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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-12798
CHIRON CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 94-2754624
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4560 Horton Street, Emeryville, California 94608
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(Address of principal executive offices) (Zip code)
(510) 655-8730
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former
fiscal year, if changed since last report)
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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JULY 31, 1997
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Common Stock, $0.01 par value 174,062,826
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CHIRON CORPORATION
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 . . . . . . . . . . . .3
Consolidated Statements of Operations for the
three months and six months ended June 30, 1997 and 1996. .4
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 . . . . . . . . . .5
Notes to Consolidated Financial Statements. . . . . . . . .6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . .9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . 22
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2
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CHIRON CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $111,927 $68,114
Short-term investments in marketable debt securities 36,224 38,694
---------- ----------
Total cash and short-term investments 148,151 106,808
Accounts receivable 315,675 351,971
Inventories 188,249 180,534
Other current assets 64,358 57,455
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Total current assets 716,433 696,768
Noncurrent investments in marketable debt securities 12,648 22,027
Property, plant, equipment and leasehold improvements, at cost:
Land and buildings 234,526 231,998
Laboratory, production and office equipment 405,767 381,421
Leasehold improvements 118,209 114,282
Construction in progress 78,010 69,120
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836,512 796,821
Less accumulated depreciation and amortization (249,260) (213,217)
---------- ----------
Net property, plant, equipment and leasehold improvements 587,252 583,604
Purchased technology, net 59,619 65,592
Other intangible assets, net 72,445 76,669
Investments in equity securities and affiliated companies 180,136 184,328
Other assets 65,484 59,682
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$1,694,017 $1,688,670
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---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $79,014 $96,157
Accrued compensation and related expenses 49,596 56,695
Short-term borrowings 151,743 137,467
Current portion of unearned revenue 26,157 19,638
Taxes payable 38,558 33,407
Other current liabilities 118,513 129,805
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Total current liabilities 463,581 473,169
Long-term debt 393,396 419,589
Other noncurrent liabilities 28,274 31,057
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Total liabilities 885,251 923,815
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Commitments and contingencies
Stockholders' equity:
Common stock 1,735 1,707
Additional paid-in capital 1,804,185 1,774,406
Accumulated deficit (1,001,476) (1,032,554)
Cumulative foreign currency translation adjustment (17,842) (6,318)
Unrealized gain from investments 23,124 28,574
Notes receivable from stock sales (960) (960)
---------- ----------
Total stockholders' equity 808,766 764,855
---------- ----------
$1,694,017 $1,688,670
---------- ----------
---------- ----------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THIS STATEMENT.
3
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CHIRON CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------- --------- ---------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $256,370 $254,156 $507,499 $493,978
Equity in earnings of unconsolidated joint businesses 28,772 22,008 53,986 45,616
Collaborative agreement revenues 29,128 23,147 55,976 54,561
Other revenues 19,493 16,424 46,585 27,331
-------- --------- ---------- ---------
Total revenues 333,763 315,735 664,046 621,486
-------- --------- ---------- ---------
Expenses:
Cost of sales 107,114 107,912 215,446 209,891
Research and development 97,431 91,010 189,136 175,058
Selling, general and administrative 99,029 98,730 195,635 191,059
Other operating expenses 3,331 2,492 6,610 5,600
-------- --------- ---------- ---------
Total expenses 306,905 300,144 606,827 581,608
-------- --------- ---------- ---------
Income from operations 26,858 15,591 57,219 39,878
Gain on sale of interest in affiliated company - 12,066 - 12,066
Interest expense (7,757) (6,918) (16,243) (13,931)
Other income, net 3,733 1,613 4,086 2,807
-------- --------- ---------- ---------
Income before income taxes 22,834 22,352 45,062 40,820
Provision for income taxes 7,092 6,997 13,984 12,722
-------- --------- ---------- ---------
Net income $ 15,742 $ 15,355 $ 31,078 $ 28,098
-------- --------- ---------- ---------
-------- --------- ---------- ---------
Net income per share $ 0.09 $ 0.09 $ 0.18 $ 0.16
-------- --------- ---------- ---------
-------- --------- ---------- ---------
Weighted average number of shares
used in computing per share amounts 176,955 177,870 176,603 178,084
-------- --------- ---------- ---------
-------- --------- ---------- ---------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THIS STATEMENT.
4
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CHIRON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
June 30, June 30,
1997 1996
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $31,078 $28,098
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 50,634 54,379
Gain on sale of interest in affiliated company - (12,066)
Other, net 4,944 4,312
Changes, excluding effect of acquisitions, to:
Accounts receivable 25,693 (36,715)
Inventories (34,119) (32,153)
Other current assets (1,650) (14,923)
Accounts payable and accrued expenses (21,965) (11,869)
Current portion of unearned revenue 6,790 728
Taxes payable 5,308 5,097
Other current liabilities (5,817) 9,096
Other noncurrent liabilities 491 444
------- --------
Net cash provided by (used in) operating activities 61,387 (5,572)
------- --------
Cash flows from investing activities:
Purchases of investments in marketable debt securities (27,911) (55,009)
Proceeds from sale and maturity of investments in marketable debt securities 39,760 88,589
Capital expenditures (36,383) (55,350)
Proceeds from sale of interest in affiliated company - 14,000
Purchases of investments in equity securities and affiliated companies (5,500) (6,240)
Increase in other assets (2,476) (6,956)
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Net cash used in investing activities (32,510) (20,966)
------- --------
Cash flows from financing activities:
Net payments under line of credit arrangements - (25,345)
Proceeds from issuance of short-term debt 16,014 7,727
Repayment of notes payable and capital leases (30,818) (5,035)
Proceeds from issuance of common stock 29,740 29,218
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Net cash provided by financing activities 14,936 6,565
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Net increase (decrease) in cash and cash equivalents 43,813 (19,973)
Cash and cash equivalents at beginning of the period 68,114 74,318
------- --------
Cash and cash equivalents at end of the period $111,927 $54,345
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THIS STATEMENT.
5
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CHIRON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The information at June 30, 1997, and for the three months ended June
30, 1997 and 1996, is unaudited, but includes all normal recurring
adjustments which the management of Chiron Corporation (the "Company" or
"Chiron") believes to be necessary for fair presentation of the periods
presented. In addition, during the second quarter of 1997, a $6.6
million reduction in cost of sales was recognized due to a revised
estimate of royalties to be paid on sales of certain products; a $4.7
million reduction in selling, general and administrative expenses was
recognized due to changes in estimated accruals created in prior
periods; and $0.9 million of other revenues was recognized as a result
of a reduction in estimated royalty reserves created in the first
quarter of 1997. The consolidated balance sheet amounts at December 31,
1996 have been derived from audited financial statements. Interim
results are not necessarily indicative of results for a full year. This
information should be read in conjunction with Chiron's audited
consolidated financial statements for the year ended December 29, 1996,
which are included in the Annual Report on Form 10-K filed by the
Company with the Securities and Exchange Commission.
Certain previously reported amounts have been reclassified to conform
with the current period presentation.
FISCAL YEAR
The fiscal year of the Company is a 52 or 53-week year ending on the
Sunday nearest the last day in December of each year. As a result, the
second quarters of 1997 and 1996 represent the thirteen-week periods
ended June 29, 1997 and June 30, 1996, respectively. For presentation
purposes, dates used in the consolidated financial statements and notes
refer to the calendar month end.
INVENTORIES
Pharmaceutical inventories are stated at the lower of cost or market
using the average cost method or, in the case of vaccine products, using
the last-in, first-out ("LIFO") method. Diagnostic and ophthalmic
products are valued at cost, using the first-in, first-out ("FIFO")
method which is less than market value. Inventories consist of the
following:
JUNE 30, DECEMBER 31,
1997 1996
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(IN THOUSANDS)
Finished goods $94,509 $94,875
Work in process 49,913 45,874
Raw materials 43,827 39,785
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$188,249 $180,534
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INCOME TAXES
Income tax expense for the three and six months ended June 30, 1997
and 1996 is based on an estimated annual effective income tax rate.
6
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PER SHARE DATA
Per share data is based on the weighted average number of
common and dilutive common equivalent shares outstanding. Common
equivalent shares result from the assumed exercise of outstanding
stock options and warrants that have a dilutive effect when applying
the treasury stock method. Shares assumed to be issued upon
conversion of the Company's convertible debentures are not included
for any of the periods presented since their inclusion would be
anti-dilutive. Fully diluted per share data has not been presented,
as the amounts would not differ materially from primary per share
data.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"), which will be effective for financial statements
for periods ending after December 15, 1997, including interim periods,
and establishes standards for computing and presenting earnings per
share. Earlier application is not permitted. In its consolidated
financial statements for the year ending December 31, 1997, the Company
will make the required disclosures of basic and diluted earnings per
share and provide a reconciliation of the numerator and denominator of
its basic and diluted earnings per share computations. All prior period
earnings per share data will be restated by the Company upon adoption of
SFAS 128. Basic earnings per share excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Basic earnings per
share under SFAS 128 for the three months ended June 30, 1997 and 1996
would have been $0.09 in both periods. For the six months ended June 30,
1997 and 1996, basic earnings per share would have been $0.18 and $0.17,
respectively. The application of SFAS 128 to the calculation of diluted
earnings per share would not have a material effect on the Company's per
share data presented for those periods.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Nos. 130 and 131, "Reporting
Comprehensive Income" ("SFAS 130") and "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), respectively
(collectively, the "Statements"). The Statements are effective for
fiscal years beginning after December 15, 1997. SFAS 130 establishes
standards for reporting of comprehensive income and its components in
annual financial statements. SFAS 131 establishes standards for
reporting financial and descriptive information about an enterprise's
operating segments in its annual financial statements and selected
segment information in interim financial reports. Reclassification or
restatement of comparative financial statements or financial information
for earlier periods is required upon adoption of SFAS 130 and SFAS 131,
respectively. Application of the Statements' disclosure requirements
will have no impact on the Company's consolidated financial position,
results of operations or earnings per share data as currently reported.
2. LONG-LIVED ASSETS
As circumstances dictate, Chiron's management reviews the carrying
value of all facilities, including the Company's idle pharmaceutical
fill and finishing facility in Puerto Rico, to determine whether an
impairment of the carrying value has occurred in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." The cumulative impact on the Company's manufacturing needs of
recent product developments including, among others, the genital herpes
vaccine which failed to show efficacy in clinical trials and the finding
of a U.S. Food and Drug Administration ("FDA") advisory committee in May
1997 that there was not substantial evidence that Myotrophin-TM-
(rhIGF-1 or mecasermin [recombinant DNA origin]) Injection is effective
in the treatment of amyotrophic lateral sclerosis (ALS or Lou Gehrig's
disease), prompted management to conclude during the second quarter of
1997 that the Company currently has excess manufacturing capacity
relative to its projected needs. As a result of this change in
circumstances, the Company reviewed the carrying amount of its idle
manufacturing facility in Puerto Rico for impairment.
7
<PAGE>
In connection with the Company's ongoing study of the capacity
and efficiency of its global manufacturing operations, management is
considering alternative options concerning the Puerto Rico facility,
including divestiture, lease, contract manufacturing and other
internal uses for the facility's idle capacity. Based on certain
assumptions which consider currently available information, the sum of
expected future cash flows that will be generated by the Puerto Rico
facility, undiscounted and without interest charges in accordance with
SFAS 121, will be sufficient to recover the $44.6 million carrying amount
of the facility at June 30, 1997. If the Company is unable, however, to
find a suitable use for the Puerto Rico facility consistent with its
current expectations, an adjustment in a future period of the carrying
value of that facility to its fair value will have a material adverse
impact on the Company's results of operations.
3. COLLABORATION ARRANGEMENT
In May 1997, the Company entered into an agreement to collaborate in
the development and commercialization of diagnostic, therapeutic and
vaccine products. Subject to the collaboration and in return for a
license and other rights, Chiron made an initial payment of $1.0
million, which was recorded as research and development expense during
the three months ended June 30, 1997. In addition, the Company is
obligated to fund allowable research costs, in amounts not less than
$8.5 million in the first year and $5.5 million in each of the second
and third years of the collaboration term, incurred by the collaborative
partner (the "Partner") in performing research requested by the Company.
Under the agreement, Chiron is required to make certain additional
payments upon achievement of specified milestones. In addition, the
Partner will receive a royalty from any commercial sales of products
resulting from the collaboration.
Concurrent with this collaboration agreement, the Partner and Chiron
entered into a stock purchase agreement whereby Chiron invested $5 million
in the convertible preferred stock of the Partner, representing a 3.6%
interest in the Partner's outstanding equity. This investment is
accounted for under the cost method and is reflected in the accompanying
consolidated balance sheets as investments in equity securities and
affiliated companies as of June 30, 1997. Pursuant to the stock purchase
agreement, Chiron is obligated to invest an additional $2.5 million in the
common stock of the Partner upon the closing of the Partner's initial
public offering ("IPO") occurring on or before December 2, 1997, or such
later date as is determined by mutual agreement of the parties. If the
Partner does not consummate its IPO on or prior to December 2, 1997, no
additional investment will be required by Chiron. The Partner has
indicated to Chiron, however, that it expects to complete its IPO in
August 1997.
4. LONG-TERM DEBT
In January 1997, the Company entered into an agreement to purchase for
$29.8 million a manufacturing facility and related buildings that had
previously been leased under a long-term capital lease obligation. As a
result, the Company eliminated the related obligation which totaled
$29.4 million.
8
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5. CONTINGENCIES
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, including claims brought separately by two competitors
that the Company's acellular pertussis vaccine infringes claims under
three distinct patents. Pending claims also relate to 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 these matters will have a material adverse effect upon the Company's
consolidated financial position and annual results of operations and
cash flows.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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OVERVIEW
THE DISCUSSION BELOW CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES RELATING TO THE FUTURE FINANCIAL PERFORMANCE OF
CHIRON CORPORATION (THE "COMPANY" OR "CHIRON"), AND ACTUAL EVENTS OR RESULTS
MAY DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS, STOCKHOLDERS AND
INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS IDENTIFIED UNDER
THE CAPTION "FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS" WHICH COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH
FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY
RELEASE THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS
WHICH MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR
TO REFLECT THE OCCURRENCES OF UNANTICIPATED EVENTS.
