<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   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 December 31, 2002

                                       OR

|_|   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                     (I.R.S. Employer
    Incorporation or Organization)                  Identification Number)


                                 301 Merritt 7,
                        Norwalk, Connecticut 06851-1070
          (Address of Principal Executive Offices, Including 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 x   No
                                     ---    ---

As of the close of business on February 12, 2003, there were 209,452,923 shares
of Applera Corporation - Applied Biosystems Group Common Stock and 71,806,370
shares of Applera Corporation - Celera Genomics Group Common Stock outstanding.


<PAGE>


                               APPLERA CORPORATION
                                      INDEX
<TABLE>
<CAPTION>


Part I. Financial Information                                                   Page
-----------------------------                                                   ----
<S>                                                                             <C>
Item 1. Financial Statements

          Condensed Consolidated Statements of Operations for the
               Three and Six Months Ended December 31, 2001 and 2002               1

          Condensed Consolidated Statements of Financial Position at
               June 30, 2002 and December 31, 2002                                 2

          Condensed Consolidated Statements of Cash Flows for the
               Six Months Ended December 31, 2001 and 2002                         3

          Notes to Unaudited Condensed Consolidated Financial Statements        4-22

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

           Discussion of Applera Corporation                                    23-32

           Discussion of Applied Biosystems Group                               33-40

           Discussion of Celera Genomics Group                                  40-45

           Discussion of Celera Diagnostics                                     45-46

           Recently Issued Accounting Standards                                 46-47

           Outlook                                                              47-49

           Forward-Looking Statements                                           49-71

Item 3. Quantitative and Qualitative Disclosures About Market Risk                 72

Item 4. Controls and Procedures                                                    72

Part II.  Other Information                                                        73

</TABLE>

<PAGE>


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

                               APPLERA CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)
             (Dollar amounts in thousands except per share amounts)

<TABLE>
<CAPTION>

                                                      Three Months Ended                    Six Months Ended
                                                          December 31,                         December 31,
                                                    2001               2002              2001               2002
                                                 ---------          ---------          ---------          ---------
<S>                                              <C>                <C>                <C>                <C>
Net Revenues                                     $ 437,166          $ 473,017          $ 825,020          $ 890,350
Cost of sales                                      206,302            230,326            392,826            425,220
                                                 ---------          ---------          ---------          ---------
Gross Margin                                       230,864            242,691            432,194            465,130
Selling, general and administrative                109,322            111,426            216,429            219,527
Research, development and engineering               88,467            103,285            172,969            206,576
Amortization of intangible assets                    1,635              1,723              2,106              4,423
Other special charges                                                  24,313                                24,313
Acquired research and development                  101,181                               101,181
                                                 ---------          ---------          ---------          ---------
Operating Income (Loss)                            (69,741)             1,944            (60,491)            10,291
Loss on investments, net                                                 (273)                                 (273)
Interest expense                                      (388)              (193)              (628)              (403)
Interest income                                     11,979              7,875             26,326             16,464
Other income (expense), net                             10              3,050             (1,728)               935
                                                 ---------          ---------          ---------          ---------
Income (Loss) Before Income Taxes                  (58,140)            12,403            (36,521)            27,014
Provision (benefit) for income taxes                 3,293             (1,021)             7,927              1,525
                                                 ---------          ---------          ---------          ---------
Income (Loss) From Continuing Operations           (61,433)            13,424            (44,448)            25,489
Loss from discontinued operations,
    net of income taxes                                                                                     (16,400)
                                                 ---------          ---------          ---------          ---------
Net Income (Loss)                                $ (61,433)         $  13,424          $ (44,448)         $   9,089
                                                 =========          =========          =========          =========

Applied Biosystems Group (see Note 4)
   Income From Continuing Operations             $  49,034          $  29,187          $  81,230          $  63,409
      Basic and diluted per share                $    0.23          $    0.14          $    0.38          $    0.30

   Loss From Discontinued Operations             $       -          $       -          $       -          $ (16,400)
      Basic and diluted per share                $       -          $       -          $       -          $   (0.08)

   Net Income                                    $  49,034          $  29,187          $  81,230          $  47,009
      Basic and diluted per share                $    0.23          $    0.14          $    0.38          $    0.22

   Dividends per share                           $  0.0425          $  0.0425          $  0.0850          $  0.0850

Celera Genomics Group (see Note 4)
   Net Loss                                      $(117,940)         $ (16,124)         $(133,502)         $ (35,773)
      Basic and diluted per share                $   (1.82)         $   (0.23)         $   (2.11)         $   (0.50)

</TABLE>

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


                                        1

<PAGE>


                               APPLERA CORPORATION
             CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>

                                                             At June 30,    At December 31,
                                                                 2002            2002
                                                             -----------    ---------------
                                                                              (unaudited)
<S>                                                          <C>            <C>
Assets
Current assets
  Cash and cash equivalents                                  $   470,218      $   653,023
  Short-term investments                                         889,685          706,828
  Accounts receivable, net                                       406,244          397,440
  Inventories, net                                               146,804          160,085
  Prepaid expenses and other current assets                       99,547           89,807
                                                             -----------      -----------
Total current assets                                           2,012,498        2,007,183
Property, plant and equipment, net                               488,744          503,349
Other long-term assets                                           574,157          599,832
                                                             -----------      -----------
Total Assets                                                 $ 3,075,399      $ 3,110,364
                                                             ===========      ===========

Liabilities And Stockholders' Equity
Current liabilities
  Loans payable                                              $       299      $         -
  Accounts payable                                               168,218          165,145
  Accrued salaries and wages                                      82,165           64,308
  Accrued taxes on income                                        101,209           89,164
  Other accrued expenses                                         275,348          297,908
                                                             -----------      -----------
Total current liabilities                                        627,239          616,525
Long-term debt                                                    17,983           17,542
Other long-term liabilities                                      205,234          231,813
                                                             -----------      -----------
Total Liabilities                                                850,456          865,880

Stockholders' Equity
  Capital stock
        Applera Corporation - Applied Biosystems Group             2,128            2,128
        Applera Corporation - Celera Genomics Group                  710              717
  Capital in excess of par value                               2,086,929        2,096,731
  Retained earnings                                              292,690          282,637
  Accumulated other comprehensive loss                           (91,574)         (75,106)
  Treasury stock, at cost                                        (65,940)         (62,623)
                                                             -----------      -----------
Total Stockholders' Equity                                     2,224,943        2,244,484
                                                             -----------      -----------
Total Liabilities And Stockholders' Equity                   $ 3,075,399      $ 3,110,364
                                                             ===========      ===========
</TABLE>


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


                                        2

<PAGE>


                               APPLERA CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>

                                                                     Six months ended
                                                                       December 31,
                                                                    2001          2002
                                                                 ---------      ---------
<S>                                                              <C>            <C>
Operating Activities Of Continuing Operations
Income (loss) from continuing operations                         $ (44,448)     $  25,489
Adjustments to reconcile income (loss) from continuing
   operations to net cash provided by operating activities:
    Depreciation and amortization                                   53,651         69,879
    Asset impairments                                                              10,017
    Provisions for office closures and severance costs                             23,744
    Long-term compensation programs                                  3,849          3,572
    (Gain) loss on sale of assets                                     (811)           273
    Deferred income taxes                                          (24,359)       (32,340)
    Loss from equity method investees                                1,391          4,338
    Acquired research and development                              101,181
Changes in operating assets and liabilities:
    Accounts receivable                                             30,984         14,452
    Inventories                                                      3,907        (16,837)
    Prepaid expenses and other assets                              (13,124)        (2,438)
    Accounts payable and other liabilities                              43        (28,664)
                                                                 ---------      ---------
Net Cash Provided By Operating Activities
  Of Continuing Operations                                         112,264         71,485
                                                                 ---------      ---------
Investing Activities Of Continuing Operations
Additions to property, plant and equipment, net                    (56,808)       (62,584)
Proceeds from short-term investments, net                           16,749        184,246
Purchases of long-term investments                                                (16,834)
Acquisitions and other investments, net                            (41,314)
Proceeds from the sale of assets, net                                                 539
                                                                 ---------      ---------
Net Cash Provided (Used) By Investing Activities
  Of Continuing Operations                                         (81,373)       105,367
                                                                 ---------      ---------
Net Cash Used By Operating Activities
  Of Discontinued Operations                                        (2,198)        (1,263)
                                                                 ---------      ---------
Financing Activities
Net change in loans payable                                        (11,523)          (291)
Dividends                                                          (17,973)       (17,798)
Purchases of common stock for treasury                                (941)        (6,847)
Proceeds from stock issued for stock plans                          17,942         22,384
                                                                 ---------      ---------
Net Cash Used By Financing Activities                              (12,495)        (2,552)
                                                                 ---------      ---------
Effect Of Exchange Rate Changes On Cash                              6,515          9,768
                                                                 ---------      ---------
Net Change In Cash And Cash Equivalents                             22,713        182,805
Cash And Cash Equivalents Beginning Of Period                      608,535        470,218
                                                                 ---------      ---------
Cash And Cash Equivalents End Of Period                          $ 631,248      $ 653,023
                                                                 =========      =========
</TABLE>


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


                                        3

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements presented in the Applera
Corporation (the "Company") 2002 Annual Report to Stockholders. Significant
accounting policies disclosed therein have not changed.

The unaudited condensed consolidated financial statements reflect, in the
opinion of the Company's management, all adjustments that are necessary for a
fair statement of the results for the interim periods. All such adjustments are
of a normal recurring nature. These results are, however, not necessarily
indicative of the results to be expected for a full year. The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that 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 periods. Actual results could differ from those estimates. Certain
amounts in the condensed consolidated financial statements have been
reclassified for comparative purposes.

NOTE 2 - SPECIAL CHARGES

During the second quarter of fiscal 2003, the Applied Biosystems group recorded
pre-tax charges totaling $33.8 million for organization-wide cost reductions in
response to uncertain economic conditions as well as its overall strategy to
return research and development investment to more traditional levels, following
completion of the research phase of the Applera Genomics Initiative. The Applera
Genomics Initiative includes the resequencing of genes and regulatory regions at
the Celera Genomics group, validation of single nucleotide polymorphisms at the
Applied Biosystems group, and disease gene association studies at Celera
Diagnostics, a 50/50 joint venture between the Applied Biosystems group and the
Celera Genomics group. The economic uncertainties included delays in
appropriations for the National Institutes of Health for the current federal
government fiscal year and uncertainty about funding levels in Japan and parts
of Europe as well as within the pharmaceutical industry. The Applied Biosystems
group recorded $24.3 million in other special charges comprised of $22.9 million
for severance and benefits costs and $1.4 million for office closures. The
Applied Biosystems group also recorded $9.5 million for the impairment of assets
in cost of sales.

The severance and benefits charge related to the termination of approximately
400 employees worldwide. Positions are being eliminated mainly in the United
States and Europe and primarily within the areas of research, manufacturing,
sales, marketing and administration. The workforce reduction commenced in
January 2003. The asset impairment charges resulted primarily from uncertainties
surrounding the commercial introduction of products based on a collaboration
with Illumina, Inc. and from a revised focus on products designed to offer the
most efficient and newest technology with long-term earnings growth potential.
The charge for office closures was primarily for one-time payments to terminate
the leases of excess facilities and to write-off the fixed assets and leasehold
improvements related to these facilities.

