,910        $18.17
                                      ==========                                        ==========
</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

                                      F-32
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
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 stock 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. No such expense was
recognized in 1999 or 1998. In 1997, the Company recognized $0.6 million of
expense related to these performance units.

    There were no performance units awarded in 1999 or 1998. In 1997, the
Company awarded performance units of 158,738 shares of common stock. No awards
were exercisable at December 31, 1999. Pursuant to SFAS 123, the
weighted-average fair value of the awards in 1997 was $6.71 per unit. The
weighted-average fair value was based on the following assumptions: expected
volatility of 37%; a risk-free interest rate of 6.0%; and an average expected
life of 3 years. No dividends were factored into the calculation.

    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 directors, allowing them the right to receive shares of the
Company's common stock, subject to certain vesting terms.

    In 1999, the Compensation Committee awarded non-employee directors an
aggregate of 11,098 share rights that vest over five years, and also awarded
certain key individuals an aggregate of 228,175 share rights that vest over four
years. 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. The value of the share rights are recognized ratably over the related
vesting periods and, in 1999, 1998 and 1997, the Company recognized $2.1
million, $2.4 million and $0.8 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 0.4 million, 1.0 million and 1.4 million in
1999, 1998 and 1997, 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,
8.2 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 40%, 35% and 28% for
1999, 1998 and 1997, respectively; risk-free interest rates of 5.1%, 5.1% and
5.6% for 1999, 1998 and 1997, respectively; and an average expected life of one
year for

                                      F-33
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
1999, 1998 and 1997. No dividends were factored into the calculation in 1999,
1998 or 1997. The weighted-average fair value of the purchase rights granted was
$8.78, $5.71 and $5.28 per share in 1999, 1998 and 1997, 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, 1999. The exercise price
of the warrants is $13.13, and the warrants expire in July 2001. The warrants
are currently exercisable.

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
collateralized primarily by the stock issued upon the exercise of the stock
options. As of December 31, 1999, there were no amounts outstanding relating to
notes receivable for stock purchases.

STOCK REPURCHASE PROGRAM

    In 1999, the Company's Board of Directors authorized the repurchase of up to
6.5 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.
Effective February 25, 2000, the Company's Board of Directors approved an
additional 5.0 million share increase, thereby bringing the total number of
shares authorized for repurchase to 11.5 million shares. The Board has
authorized such repurchases through February 28, 2001.

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 $3.8 million, $4.2 million and $3.7 million in 1999, 1998 and 1997,
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 a defined-benefit pension plan and is not
externally funded.

                                      F-34
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 13--OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
    The components of net periodic pension costs were as follows:

<TABLE>
<CAPTION>
                                                              1999       1998
                                                            --------   --------
<S>                                                         <C>        <C>
Service cost..............................................  $   421    $   436
Interest cost.............................................      405        431
Recognized actuarial loss.................................       38         24
                                                            -------    -------
                                                            $   864    $   891
                                                            =======    =======
</TABLE>

    The change in the projected benefit obligation, reconciliation of funded
status and weighted average assumptions were as follows:

<TABLE>
<CAPTION>
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Change in projected benefit obligation:
    Projected benefit obligation at beginning of year.......  $ 8,337    $    --
    Acquisitions............................................       --      5,722
    Service cost............................................      421        436
    Interest cost...........................................      405        431
    Benefits paid...........................................     (152)       (21)
    Actuarial loss..........................................      722      1,124
    Other...................................................       41        298
    Foreign currency translation............................   (1,191)       347
                                                              -------    -------
    Projected benefit obligation at end of year.............  $ 8,583    $ 8,337
                                                              =======    =======
Reconciliation of funded status:
    Funded status...........................................  $(8,583)   $(8,337)
    Unrecognized actuarial loss.............................    1,636      1,100
    Unrecognized prior service cost.........................   (1,071)      (853)
                                                              -------    -------
    Net amount recognized...................................  $(8,018)   $(8,090)
                                                              =======    =======
Weighted average assumptions:
    Discount rate...........................................     6.0%       5.5%
    Rate of compensation increase...........................     3.0%       2.5%
</TABLE>