THE DISCUSSION BELOW SHOULD BE READ IN CONJUNCTION WITH PART I, ITEM 1,
"FINANCIAL STATEMENTS," OF THIS QUARTERLY REPORT ON FORM 10-Q AND PART II,
ITEMS 7 AND 8, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA,"
RESPECTIVELY, OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 29, 1996.
Chiron is a diversified, science-driven, market-directed healthcare
company that applies biotechnology and other techniques of modern biology and
chemistry to develop, produce and sell products intended to improve the
quality of life by diagnosing, preventing and treating human disease. Chiron
participates in four human healthcare markets: (i) diagnostics, including
blood screening tests, automated immunodiagnostic systems, critical blood
analyte systems and new quantitative probe tests; (ii) therapeutics, with an
emphasis on oncology, serious infectious diseases and critical care diseases;
(iii) adult and pediatric vaccines; and (iv) ophthalmic surgical products,
including instruments and devices used for the surgical correction of vision
and intraocular implants to deliver drugs to the eye. Chiron also develops
or acquires new technologies, employing these technologies to discover new
products for the Company or for its partners.
RESULTS OF OPERATIONS
REVENUES
The Company's revenues are derived from a variety of sources, including
product sales, joint business arrangements, collaborative agreements and
product royalty agreements. Product sales, Chiron's largest revenue
category, consists of the following product lines for each of the three-month
and six-month periods ended June 30:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1996 1997 1996
-------- -------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Diagnostic products $154,929 $146,200 $303,951 $282,115
Ophthalmic products 52,725 59,513 103,063 104,454
Vaccine products 17,191 19,472 35,710 40,306
Betaseron-R- sales 14,305 12,251 28,093 33,142
Oncology products 16,527 15,671 35,203 31,820
Other products 693 1,049 1,479 2,141
-------- ------- ------- -------
$256,370 $254,156 $507,499 $493,978
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
As Chiron continues to increase the sales of certain seasonal products
and expand its presence in international markets, particularly European
markets, seasonal fluctuations in product sales and the related gross profit
amounts have become more significant. For this reason, revenues and
10
<PAGE>
gross profit amounts from certain product lines are generally higher in the
first half and fourth quarter of the year. As a result, Chiron's results in
any one quarter are not necessarily indicative of results to be expected for
a full year.
Diagnostic product sales include sales-type leases of fully-automated,
random-access immunodiagnostic testing systems (ACS:180-R-, automated
chemiluminescence system) and reagents for these systems; direct sales of
ACS:180-R- instruments and related operating leases; and sales of critical
care systems (CBA-TM-), clinical chemistry products, manual
immunodiagnostic systems and branched DNA ("bDNA") probe kits for human
immunodeficiency virus ("HIV"). Sales of diagnostic products increased in
both the second quarter and first half of 1997 as compared to the same
periods in 1996, primarily due to increased research sales of bDNA probe
kits, reflecting the continued overall growth in viral load testing for HIV,
and of ACS immunodiagnostic products. Sales of bDNA probe kits increased
$7.0 million and $14.4 million in the second quarter and first half of 1997,
respectively, as compared to the same periods of 1996. The growth in ACS
immunodiagnostic product sales of $6.5 million and $12.1 million during the
second quarter and first half of 1997, respectively, resulted from a 10%
increase during both periods in sales volume of reagents resulting from the
compounding effect of increased ACS:180-R- system placements as compared to
the prior year. The overall increases in diagnostic product sales in the
second quarter and first half of 1997 were partially offset by reduced sales
of manual immunodiagnostic systems and critical care products, as well as the
impact of unfavorable foreign currency exchange rates, primarily in Japan,
Germany and France. When compared to rates in effect for the second quarter
and first half of 1996, the increases in diagnostic products sales were
reduced by $6.8 million and $13.5 million, respectively, in the comparable
periods of 1997.
In June 1997, Chiron Diagnostics Corporation ("Chiron Diagnostics")
reached a three-year agreement with Premier Purchasing Partners, L.P., the
nation's largest healthcare alliance enterprise, to supply immunochemistry
analyzers and supplies to Premier's owners and affiliates. As a result of
the agreement, Chiron Diagnostics became one of two select suppliers to
Premier for immunodiagnostic systems, assays and reagents. Diagnostic
product sales in the second quarter of 1997 do not include any sales of
immunodiagnostic products made in connection with the Premier agreement.
Sales of ophthalmic products decreased in the second quarter and first
half of 1997 by $6.8 million and $1.4 million, respectively, as compared to
the same periods of 1996. Sales of PMMA intraocular lenses in the second
quarter and first half of 1997 decreased $4.6 million and $7.6 million,
respectively, from the same periods of 1996 due to a continuing shift towards
foldable technologies and the impact of competing products. A $2.1 million
decrease in sales of the Vitrasert-TM- Implant product (Cytovene-TM-; Roche
Laboratories) also contributed to the overall decrease in ophthalmic product
sales during the second quarter of 1997, reflecting a reduction in the
incidence of cytomegalovirus ("CMV") retinitis due to the impact of protease
inhibitors in the treatment of HIV. Vitrasert-TM- Implant sales in the
first half of 1997 remained relatively constant with the first half of 1996
as the Vitrasert-TM- product was approved by the U.S. Food and Drug
Administration ("FDA") in March 1996. Unfavorable changes in foreign currency
exchange rates in the second quarter and first half of 1997 also contributed
to the overall decrease in ophthalmic product sales between years. Partially
offsetting the overall decrease in ophthalmic product sales during the second
quarter and first half of 1997 as compared to the same periods of 1996 were
increased sales of refractive products, including keratomes and excimer
lasers, of $1.1 million and $6.5 million, respectively.
Vaccine product sales consist primarily of sales by Chiron's Italian
subsidiary of pediatric and flu vaccines in international markets and to
certain international health services. The overall decrease in vaccine
product sales in both the second quarter and first half of 1997 as compared
to the same periods of 1996 is primarily due to a $3.2 million and $3.4
million decrease, respectively, in sales of Polioral-TM-, a pediatric oral
polio vaccine. Supply constraints, particularly during the second quarter of
1997, resulted in the decreases in sales of Polioral-TM- during these
periods. Decreased sales of TriAcelluvax-TM- (formerly Acelluvax DTP-TM-), a
recombinant acellular pertussis vaccine, also contributed to the overall
decrease in vaccine product sales during the first half of 1997 due to higher
sales volume in the prior year resulting from introduction of the acellular
pertussis vaccine in late 1995. Unfavorable changes in foreign currency
exchange rates in the second quarter and first half of 1997 also contributed
to the overall decrease in vaccine product sales between years.
11
<PAGE>
Under the terms of a development and supply agreement with Schering AG,
Germany ("Schering"), and its U.S. affiliate, Berlex Laboratories, Inc.
("Berlex"), Chiron manufactures Betaseron-R- (interferon beta-1b) for Berlex.
Under the terms of the agreement, Chiron earns an initial partial payment
for Betaseron-R- upon shipment to Berlex and a subsequent secondary payment
for Betaseron-R- upon Berlex's net sales of the product to patients.
Beginning July 1997, a larger portion of the overall payment for Betaseron-R-
will be included in the secondary payment. Betaseron-R- product sales revenue
in the second quarter increased from $12.2 million in 1996 to $14.3 million
in 1997, primarily as the result of a voluntary reduction during the second
quarter of 1996 in shipments to Berlex pending FDA approval of certain
labeling changes. Partially offsetting the overall increase in Betaseron-R-
product sales during the second quarter of 1997 was a $3.6 million decrease
in secondary revenues as a result of the introduction of a competing product
in the second quarter of 1996. In the first half of 1997, Betaseron-R-
product sales decreased $5.0 million as compared to the first half of 1996
due to a decrease in commercial vials shipped to Berlex during the first
quarter of 1997 and a decrease in secondary revenues.
Future levels of Chiron's Betaseron-R- shipments will depend upon the
rate at which new patients are enrolled from existing and future markets, the
extent to which patients, once enrolled, remain compliant with the prescribed
treatment regimen and continue to regularly receive Betaseron-R-, and the
impact of competing products, including other beta interferon products that
were approved for sale in the U.S. during 1996. In addition, based upon the
level of inventories carried by Berlex, the timing of future shipments to
Berlex and the related revenue may vary.
Sales of oncology products, principally Proleukin-TM- (aldesleukin,
interleukin-2), increased slightly in the second quarter of 1997 over the
comparable period of 1996, primarily due to an overall 6% increase in
Proleukin-TM- units sold. This overall increase in unit sales in the second
quarter of 1997 reflects a 13% increase in vials sold in European markets and
a 4% decrease in vials sold in the U.S., due primarily to a domestic sales
price increase in April 1997. In the first half of 1997, sales of
Proleukin-TM- increased $2.8 million as compared to the same period of 1996,
reflecting an increase in unit sales of 13% and 11% in domestic and European
markets, respectively. Worldwide average selling price, which decreased
slightly during the second quarter and first half of 1997 as compared to the
same periods of the prior year, generally fluctuates between periods due to
the geographic mix of units sold.
The Company markets many of its commercial products internationally. As a
result, product revenues in almost all product lines are affected by
fluctuating foreign currency exchange rates. Foreign product sales were
approximately $142.9 million and $284.3 million for the second quarter and
first half of 1997, respectively, as compared to $141.2 million and $274.8
million for the second quarter and first half of 1996, respectively.
International sales of diagnostic products accounted for substantially all of
the increase in foreign product sales between periods. For both the second
quarter and first half of 1997, approximately 56 percent of Chiron's product
sales were denominated in foreign currencies. Product sales would have been
$10.9 million and $20.9 million higher in the second quarter and first half
of 1997, respectively, if currency exchange rates had remained constant with
the same periods of 1996. Changing currency exchange rates have had, and
will continue to have, an impact on Chiron's results. The Company's other
revenues, discussed below, are largely denominated in U.S. dollars but are
impacted by the Company's joint partners' and collaborators' non-U.S.
operations.
Equity in earnings of unconsolidated joint businesses consists
substantially of Chiron's one-half interest in the pretax operating earnings
of its joint diagnostics business with Ortho Diagnostic Systems, Inc.
("Ortho"), a Johnson & Johnson ("J&J") company. The joint business sells
tests used to screen blood for the potential presence of hepatitis C virus
("HCV") and HIV. The joint business also holds the immunodiagnostic rights
to Chiron's hepatitis and retrovirus technology and receives royalties from
several companies, including Abbott Laboratories, Pasteur Sanofi Diagnostics
and International Murex Technologies, Inc., for their sales of certain tests.
Chiron and Ortho separately are developing new instrument systems expected to
contain broad menus of immunodiagnostic tests to serve the clinical
diagnostic segment of the market. Chiron must obtain Ortho's agreement in
order to market hepatitis and retrovirus tests that are being developed for
use on Chiron Diagnostics' new systems. There can be no assurance that
Chiron can obtain such agreement on acceptable terms or at all.
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In the second quarter of 1997, Chiron's share of the pretax operating
earnings of the joint business, which is recorded by Chiron on a one-month
lag based upon estimates supplied by Ortho, increased to $23.3 million from
$20.7 million for the comparable period of 1996, primarily due to increased
royalties. In the first half of 1997, Chiron's share of the pretax operating
earnings of the joint business, including the impact during the first
quarters of 1997 and 1996 of the final annual accounting, increased to $48.5
million from $43.2 million for the first half of 1996. The increase in the
first half of 1997 was primarily due to increased royalties and increased
sales by the joint business of HCV and HIV tests, partially offset by a
reduction in the revenue derived from the final annual accounting. In the
first quarter of 1997, Chiron recognized joint business revenue of $0.8
million from the final accounting for 1996, as compared to $3.8 million
recognized in the first quarter of 1996 from the final accounting for 1995.
Also included in equity in earnings of unconsolidated joint businesses is
Chiron's 49 percent share of the after-tax operating results of a joint
venture with Behringwerke AG of Germany, which was acquired in July 1996.
Results from the joint venture are recorded by Chiron on a one-month lag.
Chiron's share of earnings in the second quarter and first half of 1997 was
$6.1 million and $6.3 million, respectively. The operating results of the
joint venture in the second quarter of 1997, relative to its results for the
first half of the year, reflect strong seasonal sales of certain adult
vaccines. Chiron's share of earnings in the first half of 1997 also includes
amortization of intangibles and Chiron's share of a $2.0 million up-front
license fee that was expensed by the joint venture during the first quarter
of 1997.
Equity in earnings of unconsolidated joint businesses for the second
quarter and first half of 1996 also includes $1.4 million and $2.5 million,
respectively, related to Chiron's 50 percent interest in a generic cancer
chemotherapeutics business with Ben Venue Laboratories, Inc. ("Ben Venue").
Effective May 1, 1996, Chiron sold its interest to Ben Venue for $14.0
million in cash, resulting in a $12.1 million gain in the second quarter of
1996.
Collaborative agreement revenues consist of fees received for research
services as they are performed, fees received for completed research or
technology, fees received upon attainment of benchmarks specified in the
related research agreements, and proceeds from sales of biological materials
to research partners for clinical and preclinical testing. Collaborative
agreement revenues for the second quarter of 1997 increased to $29.1 million
from $23.1 million in the second quarter of 1996, primarily as the result of
license fees and increased research funding, discussed below. Collaborative
agreement revenues for the first half of 1997 increased to $56.0 million from
$54.6 million in the first half of 1996. Collaborative agreement revenues in
the first half of 1996 include revenues of $7.5 million recognized by Chiron
in the first quarter of that year pursuant to the terms of a technology
transfer and development agreement with Japan Tobacco Inc. ("JT"). Pursuant
to this agreement, the pharmaceutical division of JT acquired a
non-exclusive, perpetual license to apply certain of Chiron's combinatorial
chemistry technologies in JT's research and product development programs.
Under this agreement, Chiron will earn another $7.5 million during the third
quarter of 1997.
Included in collaborative agreement revenues are amounts from Novartis AG
("Novartis"), the successor to Ciba-Geigy Ltd. ("Ciba"). Pursuant to the
terms of a December 1995 research funding agreement, Novartis agreed to
provide $250 million (which may be increased to $300 million subject to
certain conditions) over five years in support of research at Chiron, subject
to aggregate annual funding limitations. As a result, Chiron recognized
revenues of $18.0 million and $15.0 million under this agreement during the
second quarters of 1997 and 1996, respectively. In the first half of 1997
and 1996, Chiron recognized revenues of $33.8 million and $31.0 million,
respectively, from Novartis' research funding. Through June 30, 1997, Chiron
has cumulatively recognized revenues of $132.8 million pursuant to this
agreement. Chiron's aggregate annual funding limitation for 1997 is $50.0
million, of which $33.8 million has been drawn by Chiron during the first
half of the year. Chiron is currently seeking to increase its annual funding
limitation to include the utilization of unused funding from prior periods.
