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





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FORM 10-Q





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




For the quarterly period ended September 30,  2005





OR





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




Commission file number: 1-4389





APPLERA CORPORATION


(Exact Name of Registrant as  Specified in Its Charter)





|Delaware                                                          |  | 06-1534213                             
|----------------------------------------------------------------- |  | ---------------------------------------
|(State or    Other Jurisdiction of Incorporation or Organization) |  | (I.R.S.    Employer Identification No.)
|                                                                  |  |                                        
|301 Merritt 7, Norwalk, Connecticut                               |  | 06851-1070                             
|(Address    of Principal Executive Offices)                       |  | (Zip Code)                             




|(203) 840-2000                                         
|-------------------------------------------------------
|(Registrants    Telephone Number, Including Area Code)




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      No





Indicate by check mark whether  the registrant is an accelerated filer (as defined in Rule 12b-2 of the  Exchange Act).





Yes      No





As of the close of business on  November
    3, 2005, there were 187,915,253 shares of Applera Corporation-Applied Biosystems
    Group Common Stock and 74,778,586 shares of Applera Corporation-Celera Genomics
Group Common Stock outstanding.





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APPLERA CORPORATION


INDEX





|                               |  |                                                                                          |                                                                                                           | Page 
|------------------------------ |  | ---------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | -----
|                               |  |                                                                                          |                                                                                                           |      
|Part I.  Financial Information | 
|                               |  |                                                                                          |                                                                                                           |      
|Item 1.                        |  | Financial Statements                                                                     |                                                                                                          
|                               |  |                                                                                          |                                                                                                           |      
|                               |  |                                                                                          | Condensed Consolidated Statements of Operations for the Three Months    Ended September 30, 2004 and 2005 | 1    
|                               |  |                                                                                          |                                                                                                           |      
|                               |  |                                                                                          | Condensed Consolidated Statements of Financial Position at June 30,    2005 and September 30, 2005        | 2    
|                               |  |                                                                                          |                                                                                                           |      
|                               |  |                                                                                          | Condensed Consolidated Statements of Cash Flows for the Three Months    Ended September 30, 2004 and 2005 | 3    
|                               |  |                                                                                          |                                                                                                           |      
|                               |  |                                                                                          | Notes to Unaudited Condensed Consolidated Financial Statements                                            | 4-25 
|                               |  |                                                                                          |                                                                                                           |      
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and    Results of Operations |                                                                                                          
|                               |  |                                                                                          |                                                                                                           |      
|                               |  |                                                                                          | Discussion of Applera Corporation                                                                         | 26-35
|                               |  |                                                                                          |                                                                                                           |      
|                               |  |                                                                                          | Discussion of Applied Biosystems Group                                                                    | 36-40
|                               |  |                                                                                          |                                                                                                           |      
|                               |  |                                                                                          | Discussion of Celera Genomics Group                                                                       | 40-42
|                               |  |                                                                                          |                                                                                                           |      
|                               |  |                                                                                          | Discussion of Celera Diagnostics                                                                          | 43   
|                               |  |                                                                                          |                                                                                                           |      
|                               |  |                                                                                          | Market Risks                                                                                              | 43   
|                               |  |                                                                                          |                                                                                                           |      
|                               |  |                                                                                          | Outlook                                                                                                   | 44-45
|                               |  |                                                                                          |                                                                                                           |      
|                               |  |                                                                                          | Forward-Looking Statements and Risk Factors                                                               | 45-64
|                               |  |                                                                                          |                                                                                                           |      
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                               | 65                                                                                                       
|                               |  |                                                                                          |                                                                                                           |      
|Item 4.                        |  | Controls and Procedures                                                                  | 65                                                                                                       
|                               |  |                                                                                          |                                                                                                           |      
|Part II. Other    Information  | 
|                               |  |                                                                                          |                                                                                                           |      
|Item 1.                        |  | Legal Proceedings                                                                        | 66                                                                                                       
|                               |  |                                                                                          |                                                                                                           |      
|Item 2.                        |  | Unregistered Sales of Equity Securities and    Use of Proceeds                           | 67                                                                                                       
|                               |  |                                                                                          |                                                                                                           |      
|Item 6.                        |  | Exhibits                                                                                 | 68                                                                                                       




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PART  I  FINANCIAL INFORMATION





Item  1.   Financial Statements.





APPLERA CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(unaudited)


(Dollar amounts in thousands except per share amounts)





|                                                         |  | Three    Months Ended    September 30, |        
|-------------------------------------------------------- |  | -------------------------------------- | -------
|                                                         |  |                                        |        
|                                                         |  | 2004                                   |        
|                                                         |  |                                        |        
|Products                                                 |  | $                                      | 318,883
|Services                                                 |  |                                        | 46,535 
|Other                                                    |  |                                        | 41,743 
|                                                         |  |                                        |        
|Total Net    Revenues                                    |  |                                        | 407,161
|                                                         |  |                                        |        
|Products                                                 |  |                                        | 160,376
|Services                                                 |  |                                        | 21,881 
|Other                                                    |  |                                        | 4,969  
|                                                         |  |                                        |        
|Total    Cost of Sales                                   |  |                                        | 187,226
|                                                         |  |                                        |        
|Gross    Margin                                          |  |                                        | 219,935
|Selling, general and    administrative                   |  |                                        | 123,570
|Research, development and    engineering                 |  |                                        | 81,136 
|Amortization of intangible    assets                     |  |                                        | 725    
|Employee-related charges,    asset impairments and other |  |                                        | 10,219 
|Asset dispositions and    legal settlements              |  |                                        | (8,500 
|                                                         |  |                                        |        
|Operating    Income (Loss)                               |  |                                        | 12,785 
|Gain on investments, net                                 |  |                                        |        
|Interest expense                                         |  |                                        | (27    
|Interest income                                          |  |                                        | 5,264  
|Other income (expense),    net                           |  |                                        | 2,133  
|                                                         |  |                                        |        
|Income    before Income Taxes                            |  |                                        | 20,155 
|Provision (benefit) for    income taxes                  |  |                                        | 4,062  
|                                                         |  |                                        |        
|Net    Income                                            |  | $                                      | 16,093 
|                                                         |  |                                        |        
|Applied    Biosystems Group (see Note 3)                 |  |                                        |        
|Net Income per Share                                     |  |                                        |        
|Basic                                                    |  | $                                      | 0.19   
|Diluted                                                  |  | $                                      | 0.18   
|Dividends Declared per Share                             |  | $                                      | 0.0425 
|Celera    Genomics Group (see Note 3)                    |  |                                        |        
|Net Loss per Share                                       |  |                                        |        
|Basic    and diluted                                     |  | $                                      | (0.28  




See accompanying notes to the Applera Corporation unaudited condensed  consolidated financial statements.





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APPLERA CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


(unaudited)


(Dollar amounts in thousands)





|                                                |  | At June    30,    2005 |           | At September 30,    2005 |  
|----------------------------------------------- |  | ---------------------- | --------- | ------------------------ | -
|                                                |  |                        |           |                          |  
|Assets                                          |  |                        |           |                          |  
|Current assets                                  |  |                        |           |                          |  
|Cash    and cash equivalents                    |  | $                      | 779,401   |                          | $
|Short-term    investments                       |  |                        | 645,084   |                          |  
|Accounts    receivable, net                     |  |                        | 383,938   |                          |  
|Inventories,    net                             |  |                        | 126,541   |                          |  
|Prepaid    expenses and other current assets    |  |                        | 152,645   |                          |  
|                                                |  |                        |           |                          |  
|Total current assets                            |  |                        | 2,087,609 |                          |  
|Property, plant and    equipment, net           |  |                        | 438,398   |                          |  
|Other long-term assets                          |  |                        | 638,178   |                          |  
|                                                |  |                        |           |                          |  
|Total    Assets                                 |  | $                      | 3,164,185 |                          | $
|                                                |  |                        |           |                          |  
|Liabilities    and Stockholders Equity         |  |                        |           |                          |  
|Current liabilities                             |  |                        |           |                          |  
|Accounts    payable                             |  | $                      | 174,022   |                          | $
|Accrued    salaries and wages                   |  |                        | 91,188    |                          |  
|Accrued    taxes on income                      |  |                        | 77,327    |                          |  
|Other    accrued expenses                       |  |                        | 250,134   |                          |  
|                                                |  |                        |           |                          |  
|Total current liabilities                       |  |                        | 592,671   |                          |  
|Other long-term    liabilities                  |  |                        | 227,431   |                          |  
|                                                |  |                        |           |                          |  
|Total    Liabilities                            |  |                        | 820,102   |                          |  
|                                                |  |                        |           |                          |  
|Stockholders    Equity                         |  |                        |           |                          |  
|Capital    stock                                |  |                        |           |                          |  
|Applera    CorporationApplied Biosystems Group |  |                        | 2,130     |                          |  
|Applera    CorporationCelera Genomics Group    |  |                        | 743       |                          |  
|Capital    in excess of par value               |  |                        | 2,132,364 |                          |  
|Retained    earnings                            |  |                        | 558,065   |                          |  
|Accumulated    other comprehensive loss         |  |                        | (41,787   | )                        |  
|Treasury    stock, at cost                      |  |                        | (307,432  | )                        |  
|                                                |  |                        |           |                          |  
|Total    Stockholders Equity                   |  |                        | 2,344,083 |                          |  
|                                                |  |                        |           |                          |  
|Total    Liabilities and Stockholders Equity   |  | $                      | 3,164,185 |                          | $
|                                                |  |                        |           |                          |  




See accompanying notes to the Applera Corporation unaudited condensed  consolidated financial statements.





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APPLERA CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(unaudited)


(Dollar amounts in thousands)





|                                                                                     |  | Three    months ended    September 30, |         
|------------------------------------------------------------------------------------ |  | -------------------------------------- | --------
|                                                                                     |  |                                        |         
|                                                                                     |  | 2004                                   |         
|                                                                                     |  |                                        |         
|Operating    Activities of Continuing Operations                                     |  |                                        |         
|Net income                                                                           |  | $                                      | 16,093  
|Adjustments to reconcile    net income to net cash provided by operating activities: |  |                                        |         
|Depreciation    and amortization                                                     |  |                                        | 25,871  
|Asset    impairments                                                                 |  |                                        | 1,976   
|Employee-related charges and other                                                   |  |                                        | 5,373   
|Share-based    compensation programs                                                 |  |                                        | 1,089   
|Sale    of assets and legal settlements, net                                         |  |                                        |         
|Deferred    income taxes                                                             |  |                                        | (2,290  
|Changes in operating    assets and liabilities:                                      |  |                                        |         
|Accounts    receivable                                                               |  |                                        | 56,410  
|Inventories                                                                          |  |                                        | (8,156  
|Prepaid    expenses and other assets                                                 |  |                                        | (11,657 
|Accounts    payable and other liabilities                                            |  |                                        | (81,836 
|                                                                                     |  |                                        |         
|Net Cash    Provided by Operating Activities of Continuing Operations                |  |                                        | 2,873   
|                                                                                     |  |                                        |         
|Investing    Activities of Continuing Operations                                     |  |                                        |         
|Additions to property,    plant and equipment, net                                   |  |                                        | (10,216 
|Proceeds from maturities    of available-for-sale investments                        |  |                                        | 716,602 
|Proceeds from sales of    available-for-sale investments                             |  |                                        | 293,433 
|Purchases of    available-for-sale investments                                       |  |                                        | (902,587
|Proceeds from the sale of    assets, net                                             |  |                                        |         
|                                                                                     |  |                                        |         
|Net Cash    Provided by Investing Activities of Continuing Operations                |  |                                        | 97,232  
|                                                                                     |  |                                        |         
|Net Cash    Provided (Used) by Operating Activities of Discontinued Operations       |  |                                        | 533     
|                                                                                     |  |                                        |         
|Financing    Activities                                                              |  |                                        |         
|Principal payments on debt                                                           |  |                                        | (6,000  
|Dividends                                                                            |  |                                        | (8,322  
|Purchases of common stock    for treasury                                            |  |                                        |         
|Proceeds from stock issued    for stock plans and other                              |  |                                        | 5,211   
|                                                                                     |  |                                        |         
|Net Cash    Used by Financing Activities                                             |  |                                        | (9,111  
|                                                                                     |  |                                        |         
|Effect of    Exchange Rate Changes on Cash                                           |  |                                        | 4,314   
|                                                                                     |  |                                        |         
|Net    Change in Cash and Cash Equivalents                                           |  |                                        | 95,841  
|Cash and    Cash Equivalents Beginning of Period                                     |  |                                        | 507,870 
|                                                                                     |  |                                        |         
|Cash and    Cash Equivalents End of Period                                           |  | $                                      | 603,711 
|                                                                                     |  |                                        |         




See accompanying notes to the Applera Corporation unaudited condensed  consolidated financial statements.





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APPLERA CORPORATION  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Note  1  Interim Condensed Consolidated Financial Statements





Basis of Presentation


We prepare our unaudited  interim condensed consolidated financial statements and related disclosures in  conformity with accounting principles generally accepted in the United States  of America, or GAAP.  In preparing these  statements, we are required to use estimates and assumptions.  While we believe we have considered all  available information, actual results could affect the reported amounts of  assets and liabilities, disclosure of contingent assets and liabilities at the  date of the financial statements, and the reported amounts of revenues and  expenses during the reporting period.   The results for the interim periods are not necessarily indicative of  trends or future financial results.   When used in these notes, the terms Applera, Company, we, us, or  our mean Applera Corporation and its subsidiaries.





We have reclassified some prior  period amounts in the condensed consolidated financial statements and notes for  comparative purposes.





During the third quarter of fiscal 2005, we  reclassified costs supporting our patent related activities from R&D  expenses to SG&A expenses.  This reclassification had no impact  on net income or earnings per share.   The reclassified amount for the first quarter of fiscal 2005 was  approximately $6 million.





Commencing in the third quarter of fiscal  2005, we began classifying all of our investments in auction rate securities as  short-term investments.  Prior to fiscal  2005, some of these securities were included in cash and cash equivalents.  Short-term investments included  approximately $46 million of auction rate securities at September 30,  2004.  This reclassification had no  impact on results of operations or previously reported cash flows from  operations or financing activities.





We consistently applied the  accounting policies described in our 2005 Annual Report to Stockholders in  preparing these unaudited interim financial statements.  In addition, we adopted Statement of  Financial Accounting Standards (SFAS) No. 123, Share-Based Payment (revised  2004) in July 2005, as discussed in Note 4.   We made all adjustments that are necessary, in our opinion, for a fair  statement of the results for the interim periods.  These adjustments are of a normal recurring nature.  We condensed or omitted from these interim  financial statements several notes and other information included in our 2005  Annual Report to Stockholders. You should read these unaudited interim  condensed consolidated financial statements in conjunction with our  consolidated financial statements presented in our 2005 Annual Report to  Stockholders.





Note  2  Events Impacting Comparability





We are providing the following  information on some actions taken by us or events that occurred in the periods  indicated.





|                                                               |  |                                     |       |      |   |       |  
|-------------------------------------------------------------- |  | ----------------------------------- | ----- | ---- | - | ----- | -
|                                                               |  | Three months ended    September 30, |      
|                                                               |  |                                     |      
|(Dollar amounts in millions)                                   |  | 2004                                |       | 2005 |  
|                                                               |  |                                     |       |      |   |       |  
|Severance    and benefit costs                                 |  | $                                   | (8.5  | )    | $ |      |  
|Excess lease    space                                          |  |                                     | (1.5  | )    |   |       |  
|Asset    impairments                                           |  |                                     | (0.2  | )    |   | (1.1  | )
|Reduction of    expected costs                                 |  |                                     |       |      |   | 0.2   |  
|                                                               |  |                                     |       |      |   |       |  
|Total    employee-related charges, asset impairments and other |  | $                                   | (10.2 | )    | $ | (0.9  | )
|                                                               |  |                                     |       |      |   |       |  
|Other events    impacting comparability:                       |  |                                     |       |      |   |       |  
|Impairment of inventory recorded in cost of sales              |  | $                                   | (1.7  | )    | $ |      |  
|Asset dispositions and legal settlements                       |  |                                     | 8.5   |      |   | (23.5 | )
|Investment gains                                               |  |                                     |       |      |   | 4.5   |  
|Resolution of outstanding foreign tax matters                  |  |                                     |       |      |   | 13.5  |  
|                                                               |  |                                     |       |      |   |       |  




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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued





Employee-Related  Charges, Asset Impairments and Other





Applied Biosystems  group


Fiscal 2005


In the first quarter of fiscal 2005, the  Applied Biosystems group recorded a pre-tax charge of $7.4 million in  employee-related charges, asset impairments and other for severance charges  related primarily to staff reductions intended to better align the Applied  Biosystems groups resources with anticipated business opportunities and to  integrate the Applied Biosystems MALDI Time-of-Flight product line into the  Applied Biosystems/MDS Sciex Instruments joint venture with MDS Inc.  The positions eliminated were primarily in  the areas of research, manufacturing, sales and administration.





As of June 30,  2005, all of the affected employees had been terminated and substantially all  cash payments related to the terminations had been made.  The cash expenditures were funded by cash  provided by operating activities.





Fiscal 2006


In the first quarter of fiscal 2006, the  Applied Biosystems group recorded a pre-tax benefit of $0.2 million for a  reduction in anticipated employee-related costs associated with a severance and  benefit charge recorded in fiscal 2005.





In the fourth quarter of fiscal 2005, the  Applied Biosystems group decided to pursue the sale of its San Jose, California  facility and recorded a pre-tax impairment charge of $1.7 million related to  that decision.  In the first quarter of  fiscal 2006, the Applied Biosystems group recorded an additional $1.1 million  pre-tax impairment charge to write-down the carrying amount of the facility to  its current estimated market value less estimated selling costs.  Refer to Note 7 for additional information.





Other


During the first quarter of  fiscal 2006, the Applied Biosystems group made cash payments of $7.7 million  for severance and employee benefits and office closures related to charges  recorded prior to fiscal 2006.  The  following table summarizes the remaining cash payments by event and the  expected payment dates as of September 30, 2005.





|(Dollar amounts in millions)                        |  | Remaining    cash payments |     | Expected    payment dates
|--------------------------------------------------- |  | -------------------------- | --- | -------------------------
|                                                    |  |                            |     |                          
|Fiscal 2003    employee-related charge              |  | $                          | 0.5 |                          
|Fiscal 2005    employee-related charge              |  |                            | 3.5 |                          
|Fiscal 2005    excess lease space and other charges |  |                            | 3.0 |                          
|                                                    |  |                            |     |                          
|                                                    |  | $                          | 7.0 |                          
|                                                    |  |                            |     |                          




Celera Genomics  group


During the first quarter of fiscal 2005, the  Celera Genomics group recorded pre-tax charges totaling $4.5 million related to  our decision to discontinue promotion of products and most operations of  Paracel, Inc., a business we acquired in fiscal 2000.  Paracel developed high-performance genomic data and text  analysis systems for the pharmaceutical, biotechnology, information services,  and government markets.  Since the focus  of the Celera Genomics group had shifted to therapeutic discovery and  development, Paracel was no longer deemed strategic to the overall business.  The $4.5 million charge consisted of $2.8  million in employee-related charges, asset impairments and other, of which $1.1  million was for severance and benefit costs and $1.7 million was for excess  facility lease expenses and asset impairments.   The Celera Genomics group recorded the remaining $1.7 million in cost of  sales for the impairment of Paracel
inventory. The charge for excess facility lease expenses and asset impairments was  primarily for a revision to an accrual initially recorded in fiscal 2002 for  the estimated cost of excess facility space for a lease that extends through  fiscal 2011 and to write off related fixed assets.





As of March 31, 2005, the majority of the  affected Paracel employees had been terminated. Substantially all cash payments  related to these terminations were made as of June 30, 2005.  During the first quarter of fiscal 2006, we  made cash payments of $0.9 million related to the excess lease space charge.  The cash expenditures were funded by available





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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued





cash.   The remaining cash expenditures, of approximately $4.3 million related  to excess lease space, are expected to be disbursed by fiscal 2011.





Other


In the fourth quarter of fiscal  2005, the Celera Genomics group recorded a pre-tax charge of $3.4 million  related to discontinuation of the Online/Information Business, an information  products and service business.  This  charge consisted of $1.8 million for severance and benefit costs and $1.6  million for asset impairments, primarily related to information-technology  leases.  During the first quarter of  fiscal 2006, the Celera Genomics group made cash payments of $1.4 million for  severance and employee benefits and $1.4 million primarily for information  technology leases related to this charge.   The cash expenditures were funded by available cash.  As of September 30, 2005, all affected  employees had been terminated.  The  remaining cash expenditures related to this action of approximately $0.4  million are expected to be disbursed by the end of December 2005.





Other  Events Impacting Comparability





Asset dispositions and legal settlements


The following items have been  recorded in the condensed consolidated statements of operations in asset  dispositions and legal settlements.





In the first quarter of fiscal  2006, we recorded a $23.5 million pre-tax charge related to an outstanding  litigation matter and arbitration settlement.   We recorded the pre-tax charge as follows: $22.8 million at the Applied  Biosystems group, $0.5 million at the Celera Genomics group, and $0.2 million  at Celera Diagnostics.  The charge  includes an estimate of the liability that will be incurred by us to resolve  the litigation matter and the arbitration settlement described below.





With regard to the arbitration  matter,
    on November 1, 2005, an arbitrator issued his decision in a proceeding filed
    by Amersham Biosciences, now GE Healthcare.  The
    matter involved the interpretation  of a license agreement relating to
DNA sequencing reagents and kits.  Amersham had alleged, among other things,
that the Applied Biosystems group had underpaid royalties under the license agreement.  The
arbitrator awarded Amersham past damages based on an increase in royalty rates
for some of its DNA sequencing enzymes and kits that contain those enzymes, plus
interest, fees, and other costs in an amount to be determined.   As a result
of this decision, the Applied Biosystems group recorded a pre-tax charge of $20.4
million in the first quarter of fiscal 2006, $19.5 million of which was recorded
in asset dispositions and legal settlements.





In the first quarter of fiscal  2005, the Applied Biosystems group received a payment of $8.5 million from  Illumina, Inc. in connection with the termination of a joint development  agreement and settlement of a patent infringement claim and a breach of  contract claim.





Investments


The Celera Genomics group  recorded a pre-tax gain of $4.5 million in the condensed consolidated  statements of operations in gain on investments, net in the first quarter of  fiscal 2006 from the sale of a non-strategic minority equity investment.





Resolution of outstanding foreign tax matters


During  the first quarter of fiscal 2006, the Applied Biosystems group recorded a tax  benefit of $13.5 million related to the resolution of transfer pricing matters  in Japan.





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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued





Note  3  Earnings (Loss) per Share





The following table presents a  reconciliation of basic and diluted earnings (loss) per share for the three  months ended September 30:





|                                                       |  | Applied    Biosystems    Group |       | Celera    Genomics    Group |  
|------------------------------------------------------ |  | ------------------------------ | ----- | --------------------------- | -
|                                                       |  |                                |       |                             |  
|(Dollar amounts in millions, except per share amounts) |  | 2004                           |       | 2005                        |  
|                                                       |  |                                |       |                             |  
|Net income    (loss)                                   |  | $                              | 37.1  |                             | $
|Allocated    intercompany sales of assets              |  |                                | (0.1  | )                           |  
|Allocated    interperiod taxes                         |  |                                | (0.6  | )                           |  
|                                                       |  |                                |       |                             |  
|Total net    income (loss) allocated                   |  |                                | 36.4  |                             |  
|Less    dividends declared on common stock             |  |                                | 8.3   |                             |  
|                                                       |  |                                |       |                             |  
|Undistributed    earnings (loss)                       |  | $                              | 28.1  |                             | $
|                                                       |  |                                |       |                             |  
|Allocation    of basic earnings (loss) per share       |  |                                |       |                             |  
|Basic    distributed earnings per share(1)             |  | $                              | 0.04  |                             | $
|Basic    undistributed earnings (loss) per share       |  |                                | 0.15  |                             |  
|                                                       |  |                                |       |                             |  
|Total basic    earnings (loss) per share               |  | $                              | 0.19  |                             | $
|                                                       |  |                                |       |                             |  
|Allocation    of diluted earnings (loss) per share     |  |                                |       |                             |  
|Diluted    distributed earnings per share(1)           |  | $                              | 0.04  |                             | $
|Diluted    undistributed earnings (loss) per share     |  |                                | 0.14  |                             |  
|                                                       |  |                                |       |                             |  
|Total    diluted earnings (loss) per share             |  | $                              | 0.18  |                             | $
|                                                       |  |                                |       |                             |  
|Weighted    average number of common shares            |  |                                |       |                             |  
|Basic                                                  |  |                                | 195.5 |                             |  
|Common stock equivalents                               |  |                                | 2.8   |                             |  
|                                                       |  |                                |       |                             |  
|Diluted                                                |  |                                | 198.3 |                             |  
|                                                       |  |                                |       |                             |  




|                                                               
|---------------------------------------------------------------
|(1)    Amounts represent actual dividend per share distributed.







Options to purchase stock at  exercise prices greater than the average market prices of our common stocks  were excluded from the computation of diluted earnings per share because the  effect would have been antidilutive.   Additionally, options and warrants to purchase shares of Applera  Corporation-Celera Genomics Group Common Stock (Applera-Celera Genomics  stock) were excluded from the computation of diluted loss per share because  the effect was antidilutive.  The  following table presents the number of shares excluded from the diluted  earnings and loss per share computations for the three months ended September  30:





|(Shares in millions)                                         |  | 2004 |      | 2005 | 
|------------------------------------------------------------ |  | ---- | ---- | ---- | 
|                                                             |  |      |      |      | 
|Applera    Corporation-Applied Biosystems Group Common Stock |  |      | 26.7 |      | 
|Applera-Celera    Genomics stock                             |  |      | 12.5 |      | 
|                                                             |  |      |      |      | 




Note  4  Share-Based Compensation





SFAS No. 123R requires entities  to measure and recognize the cost of employee services received in exchange for  an award of equity instruments based on the grant-date fair value of the  award.  We adopted SFAS No. 123R using  the modified prospective method of transition.   This method required us to apply the provisions of SFAS No. 123R to new  awards and to any awards that were unvested as of our adoption date and did not  require us to restate prior periods.





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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued





We sponsor stock option plans,  employee stock purchase plans, and restricted stock plans.  At September 30, 2005, 45.6 million shares  of Applera-Applied Biosystems stock and 20.2 million shares of Applera-Celera  Genomics stock were authorized for grants of our share-based plans.  The following is a brief description of our  share-based plans.  For additional information  on our share-based plans, refer to Note 6 to our consolidated financial  statements included in our 2005 Annual Report to Stockholders.





| | Stock    Incentive Plans - Under our stock option plans, we grant stock options to    employees that allow them to purchase shares in both classes of our common    stock.  In addition, members of our    board of directors receive stock options for their service on our board.  We generally issue options at their fair    market value at the date of grant and most options vest in equal annual    installments over a four-year service period and expire ten years from the    grant date.                                                                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Employee    Stock Purchase Plans (ESPP)  Our ESPP offer U.S. and some non-U.S.    employees the right to purchase shares of Applera Corporation-Applied    Biosystems Group Common Stock (Applera-Applied Biosystems stock) and/or    Applera-Celera Genomics stock.     Employees are eligible to participate through payroll deductions of up    to 10% of their eligible compensation.     In the U.S., shares are purchased at 85% of the lower of the average    market price at the beginning or the end of each three-month offering    period.  Outside of the U.S., the    terms and conditions vary in some countries primarily based on local legal    and tax considerations.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Restricted    Stock Plans  As part of our stock incentive plans, employees and    non-employee directors have been granted shares of restricted stock in both    classes of our common stock that vest when various continuous    employment/service restrictions and/or specified performance goals are    achieved.                                                                                                                                                                                                                                                                                                                                                                        




We recognize share-based  compensation
    costs on a straight-line basis over the requisite service period for the
    entire grant.  For the first  quarter of fiscal 2006, we recorded a
    pre-tax charge of $1.5 million ($1.0 million net of tax) in our condensed
    consolidated statements of operations for compensation costs related to our
    share-based plans.  This amount includes a pre-tax charge of $0.7 million
    for our restricted stock plans, which would have been recorded as compensation
    expense under Accounting Principles Board Opinion No. (APB Opinion
    No.) 25, Accounting for  Stock Issued to Employees.  Cash
    received from option exercises under these plans was $36.3 million and the
    total intrinsic value of options exercised was $6.7 million in the first
    quarter of fiscal 2006.  In connection  with these exercises, we realized
    a tax benefit of $2.2 million in the first quarter of fiscal 2006.





We settle employee stock option  exercises primarily with treasury shares, if available.  As of September 30, 2005, we had 22.2  million treasury shares of Applera-Applied Biosystems stock.  Our board of directors has adopted standing  resolutions which authorize repurchases of Applera-Applied Biosystems stock and  Applera-Celera Genomics stock from time to time to replenish shares issued  under our various share-based plans.





The following table summarizes  option activity under our stock options plans during the first quarter of  fiscal 2006:





|                                     |  | Applera-Applied    Biosystems Stock |           
|------------------------------------ |  | ----------------------------------- | ----------
|                                     |  |                                     |           
|                                     |  | Number of    Options                |           
|                                     |  |                                     |           
|Outstanding    at June 30, 2005      |  |                                     | 35,348,668
|Options    granted                   |  |                                     | 193,350   
|Options    exercised                 |  |                                     | (1,689,595
|Options    cancelled                 |  |                                     | (1,562,213
|                                     |  |                                     |           
|Outstanding    at September 30, 2005 |  |                                     | 32,290,210
|Exercisable    at September 30, 2005 |  |                                     | 31,730,552
|                                     |  |                                     |           




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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued





|                                     |  | Applera-Celera    Genomics Stock |           
|------------------------------------ |  | -------------------------------- | ----------
|                                     |  |                                  |           
|                                     |  | Number of    Options             |           
|                                     |  |                                  |           
|Outstanding    at June 30, 2005      |  |                                  | 10,412,800
|Options    granted                   |  |                                  | 26,900    
|Options    exercised                 |  |                                  | (385,786  
|Options    cancelled                 |  |                                  | (306,838  
|                                     |  |                                  |           
|Outstanding    at September 30, 2005 |  |                                  | 9,747,076 
|Exercisable    at September 30, 2005 |  |                                  | 9,702,101 
|                                     |  |                                  |           




The following table summarizes  nonvested award activity under our restricted stock plans during the first  quarter of fiscal 2006:





|                                   |  | Applera-Applied    Biosystems Stock |         | Applera-Celera    Genomics Stock             |  
|---------------------------------- |  | ----------------------------------- | ------- | -------------------------------------------- | -
|                                   |  |                                     |         |                                              |  
|                                   |  | Number of    Awards                 |         | Weighted-Average    Grant-Date    Fair Value |  
|                                   |  |                                     |         |                                              |  
|Nonvested at    June 30, 2005      |  |                                     | 197,748 |                                              | $
|Vested                             |  |                                     | 69,166  |                                              |  
|                                   |  |                                     |         |                                              |  
|Nonvested at    September 30, 2005 |  |                                     | 128,582 |                                              | $
|                                   |  |                                     |         |                                              |  

---




As of September 30, 2005, we  have $2.4 million of total unrecognized compensation costs related to nonvested  awards that are expected to be recognized over a weighted average period of one  year.