    The amounts recognized in the Consolidated Balance sheets were as follows:

<TABLE>
<CAPTION>
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Accrued pension cost........................................   $6,947     $7,237
Accumulated other comprehensive income......................    1,071        853
                                                               ------     ------
                                                               $8,018     $8,090
                                                               ======     ======
</TABLE>

                                      F-35
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 13--OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
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 December 1999, the Company sold its Amsterdam manufacturing facility and
related machinery and equipment assets to Synco B.V., a company owned by a
director of the Company, for $15.0 million in cash. The Amsterdam manufacturing
facility was part of the Company's biopharmaceuticals segment. The sale of the
Amsterdam manufacturing facility resulted in a gain of $1.2 million, of which
$0.9 million was included in "Gain on sale of assets" in the Consolidated
Statement of Operations and $0.3 million was deferred as a result of the
leaseback (see Note 8). At the time of the sale, the carrying amount of the
Amsterdam manufacturing facility was $13.8 million. In 1999, 1998 and 1997,
Chiron recognized operating expenses related to the Amsterdam manufacturing
facility of $2.0 million, $1.7 million and $0.4 million, respectively.

    In December 1999, the Company sold certain assets that it had developed or
acquired in connection with its research and development of a Cytomegalovirus
("CMV") vaccine to Aventis Pasteur (formerly Pasteur Merieux Connaught) for
$10.0 million and licensed certain technology to Aventis Pasteur for use in
connection with the CMV vaccine. The sale of these assets resulted in a gain of
$7.5 million, which was included in "Gain on sale of intangible assets" in the
Consolidated Statements of Operations.

    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 St. Louis facility was part of the Company's
biopharmaceuticals segment. 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. At the time of the sale, the carrying
amount of the St. Louis facility was $18.3 million. In 1998 and 1997, Chiron
recognized operating expenses related to the St. Louis facility of $3.2 million
and $11.4 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.

    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

                                      F-36
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 14--NON-OPERATING INCOME AND EXPENSE (CONTINUED)
machinery and equipment assets to IPR Pharmaceuticals, Inc. for $18.5 million in
cash. The Puerto Rico facility was part of the Company's biopharmaceuticals
segment. 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 Consolidated
Statements of Operations. At the time of the sale, the carrying amount of the
Puerto Rico facility was $11.1 million. In 1998 and 1997, Chiron recognized
operating expenses related to the Puerto Rico facility of $2.1 million and
$7.9 million, respectively.

    "Interest expense" in the Consolidated Statements of Operations consisted of
the following for the years ended December 31:

<TABLE>
<CAPTION>
                                                   1999       1998       1997
                                                 --------   --------   --------
                                                         (IN THOUSANDS)
<S>                                              <C>        <C>        <C>
Interest expense and related costs on
  convertible debentures.......................  $(18,954)  $(18,682)  $(18,384)
Interest expense on the note payable to
  Novartis.....................................    (3,691)    (3,379)    (3,413)
Other interest expense.........................    (1,247)    (2,612)    (9,813)
                                                 --------   --------   --------
                                                 $(23,892)  $(24,673)  $(31,610)
                                                 ========   ========   ========
</TABLE>

    "Other income, net" in the Consolidated Statements of Operations consisted
of the following for the years ended December 31:

<TABLE>
<CAPTION>
                                                     1999       1998       1997
                                                   --------   --------   --------
                                                           (IN THOUSANDS)
<S>                                                <C>        <C>        <C>
Interest and dividend income.....................  $83,777    $29,586    $11,960
Write-down of investments........................   (1,716)    (8,365)    (1,206)
Gain on sale of investments......................    3,783      4,475      5,541
Gain on sale of interests in affiliated
  companies......................................       --      1,815         --
Unrealized holding gain on trading securities....    3,352         --         --
Net realized gain (loss) on foreign exchange
  transactions...................................      (60)       203        (58)
Other............................................      721       (704)    (3,516)
                                                   -------    -------    -------
                                                   $89,857    $27,010    $12,721
                                                   =======    =======    =======
</TABLE>