If Chiron is unsuccessful in its negotiations to increase its annual funding
limitation, research funding in the second half of 1997 will be limited to
$16.2 million in aggregate. Subject to current and future aggregate annual
funding limitations, Chiron anticipates continued utilization of the research
funding provided by Novartis.
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Additionally, during the second quarter and first half of 1997, Chiron
recognized $3.8 million and $7.5 million, respectively, of collaborative
agreement revenues pursuant to a November 1996 agreement with Novartis, which
was primarily executed in conjunction with a consent and agreement that
resolved the Federal Trade Commission's review of the merger between Ciba and
Sandoz Ltd. which created Novartis. In partial consideration for Chiron
agreeing to grant royalty-bearing licenses for certain patent rights on the
herpes simplex virus thymidine kinase gene in the field of gene therapy,
Novartis agreed to pay Chiron up to $60.0 million over the next five years,
$15.0 million of which relates to 1997 and will be recognized ratably
throughout the year.
Other revenues consist principally of product royalties, including
royalty revenues resulting from Schering's European sales of Betaferon-R-,
and revenues generated from Aredia-TM- (pamidronate disodium for injection).
Other revenues increased $3.1 million and $19.3 million in the second quarter
and first half of 1997, respectively, over the comparable periods of 1996.
In the second quarter and first half of 1996, Chiron recognized $7.6 million
and $11.2 million, respectively, of sales fees earned by the Company for
Aredia-TM- sales and marketing services provided on behalf of Novartis.
Chiron provided these services pursuant to an agreement with Novartis which
provided Chiron exclusive promotional rights to Aredia-TM- in the U.S. This
agreement expired in March 1997. Pursuant to a November 1996 agreement with
Novartis, Chiron began to co-promote Aredia-TM- in the U.S. for a 2-1/2 year
period beginning April 1997. During the first half of 1997, Chiron
recognized $6.9 million of revenues related to Aredia-TM- co-promotion
services provided to Novartis during the second quarter and $12.5 million of
sales fees under the exclusive agreement which expired in March. A
definitive agreement covering the terms of the co-promotion arrangement is
expected to be finalized during the second half of 1997. Chiron anticipates
that co-promotion services and transitional sales effort provided in future
periods under the new co-promotion agreement will decrease, along with the
related revenues, as Chiron takes a less active role in promoting Aredia-TM-.
Royalty revenues resulting from Schering's European sales of Betaferon-R-,
which started during the second quarter of 1996, contributed $4.8 million and
$9.0 million to the overall increase in other revenues during the second
quarter and first half of 1997, respectively, as compared to the same periods
of 1996. Included within royalties from Schering in the second quarter of
1997 is a $0.9 million reduction in estimated royalty reserves created in the
first quarter of 1997. The sale of certain oncology-related marketing rights
for $2.0 million during the second quarter of 1997 and increased royalties
related to hepatitis B, partially offset by decreased royalties related to
insulin, also contributed to the overall increase in other revenues during
the second quarter and first half of 1997 as compared to the same periods of
1996.
COSTS AND EXPENSES
Cost of sales increased consistently with the increase in product sales
between years. The gross profit margin remained constant at 58% for each of
the second quarter and first half of 1997 and 1996. During the second
quarter of 1997, a $6.6 million reduction in cost of sales was recognized
within Chiron Diagnostics due to a revised estimate of royalties to be paid
on sales of certain products. Excluding the impact of this reduction in cost
of sales, gross profit margin in the second quarter and first half of 1997
decreased approximately 2 percentage points in both periods, to 56%, as
compared to the same periods of 1996. In the second quarter of 1997, this
decrease in gross profit margin resulted primarily from supplier price
increases for viscoelastic products, as well as an adverse sales mix of
clinical chemistry products in certain lower margin international markets.
In the first half of 1997, this decrease also resulted from certain charges
related to vaccine products and an adverse sales mix occasioned from sales of
lower margin critical blood analyte systems to foreign distributors in the
first quarter of 1997. Partially offsetting these decreases in gross profit
margin in the second quarter and first half of 1997 as compared to the same
periods of 1996 were improvements in gross profit margins resulting from
increased sales of bDNA probe kits and immunodiagnostic reagents. Gross
profit margin percentages may fluctuate significantly in future periods as
the Company's product mix continues to evolve.
Research and development expenses increased in the second quarter from
$91.0 million in 1996 to $97.4 million in 1997. In the first half of the
year, research and development expenses increased from $175.1 million in 1996
to $189.1 million in 1997. Chiron's research and development expenses
fluctuate from period to period depending upon the extent of clinical
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trial-related activities, including the manufacturing of material; the number
of products under development and their progress; and the acquisition of
companies and new technology and licensing rights. These increases in
research and development expenses were due to the continued development of
bDNA probes; the ACS:Centaur-TM-, a more powerful immunoassay system designed
to increase laboratory productivity and provide a platform for proprietary
analytes that will help clinicians manage disease progression;
Regranex-R-(becaplermin), a wound healing agent; as well as additional
amounts related to research involving gene therapies, and hepatitis and other
vaccines. Additionally, during the second quarter of 1997, Chiron made $1.0
million upfront payments to both Biomira, Inc., under a May 1997 agreement to
co-develop Biomira's Theratope-TM- immunotherapeutic vaccine, and to another
collaborative partner, under a May 1997 collaboration agreement for the
development and commercialization of diagnostic, therapeutic and vaccine
products. Chiron also made a $1.0 million milestone payment to DepoTech
Corporation in the second quarter of 1997 upon submission to the FDA of the
first new drug application ("NDA") in the U.S. for DepoCyt-TM- (injectable
sustained-release cytarabine), an anticancer agent. During the first quarter
of 1997, Chiron made a $1.5 million payment to Novartis resulting from the
February 1997 filing of a NDA with the FDA for Myotrophin-TM- (rhIGF-1 or
mecasermin [recombinant DNA origin]) Injection. On May 8, 1997, an FDA
advisory committee found that there was not substantial evidence that
Myotrophin-TM- Injection is effective in the treatment of amyotrophic lateral
sclerosis (ALS or Lou Gehrig's disease). Chiron and its collaborative
partner, Cephalon, Inc., will be reviewing with the FDA the advisory
committee's recommendation in the second half of 1997.
During 1995 and 1996, Chiron, together with J&J, co-funded the
development and introduction of a home HIV testing service business, Direct
Access Diagnostics. Chiron elected not to exercise its option, which expired
in May 1997, to participate in this venture with J&J. During the second
quarter and first half of 1996, Chiron recognized research and development
expense of $2.5 million and $5.0 million, respectively, related to its option
to participate in this venture.
In July 1997, Chiron and Pharmacia & Upjohn Inc. ("Pharmacia & Upjohn")
entered into license and assignment agreements whereby Pharmacia & Upjohn
granted to Chiron a semi-exclusive, royalty-bearing worldwide license related
to the Myotrophin-TM- manufacturing process and a non-exclusive,
royalty-bearing worldwide license to a cardiovascular indication. In
exchange for the assignment to Chiron of certain intellectual property
rights, Chiron granted to Pharmacia & Upjohn a worldwide, non-exclusive,
non-transferable royalty-free license to such intellectual property for any
use. Upon execution of the agreements, Chiron recorded research and
development expense of $4.6 million, and made an initial payment of $3.3
million, in July 1997. The remainder, or $1.3 million, is payable by Chiron
on January 1, 1998.
Selling, general and administrative ("SG&A") expenses as a percentage of
net product sales were 39% for each of the second quarter and first half of
1997 and 1996. Selling and marketing expenses continue to represent the
largest portion of total SG&A expenses, as Chiron devoted significant
resources to support sales volumes in its existing product lines as well as
new products, such as Chiron's new bDNA probes and Rapidpoint-TM- 400, a
critical care system designed specifically for critical care settings in
hospitals. The Rapidpoint-TM- 400 was announced in Europe during the first
quarter of 1997. Additionally, increases over the prior year in SG&A
expenses, resulting from various consulting and information systems projects,
were offset by $4.7 million of changes to estimated accruals created in prior
periods during the second quarter of 1997.
OTHER ITEMS
Effective May 1, 1996, Chiron sold its 50% interest in a generic cancer
chemotherapeutics business to Ben Venue, Chiron's joint venture partner, for
$14.0 million in cash, resulting in a $12.1 million gain reported as gain
on sale of interest in affiliated company in the second quarter and first
half of 1996.
Interest expense increased in the second quarter and first half of
1997 over the comparable periods of 1996 as a result of increased debt
borrowings.
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Other income, net, consists primarily of investment income on the
Company's cash and investment balances and other non-operating gains and
losses. Other income, net, increased in the second quarter of 1997 over the
comparable period of 1996, primarily as the result of foreign exchange
hedging gains. The overall increase in other income, net, in the first half
of 1997 as compared to the same period in 1996 also reflects a $1.5 million
loss on an investment recorded by Chiron in the first quarter of 1996.
Partially offsetting these increases in other income, net, in the second
quarter and first half of 1997 was reduced investment income arising from
lower balances in the Company's investment portfolio.
The provision for income taxes in 1997 and 1996 is based on an estimated
annual effective income tax rate. The estimated effective rate is determined
based on management's estimate of taxable income and is subject to change in
future periods, due to the mix of domestic and foreign income and changes in
tax rates. The 1997 rate is less than the U.S. Federal statutory rate
primarily due to the utilization of foreign and U.S. net operating losses.
LIQUIDITY AND CAPITAL RESOURCES
Chiron's capital requirements have been generally funded from cash and
investments on hand, debt borrowings and sales of equity. In addition to
these sources of capital, future capital requirements may be financed through
a combination of research funding provided by Novartis, possible
off-balance-sheet financing and cash generated from operations. Chiron's cash
and investments, which totaled $160.8 million at June 30, 1997, are invested
in a diversified portfolio of investment grade financial instruments,
including money market instruments, corporate notes and bonds, government or
government agency securities, and other debt securities. By policy, the
amount of credit exposure to any one institution is limited. These
investments are generally not collateralized and primarily mature within
three years. Investments with maturities in excess of one year are presented
on the balance sheet as noncurrent investments.
Chiron attempts to reduce its exposure to fluctuations in foreign
currency exchange rates by entering into forward currency contracts
("forwards") and options. The Company is primarily exposed to fluctuations
in currencies in western European countries and Japan. Forwards are used to
hedge balance sheet exposure resulting from completed transactions
denominated in a foreign currency, and options are used to hedge certain
anticipated transactions. Forward contracts are settled quarterly, and
option contracts expire quarterly through December 1997. As of June 30, 1997,
the Company held forward and option contracts totaling $75.9 million and
$58.7 million, respectively.
As circumstances dictate, Chiron's management reviews the carrying value
of all facilities, including the Company's idle pharmaceutical fill and
finishing facility in Puerto Rico, to determine whether an impairment of the
carrying value has occurred in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." The cumulative impact
on the Company's manufacturing needs of recent product developments
including, among others, the genital herpes vaccine which failed to show
efficacy in clinical trials and the finding of an FDA advisory committee in
May 1997 that there was not substantial evidence that Myotrophin-TM- (rhIGF-1
or mecasermin [recombinant DNA origin]) Injection is effective in the
treatment of amyotrophic lateral sclerosis (ALS or Lou Gehrig's disease),
prompted management to conclude during the second quarter of 1997 that the
Company currently has excess manufacturing capacity relative to its projected
needs. As a result of this change in circumstances, the Company reviewed the
carrying amount of its idle manufacturing facility in Puerto Rico for
impairment. In connection with the Company's ongoing study of the capacity
and efficiency of its global manufacturing operations, management is
considering alternative options concerning the Puerto Rico facility,
including divestiture, lease, contract manufacturing and other internal uses
for the facility's idle capacity. Based on certain assumptions which
consider currently available information, the sum of expected future cash
flows that will be generated by the Puerto Rico facility, undiscounted and
without interest charges in accordance with SFAS 121, will be sufficient to
recover the $44.6 million carrying amount of the facility at June 30, 1997.
If the Company is unable, however, to find a suitable use for the Puerto Rico
facility consistent with its current expectations, an adjustment in a future
period of the carrying value of that facility to its fair value will have a
material adverse impact on the Company's results of operations.
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To date, management has concluded that no impairment of the carrying
value of any of its facilities has occurred. There, however, can be no
assurance that global manufacturing needs for existing products will continue
unchanged and product development programs will be successful. Accordingly,
changes in assumptions and manufacturing plans, needs and capacity may occur
in the future which may require a reduction of the carrying value of certain
facilities to their fair value.
At June 30, 1997, the Company had borrowed $100.0 million in the U.S.
under an aggregate $200.0 million in revolving, committed, unsecured credit
lines with three separate financial institutions. One of the agreements,
providing for borrowings up to $100.0 million, expired in July 1997 and was
simultaneously amended to extend the availability through August 11, 1997
under the same terms and conditions as those in the original credit
agreement. The Company intends to execute a replacement multi-year revolving
credit agreement providing for borrowings up to $100.0 million, under similar
terms and conditions, with the same financial institution.
Chiron selectively enters into cross currency interest rate swaps
("swaps") to modify the interest and currency characteristics of specific
outstanding debt obligations. In June 1997, Chiron entered into a five-year
swap agreement with a notional amount of $26.4 million, effectively
converting debt denominated in U.S. Dollars to Japanese Yen and modifying the
interest rate from a variable rate to a fixed Japanese Yen rate of 2.1%.
In future periods, Chiron expects to incur substantial capital spending.
Chiron's liquidity may be further impacted in future periods by its decision
to fund its share of expenses in certain of its joint ventures and
collaboration arrangements. Over the next several years, Chiron anticipates
funding collaborations with a number of its research partners, and may make
additional equity investments in collaborative partners.
During the six months ended June 30, 1997, cash and investments in
marketable debt securities increased by $32.0 million. The increase was
primarily due to $61.4 million of cash provided by operations, $29.7 million
of proceeds related to the issuance of common stock under the Company's stock
option and employee stock purchase plans and $16.0 million of incremental
short-term debt borrowings. These increases were partially offset by $36.4
million of capital expenditures, the repayment of a long-term capital lease
obligation totaling $29.4 million, and $5.5 million of investments in equity
securities and affiliated companies. In January 1997, Chiron purchased a
manufacturing facility and related buildings in Emeryville, California that
had been previously leased under the long-term capital lease obligation.