The following table details the major components of the special charge:


                                       4

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------------
                                                  Employee-Related                Asset           Office
(Dollar amounts in millions)                               Charges           Impairment         Closures           Total
-------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                 <C>                 <C>               <C>
Total charges                                                $22.9                $ 9.5             $1.4           $33.8
Non-cash charges                                                                    9.5              0.5            10.0
-------------------------------------------------------------------------------------------------------------------------
Remaining reserve balance at                                 $22.9                $   -             $0.9           $23.8
  December 31, 2002
-------------------------------------------------------------------------------------------------------------------------

</TABLE>

The cash expenditures relating to the workforce reductions and office closures
are expected to be substantially paid by the end of calendar 2003, funded
primarily by cash provided by operating activities.

The Celera Genomics group recorded a restructuring charge of $2.8 million during
the fourth quarter of fiscal 2002 for severance costs associated with the
termination of 132 employees primarily within the areas of DNA sequencing, data
management and analysis support, sales, and general administration. All actions
under this plan were taken as of June 30, 2002 and all cash payments had been
substantially made as of December 31, 2002.

NOTE 3 - COMPREHENSIVE GAIN (LOSS)

Accumulated other comprehensive loss included in stockholders' equity in the
Condensed Consolidated Statements of Financial Position consists of foreign
currency translation adjustments, unrealized gains and losses on foreign
currency and interest rate hedge contracts, unrealized gains and losses on
available-for-sale investments, and minimum pension liability adjustments. Total
comprehensive gain (loss) for the three and six months ended December 31 is
presented in the following table:



                                       5

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

<TABLE>
<CAPTION>

                                                                          Three months ended           Six months ended
                                                                              December 31,               December 31,
(Dollar amounts in millions)                                               2001          2002         2001           2002
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>           <C>           <C>           <C>
Net income (loss)                                                       $ (61.4)      $  13.4       $ (44.4)      $   9.1
Other comprehensive gain (loss):
  Net unrealized gains (losses) on investments,
     net of tax                                                            13.2          (0.4)        (11.7)         (6.1)
  Net unrealized gains on investments
     reclassified into earnings, net of tax                                              (0.1)                       (0.1)
  Net unrealized gains (losses) on hedge
     contracts, net of tax                                                 11.0          (8.5)          2.1           0.8
  Net unrealized (gains) losses on hedge
    contracts reclassified into earnings, net of tax                       (2.1)          6.4          (5.4)          8.2
  Foreign currency translation adjustments                                (13.5)         19.1           5.8          13.7
---------------------------------------------------------------------------------------------------------------------------
Other comprehensive gain (loss)                                             8.6          16.5          (9.2)         16.5
---------------------------------------------------------------------------------------------------------------------------
Comprehensive gain (loss)                                               $ (52.8)      $  29.9       $ (53.6)      $  25.6
---------------------------------------------------------------------------------------------------------------------------

</TABLE>

NOTE 4 - EARNINGS (LOSS) PER SHARE

The following table presents a reconciliation of basic and diluted earnings
(loss) per share from continuing operations for the three months ended December
31:

<TABLE>
<CAPTION>

                                                                  Applied Biosystems              Celera Genomics
                                                                         Group                          Group
                                                                ------------------------      ------------------------
 (Amounts in thousands except per share amounts)                   2001           2002           2001            2002
----------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>            <C>             <C>
 Weighted average number of common shares
   used in the calculation of basic earnings
   (loss) per share                                               211,744        209,084         64,693          71,404

 Common stock equivalents                                           4,473          1,522
-----------------------------------------------------------------------------------------------------------------------

 Shares used in the calculation of diluted
   earnings (loss) per share                                      216,217        210,606         64,693          71,404
-----------------------------------------------------------------------------------------------------------------------

 Income (loss) from continuing operations used
   in the calculation of earnings (loss) per share
   from continuing operations                                   $  49,034      $  29,187      $(117,940)      $ (16,124)

 Income (loss) per share from continuing operations
     Basic and diluted                                          $    0.23      $    0.14      $   (1.82)      $   (0.23)
-----------------------------------------------------------------------------------------------------------------------

</TABLE>

                                       6

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

The following table presents a reconciliation of basic and diluted earnings
(loss) per share from continuing operations for the six months ended December
31:

<TABLE>
<CAPTION>

                                                                  Applied Biosystems              Celera Genomics
                                                                         Group                         Group
                                                                ------------------------      -------------------------
 (Amounts in thousands except per share amounts)                   2001            2002          2001            2002
-----------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>            <C>             <C>
 Weighted average number of common shares
   used in the calculation of basic earnings
   (loss) per share                                               211,556        208,956         63,258          71,254

 Common stock equivalents                                           4,302          1,377
------------------------------------------------------------------------------------------------------------------------

 Shares used in the calculation of diluted
   earnings (loss) per share                                      215,858        210,333         63,258          71,254
------------------------------------------------------------------------------------------------------------------------

 Income (loss) from continuing operations used
   in the calculation of earnings (loss) per share
   from continuing operations                                   $  81,230      $  63,409      $(133,502)      $ (35,773)

 Income (loss) per share from continuing operations
     Basic and diluted                                          $    0.38      $    0.30      $   (2.11)      $   (0.50)
------------------------------------------------------------------------------------------------------------------------

</TABLE>

Options to purchase 8.7 million and 26.4 million shares of Applera Corporation -
Applied Biosystems Group Common Stock were outstanding at December 31, 2001 and
2002, respectively, but were not included in the computation of diluted earnings
per share because the exercise prices of the options were greater than the
average market price of the stock and, therefore, the effect would have been
antidilutive. Options and warrants to purchase 14.5 million and 11.7 million
shares of Applera Corporation - Celera Genomics Group Common Stock ("Applera -
Celera stock") were outstanding at December 31, 2001 and 2002, respectively, but
were not included in the computation of diluted loss per share because the
effect was antidilutive.

NOTE 5 - INVENTORIES

Inventories are stated at the lower of cost (on a first-in, first-out basis) or
market. Inventories included the following components:


                                        7

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued


                                           June 30,             December 31,
(Dollar amounts in millions)                 2002                  2002
-----------------------------------------------------------------------------
Raw materials and supplies                 $  71.3              $   70.9
Work-in-process                               11.1                   8.0
Finished products                             64.4                  81.2
-----------------------------------------------------------------------------
Total inventories                          $ 146.8              $  160.1
-----------------------------------------------------------------------------

NOTE 6 - GOODWILL AND INTANGIBLE ASSETS

The following table presents the Company's intangible assets subject to
amortization:

<TABLE>
<CAPTION>

                                          June 30, 2002                         December 31, 2002
                                   -----------------------------        ------------------------------
                                      Gross                               Gross
                                    Carrying       Accumulated          Carrying        Accumulated
(Dollar amounts in millions)         Amount        Amortization           Amount        Amortization
-------------------------------------------------------------------------------------------------------
<S>                                 <C>            <C>                  <C>             <C>
Patents                               $   30.7         $   8.5          $   30.7        $   10.4
Acquired technology                       68.6            28.2              69.3            35.0
Favorable operating leases                11.6             1.8              11.6             3.3
-------------------------------------------------------------------------------------------------------
Total                                $   110.9        $   38.5         $   111.6        $   48.7
-------------------------------------------------------------------------------------------------------

</TABLE>

Aggregate amortization expense for the three month periods ended December 31,
2001 and 2002 was $3.8 million and $4.6 million, respectively. Aggregate
amortization expense for the six month periods ended December 31, 2001 and 2002
was $5.8 million and $10.2 million, respectively. The amortization expense in
fiscal 2003 includes the amortization of intangible assets acquired as part of
the acquisition of Axys Pharmaceuticals, Inc. ("Axys") and Boston Probes, Inc.
in November of fiscal 2002. The Applied Biosystems group and Celera Diagnostics
record amortization expense in cost of sales. The Celera Genomics group records
amortization expense in amortization of intangible assets. The estimated annual
amortization expense for each of the next five fiscal years ending June 30 for
intangible assets recorded in the Statement of Financial Position as of December
31, 2002 is as follows:


                                       8

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

<TABLE>
<CAPTION>

                                     Applied         Celera
                                    Biosystems      Genomics          Celera
(Dollar amounts in millions)          Group           Group         Diagnostics   Consolidated
----------------------------------------------------------------------------------------------
<S>                                 <C>             <C>             <C>           <C>
2003                                  $ 9.5         $ 5.9             $ 2.0         $ 17.4
2004                                    9.0           2.9               2.1           14.0
2005                                    8.7           2.9               2.1           13.7
2006                                    8.6           1.1               2.0           11.7
2007                                    7.7                             1.9            9.6
-----------------------------------------------------------------------------------------------

</TABLE>

The carrying amount of goodwill at December 31, 2002 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.

NOTE 7 - PATENT LITIGATION

In October 2002, the Company received an adverse jury verdict in connection with
a patent lawsuit between TA Instruments, Inc., a subsidiary of Waters
Corporation, and The Perkin-Elmer Corporation relating to thermal analysis
products. The Applied Biosystems group is involved as the successor to The
Perkin-Elmer Corporation, having sold the thermal instruments product line as
part of the sale of its analytical instruments division to EG&G, Inc. (now named
PerkinElmer, Inc.) in 1999. The Company retained liability with respect to the
litigation, which has gone through several stages since it was initiated in
1995.

The jury awarded TA Instruments $13.3 million based on lost sales, price
erosion, and reasonable royalties. This award is subject to entry of a final
order by the court, where interest and additional damages may be added. The
Company recorded a charge of $16.4 million, net of income taxes, as part of
discontinued operations in the quarter ended September 30, 2002. However, the
Company intends to appeal the judgment.

NOTE 8 - SUPPLEMENTAL CASH FLOW INFORMATION

Significant non-cash financing activities were as follows:

                                                           Six months ended
                                                             December 31,
 (Dollar amounts in millions)                             2001         2002
--------------------------------------------------------------------------------
Tax benefit related to employee stock options            $  6.2       $ 0.8
Dividends declared but not paid                          $  9.0       $ 8.9
Equity instruments issued in Axys acquisition            $181.9
Debt and capital lease obligation assumed in
    Axys acquisition                                     $ 39.1
--------------------------------------------------------------------------------


                                       9


<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

NOTE 9 - FINANCIAL INSTRUMENTS

Cash Flow Hedges
The Company's international sales are typically denominated in the customers'
local (non-U.S. dollar) currencies. The Company uses foreign exchange forward,
option, and range forward contracts to hedge a portion of forecasted
international sales not denominated in U.S. dollars. The Company utilizes hedge
accounting on derivative contracts that are considered highly effective in
offsetting the changes in fair value of the forecasted sales transactions caused
by movements in foreign currency exchange rates. These contracts are designated
as cash flow hedges and the effective portion of the change in the fair value of
these contracts is recorded in other comprehensive income (loss) in the
Condensed Consolidated Statements of Financial Position until the underlying
external forecasted transaction affects earnings. At that time, the gain or loss
on the derivative instrument, which had been deferred in accumulated other
comprehensive income (loss), is reclassified to net revenues in the Condensed
Consolidated Statements of Operations. During the three and six month periods
ended December 31, 2001, the Company recognized net gains of $3.1 million and
$7.8 million, respectively, in net revenues from derivative instruments
designated as cash flow hedges of anticipated sales. During the three and six
month periods ended December 31, 2002, the Company recognized net losses of $9.7
million and $12.3 million, respectively, in net revenues from derivative
instruments designated as cash flow hedges of anticipated sales. At December 31,
2002, $23.5 million of net derivative losses ($15.5 million net of deferred
taxes) recorded in accumulated other comprehensive loss are expected to be
reclassified to net revenues during the next twelve months.