NOTE 15--SEGMENT INFORMATION

    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) vaccines and (iii) blood testing. The
biopharmaceuticals segment consists of products and services related to
therapeutics, with an emphasis on cancer, infectious diseases and cardiovascular
diseases as well as the development and acquisition of technologies related to
recombinant proteins, small molecules and genomics. The vaccines segment
consists principally of products and services related to adult and pediatric
vaccines sold primarily in Germany and Italy and also sold in other
international markets. The blood testing segment consists of Chiron's one-half
interest in the pretax operating earnings of its joint business with
Ortho-Clinical Diagnostics, Inc. ("Ortho"), a Johnson & Johnson company and an
alliance with Gen-

                                      F-37
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 15--SEGMENT INFORMATION (CONTINUED)
Probe Incorporated ("Gen-Probe"). Chiron's joint business with Ortho sells a
line of immunodiagnostic tests, other than nucleic acid 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's alliance with Gen-Probe is focused on developing and
selling products using nucleic acid testing ("NAT") to screen blood and plasma
for infection by viruses.

    Certain revenues and expenses, particularly Novartis research and
development 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 Statement of Financial Accounting Standards No. 131 "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131").

    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 continuing 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.

                                      F-38
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 15--SEGMENT INFORMATION (CONTINUED)

    The following segment information excludes all significant intersegment
transactions as these transactions are eliminated for management reporting
purposes:

<TABLE>
<CAPTION>
                                                                1999       1998       1997
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
REVENUES
  Biopharmaceuticals, includes $1,039 of equity in loss of
    unconsolidated joint businesses in 1997.................  $290,691   $305,435   $302,456
  Vaccines, includes $1,194, $442 and $14,472 of equity in
    earnings of unconsolidated joint businesses in 1999,
    1998 and 1997, respectively.............................   250,977    236,877     98,703
  Blood testing, includes $78,126, $73,527 and $92,923 of
    equity in earnings of unconsolidated joint businesses in
    1999, 1998 and 1997, respectively.......................   113,447     98,878    120,140
  Other.....................................................   107,531     95,483     53,300
                                                              --------   --------   --------
      Total revenues........................................  $762,646   $736,673   $574,599
                                                              ========   ========   ========
INCOME FROM CONTINUING OPERATIONS
  Biopharmaceuticals........................................  $(44,242)  $ 17,504   $ 46,034
  Vaccines..................................................   (14,060)   (24,681)   (58,518)
  Blood testing.............................................    63,348     68,419     88,002
  Other.....................................................    77,468     52,052     14,877
                                                              --------   --------   --------
  Segment income from operations............................    82,514    113,294     90,395
  Operating income (expense) reconciling items:
    Write-off of purchased in-process technologies..........        --     (1,645)        --
    Impairment loss on long-lived assets....................        --         --    (31,300)
    Restructuring and reorganization charges................      (197)   (26,754)        --
                                                              --------   --------   --------
  Income from operations....................................    82,317     84,895     59,095
    Gain on sale of assets..................................       872      7,751         --
    Gain on sale of intangible assets.......................     7,490         --         --
    Interest expense........................................   (23,892)   (24,673)   (31,610)
    Other income, net.......................................    89,857     27,010     12,721
                                                              --------   --------   --------
      Income from continuing operations before income
        taxes...............................................  $156,644   $ 94,983   $ 40,206
                                                              ========   ========   ========
</TABLE>

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, are included with other operating expenses