Pro Forma Disclosures  Prior to Adoption of  SFAS No. 123R





Prior to fiscal 2006, we  applied
    the provisions of APB Opinion No. 25 in accounting for our share-based plans.  Under
    APB Opinion No. 25, we did not record any compensation cost related to stock
    options since, generally,  the exercise price of stock options granted to
    employees equaled the fair market value of our stock prices at the date of
    grant.   We
    also did not record any compensation expense related to our ESPP since the
    provisions of these plans were deemed non-compensatory under APB Opinion
    No. 25.  However, for restricted  stock, the intrinsic value as of the
    grant date was amortized to compensation expense over their vesting period.   During
    the first quarter of fiscal 2005, we recorded a pre-tax charge of approximately
    $1.0 million ($0.7 million net of tax) for restricted stock under ABP Opinion
    No. 25. The following tables illustrate the effect on reported net income
    (loss) and earnings (loss) per share for the first quarter of  fiscal 2005
    as if we had applied the fair value method of accounting for employee stock
    plans as required by SFAS No. 123, Accounting for Share-Based Compensation.





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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued





The earnings (loss) per share  and pro forma effects on results for the three months ended September 30, 2004,  are presented below:





|(Dollar amounts in millions)      |                                                                                                      | Applera    Corporation |      | Applied    Biosystems    Group |   | Celera    Genomics    Group |     
|--------------------------------- | ---------------------------------------------------------------------------------------------------- | ---------------------- | ---- | ------------------------------ | - | --------------------------- | ----
|                                  |                                                                                                      |                        |      |                                |   |                             |     
|Net income    (loss), as reported |                                                                                                      | $                      | 16.1 |                                | $ | 36.4                        |     
|Add:                              | Share-based    employee compensation expense included in reported net income, net of tax             |                        |      | 0.7                            |   |                             | 0.4 
|Deduct:                           | Share-based    employee compensation expense determined under fair value based method, net    of tax |                        |      | 19.2                           |   |                             | 15.6
|                                  |                                                                                                      |                        |      |                                |   |                             |     
|Pro forma    net income (loss)    |                                                                                                      | $                      | (2.4 | )                              | $ | 21.2                        |     
|                                  |                                                                                                      |                        |      |                                |   |                             |     
|Earnings    (loss) per share      |                                                                                                      |                        |      |                                |   |                             |     
|                                  | Basic - as    reported                                                                               |                        |      |                                |   | $                           | 0.19
|                                  | Basic - pro    forma                                                                                 |                        |      |                                |   | $                           | 0.11
|                                  | Diluted - as    reported                                                                             |                        |      |                                |   | $                           | 0.18
|                                  | Diluted     pro forma                                                                               |                        |      |                                |   | $                           | 0.11
|                                  |                                                                                                      |                        |      |                                |   |                             |     




Valuation Assumptions in Estimating Fair  Value





We estimated the fair value of  stock options at the grant date using the Black-Scholes option pricing model  with the following weighted average assumptions:





|                                                  |  | Three months ended    September 30, |      
|------------------------------------------------- |  | ----------------------------------- | -----
|                                                  |  |                                     |      
|                                                  |  | 2004                                |      
|                                                  |  |                                     |      
|Applied Biosystems Group                          |  |                                     |      
|Dividend    yield                                 |  |                                     | 0.9  
|Risk-free    interest rate                        |  |                                     | 3.5  
|Expected    option life in years                  |  |                                     | 5    
|Volatility                                        |  |                                     | 70   
|Weighted-average    fair value per option granted |  | $                                   | 11.10
|                                                  |  |                                     |      
|Celera Genomics Group                             |  |                                     |      
|Risk-free    interest rate                        |  |                                     | 3.5  
|Expected    option life in years                  |  |                                     | 4    
|Volatility                                        |  |                                     | 60   
|Weighted-average    fair value per option granted |  | $                                   | 5.25 
|                                                  |  |                                     |      




Prior to fiscal 2006, we  determined the expected term of our options primarily based on the average life  of our options for both the Applera-Applied Biosystems stock and the  Applera-Celera Genomics stock.  With the  adoption of SFAS No. 123R in fiscal 2006, we determined the expected term of  our options based on historical exercise patterns, which factored in the  historical weighted average holding period from grant date to settlement date  and from vest date to exercise date.  We  used the historical exercise patterns to project future settlement of  outstanding options.  As a result, the  expected option life for Applera-Applied Biosystems stock decreased from five  to four years and increased from four to five years for Applera-Celera Genomics  stock.





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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued





Prior to fiscal 2006, we  determined expected volatility based on historical volatilities of our two  classes of common stock over the expected term.  With the adoption of SFAS No. 123R, we continue to determine  expected volatility based on historical volatilities, but have incorporated  some adjustments, as noted below, related to the Celera Genomics group.  In addition, under SFAS No. 123R, we began using  a mean reversion analysis, which we believe provides a better estimate of  current and future volatility rate expectations for our classes of stock.  The volatility rate for Applera-Applied  Biosystems stock decreased from the prior year quarter primarily as a result of  the decline in the expected option life as discussed in the preceding  paragraph.  We believe that the  methodology used to determine the historical volatility for Applera-Celera  Genomics stock under APB Opinion No. 25, which included the impact of the  sequencing
and publication of the human genome by the Celera Genomics group,  resulted in extraordinary volatility in the Celera Genomics groups stock  price.  As such, with the adoption of  SFAS No. 123R, we excluded this unusually volatile period from our  mean-reversion analysis.





Note  5  Comprehensive Gain





The components of comprehensive  gain (loss) are reflected net of tax, except for foreign currency translation  adjustments, which are generally not adjusted for income taxes as they relate  to indefinite investments in nonU.S. subsidiaries.  Comprehensive gain (loss) was as follows:





|                                                                    |  | Three months ended    September 30, |     
|------------------------------------------------------------------- |  | ----------------------------------- | ----
|                                                                    |  |                                     |     
|(Dollar amounts in millions)                                        |  | 2004                                |     
|                                                                    |  |                                     |     
|Net income                                                          |  | $                                   | 16.1
|Other    comprehensive gain (loss):                                 |  |                                     |     
|Net unrealized gains (losses) on investments                        |  |                                     | 0.2 
|Net unrealized gains (losses) on hedge contracts                    |  |                                     | (2.7
|Net unrealized losses on hedge contracts reclassified into earnings |  |                                     | 2.0 
|Foreign currency translation adjustments                            |  |                                     | 5.2 
|                                                                    |  |                                     |     
|Total other    comprehensive gain (loss)                            |  |                                     | 4.7 
|                                                                    |  |                                     |     
|Total    comprehensive gain                                         |  | $                                   | 20.8
|                                                                    |  |                                     |     




Note  6  Inventories





Inventories included the  following components:





|(Dollar amounts in millions)  |  | June 30,    2005 |       | September 30,    2005 |  
|----------------------------- |  | ---------------- | ----- | --------------------- | -
|                              |  |                  |       |                       |  
|Raw    materials and supplies |  | $                | 45.9  |                       | $
|Work-in-process               |  |                  | 5.3   |                       |  
|Finished    products          |  |                  | 75.3  |                       |  
|                              |  |                  |       |                       |  
|Total    inventories, net     |  | $                | 126.5 |                       | $
|                              |  |                  |       |                       |  




Note  7  Assets Held for Sale





In connection with the reduction and  rebalancing of the Applied Biosystems groups workforce during the fourth  quarter of fiscal 2005, the Applied Biosystems group decided to pursue the sale  of its San Jose, California facility.   As a result of this decision, we reclassified $7.0 million of property,  plant and equipment into assets held for sale within prepaid expenses and other  current assets at June 30, 2005, and recorded a $1.7 million pre-tax charge  that represented the write-down of the carrying amount of the facility to its  estimated market value less estimated selling costs.  As discussed in Note 2, the Applied Biosystems group recorded an  additional $1.1 million pre-tax impairment charge during the first quarter of  fiscal 2006.





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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued





The sale of this facility is expected to  occur by June 30, 2006.  At September  30, 2005, we had $5.5 million of assets held for sale within prepaid expenses  and other current assets.





Note  8  Goodwill and Intangible Assets





The following table presents  our intangible assets subject to amortization:





|                              |  | June 30,    2005            |      | September 30, 2005          |  
|----------------------------- |  | --------------------------- | ---- | --------------------------- | -
|                              |  |                             |      |                             |  
|(Dollar amounts in millions)  |  | Gross    Carrying    Amount |      | Accumulated    Amortization |  
|                              |  |                             |      |                             |  
|Patents                       |  | $                           | 25.5 |                             | $
|Acquired    technology        |  |                             | 60.5 |                             |  
|Favorable    operating leases |  |                             | 11.6 |                             |  
|                              |  |                             |      |                             |  
|Total                         |  | $                           | 97.6 |                             | $
|                              |  |                             |      |                             |  




Aggregate amortization expense  was as follows:





|                             |  | Three    months ended    September 30, |    
|---------------------------- |  | -------------------------------------- | ---
|                             |  |                                        |    
|(Dollar amounts in millions) |  | 2004                                   |    
|                             |  |                                        |    
|Applied    Biosystems group  |  | $                                      | 1.8
|Celera    Genomics group     |  |                                        | 0.7
|Celera    Diagnostics        |  |                                        | 0.5
|                             |  |                                        |    
|Consolidated                 |  | $                                      | 3.0
|                             |  |                                        |    




The Applied Biosystems group  records a substantial portion of amortization expense in cost of sales.  The Celera Genomics group records  amortization expense in amortization of intangible assets, and Celera  Diagnostics records amortization expense in cost of sales.





At September 30, 2005, we  estimated annual amortization expense of our intangible assets for each of the  next five fiscal years as shown in the following table.  Future acquisitions or impairment events  could cause these amounts to change.





|(Dollar amounts in millions)   |  | Applied    Biosystems    Group |     | Celera    Genomics    Group |   | Celera    Diagnostics |  | Consolidated |    
|------------------------------ |  | ------------------------------ | --- | --------------------------- | - | --------------------- |  | ------------ | ---
|                               |  |                                |     |                             |   |                       |  |              |    
|Remainder
      of fiscal 2006 |  | $                              | 5.9 |                             | $ | 0.4                   |  | $            | 1.7
|2007                           |  |                                | 6.2 |                             |   |                       |  |              | 2.1
|2008                           |  |                                | 3.5 |                             |   |                       |  |              | 0.5
|2009                           |  |                                | 2.5 |                             |   |                       |  |              | 0.1
|2010                           |  |                                | 2.1 |                             |   |                       |  |              | 0.1
|                               |  |                                |     |                             |   |                       |  |              |    




The carrying amount of goodwill  at June 30, 2005, and September 30, 2005, was $39.4 million, of which $36.7  million was allocated to the Applied Biosystems group and $2.7 million was  allocated to the Celera Genomics group.





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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued





Note  9  Supplemental Cash Flow Information





Significant non-cash financing  activities for the three months ended September 30 were as follows:





|(Dollar amounts in millions)                     |  | 2004 |     | 2005 |  
|------------------------------------------------ |  | ---- | --- | ---- | -
|                                                 |  |      |     |      |  
|Tax benefit    related to employee stock options |  | $    | 0.7 |      | $
|Issuances of    restricted stock                 |  | $    | 0.4 |      | $
|                                                 |  |      |     |      |  








Note  10  Guarantees





Leases


The Applied Biosystems group  provides lease-financing options to its customers through third party financing  companies.  For some leases, the  financing companies have recourse to us for any unpaid principal balance upon  default by the customer.  The leases  typically have terms of two to three years and are secured by the underlying  instrument.  In the event of default by  a customer, we would repossess the underlying instrument.  We record revenues from these transactions  upon the completion of installation/acceptance of products and maintain a  reserve for estimated losses on all lease transactions with recourse provisions  based on historical default rates and current economic conditions.  At September 30, 2005, the financing  companies outstanding balance of lease receivables with recourse to us was  $9.2 million.  We believe that we could  recover the entire balance from the resale of the underlying instruments
in the  event of default by all customers.





Guarantee of pension benefits for divested  business


As part of the divestiture of  our Analytical Instruments business in fiscal 1999, the purchaser of the  Analytical Instruments business is paying for the pension benefits for  employees of a former German subsidiary.   However, we guaranteed payment of these pension benefits should the  purchaser fail to do so, as these benefits were not transferable to the buyer  under German law.  The guaranteed  payment obligation, which approximated $54 million at September 30, 2005, is  not expected to have a material adverse effect on our consolidated statement of  financial position.





Indemnifications


In the normal course of  business, we enter into some agreements under which we indemnify third parties  for intellectual property infringement claims or claims arising from breaches  of representations or warranties.  In  addition, from time to time, we provide indemnity protection to third parties  for claims relating to past performance arising from undisclosed liabilities,  product liabilities, environmental obligations, representations and warranties,  and other claims.  In these agreements,  the scope and amount of remedy, or the period in which claims can be made, may  be limited.  It is not possible to  determine the maximum potential amount of future payments, if any, due under  these indemnities due to the conditional nature of the obligations and the  unique facts and circumstances involved in each agreement.  Historically, payments made related to these  indemnifications have not been material to our consolidated financial
position.





Product warranties


We accrue warranty costs for  product sales at the time of shipment based on historical experience as well as  anticipated product performance.  Our  product warranties extend over a specified period of time ranging up to two  years from the date of sale depending on the product subject to warranty.  The warranties cover equipment installation, customer training, and  application support.  We  periodically review the adequacy of our warranty reserve, and adjust, if  necessary, the warranty percentage and accrual based on actual experience and  estimated costs to be incurred.





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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued





The following table provides an  analysis of the warranty reserve for the three months ended September 30:





|(Dollar amount in millions) |  | 2004 |      | 2005 |  
|--------------------------- |  | ---- | ---- | ---- | -
|                            |  |      |      |      |  
|Balance at    June 30       |  | $    | 15.9 |      | $
|Accruals for    warranties  |  |      | 4.5  |      |  
|Usage of    reserve         |  |      | (6.5 | )    |  
|                            |  |      |      |      |  
|Balance at    September 30  |  | $    | 13.9 |      | $
|                            |  |      |      |      |  




Note  11  Pension and Other Postretirement Benefits





The components of net pension  and postretirement benefit expenses for the three months ended September 30  were as follows:





|                                  |  | Three    months ended    September 30, |      
|--------------------------------- |  | -------------------------------------- | -----
|                                  |  |                                        |      
|(Dollar amounts in millions)      |  | 2004                                   |      
|                                  |  |                                        |      
|Pension                           |  |                                        |      
|Service cost                      |  | $                                      | 0.6  
|Interest    cost                  |  |                                        | 9.5  
|Expected    return on plan assets |  |                                        | (10.5
|Amortization    of losses         |  |                                        | 0.9  
|                                  |  |                                        |      
|Net periodic    expense           |  | $                                      | 0.5  
|                                  |  |                                        |      
|Postretirement Benefit            |  |                                        |      
|Service cost                      |  | $                                      | 0.1  
|Interest    cost                  |  |                                        | 1.0  
|Amortization    of gains          |  |                                        | (0.1 
|                                  |  |                                        |      
|Net periodic    expense           |  | $                                      | 1.0  
|                                  |  |                                        |      




We  expect to contribute $0.9 million to our foreign pension plans for the fiscal  year ended June 30, 2006.  Through  September 30, 2005, we have not made any contributions to the pension  plans.  We made benefit payments of  approximately $1.9 million during the three months ended September 30, 2005,  and we expect to make approximately $4.0 million of additional benefit payments  during the remainder of fiscal 2006 under the postretirement plan.





Note 12  Contingencies





Supply Arrangement


On  October 8, 2005, Delphi Medical Systems Texas Corporation, a supplier of some  instruments and parts for the Applied Biosystems group (Delphi Medical Systems),  and its parent Delphi Corporation, filed a petition in the United States  Bankruptcy Court for the Southern District of New York seeking relief under the  provisions of Chapter 11 of the federal Bankruptcy Code.  As of September 30, 2005, the Applied  Biosystems group had an accounts receivable balance of approximately $7.3  million and an accounts payable balance of approximately $3.0 million with  Delphi Medical Systems.  At the present  time, no assessment can be made as to if and when or how much of the balance  due from Delphi Medical Systems may be paid, how much of the amount owed to  Delphi Medical Systems may be offset against the amounts payable by Delphi  Medical Systems, or the effect of the Chapter 11 filing on the supply contracts  in effect between the
companies.





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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued





Legal Proceedings


We  are involved in various lawsuits, arbitrations, investigations, and other legal  actions from time to time with both private parties and governmental  entities.  These legal actions currently  involve, for example, commercial, intellectual property, antitrust,  environmental, securities, and employment matters.  We believe that we have meritorious defenses against the claims  currently asserted against us and intend to defend them vigorously.  The following is a description of some  claims we are currently defending, including some counterclaims  brought against us in response to claims filed by us against third parties.





Applera and some of its  officers are defendants in a lawsuit brought on behalf of purchasers of  Applera-Celera Genomics stock in our follow-on public offering of  Applera-Celera Genomics stock completed on March 6, 2000.  In the offering, we sold an aggregate of  approximately 4.4 million shares of Applera-Celera Genomics stock at a public  offering price of $225 per share.  The  lawsuit, which was commenced with the filing of several complaints in April and  May 2000, is pending in the U.S. District Court for the District of  Connecticut, and an amended consolidated complaint was filed on August 21,  2001.  The consolidated complaint  generally alleges that the prospectus used in connection with the offering was  inaccurate or misleading because it failed to adequately disclose the alleged  opposition of the Human Genome Project and two of its supporters, the  governments of the U.S. and the U.K., to providing patent protection to our
genomic-based products.  Although the  Celera Genomics group has never sought, or intended to seek, a patent on the  basic human genome sequence data, the complaint also alleges that we did not  adequately disclose the risk that the Celera Genomics group would not be able  to patent this data.  The consolidated  complaint seeks monetary damages, rescission, costs and expenses, and other  relief as the court deems proper.  On  March 31, 2005, the Court certified the case as a class action.





We are involved in several  litigation matters with MJ Research, Inc. (acquired by Bio-Rad Laboratories,  Inc. since the commencement of litigation), which commenced with our filing  claims against MJ Research on June 24, 1998, in the U.S. District Court for the  District of Connecticut based on its alleged infringement of some polymerase  chain reaction, or PCR, patents.  In  response to our claims, MJ Research filed counterclaims including, among  others, allegations that we have licensed and enforced these patents through  anticompetitive conduct in violation of federal and state antitrust laws, that  some of our patents are unenforceable because of patent misuse, and that some  of our patents are invalid and unenforceable because of inequitable  conduct.  MJ Research is seeking  injunctive relief, monetary damages, costs and expenses, and other relief.  These matters were adjudicated in part  through a jury trial, which resulted in a
verdict in our favor rendered in  April 2004, and the remaining issues were resolved through a series of summary  judgments granted by the District Court in several rulings issued in our favor  between December 2004 and April 2005.   As a result, MJ Researchs counterclaims were rejected and MJ Research  has been held liable to us and Roche Molecular Systems, also a party to the litigation,  for infringement of U.S. Patent Nos. 4,683,195, 4,683,202 and 4,965,188 (each  relates to PCR process technology) and U.S. Patent Nos. 5,656,493, 5,333,675  and 5,475,610 (each relates to thermal cycler instrument technology). Further,  the infringement of the 195, 202, 188 and 493 patents was held to be  willful.  As a result of these decisions  in our favor, in April 2005, the District Court awarded us and Roche Molecular  Systems damages of $35.4 million plus reasonable attorneys fees, an enhancement  of the original damages award granted by the jury in the amount of
$19.8  million. The Court also awarded, on August 26, 2005, prejudgment interest of  approximately $1 million.  Additionally,  on August 30, 2005, the Court issued an order enjoining MJ Research from  infringing U.S. Patent Nos. 5,333,675, 5,656,493 and 5,475,610. Both parties  have filed notices of appeals of some of the rulings in the case, including the  damages award and the order enjoining MJ Research.





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Subsequent to the filing of our  claims against MJ Research which are described in the preceding paragraph, on  September 21, 2000, MJ Research filed an action against us in the U.S. District  Court for the District of Columbia.   This complaint is based on the allegation that the patents underlying  our DNA sequencing instruments were improperly obtained because one of the  alleged inventors, whose work was funded in part by the U.S. government, was  knowingly omitted from the patent applications.  Our patents at issue are U.S. Patent Nos. 5,171,534, entitled  Automated DNA Sequencing Technique, 5,821,058, entitled Automated DNA  Sequencing Technique, 6,200,748, entitled Tagged Extendable Primers and Extension  Products, and 4,811,218, entitled Real Time Scanning Electrophoresis  Apparatus for DNA Sequencing.  The  complaint asserts violations of the federal False Claims Act and the federal  Bayh
Dole Act, invalidity and unenforceability of the patents at issue, patent  infringement, and various other civil claims against us.  MJ Research is seeking monetary damages,  costs and expenses, injunctive relief, transfer of ownership of the patents in  dispute, and other relief as the court deems proper.  MJ Research claims to be suing in the name of the U.S. government  although the government has to date declined to participate in the suit.  On October 9, 2003, the case against us was  dismissed but MJ Research has filed an appeal.





Promega Corporation filed a  patent infringement action against Lifecodes Corporation, Cellmark Diagnostics,  Genomics International Corporation, and us in the U.S. District Court for the  Western District of Wisconsin on April 24, 2001.  The complaint alleges that the defendants are infringing  Promegas U.S. Patent Nos. 6,221,598 and 5,843,660, both entitled Multiplex  Amplification of Short Tandem Repeat Loci, due to the defendants sale of  forensic identification and paternity testing kits.  Promega is seeking monetary damages, costs and expenses,  injunctive relief, and other relief as the court deems proper.  The defendants answered the complaint on  July 9, 2001, and we asserted counterclaims alleging that Promega is infringing  our U.S. Patent No. 6,200,748, entitled Tagged Extendable Primers and  Extension Products, due to Promegas sale of forensic identification and  paternity testing
kits.  As a result of  settlement negotiations, the case was dismissed without prejudice on October  29, 2002, but could be re-filed against us if settlement negotiations are not  successful.





Beckman Coulter, Inc. filed a  patent infringement action against us in the U.S. District Court for the  Central District of California on July 3, 2002.  The complaint alleges that we are infringing Beckman Coulters U.S.  Patent Nos. RE 37,606 and 5,421,980, both entitled Capillary Electrophoresis  Using Replaceable Gels, and U.S. Patent No. 5,552,580, entitled Heated Cover  Device.  The allegedly infringing  products are the Applied Biosystems groups capillary electrophoresis  sequencing and genetic analysis instruments, and PCR and real-time PCR  systems.  Since Beckman Coulter filed  this claim, U.S. Patent No. 5,421,980 has been reissued as U.S. Patent No. RE  37,941, entitled Capillary Electrophoresis Using Replaceable Gels.  On January 13, 2003, the court permitted  Beckman Coulter to make a corresponding amendment to its complaint.  Beckman Coulter is seeking monetary damages,
costs and expenses, injunctive relief, and other relief as the court deems  proper.  On February 10, 2003, we filed  our answer to Beckman Coulters allegations, and counterclaimed for declaratory  relief that the Beckman Coulter patents underlying Beckman Coulters claim are  invalid, unenforceable, and not infringed.   We are seeking dismissal of Beckman Coulters complaint, costs and  expenses, declaratory and injunctive relief, and other relief as the court  deems proper.





Genetic Technologies Limited  filed a patent infringement action against us in the U.S. District Court for  the Northern District of California on March 26, 2003.  They filed an amended complaint against us  on August 12, 2003.  The amended  complaint alleges that we are infringing U.S. Patent No. 5,612,179, entitled  Intron Sequence Analysis Method for Detection of Adjacent and Remote Locus  Alleles as Haplotypes, and U.S. Patent No. 5,851,762, entitled Genomic  Mapping Method by Direct Haplotyping Using Intron Sequence Analysis.  The allegedly infringing products are cystic  fibrosis reagent kits, TaqMan® genotyping and gene expression assay products  for non-coding regions, TaqMan genotyping and gene expression assay services  for non-coding regions, AmpFLSTR® kits, the SNPlex Genotyping System, the  SNPbroswer tool, and the Celera Discovery System (CDS).  The complaint
also alleges that haplotyping  analysis performed by our businesses infringes the patents identified above.  Genetic Technologies Limited is seeking monetary  damages, costs, expenses, injunctive relief, and other relief as the court  deems proper.





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On-Line Technologies, Inc. (since  acquired by MKS Instruments, Inc.) filed claims for patent infringement, trade  secret misappropriation, fraud, breach of contract and unfair trade practices  against PerkinElmer, Inc., Sick UPA, GmbH, and us in the U.S. District Court  for the District of Connecticut on or about November 3, 1999.  The complaint alleged that products called  the Spectrum One and the MCS100E manufactured by former divisions of the  Applied Biosystems group, which divisions were sold to the co-defendants in  this case, were based on allegedly proprietary information belonging to On-Line  Technologies and that the MCS100E infringed U.S. Patent No. 5,440,143.  On-Line Technologies sought monetary  damages, costs, expenses, injunctive relief, and other relief.  On April 2, 2003, the U.S. District Court  for the District of Connecticut granted our summary judgment motion and  dismissed all claims brought by On-Line
Technologies.  On-Line Technologies filed an appeal with the U.S. Court of  Appeals for the Federal Circuit seeking reinstatement of its claims, and on  October 13, 2004, the Court of Appeals upheld dismissal of all claims except  for the patent infringement claim, which will be decided by the District Court  in subsequent proceedings.





Promega Corporation filed an  action against us and some of our affiliates and Roche Molecular Systems, Inc.  and Hoffmann-La Roche, Inc. in the U.S. District Court for the Eastern District  of Virginia on April 10, 2000.  The  complaint asserted violations of the federal False Claims Act. The complaint alleged  that we and Hoffmann-La Roche overcharged the U.S. government for thermal  cyclers and PCR reagents.  The  overcharges were alleged to be the result of a licensing program based in part  on U.S. Patent No. 4,889,818.  Promega  asserted that U.S. Patent No. 4,889,818 was obtained fraudulently and that the  licensing program run by us and Hoffmann-La Roche was the cause of the alleged  overcharging.  Promega was seeking  monetary damages.  Promega claimed to be  suing in the name of the U.S. government although the government declined to  participate in the suit.  On June 29,  2004, the court granted our motion to dismiss
for failure to state a claim upon  which relief could be granted, but gave Promega the right to file an amended  complaint.  Promega filed an amended  complaint on July 13, 2004, and we filed another motion to dismiss on August 6,  2004.  The court granted our second  motion and dismissed the case with prejudice on August 20, 2004.  Promega had filed an appeal with the U.S.  Court of Appeals for the Fourth Circuit. However, this litigation was  terminated on September 26, 2005, when Promega withdrew its appeal and the  parties granted each other a mutual release of claims.





Bio-Rad Laboratories, Inc.  filed a patent infringement, trademark infringement, and unfair competition  action against us in the U.S. District Court for the Northern District of  California on December 26, 2002.  The  complaint alleges that we are infringing Bio-Rads U.S. Pat. No. 5,089,011,  entitled Electrophoretic Sieving in Gel-Free Media with Dissolved Polymers,  and infringing Bio-Rads Bio-Rad trademark.   They filed a third amended complaint against us on May 30, 2003.  The allegedly infringing products according  to the third amended complaint are instruments using, and reagents used for,  capillary electrophoresis, and products using the BioCAD name.  Bio-Rad submitted its final infringement  contentions under the local court rules on April 22, 2004, and the parties held  a court-ordered mediation conference on July 19, 2004.  Bio-Rad is seeking monetary damages, costs,  expenses,
injunctive relief, and other relief as the court deems proper.





Enzo Biochem, Inc., Enzo Life  Sciences, Inc., and Yale University filed a patent infringement action against  us in the U.S. District Court for the District of Connecticut on June 8,  2004.  The complaint alleges that we are  infringing six patents.  Four of these  patents are assigned to Yale University and licensed exclusively to Enzo  Biochem, i.e., U.S. Patent No. 4,476,928, entitled Modified Nucleotides and  Polynucleotides and Complexes Formed Therefrom, U.S. Patent No. 5,449,767,  entitled Modified Nucleotides and Polynucleotides and Methods of Preparing  Same, U.S. Patent No. 5,328,824 entitled Methods of Using Labeled  Nucleotides, and U.S. Patent No. 4,711,955, entitled Modified Nucleotides and  Polynucleotides and Methods of Preparing and Using Same.  The other two patents are assigned to Enzo  Life Sciences, i.e., U.S. Patent No. 5,082,830 entitled End Labeled Nucleotide
Probe and U.S. Patent No. 4,994,373 entitled Methods and Structures Employing  Compoundly  Labeled Polynucleotide Probes.     The allegedly infringing products include the Applied Biosystems groups  sequencing reagent kits, its TaqMan® genotyping and gene expression assays, and  the gene expression microarrays used with its Expression Array System.  Enzo Biochem, Enzo Life Sciences, and Yale  University are seeking monetary damages, costs, expenses, injunctive relief,  and other relief as the court deems proper.





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Molecular Diagnostics  Laboratories filed a class action complaint against us and Hoffmann-La Roche,  Inc. in the U.S. District Court for the District of Columbia on September 23,  2004.  The complaint alleges  anticompetitive conduct in connection with the sale of Taq DNA polymerase and  PCR-related products.  The anticompetitive  conduct is alleged to arise from the prosecution and enforcement of U.S. Patent  No. 4,889,818.  This patent is assigned  to Hoffmann-La Roche, with whom we have a commercial relationship covering,  among other things, this patent and the sale of Taq DNA polymerase.  The complaint seeks monetary damages, costs,  expenses, injunctive relief, and other relief as the court deems proper.  This case is largely based on the same set  of contentions underlying a claim filed against us by Promega Corporation in  the U.S. District Court for the Eastern District of Virginia, which is described  above.  The
Promega claim was dismissed  in August 2004 for, among other reasons, failure to state a claim upon which  relief could be granted.