NOTE 10 - GUARANTEES

In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, an interpretation of Statement of Financial Accounting Standards Nos. 5,
57, and 107 and rescission of FIN 34." FIN 45 extends the disclosures to be made
by a guarantor about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation under
certain guarantees. The disclosure provisions of FIN 45 are effective for
financial statements for periods ending after December 15, 2002. The provisions
for initial recognition and measurement of guarantees are effective on a
prospective basis for guarantees that are issued or modified after December 31,
2002. The Company does not expect the application of FIN 45 to have a material
impact on its consolidated financial statements.

The Company has identified three types of guarantees as part of its business
activities that are included in the scope of FIN 45: leases with recourse
provisions; the guarantee of pension benefits for a divested business; and
product warranties.

Leases
The Company provides lease-financing options to its customers through third
party financing companies. For certain leases, the financing companies have
recourse to the Company for any unpaid principal balance upon default by the
customer. The leases typically have terms of three years and


                                       10

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

are secured by the underlying instrument. In the event of default by a customer,
the Company would repossess the underlying instrument. The Company records
revenues from such transactions upon the shipment of products and maintains a
reserve for estimated losses on all lease transactions with recourse provisions
based on historical default rates and current economic conditions. At December
31, 2002, the financing companies' outstanding balance of lease receivables with
recourse to the Company was $12.7 million. The Company believes that the entire
balance could be recovered from the sale 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 the Analytical Instruments business in fiscal
1999, the pension benefits for employees of a former German subsidiary are being
paid by the purchaser of the Analytical Instruments business. However, the
Company has 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 $41.9 million at
December 31, 2002, is not expected to have a material adverse effect on the
Company's consolidated financial position.

Product warranties
Warranty costs for product sales are accrued at the time of shipment based on
historical experience as well as anticipated product performance. The product
warranties extend over a specified period of time ranging up to two years from
the date of sale depending upon the product subject to warranty. The Company
periodically reviews the adequacy of its warranty reserve, and adjusts, if
necessary, the warranty percentage and accrual based upon actual experience and
estimated costs to be incurred.

The following table provides the analysis of the warranty reserve:

(Dollar amounts in millions)
------------------------------------------------------------------------
Balance at June 30, 2002                                         $ 12.6
Accruals for warranties during the period                          14.8
Usage of reserve during the period                                (12.2)
Other                                                               1.0
------------------------------------------------------------------------
Balance at December 31, 2002                                     $ 16.2
------------------------------------------------------------------------

NOTE 11 - DEBT

During the second quarter of fiscal 2003, the Company purchased $18.1 million of
non-callable U.S. government obligations to serve as collateral for the 8%
senior secured convertible notes, acquired as part of the acquisition of Axys.
These government obligations are being substituted for the shares of Discovery
Partners International, Inc. ("DPI") common stock held by the Company that
originally collateralized the notes. The government obligations are required to
be held in a trust and the proceeds from the maturation of, and interest
payments on, these obligations will fund the interest and principal payments
under the notes. The Company expects that the DPI shares will be released to the
Company during the third quarter of fiscal 2003. The government obligations,
which mature over the next two fiscal years, are classified as available for
sale at December 31, 2002, with $0.9 million in short-term investments, and
$16.8 million in other long-term assets.


                                       11

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

NOTE 12 - CONTINGENCIES

Litigation
The Company is involved in various legal proceedings from time to time,
including actions with respect to commercial, intellectual property, antitrust,
environmental, securities, and employment matters. The Company believes that it
has meritorious defenses against the claims currently asserted against it and
intends to defend them vigorously. Following is a description of certain claims
currently being defended by the Company.

The Company and some of its officers were served in five lawsuits between April
and May, 2000, purportedly on behalf of purchasers of Applera - Celera stock in
the Company's follow-on public offering of Applera - Celera stock completed on
March 6, 2000. In the offering, the Company sold an aggregate of approximately
4.4 million shares of Applera - Celera stock at a public offering price of $225
per share. All of these lawsuits have been consolidated into a single case and
are pending in the United States 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 United States and the United Kingdom, to
providing patent protection to the Company's 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 the Company
did not adequately disclose the risk that it 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. A motion to dismiss the
complaint is pending.

The Company is involved in several litigation matters with MJ Research, Inc.,
commencing with the Company's filing claims against MJ Research based on its
alleged infringement of certain polymerase chain reaction, or PCR, patents. On
December 21, 2000, MJ Research filed an action against the Company in the United
States District Court for the District of Columbia. The complaint is based on
the allegation that the patents underlying the Company's DNA sequencing
instruments were invalidly obtained because one of the alleged inventors, whose
work was funded in part by the United States government, was knowingly omitted
from the patent applications. The Company patents at issue are U.S. Patent Nos.
5,171,534, 5,821,058, 6,200,748, and 4,811,218. 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 Applera. 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 United States government although the government has to date
declined to participate in the suit.

On April 24, 2001, Promega Corporation filed a patent infringement action
against the Company, Lifecodes Corporation, Cellmark Diagnostics, and Genomics
International Corporation in the United States District Court for the Western
District of Wisconsin. The complaint alleges that the


                                       12

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

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 the Company asserted counterclaims alleging that Promega is
infringing the Company's 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.

On July 3, 2002, Beckman Coulter, Inc. filed a patent infringement action
against the Company in the United States District Court for the Central District
of California. The complaint alleges that the Company is 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," although it does not identify the specific facts on which
this allegation is based. Beckman Coulter is seeking monetary damages, costs and
expenses, injunctive relief, and other relief as the court deems proper.

On or about November 3, 1999, 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
the Company, PerkinElmer, Inc. and Sick UPA, GmbH in the United States District
Court for the District of Connecticut. The complaint alleges 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, are based on allegedly proprietary information belonging to On-Line
Technologies and that the MCS100E infringes U.S. Patent No. 5,440,143. On-Line
Technologies is seeking monetary damages, costs, expenses, injunctive relief,
and other relief as the court deems proper.

The Company has not made any accrual in its consolidated financial statements
for any potential losses in the cases described above because it believes that
an adverse determination is not probable, and potential losses cannot be
reasonably estimated, in any of these cases. However, the outcome of litigation
is inherently uncertain, and the Company cannot be sure that it will prevail in
any of the cases described above or in the Company's other current litigation.
An adverse determination in certain of the Company's current litigation,
particularly the cases described above, could have a material adverse effect on
the consolidated financial statements of the Company.

NOTE 13 - SEGMENT AND CONSOLIDATING INFORMATION

Presented below is the Company's segment and consolidating financial
information, including the allocation of expenses between the segments in
accordance with the Company's allocation policies, as well as other related
party transactions, such as sales of products between segments. Earnings
attributable to each group are determined by the Company's Board of Directors.
This determination is generally based on net income or loss amounts of the
corresponding group determined in accordance with accounting principles
generally accepted in the United States of America.


                                       13

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued


See Note 14 to the consolidated financial statements included in the Company's
2002 Annual Report to Stockholders for a detailed description of the segments
and the management and allocation policies (which information is incorporated
herein by reference).

<TABLE>
<CAPTION>

                                                            Three Months Ended             Six Months Ended
                                                               December 31,                  December 31,
(Dollar amounts in millions)                                2001          2002           2001            2002
--------------------------------------------------------------------------------------------------------------
<S>                                                        <C>           <C>           <C>              <C>
 Applied Biosystems group
    Sales to the Celera Genomics group (1)                 $ 8.8         $ 0.7         $ 14.8           $ 1.6
    Sales to Celera Diagnostics (1)                          0.4           1.1            0.4             2.0
    Nonreimbursable utilization of tax benefits (2)          0.6           6.5            8.5            16.3
    Payments for reimbursable utilization of
       tax benefits (3)                                      4.2           3.7            7.5             9.8
    Funding of Celera Diagnostics (4)                        0.4           1.3           (0.2)            3.1
--------------------------------------------------------------------------------------------------------------
 Celera Genomics group
    Revenues from royalties (5)                                            0.4                            0.8
    Funding of Celera Diagnostics (6)                        8.1          10.2           16.1            24.4
--------------------------------------------------------------------------------------------------------------
 Celera Diagnostics
    Sales to the Applied Biosystems group (7)              $ 1.7         $ 0.1          $ 3.5           $ 3.1
--------------------------------------------------------------------------------------------------------------

</TABLE>

(1)  The Applied Biosystems group recorded net revenues from leased instruments,
     consumables, project materials, and contracted R&D services to the Celera
     Genomics group and Celera Diagnostics.

(2)  The Applied Biosystems group utilized, without reimbursement, tax benefits
     generated by the Celera Genomics group.

(3)  The Applied Biosystems group paid the Celera Genomics group for the
     utilization of tax benefits, including those associated with Celera
     Diagnostics.

(4)  The Applied Biosystems group recorded its portion of capital expenditures
     and the net impact of working capital changes relating to Celera
     Diagnostics.

(5)  The Celera Genomics group recorded net revenues for royalties generated by
     sales of certain products of the Knowledge Business under an online
     marketing and distribution agreement with the Applied Biosystems group.
     Pursuant to this agreement, the Applied Biosystems group became the
     exclusive distributor of the Celera Discovery System(TM) online platform,
     beginning July 1, 2002, operated by the Celera Genomics group.

(6)  The Celera Genomics group recorded operating losses and its portion of
     capital expenditures and net impact of working capital changes relating to
     Celera Diagnostics.


                                       14

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

(7)  Celera Diagnostics recorded net revenues from the sale of diagnostics
     products to the Applied Biosystems group under a distribution agreement. On
     October 1, 2002, pursuant to the profit-sharing alliance announced in June
     30, 2002, sales responsibilities for products manufactured by Celera
     Diagnostics were largely transferred to the diagnostic division of Abbott
     Laboratories.

For the three and six month periods ended December 31, 2001 and 2002, 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 loss on Celera Diagnostics, which is included both in the
"Celera Diagnostics" column and net within the "Celera Genomics group" column as
"Loss from joint venture."