                                      F-39
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 15--SEGMENT INFORMATION (CONTINUED)
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>
                                                   1999       1998       1997
                                                 --------   --------   --------
                                                         (IN THOUSANDS)
<S>                                              <C>        <C>        <C>
DEPRECIATION AND AMORTIZATION EXPENSES
  Biopharmaceuticals...........................  $27,359    $ 30,544   $ 27,496
  Vaccines.....................................   36,316      31,200     19,559
  Blood testing................................    2,488         887      1,179
  Other (including discontinued operations)....    2,732      45,230     54,355
                                                 -------    --------   --------
    Total depreciation and amortization
      expenses.................................  $68,895    $107,861   $102,589
                                                 =======    ========   ========
</TABLE>

<TABLE>
<CAPTION>
                                                    1999       1998       1997
                                                  --------   --------   --------
                                                          (IN THOUSANDS)
<S>                                               <C>        <C>        <C>
CAPITAL EXPENDITURES
  Biopharmaceuticals............................  $ 7,706    $  9,636   $ 7,529
  Vaccines......................................   17,711      38,877        --
  Blood testing.................................    5,197         946        --
  Other (including discontinued operations).....   33,980      76,844    69,995
                                                  -------    --------   -------
    Total capital expenditures..................  $64,594    $126,303   $77,524
                                                  =======    ========   =======
</TABLE>

REVENUES BY GEOGRAPHIC AREA

    Revenues by geographic area are based on the customers' country of domicile
rather than the customers' shipping locations.

<TABLE>
<CAPTION>
                                                  1999       1998       1997
                                                --------   --------   --------
                                                        (IN THOUSANDS)
<S>                                             <C>        <C>        <C>
REVENUES
  Domestic....................................  $333,634   $331,863   $246,330
  Switzerland.................................    50,106     98,050    121,256
  Germany.....................................   170,191    144,234     60,263
  Italy.......................................    60,081     47,616     47,776
  Other.......................................   148,634    114,910     98,974
                                                --------   --------   --------
    Total revenues............................  $762,646   $736,673   $574,599
                                                ========   ========   ========
</TABLE>

                                      F-40
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 15--SEGMENT INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                                                  1999       1998       1997
                                                --------   --------   --------
                                                        (IN THOUSANDS)
<S>                                             <C>        <C>        <C>
LONG-LIVED ASSETS
  Domestic....................................  $264,618   $250,331   $297,303
  Germany.....................................   124,242    152,566         --
  Italy.......................................    59,213     62,633     43,394
  Other (including discontinued operations)...     5,804     19,838    339,059
                                                --------   --------   --------
    Total long-lived assets...................  $453,877   $485,368   $679,756
                                                ========   ========   ========
</TABLE>

MAJOR CUSTOMERS

    Two significant customers accounted for 13.6% and 12.7% of total revenues in
1999. Three significant customers accounted for 18.4%, 12.9% and 11.6% of total
revenues in 1998 and 24.4%, 14.2% and 21.3% of total revenues in 1997. Revenues
from the Company's biopharmaceuticals segment consisted of 32.9%, 53.1% and
55.9% of revenues from major customers in 1999, 1998 and 1997, respectively.
Revenues from the Company's blood testing segment consisted of 92.4% of revenues
from major customers in 1999 and entirely from major customers in 1998 and 1997.
Revenues from the Company's other segment did not consist of revenues from major
customers in 1999. Revenues from the Company's other segment consisted of 57.0%
of revenues from major customers in 1998 and 100.0% in 1997.