During the six months ended June 30, 1996, cash and investments in
marketable debt securities decreased by $54.2 million. The decrease was
primarily due to $55.4 million of capital expenditures, $25.3 million of net
payments under line of credit arrangements, $6.2 million of investments in
equity securities and affiliated companies, $5.6 million of cash used in
operations, and the repayment of notes payable and capital leases totaling
$5.0 million. These decreases were partially offset by $29.2 million of
proceeds related to the issuance of common stock under the Company's stock
option and employee stock purchase plans and $14.0 million of proceeds from
the sale of Chiron's interest in Ben Venue.
Cash provided by operations of $61.4 million in the first half of 1997,
as compared to cash used in operations of $5.6 million in the first half of
1996, primarily reflects the decrease in accounts receivable at June 30, 1997
and increase in accounts receivable at June 30, 1996 over respective prior
year end amounts. The decrease in accounts receivable in 1997 results
primarily from the timing of payments from the Chiron-Ortho joint business
and from Novartis, and from a greater receivable balance at December 31, 1996
than at December 31, 1995 due to revenue growth in the fourth quarter of
1996. The increase in accounts receivable in 1996 results from research
funding from Novartis which began in the first quarter of 1996 and from
amounts receivable from Ben Venue.
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Chiron believes that its cash and investments, funds provided by
operations and capital market transactions will be sufficient to meet its
cash requirements during the upcoming twelve months and through the
foreseeable future.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"), which will be effective for financial statements for periods
ending after December 15, 1997, including interim periods, and establishes
standards for computing and presenting earnings per share. Earlier
application is not permitted. In its consolidated financial statements for
the year ending December 31, 1997, the Company will make the required
disclosures of basic and diluted earnings per share and provide a
reconciliation of the numerator and denominator of its basic and diluted
earnings per share computations. All prior period earnings per share data
will be restated by the Company upon adoption of SFAS 128. Basic earnings per
share excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the period. Basic earnings per share under SFAS 128 for the
three months ended June 30, 1997 and 1996 would have been $0.09 in both
periods. For the six months ended June 30, 1997 and 1996, basic earnings per
share would have been $0.18 and $0.17, respectively. The application of SFAS
128 to the calculation of diluted earnings per share would not have a
material effect on the Company's per share data presented for those periods.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive
Income" ("SFAS 130") and "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"), respectively (collectively, the
"Statements"). The Statements are effective for fiscal years beginning after
December 15, 1997. SFAS 130 establishes standards for reporting of
comprehensive income and its components in annual financial statements. SFAS
131 establishes standards for reporting financial and descriptive information
about an enterprise's operating segments in its annual financial statements
and selected segment information in interim financial reports.
Reclassification or restatement of comparative financial statements or
financial information for earlier periods is required upon adoption of SFAS
130 and SFAS 131, respectively. Application of the Statements' disclosure
requirements will have no impact on the Company's consolidated financial
position, results of operations or earnings per share data as currently
reported.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Chiron wishes to caution stockholders and investors that the following
important factors, among others, in some cases have affected, and in the
future could affect, Chiron's actual results and could cause Chiron's actual
consolidated results for the third quarter of 1997, and beyond, to differ
materially from those expressed in any forward-looking statements made by, or
on behalf of, Chiron. The statements under this caption are intended to
serve as cautionary statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The following information is not intended to
limit in any way the characterization of other statements or information
under other captions as cautionary statements for such purpose:
- Delays, difficulties or failure in obtaining regulatory approval
(including approval of its systems, procedures and facilities for
production) for the Company's products. These may include, for
example, approval of the Company's Italian manufacturing facilities
and processes as satisfying regulatory requirements for production
of the Company's diphtheria, tetanus and genetically engineered
acellular pertussis and adjuvanted flu vaccines, approval for
Myotrophin-TM- for which additional clinical trials may be required
by the FDA, and approval for Quantiplex-TM- for HIV and follow-on
bDNA probe products, for which the FDA may require substantial
additional process and systems validation.
- Charges that may be incurred and accrued resulting from implementation
of restructuring plans currently under consideration, including
possible disposal of excess manufacturing and other general facilities.
- Inability to maintain or initiate third party arrangements which
generate revenues, in the form of license fees, research and
development support, royalties, sales fees and other payments, in
return for rights in technology or products under development or
promotional or other services provided by the Company.
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- The issuance and use of patents and proprietary technology by Chiron
and its competitors, including the possible negative effect on the
Company's ability to develop, manufacture and sell its products if
it is unable to obtain licenses to patents which may be required for
such products.
- Failure of corporate partners to commercialize successfully the
Company's products or to retain and expand the markets served by the
commercial collaborations; conflicts of interest, priorities and
commercial strategies which may arise between the Company and such
corporate partners, including conflicts as to the strategy for
realizing value arising from evolving opportunities.
- Delay, difficulty or inability on acceptable terms to resolve
conflicts with partners, including resolution with Ortho of Chiron's
ability to market hepatitis and retrovirus immunodiagnostic tests
that are under development for use on its ACS:Centaur-TM- immunoassay
system and resolution of the terms under which Chiron is continuing
to co-promote Aredia-TM- for Novartis.
- Delays or difficulties in developing and acquiring technology and
technical and managerial personnel to manufacture and/or deliver the
Company's products in commercial quantities at reasonable costs and
in compliance with applicable quality assurance and environmental
regulations and governmental permitting requirements.
- Possible changes in laws, regulations and guidelines of regulatory
agencies, which may affect the development and sales of certain of
the Company's products including, for example, off-label sales of
pharmaceuticals and research use only sales of diagnostic tests and
systems.
- The ability and willingness of customers to substitute competitive
products for the Company's products once other products for similar
indications are approved for marketing.
- Difficulties in obtaining key raw materials and supplies of
acceptable quality used in the manufacture of the Company's products.
- Increased costs of development, regulatory approval, manufacture,
sales, and marketing associated with the introduction of novel
products and fluctuation of such costs between periods.
- Difficulties in launching or marketing the Company's products, many
of which are novel products based on biotechnology, and
unpredictability of customer acceptance of such products.
- Further decline in the Betaseron-R- customer base in the U.S.; the
extent to which patients, once enrolled, remain compliant with the
prescribed treatment regimen and continue to regularly receive
Betaseron-R-; the impact of competing products, including other
beta interferon products; pricing, promotional and marketing
decisions by the Company's partner, Schering.
- Changes in the product mix of the Chiron-Ortho joint business,
whereby the proportion of higher margin HCV tests sold relative to
other lower margin products decreases; continued margin erosion of
HCV tests.
- Continued increases in research and development spending in order to
develop new products and increase market share.
- Continued or increased pressure to reduce selling prices of the
Company's products.
- Underutilization of the Company's existing or new manufacturing
facilities or of any facility expansions, resulting in production
inefficiencies and higher costs; start-up costs and inefficiencies
and delays and increased depreciation costs in connection with the
start of production in new plants and expansions.
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- The cost of acquiring in-process technology, either by license,
collaboration or purchase of another entity.
- Changes in the Company's plans involving the utilization of its
long-lived assets, including the Company's ability to find a
suitable use for its idle fill and finishing facility in Puerto Rico,
in response to changes in the projected level of demand for the
Company's products, product pricing, success of clinical trials,
timing of regulatory approval, introduction of competing products,
available information regarding contract manufacturing alternatives
and excess manufacturing capacity which currently exists.
- Increased financing costs resulting from the expanded use of debt
for operating and acquisition-related activities.
- Amount and rate of growth in Chiron's selling, general and
administrative expenses; and the impact of unusual or infrequent
charges resulting from Chiron's ongoing evaluation of its business
strategies and organizational structures, including the continued
costs of integration of newly acquired businesses.
- The acquisition of fixed assets and other assets, including
inventories and receivables; and the making or incurring of any
expenditures and expenses, including, among others, depreciation and
research and development expenses; any revaluation of assets,
including, among others, the Company's investments in the equity
securities of other companies with whom it collaborates, or related
expenses, and the amount of, and any changes to, tax rates.
- The ability or inability of Chiron to obtain, or hedge against,
foreign currency, foreign exchange rates and fluctuations in those
rates.
- The costs and other effects of legal and administrative cases and
proceedings (whether civil, such as product-related or
environmental, or criminal); settlements and investigations;
developments or assertions by or against Chiron relating to
intellectual property rights and licenses.
- Seasonal fluctuations in product sales and resulting gross margin
amounts.
20
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ITEM 1. LEGAL PROCEEDINGS.
The Company is party to certain lawsuits, which are described
in Part I, Item 3, "Legal Proceedings," on page 10 of the Company's
Annual Report on Form 10-K for the year ended December 29, 1996. No
material developments in the area of legal proceedings have occurred
since such Form 10-K was filed, except as follows:
BRADLEY. On May 6, 1997, Bradley filed an appeal of the United
States District Court's dismissal of his Seconded Amended Complaint
with the United States Court of Appeals for the Federal Circuit.
Oral argument occurred on July 8, 1997 and a decision may be handed
down before year-end.
BRILLIANT TRADING AND WOLFSON. These shareholder actions relating
to the Viagene acquisition were dismissed on May 7, 1997 by the Court
of Chancery of the State of Delaware.
CONNAUGHT. On June 7, 1997, Connaught Laboratories, Limited
("Connaught") filed an emergency proceeding with the Tribunale di
Siena, Italy, against Chiron S.p.A. seeking to enjoin production,
manufacture, and sale of TriAcelluvax-TM- (formerly Acelluvax DTP-TM-)
which Connaught alleges infringes its European Patent 527 753 (the
"'753 patent".) The '753 patent claims allegedly relate to the
pertactin protein of BORDETELLA PERTUSSIS. On June 24, 1997, the
Siena Court heard oral argument on Connaught's application and ordered
further briefing. Additional oral argument is expected to take place
in September 1997. On June 17, 1997, Chiron S.p.A. filed a proceeding
on the merits in the Tribunale di Milano, Italy, against Connaught.
Chiron's action challenges the validity of the '753 patent. A
preliminary hearing on this nullity suit is expected to take place in
December 1997. Connaught also is the owner of EP 322 115 (the
"'115 patent") relating to mutant pertussis toxins. On July 17, 1997,
Connaught filed suit in the Landgericht Dusseldorf, Germany, against
Chiron Behring GmbH, Chiron S.p.A., and Behringwerke AG asserting
infringement of the '115 patent. Connaught seeks to prevent
introduction of TriAcelluvax-TM- in Germany. Also, Connaught seeks
damages and an order enjoining Chiron S.p.A. from manufacturing and
selling TriAcelluvax-TM- in Italy.
EVANS. The action pending in the United States District Court
for the Eastern District of Texas was transferred to United States
District Court for the District of Delaware in April 1997, by
stipulation of the parties. Chiron has answered and filed a
counterclaim alleging the invalidity of two U.S. patents in suit
owned by Evans and which allegedly relate to the p69 protein of
BORDETELLA PERTUSSIS. Chiron seeks judgment declaring that its
products do not infringe any claims of these patents. Chiron
further seeks a judgment declaring that the Evans' patents are
invalid and unenforceable. No material events have occurred in the
litigation pending in the U.K., where trial is set to begin in
November 1997. Technical briefing has been completed in the Italian
litigation and a technical expert's report is expected in October
1997. In the '639 case, the District Court of The Hague issued a
decision on May 14, declaring, INTER ALIA, itself to have
jurisdiction to hear Chiron's claim for a declaratory judgment of
non-infringement on a pan-European basis. In the '726 case, Chiron
filed a Statement of Defense with the District Court of The Hague on
April 10. The case was heard on July 15, 1997, and the Court issued
a declaration on July 22 wherein it refused Evans' request for a
pan-European injunction, found Evans' '726 patent unenforceable, and
declared that Evans had not established infringement of the patent by
Chiron.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of Chiron Corporation was held
on May 15, 1997. The following items were voted upon by the
stockholders:
(a) A proposal to elect directors of the Company for the term of office
specified below.
The persons listed below were the only nominees, and each of such
persons was elected, as indicated below: (i) three Class I directors
were elected to hold office for three years until 2000, and (ii) one
Class III director was elected to hold office for two years until 1999.
Each of such persons received the following number of votes:
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FOR WITHHELD
--- --------
CLASS I DIRECTORS
-----------------
Donald A. Glaser 149,219,808 1,944,074
Alex Krauer 149,215,769 1,948,113
Pieter J. Strijkert 149,236,466 1,927,416
CLASS III DIRECTOR
------------------
Paul L. Herrling 149,226,008 1,937,874
The terms of office of Lewis W. Coleman, Pierre E. Douaze, Edward E.
Penhoet, William J. Rutter, Henri Schramek and Jack W. Schuler
continued after the meeting. Effective June 30, 1997, Vaughn D.
Bryson, age 59, was appointed to fill the vacant position of a Class
II Independent Director for a term expiring at the annual meeting of
stockholders in 1998. On July 16, 1997, Mr. Schramek passed away,
leaving a vacancy in the position of a Class II Independent Director.
On August 5, 1997, the Company announced the resignation of Dennis L.
Winger, senior vice president of finance and administration and
chief financial officer, effective August 31, 1997.
(b) A proposal to approve and adopt the Company's 1997 Employee Stock
Purchase Plan as set forth in the Chiron Corporation Proxy Statement
dated April 11, 1997, was approved by the stockholders. The
following votes were cast as to such proposal: For: 117,138,133;
Against: 6,892,964; Abstain: 456,624 and Broker Non-Votes:
26,676,161.
(c) A proposal to approve the amended Chiron 1991 Stock Option Plan to:
(i) increase the maximum number of shares that may be issued under
the Plan by 13 million shares to 50,262,347 shares; (b) increase by
28,673,531 shares the number of shares to be issued under incentive
stock options in order to permit all shares authorized to be issued
under the Plan (50,262,347) to be so issued; (c) authorize
discretionary grants of options and other awards to non-employee
directors; and (d) eliminate certain regulatory restrictions,
including restrictions on Plan amendments, as permitted by recent
amendments to Rule 16b-3 issued by the Securities and Exchange
Commission under Section 16(b) of the Securities Exchange Act of
1934, as set forth in the Chiron Corporation Proxy Statement dated
April 11, 1997, was approved by the stockholders. The following
votes were cast as to such proposal: For: 112,331,936; Against:
11,570,911; Abstain: 584,874; Broker Non-Votes: 26,676,161.