Consolidating Statement of Operations For the Three Months Ended December 31,
2002

<TABLE>
<CAPTION>

                                                   Applied           Celera
                                                  Biosystems        Genomics          Celera
(Dollar amounts in thousands)                        Group            Group         Diagnostics      Eliminations    Consolidated
---------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                 <C>             <C>              <C>             <C>
Net revenues from external customers               $ 442,835         $ 22,485          $ 7,697         $      -        $ 473,017
Intersegment revenues                                  1,851              368              147           (2,366)
---------------------------------------------------------------------------------------------------------------------------------
Net Revenues                                         444,686           22,853            7,844           (2,366)         473,017
Cost of sales                                        225,738            3,707            2,169           (1,288)         230,326
---------------------------------------------------------------------------------------------------------------------------------
Gross Margin                                         218,948           19,146            5,675           (1,078)         242,691
Selling, general and administrative                   90,969            5,359            2,318           12,780          111,426
Corporate allocated expenses                          10,575            1,643              562          (12,780)
Research, development and engineering                 59,173           32,901           12,690           (1,479)         103,285
Amortization of intangible assets                                       1,723                                              1,723
Other special charges                                 24,313                                                              24,313
---------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss)                               33,918          (22,480)          (9,895)             401            1,944
Loss on investments, net                                                 (273)                                              (273)
Interest expense                                         (61)            (132)                                              (193)
Interest income                                        3,015            4,860                                              7,875
Other income (expense), net                            2,460              590                                              3,050
Loss from joint venture                                                (9,895)                            9,895
---------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes                     39,332          (27,330)          (9,895)          10,296           12,403
Provision (benefit) for income taxes                  10,145          (11,206)                               40           (1,021)
Net Income (Loss)                                   $ 29,187        $ (16,124)        $ (9,895)        $ 10,256         $ 13,424
---------------------------------------------------------------------------------------------------------------------------------

</TABLE>

                                       15

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

Condensed Consolidating Statement of Operations For the Six Months Ended
December 31, 2002

<TABLE>
<CAPTION>

                                                          Applied         Celera
                                                         Biosystems       Genomics        Celera
(Dollar amounts in thousands)                              Group           Group        Diagnostics    Eliminations    Consolidated
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>              <C>           <C>            <C>             <C>
Net revenues from external customers                     $ 836,953        $ 45,671         $ 7,726        $      -       $ 890,350
Intersegment revenues                                        3,630             830           3,098          (7,558)
-----------------------------------------------------------------------------------------------------------------------------------
Net Revenues                                               840,583          46,501          10,824          (7,558)        890,350
Cost of sales                                              419,036           7,125           4,586          (5,527)        425,220
-----------------------------------------------------------------------------------------------------------------------------------
Gross Margin                                               421,547          39,376           6,238          (2,031)        465,130
Selling, general and administrative                        178,455          10,395           4,487          26,190         219,527
Corporate allocated expenses                                21,365           3,599           1,226         (26,190)
Research, development and engineering                      120,205          65,434          23,753          (2,816)        206,576
Amortization of intangible assets                                            4,423                                           4,423
Other special charges                                       24,313                                                          24,313
-----------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss)                                     77,209         (44,475)        (23,228)            785          10,291
Loss on investments, net                                                      (273)                                           (273)
Interest expense                                               (90)           (313)                                           (403)
Interest income                                              6,238          10,226                                          16,464
Other income (expense), net                                  3,505          (2,570)                                            935
Loss from joint venture                                                    (23,228)                         23,228
-----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes                           86,862         (60,633)        (23,228)         24,013          27,014
Provision (benefit) for income taxes                        23,453         (24,860)                          2,932           1,525
-----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Continuing Operations                    63,409         (35,773)        (23,228)         21,081          25,489
Loss from discontinued operations,
  net of income taxes                                      (16,400)                                                        (16,400)
-----------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss)                                         $ 47,009       $ (35,773)      $ (23,228)       $ 21,081         $ 9,089
-----------------------------------------------------------------------------------------------------------------------------------

</TABLE>


                                       16
<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

Condensed Consolidating Statement of Financial Position At December 31, 2002

<TABLE>
<CAPTION>

                                                         Applied         Celera
                                                        Biosystems      Genomics          Celera
(Dollar amounts in thousands)                             Group          Group         Diagnostics    Eliminations     Consolidated
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>              <C>             <C>            <C>
Assets
Current assets
    Cash and cash equivalents                         $   519,799    $   133,224        $      -      $       -       $   653,023
    Short-term investments                                               706,828                                          706,828
    Accounts receivable, net                              369,977         23,594           3,718            151           397,440
    Inventories, net                                      154,552          2,309           3,364           (140)          160,085
    Prepaid expenses and other current assets              80,307          8,986             612            (98)           89,807
----------------------------------------------------------------------------------------------------------------------------------
Total current assets                                    1,124,635        874,941           7,694            (87)        2,007,183
Property, plant and equipment, net                        376,022        116,622          11,427           (722)          503,349
Other long-term assets                                    415,801        194,668           9,600        (20,237)          599,832
----------------------------------------------------------------------------------------------------------------------------------
Total Assets                                          $ 1,916,458    $ 1,186,231        $ 28,721      $ (21,046)      $ 3,110,364
----------------------------------------------------------------------------------------------------------------------------------

Liabilities And Stockholders' Equity
Current liabilities
    Accounts payable                                  $   152,806    $     6,524        $  5,946      $    (131)      $   165,145
    Accrued salaries and wages                             53,079          8,596           2,633                           64,308
    Accrued taxes on income                                78,520         10,644                                           89,164
    Other accrued expenses                                241,029         54,719           1,914            246           297,908
----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                 525,434         80,483          10,493            115           616,525
Long-term debt                                                            17,542                                           17,542
Other long-term liabilities                               199,316         32,377             120                          231,813
----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities                                         724,750        130,402          10,613            115           865,880

Total Stockholders' Equity                              1,191,708      1,055,829          18,108        (21,161)        2,244,484
----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities And Stockholders' Equity            $ 1,916,458    $ 1,186,231        $ 28,721      $ (21,046)      $ 3,110,364
----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

                                       17
<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

Condensed Consolidating Statement of Cash Flows For the Six Months Ended
December 31, 2002

<TABLE>
<CAPTION>

                                                               Applied         Celera
                                                              Biosystems      Genomics       Celera
(Dollar amounts in thousands)                                    Group          Group      Diagnostics   Eliminations  Consolidated
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>             <C>          <C>           <C>           <C>
Operating Activities Of Continuing Operations
Income (loss) from continuing operations                       $ 63,409       $(35,773)     $(23,228)     $ 21,081      $ 25,489
Adjustments to reconcile income (loss) from
   continuing operations to net cash provided (used)
   by operating activities:
    Depreciation and amortization                                47,428         21,332         1,959          (840)       69,879
    Asset impairments                                            10,017                                                   10,017
    Provisions for office closures and severance costs           23,744                                                   23,744
    Long-term compensation programs                               2,698            874                                     3,572
    Loss on sale of assets                                                         273                                       273
    Deferred income taxes                                       (33,611)        (1,393)                      2,664       (32,340)
    Loss from joint venture and equity method investees                         27,566                     (23,228)        4,338
    Nonreimbursable utilization of intergroup tax benefits       16,250        (16,250)
Changes in operating assets and liabilities:
  Accounts receivable                                            12,046          6,356        (3,541)         (409)       14,452
  Inventories                                                   (15,232)          (449)       (1,149)           (7)      (16,837)
  Prepaid expenses and other assets                              (2,288)          (142)          (48)           40        (2,438)
  Accounts payable and other liabilities                         (9,866)       (22,115)        2,618           699       (28,664)
---------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) By Operating Activities
   Of Continuing Operations                                     114,595        (19,721)      (23,389)                     71,485
---------------------------------------------------------------------------------------------------------------------------------
Investing Activities Of Continuing Operations
Additions to property, plant and equipment, net                 (54,981)        (3,487)       (4,116)                    (62,584)
Proceeds from short-term investments, net                        29,646        154,600                                   184,246
Purchases of long-term investments                                             (16,834)                                  (16,834)
Investments in joint venture, net                                (3,118)       (24,387)                     27,505
Proceeds from the sale of assets, net                                              539                                       539
---------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) By Investing Activities
   Of Continuing Operations                                     (28,453)       110,431        (4,116)       27,505       105,367
---------------------------------------------------------------------------------------------------------------------------------
Net Cash Used By Operating Activities
   Of Discontinued Operations                                    (1,263)                                                  (1,263)
---------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Net change in loans payable                                        (291)                                                    (291)
Dividends                                                       (17,798)                                                 (17,798)
Net cash funding from groups                                                                  27,505       (27,505)
Purchases of common stock for treasury                           (6,847)                                                  (6,847)
Proceeds from stock issued for stock plans                        8,760         13,624                                    22,384
---------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) By Financing Activities                (16,176)        13,624        27,505       (27,505)       (2,552)
---------------------------------------------------------------------------------------------------------------------------------
Effect Of Exchange Rate Changes On Cash                           9,768                                                    9,768
---------------------------------------------------------------------------------------------------------------------------------
Net Change In Cash And Cash Equivalents                          78,471        104,334                                   182,805
Cash And Cash Equivalents Beginning Of Period                   441,328         28,890                                   470,218
---------------------------------------------------------------------------------------------------------------------------------
Cash And Cash Equivalents End Of Period                       $ 519,799      $ 133,224      $      -      $      -     $ 653,023
---------------------------------------------------------------------------------------------------------------------------------

</TABLE>

                                       18

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

Consolidating Statement of Operations For the Three Months Ended December 31,
2001

<TABLE>
<CAPTION>

                                                  Applied            Celera
                                                Biosystems          Genomics           Celera
(Dollar amounts in thousands)                      Group              Group          Diagnostics      Eliminations   Consolidated
---------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                 <C>              <C>              <C>            <C>
Net revenues from external customers             $ 401,982           $ 35,054         $    130         $      -        $ 437,166
Intersegment revenues                                9,207                               1,722          (10,929)
---------------------------------------------------------------------------------------------------------------------------------
Net Revenues                                       411,189             35,054            1,852          (10,929)         437,166
Cost of sales                                      196,792             17,992            1,111           (9,593)         206,302
---------------------------------------------------------------------------------------------------------------------------------
Gross Margin                                       214,397             17,062              741           (1,336)         230,864
Selling, general and administrative                 84,177             12,144            1,247           11,754          109,322
Corporate allocated expenses                         9,462              1,812              480          (11,754)
Research, development and engineering               52,665             30,611            7,501           (2,310)          88,467
Amortization of intangible assets                                       1,635                                              1,635
Acquired research and development                    2,200             98,981                                            101,181
---------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss)                             65,893           (128,121)          (8,487)             974          (69,741)
Interest expense                                      (250)              (138)                                              (388)
Interest income                                      3,275              8,704                                             11,979
Other income (expense), net                          1,043             (1,033)                                                10
Loss from joint venture                                                (8,487)                            8,487
---------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes                   69,961           (129,075)          (8,487)           9,461          (58,140)
Provision (benefit) for income taxes                20,927            (11,135)                           (6,499)           3,293
Net Income (Loss)                                 $ 49,034         $ (117,940)        $ (8,487)        $ 15,960        $ (61,433)
---------------------------------------------------------------------------------------------------------------------------------

</TABLE>

                                       19

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued


Condensed Consolidating Statement of Operations For the Six Months Ended
December 31, 2001