We filed a patent infringement  action against Bio-Rad Laboratories, Inc., MJ Research, Inc., and Stratagene  Corporation in the U.S. District Court for the District of Connecticut on  November 9, 2004.  The complaint alleges  that the defendants infringe U.S. Patent No. 6,814,934.  The complaint specifically alleges that the  defendants activities involving instruments for real-time PCR detection result  in infringement.  We are seeking  monetary damages, costs, expenses, injunctive relief, and other relief as the  court deems proper.  Bio-Rad, MJ  Research, and Stratagene have each answered the complaint and counterclaimed  for declaratory relief that the 934 patent is invalid and not infringed.   Bio-Rad, MJ Research, and Stratagene are  seeking dismissal of our complaint, a judgment that the 934 patent is invalid  and not infringed, costs and expenses, and other relief as the court deems  proper.





Thermo Finnigan LLC filed a  patent infringement action against us in the U.S. District Court for the  District of Delaware on December 8, 2004.   The complaint alleges that we have infringed U.S. Patent No. 5,385,654 as  a result of, for example, our Applied Biosystems groups commercialization of  the ABI PRISM 3700 Genetic Analyzer.   Thermo Finnigan is seeking monetary damages, costs, expenses, and other  relief as the court deems proper.





Other than for items deemed not  material, we have not accrued for any potential losses in the legal proceedings  described above because we believe that an adverse determination is not  probable, and potential losses cannot be reasonably estimated, in any of these  proceedings.  However, the outcome of  legal actions is inherently uncertain, and we cannot be sure that we will  prevail in any of the proceedings described above or in our other legal  actions.  An adverse determination in  some of our current legal actions, particularly the proceedings described  above, could have a material adverse effect on us and our consolidated  financial statements.





Note  13  Segment and Consolidating Information





Presented below is our segment  and consolidating financial information, including the allocation of expenses  between our segments in accordance with our allocation policies, as well as  other related party transactions, such as sales of products between  segments.  Our board of directors  approves the method of allocating earnings to each class of common stock for  purposes of calculating earnings per share.   This determination is generally based on net income or loss amounts of  the corresponding group calculated in accordance with GAAP, consistently  applied.





See Note 14 to our consolidated  financial statements included in our 2005 Annual Report to Stockholders for a  detailed description of the segments and the management and allocation policies  applicable to the attribution of assets, liabilities, revenues and expenses to  the segments (which information is incorporated in this quarterly report by  reference).





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The following table summarizes  revenues earned between segments:





|                                                   |  | Three    months ended    September 30, |    
|-------------------------------------------------- |  | -------------------------------------- | ---
|                                                   |  |                                        |    
|(Dollar amounts in millions)                       |  | 2004                                   |    
|                                                   |  |                                        |    
|Applied    Biosystems Group                        |  |                                        |    
|Sales to the Celera    Genomics group (a)          |  | $                                      | 0.6
|Sales to Celera    Diagnostics (a)                 |  |                                        | 0.7
|                                                   |  |                                        |    
|Celera    Genomics Group                           |  |                                        |    
|Royalties from the Applied    Biosystems group (b) |  | $                                      | 0.6
|                                                   |  |                                        |    




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(a)     The  Applied Biosystems group recorded net revenues from leased instruments and  sales of consumables and project materials to the Celera Genomics group and  Celera Diagnostics.





(b)     The  Celera Genomics group recorded net revenues primarily for royalties generated  from sales by the Applied Biosystems group of products integrating Celera  Discovery SystemTM (CDS) and some other genomic and biological  information under a marketing and distribution agreement.





The following table summarizes  additional related party transactions between segments:





|                                                             |  | Three    Months Ended    September 30, |     
|------------------------------------------------------------ |  | -------------------------------------- | ----
|                                                             |  |                                        |     
|(Dollar amounts in millions)                                 |  | 2004                                   |     
|                                                             |  |                                        |     
|Applied Biosystems    Group                                  |  |                                        |     
|Nonreimbursable    utilization of tax benefits(a)            |  | $                                      | 10.6
|Payments for reimbursable    utilization of tax benefits (b) |  |                                        | 4.3 
|Funding of Celera    Diagnostics (c)                         |  |                                        | 1.4 
|                                                             |  |                                        |     
|Celera    Genomics Group                                     |  |                                        |     
|Funding of Celera    Diagnostics (d)                         |  | $                                      | 8.8 
|                                                             |  |                                        |     




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(a)     The  Applied Biosystems group received, without reimbursement, some of the tax  benefits generated by the Celera Genomics group in accordance with our tax  allocation policy.





(b)     The  Applied Biosystems group paid the Celera Genomics group for the use of existing  tax benefits acquired by the Celera Genomics group in business combinations and  other tax benefits, including those associated with Celera Diagnostics, in  accordance with our tax allocation policy.





(c)     The  Applied Biosystems group recorded its share of capital expenditures and working  capital funding for Celera Diagnostics.





(d)     The  Celera Genomics group recorded the funding of cash operating losses and its  share of capital expenditures and working capital for Celera Diagnostics.





For the three month periods  ended September 30, 2004 and 2005, the Celera Genomics group recorded 100% of  the losses of Celera Diagnostics in its net loss as well as the tax benefit  associated with those losses. In the following tables, the Eliminations  column represents the elimination of intersegment activity and the losses on  Celera Diagnostics, which are included both in the Celera Diagnostics column  and net within the Celera Genomics group column as Loss from joint  venture.





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Condensed  Consolidating Statement of Operations for the Three Months Ended September 30,  2005





|(Dollar amounts in thousands)                            |  | Applied    BiosystemsGroup |         | Celera    GenomicsGroup |   | CeleraDiagnostics |   | Eliminations |        | Consolidated |  
|-------------------------------------------------------- |  | -------------------------- | ------- | ----------------------- | - | ----------------- | - | ------------ | ------ | ------------ | -
|                                                         |  |                            |         |                         |   |                   |   |              |        |              |  
|Products                                                 |  | $                          | 335,808 |                         | $ | 653               |   | $            | 2,068  |              | $
|Services                                                 |  |                            | 51,443  |                         |   | 495               |   |              | 329    |              |  
|Other                                                    |  |                            | 26,724  |                         |   |                   |   |              | 4,708  |              |  
|                                                         |  |                            |         |                         |   |                   |   |              |        |              |  
|Net revenues from external    customers                  |  |                            | 413,975 |                         |   | 1,148             |   |              | 7,105  |              |  
|Intersegment revenues                                    |  |                            | 1,490   |                         |   | 956               |   |              |        |              |  
|                                                         |  |                            |         |                         |   |                   |   |              |        |              |  
|Total Net    Revenues                                    |  |                            | 415,465 |                         |   | 2,104             |   |              | 7,105  |              |  
|                                                         |  |                            |         |                         |   |                   |   |              |        |              |  
|Products                                                 |  |                            | 167,363 |                         |   |                   |   |              | 2,772  |              |  
|Services                                                 |  |                            | 23,477  |                         |   | 664               |   |              |        |              |  
|Other                                                    |  |                            | 2,719   |                         |   |                   |   |              | 915    |              |  
|                                                         |  |                            |         |                         |   |                   |   |              |        |              |  
|Cost of    Sales                                         |  |                            | 193,559 |                         |   | 664               |   |              | 3,687  |              |  
|                                                         |  |                            |         |                         |   |                   |   |              |        |              |  
|Gross    Margin                                          |  |                            | 221,906 |                         |   | 1,440             |   |              | 3,418  |              |  
|Selling, general and    administrative                   |  |                            | 112,212 |                         |   | 5,307             |   |              | 2,632  |              |  
|Corporate allocated    expenses                          |  |                            | 9,771   |                         |   | 1,293             |   |              | 650    |              |  
|Research, development and    engineering                 |  |                            | 40,871  |                         |   | 21,850            |   |              | 7,702  |              |  
|Amortization of intangible    assets                     |  |                            |         |                         |   | 725               |   |              |        |              |  
|Employee-related charges,    asset impairments and other |  |                            | 871     |                         |   |                   |   |              |        |              |  
|Asset dispositions and    legal settlements              |  |                            | 22,834  |                         |   | 490               |   |              | 185    |              |  
|                                                         |  |                            |         |                         |   |                   |   |              |        |              |  
|Operating    Income (Loss)                               |  |                            | 35,347  |                         |   | (28,225           | ) |              | (7,751 | )            |  
|Gain on investments, net                                 |  |                            |         |                         |   | 4,503             |   |              |        |              |  
|Interest income, net                                     |  |                            | 4,422   |                         |   | 5,248             |   |              |        |              |  
|Other income (expense),    net                           |  |                            | 1,665   |                         |   | 42                |   |              |        |              |  
|Loss from joint venture                                  |  |                            |         |                         |   | (7,751            | ) |              |        |              |  
|                                                         |  |                            |         |                         |   |                   |   |              |        |              |  
|Income    (Loss) before Income Taxes                     |  |                            | 41,434  |                         |   | (26,183           | ) |              | (7,751 | )            |  
|Benefit for income taxes                                 |  |                            | (1,690  | )                       |   | (9,435            | ) |              |        |              |  
|                                                         |  |                            |         |                         |   |                   |   |              |        |              |  
|Net    Income (Loss)                                     |  | $                          | 43,124  |                         | $ | (16,748           | ) | $            | (7,751 | )            | $
|                                                         |  |                            |         |                         |   |                   |   |              |        |              |  




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Condensed  Consolidating Statement of Financial Position at September 30, 2005





|(Dollar amounts in thousands)                 |  | Applied    BiosystemsGroup |           | Celera    GenomicsGroup |   | CeleraDiagnostics |  | Eliminations |        | Consolidated |  
|--------------------------------------------- |  | -------------------------- | --------- | ----------------------- | - | ----------------- |  | ------------ | ------ | ------------ | -
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  
|Assets                                        |  |                            |           |                         |   |                   |  |              |        |              |  
|Current assets                                |  |                            |           |                         |   |                   |  |              |        |              |  
|Cash    and cash equivalents                  |  | $                          | 575,807   |                         | $ | 47,404            |  | $            |       |              | $
|Short-term    investments                     |  |                            | 41,883    |                         |   | 587,997           |  |              |        |              |  
|Accounts    receivable, net                   |  |                            | 323,987   |                         |   | 1,759             |  |              | 6,155  |              |  
|Inventories,    net                           |  |                            | 130,659   |                         |   | 344               |  |              | 9,511  |              |  
|Prepaid    expenses and other current assets  |  |                            | 149,210   |                         |   | 6,463             |  |              | 14,079 |              |  
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  
|Total current assets                          |  |                            | 1,221,546 |                         |   | 643,967           |  |              | 29,745 |              |  
|Property, plant and    equipment, net         |  |                            | 398,273   |                         |   | 30,953            |  |              | 6,049  |              |  
|Other long-term assets                        |  |                            | 501,702   |                         |   | 159,752           |  |              | 4,663  |              |  
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  
|Total    Assets                               |  | $                          | 2,121,521 |                         | $ | 834,672           |  | $            | 40,457 |              | $
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  
|Liabilities    and Stockholders Equity       |  |                            |           |                         |   |                   |  |              |        |              |  
|Current liabilities                           |  |                            |           |                         |   |                   |  |              |        |              |  
|Accounts    payable                           |  | $                          | 154,453   |                         | $ | 5,717             |  | $            | 4,336  |              | $
|Accrued    salaries and wages                 |  |                            | 42,087    |                         |   | 4,115             |  |              | 2,357  |              |  
|Accrued    taxes on income                    |  |                            | 37,840    |                         |   | 11,620            |  |              |        |              |  
|Other    accrued expenses                     |  |                            | 258,727   |                         |   | 7,157             |  |              | 1,070  |              |  
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  
|Total current liabilities                     |  |                            | 493,107   |                         |   | 28,609            |  |              | 7,763  |              |  
|Other long-term    liabilities                |  |                            | 229,212   |                         |   | 5,949             |  |              | 57     |              |  
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  
|Total    Liabilities                          |  |                            | 722,319   |                         |   | 34,558            |  |              | 7,820  |              |  
|Total    Stockholders Equity                 |  |                            | 1,399,202 |                         |   | 800,114           |  |              | 32,637 |              |  
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  
|Total    Liabilities and Stockholders Equity |  | $                          | 2,121,521 |                         | $ | 834,672           |  | $            | 40,457 |              | $
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  




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continued





Condensed  Consolidating Statement of Cash Flows for the three Months Ended September 30,  2005





|(Dollar amounts in thousands)                                                                      |  | Applied    BiosystemsGroup |          | Celera    GenomicsGroup |   | CeleraDiagnostics |   | Eliminations |         | Consolidated |  
|-------------------------------------------------------------------------------------------------- |  | -------------------------- | -------- | ----------------------- | - | ----------------- | - | ------------ | ------- | ------------ | -
|                                                                                                   |  |                            |          |                         |   |                   |   |              |         |              |  
|Operating    Activities of Continuing Operations                                                   |  |                            |          |                         |   |                   |   |              |         |              |  
|Net income (loss)                                                                                  |  | $                          | 43,124   |                         | $ | (16,748           | ) | $            | (7,751  | )            | $
|Adjustments to reconcile    net income (loss) to net cash provided (used) by operating activities: |  |                            |          |                         |   |                   |   |              |         |              |  
|Depreciation    and amortization                                                                   |  |                            | 16,703   |                         |   | 2,634             |   |              | 1,751   |              |  
|Asset    impairments                                                                               |  |                            | 1,090    |                         |   |                   |   |              |         |              |  
|Employee-related    charges and other                                                              |  |                            | (219     | )                       |   |                   |   |              |         |              |  
|Share-based    compensation programs                                                               |  |                            | 1,332    |                         |   | 319               |   |              |         |              |  
|Sale    of assets and legal settlements, net                                                       |  |                            | 23,726   |                         |   | (4,013            | ) |              | 193     |              |  
|Deferred    income taxes                                                                           |  |                            | (4,053   | )                       |   | 2,030             |   |              |         |              |  
|Loss    from joint venture                                                                         |  |                            |          |                         |   | 7,751             |   |              |         |              |  
|Nonreimbursable    utilization of intergroup tax benefits                                          |  |                            | 8,458    |                         |   | (8,458            | ) |              |         |              |  
|Changes in operating    assets and liabilities:                                                    |  |                            |          |                         |   |                   |   |              |         |              |  
|Accounts    receivable                                                                             |  |                            | 52,519   |                         |   | (350              | ) |              | (803    | )            |  
|Inventories                                                                                        |  |                            | (12,588  | )                       |   | (9                | ) |              | (473    | )            |  
|Prepaid    expenses and other assets                                                               |  |                            | 5,961    |                         |   | 942               |   |              | (2,600  | )            |  
|Accounts    payable and other liabilities                                                          |  |                            | (85,523  | )                       |   | (14,024           | ) |              | (4,320  | )            |  
|                                                                                                   |  |                            |          |                         |   |                   |   |              |         |              |  
|Net Cash    Provided (Used) by Operating Activities of Continuing Operations                       |  |                            | 50,530   |                         |   | (29,926           | ) |              | (14,003 | )            |  
|                                                                                                   |  |                            |          |                         |   |                   |   |              |         |              |  
|Investing    Activities of Continuing Operations                                                   |  |                            |          |                         |   |                   |   |              |         |              |  
|Additions to property,    plant and equipment, net                                                 |  |                            | (12,808  | )                       |   | (846              | ) |              | (824    | )            |  
|Proceeds from maturities    of available-for-sale investments                                      |  |                            |          |                         |   | 55,278            |   |              |         |              |  
|Proceeds from sales of    available-for-sale investments                                           |  |                            | 10,548   |                         |   | 92,812            |   |              |         |              |  
|Purchases of    available-for-sale investments                                                     |  |                            | (52,431  | )                       |   | (91,823           | ) |              |         |              |  
|Acquisitions and    investments in joint venture and other, net                                    |  |                            | (4,510   | )                       |   | (10,317           | ) |              |         |              |  
|Proceeds from the sale of    assets, net                                                           |  |                            |          |                         |   | 4,572             |   |              |         |              |  
|                                                                                                   |  |                            |          |                         |   |                   |   |              |         |              |  
|Net Cash    Provided (Used) by Investing Activities of Continuing Operations                       |  |                            | (59,201  | )                       |   | 49,676            |   |              | (824    | )            |  
|                                                                                                   |  |                            |          |                         |   |                   |   |              |         |              |  
|Net Cash    Provided by Operating Activities of Discontinued Operations                            |  |                            | (50      | )                       |   |                   |   |              |         |              |  
|                                                                                                   |  |                            |          |                         |   |                   |   |              |         |              |  
|Financing    Activities                                                                            |  |                            |          |                         |   |                   |   |              |         |              |  
|Net cash funding from    groups                                                                    |  |                            |          |                         |   |                   |   |              | 14,827  |              |  
|Purchases of common stock    for treasury                                                          |  |                            | (201,236 | )                       |   |                   |   |              |         |              |  
|Proceeds from stock issued    for stock plans and other                                            |  |                            | 31,800   |                         |   | 4,489             |   |              |         |              |  
|                                                                                                   |  |                            |          |                         |   |                   |   |              |         |              |  
|Net Cash    Provided (Used) by Financing Activities                                                |  |                            | (169,436 | )                       |   | 4,489             |   |              | 14,827  |              |  
|                                                                                                   |  |                            |          |                         |   |                   |   |              |         |              |  
|Effect of    Exchange Rate Changes on Cash                                                         |  |                            | (2,272   | )                       |   |                   |   |              |         |              |  
|                                                                                                   |  |                            |          |                         |   |                   |   |              |         |              |  
|Net    Change in Cash and Cash Equivalents                                                         |  |                            | (180,429 | )                       |   | 24,239            |   |              |        |              |  
|Cash and    Cash Equivalents Beginning of Period                                                   |  |                            | 756,236  |                         |   | 23,165            |   |              |         |              |  
|                                                                                                   |  |                            |          |                         |   |                   |   |              |         |              |  
|Cash and    Cash Equivalents End of Period                                                         |  | $                          | 575,807  |                         | $ | 47,404            |   | $            |        |              | $
|                                                                                                   |  |                            |          |                         |   |                   |   |              |         |              |  




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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued





Condensed  Consolidating Statement of Operations for the Three Months Ended September 30,  2004





|(Dollar amounts in thousands)                            |  | Applied    Biosystems    Group |         | Celera    Genomics    Group |   | Celera    Diagnostics |   | Eliminations |        | Consolidated |  
|-------------------------------------------------------- |  | ------------------------------ | ------- | --------------------------- | - | --------------------- | - | ------------ | ------ | ------------ | -
|                                                         |  |                                |         |                             |   |                       |   |              |        |              |  
|Products                                                 |  | $                              | 317,077 |                             | $ | 721                   |   | $            | 1,085  |              | $
|Services                                                 |  |                                | 45,543  |                             |   | 542                   |   |              | 450    |              |  
|Other                                                    |  |                                | 26,358  |                             |   | 7,745                 |   |              | 7,640  |              |  
|                                                         |  |                                |         |                             |   |                       |   |              |        |              |  
|Net revenues from external    customers                  |  |                                | 388,978 |                             |   | 9,008                 |   |              | 9,175  |              |  
|Intersegment revenues                                    |  |                                | 1,335   |                             |   | 638                   |   |              |        |              |  
|                                                         |  |                                |         |                             |   |                       |   |              |        |              |  
|Total Net    Revenues                                    |  |                                | 390,313 |                             |   | 9,646                 |   |              | 9,175  |              |  
|                                                         |  |                                |         |                             |   |                       |   |              |        |              |  
|Products                                                 |  |                                | 157,631 |                             |   | 2,154                 |   |              | 1,010  |              |  
|Services                                                 |  |                                | 21,902  |                             |   | 75                    |   |              |        |              |  
|Other                                                    |  |                                | 3,195   |                             |   | 381                   |   |              | 2,067  |              |  
|                                                         |  |                                |         |                             |   |                       |   |              |        |              |  
|Cost of    sales                                         |  |                                | 182,728 |                             |   | 2,610                 |   |              | 3,077  |              |  
|                                                         |  |                                |         |                             |   |                       |   |              |        |              |  
|Gross    Margin                                          |  |                                | 207,585 |                             |   | 7,036                 |   |              | 6,098  |              |  
|Selling, general and    administrative                   |  |                                | 104,652 |                             |   | 4,756                 |   |              | 2,289  |              |  
|Corporate allocated    expenses                          |  |                                | 9,710   |                             |   | 1,494                 |   |              | 669    |              |  
|Research, development and    engineering                 |  |                                | 45,751  |                             |   | 23,633                |   |              | 12,432 |              |  
|Amortization of intangible    assets                     |  |                                |         |                             |   | 725                   |   |              |        |              |  
|Employee-related charges,    asset impairments and other |  |                                | 7,373   |                             |   | 2,846                 |   |              |        |              |  
|Asset dispositions and    legal settlements              |  |                                | (8,500  | )                           |   |                       |   |              |        |              |  
|                                                         |  |                                |         |                             |   |                       |   |              |        |              |  
|Operating    Income (Loss)                               |  |                                | 48,599  |                             |   | (26,418               | ) |              | (9,292 | )            |  
|Interest income, net                                     |  |                                | 2,376   |                             |   | 2,861                 |   |              |        |              |  
|Other income (expense),    net                           |  |                                | 582     |                             |   | 1,551                 |   |              |        |              |  
|Loss from joint venture                                  |  |                                |         |                             |   | (9,292                | ) |              |        |              |  
|                                                         |  |                                |         |                             |   |                       |   |              |        |              |  
|Income    (Loss) before Income Taxes                     |  |                                | 51,557  |                             |   | (31,298               | ) |              | (9,292 | )            |  
|Provision (benefit) for    income taxes                  |  |                                | 14,457  |                             |   | (10,954               | ) |              |        |              |  
|                                                         |  |                                |         |                             |   |                       |   |              |        |              |  
|Net    Income (Loss)                                     |  | $                              | 37,100  |                             | $ | (20,344               | ) | $            | (9,292 | )            | $
|                                                         |  |                                |         |                             |   |                       |   |              |        |              |  




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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued





Condensed  Consolidating Statement of Financial Position at June 30, 2005





|(Dollar amounts in thousands)                 |  | Applied    BiosystemsGroup |           | Celera    GenomicsGroup |   | CeleraDiagnostics |  | Eliminations |        | Consolidated |  
|--------------------------------------------- |  | -------------------------- | --------- | ----------------------- | - | ----------------- |  | ------------ | ------ | ------------ | -
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  
|Assets                                        |  |                            |           |                         |   |                   |  |              |        |              |  
|Current assets                                |  |                            |           |                         |   |                   |  |              |        |              |  
|Cash    and cash equivalents                  |  | $                          | 756,236   |                         | $ | 23,165            |  | $            |       |              | $
|Short-term    investments                     |  |                            |           |                         |   | 645,084           |  |              |        |              |  
|Accounts    receivable, net                   |  |                            | 378,159   |                         |   | 1,409             |  |              | 5,352  |              |  
|Inventories,    net                           |  |                            | 117,168   |                         |   | 335               |  |              | 9,038  |              |  
|Prepaid    expenses and other current assets  |  |                            | 139,246   |                         |   | 7,150             |  |              | 11,630 |              |  
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  
|Total current assets                          |  |                            | 1,390,809 |                         |   | 677,143           |  |              | 26,020 |              |  
|Property, plant and    equipment, net         |  |                            | 400,422   |                         |   | 32,131            |  |              | 6,436  |              |  
|Other long-term assets                        |  |                            | 498,832   |                         |   | 159,957           |  |              | 4,679  |              |  
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  
|Total    Assets                               |  | $                          | 2,290,063 |                         | $ | 869,231           |  | $            | 37,135 |              | $
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  
|Liabilities    and Stockholders Equity       |  |                            |           |                         |   |                   |  |              |        |              |  
|Current liabilities                           |  |                            |           |                         |   |                   |  |              |        |              |  
|Accounts    payable                           |  | $                          | 167,060   |                         | $ | 7,689             |  | $            | 5,302  |              | $
|Accrued    salaries and wages                 |  |                            | 74,598    |                         |   | 11,925            |  |              | 4,665  |              |  
|Accrued    taxes on income                    |  |                            | 66,792    |                         |   | 10,535            |  |              |        |              |  
|Other    accrued expenses                     |  |                            | 238,242   |                         |   | 11,098            |  |              | 1,528  |              |  
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  
|Total current liabilities                     |  |                            | 546,692   |                         |   | 41,247            |  |              | 11,495 |              |  
|Other long-term liabilities                   |  |                            | 220,461   |                         |   | 6,891             |  |              | 79     |              |  
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  
|Total    Liabilities                          |  |                            | 767,153   |                         |   | 48,138            |  |              | 11,574 |              |  
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  
|Total    Stockholders Equity                 |  |                            | 1,522,910 |                         |   | 821,093           |  |              | 25,561 |              |  
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  
|Total    Liabilities and Stockholders Equity |  | $                          | 2,290,063 |                         | $ | 869,231           |  | $            | 37,135 |              | $
|                                              |  |                            |           |                         |   |                   |  |              |        |              |  




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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued





Condensed  Consolidating Statement of Cash Flows for the Three Months Ended September 30,  2004





|(Dollar amounts in thousands)                                                                      |  | Applied    BiosystemsGroup |         | Celera    GenomicsGroup |   | CeleraDiagnostics |   | Eliminations |        | Consolidated |  
|-------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | ----------------------- | - | ----------------- | - | ------------ | ------ | ------------ | -
|                                                                                                   |  |                            |         |                         |   |                   |   |              |        |              |  
|Operating    Activities of Continuing Operations                                                   |  |                            |         |                         |   |                   |   |              |        |              |  
|Net income (loss)                                                                                  |  | $                          | 37,100  |                         | $ | (20,344           | ) | $            | (9,292 | )            | $
|Adjustments to reconcile    net income (loss) to net cash provided (used) by operating activities: |  |                            |         |                         |   |                   |   |              |        |              |  
|Depreciation    and amortization                                                                   |  |                            | 21,060  |                         |   | 2,936             |   |              | 1,913  |              |  
|Asset    impairments                                                                               |  |                            | 66      |                         |   | 1,910             |   |              |        |              |  
|Employee-related    charges and other                                                              |  |                            | 2,735   |                         |   | 2,638             |   |              |        |              |  
|Share-based    compensation programs                                                               |  |                            | 722     |                         |   | 367               |   |              |        |              |  
|Deferred    income taxes                                                                           |  |                            | (6,049  | )                       |   | 3,344             |   |              |        |              |  
|Loss    from joint venture                                                                         |  |                            |         |                         |   | 9,292             |   |              |        |              |  
|Nonreimbursable    utilization of intergroup tax benefits                                          |  |                            | 10,566  |                         |   | (10,566           | ) |              |        |              |  
|Changes in operating    assets and liabilities:                                                    |  |                            |         |                         |   |                   |   |              |        |              |  
|Accounts    receivable                                                                             |  |                            | 55,744  |                         |   | 1,758             |   |              | (1,024 | )            |  
|Inventories                                                                                        |  |                            | (8,296  | )                       |   | (44               | ) |              | 184    |              |  
|Prepaid    expenses and other assets                                                               |  |                            | (6,959  | )                       |   | (377              | ) |              | (2,260 | )            |  
|Accounts    payable and other liabilities                                                          |  |                            | (67,156 | )                       |   | (17,506           | ) |              | 553    |              |  
|                                                                                                   |  |                            |         |                         |   |                   |   |              |        |              |  
|Net Cash    Provided (Used) by Operating Activities of Continuing Operations                       |  |                            | 39,533  |                         |   | (26,592           | ) |              | (9,926 | )            |  
|                                                                                                   |  |                            |         |                         |   |                   |   |              |        |              |  
|Investing    Activities of Continuing Operations                                                   |  |                            |         |                         |   |                   |   |              |        |              |  
|Additions to property,    plant and equipment, net                                                 |  |                            | (8,613  | )                       |   | (1,392            | ) |              | (353   | )            |  
|Proceeds from maturities    of available-for-sale investments                                      |  |                            |         |                         |   | 716,602           |   |              |        |              |  
|Proceeds from sales of    available-for-sale investments                                           |  |                            | 111,450 |                         |   | 181,983           |   |              |        |              |  
|Purchases of available-for-sale    investments                                                     |  |                            | (62,825 | )                       |   | (839,762          | ) |              |        |              |  
|Acquisitions and    investments in joint venture and other, net                                    |  |                            | (1,451  | )                       |   | (8,828            | ) |              |        |              |  
|                                                                                                   |  |                            |         |                         |   |                   |   |              |        |              |  
|Net Cash    Provided (Used) by Investing Activities of Continuing Operations                       |  |                            | 38,561  |                         |   | 48,603            |   |              | (353   | )            |  
|                                                                                                   |  |                            |         |                         |   |                   |   |              |        |              |  
|Net Cash    Provided by Operating Activities of Discontinued Operations                            |  |                            | 533     |                         |   |                   |   |              |        |              |  
|                                                                                                   |  |                            |         |                         |   |                   |   |              |        |              |  
|Financing    Activities                                                                            |  |                            |         |                         |   |                   |   |              |        |              |  
|Principal payments on debt                                                                         |  |                            |         |                         |   | (6,000            | ) |              |        |              |  
|Dividends                                                                                          |  |                            | (8,322  | )                       |   |                   |   |              |        |              |  
|Net cash funding from    groups                                                                    |  |                            |         |                         |   |                   |   |              | 10,279 |              |  
|Proceeds from stock issued    for stock plans and other                                            |  |                            | 3,886   |                         |   | 1,325             |   |              |        |              |  
|                                                                                                   |  |                            |         |                         |   |                   |   |              |        |              |  
|Net Cash    Provided (Used) by Financing Activities                                                |  |                            | (4,436  | )                       |   | (4,675            | ) |              | 10,279 |              |  
|                                                                                                   |  |                            |         |                         |   |                   |   |              |        |              |  
|Effect of    Exchange Rate Changes on Cash                                                         |  |                            | 4,314   |                         |   |                   |   |              |        |              |  
|                                                                                                   |  |                            |         |                         |   |                   |   |              |        |              |  
|Net    Change in Cash and Cash Equivalents                                                         |  |                            | 78,505  |                         |   | 17,336            |   |              |       |              |  
|Cash and    Cash Equivalents Beginning of Period                                                   |  |                            | 456,322 |                         |   | 51,548            |   |              |        |              |  
|                                                                                                   |  |                            |         |                         |   |                   |   |              |        |              |  
|Cash and    Cash Equivalents End of Period                                                         |  | $                          | 534,827 |                         | $ | 68,884            |   | $            |       |              | $
|                                                                                                   |  |                            |         |                         |   |                   |   |              |        |              |  




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Item  2.  Managements Discussion and Analysis  of Financial Condition and Results of Operations.