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>
                                                    1999       1998       1997
                                                  --------   --------   --------
                                                          (IN THOUSANDS)
<S>                                               <C>        <C>        <C>
Domestic........................................  $ 93,661   $80,706    $35,624
Foreign.........................................    62,983    14,277      4,582
                                                  --------   -------    -------
                                                  $156,644   $94,983    $40,206
                                                  ========   =======    =======
</TABLE>

                                      F-41
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 16--INCOME TAXES (CONTINUED)
COMPONENTS OF PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS

    Significant components of the provision for income taxes from continuing
operations were as follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                   1999       1998       1997
                                                 --------   --------   --------
                                                         (IN THOUSANDS)
<S>                                              <C>        <C>        <C>
Current:
  Domestic.....................................  $ 26,778   $ 57,747   $15,140
  Foreign......................................     6,813      4,418     6,972
                                                 --------   --------   -------
                                                   33,591     62,165    22,112
                                                 --------   --------   -------
Deferred:
  Domestic.....................................   (10,232)   (39,696)   (6,708)
  Foreign......................................     4,368     (3,484)       --
                                                 --------   --------   -------
                                                   (5,864)   (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.......................................       513         --      (980)
                                                 --------   --------   -------
Provision for income taxes from continuing
  operations...................................  $ 28,240   $ 18,985   $14,424
                                                 ========   ========   =======
</TABLE>

    Included in the domestic portion of the deferred tax provision in 1999 was a
benefit of $13.7 million resulting from the recognition of state tax benefits,
which were previously offset by a valuation allowance.

    The benefit related to tax deductions for the Company's stock option plans
was recorded as an increase to additional paid-in capital when realized. In
1999, 1998 and 1997, the Company realized tax benefits of approximately $42.8
million, $60.1 million and $17.9 million, respectively.

                                      F-42
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

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 was as follows for
continuing operations for the years ended December 31:

<TABLE>
<CAPTION>
                                                  1999          1998          1997
                                                --------      --------      --------
<S>                                             <C>           <C>           <C>
Federal tax provision at statutory rates......     35.0%         35.0%         35.0%
State taxes, net of federal benefit...........      2.0%          2.3%          7.1%
Net impact of foreign tax rates and credits...      0.9%        (4.3%)          5.4%
Disposition and write-down of Puerto Rico
  facility....................................        --        (6.3%)         27.2%
Impact of Novartis transaction costs not
  deducted in prior years.....................    (3.0%)            --            --
Change in the valuation allowance for deferred
  tax assets allocated to income tax
  expense.....................................    (6.4%)       (41.8%)       (16.7%)
Increase in (utilization of) deferred tax
  assets and corresponding valuation allowance
  not previously benefited:
    Prepaid income............................    (8.8%)         33.2%            --
    Other temporary differences...............    (0.6%)          1.1%       (21.0%)
Utilization of tax credits....................    (1.9%)            --        (6.1%)
Other.........................................      0.8%          0.8%          5.0%
                                                 -------      --------      --------
Provision for income taxes from continuing
  operations..................................     18.0%         20.0%         35.9%
                                                 =======      ========      ========
</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-43
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 16--INCOME TAXES (CONTINUED)
    Significant components of the Company's deferred income tax liabilities and
assets from continuing operations were as follows at December 31:

<TABLE>
<CAPTION>
                                                           1999       1998
                                                         --------   ---------
                                                            (IN THOUSANDS)
<S>                                                      <C>        <C>
Deferred income tax liabilities:
  Basis differences--purchase accounting...............  $  4,793   $   9,631
  Patent costs expensed for tax purposes...............    10,719      12,358
  Depreciation and purchased technologies..............     5,292       9,539
  Other................................................     7,007       1,527
                                                         --------   ---------
                                                           27,811      33,055
                                                         --------   ---------
Deferred income tax assets:
  Basis differences--purchase accounting and
    intangibles........................................    67,045      72,672
  Capitalized research and development costs...........     3,395          --
  Prepaid income.......................................    18,761      37,800
  Reserves and expense accruals........................    44,194      63,866
  Net operating loss carryforwards.....................    21,504      46,762
  Business credit carryforwards........................     9,456       9,034
  Other................................................     2,341       2,360
                                                         --------   ---------
                                                          166,696     232,494
  Less valuation allowance.............................   (86,056)   (144,338)
                                                         --------   ---------
                                                           80,640      88,156
                                                         --------   ---------
  Net deferred income tax asset........................  $ 52,829   $  55,101
                                                         ========   =========
</TABLE>

    The net decrease in the valuation allowance for the years ended December 31,
1999, 1998 and 1997 was $58.3 million, $87.6 million and $1.7 million,
respectively.