<TABLE>
<CAPTION>

                                                    Applied           Celera
                                                   Biosystems        Genomics          Celera
(Dollar amounts in thousands)                        Group             Group         Diagnostics     Eliminations      Consolidated
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>               <C>             <C>             <C>               <C>
Net revenues from external customers               $ 762,462         $ 62,328        $     230         $      -          $ 825,020
Intersegment revenues                                 15,279                             3,470          (18,749)
-----------------------------------------------------------------------------------------------------------------------------------
Net Revenues                                         777,741           62,328            3,700          (18,749)           825,020
Cost of sales                                        376,165           29,907            2,607          (15,853)           392,826
-----------------------------------------------------------------------------------------------------------------------------------
Gross Margin                                         401,576           32,421            1,093           (2,896)           432,194
Selling, general and administrative                  165,901           22,733            3,446           24,349            216,429
Corporate allocated expenses                          19,488            3,828            1,033          (24,349)
Research, development and engineering                104,983           58,353           14,478           (4,845)           172,969
Amortization of intangible assets                                       2,106                                                2,106
Acquired research and development                      2,200           98,981                                              101,181
-----------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss)                              109,004         (153,580)         (17,864)           1,949            (60,491)
Interest expense                                        (490)            (138)                                                (628)
Interest income                                        6,772           19,554                                               26,326
Other income (expense), net                               21           (1,749)                                              (1,728)
Loss from joint venture                                               (17,864)                           17,864
-----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes                    115,307         (153,777)         (17,864)          19,813            (36,521)
Provision (benefit) for income taxes                  34,077          (20,275)                           (5,875)             7,927
-----------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss)                                   $ 81,230        $(133,502)       $ (17,864)        $ 25,688          $ (44,448)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       20

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued


Condensed Consolidating Statement of Financial Position At June 30, 2002

<TABLE>
<CAPTION>

                                                       Applied           Celera
                                                      Biosystems        Genomics       Celera
(Dollar amounts in thousands)                           Group             Group      Diagnostics      Eliminations   Consolidated
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>              <C>             <C>             <C>            <C>
Assets
Current assets
    Cash and cash equivalents                        $   441,328      $    28,890     $      -        $       -      $   470,218
    Short-term investments                                29,653          860,032                                        889,685
    Accounts receivable, net                             376,375           29,950          177             (258)         406,244
    Inventories, net                                     142,876            1,860        2,215             (147)         146,804
    Prepaid expenses and other current assets             81,759           17,082          764              (58)          99,547
---------------------------------------------------------------------------------------------------------------------------------
Total current assets                                   1,071,991          937,814        3,156             (463)       2,012,498
Property, plant and equipment, net                       354,536          127,024        8,746           (1,562)         488,744
Other long-term assets                                   392,055          185,206        9,924          (13,028)         574,157
---------------------------------------------------------------------------------------------------------------------------------
Total Assets                                         $ 1,818,582      $ 1,250,044     $ 21,826        $ (15,053)     $ 3,075,399
---------------------------------------------------------------------------------------------------------------------------------

Liabilities and Stockholders' Equity
Current liabilities
    Loans payable                                    $       299      $         -     $      -        $       -      $       299
    Accounts payable                                     152,959           12,276        3,241             (258)         168,218
    Accrued salaries and wages                            65,187           13,585        3,393                            82,165
    Accrued taxes on income                               92,972            8,237                                        101,209
    Other accrued expenses                               210,731           63,409        1,266              (58)         275,348
---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                522,148           97,507        7,900             (316)         627,239
Long-term debt                                                             17,983                                         17,983
Other long-term liabilities                              171,203           33,936           95                           205,234
---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities                                        693,351          149,426        7,995             (316)         850,456
---------------------------------------------------------------------------------------------------------------------------------

Total Stockholders' Equity                             1,125,231        1,100,618       13,831          (14,737)       2,224,943
---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity           $ 1,818,582      $ 1,250,044     $ 21,826        $ (15,053)     $ 3,075,399
---------------------------------------------------------------------------------------------------------------------------------

</TABLE>

                                       21

<PAGE>

                               APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

Condensed Consolidating Statement of Cash Flows For the Six Months Ended
December 31, 2001

<TABLE>
<CAPTION>

                                                                    Applied     Celera
                                                                  Biosystems    Genomics      Celera
(Dollar amounts in thousands)                                        Group        Group     Diagnostics  Eliminations   Consolidated
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>          <C>          <C>            <C>
Operating Activities Of Continuing Operations
Net income (loss)                                                  $ 81,230    $ (133,502)  $ (17,864)     $ 25,688      $ (44,448)
Adjustments to reconcile net income (loss) to net
  cash provided (used) by operating activities:
    Depreciation and amortization                                    37,914        16,310       1,376        (1,949)        53,651
    Long-term compensation programs                                   2,942           907                                    3,849
    Gain on sale of assets                                                           (811)                                    (811)
    Deferred income taxes                                           (12,663)       (5,821)                   (5,875)       (24,359)
    Loss from joint venture and equity method investees                            19,255                   (17,864)         1,391
    Nonreimbursable utilization of intergroup tax benefits            8,499        (8,499)
    Acquired research and development                                 2,200        98,981                                  101,181
Changes in operating assets and liabilities:
  Accounts receivable                                                41,412       (11,241)       (100)          913         30,984
  Inventories                                                         3,039           (73)        941                        3,907
  Prepaid expenses and other assets                                 (10,674)         (470)     (1,980)                     (13,124)
  Accounts payable and other liabilities                             (4,805)          241       5,520          (913)            43
-----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) By Operating Activities
  Of Continuing Operations                                          149,094       (24,723)    (12,107)                     112,264
-----------------------------------------------------------------------------------------------------------------------------------
Investing Activities Of Continuing Operations
Additions to property, plant and equipment, net                     (42,131)      (10,837)     (3,840)                     (56,808)
Proceeds from short-term investments, net                                          16,749                                   16,749
Acquisitions and investments in joint ventures and others, net      (36,369)      (20,892)                   15,947        (41,314)
-----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used By Investing Activities
  Of Continuing Operations                                          (78,500)      (14,980)     (3,840)       15,947        (81,373)
-----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used By Operating Activities
  Of Discontinued Operations                                         (2,198)                                                (2,198)
-----------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Net change in loans payable                                          (3,080)       (8,443)                                 (11,523)
Dividends                                                           (17,973)                                               (17,973)
Net cash funding from groups                                                                   15,947       (15,947)
Purchases of common stock for treasury                                               (941)                                    (941)
Proceeds from stock issued for stock plans                            9,174         8,768                                   17,942
-----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) By Financing Activities                    (11,879)         (616)     15,947       (15,947)       (12,495)
-----------------------------------------------------------------------------------------------------------------------------------
Effect Of Exchange Rate Changes On Cash                               6,515                                                  6,515
-----------------------------------------------------------------------------------------------------------------------------------
Net Change In Cash And Cash Equivalents                              63,032       (40,319)                                  22,713
Cash And Cash Equivalents Beginning Of Period                       392,459       216,076                                  608,535
-----------------------------------------------------------------------------------------------------------------------------------
Cash And Cash Equivalents End Of Period                            $455,491    $  175,757   $      -       $      -      $ 631,248
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       22
<PAGE>


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 the
understanding of significant factors influencing the 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
future results. You should read this discussion in conjunction with our
consolidated financial statements and related notes included in this report and
in our 2002 Annual Report to Stockholders. Historical results and percentage
relationships are not necessarily indicative of operating results for future
periods.

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

The Applied Biosystems group develops and markets instrument-based systems,
reagents, software, and contract services to the life science industry and
research community. Customers use these tools to analyze nucleic acids ("DNA"
and "RNA"), small molecules, and proteins to make scientific discoveries,
develop new pharmaceuticals, and conduct standardized testing.

The Celera Genomics group is engaged principally in integrating advanced
technologies to discover and develop new therapeutics. The Celera Genomics group
intends to leverage its proteomic, bioinformatic, and genomic capabilities to
identify and validate drug targets and to discover and develop new therapeutics.
Its Celera Discovery System(TM) ("CDS") online platform, marketed exclusively
through the Applied Biosystems group's Knowledge Business, is an integrated
source of information based on the human genome and other biological and medical
sources.

Celera Diagnostics was established in the fourth quarter of fiscal 2001 as a
50/50 joint venture between the Applied Biosystems group and the Celera Genomics
group. This venture is focused on the discovery, development, and
commercialization of novel diagnostic products.

In fiscal 1999, following a recapitalization, 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 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 Applied
Biosystems group. Applera Corporation - Celera Genomics Group Common Stock
("Applera - Celera 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 Corporation as a whole, nor is there a separate security
traded for Celera Diagnostics.


                                       23


<PAGE>
                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

Holders of Applera - Applied Biosystems stock and Applera - Celera 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.

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.

The following noteworthy developments have occurred since the beginning of
fiscal 2003:

Applied Biosystems Group
o    In August 2002, the Applied Biosystems group announced two collaborations
     to develop new technologies and applications for proteomics, one with
     Myriad Proteomics, Inc. and the other with the Institute for Systems
     Biology.
o    In September 2002, MDS SCIEX Instruments, a partnership between the Applied
     Biosystems group and MDS INC., introduced the QSTAR(R) XL LC/MS/MS system.
     This system is designed to provide improved sensitivity and resolution to
     proteomics researchers as well as improved sensitivity and mass accuracy to
     pharmaceutical drug discovery researchers.
o    In October 2002, the Applied Biosystems group, as successor to The
     Perkin-Elmer Corporation, received an adverse jury verdict in a patent
     lawsuit with TA Instruments, Inc., a subsidiary of Waters Corporation,
     relating to thermal analysis products. Please refer to Note 7 to our
     condensed consolidated financial statements for more information.
o    In December 2002, the Applied Biosystems group announced organization-wide
     cost reductions in response to uncertain economic conditions and to return
     R&D investment to more traditional levels. Please refer to Note 2 to our
     condensed consolidated financial statements for more information.
o    In January 2003, the Applied Biosystems group announced the SNPlex(TM)
     system, a reagent and software product, designed to allow researchers to
     conduct ultra high throughput genotyping. This genotyping product could
     enable production scale laboratories to analyze more than one million
     genotypes per instrument per day, at an expected cost as low as one cent or
     less per genotype.

                                       24
<PAGE>

                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

Celera Genomics Group
o    In August 2002, Robert Booth, Ph.D. joined the Celera Genomics group, as
     Senior Vice President of Research & Development, responsible for
     integrating and leading all of the Celera Genomics group's therapeutic
     discovery and development activities.
o    In October 2002, the Celera Genomics group purchased a number of
     pre-clinical oral tryptase inhibitors for the treatment of asthma from
     Bayer AG. These compounds were generated under a prior collaboration
     between Axys Pharmaceuticals, Inc. and Bayer. We acquired Axys during the
     second quarter of fiscal 2002. Please refer to the acquired in-process
     research and development section of this Management's Discussion and
     Analysis for more information.
o    In December 2002, the Celera Genomics group announced its refined business
     and scientific plan, which supports increased investment in clinical
     programs, and greater efficiency and economy in target discovery, while
     continuing to place emphasis on management of the Celera Genomics group's
     cash as a strategic asset.
o    In January 2003, James P. Yee, M.D., Ph.D. joined the Celera Genomics group
     as Head of Development, responsible for building the development
     organization at the group's facilities in South San Francisco, California,
     and for leading therapeutic development activities and clinical trial
     processes at the Celera Genomics group.