APPLERA CORPORATION


MANAGEMENTS DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS





The purpose of the following  managements discussion and analysis is to provide an overview of the business  of Applera Corporation to help facilitate an understanding of significant  factors influencing our historical operating results, financial condition, and  cash flows and also to convey our expectations of the potential impact of known  trends, events, or uncertainties that may impact our future results.  You should read this discussion in conjunction  with our consolidated financial statements and related notes included in this  report and in our 2005 Annual Report to Stockholders.  Historical results and percentage relationships are not  necessarily indicative of operating results for future periods.  When used in this management discussion, the  terms Applera, Company, we, us, or our mean Applera Corporation and  its subsidiaries.





We have reclassified some prior  period amounts in the condensed consolidated financial statements and notes for  comparative purposes.





During the third quarter  of fiscal 2005, we reclassified costs supporting our patent related activities  from R&D expenses to SG&A expenses.  This reclassification had no impact on net  income or earnings per share.  The  reclassified amount for the first quarter of fiscal 2005 was approximately $6  million.





Commencing in the third quarter of fiscal  2005, we began classifying all of our investments in auction rate securities as  short-term investments.  Prior to fiscal  2005, some of these securities were included in cash and cash equivalents.  Short-term investments included  approximately $46 million of auction rate securities at September 30,  2004.  This reclassification had no  impact on results of operations or previously reported cash flows from  operations or financing activities.





Overview


We are comprised of three  business segments: the Applied Biosystems group, the Celera Genomics group, and  Celera Diagnostics.





The Applied Biosystems group serves the life  science industry and research community by developing and marketing instrument-based  systems, consumables, software, and services.   Customers use these products and services to analyze nucleic acids (DNA  and RNA), small molecules, and proteins to make scientific discoveries, develop  new pharmaceuticals, and conduct standardized testing.  The Applied Biosystems groups products also  serve the needs of some markets outside of life science research, which we  refer to as applied markets, such as the fields of: forensic testing and human  identification; biosecurity, which refers to products needed in response to the  threat of biological terrorism and other malicious, accidental, and natural  biological dangers; and food and environmental testing.





The Celera Genomics group is  engaged principally in the discovery and development of targeted therapeutics  for cancer, autoimmune, and inflammatory diseases.  The Celera Genomics group is leveraging its proteomic,  bioinformatic, and genomic capabilities to identify and validate drug targets,  and to discover and develop small molecule therapeutics.  It is also seeking to advance therapeutic  antibody and selected small molecule drug programs in collaboration with global  technology and market leaders.





Celera Diagnostics, a 50/50  joint venture between the Applied Biosystems group and the Celera Genomics  group, is focused on the discovery, development, and commercialization of  diagnostic products.





In fiscal 1999, as part of a  recapitalization of our Company, we created two classes of common stock  referred to as tracking stocks.   Tracking stock is a class of stock of a corporation intended to track  or reflect the relative performance of a specific business within the  corporation.





Applera Corporation-Applied  Biosystems Group Common Stock (Applera-Applied Biosystems stock) is listed on  the New York Stock Exchange under the ticker symbol ABI and is intended to  reflect the relative performance of the





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APPLERA CORPORATION


MANAGEMENTS DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS continued





Applied Biosystems group.  Applera Corporation-Celera Genomics Group  Common Stock (Applera-Celera Genomics stock) is listed on the New York Stock  Exchange under the ticker symbol CRA and is intended to reflect the relative  performance of the Celera Genomics group.   There is no single security that represents the performance of Applera  as a whole, nor is there a separate security traded for Celera Diagnostics.





Holders of Applera-Applied  Biosystems stock and holders of Applera-Celera Genomics stock are stockholders  of Applera.  The Applied Biosystems  group and the Celera Genomics group are not separate legal entities, and  holders of these stocks are stockholders of a single company, Applera.  As a result, holders of these stocks are  subject to all of the risks associated with an investment in Applera and all of  its businesses, assets, and liabilities.   The Applied Biosystems group and the Celera Genomics group do not have  separate boards of directors.  Applera  has one board of directors, which will make any decision in accordance with its  good faith business judgment that the decision is in the best interests of  Applera and all of its stockholders as a whole.





More information about the  risks relating to our capital structure, particularly our two classes of  capital stock, is contained in our Annual Report on Form 10-K for fiscal 2005  filed with the Securities and Exchange Commission.





Our fiscal year ends on June  30.  The financial information for each  segment is presented in Note 13 to our condensed consolidated financial  statements, Segment and Consolidating Information.  Managements discussion and analysis addresses the consolidated  financial results followed by the discussions of our three segments.





Business  Highlights:





Applied Biosystems Group





| | In August 2005, Macrogen    Inc. and the Applied Biosystems group announced that Macrogen will provide    gene expression analysis services using the Applied Biosystems Expression    Array System to the National Institute of Toxicological Research (NITR) under    the Korean Food and Drug Administration (KFDA).  NITR and its five selected research centers in Korea will test    the efficacy of applying gene expression signatures identified by the Applied    Biosystems Human Genome Survey Microarray and Expression Array System for    developing predictive food and drug evaluation measurement systems.                                                                                                                                                                                                                                                                                                                                                                                             
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Also in August 2005, the    Applied Biosystems group and DuPont Qualicon, a DuPont Co. business,    announced a strategic marketing and technology alliance to develop    next-generation DNA detection tests and systems for food testing, targeted at    food safety and quality assessment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In September 2005, the    Applied Biosystems group announced that the U.S. District Court for the    District of Connecticut in New Haven, CT, had issued a permanent injunction    against Bio-Rad Laboratories, Inc. and MJ Research, Inc., an affiliate of    Bio-Rad.  The permanent injunction    immediately prohibited Bio-Rad and MJ Research from making or selling    infringing thermal cycler products in the U.S. capable of performing PCR    (polymerase chain reaction) methods, including real-time PCR methods.  The injunction further prohibits Bio-Rad    and MJ Research from servicing, repairing, advertising, instructing, or    otherwise promoting the use of the infringing thermal cyclers for use with    PCR.  The injunction also requires    that the defendants provide written notice of the injunction to their    employees and all other persons involved in any way with making, using,    selling, offering for sale, advertising or promoting the
infringing thermal    cyclers.
| | In September 2005, the    Applied Biosystems group announced the commercial release of its TaqMan®    microRNA Assays for the detection and quantitation of mature human microRNA    (miRNA) expression levels, a promising new area of genomic research.  MicroRNAs are a recently discovered class    of small RNA molecules known to play a powerful regulatory role in cell    differentiation, developmental biology, and diseases such as cancer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Also in September 2005,    the Applied Biosystems group settled its qui tam litigation with Promega    Corporation.  This case, originally    initiated by Promega against Hoffmann-La Roche, Inc. and Applera in the    United States District Court for the Eastern District of Virginia in 2000,    involved several allegations regarding our sale of thermal cyclers and    reagents to the U.S. government and our patent licensing program.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | In October 2005, the    Applied Biosystems group signed a definitive agreement to make an equity    investment in VisiGen Biotechnologies, Inc., a privately held company, and to    enter into a scientific collaboration with VisiGen.  VisiGen is a next-generation sequencing technology company that    is developing a promising single molecule solution for sequencing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          




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APPLERA CORPORATION


MANAGEMENTS DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS continued





Celera  Genomics Group


| | In August 2005, the Celera Genomics
group announced that one of its antigen targets was selected for further
investigation by Seattle Genetics, Inc. for therapeutic development pursuant to
the collaboration agreement initiated last year.  Thirty-two cancer targets
have thus far been identified and validated through the Celera Genomics
groups proteomics studies in pancreatic, colon, breast, and lung cancer
specimens.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In    September 2005, the Celera    Genomics group advanced its cathepsin S inhibitor, CRA-028129, for the    treatment of psoriasis into Phase I clinical testing in healthy volunteers.                                                                                                                                                                                                                                           




Celera  Diagnostics


| | Celera Diagnostics    published novel findings linking genetic variations in four genes with an    increased risk for myocardial infarction (MI), or heart attack, in the    October 2005 edition of the American Journal of Human Genetics.  None of these gene variants has previously    been associated with MI, and they could lead to the identification of new    mechanisms for the causes of coronary heart disease.                                                                                                     
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In October 2005, Celera    Diagnostics and its collaborators at Bristol Myers Squibb and Harvard    University published an article in the journal Stroke describing a study of    genetic variation in a family of proteins that have an anti-oxidant effect on    low density cholesterol. The paper reported on a variant in the paraoxonase 1    gene that is associated with a 2.4-2.7 fold increase in risk for stroke that    is independent of standard risk factors such as high blood pressure, diabetes    and smoking.
| | Also in October 2005,    Celera Diagnostics and Laboratory Corporation of America (LabCorp) entered    into a license agreement to support LabCorps implementation of hormone    responsiveness testing linked to breast cancer that will incorporate Celera    Diagnostics technology.                                                                                                                                                                                                                                       




Critical Accounting Estimates


There were no material changes  in our critical accounting estimates during the first quarter of fiscal 2006,  except for the adoption of Statement of Financial Accounting Standards (SFAS)  No. 123, Share-Based Payment (revised 2004) in July 2005, as described  below.  For further information on our  critical accounting estimates, please refer to the discussion contained in the  managements discussion and analysis section of our 2005 Annual Report to  Stockholders (which discussion is incorporated in this quarterly report by  reference).





Share-Based Compensation


SFAS No. 123R requires entities  to measure and recognize the cost of employee services received in exchange for  an award of equity instruments based on the grant-date fair value of the  award.  Please see Adoption of SFAS No.  123R below and Note 4 to our condensed consolidated financial statements for  more information on SFAS No. 123R.





We have selected the  Black-Scholes option pricing model to estimate the fair value of our option  awards.  This model uses six assumptions  to calculate an options fair value, the most subjective of which are the  expected term and expected volatility assumptions.  These assumptions are derived through historical analysis and  projections of future stock option exercises and stock price fluctuations and,  therefore, involve considerable judgment.





The expected term assumption  incorporates the contractual term of the option, historical employee exercise  behavior, and post-vesting cancellation patterns.  Using historical data, we calculated various expected term  estimates.  To incorporate the  contractual term of the options, we assumed outstanding options at the period  end date that had exercise prices that were in-the-money or were close to being  in-the-money would be exercised using historical settlement patterns.  We assumed that all other outstanding  options at the period end date would be outstanding during their remaining  contractual life.  The expected term  assumption used in the model is the mid-point in the range of these estimates.





Expected volatility is based on  the mean reversion of the historical volatility of our stock prices over the  options contractual life.  The mean  reversion is the tendency for a financial variable, in this case, stock price  volatility, to remain near, or return over time to a long-term average.  We use a mean reversion analysis because we  believe it provides a better estimate of current and future volatility rate  expectations for our classes of common stock as compared to unadjusted  historical volatility.  In addition, we  believe the sequencing and publication of the human genome resulted in  extraordinary volatility in the Celera Genomics groups stock price.  As such, we excluded this unusually volatile  period from our mean reversion analysis for the Celera Genomics group.





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APPLERA CORPORATION


MANAGEMENTS DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS continued





The following table provides the assumptions  used to estimate the fair value of stock options as calculated under SFAS No.  123R in the first quarter of fiscal 2006 compared to the assumptions used under  SFAS No. 123, Accounting for Share-Based Compensation, for the same quarter of fiscal 2005.





|                                 |  | SFAS No.    123                    |     | SFAS No.    123R                   | 
|-------------------------------- |  | ---------------------------------- | --- | ---------------------------------- | 
|                                 |  |                                    |     |                                    | 
|                                 |  | First    Quarter of    Fiscal 2005 |     | First    Quarter of    Fiscal 2006 | 
|                                 |  |                                    |     |                                    | 
|Applied Biosystems Group         |  |                                    |     |                                    | 
|Dividend    yield                |  |                                    | 0.9 | %                                  | 
|Volatility                       |  |                                    | 70  | %                                  | 
|Risk-free    interest rate       |  |                                    | 3.5 | %                                  | 
|Expected    option life in years |  |                                    | 5   |                                    | 
|                                 |  |                                    |     |                                    | 
|Celera Genomics Group            |  |                                    |     |                                    | 
|Volatility                       |  |                                    | 60  | %                                  | 
|Risk-free    interest rate       |  |                                    | 3.5 | %                                  | 
|Expected    option life in years |  |                                    | 4   |                                    | 
|                                 |  |                                    |     |                                    | 




Additionally, SFAS No. 123R  requires that estimated forfeitures be considered in determining compensation  cost.  As such, we estimate the number  of options expected to eventually vest based on historical forfeiture data.





Events Impacting Comparability


We are providing the following  information on some actions taken by us or events that occurred in the periods  indicated.  We describe the effect of  these items on our reported earnings for the purpose of providing you with a  better understanding of our on-going operations. You should consider these  items when making comparisons to past performance and assessing prospects for  future results.





|                                                               |  | Three months ended    September 30, |      
|-------------------------------------------------------------- |  | ----------------------------------- | -----
|                                                               |  |                                     |      
|(Dollar amounts in millions)                                   |  |                                     | 2004 
|                                                               |  |                                     |      
|Severance    and benefit costs                                 |  | $                                   | (8.5 
|Excess lease    space                                          |  |                                     | (1.5 
|Asset    impairments                                           |  |                                     | (0.2 
|Reduction of    expected costs                                 |  |                                     |      
|                                                               |  |                                     |      
|Total    employee-related charges, asset impairments and other |  | $                                   | (10.2
|                                                               |  |                                     |      
|Other events    impacting comparability:                       |  |                                     |      
|Impairment of inventory recorded in cost of sales              |  | $                                   | (1.7 
|Asset dispositions and legal settlements                       |  |                                     | 8.5  
|Investment gains                                               |  |                                     |      
|Resolution of outstanding foreign tax matters                  |  |                                     |      
|                                                               |  |                                     |      




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APPLERA CORPORATION


MANAGEMENTS DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS continued





Employee-Related  Charges, Asset Impairments and Other





Applied Biosystems group


Fiscal 2006


In the first quarter of fiscal  2006, the Applied Biosystems group recorded a pre-tax benefit of $0.2 million  for a reduction in anticipated employee-related costs associated with a  severance and benefit charge recorded in fiscal 2005.





In the fourth quarter of fiscal  2005, the Applied Biosystems group decided to pursue the sale of its San Jose,  California facility and recorded a pre-tax impairment charge of $1.7 million  related to that decision.  In the first  quarter of fiscal 2006, the Applied Biosystems group recorded an additional  $1.1 million pre-tax impairment charge to write-down the carrying amount of the  facility to its current estimated market value less estimated selling  costs.  Please see Note 7 to our  condensed consolidated financial statements for additional information.





Fiscal 2005


In the first quarter of fiscal 2005, the  Applied Biosystems group recorded a pre-tax charge of $7.4 million in  employee-related charges, asset impairments and other for severance charges related primarily to staff  reductions intended to better align the Applied Biosystems groups resources  with anticipated business opportunities and to integrate the Applied Biosystems  MALDI Time-of-Flight (TOF) product  line into the Applied Biosystems/MDS Sciex Instruments joint venture with MDS  Inc.  The positions eliminated were primarily in  the areas of research, manufacturing, sales and administration.  Following this action, the Applied Biosystems  group has hired, and may continue to hire, additional appropriately-skilled  employees to support future business needs.





As of June 30, 2005, all of the affected  employees had been terminated and substantially all cash payments related to  the terminations had been made.  The  cash expenditures were funded by cash provided by operating activities.





Other


During the first quarter of  fiscal 2006, the Applied Biosystems group made cash payments of $7.7 million  for severance and employee benefits and office closures related to charges  recorded prior to fiscal 2006.  The  following table summarizes the remaining cash payments by event and the  expected payment dates as of September 30, 2005.





|(Dollar amounts in millions)                        |  | Remaining    cash payments |     | Expected    payment dates
|--------------------------------------------------- |  | -------------------------- | --- | -------------------------
|                                                    |  |                            |     |                          
|Fiscal 2003    employee-related charge              |  | $                          | 0.5 |                          
|Fiscal 2005    employee-related charge              |  |                            | 3.5 |                          
|Fiscal 2005    excess lease space and other charges |  |                            | 3.0 |                          
|                                                    |  |                            |     |                          
|                                                    |  | $                          | 7.0 |                          
|                                                    |  |                            |     |                          




Celera Genomics group


During the first quarter of fiscal 2005, the  Celera Genomics group recorded pre-tax charges totaling $4.5 million related to  our decision to discontinue promotion of products and most operations of  Paracel, Inc., a business we acquired in fiscal 2000.  Paracel developed high-performance genomic data and text  analysis systems for the pharmaceutical, biotechnology, information services,  and government markets.  Since the focus  of the Celera Genomics group had shifted to therapeutic discovery and  development, Paracel was no longer deemed strategic to the overall  business.  The $4.5 million charge  consisted of $2.8 million in employee-related charges, asset impairments and  other, of which $1.1 million was for severance and benefit costs and $1.7  million was for excess facility lease expenses and asset impairments.  The Celera Genomics group recorded the  remaining $1.7 million in cost of sales for the impairment of Paracel
inventory.  The charge for excess facility lease  expenses and asset impairments was primarily for a revision to an accrual  initially recorded in fiscal 2002 for the estimated cost of excess facility  space for a lease that extends through fiscal 2011 and to write off related  fixed assets.





As of March 31, 2005, the majority of the  affected Paracel employees had been terminated.  Substantially all cash payments related to these terminations  were made as of June 30, 2005.  During  the first quarter of fiscal 2006, we made cash payments of $0.9 million related  to the excess lease space charge.  The  cash expenditures were funded by available





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APPLERA CORPORATION


MANAGEMENTS DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION 
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cash.   The remaining cash expenditures, of approximately $4.3 million related  to excess lease space, are expected to be disbursed by fiscal 2011.  Although the Celera Genomics group  anticipates modest expenses related to the closure of the Paracel business and  completion of remaining service obligations during fiscal 2006, these amounts  are not expected to have a material impact on future operating results.





Other


In the fourth quarter of fiscal 2005, the  Celera Genomics group recorded a pre-tax charge of $3.4 million related to  discontinuation of the Online/Information Business, an information products and  service business.  This charge consisted  of $1.8 million for severance and benefit costs and $1.6 million for asset  impairments, primarily related to information-technology leases.  During the first quarter of fiscal 2006, the  Celera Genomics group made cash payments of $1.4 million for severance and  employee benefits and $1.4 million primarily for information technology leases  related to this charge.  The cash  expenditures were funded by available cash.   As of September 30, 2005, all affected employees had been terminated.  The remaining cash expenditures related to  this action of approximately $0.4 million are expected to be disbursed by the  end of December 2005.





Other Events Impacting Comparability





Asset dispositions and legal settlements


The following items have been  recorded in the condensed consolidated statements of operations in asset  dispositions and legal settlements.





In the first quarter of fiscal  2006, we recorded a $23.5 million pre-tax charge related to an outstanding  litigation matter and arbitration settlement.   We recorded the pre-tax charge as follows: $22.8 million at the Applied  Biosystems group, $0.5 million at the Celera Genomics group, and $0.2 million  at Celera Diagnostics.  The charge  includes an estimate of the liability that will be incurred by us to resolve  the litigation matter and the arbitration settlement described below.





With regard to the arbitration  matter,
    on November 1, 2005, an arbitrator issued his decision in a proceeding filed
    by Amersham Biosciences, now GE Healthcare.  The
    matter involved the interpretation of  a license agreement
relating to DNA sequencing reagents and kits.  Amersham had alleged, among
other things, that the Applied Biosystems group had underpaid royalties under
the license agreement.  The arbitrator awarded  Amersham past damages based
on an increase in royalty rates for some of its DNA sequencing enzymes and kits
that contain those enzymes, plus interest, fees, and other costs in an amount
to be determined.   As a result of this decision, the Applied Biosystems
group recorded a pre-tax charge of $20.4 million in the first quarter of fiscal
2006, $19.5 million of which was recorded in asset dispositions and legal settlements.





In the first quarter of fiscal  2005, the Applied Biosystems group received a payment of $8.5 million from  Illumina, Inc. in connection with the termination of a joint development  agreement and settlement of a patent infringement claim and a breach of  contract claim.





Investments


The Celera Genomics group  recorded a pre-tax gain of $4.5 million in the condensed consolidated  statements of operations in gain on investments, net in the first quarter of  fiscal 2006 from the sale of a non-strategic minority equity investment.





Resolution of outstanding foreign tax matters


During  the first quarter of fiscal 2006, the Applied Biosystems group recorded a tax  benefit of $13.5 million related to the resolution of transfer pricing matters  in Japan.





Adoption of SFAS No. 123R


As previously discussed in critical  accounting estimates, we adopted SFAS No. 123R in July 2005.  SFAS No. 123R requires entities to measure  and recognize the cost of employee services received in exchange for an award  of equity instruments based on the grant-date fair value of the award.  We adopted SFAS No. 123R using the modified  prospective method of transition.  This  method requires us to apply the provisions of SFAS No. 123R to new awards and  to any awards that were unvested as of our adoption date and does not require  us to restate prior periods.





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APPLERA CORPORATION


MANAGEMENTS DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS continued





Prior to fiscal 2006, we applied the  provisions of Accounting Principles Board Opinion No. (APB Opinion No.) 25,  Accounting for Stock Issued to Employees, in accounting for our share-based  compensation plans.  Under APB Opinion  No. 25, we did not record any compensation cost related to stock options since  the exercise price of stock options granted to employees equaled the fair  market value of our stock prices at the date of grant.  We also did not record any compensation  expense related to our employee stock purchase plans since the provisions of  these plans were deemed non-compensatory under APB Opinion No. 25.  However, for restricted stock, the intrinsic  value as of the grant date was amortized to compensation expense over their  vesting period.





In the second half of fiscal  2005, our board of directors approved the accelerated vesting of substantially  all unvested stock options.  Please  refer to Note 1 to our consolidated financial statements in our 2005 Annual  Report to Stockholders for more information on the acceleration.





For  the first quarter of fiscal 2006,
    we recorded a pre-tax charge of $1.5 million  ($1.0 million net of tax)
    in our condensed consolidated statements of operations for compensation costs
    related to our
    share-based plans.  This amount includes $0.7 million for our restricted
    stock plans, which would have been recorded as compensation expense under
    APB Opinion No. 25.  As of September 30, 2005, $2.4  million of total
    unrecognized compensation costs related to nonvested awards is expected to
    be recognized over a weighted average period of one year.





Discussion of Applera Corporations  Consolidated Operations





|                                                         |  | Three    Months Ended    September 30, |      
|-------------------------------------------------------- |  | -------------------------------------- | -----
|                                                         |  |                                        |      
|(Dollar amounts in millions)                             |  | 2004                                   |      
|                                                         |  |                                        |      
|Net revenues                                             |  | $                                      | 407.2
|Cost of    sales                                         |  |                                        | 187.3
|                                                         |  |                                        |      
|Gross margin                                             |  |                                        | 219.9
|SG&A    expenses                                         |  |                                        | 123.6
|R&D                                                      |  |                                        | 81.1 
|Amortization    of intangible assets                     |  |                                        | 0.7  
|Employee-related    charges, asset impairments and other |  |                                        | 10.2 
|Asset    dispositions and legal settlements              |  |                                        | (8.5 
|                                                         |  |                                        |      
|Operating    income (loss)                               |  |                                        | 12.8 
|Gain on    investments, net                              |  |                                        |      
|Interest    income, net                                  |  |                                        | 5.3  
|Other income    (expense), net                           |  |                                        | 2.1  
|                                                         |  |                                        |      
|Income    before income taxes                            |  |                                        | 20.2 
|Provision    (benefit) for income taxes                  |  |                                        | 4.1  
|                                                         |  |                                        |      
|Net income                                               |  | $                                      | 16.1 
|                                                         |  |                                        |      
|Percentage    of net revenues:                           |  |                                        |      
|Gross margin                                             |  |                                        | 54.0 
|SG&A expenses                                            |  |                                        | 30.4 
|R&D                                                      |  |                                        | 19.9 
|Operating income (loss)                                  |  |                                        | 3.1  
|Effective    income tax (benefit) rate                   |  |                                        | 20   
|                                                         |  |                                        |      




The following table summarizes  the impact of the previously described events impacting comparability included  in the financial results for fiscal 2006 and 2005:





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APPLERA CORPORATION


MANAGEMENTS DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS continued





|                                                 |  | Three    Months Ended    September 30, |     
|------------------------------------------------ |  | -------------------------------------- | ----
|                                                 |  |                                        |     
|(Dollar amounts in millions)                     |  | 2004                                   |     
|                                                 |  |                                        |     
|Charge    included in income before income taxes |  | $                                      | (3.4
|Benefit for    income taxes                      |  |                                        | (1.3
|                                                 |  |                                        |     




Net income increased in the  first quarter of fiscal 2006 primarily due to higher net revenues and lower  R&D expenses at the Applied Biosystems group, partially offset by higher  SG&A expenses at the Applied Biosystems group and lower revenues at the  Celera Genomics group.  The net effect  of foreign currency on net income was insignificant during the first quarter of  fiscal 2006.  Please read our discussion  of segments for information on their financial results.





Net revenues, including the  unfavorable effects of foreign currency, increased compared with the prior year  quarter.  The impact of foreign currency  on net revenues was insignificant for the first quarter of fiscal 2006.





| | Revenues increased at the    Applied Biosystems group, driven by strength in the Real-Time PCR/Applied    Genomics, DNA Sequencing, and Mass Spectrometry product categories.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Net revenues decreased at    the Celera Genomics group, primarily as a result of the expiration of    Online/Information Business customer agreements.                       
| | Celera    Diagnostics net revenues decreased due to lower equalization revenues under    the profit and cost-sharing arrangement with Abbott Laboratories.                  




The lower gross margin  percentage for the first quarter of fiscal 2006 compared to the prior year  quarter was due primarily to lower revenues at the Celera Genomics group and  higher royalty expenses and the unfavorable effects of foreign currency at the  Applied Biosystems group.  Partially  offsetting the decrease was an increase in royalty and licensing revenue and a  decrease in software amortization at the Applied Biosystems group.  Service margins at the Applied Biosystems  group improved for the first quarter of fiscal 2006 primarily driven by growth  in the volume of service contracts, as well as higher pricing on selected  billable parts and service contracts.





SG&A expenses for the first  quarter of fiscal 2006 increased over the prior year quarter due primarily to  increased compensation and investments in sales growth initiatives at the  Applied Biosystems group and higher legal and professional services and  employee benefits at the Celera Genomics group.  Partially offsetting this increase were lower litigation-related  legal expenses of approximately $4 million at the Applied Biosystems group and  the discontinuation of most of the operations of Paracel.





R&D expenses decreased for  the first quarter of fiscal 2006 compared to the prior year quarter primarily  as a result of cost savings realized from the integration in fiscal 2005 of the  MALDI TOF product line into the Applied Biosystems/MDS Sciex Instruments joint  venture with MDS Inc. at the Applied Biosystems group, the discontinuation of  essentially all operations of the Online/Information Business at the Celera  Genomics group, and enhanced operational efficiencies at Celera Diagnostics.





Interest income, net increased  during the first quarter fiscal 2006 compared to the prior year quarter  primarily due to higher average interest rates and, to a lesser extent, higher  average cash and cash equivalents and short-term investments.





Other income, net decreased  slightly for the first quarter of fiscal 2006 in comparison to the prior year  quarter primarily due to a non-recurring receipt of $1.0 million related to a  financing activity for a Celera Genomics groups investment in fiscal 2005,  almost entirely offset by higher benefits associated with our foreign currency  risk management program in fiscal 2006.





In the first quarter of fiscal  2006, we recorded an effective tax benefit rate of 65% in comparison to an  effective tax rate of 20% in the first quarter of fiscal 2005.  This variance was caused primarily by the  previously discussed events impacting comparability, in particular, the  resolution of transfer  pricing matters in Japan at the Applied Biosystems group, and an increase in  R&D credits at the Celera Genomics group in the first quarter of fiscal  2006.





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APPLERA CORPORATION


MANAGEMENTS DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS continued





Applera Corporation


Discussion of Condensed Consolidated  Financial Resources and Liquidity





We had cash and cash equivalents  and short-term investments of $1.3 billion at September 30, 2005, and $1.4  billion at June 30, 2005.  We maintain a  $200 million unsecured revolving credit agreement with four banks that matures  on April 15, 2010, under which there were no borrowings outstanding at  September 30, 2005.  Cash provided by  operating activities has been our primary source of funds over the last fiscal  year.





We believe that existing funds,  cash generated from operations, and existing sources of debt financing are more  than adequate to satisfy our normal operating cash flow needs, planned capital  expenditures, dividends, and approved plan share repurchases for the next  twelve months and for the foreseeable future.   However, if the Celera Genomics group is successful in its therapeutic  programs, it may require additional funds to advance these programs through the  regulatory process.





|(Dollar amounts in millions)                                  |  | June 30,    2005 |         | September    30,    2005 |  
|------------------------------------------------------------- |  | ---------------- | ------- | ------------------------ | -
|                                                              |  |                  |         |                          |  
|Cash and    cash equivalents                                  |  | $                | 779.4   |                          | $
|Short-term    investments                                     |  |                  | 645.1   |                          |  
|                                                              |  |                  |         |                          |  
|Total cash    and cash equivalents and short-term investments |  | $                | 1,424.5 |                          | $
|Working    capital                                            |  |                  | 1,494.9 |                          |  
|                                                              |  |                  |         |                          |  




Cash and cash equivalents  decreased during the first three months of fiscal 2006 from June 30, 2005, as  cash expenditures for the repurchase of common stock, the purchase of capital  and other assets, and the unfavorable impact of the exchange rate valuation on  cash and cash equivalents, exceeded cash generated from operating activities, proceeds  from the sales and maturities of available-for-sale investments, net of  purchases, and proceeds from stock issuances.