    The valuation allowance of $86.1 million as of December 31, 1999 related to
net operating loss carryforwards and intangible assets in certain foreign
jurisdictions.

    Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets at December 31, 1999 will be allocated as follows (in
thousands):

<TABLE>
<S>                                                           <C>
Income tax benefit..........................................  $82,852
Goodwill and other noncurrent intangible assets.............    3,204
                                                              -------
                                                              $86,056
                                                              =======
</TABLE>

TAX OPERATING LOSS AND CREDIT CARRYFORWARDS

    At December 31, 1999, the Company had foreign net operating loss
carryforwards of approximately $61.0 million, principally available to offset
future taxable income indefinitely, and federal and state business credits of
$9.5 million, expiring in 2013.

                                      F-44
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

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>
                                                                        1999
                                                      -----------------------------------------
                                                      DEC. 31    SEPT. 30   JUNE 30    MAR. 31
                                                      --------   --------   --------   --------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                   <C>        <C>        <C>        <C>
Total revenues......................................  $193,600   $204,376   $189,110   $175,560
Gross margin from net product sales.................    67,183     60,426     60,563     49,091
Income from continuing operations:
  Income............................................    25,891     45,041     33,734     23,738
  Basic income per common share.....................      0.14       0.25       0.19       0.13
  Diluted income per common share...................      0.14       0.24       0.18       0.13
Net income:
  Income............................................    31,767     68,329     36,743     23,738
  Basic income per common share.....................      0.18       0.38       0.20       0.13
  Diluted income per common share...................      0.17       0.36       0.20       0.13
Revenue from discontinued operations................        --         --         --         --
Gross margin from discontinued operations...........        --         --         --         --
</TABLE>

<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.................    70,819     61,750     50,872     41,007
Income from continuing operations:
  Income............................................    14,440     33,914     20,102      7,542
  Basic income per common share.....................      0.08       0.19       0.11       0.04
  Diluted income per common share...................      0.08       0.19       0.11       0.04
Net income:
  Income............................................   359,810     84,435     25,387     54,481
  Basic income per common share.....................      2.01       0.47       0.14       0.31
  Diluted income per common share...................      1.96       0.47       0.14       0.30
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-45
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 18--QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
    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 fourth, third and second quarters of 1999 included income
tax benefits of $4.4 million, $15.3 million and $0.7 million, respectively, in
the "Gain on disposal of discontinued operations." Net income in the third
quarter of 1999 also included a gain of $4.8 million upon sale of a portion of
real estate assets of the Company's discontinued operations. This gain was
recorded in the "Gain on disposal of discontinued operations." Net income in the
third quarter of 1998 included income tax benefits of $45.5 million in the "Gain
on disposal of discontinued operations."

    The results of continuing operations for the fourth quarter of 1999 included
a $1.9 million reduction in restructuring and reorganization charges due to
revised estimates of termination and other employee-related costs, a $5.0
million reduction in other operating expenses resulting from a change in
estimated tax accruals related to certain employee payments recorded in 1995 in
connection with the Novartis transaction, a $0.9 million gain on the sale of
assets (see Note 14), a $7.5 million gain on the sale of intangible assets (see
Note 14) and a $3.3 million unrealized holding gain related to equity securities
classified as trading. In the fourth quarter of 1999, the Company also recorded
a $5.9 million reclassification from cost of sales to other operating expenses
to record contract manufacturing expenses in accordance with the Company's
accounting policy. The results of continuing operations for the third quarter of
1999 included a $1.9 million reduction in restructuring and reorganization
charges due to revised estimates of property-related and accruals recorded in
connection with the idling of the St. Louis facility, as well as revised
estimates of termination and other employee-related costs, and a $2.0 million
reduction in other operating expenses resulting from a change in estimated tax
accruals related to certain employee payments recorded in 1995 in connection
with the Novartis transaction. The results of continuing operations for the
second quarter of 1999 included a $6.4 million reduction in other operating
expenses resulting from a change in estimated tax accruals related to certain
employee payments recorded in 1995 in connection with the Novartis transaction.