Celera Diagnostics

o    In October 2002, Celera Diagnostics announced three new collaborations,
     with:
      -     Bristol-Meyers Squibb to study genes that may be useful in the
            diagnosis and treatment of cardiovascular disease and diabetes;
      -     Laboratory Corporation of America to establish the clinical utility
            of laboratory tests based on novel diagnostic markers for
            Alzheimer's disease, breast cancer and prostate cancer; and
      -     Quest Diagnostics Incorporated to establish the clinical utility of
            laboratory tests based on novel diagnostic markers for
            cardiovascular disease and diabetes.
o    In November 2002, Celera Diagnostics announced a research initiative with
     the University of California, San Francisco (UCSF) to develop new
     diagnostic tools for breast cancer. The UCSF research activities will be
     funded in part by the UC Discovery Grant from the Industry-University
     Cooperative Research Program, and in part by Celera Diagnostics.
o    In December 2002, Celera Diagnostics received marketing clearance from the
     United States Food and Drug Administration for its 510(k) submission of the
     ViroSeq(TM) HIV-1 Genotyping System as an in vitro diagnostic product. The
     system will be manufactured by Celera Diagnostics and distributed by Abbott
     Diagnostics.
o    In January 2003, Celera Diagnostics announced a collaborative agreement
     with Genomics Collaborative, Inc. supporting Celera Diagnostics' efforts to
     identify genetic patterns associated with rheumatoid arthritis.

Critical Accounting Policies

Please refer to the discussion of our critical accounting policies contained in
the Management's Discussion and Analysis section of our 2002 Annual Report to
Stockholders (which discussion is incorporated herein by reference).

                                       25
<PAGE>

                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

Events Impacting Comparability

We have provided the following information on certain items that represent
actions taken by management or events that occurred in the periods indicated. By
presenting this information, we are providing readers with the effect of these
items on our reported earnings for the purpose of gaining a better understanding
of our on-going operations. Users of this financial information should consider
these items when making comparisons to past performance and assessing prospects
for future results.

Acquisitions

We acquired Axys Pharmaceuticals, Inc. and Boston Probes, Inc. during the second
quarter of fiscal 2002. The results of operations for these acquired businesses,
which were accounted for under the purchase method of accounting, have been
included in the consolidated financial statements since the date of acquisition.
The net assets and results of operations of Axys have been allocated to the
Celera Genomics group. The net assets and results of operations of Boston Probes
have been allocated to the Applied Biosystems group. A discussion of these
acquisitions was provided in Note 2 to our consolidated financial statements
contained in our 2002 Annual Report to Stockholders.

Acquired In-Process Research and Development

During fiscal 2002, we recorded charges to write-off the value of acquired
in-process research and development ("IPR&D") in connection with the Axys and
Boston Probes acquisitions. The Applied Biosystems group recorded a charge of
$2.2 million related to Boston Probes and the Celera Genomics group recorded a
charge of $99.0 million related to Axys. As of the acquisition dates, the
technological feasibility of the related projects had not been established, and
it was determined that the acquired projects had no future alternative uses.

The Axys projects acquired as part of the acquisition are in various stages of
research and development and will require additional research and development
efforts by the Celera Genomics group or its collaborators before any eventual
products can be marketed, if ever. These efforts include extensive pre-clinical
and clinical testing and are subject to lengthy regulatory review and approval
by the United States Food and Drug Administration. The nature and timing of
these remaining efforts are dependent upon successful testing and approval of
the products as well as maintaining the existing collaborative relationships and
entering into new collaborative relationships. If collaboration partners
terminate or elect to cancel their agreements or otherwise fail to conduct their
collaborative activities in a timely manner, the development or
commercialization process could be delayed or abandoned.

Since June 30, 2002, we have taken the following actions:
o        In the second quarter of fiscal 2003, the Serm-beta research project
         was completed and the project is not expected to be pursued.
o        In October 2002, the Celera Genomics group purchased from Bayer AG a
         number of pre-clinical tryptase inhibitors, including study data and a
         broad intellectual property estate


                                       26
<PAGE>

                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

         pertaining to use of these compounds in all fields, for the
         treatment of asthma. These compounds were generated under a prior
         collaboration between Axys and Bayer AG.

During the second quarter of fiscal 2003, we continued to pursue all other
acquired active projects and the pre-clinical studies for these projects are
expected to continue through calendar 2003, with the anticipation that at least
one of the projects, most likely one of the partnered projects, could enter
clinical trials during calendar 2003.

As of December 31, 2002, the Celera Genomics group's portion of the estimated
costs to complete the partnered projects is not expected to be significant. The
costs to complete the proprietary projects are dependent on decisions of how to
commercialize, such as whether to partner the project, and at what stage to
partner. The Celera Genomics group continues to review the proprietary
pre-clinical projects, which may lead to revised prioritization, resourcing and
strategy to move toward clinical trials and commercialization. As a result,
actual results may vary from the valuation assumptions outlined in Note 2 to our
consolidated financial statements contained in our 2002 Annual Report to
Stockholders.

Other Special Charges

During the second quarter of fiscal 2003, we recorded pre-tax charges totaling
$33.8 million for organization-wide cost reductions in response to uncertain
economic conditions as well as the Applied Biosystems group's overall strategy
to return research and development investment to more traditional levels,
following the completion of the research phase of the Applera Genomics
Initiative. The Applera Genomics Initiative includes the resequencing of genes
and regulatory regions at the Celera Genomics group, validation of single
nucleotide polymorphisms at the Applied Biosystems group, and disease gene
association studies at Celera Diagnostics. The economic uncertainties included
delays in appropriations for the National Institutes of Health for the current
federal government fiscal year and uncertainty about funding levels in Japan and
parts of Europe as well as within the pharmaceutical industry. The Applied
Biosystems group recorded $24.3 million in other special charges comprised of
$22.9 million for severance and benefits costs and $1.4 million for office
closures. The Applied Biosystems group also recorded $9.5 million for the
impairment of assets in cost of sales.

The severance and benefits charge related to the termination of approximately
400 employees worldwide. Positions are being eliminated mainly in the United
States and Europe and primarily within the areas of research, manufacturing,
sales, marketing and administration. The workforce reduction commenced in
January 2003. The asset impairment charges resulted primarily from uncertainties
surrounding the commercial introduction of products based on a collaboration
with Illumina, Inc. and from a revised focus on products designed to offer the
most efficient and newest technology with long-term earnings growth potential.
The charge for office closures was primarily for one-time payments to terminate
the leases of excess facilities and to write-off the fixed assets and leasehold
improvements related to these facilities.

The following table details the major components of the special charge:

                                       27
<PAGE>

                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
                                     Employee-
                                      Related          Asset      Office
(Dollar amounts in millions)          Charges      Impairment    Closures      Total
----------------------------------------------------------------------------------------
<S>                                        <C>             <C>          <C>      <C>
Total charges                              $22.9           $ 9.5        $1.4     $33.8
Non-cash charges                                             9.5         0.5      10.0
----------------------------------------------------------------------------------------
Remaining reserve balance
  at December 31, 2002                     $22.9            $  -        $0.9     $23.8
----------------------------------------------------------------------------------------
</TABLE>

The cash expenditures relating to the workforce reductions and office closures
are expected to be substantially paid by the end of calendar 2003, funded
primarily by cash provided by operating activities.

These actions are expected to make funds available for certain new research and
development programs and marketing initiatives.

Discussion of Consolidated Operations

Results of Operations--The Three Months Ended December 31, 2002 Compared With
The Three Months Ended December 31, 2001

We reported net income of $13.4 million in the second quarter of fiscal 2003
compared with a net loss of $61.4 million in the second quarter of fiscal 2002.
Net income for the second quarter of fiscal 2003 included the cost reduction,
asset impairment and other special charges described above, while the net loss
for the second quarter of fiscal 2002 included the acquired IPR&D charges
described above. Also driving the increase in net income were higher revenues,
partially offset by higher R&D expenses and a change in the effective tax rate.
Please refer to the discussion on pages 33 to 46 of this quarterly report for
further information on the financial results of our segments.

Our net revenues increased 8.2% in the second quarter of fiscal 2003 compared
with the prior year quarter. Revenues increased primarily due to strong
instrument sales at the Applied Biosystems group, partially offset by lower
revenues at the Celera Genomics group resulting from the group's decision not to
pursue additional sequencing service business. The effects of foreign currency
increased net revenues by approximately $3 million, or 1%, for the same period.

Gross margin, as a percentage of net revenues, was 51.3% for the second quarter
of fiscal 2003 compared with 52.8% for the second quarter of fiscal 2002. The
lower gross margin percentage in fiscal 2003 was due primarily to the asset
impairment charges recorded in fiscal 2003, partially offset by a decrease in
the lower margin sequencing service business for the Celera Genomics group. The
special charges in the second quarter of fiscal 2003 reduced gross margin by 2.0
percentage points.

Our SG&A expenses, as a percentage of net revenues, decreased to 23.6% for the
second quarter of fiscal 2003 compared with 25.0% for the second quarter of
fiscal 2002 primarily due to a workforce reduction at the Celera Genomics group
resulting from the June 2002 restructuring of the





                                       28
<PAGE>


                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

organization, partially offset by an increased number of employees resulting
from the acquisition of Axys in November 2002 and increased staffing at Celera
Diagnostics.

R&D expenses increased by $14.8 million for the second quarter of fiscal 2003 to
$103.3 million from $88.5 million for the second quarter of fiscal 2002
primarily due to spending on: the development of new products and technologies
by the Applied Biosystems group, including support for Knowledge Business
initiatives; therapeutic programs by the Celera Genomics group, including the
programs acquired with Axys; and diagnostics programs by Celera Diagnostics.

Interest income, net decreased by $3.9 million for the second quarter of fiscal
2003, primarily due to lower average interest rates and, to a lesser extent, to
lower average cash and cash equivalents and short-term investment balances
during the second quarter of fiscal 2003 as compared to the second quarter of
fiscal 2002.

Other income, net increased in the second quarter of fiscal 2003 primarily due
to benefits associated with our foreign currency risk management program and
miscellaneous non-operating income. In the second quarter of fiscal 2002, other
income, net included a gain on the sale of the plant genotyping business.

The change in the effective tax rate in the second quarter of fiscal 2003
compared with the prior year quarter reflects the previously discussed impact of
special charges in both fiscal years. Also impacting the rate are increased R&D
and foreign tax credits, which partially offset the impact of higher forecasted
taxable income.

Results of Continuing Operations--The Six Months Ended December 31, 2002
Compared With The Six Months Ended December 31, 2001

We reported income from continuing operations of $25.5 million in the first half
of fiscal 2003 compared with a loss from continuing operations of $44.4 million
in the same period last year. Income from continuing operations for fiscal 2003
included the cost reduction, asset impairment and other special charges
described above, while the loss from continuing operations for fiscal 2002
included the acquired IPR&D charges described above. Also driving the increase
in income from continuing operations were higher revenues, partially offset by
higher R&D expenses, lower interest income and a change in the effective tax
rate. Please refer to the discussion on pages 33 to 46 of this quarterly report
for further information on the financial results of our segments.