Net cash flows for the three  months ended September 30 were as follows:





|(Dollar amounts in millions)               |  | 2004 |      | 2005 |  
|------------------------------------------ |  | ---- | ---- | ---- | -
|                                           |  |      |      |      |  
|Net cash    from operating activities      |  | $    | 2.9  |      | $
|Net cash    from investing activities      |  |      | 97.2 |      |  
|Net cash    used in financing activities   |  |      | (9.1 | )    |  
|Effect of    exchange rate changes on cash |  |      | 4.3  |      |  
|                                           |  |      |      |      |  




Operating activities:


The increase in net cash  provided from operating activities for the first three months of fiscal 2006  compared to the first three months of fiscal 2005 resulted primarily from:  higher income-related cash flows; the timing of royalty payments; and the  timing of receipts on non-trade receivables and dividends and distributions  from investments in unconsolidated subsidiaries at the Applied Biosystems  group.  This increase was partially  offset by the timing of vendor payments and a larger reduction in our severance  and tax accrual balances in the first quarter of fiscal 2006 compared to the  first quarter of fiscal 2005.  Also  offsetting this increase was a higher increase in the inventory balance in  fiscal 2006 at the Applied Biosystems group and lower cash receipts in fiscal  2006 at the Celera Genomics group due to the continuing expiration of the  Online/Information Business customer agreements.





Investing activities:


Capital expenditures, net of  disposals, were $4.1 million higher than in the prior year quarter due  primarily to the development of, and enhancements to, the Applied Biosystems  Portal.  The first three months of  fiscal 2006 included lower proceeds generated from sales and maturities of  available-for-sale investments, net of purchases.  The first quarter of fiscal 2005 included the maturation of  non-callable U.S. government obligations pledged as collateral for the 8%  senior secured convertible notes assumed in connection with the acquisition of  Axys.  A portion of the proceeds from  the





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APPLERA CORPORATION


MANAGEMENTS DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION 
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principal and interest received  on these U.S. government obligations was used to fund the interest and principal  payments under the notes.





Financing activities:


In the first quarter of fiscal  2005, we repaid the remaining principal amount of the 8% senior secured  convertible notes assumed in connection with the Axys acquisition of  approximately $6 million.  The first  quarter of fiscal 2005 included one dividend payment on Applera-Applied  Biosystems stock.  Dividends were  declared but not paid in the first quarter of fiscal 2006.    In the first quarter of fiscal 2006, we  repurchased 9.3 million shares of Applera-Applied Biosystems stock for $201.2  million.  In the first quarter of fiscal  2006, we received higher proceeds from stock issued for stock plans than in the  first quarter of fiscal 2005.





Contractual  Obligations





Our significant contractual  obligations at September 30, 2005, and the anticipated payments under these  obligations were as follows:





|                                        |  |                       |       |          |   |                |  |                |      |            |   |      |  |   |      | 
|--------------------------------------- |  | --------------------- | ----- | -------- | - | -------------- |  | -------------- | ---- | ---------- | - | ---- |  | - | ---- | 
|                                        |  | Payments    by Period |      
|                                        |  |                       |      
|(Dollar    amounts in millions)         |  | Total                 |       | 2006 (a) |   | 2007 -    2008 |  | 2009     2010 |      | Thereafter |  
|                                        |  |                       |       |          |   |                |  |                |      |            |   |      |  |   |      | 
|Minimum    operating lease payments (b) |  | $                     | 133.1 |          | $ | 26.3           |  | $              | 44.4 |            | $ | 28.0 |  | $ | 34.4 | 
|Purchase    obligations (c)             |  |                       | 123.3 |          |   | 78.1           |  |                | 23.1 |            |   | 19.8 |  |   | 2.3  | 
|Other    long-term liabilities (d)      |  |                       | 34.7  |          |   | 2.2            |  |                | 1.3  |            |   | 0.8  |  |   | 30.4 | 
|                                        |  |                       |       |          |   |                |  |                |      |            |   |      |  |   |      | 
|Total                                   |  | $                     | 291.1 |          | $ | 106.6          |  | $              | 68.8 |            | $ | 48.6 |  | $ | 67.1 | 
|                                        |  |                       |       |          |   |                |  |                |      |            |   |      |  |   |      | 




---

(a)  Represents cash obligations for the remainder of fiscal 2006.


(b)  Please refer to Note 9 to our consolidated financial statements in our 2005  Annual Report to Stockholders for further information.


(c)  Purchase obligations are entered into with various vendors in the normal course  of business, and include commitments related to capital expenditures, R&D  arrangements and collaborations, license agreements, and other services.


(d)  We have excluded deferred revenues as they have no impact on our future  liquidity.  We have also excluded  deferred tax liabilities and obligations connected with our pension and  postretirement plans and other foreign employee-related plans as they are not  contractually fixed as to timing and amount.   Please see Note 11 to our condensed consolidated financial statements  contained in this Report and Note 4 to our consolidated financial statements in  our 2005 Annual Report to Stockholders for more information on these plans.





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APPLERA CORPORATION


MANAGEMENTS DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS continued





Discussion of Segments Operations, Financial  Resources and Liquidity





Applied  Biosystems Group





|                                                         |  | Three    Months Ended    September 30, |      
|-------------------------------------------------------- |  | -------------------------------------- | -----
|                                                         |  |                                        |      
|(Dollar amounts in millions)                             |  | 2004                                   |      
|                                                         |  |                                        |      
|Net revenues                                             |  | $                                      | 390.3
|Cost of    sales                                         |  |                                        | 182.7
|                                                         |  |                                        |      
|Gross margin                                             |  |                                        | 207.6
|SG&A    expenses                                         |  |                                        | 114.4
|R&D                                                      |  |                                        | 45.7 
|Employee-related    charges, asset impairments and other |  |                                        | 7.4  
|Asset    dispositions and legal settlements              |  |                                        | (8.5 
|                                                         |  |                                        |      
|Operating    income                                      |  |                                        | 48.6 
|Interest    income, net                                  |  |                                        | 2.4  
|Other income    (expense), net                           |  |                                        | 0.6  
|                                                         |  |                                        |      
|Income    before income taxes                            |  |                                        | 51.6 
|Provision    (benefit) for income taxes                  |  |                                        | 14.5 
|                                                         |  |                                        |      
|Net income                                               |  | $                                      | 37.1 
|                                                         |  |                                        |      
|Percentage    of net revenues:                           |  |                                        |      
|Gross margin                                             |  |                                        | 53.2 
|SG&A expenses                                            |  |                                        | 29.3 
|R&D                                                      |  |                                        | 11.7 
|Operating income                                         |  |                                        | 12.5 
|Effective    income (benefit) tax rate                   |  |                                        | 28   
|                                                         |  |                                        |      




The following table summarizes  the impact of the previously described events impacting comparability included  in the financial results for fiscal 2006 and 2005:





|                                                          |  | Three    Months Ended    September 30, |    
|--------------------------------------------------------- |  | -------------------------------------- | ---
|                                                          |  |                                        |    
|(Dollar amounts in millions)                              |  | 2004                                   |    
|                                                          |  |                                        |    
|Income    (charge) included in income before income taxes |  | $                                      | 1.1
|Provision    (benefit) for income taxes                   |  |                                        | 0.3
|                                                          |  |                                        |    

Net income increased in the  first
    quarter of fiscal 2006 primarily due to higher net revenues and lower R&D
    expenses, partially offset by higher SG&A expenses and the
previously described events impacting comparability.  The net effect of
foreign currency on net income was insignificant during the first quarter of
fiscal 2006.





Revenues  overall summary


The following table sets forth  the Applied Biosystems groups revenues by product categories for the three  months ended September 30:





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|                                  |  | Three    Months Ended    September 30, |      
|--------------------------------- |  | -------------------------------------- | -----
|                                  |  |                                        |      
|(Dollar amounts in millions)      |  | 2004                                   |      
|                                  |  |                                        |      
|DNA    Sequencing                 |  | $                                      | 116.1
|% of total revenues               |  |                                        | 30   
|                                  |  |                                        |      
|Real-Time    PCR/Applied Genomics |  |                                        | 111.8
|% of total revenues               |  |                                        | 29   
|                                  |  |                                        |      
|Mass    Spectrometry              |  |                                        | 89.1 
|% of total revenues               |  |                                        | 23   
|                                  |  |                                        |      
|Core PCR    & DNA Synthesis (a)   |  |                                        | 47.4 
|% of total revenues               |  |                                        | 12   
|                                  |  |                                        |      
|Other    Product Lines            |  |                                        | 25.9 
|% of total revenues               |  |                                        | 6    
|                                  |  |                                        |      
|Total                             |  | $                                      | 390.3
|                                  |  |                                        |      




---

(a)     The  product category Core PCR & DNA Synthesis was previously referred to as  Core DNA Synthesis and PCR.





Net revenues, including the  unfavorable effects of foreign currency, increased compared with the prior year  quarter.  The impact of foreign currency  on net revenues was insignificant for the first quarter of fiscal 2006.





| | Revenues in    the Real-Time PCR/Applied
      Genomics product category increased primarily due to increased sales of
      consumables products.     Sales of TaqMan® Gene Expression
      Assays products and human identification products used in forensics contributed
      significantly to the product category growth.                                                                                                                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | DNA    Sequencing revenue increased compared to the prior year quarter primarily as    a result of increased sales of low-to-medium throughput analyzers in directed    (or medical) sequencing and forensics applications.                                                                                                                                                                                                                                                                                   
| | Revenues in    the Mass Spectrometry
      product category were led by sales of: high-end triple quadrupole, or quad,
      systems, primarily the API 5000 LC/MS/MS System; MALDI    TOF/TOF
      instruments, primarily the Applied Biosystems/MDS SCIEX 4800 MALDI TOF/TOF Analyzer;
      and mass spectrometry instrument service contracts.  Partially offsetting
      these increased sales were decreased sales of low-end triple quad systems,
      primarily the API 3000    LC/MS/MS System.




Revenue by sources


The following table sets forth  the Applied Biosystems groups revenues by sources for the three months ended  September 30:





|                             |  | Three    Months Ended    September 30, |      
|---------------------------- |  | -------------------------------------- | -----
|                             |  |                                        |      
|(Dollar amounts in millions) |  | 2004                                   |      
|                             |  |                                        |      
|Instruments                  |  | $                                      | 162.5
|Consumables                  |  |                                        | 155.6
|Other    sources             |  |                                        | 72.2 
|                             |  |                                        |      
|Total                        |  | $                                      | 390.3
|                             |  |                                        |      




Instruments


For the first quarter of fiscal  2006, instrument revenues increased from the prior year quarter primarily due  to higher sales in both the DNA Sequencing and Mass Spectrometry product  categories.  Within the DNA Sequencing  category, higher sales of the Applied Biosystems 3130 line of Genetic Analyzers  were partially offset by reduced sales of the Applied Biosystems ABI PRISM®  3100 and 3100-Avant Genetic Analyzers.   Contributing to the increased sales in the Mass





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Spectrometry category were the high-end
    triple quad systems, primarily the API 5000 LC/MS/MS System, and the
    recently introduced Applied Biosystems/MDS SCIEX 4800 MALDI TOF/TOF Analyzer,
    which we began selling in the fourth quarter of fiscal 2005.  Partially
    offsetting these increased sales were decreased sales of low-end triple quad
    systems, primarily the API 3000 LC/MS/MS System.





Consumables


The increase in consumables  sales
    in the first quarter of fiscal 2006 primarily reflected the strength of Real-Time
    PCR/Applied Genomics consumables sales.  These sales increased primarily
    as a result of higher sales of TaqMan®Gene Expression  Assays
    products and human identification products used in forensics.   This
    increase was partially offset by lower sales of Core PCR and DNA Synthesis
    consumables.





Other sources


Revenues from other sources,  which included service and support, royalties, licenses, and contract research,  increased for the first quarter of fiscal 2006 primarily due to higher service  and support and royalties and licensing revenues.





Revenues by geographic area


The following table sets forth  the Applied Biosystems groups revenues by geographic area for the three months  ended September 30:





|                                   |  | Three    Months Ended    September 30, |      
|---------------------------------- |  | -------------------------------------- | -----
|                                   |  |                                        |      
|(Dollar amounts in millions)       |  | 2004                                   |      
|                                   |  |                                        |      
|United    States                   |  | $                                      | 192.7
|Europe                             |  |                                        | 115.3
|Asia Pacific                       |  |                                        | 71.4 
|Latin    America and other markets |  |                                        | 10.9 
|                                   |  |                                        |      
|Total                              |  | $                                      | 390.3
|                                   |  |                                        |      




The unfavorable effects of  foreign
    currency decreased revenues by less than 1% in Europe and by approximately
    2% in Asia Pacific during the first quarter of fiscal 2006 compared to the
    prior year quarter.  Revenues increased  in Europe primarily as a result
    of strong sales of DNA sequencing instruments, led by the Applied Biosystems
    3130 and 3730 lines of Genetic Analyzers, and the introduction of the 4800
    MALDI TOF/TOF Analyzer.  During the first quarter of fiscal 2006,
    revenues from Japan, which are included in total revenues for Asia Pacific,
    decreased approximately 6% compared to the prior year quarter primarily due
    to unfavorable foreign currency effects of approximately 5%.   Sales
    in the U.S. increased primarily due to sales of new  mass spectrometry
    instruments, including the API 5000 LC/MS/MS and API 3200  LC/MS/MS
    Systems and the 3200 Q Trap® LC/MS/MS System, increased  royalty
    and
licensing revenue, and increased sales of biosecurity products.





Gross margin, as a percentage  of net revenues, increased for the first quarter of fiscal 2006 over the prior  year quarter due primarily to an increase in royalty and licensing revenue and  a decrease in software amortization costs.   Service margins improved for the first quarter of fiscal 2006 primarily  driven by growth in the volume of service contracts, as well as higher pricing  on selected billable parts and service contracts.  Partially offsetting these increases were higher royalty expenses  and the unfavorable effects of foreign currency.





SG&A expenses for the first  quarter of fiscal 2006 increased compared to the prior year quarter due  primarily to increased compensation and investments in sales growth  initiatives, partially offset by lower litigation-related legal expenses of  approximately $4 million.





R&D expenses decreased in  the first quarter of fiscal 2006 from the prior year quarter primarily as a  result of cost savings realized from the integration in fiscal 2005 of the  MALDI TOF product line into the Applied Biosystems/MDS Sciex Instruments joint  venture with MDS Inc.





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APPLERA CORPORATION


MANAGEMENTS  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS continued





Interest income, net increased  during the first quarter of fiscal 2006 compared to the prior year quarter due  to higher average interest rates and higher average cash and cash equivalents  and short-term investments.





Other income (expense), net  increased in the first quarter of fiscal 2006 primarily due to higher benefits  associated with our foreign currency risk management program in comparison to  the prior year quarter.





The effective tax rate  decreased in the first quarter of fiscal 2006 compared to the prior year  quarter primarily due to the previously discussed events impacting  comparability, in particular, resolution of transfer pricing matters in  Japan, recorded in the first quarter of fiscal 2006.





Applied Biosystems Group


Discussion of Financial Resources and  Liquidity





The Applied Biosystems group  had cash and cash equivalents and short-term investments of $617.7 million at  September 30, 2005, and $756.2 million at June 30, 2005.  We maintain a $200 million unsecured  revolving credit agreement with four banks that matures on April 15, 2010,  under which there were no borrowings outstanding at September 30, 2005.  Cash provided by operating activities has  been our primary source of funds over the last fiscal year.





We believe that existing funds,  cash generated from operations, and existing sources of debt financing are more  than adequate to satisfy the Applied Biosystems groups normal operating cash  flow needs, planned capital expenditures, its share of funding of the Celera  Diagnostics joint venture, dividends, and approved plan share repurchases for  the next twelve months and for the foreseeable future.





We manage the investment of  surplus cash and the issuance and repayment of short and long-term debt for the  Applied Biosystems group and the Celera Genomics group on a centralized basis  and allocate activity within these balances to the group that uses or generates  such resources.





|(Dollar amounts in millions)                                     |  | June 30,    2005 |       | September    30,    2005 |  
|---------------------------------------------------------------- |  | ---------------- | ----- | ------------------------ | -
|                                                                 |  |                  |       |                          |  
|Cash and    cash equivalents                                     |  | $                | 756.2 |                          | $
|Short-term    investments                                        |  |                  |       |                          |  
|                                                                 |  |                  |       |                          |  
|Total
      cash and cash equivalents and short-term investments |  | $                | 756.2 |                          | $
|Working    capital                                               |  |                  | 844.1 |                          |  
|                                                                 |  |                  |       |                          |  




Cash and cash equivalents  decreased from June 30, 2005, as cash expenditures for the repurchase of common  stock, capital and other assets, purchases of available for sale investments,  net of sales, the funding of the Celera Diagnostics joint venture, and the  unfavorable impact of the exchange rate valuation on cash and cash equivalents  exceeded cash generated from operating activities and the proceeds from stock  issuances.  Net cash flows of continuing  operations for the first quarter ended September 30 were as follows:





|(Dollar amounts in millions)               |  | 2004 |      | 2005 |  
|------------------------------------------ |  | ---- | ---- | ---- | -
|                                           |  |      |      |      |  
|Net cash    from operating activities      |  | $    | 39.5 |      | $
|Net cash    from investing activities      |  |      | 38.6 |      |  
|Net cash    from financing activities      |  |      | (4.4 | )    |  
|Effect of    exchange rate changes on cash |  |      | 4.3  |      |  
|                                           |  |      |      |      |  




Operating activities:


Net cash from operating  activities of continuing operations for the first quarter of fiscal 2006 was  $11.0 million higher than in the first quarter of fiscal 2005.  This increase resulted primarily from:  higher incomerelated cash flows; the timing of royalty payments; and the  timing of receipts on non-trade receivables and dividends and distributions  from investments in unconsolidated subsidiaries.  This increase was partially offset by the timing of vendor  payments and a larger reduction in our severance and tax accrual balances in  the first quarter of fiscal 2006 compared to the first quarter of fiscal  2005.





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Also offsetting this increase  was a higher increase in the inventory balance in fiscal 2006.   The Applied Biosystems groups days sales  outstanding was 60 days at September 30, 2005, 56 days at June 30, 2005, and 65  days at September 30, 2004.   Inventory  on hand was 3.2 months at September 30, 2005 compared to 2.4 months at June 30,  2005.





Investing activities:


Capital expenditures for the  first three months of fiscal 2006, net of disposals, were $4.2 million higher  than in the prior year quarter due primarily to the development of, and  enhancements to, the Applied Biosystems Portal.  The first three months of fiscal 2006 included significantly  lower proceeds from sales of available for sale investments, net of purchases.





Financing activities:


The first quarter of fiscal  2005 included one dividend payment on Applera-Applied Biosystems stock.  Dividends were declared but not paid in the  first quarter of fiscal 2006.  During  the first three months of fiscal 2006, we repurchased 9.3 million shares of  Applera-Applied Biosystems stock for $201.2 million.  In the first quarter of fiscal 2006, we received higher proceeds  from stock issued for stock plans than in the first quarter of fiscal 2005.





Celera  Genomics Group





|                                                         |  | Three    Months Ended    September 30, |      
|-------------------------------------------------------- |  | -------------------------------------- | -----
|                                                         |  |                                        |      
|(Dollar amounts in millions)                             |  | 2004                                   |      
|                                                         |  |                                        |      
|Net revenues                                             |  | $                                      | 9.6  
|Cost of    sales                                         |  |                                        | 2.6  
|R&D                                                      |  |                                        | 23.6 
|SG&A    expenses                                         |  |                                        | 6.3  
|Amortization    of intangible assets                     |  |                                        | 0.7  
|Employee-related    charges, asset impairments and other |  |                                        | 2.8  
|Asset    dispositions and legal settlements              |  |                                        |      
|                                                         |  |                                        |      
|Operating    loss                                        |  |                                        | (26.4
|Gain on    investments, net                              |  |                                        |      
|Interest    income, net                                  |  |                                        | 2.9  
|Other income    (expense), net                           |  |                                        | 1.5  
|Loss from    joint venture                               |  |                                        | (9.3 
|                                                         |  |                                        |      
|Loss before    income taxes                              |  |                                        | (31.3
|Benefit for    income taxes                              |  |                                        | 11.0 
|                                                         |  |                                        |      
|Net loss                                                 |  | $                                      | (20.3
|                                                         |  |                                        |      
|Effective    income tax benefit rate                     |  |                                        | 35   
|                                                         |  |                                        |      




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APPLERA CORPORATION


MANAGEMENTS  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
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The following table summarizes  the impact of the previously described events impacting comparability included  in the financial results for fiscal 2006 and 2005:





|                                                          |  | Three    Months Ended    September 30, |     
|--------------------------------------------------------- |  | -------------------------------------- | ----
|                                                          |  |                                        |     
|(Dollar amounts in millions)                              |  | 2004                                   |     
|                                                          |  |                                        |     
|Income    (charge) included in income before income taxes |  | $                                      | (4.5
|Provision    (benefit) for income taxes                   |  |                                        | (1.6
|                                                          |  |                                        |     




The lower net loss in the first  quarter of fiscal 2006 compared to the first quarter of fiscal 2005 primarily  resulted from the impact of the previously described events impacting  comparability; higher interest income, net; and lower R&D expenses;  partially offset by lower net revenues.





Revenues decreased for the  first quarter of fiscal 2006 compared to the prior year quarter primarily as a  result of the expiration of Online/Information Business customer  agreements.  Under the terms of the  marketing and distribution agreement between the Celera Genomics group and the  Applied Biosystems group, the Celera Genomics group has not sought any new  customers for its Celera Discovery System (CDS) and related information  products and services since June 2002, and therefore, its revenues from these  products and services have declined as expected.  The CDS online platform is an integrated source of information  based on the human genome and other biological and medical sources.  Substantially all of the existing customer  contracts terminated prior to June 30, 2005.





Cost of sales in the first  quarter of fiscal 2005 included $1.7 million related to the impairment of  Paracel inventory.





R&D expenses decreased in  the first quarter of fiscal 2006 compared to the prior year quarter primarily  due to the discontinuation of essentially all operations of the  Online/Information Business.





SG&A expenses increased in  the first quarter of fiscal 2006 compared to the first quarter of fiscal 2005  primarily due to higher legal and professional services and employee benefits,  partially offset by lower expenses due to the discontinuation of most of the  operations of Paracel.





Interest income, net increased  during the first quarter of fiscal 2006 compared to the prior year period  primarily due to higher average interest rates, partially offset by lower  average cash and cash equivalents and short-term investments.





Other income, net for the first  three months of fiscal 2005 included a non-recurring receipt of $1.0 million  related to a financing activity for a non-strategic investment.





The increase in the effective  income tax benefit rate for the first quarter of fiscal 2006 compared to the  prior year quarter was primarily attributable to an increase in R&D  credits.





Celera Genomics Group


Discussion of Financial Resources and  Liquidity





The Celera Genomics group had  cash and cash equivalents and short-term investments of $635.4 million at  September 30, 2005, and $668.3 million at June 30, 2005.  We maintain a $200 million unsecured  revolving credit agreement with four banks that matures on April 15, 2010,  under which there were no borrowings outstanding at September 30, 2005.





We believe that existing funds  and existing sources of debt financing are more than adequate to satisfy the  Celera Genomics groups normal operating cash flow needs, planned capital  expenditures, and its share of funding of the Celera Diagnostics joint venture  for the next twelve months and for the foreseeable future.  However, if the Celera Genomics group is  successful in its therapeutic programs, it may require additional funds to  advance these programs through the regulatory process.





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MANAGEMENTS  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
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We manage the investment of  surplus cash and the issuance and repayment of short and long-term debt for the  Celera Genomics group and the Applied Biosystems group on a centralized basis  and allocate activity within these balances to the group that uses or generates  such resources.





|(Dollar amounts in millions)                                  |  | June 30,    2005 |       | September    30,    2005 |  
|------------------------------------------------------------- |  | ---------------- | ----- | ------------------------ | -
|                                                              |  |                  |       |                          |  
|Cash and    cash equivalents                                  |  | $                | 23.2  |                          | $
|Short-term    investments                                     |  |                  | 645.1 |                          |  
|                                                              |  |                  |       |                          |  
|Total cash    and cash equivalents and short-term investments |  | $                | 668.3 |                          | $
|Working    capital                                            |  |                  | 635.9 |                          |  
|                                                              |  |                  |       |                          |  




Cash and cash equivalents  increased from June 30, 2005, as proceeds from the sales and maturities of  available for sale investments, net of purchases, and stock issuances exceeded  the amount expended on operations, the funding of the Celera Diagnostics joint  venture, and the purchase of capital assets.   Net cash flows for the three months ended September 30 were as follows:





|(Dollar amounts in millions)          |  | 2004 |       | 2005 |  
|------------------------------------- |  | ---- | ----- | ---- | -
|                                      |  |      |       |      |  
|Net cash    from operating activities |  | $    | (26.6 | )    | $
|Net cash    from investing activities |  |      | 48.6  |      |  
|Net cash    from financing activities |  |      | (4.7  | )    |  
|                                      |  |      |       |      |  




Operating activities:


Net cash used by operating  activities for the first three months of fiscal 2006 was $3.3 million higher  than in the first three months of fiscal 2005.   The higher use of cash resulted primarily from higher net cash operating  losses, partially offset by lower working capital requirements in fiscal  2006.  Working capital primarily  benefited from a lower decrease in accounts payable and other liabilities due  to the discontinuation of essentially all operations of the Online/Information  Business, partially offset by higher severance and lease payments in the first  quarter of fiscal 2006 compared to the first quarter of fiscal 2005.





Investing activities:


Net cash from investing  activities for the first three months of fiscal 2006 increased from the first  three months of fiscal 2005 due primarily to the proceeds received on the sale  of a non-strategic investment in fiscal 2006.   Partially offsetting the increase was lower proceeds received from the  sales and maturities of available for sale investments, net of purchases, in  the first quarter of fiscal 2006.  The  first quarter of fiscal 2005 included the maturation of non-callable U.S.  government obligations pledged as collateral for the 8% senior secured  convertible notes assumed in connection with the acquisition of Axys.  A portion of the proceeds from the principal  and interest received from these U.S. government obligations was used to fund  the interest and principal payments under the notes.





Financing activities:


Net cash from financing  activities for the first three months of fiscal 2006 increased from the first  three months of fiscal 2005.   During  the first three months of fiscal 2005, we repaid the remaining $6 million  principal amount of the convertible notes assumed in connection with the  acquisition of Axys.  In the first  quarter of fiscal 2006, we received higher proceeds from stock issued for stock  plans compared to the first quarter of fiscal 2005.





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APPLERA CORPORATION


MANAGEMENTS  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS continued





Celera  Diagnostics





|                                                                                            |  | Three    Months Ended    September 30, |     
|------------------------------------------------------------------------------------------- |  | -------------------------------------- | ----
|                                                                                            |  |                                        |     
|(Dollar amounts in millions)                                                                |  | 2004                                   |     
|                                                                                            |  |                                        |     
|Net revenues                                                                                |  | $                                      | 9.2 
|Cost of    sales                                                                            |  |                                        | 3.1 
|R&D                                                                                         |  |                                        | 12.4
|SG&A    expenses                                                                            |  |                                        | 3.0 
|Asset    dispositions and legal settlements                                                 |  |                                        |     
|                                                                                            |  |                                        |     
|Operating    loss                                                                           |  | $                                      | (9.3
|                                                                                            |  |                                        |     
|Supplemental information                                                                    |  |                                        |     
|Equalization    revenue, net                                                                |  | $                                      | 6.5 
|End-user    alliance sales for all products sold primarily through 
    Abbott Laboratories |  |                                        | 12.9
|                                                                                            |  |                                        |     




In June 2002, Celera Diagnostics and Abbott  Laboratories announced a long-term strategic alliance to develop,  manufacture and market a broad range of in vitro molecular diagnostic products,  including third party products brought into the alliance.





Reported revenues decreased for the first  quarter of fiscal 2006 in comparison to the same quarter last year primarily as  a result of decreased equalization revenues from Abbott.  Reported revenues differ from end-user sales  and consist primarily of equalization payments from Abbott resulting from the  profit and cost-sharing arrangement between Abbott and Celera Diagnostics and  technology-related revenues.  Fluctuation in equalization payments can lead  to variability in reported revenues, gross margins and cash use from period to  period due to differences in end-user sales of alliance products and operating  expenses between the alliance partners.   End-user alliance sales for all products sold primarily through Abbott  increased for the first quarter of fiscal 2006 compared to the prior year  quarter primarily due to increased sales of Hepatitis C Virus (HCV)  genotyping and HCV viral load products, human leukocyte antigen
(HLA)  products, and the RealTime Human Immunodeficiency Virus (HIV)  and HCV assays that run on the m2000 system that was recently launched  in Europe.





R&D expenses decreased for the first  quarter of fiscal 2006 compared to the prior year quarter due to enhanced  operational efficiencies and the reimbursement by the Applied Biosystems group  of some expenses incurred by Celera Diagnostics for research performed to  assist the Applied Biosystems group in product development activities.





Market Risks





We performed a sensitivity  analysis as of September 30, 2005.   Assuming a hypothetical 10% adverse change in currency rates relative to  the U.S. dollar as of September 30, 2005, we calculated a hypothetical after-tax  loss of $18.4 million, as compared to a hypothetical after-tax loss of  $13.8 million at June 30, 2005. Our analysis included the change in  value of the derivative financial instruments, along with the impact of  translation on foreign currency-denominated assets and liabilities. Our  analysis excluded the impact of translation of foreign currency-denominated  forecasted revenues and intercompany transactions. If currency rates actually  change in a manner similar to the assumed change in the foregoing calculation, the  hypothetical loss calculated would be more than offset by the recognition of  higher U.S. dollar equivalent foreign revenues. Actual gains and losses in the  future could, however, differ materially
from this analysis, based on changes  in the timing and amount of currency rate movements and actual exposures and  hedges.





For further information on our  market risks, please refer to the discussion contained in the managements  discussion and analysis section of our 2005 Annual Report to Stockholders  (which discussion is incorporated in this quarterly report by reference).





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Outlook





Applied Biosystems Group





The Applied Biosystems group believes that  its fiscal 2006 outlook and financial performance will be affected by, among  other things: the introduction and adoption of new products; the level of  commercial investments in life science R&D; the level of government funding  for life science research; the outcome of pending litigation matters;  competitive product introductions and pricing; purchasing patterns from large  genome centers for DNA sequencing instruments and consumables; and the success  of the Applied Biosystems groups expanded licensing program for PCR  technology.





