Richard Gregory, Et Al. V. Chiron Corporation, Et Al. 04-CV-04293-Chiron Corporation's Corrected Exhibits in Support Of
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EXHIBIT B OuickLittks Click here to rapidly navigate through this documen t UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington , D .C . 20549 FORM 1O--Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 . For the quarterly period ended June 30, 2003 O R D TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 . For the transition period from t o Commission File Number : 0-12798 CHIRON CORPORATIO N (Exact name of registrant as specified in its charter) Delaware 94-2754624 (State or other jurisdiction of _ (I .R .S . Employer Identification No,) incorporation or organization ) 4560 Horton Street, Emeryville, California 94608 (Address of principal executive offices) (Zip code) (510)655-873 0 (Registrant's telephone number, including area code) Not Applicabl e (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (I) 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 . YesIJ No ❑ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) , Yes O No ❑ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date . Title of Class Outstanding at July 31, 2003 Common Stock, $0.01 par value 186,524,841 I CHIRON CORPORATION TABLE OF CONTENTS Page No . PART I. FINANCIAL INFORMATIO N ITEM 1 . Financial Statements (Unaudited ) Condensed Consolidated Balance Sheets at June 30,200 3 and December 31, 2002 3 Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002 5 Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 200 3 and 2002 6 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002 7 Notes to Condensed Consolidated Financial Statements 8 ITEM 2 . Management's Discussion and Analysis of Financial Condition and Results of Operations 27 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 58 ITEM 4 . Controls and Procedures 58 PART 11. OTHER INFORMATION ITEM 1 . Legal Proceedings 60 ITEM 4 . Submission of Matters to a Vote of Security Holders 64 ITEM 6 . Exhibits and Reports on Form 8-K 6 5 SIGNATURES 68 2 1 Item 1 . Financial Statements CHIRON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data ) June30, December31, 2003 200 2 ASSETS Current assets : Cash and cash equivalent s $ 876 .043 $ 247,95 0 Short-term investments in marketable debt securities 271,290 626,13 0 Total cash and short-term investments 1,147,333 874,08 0 Accounts receivable, net 289,380 278,62 5 Current portion of notes receivable 750 71 8 Inventories, net of reserve s 196,005 146,00 5 Current net deferred income tax assets 40,734 38,450 Derivative financial instruments 12,201 12,006 Other current assets 55,478 35,83 8 Total current assets 1,741,881 1,385,72 2 Noncurrent investments in marketable debt securities 119,171 4l 4,44 7 Property, plant, equipment and leasehold improvements, at cost: Land and buildings 176,070 168,144 Laboratory, production and office equipment 461,059 418,25 5 Leasehold improvements 102,234 93,46 3 ) Construction-in-progres s 83,382 74,71 7 822,745 754,579 Less accumulated depreciation and amortization (418,841) (381,021) . Property, .plant, equipment and leasehold improvements, net 403,904 373,55 8 Purchased technologies, net 246,949 257,61 3 Goodwill 243,476 239,746 Other intangible assets, net 146,502 147,08 9 Investments in equity securities and affiliated companies - 113,504 87,16 7 Noncurrent notes receivabl e 8,959. 8,93 9 Noncurrent derivative financial instruments 11,504 9,00 7 Other noncurrent assets 41,201 37,05 6 $ .3,077,051 . $ 2,960,344 The accompanying Notes to Condensed Consolidated Financial Statements are integral to this statement. 3 CIIIRON CORPORATIO N CC . - : .ENSED CONSOLIDATED BALANCE SHEET S (Conttu,ued) (Unaudited ) (In thousands, except share data) June 30, 4ecember 31 , 2003 2002 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities : Accounts payable $ 67,211 $ 59,02 2 Accrued compensation and related expenses - 50,016 59,49 8 Derivative financial instruments 182 _ Short- term borrowings - 7 1 Current port ion of unearned revenue 45 .712 26,61 0 Income taxes payable 1,073 21,88 3 Other current liabilities 119,067 131,552 Total current liabilities 283,261 298,63 6 Long-term debt 421,073 416,95 4 Noncurrent derivative financial instruments - 25 3 Noncurrent net deferred income tax liabilities 46,867 45,74 3 Noncurrent unea rned revenue 54 .711 62,58 0 Other noncurrent liabi lities 41 .857 35,81 3 Minority interest 6,1 15 5,35 5 Total liabilities 853,884 865,334 Commitments and contingencie s Put options - 19,05 4 Stockholders' equity : Common stock 1,91 7 1,91 7 Additional paid-in capital 2,476,039 2,445,20 8 Deferred stock compensation ( 11,560) (11,349) Accumulated deficit (128,093 ) ( 221,236 ) Accumulated other comprehensive income 96,875 54,86 1 Treasury stock , at cost (5,437,000 shares at June 30, 2003 and 4,830,000 shares at December 31 , 2002 ) ( 212,011) (193,445) Total stockholders' equity . 