Our net revenues increased 7.9% in the first six months of fiscal 2003 compared
with the prior year period. Revenues increased primarily due to strong
instrument sales at the Applied Biosystems group, partially offset by lower
revenues at the Celera Genomics group resulting from the group's decision not to
pursue additional sequencing service business. The effects of foreign currency
increased net revenues by approximately $8 million, or 1%, for the same period.

Gross margin, as a percentage of net revenues, was 52.2% for the first six
months of fiscal 2003 compared with 52.4% for the first six months of fiscal
2002. The lower gross margin percentage in



                                       29
<PAGE>

                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

fiscal 2003 was due primarily to the asset impairment charges recorded in fiscal
2003, partially offset by a decrease in the lower margin sequencing service
business for the Celera Genomics group and the positive effects of foreign
currency. The special charges in the first six months of fiscal 2003 reduced
gross margin by 1.1 percentage points.

Our SG&A expenses, as a percentage of net revenues, decreased to 24.7% for the
first six months of fiscal 2003 compared with 26.2% for the first six months of
fiscal 2002 primarily due to a workforce reduction at the Celera Genomics group
resulting from the June 2002 restructuring of the organization, partially offset
by an increased number of employees resulting from the acquisition of Axys in
November 2002 and increased staffing at Celera Diagnostics.

R&D expenses increased by $33.6 million for the first six months of fiscal 2003
to $206.6 million from $173.0 million for the first six months of fiscal 2002
primarily due to spending on: the Applera Genomics Initiative, the costs of
which are shared among our three businesses; the development of new products and
technologies by the Applied Biosystems group, including support for Knowledge
Business initiatives; therapeutic programs by the Celera Genomics group,
including the programs acquired with Axys; and diagnostics programs by Celera
Diagnostics.

Interest income, net decreased by $9.6 million for the first six months of
fiscal 2003, primarily due to lower average interest rates and, to a lesser
extent, to lower average cash and cash equivalents and short-term investment
balances during the first six months of fiscal 2003 as compared to the first six
months of fiscal 2002.

Other income, net increased in the first six months of fiscal 2003 due primarily
to benefits associated with our foreign currency risk management program and
lower non-operating costs, partially offset by losses related to an investment
acquired as part of the Axys acquisition, accounted for under the equity method
of accounting. In the first six months of fiscal 2002, other expense, net
included a gain on sale of the plant genotyping business.

The change in the effective tax rate for the six months of fiscal 2003 compared
with the prior year period reflects the previously discussed impact of special
charges in both fiscal years. Also impacting the rate are increased R&D and
foreign tax credits, which partially offset the impact of higher forecasted
taxable income.


                                       30
<PAGE>


                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued


Discussion of Condensed Consolidated Financial Resources and Liquidity

We had cash and cash equivalents and short-term investments of $1.4 billion at
December 31, 2002 and June 30, 2002. We maintain a $100 million revolving credit
agreement with four banks that expires on April 20, 2005, under which there were
no borrowings outstanding at December 31, 2002. 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 adequate to satisfy our normal operating cash flow
needs, planned capital expenditure requirements, and dividends for the
foreseeable future. However, we may raise additional capital from time to time.

In connection with the adverse jury verdict against Applera in the TA
Instruments patent lawsuit, we expect to be required to extend a financial
guarantee for the amount of the damages awarded plus interest. If and when such
a guarantee is extended, the cash applied to secure the guarantee will be
reclassified to other assets as restricted cash.

<TABLE>
<CAPTION>
                                               June 30,       December 31,
(Dollar amounts in millions)                     2002               2002
-----------------------------------------------------------------------------
<S>                                           <C>                <C>
Cash and cash equivalents                         $ 470.2            $ 653.0
Short-term investments                              889.7              706.8
-----------------------------------------------------------------------------
Total cash and cash equivalents and             $ 1,359.9          $ 1,359.8
  short-term investments
Total debt                                           18.3               17.5
Working capital                                   1,385.3            1,390.7
Debt to total capitalization                         0.8%               0.8%
-----------------------------------------------------------------------------
</TABLE>

During the second quarter of fiscal 2003, we purchased $18.1 million of
non-callable United States government obligations to serve as collateral for the
8% senior secured convertible notes acquired as part of the acquisition of Axys.
These government obligations are being substituted for the shares of Discovery
Partners International, Inc. ("DPI") common stock that originally collateralized
the notes. The government obligations are required to be held in a trust and the
proceeds from the maturation of, and interest payments on, these obligations
will fund the interest and principal payments under the notes. We expect that
the DPI shares will be released to us during the third quarter of fiscal 2003.
The government obligations, which mature over the next two fiscal years, are
classified as available for sale at December 31, 2002, with $0.9 million in
short-term investments, and $16.8 million in other long-term assets.

Cash and cash equivalents increased in the first half of fiscal 2003 as cash
generated from operating activities and proceeds from the sales and maturities
of short-term investments and stock issuances were only partially offset by
expenditures for capital assets and long-term investments, payment of dividends,
and the repurchase of Applera - Applied Biosystems stock. Net cash flows of
continuing operations for the six months ended December 31 were as follows:


                                       31
<PAGE>


                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

<TABLE>
<CAPTION>
(Dollar amounts in millions)               2001             2002
-------------------------------------------------------------------
<S>                                    <C>                <C>
Net cash from operating activities     $  112.3           $ 71.5
Net cash from investing activities        (81.4)           105.4
Net cash from financing activities        (12.5)            (2.6)
-------------------------------------------------------------------
</TABLE>

Net cash from operating activities of continuing operations for the first six
months of fiscal 2003 decreased $40.8 million in comparison to the first six
months of fiscal 2002 due to the timing of accounts receivable collections and
higher inventory levels to support sales activity, as well as lower
compensation-related accruals and deferred revenues, which were only partially
offset by higher income-related cash flows.

For first six months of fiscal 2003, cash was generated from the sales and
maturities of short-term investments. A portion of these proceeds was used to
purchase long-term investments to secure the 8% senior secured convertible notes
described above. During the second quarter of fiscal 2002, we acquired the
remaining shares of Boston Probes for approximately $37 million in cash.

Financing activities for the first half of fiscal 2002 included the repayment of
a portion of the debt assumed in the Axys acquisition. During the first six
months of fiscal 2003, we repurchased 380,000 shares of Applera - Applied
Biosystems stock for $6.8 million and during the first six months of fiscal
2002, we repurchased 47,700 shares of Applera - Celera stock for $0.9 million.


                                       32
<PAGE>


                              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

Results of Operations--The Three Months Ended December 31, 2002 Compared With
The Three Months Ended December 31, 2001

<TABLE>
<CAPTION>

                                                                   % Increase/
(Dollar amounts in millions)                    2001       2002     (Decrease)
-----------------------------------------------------------------------------
<S>                                            <C>      <C>          <C>
Net revenues                                   $ 411.1  $ 444.7         8.2%
Cost of sales                                    196.7    225.8        14.8%
-----------------------------------------------------------------------------
Gross margin                                     214.4    218.9         2.1%
SG&A expenses                                     93.6    101.5         8.4%
R&D                                               52.7     59.2        12.3%
Other special charges                                      24.3
Acquired IPR&D                                     2.2               (100.0%)
-----------------------------------------------------------------------------
Operating income                                  65.9     33.9      (48.6%)
Interest income, net                               3.0      3.0           -%
Other income (expense), net                        1.0      2.5       150.0%
-----------------------------------------------------------------------------
Income before income taxes                        69.9     39.4      (43.6%)
Provision for income taxes                        20.9     10.2      (51.2%)
-----------------------------------------------------------------------------
Net income                                      $ 49.0   $ 29.2      (40.4%)
-----------------------------------------------------------------------------
</TABLE>

As previously described in events impacting comparability, the three month
results for fiscal 2003 and 2002 were impacted by the following pre-tax items:
o     $2.2 million charge to write-off acquired IPR&D in fiscal 2002 and
o     $33.8 million charge, including $9.5 million recorded in cost of sales,
      for cost reductions, asset impairments, and other special charges in
      fiscal 2003.
There was no tax effect on the acquired IPR&D charge in fiscal 2002. The total
tax benefit recorded on the fiscal 2003 items was $10.4 million.

Net income decreased in the second quarter of fiscal 2003 primarily due to the
special charges described above, as well as due to higher spending related to
new products in development and support for Knowledge Business initiatives.
Partially offsetting this decrease were higher instrument sales and service and
license revenue. The foreign currency impact on net income was immaterial for
the quarter.

Net revenues from the Celera Genomics group, primarily from leased instruments,
consumables, and project materials, and contracted R&D services, were $0.7
million for the second quarter of fiscal 2003, or 0.2% of the Applied Biosystems
group's net revenues, and $8.8 million for the second quarter of fiscal 2002, or
2.1%. The favorable effects of foreign currency increased net revenues during
the second quarter of fiscal 2003 by approximately $3 million, or 1%, as
compared to the prior


                                       33
<PAGE>


                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

year period. The following table sets forth the Applied Biosystems group's
revenues by geographic area for the quarters ended December 31:
<TABLE>
<CAPTION>
                                                             % Increase/
(Dollar amounts in millions)           2001        2002      (Decrease)
---------------------------------------------------------------------------
<S>                                 <C>         <C>           <C>
United States                          $ 190.6     $ 206.7       8.4%
Europe                                   121.4       142.7      17.5%
Asia Pacific                              88.5        84.2      (4.9%)
Latin America and other markets           10.6        11.1       4.7%
---------------------------------------------------------------------------
Total                                  $ 411.1     $ 444.7       8.2%
---------------------------------------------------------------------------
</TABLE>

Excluding the effects of foreign currency, revenues increased approximately 12%
in Europe and decreased approximately 1% in Asia Pacific during the second
quarter of fiscal 2003 compared to the prior year period.

For the second quarter of fiscal 2003, revenues from instrument sales were
$225.9 million, an increase of 13.1% from $199.7 million in the prior year
period. Instrument sales increased in the DNA sequencing and mass spectrometry
product lines and decreased in the Sequence Detection Systems ("SDS") product
line. The DNA sequencing product line growth was due primarily to the rapid
acceptance of the 3730 product line by both large genome centers and smaller
academic and commercial laboratories. Although the overall SDS and other applied
genomics product line grew in the second quarter of fiscal 2003 compared to the
prior year period, SDS instrument sales decreased due primarily to restrained
year-end pharmaceutical spending on certain high-end instruments, partially
offset by strong sales of the ABI Prism(R) 7000 system. Demand in the drug
metabolism and pharmacokinetics and the protein discovery markets helped drive
sales increases of mass spectrometry instruments compared to the prior year
quarter, primarily the QSTAR(R) XL LC/MS/MS System, the Q TRAP(TM) LC/MS/MS
System, and the AB 4700 Proteomics Analyzer with TOF/TOF(TM) Optics.