Subject to the inherent uncertainty  associated with these factors, the Applied Biosystems group has the following  expectations for fiscal 2006:





| | Despite the strengthening    of the dollar since the Applied Biosystems groups Outlook statement in the    2005 Annual Report to Stockholders, at September 30, 2005 exchange rates, the Applied Biosystems group    expects low to mid single digit revenue growth.                                                                                                                                                                                                        
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | The Applied Biosystems    group anticipates revenue growth in the Real-Time PCR/Applied Genomics and    Mass Spectrometry product categories and a revenue decline in the Core PCR    and DNA Synthesis category.  Revenues    are also expected to decline in the DNA Sequencing category despite the growth    in first quarter of fiscal 2006 in this category.  Revenues in the Other Product Lines Category are expected to    approximately equal those in fiscal 2005.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Excluding the items that    affect the comparability of both fiscal periods, the Applied Biosystems group    expects EPS growth to increase at a rate above the fiscal 2006 revenue growth    rate.                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | The Applied Biosystems    group expects the effective tax rate to be approximately 29% versus our    previous guidance of 30% reflecting higher than anticipated Canadian R&D    tax credits.  We continue to analyze    certain tax strategies that could positively impact the rate.  In addition, we anticipate that several    outstanding tax matters may be resolved in our favor during fiscal 2006.                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | The Applied Biosystems    group expects to complete its planned share repurchase program of up to a    total of 10% of Applera-Applied Biosystems stock.                                                                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | The Applied Biosystems    group
      expects capital spending for fiscal 2006 to be in the range of $70-75 million.                                                                                                                                                                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | The Applied Biosystems    group expects the pre-tax impact of adopting SFAS No. 123R (accounting for    stock based compensation) to be in the range of $67 million.                                                                                                                                                                                                                                                                                                        




The Applied Biosystems group continues to  develop a plan to repatriate cash balances held outside the U.S. during fiscal  2006 consistent with the repatriation provision of the American Jobs Creation  Act of 2004.





Other risks and uncertainties  that may affect the Applied Biosystems groups financial performance are  detailed in the Forward-Looking Statements and Risk Factors section of this  Report.





Celera Genomics Group





The Celera Genomics group believes that its  fiscal 2006 financial performance will be influenced by, among other things,  the success of its internal and external research and development programs and  the financial performance of Celera Diagnostics.  Additionally, the Celera Genomics group anticipates continuing to  advance its small molecule pipeline and is seeking partners to maximize the  value of this asset in the most cost effective manner.  The Celera Genomics group also expects to  continue its proteomics program and seek additional partners to maximize the  therapeutic and pharmacogenomic value associated with this program.  Subject to the inherent uncertainty  associated with these factors, the Celera Genomics group has the following  expectations regarding its financial performance for fiscal 2006:





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| | Excluding the potential    effects of the Celera Genomics groups partnering initiatives in fiscal 2006,    net cash use for fiscal 2006 is expected to be approximately $90 to $100    million.  This includes an anticipated    $10 to $15 million in fiscal 2006 for the Celera Genomics groups portion of    the funding for the Celera Diagnostics joint venture.  Revenues are expected to be in the range    of $5 to $10 million, which reflects the discontinuation of the    Online/Information Business.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Excluding the potential    effects of the Celera Genomics groups partnering initiatives in fiscal 2006,    the Celera Genomics group anticipates R&D expenses to be in the range of    $95 to $105 million, and SG&A expenses to be in the range of $25 to $30    million.  Pre-tax losses related to    the Celera Diagnostics joint venture are expected to be in the range of $19    to $23 million.                                                                                                            




Other risks and uncertainties  that may affect the Celera Genomics groups financial performance are detailed  in the Forward-Looking Statements and Risk Factors section of this Report.





Celera Diagnostics





Celera Diagnostics anticipates that its  fiscal 2006 financial performance will be affected by, among other things:  continued growth in demand for current products, such as analyte specific  reagents (ASRs) for cystic fibrosis and HCV; sales of new products for  infectious disease testing on the m2000 system sold through the alliance  with Abbott and others in development at Celera Diagnostics; and new alliance  product sales for ASRs for Fragile X and other genetic diseases.  Celera Diagnostics intends to continue  advancing its genomic research and its medical utility studies to create value  from diagnostic testing and, together with the Celera Genomics group, to seek  partnerships to leverage proteomic capabilities to identify novel targets,  pharmacogenomic markers and biomarkers.   Subject to the inherent uncertainty associated with these factors,  Celera Diagnostics has the following expectations regarding its
financial  performance for fiscal 2006:





For fiscal 2006, Celera Diagnostics  anticipates pre-tax losses to be in the range of $19 to $23 million, and fiscal  2006 net cash use to be in the range of $25 to $30 million.  Total end user sales for the alliance  between Celera Diagnostics and Abbott are anticipated to be in the range of $80  to $90 million.





Other risks and uncertainties that may affect  Celera Diagnostics financial performance are detailed in the Forward-Looking  Statements and Risk Factors section of this Report.





Forward-Looking Statements and Risk Factors





Some statements contained in,  or
incorporated by reference in, this report are forward-looking.  Similarly, the press  releases we issue and other public statements we make from time to time may  contain language that is forward-looking.   These forward-looking statements may be identified by the use of  forward-looking words or phrases such as forecast, believe, expect,  intend, anticipate, should, plan, estimate, and potential, among  others.  The forward-looking statements  contained in this report are based on our current expectations, and those made  at other times will be based on our expectations when the statements are  made.  We cannot guarantee that any  forward-looking statements will be realized.





The Private Securities  Litigation Reform Act of 1995 provides a safe harbor for forward-looking  statements.  In order to comply with the  terms of the safe harbor, we note that a variety of factors could cause actual  results and experience to differ materially from anticipated results or other  expectations expressed in forward-looking statements.  We also note that achievement of anticipated results or  expectations in forward-looking statements is subject to the possibility that  assumptions underlying forward-looking statements will prove to be  inaccurate.  Investors should bear this  in mind as they consider forward-looking statements.  The risks and uncertainties that may affect the operations,  performance, development, and results of our business include, but are not  limited to, those described below under the headings Factors Relating to the  Applied Biosystems Group, Factors Relating to the
Celera Genomics Group, and  Factors Relating to Celera Diagnostics, a 50/50 Joint Venture between the  Applied Biosystems Group and the Celera Genomics Group.





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Also, we note that owners of  Applera-Applied Biosystems stock and Applera-Celera Genomics stock are subject  to risks arising from their ownership of common stock of a corporation with two  separate classes of common stock.  The  risks and uncertainties that arise from our capital structure, particularly our  two separate classes of common stock, include, but are not limited to, those  described in Part II, Item 5 of our 2005 Annual Report on Form 10-K under the  heading Forward-Looking Statements and Risk factors - Risks Relating to a  Capital Structure with Two Separate Classes of Common Stock.





Factors  Relating to the Applied Biosystems Group





Rapidly changing technology in life sciences could make the Applied  Biosystems groups product line obsolete unless it continues to develop and  manufacture new and improved products and services, and pursue new market  opportunities.A significant portion of the net revenues for  the Applied Biosystems group each year is derived from products and services  that did not exist in the prior year.   The Applied Biosystems groups products and services are based on  complex technology which is subject to rapid change as new technologies are  developed and introduced in the marketplace.   The Applied Biosystems groups future success depends on its ability to  continually improve its current products and services, develop and introduce,  on a timely and cost-effective basis, new products and services that address  the evolving needs of its customers, and pursue new market opportunities that  develop as a result of
technological and scientific advances in life  sciences.  These new market opportunities  may be outside the scope of the groups proven expertise or in areas which have  unproven market demand.  For example,  the Applied Biosystems group has committed significant resources to  researching, developing, marketing, and distributing new products and services  designed to integrate laboratory experimentation with relevant scientific  information, and to new Internet web sites devoted to promoting the groups  products and supporting customer research and development activities.  These are emerging business areas for the  Applied Biosystems group, and there can be no assurance that there will be  market acceptance of the utility and value of these products and services.  The inability to gain market acceptance of  new products and services could adversely affect the groups future operating  results.  The groups future success  also depends on its ability to
manufacture these improved and new products to  meet customer demand in a timely and cost-effective manner, including its  ability to resolve in a timely manner manufacturing issues that may arise from  time to time as the group commences production of these complex products.  Unanticipated difficulties or delays in  replacing existing products and services with new products and services or in  manufacturing improved or new products in sufficient quantities to meet  customer demand could adversely affect future demand for the groups products  and services and its future operating results.





The Applied Biosystems group relies on third parties for the  manufacture of some of its products and also for the supply of some components  of the products it manufactures on its own.   Although the Applied Biosystems group has contracts with most of these  manufacturers and suppliers, there can be no assurance that their operations  will not be disrupted.  These disruptions  could be caused by conditions unrelated to the business or operations of the  Applied Biosystems group, including the bankruptcy of the manufacturer or  supplier.  For example, Delphi Medical  Systems Texas Corporation, which supplies some instruments and parts to the  group, recently filed a petition in the United States Bankruptcy Court seeking  relief under the provisions of Chapter 11 of the federal Bankruptcy Code.  As of the date of this report, the Applied  Biosystems group does not know the effect of this filing, if any, on Delphis  or the
groups operations.  The Applied  Biosystems group does not currently have alternative third party manufacturing  or supply arrangements for some of the key products and key components  manufactured or supplied by third parties.   Although the Applied Biosystems group has its own manufacturing  facilities, and believes it might be able to manufacture some of the products  and components currently sourced from third parties, it also believes that it  would take considerable time and resources to establish the capability to do  so.  Accordingly, if third party  manufacturers or suppliers are unable or fail to fulfill their obligations to  the Applied Biosystems group, the Applied Biosystems group might not be able to  satisfy customer demand in a timely manner, and its business could be adversely  affected.





A significant portion of sales depends on customers capital spending  policies that may be subject to significant and unexpected decreases.  A  significant portion of the Applied Biosystems groups instrument product sales  are capital purchases by its customers.   The Applied Biosystems groups customers include pharmaceutical,  environmental, research, biotechnology, and chemical companies, and the capital  spending policies of these companies can have a significant effect on the  demand for the Applied Biosystems groups products.  These policies are based on a wide variety of factors, including  the resources available to make purchases, the spending priorities among  various types of research equipment,





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and policies regarding capital expenditures  during recessionary periods.  Any  decrease in capital spending or change in spending policies of these companies  could significantly reduce the demand for the Applied Biosystems groups  products.





A substantial portion of the Applied Biosystems groups sales is to  customers at universities or research laboratories whose funding is dependent  on both the amount and timing of funding from government sources.  As a  result, the timing and amount of revenues from these sources may vary  significantly due to factors that can be difficult to forecast.  Research funding for life science research  has increased more slowly during the past several years compared to previous  years and has declined in some countries, and some grants have been frozen for  extended periods or otherwise become unavailable to various institutions,  sometimes without advance notice.   Budgetary pressures may result in reduced allocations to government  agencies that fund research and development activities.  If government funding necessary to purchase  the Applied Biosystems groups products were to become unavailable to  researchers for any
extended period of time, or if overall research funding  were to decrease, the business of the Applied Biosystems group could be  adversely affected.





The Applied Biosystems group is
      currently, and could in the future be, subject to lawsuits, arbitrations,
      investigations, and other legal actions with private parties and governmental
      entities, particularly involving claims for infringement of patents and
      other intellectual property rights, and it may need to obtain licenses
      to intellectual property from others.  The Applied Biosystems
      group believes that it has meritorious defenses against the claims currently
      asserted against it and intends to defend them vigorously.   However,
      the outcome of legal actions is inherently uncertain, and the Applied Biosystems
      group cannot be sure that it will prevail in any of these actions.  An
      adverse determination in some of the groups current legal actions,
      particularly the cases described below, could have a material adverse effect
      on our consolidated financial statements.





The Applied Biosystems groups products are  based on complex, rapidly developing technologies.  These products could be developed without knowledge of previously  filed patent applications that mature into patents that cover some aspect of  these technologies.  In addition,  because patent litigation is complex and the outcome inherently uncertain, the  Applied Biosystems groups belief that its products do not infringe the  technology covered by valid and enforceable patents could be successfully  challenged by third parties.  The  Applied Biosystems group has from time to time been notified that it may be  infringing patents and other intellectual property rights of others.  Also,  in the course of its business, the Applied Biosystems group may from time to  time have access to confidential or proprietary information of third parties,  and these parties could bring a claim against the Applied Biosystems group  asserting that
the Applied Biosystems group had misappropriated their  technologies, which though not patented are protected as trade secrets, and had  improperly incorporated such technologies into the Applied Biosystems groups  products.  Due to these factors, there  remains a constant risk of intellectual property litigation and other legal  actions, which could include antitrust claims, affecting the group.  The Applied Biosystems group has been  made a party to litigation and has been subject to other legal actions  regarding intellectual property matters, which have included claims of  violations of antitrust laws.  Such  actions currently include the legal proceedings described in the following  paragraph, some of which, if determined adversely, could have a material  adverse effect on the Applied Biosystems group.  To avoid or settle legal claims, it may be necessary or desirable in the future to obtain licenses relating  to one or more products or relating to current or future
technologies, and the  Applied Biosystems group cannot be assured that it will be able to obtain these  licenses or other rights on commercially reasonable terms, or at all.





Several legal actions have been filed against  us that could affect the intellectual property rights of the Applied Biosystems  group and its products and services, including the following:





| | In response to claims by us    against MJ Research, Inc., MJ Research filed counterclaims against us including,    among others, allegations that we have licensed and enforced some polymerase    chain reaction, or PCR, patents through anticompetitive conduct in    violation of federal and state antitrust laws.  These claims have been rejected as a result of a jury verdict    and a series of summary judgment rulings by the court, but MJ Research has    filed a notice of appeal.     Subsequently, MJ Research filed a lawsuit against us based on the    allegation that four patents underlying the Applied Biosystems groups DNA sequencing    instruments were invalidly obtained because an alleged inventor, whose work    was funded in part by the U.S. government, was knowingly omitted from the    patent applications.  MJ Research    claims to be suing in the name of the U.S. government although the government    has to date declined
to participate in the lawsuit.  The case was dismissed but the decision has been appealed by MJ    Research.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




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| | Promega Corporation has    filed a lawsuit against us alleging that the Applied Biosystems group, along    with some other named defendants, is infringing two Promega patents due to    the sale of forensic identification and paternity testing kits.                                                                                                                                                                                                                                                                               
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Beckman Coulter, Inc. has    filed a lawsuit against us alleging that the Applied Biosystems group is    infringing three Beckman Coulter patents.     The allegedly infringing products are the Applied Biosystems groups    capillary electrophoresis sequencing and genetic analysis instruments, and    PCR and real-time PCR systems.                                                                                                                                                                                            
| | Genetic Technologies    Limited has filed a lawsuit against us alleging that we are infringing two of    its patents due to the sale of cystic fibrosis reagent kits, some of our    TaqMan® genotyping and gene expression products and    services, AmpFLSTR® kits, the SNPlex Genotyping System, the    SNPbrowser tool, and the Celera Discovery System.  Genetic Technologies has also alleged that haplotyping analysis    performed by our businesses infringes these patents.                                               
| | Enzo Biochem, Inc., Enzo    Life Sciences, Inc., and Yale University have filed a lawsuit against us    alleging that we are infringing six patents due to the sale of sequencing    reagent kits, TaqMan® genotyping and gene expression assays, and    the gene expression microarrays used with the Applied Biosystems groups    Expression Array System.                                                                                                                                                                          
| | Bio-Rad Laboratories, Inc.    has filed a lawsuit against us alleging that we are infringing one of its    patents due to our sale of instruments using, and reagents used for,    capillary electrophoresis, and one of its trademarks due to our use of the    BioCAD name.                                                                                                                                                                                                                                                          
| | Molecular    Diagnostics Laboratories has filed a class action complaint against us and    Hoffmann-La Roche, Inc. alleging anticompetitive conduct in connection with    the sale of Taq DNA polymerase and PCR-related products.  The anticompetitive conduct is alleged to    arise from the prosecution and enforcement of U.S. Patent No 4,889,818.  This patent is assigned to Hoffmann-La Roche,    with whom we have a commercial relationship covering, among other things,    this patent and the sale of Taq DNA polymerase.
| | In response    to patent infringement claims made by us against Bio-Rad Laboratories, Inc.,    MJ Research, Inc. and Stratagene Corporation, Bio-Rad, MJ Research, and    Stratagene have filed counterclaims seeking declaratory judgments that our    U.S. Patent No. 6,814,934 in the field of real-time PCR is invalid and not    infringed.                                                                                                                                                                                       
| | Thermo Finnigan LLC has    filed a lawsuit against us alleging that we are infringing one of its patents    as a result of, for example, the Applied Biosystems groups commercialization    of the ABI PRISM 3700 Genetic Analyzer.                                                                                                                                                                                                                                                                                                   




These cases are described in further detail in  Part I, Item 3, of our 2005 Annual Report on Form 10-K under the heading Legal  Proceedings  Commercial Litigation, as updated by the information in Part II,  Item 1 of this report.  The cost of  litigation and the amount of management time associated with these cases is  expected to be significant.  There can  be no assurance that these matters will be resolved favorably; that we will not  be enjoined from selling the products or services in question or other products  or services as a result; or that any monetary or other damages assessed against  us will not have a material adverse effect on the financial condition of our  company, the Applied Biosystems group, the Celera Genomics group, or Celera  Diagnostics.





The  Applied Biosystems group may become involved in legal proceedings to enforce  its intellectual property rights. The intellectual property  rights of biotechnology companies, including the Applied Biosystems group,  involve complex factual, scientific, and legal questions.  Even
    though the Applied Biosystems group may believe that it has a valid patent
    on a particular technology, other companies have from time to time taken,
    and may in the future take, actions that the Applied Biosystems group believes
    violate its patent rights.  Although the Applied Biosystems group has  licensing programs to provide industry access to some of its patent rights,  other companies have in the past refused to participate in these licensing  programs and companies may refuse to participate in them in the future,  resulting in a loss of potential licensing revenue.  Legal actions to enforce these patent rights can be expensive and  may involve
the diversion of significant management time.  In addition, these legal actions could be  unsuccessful and could also result in the invalidation of some of the Applied  Biosystems groups intellectual property rights.





Since the Applied Biosystems groups business is dependent on foreign  sales, fluctuating currencies will make revenues and operating results more  volatile.  Approximately 55% of the Applied Biosystems  groups net revenues for our 2005





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fiscal year were derived from sales to  customers outside of the U.S.  The majority  of these sales were based on the relevant customers local currency.  A significant portion of the related costs  for the Applied Biosystems group are based on the U.S. dollar.  As a result, the Applied Biosystems groups  reported and anticipated operating results and cash flows are subject to  fluctuations due to material changes in foreign currency exchange rates that  are beyond the Applied Biosystems groups control.





The future growth of the Applied Biosystems  group depends in part on its ability to acquire complementary technologies  through acquisitions, investments, or other strategic relationships or  alliances, which may absorb significant resources, may be unsuccessful, and  could dilute holders of Applera-Applied Biosystems stock.Acquisitions, investments  and other strategic relationships and alliances, if pursued, may involve  significant cash expenditures, debt incurrence, and expenses that could have a  material effect on the Applied Biosystems groups financial condition and  operating results.  If these types of  transactions are pursued, it may be difficult for the Applied Biosystems group  to complete these transactions quickly and to integrate these acquired  operations efficiently into its current business operations.  Potential technological advances resulting  from the integration of technologies may not be achieved as
successfully or  rapidly as anticipated, if at all.  Any  acquisitions, investments or other strategic relationships and alliances by the  Applied Biosystems group may ultimately have a negative impact on its business  and financial condition.  In addition,  future acquisitions may not be as successful as originally anticipated and may  result in impairment charges.  We have  incurred these charges in recent years in relation to acquisitions.  For example, we incurred charges for  impairment of goodwill, intangibles and other assets and other charges in the  amounts of $69.1 million during our 2001 fiscal year, $25.9 million during our  2002 fiscal year, and $4.5 million during our 2005 fiscal year in relation to  the Celera Genomics groups acquisition of Paracel, Inc.  Similarly, we incurred charges for the  impairment of patents and acquired technology in the amount of $14.9 million  during our 2004 fiscal year in relation to the Applied Biosystems groups
acquisition of Boston Probes, Inc.  In  addition, acquisitions and other transactions may involve the issuance of a  substantial amount of Applera-Applied Biosystems stock without the approval of  the holders of Applera-Applied Biosystems stock.  Any issuances of this nature could be dilutive to holders of  Applera-Applied Biosystems stock.





The Applied Biosystems groups businesses, particularly those focused  on developing and marketing information-based products and services, depend on  the continuous, effective, reliable, and secure operation of its computer  hardware, software, and Internet applications and related tools and functions.  The  Applied Biosystems groups business requires manipulating and analyzing large  amounts of data, and communicating the results of the analysis to its internal  research personnel and to its customers via the Internet.  Also, the Applied Biosystems group relies on  a global enterprise software system to operate and manage its business.  The Applied Biosystems groups business  therefore depends on the continuous, effective, reliable, and secure operation  of its computer hardware, software, networks, Internet servers, and related  infrastructure.  To the extent that the  Applied Biosystems groups hardware or
software malfunctions or access to the  Applied Biosystems groups data by internal research personnel or customers  through the Internet is interrupted, the Applied Biosystems groups business  could suffer.





The Applied Biosystems groups computer and  communications hardware is protected through physical and software  safeguards.  However, it is still  vulnerable to fire, storm, flood, power loss, earthquakes, telecommunications  failures, physical or software break-ins, software viruses, and similar  events.  In addition, the Applied  Biosystems groups online products and services are complex and sophisticated,  and as such, could contain data, design, or software errors that could be  difficult to detect and correct.   Software defects could be found in current or future products.  If the Applied Biosystems group fails to  maintain and further develop the necessary computer capacity and data to  support its computational needs and its customers access to information-based  product and service offerings, it could experience a loss of or delay in  revenues or market acceptance.  In  addition, any sustained disruption in
Internet access provided by third parties  could adversely affect the Applied Biosystems group.





The Applied Biosystems groups
      operations involve the use, manufacture, sale, and distribution of hazardous
      materials, and the mishandling of these hazardous materials could result
      in substantial  liabilities and harm to Applied Biosystems. The Applied
      Biosystems groups research and  development and manufacturing activities
      involve the controlled use of potentially hazardous materials, including
      biological materials, chemicals, and various radioactive compounds.  Also,
      some of the Applied Biosystems groups products are hazardous materials
      or include hazardous materials.  The  Applied Biosystems group cannot
      completely eliminate the risk of accidental or other contamination or injury
      from these materials, and the Applied Biosystems group could be held liable
      for resulting damages, which could be substantial.





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Under some laws and regulations, a party can  be subject to strict liability for damages caused by some hazardous  materials, which means that a party can be liable without regard to fault or  negligence.  In addition, the Applied  Biosystems group is subject to federal, state, local, and foreign laws,  regulations, and permits governing the use, storage, handling, and disposal of  hazardous materials and specified waste products, as well as the shipment and  labeling of materials and products containing hazardous materials.  If the Applied Biosystems group fails to  comply with any of these laws, regulations, or permits, we could be subject to  substantial fine or penalty, payment of remediation costs, loss of permits,  and/or other adverse governmental action.   Any of these events could have a material adverse effect on the Applied  Biosystems groups business and financial condition.





Earthquakes could disrupt operations in California.  The  headquarters and principal operations of the Applied Biosystems group are  located in the San Francisco Bay area, a region near major California  earthquake faults.  The ultimate impact  of earthquakes on the Applied Biosystems group, its significant suppliers, and  the general infrastructure is unknown, but operating results could be  materially affected in the event of a major earthquake.





Applera-Applied Biosystems stock price may be volatile.  The  market price of Applera-Applied Biosystems stock has in the past been and may  in the future be volatile due to the risks and uncertainties described in this  section of this report, as well as other factors that may have affected or may  in the future affect the market price, such as:





| | conditions and publicity    regarding the genomics, biotechnology, pharmaceutical, or life sciences    industries generally;                                                                                                                                                                                       
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | price and volume    fluctuations in the stock market at large which do not relate to Applied Biosystems    operating performance; and                                                                                                                                                                             
| | comments by securities    analysts or government officials, including with regard to the viability or    profitability of the biotechnology sector generally or with regard to    intellectual property rights of life science companies, or the Applied    Biosystems groups ability to meet market expectations.




The stock market has from time to time  experienced extreme price and volume fluctuations that are unrelated to the  operating performance of particular companies.   In the past, companies that have experienced volatility have sometimes  been the subjects of securities class action litigation.  If litigation was instituted on this basis,  it could result in substantial costs and a diversion of managements attention  and resources.





Factors  Relating to the Celera Genomics Group





The Celera Genomics group has incurred net losses to date and may not  achieve profitability.  The Celera Genomics group has accumulated net losses of  approximately $811 million as of September 30, 2005, and expects that it will  continue to incur net losses for the foreseeable future.  These cumulative losses are expected to  increase as the Celera Genomics group continues to make investments in new  technology and product development, including its investments in the discovery  and development of therapeutic products, as well as investments in diagnostics  through Celera Diagnostics, its joint venture with the Applied Biosystems  group.  The Celera Genomics group will  record all initial cash operating losses of Celera Diagnostics up to a maximum  of $300 million, after which any additional operating losses would be shared  equally by the Celera Genomics group and the Applied Biosystems group.  However, the Applied Biosystems
group  reimburses the Celera Genomics group for all tax benefits generated by Celera  Diagnostics to the extent such tax benefits are used by the Applied Biosystems  group, and the effect of recording Celera Diagnostics operating losses on the  Celera Genomics groups net losses will be partially offset by this  reimbursement.  Celera Diagnostics has  accumulated cash operating losses of approximately $154 million as of September  30, 2005.  As an early stage business,  the Celera Genomics group faces significant challenges in expanding its  business operations into the discovery and development of therapeutic  products.  As a result, there is a high  degree of uncertainty that the Celera Genomics group will be able to achieve  profitable operations.





The marketing and distribution agreement with the Applied Biosystems  group may not generate significant royalty payments.  The Applied Biosystems group became the  exclusive distributor of the Celera Genomics groups human genomic and other  biological and medical information under the terms of a marketing and distribution  agreement that was effective in April 2002, the term of which was originally  ten years but which was extended to 15 years in February 2005.  Under the terms of that agreement, the  Applied Biosystems group is obligated to pay a royalty to the Celera Genomics





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group based on sales of some  products
    sold by the Applied Biosystems group on and after July 1, 2002.  The
    Applied Biosystems group has not guaranteed any minimum royalty payments
    to the Celera Genomics group. The actual amount of royalty payments to
    be paid to the Celera Genomics group depends on the Applied Biosystems groups
    ability to successfully commercialize the products subject to the royalty,
    and sales of these products may not meet expectations.  Such sales will
    depend on several factors that are not controlled by the Celera Genomics
    group, including general market conditions, customer acceptance, and the
    efforts of the Applied Biosystems group.





The Celera Genomics groups ability to develop and commercialize  proprietary therapeutic products is unproven and several of its programs rely  on the use of novel discovery methods.  As the Celera Genomics group expands its  business operations in the area of therapeutic product discovery and  development, it faces the difficulties inherent in developing and  commercializing these products.  It is  possible that the Celera Genomics groups discovery and development efforts  will not result in any commercial products.   Furthermore, the Celera  Genomics group is seeking to identify novel methods of treating disease through  the use of technology in the field of proteomics, the study of proteins.  The Celera Genomics group is also seeking to  capitalize on its relationship with Celera Diagnostics by incorporating novel  findings arising from Celera Diagnostics disease association studies into its  research.  The
Celera Genomics group is  using the results of studies performed by Celera Diagnostics on its own behalf  and also studies performed specifically for the Celera Genomics group.  To our knowledge, neither of these  approaches to therapeutic product discovery and development has  to date been effectively used to develop a  therapeutic product that has been commercialized, and therefore the potential  benefit to the Celera Genomics group of its use of proteomics technology and  Celera Diagnostics disease association studies is unknown.  Also, Celera Diagnostics is not obligated to  continue performing disease association studies on its own or on the Celera  Genomics groups behalf, and if Celera Diagnostics discontinues performing  these studies the Celera Genomics groups business and scientific plan could be  adversely affected.





For some of the Celera Genomics groups research and product  development programs, particularly its proteomics efforts, the Celera Genomics  group needs access to human and other tissue samples from diseased and healthy  individuals, other biological materials, and related clinical and other  information, which may be in limited supply.   The Celera Genomics group may not be able to obtain or maintain access  to these materials and information on acceptable terms, or may not be able to  obtain needed consents from individuals providing tissue or other samples.  In addition, government regulation in the  U.S. and foreign countries could result in restricted access to, or use of,  human and other tissue samples.  If the  Celera Genomics group loses access to sufficient numbers or sources of tissue  samples or other required biological materials, or if tighter restrictions are  imposed on the use of related clinical or other
information or information  generated from tissue samples or other biological materials, these research and  development programs and the Celera Genomics groups business could be  adversely affected.





Therapeutic product candidates
      may never result in a commercialized product.  All  of the Celera
      Genomics groups therapeutic product candidates are in various  stages
      of research and development and will require significant additional research
      and development efforts by the Celera Genomics group or its collaborators
      before they can be marketed.   These efforts include extensive preclinical
      and clinical testing and lengthy regulatory review for approval by the
      U.S. Food and Drug Administration and comparable agencies in other countries.  The
      Celera Genomics groups development of  therapeutic products is highly
      uncertain and subject to a number of significant risks.  To date,
      the Celera Genomics group has not commercialized any therapeutic product
      and the Celera Genomics group does not expect any of its therapeutic product
      candidates to be commercially available for a number of years, if ever.   Therapeutic
       product candidates that appear to be promising at early stages of development
      may not be developed into commercial products, or may not be successfully
      marketed, for a number of reasons, including:





| | the Celera    Genomics group or its collaborators may not successfully complete research    and development efforts;                                                                                                  
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the Celera    Genomics group or its collaborators may not successfully build the necessary    preclinical and clinical development organizations;                                                                     
| | any    therapeutic product candidates that the Celera Genomics group or its    collaborators develop may be found during preclinical testing or clinical    trials to be ineffective or to cause harmful side effects;
| | the Celera    Genomics group or its collaborators may fail to obtain required regulatory    approvals for products they develop;                                                                                      




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| | the Celera    Genomics group or its collaborators may be unable to manufacture enough of    any potential products at an acceptable cost and with appropriate quality;                                                                                                     
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the Celera    Genomics group or its collaborators may fail to build necessary distribution    channels;                                                                                                                                                                    
| | the Celera    Genomics groups or its collaborators products may not be competitive with    other existing or future products;                                                                                                                                            
| | adequate    reimbursement for the Celera Genomics groups or its collaborators products    may not be available to healthcare providers and patients from the government    or insurance companies; and                                                                   
| | the Celera    Genomics group or its collaborators may be unable to obtain necessary    intellectual property protection, or third parties may own proprietary rights    that prevent the Celera Genomics group or its collaborators from    commercializing their products.