(d) A proposal to ratify the selection of KPMG Peat Marwick LLP as
independent auditors for the Company for the fiscal year ending
December 31, 1997, was approved by the stockholders. The following
votes were cast as to such proposal: For: 150,662,310; Against:
250,437; Abstain: 251,135; Broker Non-Votes: 0.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
EXHIBIT
NUMBER EXHIBIT
-------
2.01 Agreement and Plan of Merger, made as of February 6,
1987, incorporated by reference to Exhibit 2.01 of
the Registrant's Form 10-Q report for the period
ended September 30, 1994.
3.01 Restated Certificate of Incorporation of the Registrant,
as filed with the Office of the Secretary of State of
Delaware on August 17, 1987, incorporated by reference
to Exhibit 3.01 of the Registrant's Form 10-K report for
fiscal year 1996.
22
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report for fiscal 1996.
3.02 Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant, as filed with the
Office of the Secretary of State of Delaware on December
12, 1991, incorporated by reference to Exhibit 3.02 of
the Registrant's Form 10-K report for fiscal year 1996.
3.03 Bylaws of the Registrant, as amended, incorporated by
reference to Exhibit 3.03 of the Registrant's Form 10-K
report for fiscal year 1994.
3.04 Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant, as filed with the
Office of the Secretary of State of Delaware on May 22,
1996, incorporated by reference to Exhibit 3.04 of the
Registrant's Form 10-Q report for the period ended June
30, 1996.
4.01 Indenture, dated as of May 21, 1987, between Cetus
Corporation and Bankers Trust Company, Trustee,
incorporated by reference to Exhibit 4.01 of the
Registrant's Form 10-Q report for the period ended
September 30, 1994.
4.02 First Supplemental Indenture, dated as of December 12,
1991, by and among Registrant, Cetus Corporation, and
Bankers Trust Company, incorporated by reference to
Exhibit 4.02 of the Registrant's Form 10-K report for
fiscal year 1992.
4.03 Second Supplemental Indenture, dated as of March 25,
1996, by and among the Registrant, Cetus Oncology
Corporation (formerly Cetus Corporation), and Bankers
Trust Company, incorporated by reference to Exhibit 4.03
of the Registrant's Form 10-Q report for the period
ended June 30, 1996.
4.04 Indenture, dated as of November 15, 1993, between
Registrant and The First National Bank of Boston, as
Trustee, incorporated by reference to Exhibit 4.03 of
the Registrant's Form 10-K report for fiscal year 1993.
4.05 $1,000,000 County of Lorain, Ohio Variable Rate
Industrial Revenue Bonds dated as of July 1, 1984, due
July 1, 2014, incorporated by reference to Exhibit 4.06
of the Registrant's Form 10-Q report for the period
ended April 2, 1995. The Registrant agrees to furnish to
the Commission upon request a copy of such agreement
which it has elected not to file under the provisions of
Regulation 601(b)(4)(iii).
4.06 $1,000,000 Walpole Industrial Development Authority 6.75%
Industrial Revenue Bonds dated as of July 1, 1979, due
July 1, 2004, incorporated by reference to Exhibit 4.07
of the Registrant's Form 10-Q report for the period
ended April 2, 1995. The Registrant agrees to furnish to
the Commission upon request a copy of such agreement
which it has elected not to file under the provisions of
Regulation 601(b)(4)(iii).
10.01 Lease between Registrant and BGR Associates, a California
limited partnership, dated May 26, 1989, incorporated by
reference to Exhibit 10.01 of the Registrant's Form 10-Q
report for the period ended September 30, 1994.
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10.02 First Amendment to Lease between Registrant and BGR
Associates, a California limited partnership, incorporated
by reference to Exhibit 10.02 of the Registrant's Form 10-K
report for fiscal year 1995.
10.03 Second Amendment to Lease, dated as of May 9, 1996, between
BGR Associates, a California limited partnership, as lessor
and Registrant, as lessee [BGR I Property Building NQ
Lease], incorporated by reference to Exhibit 10.03 of the
Registrant's Form 10-K report for fiscal year 1996.
10.04 Third Amendment to Triple Net Lease, dated as of January
31, 1997, between BGR Associates, a California limited
partnership, as lessor and Registrant, as lessee
[BGR I Property Building NQ Lease], incorporated by
reference to Exhibit 10.04 of the Registrant's Form 10-K
report for fiscal year 1996.
10.05 Lease between Registrant and BGR Associates II, a
California limited partnership, dated May 26, 1989,
incorporated by reference to Exhibit 10.02 of the
Registrant's Form 10-Q report for the period ended
September 30, 1994.
10.06 First Amendment to Lease between Registrant and BGR
Associates II, a California limited partnership, dated
as of March 15, 1995, incorporated by reference to
Exhibit 10.04 of the Registrant's Form 10-K report for
fiscal year 1995.
10.07 Second Amendment to Lease, dated as of May 9, 1996, between
BGR Associates II, a California limited partnership, as
lessor and Registrant, as lessee, incorporated by
reference to Exhibit 10.07 of the Registrant's Form 10-K
report for fiscal year 1996.
10.08 Third Amendment to Triple Net Lease, dated as of January
31, 1997, between BGR Associates II, a California limited
partnership, as lessor and Registrant, as lessee
[BGR II Property Lease], incorporated by reference to
Exhibit 10.08 of the Registrant's Form 10-K report for
fiscal year 1996.
10.09 Lease made and entered into December 17, 1984 between BGR
Associates, a California limited partnership, and Cetus
Corporation and Amendment to Lease dated December 17,
1984 entered into effective February 1, 1986,
incorporated by reference to Exhibit 10.69 of the
Registrant's Form 10-Q report for the period ended April 2,
1995.
10.10 Second Amendment to Lease dated as of March 15, 1995,
between BGR Associates, a California limited
partnership, and Registrant, incorporated by reference
to Exhibit 10.73 of the Registrant's Form 10-K report
for fiscal year 1995.
10.11 Third Amendment to Lease, dated as of May 9, 1996,
between BGR Associates, a California limited
partnership, as lessor and Registrant, as
24
<PAGE>
lessee [BGR I Property Building R Lease], incorporated by
reference to Exhibit 10.11 of the Registrant's Form 10-K
report for fiscal year 1996.
10.12 Fourth Amendment to Triple Net Lease, dated as of January
31, 1997, between BGR Associates, a California limited
partnership, as lessor and Registrant, as lessee [BGR I
Property Building R Lease], incorporated by reference to
Exhibit 10.12 of the Registrant's Form 10-K report for
fiscal year 1996.
10.13 Triple Net Lease dated as of January 20, 1989, between
Cetus Corporation and BGR Associates III, a California
limited partnership, and Marin County Exchange
Corporation, incorporated by reference to Exhibit 10.34
of the Registrant's Form 10-Q report for the period
ended September 30, 1994.
10.14 First Amendment to Triple Net Lease, dated as of September
10, 1996, between BGR Associates III, a California
limited partnership, as lessor and Registrant, as
lessee, incorporated by reference to Exhibit 10.14 of
the Registrant's Form 10-K report for fiscal year 1996.
10.15 Second Amendment to Triple Net Lease, dated as of
January 31, 1997, between BGR Associates III, a
California limited partnership, as lessor and
Registrant, as lessee [BGR III Lease], incorporated by
reference to Exhibit 10.15 of the Registrant's Form 10-K
report for fiscal year 1996.
10.16 Assignment of Lessor Claims, dated as of January 31,
1997, between BGR Associates III, a California limited
partnership, as assignor and Registrant, as assignee,
incorporated by reference to Exhibit 10.16 of the
Registrant's Form 10-K report for fiscal year 1996.
10.17 Agreement and Plan of Merger dated as of April 23, 1995
between Viagene, Inc., a Delaware corporation, and
Chiron Corporation, incorporated by reference to Exhibit
10.67 of the Registrant's current report on Form 8-K
dated April 24, 1995.
10.18 Stockholders' Agreement dated as of April 23, 1995 among
certain stockholders of Viagene, Inc., a Delaware
corporation, and Chiron Corporation, incorporated by
reference to Exhibit 10.68 of the Registrant's current
report on Form 8-K dated April 24, 1995.
10.19 Stock and Asset Purchase Agreement dated as of March 6,
1995, by and among Johnson & Johnson, a New Jersey
corporation, Site Microsurgical Systems, Inc., a
Pennsylvania corporation, and Chiron Corporation and
Amendment No. 1 to Stock and Asset Purchase Agreement,
entered into March 31, 1995 by and among Johnson &
Johnson, Site Microsurgical Systems, Inc. and Chiron
Corporation, incorporated by reference to Exhibit 10.05
of the Registrant's Form 10-Q report for the period
ended April 2, 1995.
10.20 Amended and Restated Revolving Credit Agreement dated as
of March 20, 1997, between Chiron Corporation and Swiss
Bank Corporation, New York and Cayman Island Branches.
25
<PAGE>
10.21 Agreement between the Registrant and Ortho Diagnostic
Systems, Inc., a New Jersey corporation, dated August
17, 1989, and Amendment to Collaboration Agreement
between Ortho Diagnostic Systems, Inc. and Registrant,
dated December 22, 1989 (with certain confidential
information deleted), incorporated by reference to
Exhibit 10.14 of the Registrant's Form 10-Q report for
the period ended September 30, 1994.
10.22 License and Supply Agreement between Ortho Diagnostic
Systems, Inc., a New Jersey corporation, the Registrant
and Abbott Laboratories, an Illinois corporation, dated
August 17, 1989 (with certain confidential information
deleted), incorporated by reference to Exhibit 10.15 of
the Registrant's Form 10-Q report for the quarter ended
June 30, 1994.
10.23 Chiron 1991 Stock Option Plan, as amended, incorporated
by reference to Annex 2 of the Registrant's Proxy
Statement dated April 11, 1997.*
10.24 Forms of Option Agreements, Chiron 1991 Stock Option
Plan, as amended, incorporated by reference to Exhibit
10.17 of the Registrant's Form 10-K report for fiscal
year 1993.*
10.25 Form of Automatic Share Right Agreement, Chiron 1991 Stock
Option Plan, as amended, incorporated by reference to
Exhibit 10.19 of Registrant's Form 10-Q report for the
period ended September 29, 1996.*
10.26 Forms of Option Agreements, Cetus Corporation Amended
and Restated Common Stock Option Plan, incorporated by
reference to Exhibit 10.27 of Registrant's Form 10-Q
report for the period ended March 30, 1997.*
10.27 Forms of Supplemental Letter concerning the assumption of
Cetus Corporation options by the Registrant,
incorporated by reference to Exhibit 10.27 of
Registrant's Form 10-K report for fiscal year 1996.*
10.28 Indemnification Agreement between the Registrant and Dr.
William J. Rutter, dated as of February 12, 1987 (which
form of agreement is used for each member of
Registrant's Board of Directors), incorporated by
reference to Exhibit 10.21 of the Registrant's Form 10-Q
report for the period ended September 30, 1994.
10.29 Stock Purchase Agreement by and between the Registrant
and Johnson & Johnson Development Corporation, a
corporation organized and existing under the laws of the
State of New Jersey, dated as of October 3, 1986,
incorporated by reference to Exhibit 10.22 of the
Registrant's Form 10-Q report for the period ended
September 30, 1994.
10.30 Revolving Credit Agreement, dated as of July 12, 1996,
between Registrant and Bank of America National Trust
and Savings Association, incorporated by reference to
Exhibit 10.24 of the Registrant's Form 10-Q report for
the period ended June 30, 1996.
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<PAGE>
10.31 First Amendment to Revolving Credit Agreement, dated as
of July 11, 1997, between Registrant and Bank of America
National Trust and Savings Association.
10.32 Form of Debenture Purchase Agreement between the
Registrant and Ciba-Geigy, Limited, a Swiss corporation,
dated June 22, 1990, incorporated by reference to
Exhibit 10.25 of the Registrant's Form 10-K report for
fiscal year 1994.
10.33 Chiron Corporation 1.90% Convertible Subordinated Note
due 2000, Series B, incorporated by reference to Exhibit
10.25 of the Registrant's Form 10-K report for fiscal
year 1993.
10.34 Investment Agreement dated as of November 20, 1994 among
Ciba-Geigy Limited, Ciba-Geigy Corporation, Ciba Biotech
Partnership, Inc. and Chiron Corporation, incorporated
by reference to Exhibit 10.54 of the Registrant's
current report on Form 8-K dated November 20, 1994.
10.35 Governance Agreement dated as of November 20, 1994 among
Ciba-Geigy Limited, Ciba-Geigy Corporation and Chiron
Corporation, incorporated by reference to Exhibit 10.55
of the Registrant's current report on Form 8-K dated
November 20, 1994.
10.36 Subscription Agreement dated as of November 20, 1994
among Ciba-Geigy Limited, Ciba-Geigy Corporation, Ciba
Biotech Partnership, Inc. and Chiron Corporation,
incorporated by reference to Exhibit 10.56 of the
Registrant's current report on Form 8-K dated November
20, 1994.
10.37 Cooperation and Collaboration Agreement dated as of
November 20, 1994, between Ciba-Geigy Limited and Chiron
Corporation, incorporated by reference to Exhibit 10.57
of the Registrant's current report on Form 8-K dated
November 20, 1994.
10.38 Registration Rights Agreement dated as of November 20,
1994 between Ciba Biotech Partnership, Inc. and Chiron
Corporation, incorporated by reference to Exhibit 10.58
of the Registrant's current report on Form 8-K dated
November 20, 1994.
10.39 Market Price Option Agreement dated as of November 20,
1994 among Ciba-Geigy Limited, Ciba-Geigy Corporation,
Ciba Biotech Partnership, Inc. and Chiron Corporation,
incorporated by reference to Exhibit 10.59 of the
Registrant's current report on Form 8-K dated November
20, 1994.
10.40 Amendment dated as of January 3, 1995 among Ciba-Geigy
Limited, Ciba-Geigy Corporation, Ciba Biotech
Partnership, Inc. and Chiron Corporation, incorporated
by reference to Exhibit 10.60 of the Registrant's
current report on Form 8-K dated January 4, 1995.