    In the fourth quarter of 1998, the Company recorded a $7.6 million
reclassification from cost of sales to other operating expenses to record
contract manufacturing expenses in accordance with the Company's accounting
policy. The results of continuing operations for the third quarter of 1998
included a $3.3 million reduction in cost of sales resulting from a change in
estimated accruals created in prior periods and a $1.5 million gain on the sale
of assets (see Note 14). The results of continuing operations for the second
quarter of 1998 included a $6.0 million reduction in cost of sales due to a
change in estimated property tax accruals created in prior periods, 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 and a $6.2 million gain
on the sale of assets (see Note 14).

                                      F-46
<PAGE>
                               CHIRON CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1999

NOTE 19--SUBSEQUENT EVENTS

    Through February 17, 2000, holders of 325 of the 5.25% convertible
subordinated debentures converted those debentures into 52,704 shares of the
Company's common stock, at a conversion price of $30.83 per share. The face
value of the converted debentures was $1.6 million, with amortized costs of $1.5
million.

    On February 7, 2000, the Company sold various assets of its Australian
subsidiary ("the Australian assets") to Mimotopes Pty. Ltd. ("Mimotopes"), a
wholly-owned subsidiary of MitoKor, for $1.0 million in cash, $2.0 million
($1.6 million discounted) in non-interest bearing promissory notes, which are
due on August 7, 2001 and February 7, 2003, and 500,000 shares of MitoKor
Series E convertible preferred stock, to which the Company assigned no fair
value due to the early-stage nature of MitoKor. Mimotopes also assumed various
liabilities of the Company's Australian subsidiary. In connection with the sale,
the Company wrote off $1.3 million in leasehold improvements, which became the
property of the landlord upon termination of the Australian subsidiary's
building lease, and incurred selling costs of $0.4 million. The Australian
assets were part of the Company's biopharmaceuticals segment. The sale of the
Australian assets, net of liabilities assumed, resulted in a net loss of $0.2
million. As of December 31, 1999, the carrying amount of the Australian assets,
net of liabilities to be assumed, was $1.1 million and was recorded in the
Consolidated Balance Sheets as "Other current assets."

                                      F-47
<PAGE>
                                                                     SCHEDULE II

                               CHIRON CORPORATION

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                               ADDITIONS
                                                         ----------------------
                                            BALANCE AT   CHARGED TO    CHARGED                  BALANCE
                                            BEGINNING     COSTS AND    TO OTHER                AT END OF
DESCRIPTION                                  OF YEAR     EXPENSES(2)   ACCOUNTS   DEDUCTIONS     YEAR
-----------                                 ----------   -----------   --------   ----------   ---------
                                                                   (IN THOUSANDS)
<S>                                         <C>          <C>           <C>        <C>          <C>
1999:
Accounts receivable allowance.............    $18,160      $13,494     $     --    $(14,656)    $16,998
Restructuring reserve.....................     23,796          197           --     (18,305)      5,688

1998:
Accounts receivable allowance.............     22,918       14,370      (13,322)(1)    (5,806)   18,160
Restructuring reserve.....................      6,857       45,822           --     (28,883)     23,796

1997:
Accounts receivable allowance.............     20,692       10,227           --      (8,001)     22,918
Restructuring reserve.....................      7,357        3,336           --      (3,836)      6,857
</TABLE>

------------------------

(1) Represents accounts receivable allowances as of the disposal date related to
    disposed businesses.

(2) Includes amounts charged to discontinued operations.

                                      F-48