If the Celera Genomics group fails to maintain its existing  collaborative relationships and enter into new collaborative relationships, or  if collaborators do not perform under collaboration agreements, development of  its therapeutic product candidates could be delayed.  The Celera Genomics groups strategy for the  discovery, development, clinical testing, manufacturing and/or  commercialization of most of its therapeutic product candidates includes  entering into collaborations with partners.   Although the Celera Genomics group has expended, and continues to  expend, time and money on internal research and development programs, it may be  unsuccessful in creating therapeutic product candidates that would enable it to  form additional collaborations and receive milestone and/or royalty payments  from collaborators.





Each of the Celera Genomics  groups existing collaboration agreements may be canceled under some  circumstances.  In addition, the amount  and timing of resources to be devoted to research, development, clinical trials  and commercialization activities by the Celera Genomics groups collaborators  are not within the Celera Genomics groups control.  The Celera Genomics group cannot ensure that its collaborators  will perform their obligations as expected.   If any of the Celera Genomics groups collaborators terminate their  agreements or otherwise fail to conduct their collaborative activities in a  timely manner, the development or commercialization of therapeutic products may  be delayed or otherwise adversely affected.   If in some cases the Celera Genomics group assumes responsibilities for  continuing programs on its own after termination of a collaboration, the Celera  Genomics group may be required to devote
additional resources to product  development and commercialization or the Celera Genomics group may need to  cancel some development programs.





If the Celera Genomics group or its collaborators fail to satisfy  regulatory requirements for any therapeutic product candidate, the Celera  Genomics group or its collaborators will be unable to complete the development  and commercialization of that product.  The Celera Genomics group is currently  developing its internal capability to move potential products through clinical  testing, manufacturing and the approval processes of the U.S. Food and Drug  Administration, and comparable agencies in other countries.  In the U.S., either the Celera Genomics  group or its collaborators must show through pre-clinical studies and clinical  trials that each of the Celera Genomics groups or its collaborators  therapeutic product candidates is safe and effective in humans for each  indication before obtaining regulatory approval from the FDA for the commercial  sale of that product.  Outside of the  U.S., the regulatory requirements
for commercialization vary from country to  country.  If the Celera Genomics group  or its collaborators fail to adequately show the safety and effectiveness of a  therapeutic product, regulatory clearance or approval could be delayed or  denied.  The regulatory review and  approval process can take many years and require substantial expense and may  not be successful.





Even if the Celera Genomics  group or its collaborators obtain regulatory clearance or approval for a  particular therapeutic product, that product will be subject to risks and  uncertainties relating to regulatory compliance, including post-approval  clinical studies and inability to meet the compliance requirements of the FDAs  Good Manufacturing Practices regulations.   In addition, identification of some adverse side effects after a  therapeutic product is on the market or the occurrence of manufacturing  problems could cause subsequent suspension of product manufacture or withdrawal  of approval, or could require reformulation of a therapeutic product,  additional testing, or changes in labeling of the product.  This could delay or prevent the Celera  Genomics group from generating revenues from the sale of that therapeutic  product.





Clinical trials may not be successful.  Numerous unforeseen events during, or as a  result of, clinical testing could delay or prevent commercialization of the  Celera Genomics groups or its collaborators therapeutic product  candidates.  Many companies in the  pharmaceutical and biotechnology industries have suffered significant setbacks  in advanced clinical





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trials, even after promising  results in earlier studies.  The results  from pre-clinical studies may be different from the results that are obtained  in clinical trials.  Factors that could  affect the success of clinical trials include:





| | The Celera    Genomics groups or its collaborators product candidates may not prove to be    efficacious or may cause unacceptable toxicity or other harmful side effects;                                                                                                                                      
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | negative or    inconclusive clinical trial results may require the Celera Genomics group or    its collaborators to conduct further testing or to abandon projects that    appeared promising in preliminary studies;                                                                                             
| | registration    or enrollment of patients or other volunteer participants in the Celera    Genomics groups or its collaborators clinical testing may be lower than    anticipated, resulting in delay or cancellation of clinical testing; and                                                                  
| | regulators    or institutional review boards may prevent, delay, suspend, or terminate    clinical research for various reasons, including noncompliance with    regulatory requirements or their determination that participating patients or    other volunteers are being exposed to unacceptable health risks.




If any of these events were to  occur, significant delays in or termination of the Celera Genomics groups or  its collaborators clinical testing may result.  The Celera Genomics group has limited experience in conducting  clinical trials and may not be able to rapidly or effectively continue the  further development of its product candidates and meet current or future requirements,  if any, identified by the U.S. Food and Drug Administration.  Furthermore, clinical trials planned by the  Celera Genomics group or its collaborators may not begin on time, may not be  completed on schedule, or at all, or may not be sufficient for registration of  the candidate compounds or to result in approvable products.  Also, the Celera Genomics groups or its  collaborators research and clinical testing of their therapeutic product  candidates may be delayed or abandoned if they later discover other compounds  that show significantly
improved safety or efficacy compared to the current  product candidates.  Any of the  foregoing events could limit the Celera Genomics groups ability to generate  revenues, cause the Celera Genomics group to incur additional expenses, and  adversely affect the Celera Genomics groups financial results.





Clinical trials may take several years or  more and can be very expensive.  The length of time for clinical trials  generally varies substantially according to the type, complexity, novelty, and  intended use of a product candidate.   The duration and costs of clinical trials may vary significantly over  the life of a project as a result of factors relating to the trial, including,  among others:





| | the number    of patients or other volunteers that ultimately participate in the trial;
|- | ---------------------------------------------------------------------------------------
| | the duration    of participant follow-up that is appropriate in view of the results;   
| | the number    of clinical sites included in the trials; and                            
| | the length    of time required to enroll suitable participants.                        




The Celera Genomics group relies on other  companies to conduct clinical trials.  The Celera Genomics group does not have the  ability to independently conduct clinical trials for its therapeutic product  candidates, and must rely on other companies, such as contract research  organizations, medical institutions, clinical investigators, and contract  laboratories to conduct clinical trials.   If these other companies do not successfully perform their contractual  duties or  regulatory obligations or  meet expected deadlines, if the other companies need to be replaced, or if the  quality or accuracy of the data they obtain is compromised due to the failure  to adhere to the Celera Genomics groups clinical protocols or regulatory  requirements or for other reasons, the Celera Genomics groups product  development activities and clinical trials may be extended, delayed, suspended,  or terminated.





The Celera  Genomics group relies on suppliers for materials needed to manufacture  compounds for clinical trials.   The Celera Genomics group relies on other companies to manufacture  compounds that will be tested in the Celera Genomics groups clinical  trials.  These manufacturers need access  to raw materials to manufacture those compounds, and the Celera Genomics group  is responsible for obtaining some of these raw materials from suppliers.  Suppliers may not sell these materials at  the time when they are needed or on commercially reasonable terms.  If it becomes necessary to change suppliers  for any of these materials or if any of suppliers of these materials experience  a shutdown or disruption in their facilities used to produce these materials,  due to technical, regulatory, or other problems, it could adversely affect a  manufacturers ability to manufacture adequate quantities of the Celera  Genomics
groups compounds.  If the  Celera Genomics group or its manufacturers are unable to obtain the materials  needed for the manufacture of compounds used in





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the Celera Genomics groups  clinical trials, product testing and potential regulatory approval could be  delayed, adversely impacting the Celera Genomics groups ability to develop the  product candidates.





The Celera Genomics group relies on other  companies to manufacture its therapeutic product candidates.  The Celera Genomics group currently does not  have manufacturing capabilities or experience necessary to produce materials in  amounts sufficient for pre-clinical toxicology testing or clinical trials,  including its cathepsin S and HDAC inhibitors, both in Phase I clinical  trials.  As a result, the Celera  Genomics group must rely on other companies to produce the Celera Genomics  groups compounds for pre-clinical toxicology testing and clinical trials.  These manufacturers must comply with  applicable regulatory requirements, including the U.S. Food and Drug  Administrations current Good Manufacturing Practices, or GMP,  regulations.  The Celera Genomics groups  current and anticipated future dependence upon these manufacturers may  adversely affect the Celera Genomics groups ability to develop and
commercialize therapeutic products on a timely and competitive basis.  These manufacturers may not be able to produce  material on a timely basis or manufacture material at the quality level or in  the quantity required to meet the Celera Genomics groups development timelines  and applicable regulatory requirements, including the GMP regulations, other  applicable FDA regulatory requirements, or similar regulations applicable  outside of the U.S.  The Celera Genomics  group may not be able to maintain or renew its existing manufacturing  arrangements, or enter into new arrangements, on a timely basis on commercially  acceptable terms, or at all.  The Celera  Genomics groups manufacturers could terminate or decline to renew the Celera  Genomics groups arrangements based on their own business priorities, at a time  that is costly or inconvenient for the Celera Genomics group.  If the Celera Genomics group is unable to  contract on a timely basis for the production
of materials in sufficient  quantity and of sufficient quality on commercially acceptable terms, the Celera  Genomics groups pre-clinical work or clinical trials may be delayed or  prevented.  Additionally, if the Celera  Genomics group is required to enter into new manufacturing arrangements, it may  not be able to obtain approval from the FDA of any alternate manufacturer in a  timely manner, or at all, which could delay or prevent the clinical development  and commercialization of any related product candidates.





The Celera Genomics groups collaborations  with outside experts may be subject to restriction and change.  The Celera Genomics group collaborates with  scientific and clinical experts at academic and other institutions that provide  assistance and guidance to the Celera Genomics groups research and development  efforts.  These advisors and  collaborators are not the Celera Genomics groups employees and may have other commitments  that limit their availability to the Celera Genomics group.  Although they generally agree not to do  competing work, if a conflict of interest arises between their work for the  Celera Genomics group and their work for another entity, the Celera Genomics  group may lose the services of these experts.   In addition, although the Celera Genomics groups advisors and  collaborators sign agreements not to disclose the Celera Genomics groups  confidential information, it is possible
that valuable proprietary knowledge  may become publicly known or otherwise available to other parties, including  the Celera Genomics groups competitors, through them.





The pharmaceutical industry is intensely competitive and evolving.  There is intense competition among pharmaceutical  and biotechnology companies attempting to discover candidates for potential new  therapeutic products.  These companies  may:





| | develop new    therapeutic products in advance of the Celera Genomics group or its    collaborators;                                                                                                     
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | develop    therapeutic products which are more effective as therapeutics, or more    cost-effective than those developed by the Celera Genomics group or its    collaborators;                           
| | obtain    regulatory approvals of their therapeutic products more rapidly than the    Celera Genomics group or its collaborators; or                                                                     
| | obtain    patent protection or other intellectual property rights that would limit the    ability of the Celera Genomics group or its collaborators to develop and    commercialize therapeutic products.




Introduction of new products may expose the Celera Genomics group to  product liability claims.  New products developed by the Celera Genomics group or its  collaborators could expose the Celera Genomics group to potential product  liability risks that are inherent in the testing, manufacturing, marketing, and  sale of human therapeutic products.   Product liability claims or product recalls, regardless of the ultimate  outcome, could require the Celera Genomics group to spend significant time and  money in litigation and to pay significant damages.  Although the Celera Genomics group expects to seek and maintain  product liability insurance to cover claims relating to the testing and use of  therapeutic





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products, there can be no  assurance that such insurance will be available on commercially reasonable  terms, if at all, or that the amount of coverage obtained will be adequate to  cover losses from any particular claim.





Therapeutics discovery and development is a highly technical field and  there is a competitive market for personnel with the expertise needed for the  expansion of the Celera Genomics groups business operations within this field.  The Celera Genomics group believes that in  order to develop and commercialize therapeutic products, it will need to  continue to recruit and retain scientific and management personnel having  specialized training and/or advanced degrees, or otherwise having the technical  background, necessary for an understanding of therapeutic products.  There is a shortage of qualified scientific  and management personnel who possess this technical background.  The Celera Genomics group competes for these  personnel with other pharmaceutical and biotechnology companies, academic  institutions and government entities.   If the Celera Genomics group is unable to retain and attract qualified  scientific and
management personnel, the growth of the groups business  operations in the area of therapeutic product discovery and development could  be delayed or curtailed.





The Celera Genomics group could incur liabilities relating to hazardous  materials that it uses in its research and development activities.  The Celera Genomics groups research and  development activities involve the controlled use of potentially hazardous  materials, including biological materials, chemicals, and various radioactive  compounds.  The Celera Genomics group  cannot completely eliminate the risk of accidental or other contamination or  injury from these materials, and the Celera Genomics group could be held liable  for resulting damages, which could be substantial.  Under some laws and regulations, a party can be subject to strict  liability for damages caused by some hazardous materials, which means that a  party can be liable without regard to fault or negligence.  In addition, the Celera Genomics group is  subject to federal, state, local, and foreign laws, regulations, and permits  governing the
use, storage, handling, and disposal of hazardous materials and  specified waste products.  If the Celera  Genomics group fails to comply with any of these laws, regulations, or permits,  we could be subject to substantial fine or penalty, payment of remediation  costs, loss of permits, and/or other adverse governmental action.  Any of these events could have a material  adverse effect on the Celera Genomics groups business and financial condition.





The Celera Genomics groups business depends on the continuous,  effective, reliable, and secure operation of its computer hardware, software,  and Internet applications and related tools and functions.  The Celera Genomics groups business  requires manipulating and analyzing large amounts of data, and communicating  the results of the analysis to its internal research personnel via the  Internet.  Also, the Celera Genomics  group relies on a global enterprise software system to operate and manage its  business.  The Celera Genomics groups  business therefore depends on the continuous, effective, reliable, and secure  operation of its computer hardware, software, networks, Internet servers, and  related infrastructure.  To the extent  that the Celera Genomics groups hardware or software malfunctions or access to  the Celera Genomics groups data by the Celera Genomics groups internal  research
personnel through the Internet is interrupted, the groups business  could suffer.





The Celera Genomics groups  computer and communications hardware is protected through physical and software  safeguards.  However, it is still  vulnerable to fire, storm, flood, power loss, earthquakes, telecommunications  failures, physical or software break-ins, software viruses, and similar  events.  If the Celera Genomics group  fails to maintain and further develop the necessary computer capacity and data  to support its therapeutic products discovery and development programs, it  could experience a loss of or delay in revenues.  In addition, any sustained disruption in Internet access provided  by third parties could adversely affect the Celera Genomics groups business.





The Celera Genomics groups competitive position depends on maintaining  its intellectual property protection.  The Celera Genomics groups ability to  compete and to achieve and maintain profitability depends, in part, on its  ability to protect its proprietary discoveries and technologies through  obtaining and enforcing patent rights, obtaining copyright protection,  maintaining its trade secrets, and operating without infringing the  intellectual property rights of others.   The Celera Genomics groups ability to obtain patent protection for the  inventions it makes is uncertain.  The  patentability of biotechnology and pharmaceutical inventions involves complex  factual, scientific, and legal questions.   As a result, it is difficult to predict whether patents will issue or  the breadth of claims that will be allowed in biotechnology and pharmaceutical  patents.  This may be particularly true  with regard to
the patenting of gene sequences, gene functions, and genetic  variations.  In this regard, the U.S.  Patent and Trademark Office has adopted guidelines for use in the review of the  utility of inventions, particularly biotechnology inventions.  These guidelines increased the amount of  evidence





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required to demonstrate utility  in order to obtain a patent in the biotechnology field, making patent  protection more difficult to obtain.   Also, the Celera Genomics group cannot ensure that changes in policies  or to laws, or interpretations of these policies or laws, relevant to the  patenting of biotechnology and pharmaceutical inventions will not adversely  affect its patent position in the U.S. or other countries.  Opposition to the protection of these  inventions in the U.S. or other countries could result in stricter standards  for obtaining or enforcing biotechnology or pharmaceutical patent rights.





In some instances, patent  applications in the U.S. are maintained in secrecy until a patent issues.  In most instances, the content of U.S. and  international patent applications is made available to the public approximately  18 months after the initial filing from which priority is claimed.  As a result, the Celera Genomics group  cannot be certain that others have not filed patent applications for inventions  covered by the Celera Genomics groups patent applications or that the Celera  Genomics group inventors were the first to make the invention.  Accordingly, the Celera Genomics groups  patent applications may be preempted or the Celera Genomics group may have to  participate in interference proceedings before the U.S. Patent and Trademark  Office.  These proceedings determine the  priority of invention and the right to a patent for the claimed invention in  the U.S.





The Celera Genomics group may  be dependent on protecting its proprietary databases through copyright law to  prevent other organizations from taking information from those databases and  copying and reselling it.  Copyright law  currently provides uncertain protection regarding the copying and resale of  factual data.  Changes in copyright law  could either expand or reduce the extent to which the Celera Genomics group and  its customers are able to protect their intellectual property.  Accordingly, the Celera Genomics group is  uncertain as to whether it can prevent such copying or resale through copyright  law.





The Celera Genomics group also  relies on trade secret protection for its confidential and proprietary  information and procedures, including procedures related to sequencing genes  and to searching and identifying important regions of genetic information.  The Celera Genomics group protects its trade  secrets through recognized practices, including access control, confidentiality  and nonuse agreements with employees, consultants, collaborators and customers,  and other security measures.  These  confidentiality and nonuse agreements may be breached, however, and the Celera  Genomics group may not have adequate remedies for a breach.  In addition, the Celera Genomics groups  trade secrets may otherwise become known or be independently developed by  competitors.  Accordingly, it is  uncertain whether the Celera Genomics groups reliance on trade secret  protection will be adequate to safeguard its confidential and proprietary
information and procedures.





Disputes may arise in the  future with regard to the ownership of rights to any invention developed with  collaborators.  These and other possible  disagreements with collaborators could lead to delays in the achievement of  milestones or receipt of royalty payments or in research, development and  commercialization of the Celera Genomics groups products.  In addition, these disputes could require or  result in lawsuits or arbitration.   Lawsuits and arbitration are time-consuming and expensive.  Even if the Celera Genomics group wins, the  cost of these proceedings could adversely affect its business, financial  condition and operating results.





The Celera Genomics group may infringe the intellectual property rights  of third parties, may become involved in expensive intellectual property legal  proceedings, and may need to obtain licenses to intellectual property from  others.  There  has been substantial litigation and other legal proceedings regarding patents  and other intellectual property rights in the biotechnology, pharmaceutical,  and diagnostic industries.  The  intellectual property rights of biotechnology companies, including the Celera  Genomics group, are generally uncertain and involve complex factual,  scientific, and legal questions.  The  Celera Genomics groups success in therapeutic product discovery and  development may depend, in part, on its ability to operate without infringing  the intellectual property rights of others and to prevent others from  infringing its intellectual property rights.





The Celera Genomics group may  initiate proceedings at the U.S. Patent and Trademark Office to determine its  patent rights with respect to third parties, referred to as interference  proceedings.  Also, the Celera Genomics  group may initiate patent litigation to enforce its patent rights or invalidate  patents held by third parties.  These  legal actions may similarly be initiated against the Celera Genomics group by  third parties alleging that the Celera Genomics group is infringing their  rights.  The cost to the Celera Genomics  group of any patent litigation or proceedings, even if the Celera Genomics  group is successful, could be substantial, and these legal actions may absorb  significant management time.





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If infringement claims against the  Celera Genomics group are resolved unfavorably to the Celera Genomics group,  the Celera Genomics group may be enjoined from manufacturing or selling its  products or services without a license from a third party, and the Celera  Genomics group may not be able to obtain a license on commercially acceptable  terms, or at all.  Also, the Celera  Genomics group could become subject to significant liabilities to third parties  if these claims are resolved unfavorably to the Celera Genomics group.





Ethical, legal, and social issues related to the use of genetic  information and genetic testing may cause less demand for the Celera Genomics  groups products.   Genetic testing has raised issues regarding confidentiality and the  appropriate uses of the resulting information.   For example, concerns have been expressed regarding the use of genetic  test results by insurance carriers or employers to discriminate on the basis of  this information, resulting in barriers to the acceptance of genetic tests by  consumers.  This could lead to  governmental authorities calling for limits on or regulation of the use of  genetic testing or prohibiting testing for genetic predisposition to some  diseases, particularly those that have no known cure.  Any of these scenarios could reduce the potential markets for  products of the Celera Genomics group.





The Celera Genomics group may pursue  acquisitions, investments, or other strategic relationships or alliances, which  may consume significant resources, may be unsuccessful, and could dilute the holders  of Applera-Celera Genomics stock.  Acquisitions, investments and other  strategic relationships and alliances, if pursued, may involve significant cash  expenditures, debt incurrence, additional operating losses, and expenses that  could have a material effect on the Celera Genomics groups financial condition  and operating results.  Acquisitions  involve numerous other risks, including:





| | diversion of    management from daily operations;                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------------------------
| | difficulties    integrating acquired technologies and personnel into the business of the    Celera Genomics group;                               
| | inability to    obtain required financing on favorable terms;                                                                                    
| | entry into    new markets in which the Celera Genomics group has little previous    experience;                                                  
| | potential    loss of key employees, key contractual relationships, or key customers of    acquired companies or of the Celera Genomics group; and
| | assumption    of the liabilities and exposure to unforeseen liabilities of acquired    companies.                                                




If these types of transactions  are pursued, it may be difficult for the Celera Genomics group to complete  these transactions quickly and to integrate these acquired operations  efficiently into its current business operations.  Any acquisitions, investments or other strategic relationships  and alliances by the Celera Genomics group may ultimately have a negative  impact on its business and financial condition.  In addition, future acquisitions may not be as successful as  originally anticipated and may result in impairment charges.  We have incurred these charges in recent  years in relation to acquisitions.  For  example, we incurred charges for impairment of goodwill, intangibles and other  assets and other charges in the amounts of $69.1 million during our 2001 fiscal  year, $25.9 million during our 2002 fiscal year, and $4.5 million during our  2005 fiscal year in relation to the Celera Genomics groups acquisition of  Paracel,
Inc.  Similarly, we incurred  charges for the impairment of patents and acquired technology in the amount of  $14.9 million during our 2004 fiscal year in relation to the Applied Biosystems  groups acquisition of Boston Probes, Inc.





In addition, acquisitions and  other transactions may involve the issuance of a substantial amount of  Applera-Celera Genomics stock without the approval of the holders of  Applera-Celera Genomics stock.  Any  issuances of this nature could be dilutive to holders of Applera-Celera  Genomics stock.





Earthquakes could disrupt operations in California. The Celera Genomics group has research and  development and administrative facilities in South San Francisco,  California.  South San Francisco is  located near major California earthquake faults.  The ultimate impact of earthquakes on the Celera Genomics group,  its significant suppliers, and the general infrastructure is unknown, but  operating results could be materially affected in the event of a major  earthquake.





Applera-Celera Genomics stock price may be volatile.  The market price of Applera-Celera Genomics  stock has in the past been and may in the future be volatile due to the risks  and uncertainties described in this section of this report, as well as other  factors that may have affected or may in the future affect the market price,  such as:





| | conditions    and publicity regarding the genomics, biotechnology, pharmaceutical, or life    sciences industries generally;
|- | ----------------------------------------------------------------------------------------------------------------------------




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| | price and    volume fluctuations in the stock market at large which do not relate to the    Celera Genomics groups operating performance; and                                                                                                                                                                  
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | comments by    securities analysts or government officials, including with regard to the    viability or profitability of the biotechnology sector generally or with    regard to intellectual property rights of life science companies, or the    Celera Genomics groups ability to meet market expectations.




The stock market has from time  to time experienced extreme price and volume fluctuations that are unrelated to  the operating performance of particular companies.  In the past, companies that have experienced volatility have  sometimes been the subjects of securities class action litigation.  If litigation was instituted on this basis,  it could result in substantial costs and a diversion of managements attention  and resources.





Our company is subject to a class action lawsuit relating to its 2000  offering of shares of Applera-Celera Genomics stock that may be expensive and  time consuming.   Our company and some of our officers are defendants in a lawsuit brought  on behalf of purchasers of Applera-Celera Genomics stock in our follow-on  public offering of Applera-Celera Genomics stock completed on March 6,  2000.  In the offering, we sold an  aggregate of approximately 4.4 million shares of Applera-Celera Genomics stock  at a public offering price of $225 per share.   The lawsuit was commenced with the filing of several complaints in 2000,  which have been consolidated into a single case which has been certified by the  court as a class action.  The  consolidated complaint generally alleges that the prospectus used in connection  with the offering was inaccurate or misleading because it failed to adequately  disclose the alleged opposition of the Human
Genome Project and two of its  supporters, the governments of the U.S. and the U.K., to providing patent  protection to our genomic-based products.   Although the Celera Genomics group has never sought, or intended to  seek, a patent on the basic human genome sequence data, the complaint also  alleges that we did not adequately disclose the risk that the Celera Genomics  group would not be able to patent this data.   The consolidated complaint seeks unspecified monetary damages,  rescission, costs and expenses, and other relief as the court deems  proper.  Although we believe the asserted  claims are without merit and intend to defend the case vigorously, the outcome  of this or any other litigation is inherently uncertain.  The defense of this case will require  management attention and resources.





Factors  Relating toCelera Diagnostics, a 50/50 Joint Venture between the  Applied Biosystems Group and the Celera Genomics Group





Celera  Diagnostics ability to develop and commercialize proprietary diagnostic  products is unproven.  Celera Diagnostics faces the difficulties  inherent in developing and commercializing diagnostic products.  It is possible that Celera Diagnostics  discovery and development efforts will not result in any new commercial  products or services.  In particular,  Celera Diagnostics and its collaborators are seeking to develop new diagnostic  products based on information derived from the study of the genetic material of  organisms, or genomics.  This method  carries inherent risks, as only a limited number of diagnostic products based  on genomic discoveries have been developed and commercialized to date.





Diagnostic  product candidates may never result in a commercialized product.  Most  of Celera Diagnostics potential diagnostic products are in various stages of  research and development and will require significant additional research and  development efforts by Celera Diagnostics or its collaborators before they can  be marketed.  These efforts include  extensive clinical testing and may require lengthy regulatory review and  clearance or approval by the U.S. Food and Drug Administration and comparable  agencies in other countries.  Celera  Diagnostics development of new diagnostic products is highly uncertain and  subject to a number of significant risks.   Diagnostic product candidates that appear to be promising at early  stages of development may not be developed into commercial products, or may not  be successfully marketed, for a number of reasons, including:





| | Celera Diagnostics or its    collaborators may not successfully complete research and development efforts;                                                     
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | any diagnostic products    that Celera Diagnostics or its collaborators develop may be found during    clinical trials to have limited medical value;          
| | Celera Diagnostics or its    collaborators may fail to obtain required regulatory clearances or approvals    for products they develop;                        
| | Celera Diagnostics or its    collaborators may be unable to manufacture enough of any potential products    at an acceptable cost and with appropriate quality;




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| | any diagnostic products    Celera Diagnostics or its collaborators develop may not be competitive with    other existing or future products;                                                                                         
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | adequate reimbursement for    Celera Diagnostics and its collaborators products may not be available to    physicians or patients from the government or insurance companies; and                                                  
| | Celera Diagnostics may be    unable to obtain necessary intellectual property protection, or third parties    may own proprietary rights that prevent Celera Diagnostics or its    collaborators from commercializing their products.




If Celera Diagnostics or its collaborators fail to satisfy regulatory  requirements for any diagnostic product candidate, they may be unable to  complete the development and commercialization of that product.   Celera Diagnostics is currently developing its capability to move  potential products through clinical testing, manufacturing, and the approval  processes of the U.S. Food and Drug Administration and comparable agencies in  other countries.  In the U.S., either  Celera Diagnostics or its collaborators must show through pre-clinical studies  and clinical trials that each of Celera Diagnostics or its collaborators diagnostic  product candidates is safe and effective for each indication before obtaining  regulatory clearance or approval from the FDA for the commercial sale of that  product as anin-vitro diagnostic  product with clinical claims.  Outside  of the U.S., the regulatory requirements vary from country
to country.  If Celera Diagnostics or its collaborators  fail to adequately show the safety and effectiveness of a diagnostic product,  regulatory clearance or approval could be delayed or denied.  The results from pre-clinical studies may be  different from the results that are obtained in clinical trials.  Celera Diagnostics cannot be certain that it  or its collaborators will show sufficient safety and effectiveness in its  clinical trials to allow them to obtain the needed regulatory clearance or  approval.  The regulatory review and  approval process can take many years and require substantial expense and may  not be successful.  A number of  companies in the diagnostics industry, including biotechnology companies, have  suffered significant setbacks in advanced clinical trials, even after promising  results in earlier studies.





Even if Celera Diagnostics or its  collaborators obtain regulatory clearance or approval for a product, that  product will be subject to risks and uncertainties relating to regulatory  compliance, including post-clearance or approval clinical studies and inability  to meet the compliance requirements of the FDAs Quality System Regulations,  which relate to manufacturing of diagnostic products.  In addition, the occurrence of manufacturing problems could cause  subsequent suspension of product manufacture or withdrawal of clearance or  approval, or could require reformulation of a diagnostic product, additional  testing, or changes in labeling of the product.  This could delay or prevent Celera Diagnostics from generating  revenues from the sale of that diagnostic product.





Celera Diagnostics products may not be fully accepted by physicians  and laboratories.  Celera Diagnostics growth and success will  depend on market acceptance by physicians and laboratories of its products as  clinically useful and cost-effective.   Celera Diagnostics expects that most of its products will use genotyping  and gene expression information to predict predisposition to diseases, disease  progression or severity, or responsiveness to treatment.  Market acceptance will depend on the  widespread acceptance and use by doctors and clinicians of genetic testing for  these purposes.  The use of genotyping and  gene expression information by doctors and clinicians for these purposes is relatively  new.  Celera Diagnostics cannot be  certain that doctors and clinicians will want to use its products designed for  these purposes.