10.41 Supplemental Agreement dated as of January 3, 1995 among
Ciba-Geigy Limited, Ciba-Geigy Corporation, Ciba Biotech
Partnership, Inc. and Chiron Corporation, incorporated
by reference to Exhibit 10.61 of the Registrant's current
report on Form 8-K dated January 4, 1995.
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<PAGE>
10.42 Amendment with Respect to Employee Stock Option
Arrangements dated as of January 3, 1995 among
Ciba-Geigy Limited, Ciba-Geigy Corporation, Ciba Biotech
Partnership, Inc. and Chiron Corporation, incorporated
by reference to Exhibit 10.62 of the Registrant's
current report on Form 8-K dated January 4, 1995.*
10.43 Agreement, dated November 27, 1996, between Ciba-Geigy
Limited and the Registrant, incorporated by reference to
Exhibit 10.92 of the Registrant's Form 8-K report filed
with the Commission on December 17, 1996.
10.44 Amendment dated March 26, 1997, to Agreement dated
November 27, 1996, between Novartis Pharma AG and the
Registrant, incorporated by reference to Exhibit 10.44
of the Registrant's Form 10-Q report for the period
ended March 30, 1997.
10.45 Letter Agreement, dated May 6, 1996, as to consent to
assignment of contracts to Novartis Limited, among the
Registrant, Ciba-Geigy Limited, Ciba-Geigy Corporation
and Ciba Biotech Partnership, Inc., incorporated by
reference to Exhibit 10.43 of the Registrant's Form 10-K
report for fiscal year 1996.
10.46 Letter Agreement, dated December 19, 1996, regarding
compensation paid by the Registrant for director
services performed by employees of Ciba-Geigy Limited,
incorporated by reference to Exhibit 10.44 of the
Registrant's Form 10-K report for fiscal year 1996.*
10.47 Supplemental Benefits Agreement, dated July 21, 1989,
between the Registrant and Dr. William J. Rutter,
incorporated by reference to Exhibit 10.27 of the
Registrant's Form 10-Q report for the period ended
September 30, 1994.*
10.48 Lease commencing March 1, 1987, between EuroCetus B.V.
and the Municipal Land Company of the City of Amsterdam
(Translation), incorporated by reference to Exhibit
10.40 of the Registrant's Form 10-K report for fiscal
year 1995.
10.49 Form of Option Agreement (with Purchase Agreements
attached thereto) between Cetus Corporation and each
former limited partner of Cetus Healthcare Limited
Partnership, a California limited partnership,
incorporated by reference to Exhibit 10.31 of the
Registrant's Form 10-Q report for the period ended
September 30, 1994.
10.50 Form of Option Agreement (with forms of Purchase
Agreements attached thereto), dated December 30, 1986,
between Cetus Corporation and each former limited
partner of Cetus Healthcare Limited Partnership II, a
California limited partnership, incorporated by
reference to Exhibit 10.32 of the Registrant's Form 10-Q
report for the period ended September 30, 1994.
28
<PAGE>
10.51 License Agreement between the Registrant and the Board
of Trustees of the Leland Stanford Junior University,
dated December 15, 1981, incorporated by reference to
Exhibit 10.07 of the Registrant's Form 10-Q report for
the period ended September 30, 1994.
10.52 Stock Purchase and Warrant Agreement dated May 9, 1989,
between Cetus Corporation and Hoffmann-La Roche Inc.,
incorporated by reference to Exhibit 10.36 of the
Registrant's Form 10-Q report for the period ended
September 30, 1994.
10.53 Letter Agreement, dated as of December 12, 1991,
relating to Stock Purchase and Warrant Agreement between
Registrant and Hoffmann-La Roche Inc., incorporated by
reference to Exhibit 10.51 of Registrant's Form 10-K
report for fiscal year 1996.
10.54 Letter Agreement dated September 26, 1990 between the
Registrant and William G. Green, incorporated by
reference to Exhibit 10.41 of the Registrant's Form 10-K
report for fiscal year 1992.*
10.55 Letter Agreement dated December 18, 1991 between
Registrant and Jack Schuler, incorporated by reference
to Exhibit 10.42 of the Registrant's Form 10-K report
for fiscal year 1992.*
10.56 Lease between Sclavo S.p.A. and Biocine Sclavo S.p.A.,
dated January 7, 1992, incorporated by reference to
Exhibit 10.49 of the Registrant's Form 10-Q report for
the period ended April 2, 1995.
10.57 Agreement made as of November 11, 1993 by and between
Kodak Clinical Diagnostics Limited, a company registered
in England, and Ciba Corning Diagnostics Corp., a Delaware
corporation, and Letter dated October 7, 1994 from Kodak
Clinical Diagnostics Limited to Ciba Corning Diagnostics
Corp., incorporated by reference to Exhibit 10.50 of
Amendment No. 1 to the Registrant's Form 10-Q report for
the period ended April 2, 1995. [Certain information has
been omitted from the Agreement pursuant to a request by
Registrant for confidential treatment pursuant to Rule
24b-2.]
10.58 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 (with
certain confidential information deleted), incorporated
by reference to Exhibit 10.50 of the Registrant's
current report on Form 8-K dated February 9, 1994.
10.59 Letter Agreement dated December 30, 1993 by and between
Registrant and Schering AG, a German company (with
certain confidential information deleted), incorporated
by reference to Exhibit 10.51 of the Registrant's Form
10-K report for fiscal year 1993.
10.60 Description of Executive Officer Variable Compensation
Program, incorporated by reference to Exhibit 10.58 of
the Registrant's Form 10-K report for fiscal year 1996.*
29
<PAGE>
10.61 Chiron Corporation 1995 Executive Officer Variable Cash
Compensation Plan, incorporated by reference to Annex 2
of the Registrant's Proxy Statement dated April 18,
1995.*
10.62 Amended and Restated License Agreement effective April 1,
1996, between Ciba Corning Diagnostics Corp., a Delaware
corporation, and Bioanalysis Limited, a corporation
organized under the laws of the United Kingdom of Great
Britain and Northern Ireland, incorporated by reference to
Exhibit 10.56 of the Registrant's Form 10-Q report for the
period ended September 29, 1996. [Certain confidential
information has been omitted from the Agreement and filed
separately with the Securities and Exchange Commission
pursuant to a request by Registrant for confidential
treatment pursuant to Rule 24b-2.]
10.63 Guaranty, dated as of September 29, 1994, made by
Registrant, in favor of Bankers Trust Company, as
trustee, incorporated by reference to Exhibit 10.52 of
the Registrant's Form 10-Q report for the period ended
September 30, 1994.
10.64 Guaranty, dated as of September 29, 1994, made by Cetus
Corporation, in favor of The First National Bank of
Boston, as trustee, incorporated by reference to Exhibit
10.53 of the Registrant's Form 10-Q report for the
period ended September 30, 1994.
10.65 Letter Agreements dated September 11, 1992, July 15,
1994 and September 14, 1994 between the Registrant and
Lewis T. Williams, incorporated by reference to Exhibit
10.54 of the Registrant's Form 10-Q report for the
period ended September 30, 1994.*
10.66 Letters dated May 6, 1996 and May 25, 1996 to Magnus
Lundberg, incorporated by reference to Exhibit 10.61 of
the Registrant's Form 10-Q report for the period ended
September 29, 1996.*
10.67 Letter dated January 8, 1997 to Magnus Lundberg,
incorporated by reference to Exhibit 10.65 of the
Registrant's Form 10-K report for fiscal year 1996.*
10.68 Research Agreement, dated as of July 15, 1985, between
Ciba-Geigy Limited, a Swiss corporation, and Ciba
Corning Diagnostics Corp., a Delaware corporation,
incorporated by reference to Exhibit 10.64 of the
Registrant's Form 10-Q report for the period ended April
2, 1995.
10.69 Licensing Agreement, effective December 18, 1986, by and
between Miles Laboratories, Inc., a Delaware corporation,
and Ciba Corning Diagnostics Corp., a Delaware
corporation, and Letter dated December 18, 1992 from Ciba
Corning Diagnostics Corp. to Miles Laboratories, Inc.,
incorporated by reference to Exhibit 10.65 of Amendment
No. 1 to the Registrant's Form 10-Q report for the period
ended April 2, 1995. [Certain information has been
omitted from the Agreement pursuant to a request by
Registrant for confidential treatment pursuant to Rule
24b-2.]
30
<PAGE>
10.70 Magnetocluster Binding Assay Technology Agreement, dated
as of January 21, 1983, by and between Bioclinical Group,
Inc., a Delaware corporation, and Corning Glass Works, a
New York corporation, incorporated by reference to Exhibit
10.66 of Amendment No. 1 to the Registrant's Form 10-Q
report for the period ended April 2, 1995. [Certain
information has been omitted from the Agreement pursuant
to a request by Registrant for confidential treatment
pursuant to Rule 24b-2.]
10.71 Turn-back License Agreement, dated as of May 30, 1986, by
and between Ciba Corning Diagnostics Corp., a Delaware
corporation, and Advanced Magnetics, Inc., a Delaware
corporation, incorporated by reference to Exhibit 10.67 of
the Registrant's Form 10-Q report for the period ended
April 2, 1995. [Certain information has been omitted from
the Agreement pursuant to a request by Registrant for
confidential treatment pursuant to Rule 24b-2.]
10.72 Settlement Agreement, dated August 30, 1989, between Ciba
Corning Diagnostics Corp. and Advanced Magnetics, Inc.,
incorporated by reference to Exhibit 10.68 of the
Registrant's Form 10-Q report for the period ended April
2, 1995. [Certain information has been omitted from the
Agreement pursuant to a request by Registrant for
confidential treatment pursuant to Rule 24b-2.]
10.73 Agreement, effective as of December 21, 1988, by and
between Hoffmann-La Roche Inc., a New Jersey corporation,
and Cetus Corporation, incorporated by reference to
Exhibit 10.70 of the Registrant's Form 10-Q report for the
period ended April 2, 1995. [Certain information has been
omitted from the Agreement pursuant to a request by
Registrant for confidential treatment pursuant to Rule
24b-2.]
10.74 Agreement, effective as of December 21, 1988, by and among
F. Hoffmann-La Roche Ltd., a Swiss corporation, Cetus
Corporation, and EuroCetus International, B.V., a
Netherlands Antilles corporation, incorporated by
reference to Exhibit 10.71 of the Registrant's Form 10-Q
report for the period ended April 2, 1995. [Certain
information has been omitted from the Agreement pursuant
to a request by Registrant for confidential treatment
pursuant to Rule 24b-2.]
10.75 Agreement, by and between Cetus Oncology Corporation,
EuroCetus International, N.V., and F. Hoffmann-La Roche
Ltd., incorporated by reference to Exhibit 10.72 of the
Registrant's Form 10-Q report for the period ended April
2, 1995. [Certain information has been omitted from the
Agreement pursuant to a request by Registrant for
confidential treatment pursuant to Rule 24b-2.]
10.76 Agreement commencing January 1, 1991, between EuroCetus
B.V. and the Municipal Development Corporation
(Translation), incorporated by reference to Exhibit 10.41
of the Registrant's Form 10-K report for fiscal year 1994.
31
<PAGE>
10.77 Settlement Agreement on Purified IL-2, made as of April
14, 1995, by and between Cetus Oncology Corporation, dba
Chiron Therapeutics, a Delaware corporation, and Takeda
Chemical Industries, Ltd., a Japanese corporation,
incorporated by reference to Exhibit 10.74 of the
Registrant's Form 10-Q report for the period ended July 2,
1995. [Certain information has been omitted from the
Agreement pursuant to a request by Registrant for
confidential treatment pursuant to Rule 24b-2.]
10.78 License Agreement made and entered into December 1, 1987,
by and between Sloan Kettering Institute for Cancer
Research, a not-for-profit New York corporation, and Cetus
Corporation, incorporated by reference to Exhibit 10.75 of
the Registrant's Form 10-Q report for the period ended
July 2, 1995. [Certain information has been omitted from
the Agreement pursuant to a request by Registrant for
confidential treatment pursuant to Rule 24b-2.]
10.79 Chiron Funding L.L.C. Limited Liability Company Agreement,
entered into and effective as of December 28, 1995, among
the Registrant, Chiron Biocine Company and Biocine S.p.A.
and Ciba-Geigy Corporation, incorporated by reference to
Exhibit 10.80 of the Registrant's Form 10-K report for
fiscal year 1995. [Certain information has been omitted
from the Agreement and filed separately with the
Securities and Exchange Commission pursuant to a request
by Registrant for confidential treatment pursuant to Rule
24b-2. The omitted confidential information has been
identified by the following statement: "Confidential
Treatment Requested".]
10.80 Agreement between Ciba-Geigy Limited and the Registrant
made November 15, 1995, incorporated by reference to
Exhibit 10.81 of the Registrant's Form 10-K report for
fiscal year 1995. [Certain information has been omitted
from the Agreement and filed separately with the
Securities and Exchange Commission pursuant to a request
by Registrant for confidential treatment pursuant to Rule
24b-2. The omitted confidential information has been
identified by the following statement: "Confidential
Treatment Requested".]
10.81 Reimbursement Agreement dated as of March 24, 1995,
between Ciba-Geigy Limited, a Swiss corporation, and the
Registrant, incorporated by reference to Exhibit 10.76
of the Registrant's Form 10-Q report for the period
ended July 2, 1995.
10.82 Promissory Note, as amended and restated, dated January 1,
1995 by Ciba Corning Diagnostics Corp., incorporated by
reference to Exhibit 10.83 of the Registrant's Form 10-K
report for fiscal year 1995.
10.83 Commercial lease between Domilyon Corporation and
Domilens Laboratories and Amendment No. 1 to Commercial
Lease dated May 9, 1994, incorporated by reference to
Exhibit 10.84 of the Registrant's Form 10-K report for
fiscal year 1995.
32
<PAGE>
10.84 Agreement between the Registrant and Cephalon, Inc.
dated as of January 7, 1994, and Letter Agreements
between the Registrant and Cephalon dated January 13,
1995 and May 23, 1995, incorporated by reference to
Exhibit 10.85 of the Registrant's Form 10-K report for
fiscal year 1995. [Certain information has been omitted
from the Agreements and filed separately with the
Securities and Exchange Commission pursuant to a request
by Registrant for confidential treatment pursuant to Rule
24b-2. The omitted confidential information has been
identified by the following statement: "Confidential
Treatment Requested".]