2,223 , 167 2,075,95 6 $ 3,077, 051 $ 2,960,34 4 The accompanying Notes to Condensed Consolidated Financial Statements are integral to this statement. 4 CHIRON CORPORATIO N CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited ) (In thousands, except per share data ) Three Months Ended Six Months Ended June 30, Jnne30 , 2003 2002 2003 200 2 Revenues : Product sales, ne t 5 245,928 5 211,293 S 464,548 $ 384,87 7 Earnings of unconsolidated joint business 27,475 27,394 53 .927 46,192 Collaborative agreement revenues 3,624 6,602 7,738 12,809 Royalty and license fee revenues 66,876 45,494 120,300 90,372 Other revenues 6,369 8,495 24,794 17,22 5 Total revenue s 350,272 299,278 671,307 551,47 5 Operating expenses : Cost of sales 97,420 76,225 -. 183,009 142,39 1 Research and development 89,915 83,530 172,045 162,30 3 Selling, general and administrative 79,707 71,093 152,749 133,86 3 Amortization expens e 7,701 7,446 15,314 14,82 4 Write-off of purchased in-process research and development' - - -- 54,78 1 Restructuring and reorganization charges 519 - 675 ---- Other operating expenses - 1,259 899 2,794 5,48 2 Total operating expenses 276,521 239,193 526.586 513,644 Income from operations 73,751 60,085 144,721 37,83 1 Interest expense (2,839) (3,133) (6,301) (6,288 ) Interest and other income, net 11,613 12,613 25,931 32,760 Minority interes t (581) (464) (981) (883 ) Income from continuing operations before income taxes 81,944 69,101 163,370 63,42 0 Provision for income taxe s 20,485 18,657 40,842 31,91 3 Income from continuing operations 61,459 50,444 122,528 31,50 7 Gain on disposal of discontinued operations 538 --- 1,964 - - - Net incom e $ 61,997 5 50,444 $ 124,492 S 31,507 - rr~~ a..ww~rrrrrr_ ~~rn ~r~ ~ Basic earnings per share : Income from continuing operations $ 0.33 $ 0.27 $ 0.66 $ 0.1 7 Net income $ 0 .33 $ 0.27 S 0.67 $ 0 .1 7 rrrr~rr_~ w..~w~wrrrr_ ~ arrrr r_ Diluted earnings per share : income from continuing operations - $ 0 .32 $ 0 .26 $ 0 .65 S 0.16 ~w~w ~rrrrrr~ w~rrr ~~ Net income $ 0,33 S 0 .26 $ 0 .66 $ 0.1 6 .~.re ~~ .rr .rrr e The accompanying Notes to Condensed Consolidated Financial Statements are integral to this statement. 5 CHIRON CORPORATIO N CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME . (Unaudited) . (In thousands , except per share data ) Three Months Ended Six Months Ended Jnne30, June 39 , 2003 2002 2003 290 2 Net incoioe $ 61,997 $ 50,444 $ 124,492 $ 31,507 Other comprehensive income ( loss) : Change in foreign currency translation adjustment during the period, net of tax provision of $7,294 for the three months ended June 30, 2002 and $6,449 for the six months ended June 30, 2002 35,823 61,668 45,118 55,23 3 Net unrealized derivative loss arising during the period, net of tax benefit of $72 for the three months ended June 30 , 2002 - (118) - - Unrealized gains ( losses) from investments : Net unrealized holding gains ( losses) arising during the period, net o f tax (provision ) benefit of ($1,541) and $651 for the three month s ended June 30 , 2003 and 2002, respectively, and ($1,284) and $3,532 for the six months ended June 30, 2003 and 2002, respectively 3,083 658 2,640 (5,623 ) Reclassification adjustment for net gains included in net income, net of tax provision of $1,834 and $1,891 for the three months ended Jun e 30, 2003 and 2002, respectively, and $3,626 and $3,587 for the si x months ended June 30, 200.3 and 2002, respectively (2,940) (3,065) (5,744) (5,802) Net unrealized gains (losses) from investments 143 (2,407) .(3,104) (11,425) Other comprehensive income 35,966 59,143 42,014 43,80 8 Comprehensive income $ 97,963 5 109,587 S 166,506 S 75,31 5 The accompanying Notes to Condensed Consolidated Financial Statements are integral to this statement.