Even if genetic testing is accepted as a  method to manage health care, Celera Diagnostics cannot be certain that its  products will be accepted in the clinical diagnostic market.  If genetic testing becomes widely accepted  in the clinical diagnostic market, Celera Diagnostics cannot predict the extent  to which doctors and clinicians may be willing to utilize Celera Diagnostics  products in providing patient care.   Doctors and clinicians may prefer competing technologies and products  that can be used for the same purposes as Celera Diagnostics products.





Ethical, legal, and social issues related to the use of genetic information  and genetic testing may cause less demand for Celera Diagnostics products.   Genetic testing has raised issues regarding confidentiality and the  appropriate uses of the resulting information.   For example, concerns have been expressed regarding the use of genetic  test results by insurance carriers or employers to discriminate on the basis of  this information, resulting in barriers to the acceptance of genetic tests by  consumers.  This could lead to governmental  authorities calling for limits on or regulation of the use of genetic testing  or prohibiting testing for genetic predisposition to some diseases,  particularly those that have no known cure.   Any of these scenarios could reduce the potential markets for products  of Celera Diagnostics.





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If insurance companies and other third-party payors do not reimburse  doctors and patients for Celera Diagnostics tests, its ability to sell its  products to the clinical diagnostics market will be impaired.  Sales  of Celera Diagnostics products will depend, in large part, on the availability  of adequate reimbursement to users of those products from government insurance  plans, including Medicare and Medicaid in the U.S., managed care organizations,  and private insurance plans.   Physicians recommendations to use diagnostic tests, as well as  decisions by patients to pursue those tests, are likely to be influenced by the  availability of reimbursement by insurance companies and other third party  payors.  Third-party payors are  increasingly attempting to contain health care costs by limiting both the  extent of coverage and the reimbursement rate for testing and treatment  products and services.  In particular,
 products and services that are determined to be investigational in nature or  that are not considered reasonably necessary for diagnosis or treatment may  be denied reimbursement coverage.  In  addition, third-party payors are increasingly limiting reimbursement coverage  for medical diagnostic products and, in many instances, are exerting pressure  on medical suppliers to reduce their prices.   Thus, third-party reimbursement may not be consistently available or  financially adequate to cover the cost of Celera Diagnostics products.  This could limit the ability of Celera  Diagnostics to sell its products, cause Celera Diagnostics to reduce the prices  of its products, or otherwise adversely affect Celera Diagnostics operating  results.





Because each third-party payor individually  approves reimbursement, obtaining these approvals is a time-consuming and  costly process that requires Celera Diagnostics to provide scientific and  clinical support for the use of each of its products to each payor separately  with no assurance that such approval will be obtained.  This process can delay the broad market  introduction of new products and could have a negative effect on Celera Diagnostics  revenues and operating results.





If Celera Diagnostics fails to maintain its existing collaborative  relationships and enter into new collaborative relationships, or if  collaborators do not perform under collaboration agreements, development of its  diagnostic products could be delayed.  Celera  Diagnostics strategy for the discovery, development, clinical testing,  manufacturing and commercialization of most of its diagnostic product  candidates includes entering into collaborations with partners.  Although Celera Diagnostics has expended,  and continues to expend, time and money on internal research and development  programs, it may be unsuccessful in creating diagnostic product candidates that  would enable it to form additional collaborations.  Celera Diagnostics cannot ensure that its collaborators will  perform their obligations as expected.   If any of Celera Diagnostics collaborators terminate or elect to cancel  their agreements or otherwise
fail to conduct their collaborative activities in  a timely manner, the development or commercialization of diagnostics products  may be delayed or otherwise adversely affected.  If in some cases Celera Diagnostics assumes responsibilities for  continuing programs on its own after termination of a collaboration, Celera  Diagnostics may be required to devote additional resources to product  development and commercialization or Celera Diagnostics may need to cancel some  development programs.





Celera Diagnostics has entered into a  strategic alliance agreement with Abbott Laboratories for the joint discovery,  development, manufacturing, and commercialization of nucleic acid-based  diagnostic products.  Although this is a  long-term alliance, the alliance agreement contains provisions that could  result in early termination for reasons that include the following: breach by  either company; a change in control of either company; either companys  dissatisfaction with the performance of the alliance according to specific  timelines for such judgments set forth in the alliance agreement; or by either  company if the other party fails to meet performance criteria applicable to the  other party set forth in the alliance agreement.  In addition, the amount and timing of resources to be devoted to  research, development, eventual clinical trials and commercialization  activities by Abbott are not within Celera Diagnostics
control.  Future strategic alliances, if any, with  other third parties are likely to be subject to similar terms and  conditions.





Celera Diagnostics does not have a sales and service capability in the  clinical diagnostic market.  Celera Diagnostics currently  does not have a sales and service organization.  Accordingly, its ability to successfully sell its products will  depend on its ability to either develop a sales and service organization, work  with Abbott Laboratories under the existing alliance agreement, work with  another distributor, or pursue a combination of these alternatives.  In jurisdictions where Celera Diagnostics  uses third party distributors, its success will depend to a great extent on the  efforts of the distributors.





Celera Diagnostics has limited manufacturing capability and may  encounter difficulties expanding Celera Diagnostics operations.   Celera Diagnostics has limited commercial manufacturing experience and  capabilities.  If product sales increase,  Celera Diagnostics will have to increase the capacity of its manufacturing  processes and facilities or rely on its collaborators, if any.  Celera Diagnostics may encounter  difficulties in scaling-up manufacturing processes and may be





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unsuccessful in overcoming such  difficulties.  In such circumstances,  Celera Diagnostics ability to meet product demand may be impaired or delayed.





Celera Diagnostics facilities are subject, on  an ongoing basis, to the FDAs Quality System Regulations, international  quality standards and other regulatory requirements, including requirements for  good manufacturing practices and the State of California Department of Health  Services Food and Drug Branch requirements.   Celera Diagnostics may encounter difficulties expanding Celera  Diagnostics manufacturing operations in accordance with these regulations and  standards, which could result in a delay or termination of manufacturing or an  inability to meet product demand.





Celera Diagnostics manufacturing operations  are located in a facility in Alameda, California.  Celera Diagnostics expects to operate its manufacturing out of  this facility for the foreseeable future, and it does not have alternative  production plans in place or alternative facilities available should its  existing manufacturing facility cease to function.  Accordingly, Celera Diagnostics business could be adversely  affected by unexpected interruptions in manufacturing caused by events such as  labor problems, equipment failures, or other factors, and the resulting  inability to meet customer orders on a timely basis.





Celera Diagnostics research and product development depends on access  to tissue and blood samples from diseased and healthy individuals, other  biological materials, and related clinical and other information, which may be  in limited supply.  Celera Diagnostics may not be  able to obtain or maintain access to these materials and information on  acceptable terms, or may not be able to obtain needed consents from individuals  providing tissue or blood samples.  In  addition, government regulation in the U.S. and foreign countries could result  in restricted access to, or use of, human tissue or blood samples.  If Celera Diagnostics loses access to  sufficient numbers or sources of tissue or blood samples, or if tighter  restrictions are imposed on its use of the information generated from tissue or  blood samples, its business may be harmed.





Single suppliers or a limited number of suppliers provide key  components of Celera Diagnostics products. If these suppliers fail to supply  these components, Celera Diagnostics may be unable to satisfy product demand.   Several key components of Celera Diagnostics products come from, or are  manufactured for Celera Diagnostics by, a single supplier or a limited number  of suppliers.  This applies in  particular to components such as enzymes, florescent dyes, phosphoramadites,  and oligonucleotides.  Celera  Diagnostics acquires some of these and other key components on a purchase-order  basis, meaning that the supplier is not required to supply Celera Diagnostics  with specified quantities over any set period of time or set aside part of its  inventory for Celera Diagnostics forecasted requirements.  Celera Diagnostics has not arranged for  alternative supply sources for some of these components and it may be
difficult  to find alternative suppliers, especially to replace enzymes and  oligonucleotides.  Furthermore, in order  to maintain compliance with Quality System Regulations, Celera Diagnostics must  verify that its suppliers of key components are in compliance with all  applicable U.S. Food and Drug Administration regulations.  Celera Diagnostics believes that compliance  with these regulatory requirements would increase the difficulty in arranging  for needed alternative supply sources, particularly for components that are  from single source suppliers, which means that they are currently the only  supplier of custom-ordered components.   If Celera Diagnostics product sales increase beyond the forecast  levels, or if its suppliers are unable or unwilling to supply it on  commercially acceptable terms or comply with regulations applicable to  manufacturing of Celera Diagnostics products, it may not have access to  sufficient quantities of key components on a
timely basis and may be unable to  satisfy product demand.





In addition, if any of the components of  Celera Diagnostics products are no longer available in the marketplace, it may  be forced to further develop its products or technology to incorporate  alternate components.  The incorporation  of new components into its products may require Celera Diagnostics to seek  clearances or approvals from the FDA or foreign regulatory agencies prior to  commercialization.





Celera Diagnostics operations involve the use, manufacture,  sale, and distribution of hazardous materials, and the mishandling of these  hazardous materials could result in substantial liabilities and harm to Celera  Diagnostics.  Celera Diagnostics research and development  and manufacturing activities involve the controlled use of potentially  hazardous materials, including biological materials and chemicals.  Also, some of Celera Diagnostics products,  including products sold through its strategic alliance with Abbott  Laboratories, are hazardous materials or include hazardous materials.  Celera Diagnostics cannot completely  eliminate the risk of accidental or other contamination or injury from these  materials, and Celera Diagnostics could be held liable for resulting damages,  which could be substantial.  Under some  laws and regulations, a party can be subject to strict liability for damages
caused by some hazardous materials, which





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means that a party can be liable without  regard to fault or negligence.   Furthermore, Celera Diagnostics could be held indirectly responsible for  contamination or injury arising from the conduct of Abbott Laboratories in  manufacturing, selling, or distributing alliance products. In addition, Celera  Diagnostics is subject to federal, state, local, and foreign laws, regulations,  and permits governing the use, storage, handling, and disposal of hazardous  materials and specified waste products, as well as the shipment and labeling of  materials and products containing hazardous materials.  If Celera Diagnostics fails to comply with  any of these laws, regulations, or permits, or if Celera Diagnostics is held  indirectly responsible for conduct of Abbott Laboratories found to be  non-compliant, we could be subject to substantial fine or penalty, payment of  remediation costs, loss of permits, and/or other adverse governmental  action. 
Similar consequences could  arise if Celera Diagnostics is held indirectly responsible for conduct of  Abbott Laboratories found to be non-compliant.   Any of these events could have a material adverse effect on Celera  Diagnostics business and financial condition.





Celera Diagnostics business depends on the continuous, effective,  reliable, and secure operation of its computer hardware, software, and Internet  applications and related tools and functions.   Celera Diagnostics business requires manipulating and analyzing large  amounts of data, and communicating the results of the analysis to its internal  research personnel and to its collaborators via the Internet.  Also, Celera Diagnostics relies on a global  enterprise software system to operate and manage its business.  Celera Diagnostics business therefore  depends on the continuous, effective, reliable, and secure operation of its computer  hardware, software, networks, Internet servers, and related  infrastructure.  To the extent that  Celera Diagnostics hardware or software malfunctions or access to Celera  Diagnostics data by Celera Diagnostics internal research personnel or collaborators  through
the Internet is interrupted, its business could suffer.





Celera Diagnostics computer and  communications hardware is protected through physical and software  safeguards.  However, it is still  vulnerable to fire, storm, flood, power loss, earthquakes, telecommunications  failures, physical or software break-ins, software viruses, and similar  events.  If Celera Diagnostics fails to  maintain and further develop the necessary computer capacity and data to  support its computational needs, its diagnostic product discovery and research  efforts, and the Celera Genomics groups and its collaborators therapeutic  products discovery and research efforts, it could experience a loss of or delay  in revenues.  In addition, any sustained  disruption in Internet access provided by third parties could adversely affect  Celera Diagnostics business.





Celera Diagnostics competitive position depends on maintaining its  intellectual property protection.   Celera Diagnostics ability to compete and to achieve and maintain  profitability depends, in part, on its ability to protect its proprietary  discoveries and technologies through obtaining and enforcing patent rights,  maintaining its trade secrets, and operating without infringing the  intellectual property rights of others.   Celera Diagnostics ability to obtain patent protection for the  inventions it makes is uncertain.  The  patentability of biotechnology inventions involves complex factual, scientific,  and legal questions.  As a result, it is  difficult to predict whether patents will issue or the breadth of claims that  will be allowed in biotechnology and pharmaceutical patents.  This may be particularly true with regard to  the patenting of gene sequences, gene functions, and genetic
variations.  In this regard, the U.S. Patent and  Trademark Office has adopted guidelines for use in the review of the utility of  inventions, particularly biotechnology inventions.  These guidelines increased the amount of evidence required to  demonstrate utility in order to obtain a patent in the biotechnology field,  making patent protection more difficult to obtain.  Also, Celera Diagnostics cannot ensure that changes in policies  or to laws, or interpretations of these policies or laws, relevant to the  patenting of biotechnology inventions will not adversely affect its patent  position in the U.S. or other countries.   Opposition to the protection of these inventions in the U.S. or other  countries could result in stricter standards for obtaining or enforcing  biotechnology patent rights.





In some instances, patent applications in the  U.S. are maintained in secrecy until a patent issues.  In most instances, the content of U.S. and international patent  applications is made available to the public approximately 18 months after the  initial filing from which priority is claimed.   As a result, Celera Diagnostics cannot be certain that others have not  filed patent applications for inventions covered by Celera Diagnostics patent  applications or that Celera Diagnostics inventors were the first to make the  invention.  Accordingly, Celera Diagnostics  patent applications may be preempted or Celera Diagnostics may have to  participate in interference proceedings before the U.S. Patent and Trademark  Office.  These proceedings determine the  priority of invention and the right to a patent for the claimed invention in  the U.S.





Celera Diagnostics also relies on trade secret  protection for its confidential and proprietary information and  procedures.  Celera Diagnostics protects  its trade secrets through recognized practices, including access control, confidentiality  and





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nonuse agreements with employees, consultants,  collaborators and customers, and other security measures.  These confidentiality and nonuse agreements  may be breached, however, and Celera Diagnostics may not have adequate remedies  for a breach.  In addition, Celera  Diagnostics trade secrets may otherwise become known or be independently  developed by competitors.  Accordingly,  it is uncertain whether Celera Diagnostics reliance on trade secret protection  will be adequate to safeguard its confidential and proprietary information and  procedures.





Disputes may arise in the future with regard  to the ownership of rights to any invention developed with collaborators.  These and other possible disagreements with  collaborators could lead to delays in the achievement of milestones or receipt  of royalty payments or in research, development, and commercialization of  Celera Diagnostics products.  In  addition, these disputes could require or result in lawsuits or  arbitration.  Lawsuits and arbitration  are time-consuming and expensive.  Even  if Celera Diagnostics wins, the cost of these proceedings could adversely  affect its business, financial condition and operating results.





Celera Diagnostics may infringe the intellectual property rights of  third parties, may become involved in expensive intellectual property legal  proceedings, and may need to obtain licenses to intellectual property from  others. There has been substantial litigation and  other legal proceedings regarding patents and other intellectual property  rights in the biotechnology, pharmaceutical, and diagnostic industries.  The intellectual property  rights of biotechnology companies, including Celera Diagnostics, are generally  uncertain and involve complex factual, scientific, and legal questions.  Celera Diagnostics success in diagnostic  discovery and development may depend, in part, on its ability to operate  without infringing the intellectual property rights of others and to prevent  others from infringing its intellectual property rights.





Celera Diagnostics may initiate proceedings at  the U.S. Patent and Trademark Office to determine its patent rights with  respect to third parties, referred to as interference proceedings.  Also, Celera Diagnostics may initiate patent  litigation to enforce its patent rights or invalidate patents held by third parties.  These legal actions may similarly be  initiated against Celera Diagnostics by third parties alleging that Celera  Diagnostics is infringing their rights.   For example, Genetic Technologies Limited has filed a lawsuit against us  alleging that we are infringing two of its patents due to the sale of cystic  fibrosis reagent kits.  This case is  described in further detail above in Part I, Item 3 of our 2005 Annual Report  on Form 10-K under the heading Legal Proceedings-Commercial Litigation.  The cost to Celera Diagnostics of any patent  litigation or proceedings, even if Celera Diagnostics is successful,
could be  substantial, and these legal actions may absorb significant management  time.  If infringement claims against  Celera Diagnostics are resolved unfavorably to Celera Diagnostics, Celera Diagnostics  may be enjoined from manufacturing or selling its products or services without  a license from a third party, and Celera Diagnostics may not be able to obtain  a license on commercially acceptable terms, or at all.  Also, Celera Diagnostics could become  subject to significant liabilities to third parties if these claims are  resolved unfavorably to Celera Diagnostics.   Similarly, contractual disputes related to existing license rights under  third party patents may affect Celera Diagnostics ability to develop,  manufacture, and sell its products.





Introduction of new products may expose Celera Diagnostics to product  liability claims.  New products developed by Celera Diagnostics  or its collaborators could expose Celera Diagnostics to potential product  liability risks that are inherent in the testing, manufacturing, marketing, and  sale of human diagnostic products.  In  addition, clinicians, patients, third-party payors, and others may at times  seek damages based on testing or analysis errors based on a technicians  misreading of results, mishandling of the patient samples, or similar  claims.  Product liability claims or  product recalls, regardless of the ultimate outcome, could require Celera  Diagnostics to spend significant time and money in litigation and to pay  significant damages.  Although Celera  Diagnostics expects to seek and maintain product liability insurance to cover  claims relating to the testing and use of diagnostic products, there can be no
assurance that such insurance will be available on commercially reasonable  terms, if at all, or that the amount of coverage obtained will be adequate to  cover losses from any particular claim.





The diagnostics industry is intensely competitive and evolving.  There  is intense competition among health care, biotechnology, and diagnostic  companies attempting to discover candidates for potential new diagnostic  products.  These companies may:





| | develop new diagnostic    products in advance of Celera Diagnostics or its collaborators;                                                         
|- | --------------------------------------------------------------------------------------------------------------------------------------------------
| | develop diagnostic products    which are more effective or more cost-effective than those developed by    Celera Diagnostics or its collaborators;




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| | obtain regulatory    clearances or approvals of their diagnostic products more rapidly than Celera    Diagnostics or its collaborators; or                                                                                                                                    
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | obtain patent protection or    other intellectual property rights that would limit Celera Diagnostics or    its collaborators ability to develop and commercialize, or their customers    ability to use, Celera Diagnostics or its collaborators diagnostic    products.




Celera Diagnostics competes with companies in  the U.S. and abroad that are engaged in the development and commercialization  of products and services that provide genetic information.  These companies may develop products that  are competitive with the products offered by Celera Diagnostics or its collaborators,  such as analyte specific reagents or diagnostic test kits that perform the same  or similar purposes as Celera Diagnostics or its collaborators products.  Also, clinical laboratories may offer  testing services that are competitive with the products sold by Celera  Diagnostics or its collaborators.  For  example, a clinical laboratory can use either reagents purchased from  manufacturers other than Celera Diagnostics, or use their own internally  developed reagents, to make diagnostic tests.   If clinical laboratories make tests in this manner for a particular  disease, they could offer testing services for that
disease as an alternative  to products sold by Celera Diagnostics used to test for the same disease.  The testing services offered by clinical laboratories  may be easier to develop and market than test kits developed by Celera  Diagnostics or its collaborators because the testing services are not subject  to the same clinical validation requirements that are applicable to FDA-cleared  or approved diagnostic test kits.  The  diagnostic testing services market is dominated by a small number of large  clinical testing laboratories, including Laboratory Corporation of America  Holdings, Quest Diagnostics Inc., and Specialty Laboratories, Inc.





Also, a substantial portion of all sales of  diagnostic products are made to a small number of clinical reference  laboratories, including those identified above, and therefore Celera  Diagnostics expects to rely on these laboratories for a substantial portion of  its sales.  Celera Diagnostics  inability to establish or maintain one or more of these laboratories as a  customer could adversely affect its business, financial condition, and  operating results.





Earthquakes could disrupt operations in California.  The  headquarters and operations of Celera Diagnostics are located in Alameda,  California.  Alameda is located near  major California earthquake faults.  The  ultimate impact of earthquakes on Celera Diagnostics, its significant suppliers,  and the general infrastructure is unknown, but operating results could be materially  affected in the event of a major earthquake.





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Item  3.     Quantitative and Qualitative Disclosures About  Market Risk.





We are exposed to potential  loss from exposure to market risks represented principally by changes in  foreign exchange rates, interest rates, and equity prices.  Please refer to the market risks section of  the managements discussion and analysis included on page 43 of this report.  Additional information can also be found in  the market risk section of the managements discussion and analysis included on  page 44 of our 2005 Annual Report to Stockholders (which section is  incorporated in this report by reference).





Item 4.     Controls and Procedures.





We maintain disclosure controls  and procedures designed to ensure that the information required to be disclosed  in the reports that we file or submit under the Securities Exchange Act is  recorded, processed, summarized, and reported within the time periods specified  in the Securities and Exchange Commissions rules and forms.  Our management, with the participation of  our Chief Executive Officer and Chief Financial Officer, evaluated the  effectiveness of these disclosure controls and procedures as of the end of the  first quarter of our 2006 fiscal year, the period covered by this report.  Based on that evaluation, our Chief  Executive Officer and Chief Financial Officer have concluded that our  disclosure controls and procedures are effective to achieve their stated  purpose.  However, there is no assurance  that our disclosure controls and procedures will operate effectively under all  circumstances.  No changes were made to
our internal control over financial reporting during the first quarter of our  2006 fiscal year that have materially affected, or are reasonably likely to  materially affect, our internal control over financial reporting.





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PART II - OTHER INFORMATION





Item 1.     Legal  Proceedings.





We are involved in various  lawsuits, arbitrations, investigations, and other legal actions from time to  time with both private parties and governmental entities.  These legal actions currently involve, for  example, commercial, intellectual property, antitrust, environmental,  securities, and employment matters.  We  disclosed information about some of our legal actions in Part I, Item 3, of our  2005 Annual Report on Form 10-K. Set forth below is an  update to those disclosures, including  specifically a description of previously-disclosed cases in which there have  been recent material developments.





We believe that we have  meritorious defenses against the claims currently asserted against us,  including the claims described in our 2005 10-K as updated by the disclosures  in this report, and we intend to defend them vigorously.  However, the outcome of legal actions is  inherently uncertain, and we cannot be sure that we will prevail in our defense  of claims currently asserted against us.   An adverse determination in the cases we are currently defending,  particularly the claims against us described in Item 3 of our 2005 10-K under  the heading Commercial Litigation, as updated by the disclosures in this  report, could have a material adverse effect on us, the Applied Biosystems  group, the Celera Genomics group, or Celera Diagnostics.





We are involved in several litigation matters  with MJ Research, Inc. (acquired by Bio-Rad Laboratories, Inc. since the  commencement of litigation), which commenced with our filing claims against MJ  Research on June 24, 1998, in the U.S. District Court for the District of  Connecticut based on its alleged infringement of some polymerase chain  reaction, or PCR, patents.  In response  to our claims, MJ Research filed counterclaims including, among others,  allegations that we have licensed and enforced these patents through  anticompetitive conduct in violation of federal and state antitrust laws, that  some of our patents are unenforceable because of patent misuse, and that some  of our patents are invalid and unenforceable because of inequitable conduct.  MJ Research is seeking injunctive relief,  monetary damages, costs and expenses, and other relief.  These matters were adjudicated in part  through a jury trial, which resulted in a verdict
in our favor rendered in  April 2004, and the remaining issues were resolved through a series of summary  judgments granted by the District Court in several rulings issued in our favor  between December 2004 and April 2005.   As a result, MJ Researchs counterclaims were rejected and MJ Research  has been held liable to us and Roche Molecular Systems, also a party to the  litigation, for infringement of U.S. Patent Nos. 4,683,195, 4,683,202 and  4,965,188 (each relates to PCR process technology) and U.S. Patent Nos.  5,656,493, 5,333,675 and 5,475,610 (each relates to thermal cycler instrument  technology). Further, the infringement of the 195, 202, 188 and 493 patents  was held to be willful.  As a result of  these decisions in our favor, in April 2005, the District Court awarded us and  Roche Molecular Systems damages of $35.4 million plus reasonable attorneys  fees, an enhancement of the original damages award granted by the jury in the  amount of $19.8
million.  The Court also  awarded, on August 26, 2005, prejudgment interest of approximately $1  million.  Additionally, on August 30,  2005, the Court issued an order enjoining MJ Research from infringing U.S.  Patent Nos. 5,333,675, 5,656,493 and 5,475,610.  Both parties have filed notices of appeals of some of the rulings  in the case, including the damages award and the order enjoining MJ Research.





Promega Corporation filed an  action against us and some of our affiliates and Roche Molecular Systems, Inc.  and Hoffmann-La Roche, Inc. in the U.S. District Court for the Eastern District  of Virginia on April 10, 2000.  The  complaint asserted violations of the federal False Claims Act.  The complaint alleged that we and  Hoffmann-La Roche overcharged the U.S. government for thermal cyclers and PCR  reagents.  The overcharges were alleged  to be the result of a licensing program based in part on U.S. Patent No.  4,889,818.  Promega asserted that U.S.  Patent No. 4,889,818 was obtained fraudulently and that the licensing program  run by us and Hoffmann-La Roche was the cause of the alleged overcharging.  Promega was seeking monetary damages.  Promega claimed to be suing in the name of  the U.S. government although the government declined to participate in the  suit.  On June 29, 2004, the court  granted our motion to
dismiss for failure to state a claim upon which relief  could be granted, but gave Promega the right to file an amended complaint.  Promega filed an amended complaint on July  13, 2004, and we filed another motion to dismiss on August 6, 2004.  The court granted our second motion and  dismissed the case with prejudice on August 20, 2004.  Promega had filed an appeal with the U.S. Court of Appeals for  the Fourth Circuit.  However, this  litigation was terminated on September 26, 2005, when Promega withdrew its appeal  and the parties granted each other a mutual release of claims.





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Item  2.     Unregistered Sales of Equity Securities and Use  of Proceeds.





This table provides information regarding our  purchases of shares of Applera-Applied Biosystems stock during the first  quarter of fiscal 2006.





|Period                             |  | Total    Number of    Shares Purchased (1) |           | Average    Price    Paid per Share |   | Total    Number of    Shares Purchased as    Part of Publicly Announced Plans    or Programs |  | Approximate    Number of Shares    (or Approximate    Dollar Value) that    May Yet Be    Purchased Under the     Plans or 
    Programs (2)(3) |          
|---------------------------------- |  | ------------------------------------------ | --------- | ---------------------------------- | - | -------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- | ---------
|                                   |  |                                            |           |                                    |   |                                                                                              |  |                                                                                                                                                 |          
|July 1-July    31, 2005            |  |                                            |          |                                    | $ |                                                                                             |  |                                                                                                                                                 |         
|August    1-August 31, 2005        |  |                                            | 5,478,167 |                                    | $ | 20.9890                                                                                      |  |                                                                                                                                                 | 5,453,500
|September 1-    September 30, 2005 |  |                                            | 3,870,800 |                                    | $ | 22.3442                                                                                      |  |                                                                                                                                                 | 3,870,800
|                                   |  |                                            |           |                                    |   |                                                                                              |  |                                                                                                                                                 |          
|Total                              |  |                                            | 9,348,967 |                                    | $ | 21.5501                                                                                      |  |                                                                                                                                                 | 9,324,300
|                                   |  |                                            |           |                                    |   |                                                                                              |  |                                                                                                                                                 |          




|   
|---
|(1)
|   
|(2)
|   
|(3)




This table provides information regarding our  purchases of shares of Applera-Celera Genomics stock during the first quarter  of fiscal 2006.





|Period                            |  | Total    Number of    Shares Purchased (1) |        | Average    Price    Paid per Share |   | Total    Number of    Shares Purchased as    Part of Publicly    Announced Plans    or Programs |  | Approximate    Number of Shares    (or Approximate    Dollar Value) that    May Yet be
  Purchased Under the    Plans or Programs    (2) |  
|--------------------------------- |  | ------------------------------------------ | ------ | ---------------------------------- | - | ----------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- | -
|                                  |  |                                            |        |                                    |   |                                                                                                 |  |                                                                                                                                          |  
|July 1-July    31, 2005           |  |                                            |       |                                    | $ |                                                                                                |  |                                                                                                                                          | 
|August    1-August 30, 2005       |  |                                            | 12,798 |                                    | $ | 11.85                                                                                           |  |                                                                                                                                          | 
|September    1-September 30, 2005 |  |                                            |       |                                    | $ |                                                                                                |  |                                                                                                                                          | 
|                                  |  |                                            |        |                                    |   |                                                                                                 |  |                                                                                                                                          |  
|Total                             |  |                                            | 12,798 |                                    | $ | 11.85                                                                                           |  |                                                                                                                                          | 
|                                  |  |                                            |        |                                    |   |                                                                                                 |  |                                                                                                                                          |  




|   
|---
|(1)
|   
|(2)




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Item  6.     Exhibits.





| | 13   | Annual Report to    Stockholders for the fiscal year ended June 30, 2005, to the extent    incorporated herein by reference (incorporated by reference to Exhibit 13 to    Annual Report on Form 10-K of the Company for the fiscal year ended June 30,    2005 (Commission file number 1-4389)).
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                  
| | 31.1 | Certification of Principal    Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as    adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                  
| | 31.2 | Certification of Principal    Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as    adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                  
| | 32.1 | Certification of Chief Executive    Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section    906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                  
| | 32.2 | Certification of Chief    Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                         




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SIGNATURES





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





| | APPLERA CORPORATION
| | -------------------
| |                    
| | By:                
| |                    
| |                    
| |                    
| |                    
| |                    
| |                    
| | By:                
| |                    
| |                    
| |                    
| |                    

Dated:   November 9, 2005





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EXHIBIT INDEX





|Exhibit    Number |  |                                                                                                                                                                           
|----------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                  |  |                                                                                                                                                                           
|31.1              |  | Certification of Principal    Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as    adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|                  |  |                                                                                                                                                                           
|31.2              |  | Certification of Principal    Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as    adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|                  |  |                                                                                                                                                                           
|32.1              |  | Certification of Chief Executive    Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section    906 of the Sarbanes-Oxley Act of 2002                   
|                  |  |                                                                                                                                                                           
|32.2              |  | Certification of Chief    Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to    Section 906 of the Sarbanes-Oxley Act of 2002                   




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