10.85 Reimbursement Agreement, dated as of June 28, 1996,
between Ciba-Geigy Limited, a Swiss corporation, and the
Registrant, incorporated by reference to Exhibit 10.94
of the Registrant's Form 10-Q report for the period
ended June 30, 1996.
10.86 Reimbursement Agreement, dated as of May 20, 1996,
between Ciba-Geigy Limited, a Swiss corporation, and the
Registrant, incorporated by reference to Exhibit 10.95
of the Registrant's Form 10-Q report for the period
ended June 30, 1996.
10.87 Letter Agreement between the Registrant and Dr. Richard
W. Barker, dated May 1, 1996, incorporated by reference
to Exhibit 10.88 of the Registrant's Form 10-Q report
for the period ended June 30, 1996.*
10.88 Revolving Credit Agreement, dated as of March 23, 1996,
between the Registrant and Morgan Guaranty Trust Company
of New York, incorporated by reference to Exhibit 10.89
of the Registrant's Form 10-Q report for the period
ended June 30, 1996.
10.89 Amendment No. 1 to Revolving Credit Agreement, dated as
of March 18, 1997, between the Registrant and Morgan
Guaranty Trust Company of New York.
10.90 Purchase and Assignment Agreement between Behringwerke
Aktiengesellschaft, on the one side, and 31.CORSA
Verwaltungsgesellschaft mbH and the Registrant, on the
other side, dated February 17, 1996, Closing Agreement,
by and among Behringwerke Aktiengesellschaft, on the one
side, and the Registrant and 31.CORSA
Verwaltungsgesellschaft mbH, on the other side, dated
June 29, 1996 and Letter Agreement dated June 29, 1996
between the Registrant, 31.CORSA Verwaltungsgesellschaft
mbH and Behringwerke Aktiengesellschaft, incorporated by
reference to Exhibit 10.86 of the Registrant's Form 10-Q
report for the period ended September 29, 1996. [Certain
confidential 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.]
10.91 Royalty Projects Agreement by and between Ciba Corning
Diagnostics Corp., a Delaware corporation, and
Ciba-Geigy Limited, a Swiss corporation, incorporated by
reference to Exhibit 10.87 of the Registrant's Form 10-Q
33
<PAGE>
report for the period ended September 29, 1996. [Certain
confidential information has been omitted from the
Agreement and filed separately with the Securities
and Exchange Commission pursuant to a request by
Registrant for confidential treatment pursuant to
Rule 24b-2.]
10.92 Purchase Agreement between BNP Leasing Corporation and
the Registrant, dated June 28, 1996, incorporated by
reference to Exhibit 10.90 of the Registrant's Form 10-Q
report for the period ended June 30, 1996.
10.93 Lease Agreement between BNP Leasing Corporation and the
Registrant, dated June 28, 1996, incorporated by
reference to Exhibit 10.91 of the Registrant's Form 10-Q
report for the period ended June 30, 1996.
10.94 Ground Lease between BNP Leasing Corporation and the
Registrant, dated June 28, 1996, incorporated by
reference to Exhibit 10.92 of the Registrant's Form 10-Q
report for the period ended June 30, 1996.
10.95 Reimbursement Agreement, dated as of July 12, 1996,
between Ciba-Geigy Limited, a Swiss corporation, and the
Registrant, incorporated by reference to Exhibit 10.93
of the Registrant's Form 10-Q report for the period
ended June 30, 1996.
10.96 Form of Performance Unit Agreement, Chiron 1991 Stock
Option Plan, as amended, incorporated by reference to
Exhibit 10.94 of the Registrant's Form 10-K report for
fiscal year 1996.*
11 Statement of Computation of Earnings per Share.
27 Financial Data Schedule.
________________________
* Management contract, compensatory plan or arrangement.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
June 29, 1997.
34
<PAGE>
CHIRON CORPORATION
June 29, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHIRON CORPORATION
DATE: AUGUST 6, 1997 BY: /S/ EDWARD E. PENHOET
-------------- ------------------------
Edward E. Penhoet, Ph.D.
President and Chief
Executive Officer
DATE: AUGUST 6, 1997 BY: /S/ DENNIS L. WINGER
-------------- -------------------------
Dennis L. Winger
Senior Vice President, Finance
and Administration, Chief Financial
Officer, and Principal Accounting
Officer
35
<PAGE>
EXECUTION COPY
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this "AGREEMENT") dated as
of March 20, 1997 (the "EFFECTIVE DATE") between CHIRON CORPORATION, a Delaware
corporation (the "BORROWER"), and SWISS BANK CORPORATION, NEW YORK AND CAYMAN
ISLANDS BRANCHES (the "BANK").
WHEREAS, the Borrower has entered into that certain "Revolving Credit
Agreement" dated as of March 24, 1995 with Swiss Bank Corporation, San Francisco
Branch (as amended, the "EXISTING AGREEMENT"); and
WHEREAS, the Borrower and the Bank wish to amend the Existing Agreement in
its entirety and replace it with this Agreement; and
WHEREAS, the Bank has agreed that as of the Effective Date and provided
that the Borrower shall have fulfilled all of the Conditions Precedent set forth
in Section 11 hereof, all "Advances" outstanding under the Existing Agreement
shall be deemed to be Advances hereunder; and
WHEREAS, the Bank has agreed that upon its receipt of the "Note" referred
to in Section 11(a) hereof, it will return to the Borrower the "Note" issued in
connection with the Existing Agreement, marked "CANCELED";
NOW, THEREFORE, IT IS AGREED:
1. THE ADVANCES. Subject to and upon the terms and conditions set forth
herein, the Bank agrees to make advances (the "ADVANCES") to the Borrower at any
time and from time to time prior to March 23, 1998 (the "EXPIRY DATE");
provided, however, that the aggregate principal amount of Advances outstanding
shall at no time exceed U.S. $50,000,000 (Fifty Million U.S. Dollars) (the
"COMMITMENT").
2. PURPOSE. The Borrower shall use the proceeds of the Advances for
general corporate purposes and acquisition financing. The Borrower agrees to
indemnify the Bank and hold the Bank harmless from and against any and all
liabilities, losses, damages, costs and expenses of any kind which may be
<PAGE>
incurred by the Bank relating to or arising out of any actual or proposed use of
proceeds of Advances hereunder.
3. AVAILABILITY. The following Advances shall be available to the
Borrower hereunder: (a) Prime Rate Advances and Money Market Rate Advances of up
to 270 days; or (b) Eurodollar Rate Advances of one, two, three, six or nine
months. For the purposes of this Agreement, it is understood that (i) the
duration of each Advance shall be referred to as an "INTEREST PERIOD"; (ii) the
Borrower is required to repay each Advance on the last day of the Interest
Period for such Advance; and (iii) no Advance shall have an Interest Period
which extends beyond the Expiry Date.
4. INTEREST. Interest shall be payable in respect of the outstanding
principal amount of each Advance at the maturity thereof. Advances shall bear
interest at the following rates per annum: (a) if a Prime Rate Advance, at the
Bank's floating Prime Rate; (b) if a Money Market Rate Advance, at the quoted
Money Market Rate; or (c) if a Eurodollar Rate Advance, 0.08 of 1% in excess of
the Bank's Eurodollar Rate.
Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Advance and any other overdue amount payable by the
Borrower hereunder shall bear interest, payable on demand, at a rate per annum
equal to 2-1/2% per annum in excess of the Bank's Prime Rate in effect from time
to time.
For the purposes of this Agreement, "PRIME RATE" and "MONEY MARKET RATE"
shall mean those rates so designated by the Bank or determined in accordance
with the practice of the Bank from time to time, it being understood that the
Prime Rate shall in no event be less than 1/2 of 1% in excess of the rate
payable by the Bank from time to time for overnight Federal funds. The Bank
shall determine the "EURODOLLAR RATE" by taking the rate for a loan of a
comparable amount and duration as the proposed Advance from page 3750 of the
"Telerate Screen".
5. INCREASED COSTS. If at any time the Bank shall have determined (which
determination shall, absent manifest error, be final, conclusive and binding on
all parties hereto) that as a result of any change in any applicable law or
governmental rule, regulation or order (including any applicable law or
governmental rule, regulation or order respecting capital adequacy), or any
-2-
<PAGE>
interpretation thereof, including the enactment of any law or governmental rule,
regulation or order (whether or not having the force of law), the cost to the
Bank of maintaining its Commitment hereunder or making, funding or maintaining
any Advance shall be increased or the yield to the Bank on such Advance shall be
diminished, then the Bank shall promptly notify the Borrower thereof, showing in
reasonable detail the basis for the calculation of such increased costs or
diminished yield, and the Borrower shall pay to the Bank an amount sufficient to
indemnify the Bank thereagainst.
6. COMMITMENT FEE. The Borrower shall pay the Bank a fee ("COMMITMENT
FEE") computed at a rate per annum of 0.05 of 1% on the average daily unused
portion of the Commitment. Accrued Commitment Fee shall be payable quarterly on
the last business day of each calendar quarter and on the Expiry Date or earlier
termination of the Commitment.
7. NOTICE OF INTENTION TO BORROW. The Borrower shall give the Bank prior
notice at its address on the signature page hereof (a "NOTICE OF BORROWING") by
telephone or facsimile (to be subsequently confirmed in writing) or in writing
(effective upon receipt) of its intention to borrow, specifying the date,
amount, type and tenor of the proposed Advance. The Borrower shall give such
Notice of Borrowing at least two business days prior to any proposed Eurodollar
Rate Advance and by 10:00 a.m Pacific Time on the date of any proposed Prime
Rate Advance.
8. MONEY MARKET RATE ADVANCES. The Borrower may request a Money Market
Rate quote by telephone on any business day. If the Borrower accepts such Money
Market Rate, it must confirm such acceptance in writing.
9. PAYMENTS. All payments made hereunder or under the Note (as
hereinafter defined) shall be made to the Bank without deductions for any
present or future taxes, withholdings, deductions or any other charges (the
"TAXES") imposed or required by any political or taxing authority, it being
understood that the net amount received by the Bank after payment of the Taxes
by the Borrower shall not be less than the payment provided for hereunder. All
payments shall be made to the office of Swiss Bank Corporation in New York, ABA
# 02600799-3, Account Number 101-WA-183008-000 Ref. Chiron Corporation.
Commitment Fee and interest payments (except with respect to Prime Rate
Advances)
-3-
<PAGE>
shall be calculated for the actual number of days elapsed on the basis of a
360-day year. Interest payments with respect to Prime Rate Advances shall also
be calculated for the actual number of days elapsed but on the basis of a 365-
or 366-day year, as the case may be.
10. PREPAYMENT, FUNDING COSTS. Any Prime Rate Advance may be prepaid
without premium or penalty upon two business days' prior notice to the Bank. If
for any reason Eurodollar Rate or Money Market Rate Advances are prepaid, as a
result of acceleration or otherwise, or if the Borrower fails for any reason to
borrow in accordance with a Notice of Borrowing, the Borrower shall pay to the
Bank, on demand, an additional amount as shall be required to compensate the
Bank for any loss connected with its reemployment of the amount so prepaid or of
those funds acquired by the Bank to fund the Advance proposed in such Notice of
Borrowing, as the case may be.
11. CONDITIONS PRECEDENT. The obligation of the Bank to make Advances to
the Borrower hereunder is subject to the satisfaction of the following
conditions on or before the Effective Date (except as hereinafter indicated):
(a) The Bank shall have received a duly executed note (the "NOTE") in the
form of EXHIBIT A hereto.
(b) There shall have been delivered to the Bank (i) certified copies of
(x) the Borrower's charter and by-laws and (y) resolutions of the Borrower's
board of directors or equivalent body authorizing the transaction evidenced
hereby, and (ii) evidence satisfactory to the Bank of the authority of the
Borrower's signatory(ies) hereto and to the Note.
(c) At the time of the making of each Advance, and after giving effect
thereto, there shall exist no Event of Default (as hereinafter defined) and no
condition, event or act which, with the giving of notice or lapse of time or
both, would constitute an Event of Default, and all representations and
warranties made by the Borrower herein shall be true and correct with the same
effect as if those representations and warranties had been made on and as of
such date.
-4-
<PAGE>
(d) The Bank shall have received from Novartis AG (the "GUARANTOR") an
unconditional guaranty in the amount of US $50,000,000 (Fifty Million United
States Dollars) dated as of the Effective Date of the Borrower's obligations
hereunder and under the Note (the "GUARANTY").
12. REPRESENTATIONS AND WARRANTIES. The Borrower makes the following
representations and warranties, all of which shall survive the execution and
delivery of this Agreement:
(a) The Borrower is duly organized and validly existing in good standing
in the jurisdiction of its incorporation.
(b) This Agreement and the Note are duly and properly authorized and
executed by the Borrower and will constitute its legal, valid and binding
obligations enforceable in accordance with their respective terms.
13. COVENANTS. The Borrower covenants and agrees that, until all
obligations incurred by the Borrower under this Agreement are paid in full and
so long as the Commitment is in effect, the Borrower will:
(a) Provide to the Bank (i) as soon as they are available, copies of all
financial statements of the Borrower required to be filed with the Securities
and Exchange Commission and (ii) with reasonable promptness, any other
information as the Bank may from time to time reasonably request.
(b) Promptly give written notice to the Bank of any condition, event or
act which, with or without the giving of notice or the lapse of time, or both,
would constitute an Event of Default (as hereinafter defined).
(c) Not wind up, liquidate or dissolve its affairs or merge or consolidate
into any entity, or convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time) all or substantially all or a
substantial part of its property or assets, except that (i) any corporation may
merge or liquidate into the Borrower provided that either (x) the Borrower shall
be the surviving corporation, or (y) if the Borrower is not the surviving
-5-
<PAGE>
corporation, the Guaranty shall remain in full force and effect on behalf of the
surviving corporation, and (ii) the Borrower may merge into the Guarantor.
14. EVENTS OF DEFAULT. If any of the following events ("EVENTS OF
DEFAULT") shall occur and be continuing:
(a) The Borrower shall default in the payment of any principal amount due
hereunder or under the Note or shall default in the payment of any interest
amount due hereunder or under the Note and such default shall not be cured
within five (5) days;
(b) The Borrower shall fail to perform or observe any material term or
covenant contained in this Agreement and such failure shall not be remedied
within 30 days, or any representation or warranty made by the Borrower in this
Agreement or in any certificate or other document or statement furnished at any
time hereunder or in connection herewith shall prove to have been incorrect or
untrue in any material respect on the date as of which made;
(c) A default or event of default with respect to payment shall occur in
respect of bonds, notes, other loans or similar evidences of indebtedness of the
Borrower or any subsidiary in a principal amount aggregating U.S.$ 5,000,000.00
or more, the effect of which is to cause, or to permit the holder of such
indebtedness to cause, such indebtedness to become due prior to its stated
maturity, or any such indebtedness shall not be paid within any applicable grace
period after the due date thereof;
(d) The Guaranty shall cease to be in full force and effect for any reason
whatsoever; or
(e) The Borrower or the Guarantor shall make an assignment for the benefit
of creditors, shall generally fail to pay its debts as they become due, shall
file a petition commencing a voluntary case under any reorganization or
bankruptcy laws, or an involuntary case under such laws shall be commenced
against the Borrower or the Guarantor and such proceeding shall remain
undismissed or unstayed for a period of 30 days;
-6-
<PAGE>
then, and in any such event, the Bank may by notice to the Borrower take either
or both of the following actions: (i) terminate the Commitment, whereupon the
same shall terminate forthwith, and/or (ii) declare the Advances and all
interest accrued and unpaid thereon, any accrued Commitment Fee, and all other
sums due hereunder, to be immediately due and payable without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower.
15. GOVERNING LAW AND JURISDICTION; WAIVER OF JURY TRIAL. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.
THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
-7-
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Bank have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
CHIRON CORPORATION
By /s/ JE Kent
-------------------------------
Title: VP and Treasurer
ADDRESS FOR NOTICES
4460 Horton Street
Emeryville, CA 94608
Attention: Treasurer
Phone: 510-655-8730
Fax: 510-601-3343
SWISS BANK CORPORATION,
NEW YORK AND CAYMAN
ISLANDS BRANCHES
By: /s/ Paolo Seiferle
---------------------------
Title: Associate Director
Paolo Seiferle
Associate Director
SBCW
Switzerland
By: /s/ Dorothy D. McKinley
---------------------------
Title: Associate Director
Dorothy D. McKinley
Associate Director
Banking Finance
Support, N.A.
ADDRESS FOR NOTICES
Swiss Bank Corporation
Banking Products Support
P.O. Box 395
Church Street Station
New York, New York 10008
Attention: Robin Brower
Phone: 212 574 4308
Fax: 212 574 3180 or
212 574 4256
-8-
<PAGE>
EXHIBIT A
PROMISSORY NOTE
U.S. $50,000,000 March 20, 1997
FOR VALUE RECEIVED, the undersigned, CHIRON CORPORATION, a Delaware
corporation the "BORROWER"), hereby promises to pay to the order of SWISS
BANK CORPORATION (the "BANK"), acting through its New York or Cayman Islands
Branches, in lawful money of the United States of America, in immediately
available funds, at the principal office of the Bank at 222 Broadway, New
York, New York 10038, the principal amount of each advance (an "ADVANCE")
endorsed on the schedule attached hereto (the "SCHEDULE") on the maturity
date thereof.
The Borrower promises also to pay interest on the unpaid principal
amount of each Advance in like money from and including the date of each
Advance until paid in full at the rate specified in the Schedule, such
interest to be paid on the last day of the Interest Period for such Advance.
Interest shall be calculated for the actual number of days elapsed (i) on the
basis of a 365- or 366-day year, as the case may be, in the case of any
Advance bearing interest at a rate based on the Bank's Prime Rate, or (ii) on
the basis of a 360-day year, for all other Advances.
The Borrower hereby authorizes the Bank to endorse on the Schedule the
date, amount and maturity date of, and interest rate with respect to, each
Advance evidenced thereby and all payments of principal thereof, provided
that the failure to make or any error in making such endorsement shall not
affect the obligations of the Borrower to the Bank. The Bank's records shall
constitute PRIMA FACIE evidence of each Advance and accrued interest thereon.
This note is the Note referred to in the Amended and Restated Revolving
Credit Agreement dated as of March 20, 1997 between the Borrower and the Bank
(as from time to time in effect, the "AGREEMENT") and is entitled to the
benefits thereof.
If an Event of Default (as defined in the Agreement) shall occur and be
continuing, the principal of and accrued interest on this note may be
declared to be due and payable in the manner and with the effect provided in
the Agreement.
<PAGE>
The Borrower hereby waives presentment, demand, protest or notice of any
kind in connection with this note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK.
CHIRON CORPORATION
By JE Kent
----------------------
Title: V.P. and Treasurer
<PAGE>
SCHEDULE
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<PAGE>
FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT
---------------------------------------------
THIS FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT (the "AMENDMENT"),
dated as of July 11, 1997, is entered into by and between CHIRON
CORPORATION (the "BORROWER") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (the "BANK").
RECITALS
--------
A. The Borrower and the Bank are parties to a Revolving Credit
Agreement dated as of July 12, 1996 (the "CREDIT AGREEMENT") pursuant to
which the Bank has extended certain credit facilities to the Borrower.
B. The Borrower has requested that the Bank agree to a certain
amendment of the Credit Agreement.
C. The Bank is willing to amend the Credit Agreement, subject to the
terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings, if any, assigned to them in the
Credit Agreement.
2. AMENDMENT TO CREDIT AGREEMENT. Paragraph 1 of the Credit Agreement
shall be amended and restated in its entirety so as to read as follows:
1. THE ADVANCES. Subject to and upon the terms and conditions
set forth herein, the Bank agrees to make advances (the
"ADVANCES") to the Borrower at any time and from time to time
prior to August 11, 1997 (the "EXPIRY DATE"); provided, however,
that the aggregate principal amount of Advances outstanding shall
at no time exceed U.S. $100,000,000 (the "COMMITMENT").
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants to the Bank as follows:
(a) No Event of Default or condition, event or act which, with
the giving of notice or lapse of time, or both, would constitute an Event
of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Borrower of
this Amendment have been duly authorized by all
<PAGE>
necessary corporate and other action and do not and will not require any
registration with, consent or approval of, notice to or action by, any
person (including any governmental authority) in order to be effective and
enforceable. The Credit Agreement as amended by this Amendment constitutes
the legal, valid and binding obligations of the Borrower, enforceable
against it in accordance with its respective terms, without defense,
counterclaim or offset.
(c) All representations and warranties of the Borrower contained
in the Credit Agreement are true and correct.
(d) The Borrower is entering into this Amendment on the basis of
its own investigation and for its own reasons, without reliance upon the
Bank or any other person.
4. EFFECTIVE DATE. This Amendment will become effective as of the
date first above written (the "EFFECTIVE DATE"), PROVIDED THAT the Bank has
received from the Borrower a duly executed original (or, if elected by the
Bank, an executed facsimile copy) of this Amendment.
5. RESERVATION OF RIGHTS. The Borrower acknowledges and agrees that
the execution and delivery by the Bank of this Amendment shall not be
deemed to create a course of dealing or otherwise obligate the Bank to
execute similar amendments under the same or similar circumstances in the
future.
6. MISCELLANEOUS.
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and
effect and all references therein to such Credit Agreement shall henceforth
refer to the Credit Agreement as amended by this Amendment. This Amendment
shall be deemed incorporated into, and a part of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to the
benefit of the parties hereto and thereto and their respective successors
and assigns. No third party beneficiaries are intended in connection with
this Amendment.
(c) This Amendment shall be governed by and construed in
accordance with the law of the State of California.
(d) This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
Each of the parties hereto understands and agrees
2
<PAGE>
that this document (and any other document required herein) may be
delivered by any party thereto either in the form of an executed original
or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the Bank
of a facsimile transmitted document purportedly bearing the signature of
the Borrower shall bind the Borrower with the same force and effect as the
delivery of a hard copy original. Any failure by the Bank to receive the
hard copy executed original of such document shall not diminish the binding
effect of receipt of the facsimile transmitted executed original of such
document which hard copy page was not received by the Bank.
(e) This Amendment, together with the Credit Agreement, contains
the entire and exclusive agreement of the parties hereto with reference to
the matters discussed herein and therein. This Amendment supersedes all
prior drafts and communications with respect thereto.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or
the Credit Agreement, respectively.
(g) Borrower covenants to pay to or reimburse the Bank, upon
demand, for all reasonable costs and expenses (including allocated costs of
in-house counsel) incurred in connection with the development, preparation,
negotiation, execution and delivery of this Amendment.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first above written.
CHIRON CORPORATION
By: /s/ JE Kent
-------------------
Title: VP, Treasurer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Kevin McMahon
-------------------
Title: Managing Director
4
<PAGE>
AMENDMENT NO. 1 TO REVOLVING CREDIT AGREEMENT
AMENDMENT NO. 1 dated as of March 18, 1997 between CHIRON CORPORATION (the
"Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK (the "Bank").
W I T N E S S E T H :
WHEREAS, the parties hereto have heretofore entered in a Revolving Credit
Agreement dated as of March 23, 1996 (as heretofore amended, the "Agreement");
WHEREAS, the parties hereto desire to amend the Agreement to extend the term
hereof and amend the Guaranty thereunder.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically defined
herein, each term used herein which is defined in the Agreement shall have the
meaning assigned to such term in the Agreement.
SECTION 2. Section 1 of the Agreement is amended by replacing the date March
22, 1997 with the date March 21, 1998.
SECTION 3. REPRESENTATIONS. The Borrower hereby confirms and repeats each of
the representations and warranties set forth in the Agreement on and as of the
date of this Amendment No. 1 as if made on and as of such date and as if each
reference therein to the Agreement referred to the Agreement as modified hereby,
and represents and warrants that no Event of Default or other event, which with
the giving of notice or lapse of time, or both, would constitute such an Event
of Default has occurred and is continuing.
SECTION 4. AGREEMENT AS AMENDED. Except as expressly amended hereby, the
Agreement shall continue in full force and effect in accordance with the terms
thereof.
SECTION 5. GOVERNING LAW. This Amendment No. 1 shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 6. CONDITIONS TO EFFECTIVENESS. This Amendment No. 1 shall become
effective as of the date (i) the Bank shall have received a duly executed
counterpart hereof signed by the Borrower and (ii) the Bank shall have received
from Novartis A.G. (successor to Ciba-Geigy Limited, (the "Guarantor") an
unconditional guaranty of up to $50,000,000 of the Borrower's principal payment
obligations hereunder and under the Note, along with a legal opinion as to the
enforceability thereof.
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amendment No. 1
to be duly executed as of the date first above written.
CHIRON CORPORATION
By: /s/ JE Kent
----------------------------
Name:
Title: VP and Treasurer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ Diana H. Imhof
----------------------------
Name: Diana H. Imhof
Title: Vice President
<PAGE>
EXHIBIT 11
CHIRON CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- --------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings per share
Net income available for common shares and
common stock equivalent shares deemed to
have a dilutive effect $15,742,000 $15,355,000 $31,078,000 $28,098,000
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Primary earnings per share $0.09 $0.09 $0.18 $0.16
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Fully diluted earnings per share $0.09 $0.09 $0.18 $0.16
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Shares used in primary earnings per share computation:
Weighted average common shares outstanding 172,996,000 169,265,000 172,270,000 168,557,000
Weighted average dilutive incremental common
shares issuable from exercise of warrants 188,000 314,000 191,000 384,000
Weighted average dilutive incremental common
shares issuable under employee stock option
programs 3,771,000 8,291,000 4,142,000 9,143,000
----------- ---------- ----------- ----------
Total common shares and common stock equivalent
shares deemed to have a dilutive effect 176,955,000 177,870,000 176,603,000 178,084,000
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Shares used in fully diluted earnings per share
computation:
Weighted average common shares outstanding 172,996,000 169,265,000 172,270,000 168,557,000
Weighted average dilutive incremental common
shares issuable from exercise of warrants 213,000 315,000 213,000 385,000
Weighted average dilutive incremental common
shares issuable under employee stock option
programs 4,564,000 8,291,000 4,859,000 9,146,000
----------- ---------- ----------- ----------
Total common shares and common stock equivalent
shares deemed to have a dilutive effect 177,773,000 177,871,000 177,342,000 178,088,000
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHIRON
CORPORATION'S UNAUDITED CONSOLIDATED BALANCE SHEET DATED JUNE 30, 1997 AND
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997<F5>
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997<F5>
<CASH> 111,927
<SECURITIES> 48,872<F1>
<RECEIVABLES> 315,675
<ALLOWANCES> 0
<INVENTORY> 188,249
<CURRENT-ASSETS> 716,433
<PP&E> 836,512
<DEPRECIATION> 249,260
<TOTAL-ASSETS> 1,694,017
<CURRENT-LIABILITIES> 463,581
<BONDS> 393,396<F2>
0
0
<COMMON> 1,735
<OTHER-SE> 807,031<F3>
<TOTAL-LIABILITY-AND-EQUITY> 1,694,017
<SALES> 507,499
<TOTAL-REVENUES> 664,046
<CGS> 215,446
<TOTAL-COSTS> 215,446
<OTHER-EXPENSES> 195,746<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,243
<INCOME-PRETAX> 45,062
<INCOME-TAX> 13,984
<INCOME-CONTINUING> 31,078
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,078
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
<FN>
<F1>CONSISTS OF BOTH SHORT-TERM AND NONCURRENT INVESTMENTS IN MARKETABLE DEBT
SECURITIES.
<F2>CONSISTS OF CONVERTIBLE SUBORDINATED DEBENTURES, CAPITAL LEASE OBLIGATIONS, AND
NOTES PAYABLE, NET OF CURRENT MATURITIES.
<F3>CONSISTS OF ADDITIONAL PAID-IN CAPITAL, ACCUMULATED DEFICIT, CUMULATIVE FOREIGN
CURRENCY TRANSLATION ADJUSTMENT, UNREALIZED GAIN FROM INVESTMENTS AND NOTES
RECEIVABLE FROM STOCK SALES.
<F4>CONSISTS OF RESEARCH AND DEVELOPMENT AND OTHER OPERATING EXPENSES.
<F5>ACTUAL FISCAL YEAR END WILL BE, AND PERIOD END WAS, DEC-28-1997 AND
JUN-29-1997, RESPECTIVELY. FOR PRESENTATION PURPOSES, DATES USED IN THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES REFER TO THE CALENDAR MONTH END.
</FN>
</TABLE>