Consumables sales were $144.0 million in the second quarter of fiscal 2003
compared to $150.1 million in the second quarter of fiscal 2002, a decrease of
4.1%. Consumables sales were impacted primarily by a decline in revenues from
DNA sequencing consumables resulting from sequencing capacity not increasing at
a rate fast enough to offset the rate of reagent dilution, as well as by a
decline in sales of core DNA synthesis consumables, partially offset by
increasing customer acceptance of SDS reagents, custom oligo,
Assays-by-Design(SM) service, and Assays-on-Demand(TM) products.

Revenues from other sources, which included service contracts, royalties,
licenses, and contract research, increased 22.0% to $74.8 million in the second
quarter of fiscal 2003 from $61.3 million in the second quarter of fiscal 2002.
The increase in revenue resulted primarily from higher service and license fees,
including $6.7 million for a license related to certain genetic analysis
technology.

                                       34
<PAGE>

                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued


Additionally, the following table sets forth the Applied Biosystems group's
revenues by product categories for the three-month periods ended December 31:

<TABLE>
<CAPTION>
(Dollar amounts in millions)                 2001       2002   % Change
------------------------------------------------------------------------
<S>                                        <C>       <C>          <C>
DNA sequencing products                    $156.3    $ 174.8         12%
% of total revenues                           38%        39%

SDS and other applied genomics products      78.5       85.3          9%
% of total revenues                           19%        19%

Mass Spectrometry                            76.2       91.5         20%
% of total revenues                           19%        21%

Core DNA synthesis and PCR products          62.6       51.9        (17%)
% of total revenues                           15%        12%

Other                                        37.5       41.2         10%
% of total revenues                            9%         9%
------------------------------------------------------------------------

Total                                     $ 411.1    $ 444.7          8%
-------------------------------------------------------------------------
</TABLE>

Gross margin, as a percentage of net revenues, decreased from the prior year
quarter, as the asset impairment charges and changes in product mix were only
partially offset by higher margins from royalty and license revenues. The asset
impairment charges reduced gross margin by 2.2 percentage points.

As a percentage of sales, SG&A expenses were approximately the same as the
second quarter of fiscal 2002.

As a percentage of net revenues, R&D expenses were 13.3% for the second quarter
of fiscal 2003 compared with 12.8% for the second quarter of fiscal 2002. The
increase in R&D expenses was primarily the result of support for Knowledge
Business initiatives and new products in development.

Interest income, net remained flat primarily due to lower average interest
rates, offset by higher average cash and cash equivalents and short-term
investments for the second quarter of fiscal 2003 compared with the second
quarter of fiscal 2002.

Other income, net increased due to benefits associated with our foreign currency
risk management program.

The effective income tax rate was 26% in the second quarter of fiscal 2003
compared to 30% in the second quarter of fiscal 2002. The decrease in the
effective tax rate was primarily due to the implementation of certain tax
planning strategies allowing for the increased utilization of foreign tax
credits as well as the impact of the special charges in both periods.



                                       35
<PAGE>

                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued


Results of Continuing Operations--The Six Months Ended December 31, 2002
Compared With The Six Months Ended December 31, 2001

<TABLE>
<CAPTION>
                                                                  % Increase/
(Dollar amounts in millions)                2001      2002       (Decrease)
-----------------------------------------------------------------------------
<S>                                         <C>       <C>            <C>
Net revenues                                $ 777.7   $ 840.6           8.1%
Cost of sales                                 376.1     419.1          11.4%
-----------------------------------------------------------------------------
Gross margin                                  401.6     421.5           5.0%
SG&A expenses                                 185.4     199.8           7.8%
R&D                                           105.0     120.2          14.5%
Other special charges                                    24.3
Acquired IPR&D                                  2.2                  (100.0%)
-----------------------------------------------------------------------------
Operating income                              109.0      77.2         (29.2%)
Interest income, net                            6.3       6.2          (1.6%)
Other income (expense), net                               3.5
-----------------------------------------------------------------------------
Income before income taxes                    115.3      86.9         (24.6%)
Provision for income taxes                     34.1      23.5         (31.1%)
-----------------------------------------------------------------------------
Income from continuing operations           $  81.2   $  63.4         (21.9%)
-----------------------------------------------------------------------------
</TABLE>

As previously described in events impacting comparability, the six month results
for fiscal 2003 and 2002 were impacted by the following pre-tax items:
o     $2.2 million charge to write-off acquired IPR&D in fiscal 2002 and
o     $33.8 million charge, including $9.5 million recorded in cost of sales,
      for cost reductions, asset impairments, and other special charges in
      fiscal 2003.
There was no tax effect on the acquired IPR&D charge in fiscal 2002. The total
tax benefit recorded on the fiscal 2003 items was $10.4 million.

Income from continuing operations decreased for the first six months of fiscal
2003 primarily due to the special charges described above, as well as due to
higher R&D spending related to products in development, support for Knowledge
Business initiatives, and funding of the Applera Genomics Initiative. Partially
offsetting this decrease were higher instrument, service and license revenues,
and the favorable effects of foreign currency. The favorable effects of foreign
currency increased income from continuing operations by approximately $2
million, or 3%, as compared with the first six months of fiscal 2002.

Net revenues from the Celera Genomics group, primarily from leased instruments,
consumables, and project materials, and contracted R&D services, were $1.6
million for the first half of fiscal 2003, or 0.2% of the Applied Biosystems
group's net revenues, and $14.8 million for the first half of fiscal 2002, or
1.9%. The favorable effects of foreign currency increased net revenues during
the six months of fiscal 2003 by approximately $8 million, or 1%, as compared to
the prior year period. The following table sets forth the Applied Biosystems
group's revenues by geographic area for the six months ended December 31:

                                       36
<PAGE>


                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued


                                                               % Increase/
(Dollar amounts in millions)                2001       2002     (Decrease)
-----------------------------------------------------------------------------
United States                              $ 378.1    $ 419.3      10.9%
Europe                                       215.7      239.2      10.9%
Asia Pacific                                 163.2      158.4      (2.9%)
Latin America and other markets               20.7       23.7      14.5%
-----------------------------------------------------------------------------
Total                                      $ 777.7    $ 840.6       8.1%
-----------------------------------------------------------------------------

Excluding the effects of foreign currency, revenues increased approximately 6%
in Europe and decreased approximately 1% in Asia Pacific during the first half
of fiscal 2003 compared to the prior year period.

For the first six months of fiscal 2003, revenues from instrument sales were
$414.9 million, an increase of 14.6% from $361.9 million in the prior year
period. Instrument sales increased in the DNA sequencing and mass spectrometry
product lines and decreased in the SDS product line. The DNA sequencing product
line growth was driven by early shipments of the 3730xl DNA Analyzer to some of
the large genome centers in the United States, as well as demand for both the
3730 and the 3730xl systems from smaller academic and commercial laboratories.
Although the overall SDS and other applied genomics product line grew in the
first six months of fiscal 2003 compared to the prior year period, SDS
instrument sales decreased due primarily to restrained year-end pharmaceutical
spending on certain high-end instruments, partially offset by strong sales of
the ABI Prism(R) 7000 system. Strong demand in the drug metabolism and
pharmacokinetics and the protein discovery markets helped drive sales increases
of mass spectrometry instruments compared to the prior year period, primarily
relating to the QSTAR(R) XL LC/MS/MS System, the Q TRAP(TM) LC/MS/MS System, the
AB 4700 Proteomics Analyzer with TOF/TOF(TM) Optics, and the API 4000(TM)
LC/MS/MS System.

Consumables sales were $282.4 million for the first six months of fiscal 2003
compared to $299.3 million for the first six months of fiscal 2002, a decrease
of 5.6%. Consumables sales were impacted primarily by a decline in revenues from
DNA sequencing consumables resulting from sequencing capacity not increasing at
a rate fast enough to offset the rate of reagent dilution, as well as by a
decline in sales of core DNA synthesis and PCR consumables, partially offset by
increasing customer acceptance of SDS reagents, custom oligo,
Assays-by-Design(SM) service, and Assays-on-Demand(TM) products.

Revenues from other sources, which included service contracts, royalties,
licenses, and contract research, increased 23.0% to $143.3 million for the first
six months of fiscal 2003 from $116.5 million for the first six months of fiscal
2002. The increase in revenue resulted from higher service revenues, license
fees, and royalties, including $5.4 million and $6.7 million for licenses
related to certain mass spectrometry and genetic analysis technologies,
respectively.



                                       37
<PAGE>

                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued


Additionally, the following table sets forth the Applied Biosystems group's
revenues by product categories for the six-month periods ended December 31:

<TABLE>
<CAPTION>
(Dollar amounts in millions)                      2001        2002    % Change
-------------------------------------------------------------------------------
<S>                                             <C>        <C>           <C>
DNA sequencing products                         $306.5     $ 324.1           6%
% of total revenues                                39%         38%

SDS and other applied genomics products          147.3       168.7          15%
% of total revenues                                19%         20%

Mass Spectrometry                                130.4       174.9          34%
% of total revenues                                17%         21%

Core DNA synthesis and PCR products              121.7       100.9         (17%)
% of total revenues                                16%         12%

Other                                             71.8        72.0           -%
% of total revenues                                 9%          9%
-------------------------------------------------------------------------------
Total                                          $ 777.7     $ 840.6           8%
-------------------------------------------------------------------------------
</TABLE>

Gross margin, as a percentage of net revenues, decreased from the prior year
period, as the asset impairment charges and changes in product mix were only
partially offset by higher margins from royalty and license revenues. The asset
impairment charges reduced gross margin by 1.2 percentage points.

As a percentage of sales, SG&A expenses were approximately the same as the first
six months of fiscal 2002.

As a percentage of net revenues, the increase in R&D expenses was primarily the
result of funding of the Applera Genomics Initiative, support for Knowledge
Business initiatives, and new products in development.

Interest income, net was essentially unchanged as the impact of lower average
interest rates was offset almost entirely by higher average cash and cash
equivalents and short-term investments balances for the first six months of
fiscal 2003 compared with the first six months of fiscal 2002.

Other income, net increased primarily due to benefits associated with our
foreign currency risk management program.

The effective tax rate was 27% for the first six months of fiscal 2003 compared
to 30% for the first six months of fiscal 2002. The decrease in the effective
income tax rate was primarily due to the implementation of certain tax planning
strategies allowing for the increased utilization of foreign tax credits as well
as the impact of special charges in both periods.




                                       38
<PAGE>

                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued


Discussion of Financial Resources and Liquidity

The Applied Biosystems group had cash and cash equivalents and short-term
investments of $519.8 million at December 31, 2002 and $471.0 million at June
30, 2002. We maintain a $100 million revolving credit agreement with four banks
that expires on April 20, 2005, under which there were no borrowings outstanding
at December 31, 2002. Cash provided by operating activities has been the Applied
Biosystems group's primary source of funds.

We believe that existing funds, cash generated from operations, and existing
sources of debt financing are adequate to satisfy the Applied Biosystems group's
normal operating cash flow needs, planned capital expenditure requirements,
funding of the Celera Diagnostics joint venture, and dividends for the
foreseeable future. However, we may raise additional capital from time to time
and allocate it to the Applied Biosystems group.

In connection with the adverse jury verdict against Applera in the TA
Instruments patent lawsuit, we expect to be required to extend a financial
guarantee for the amount of the damages awarded plus interest. If and when such
a guarantee is extended, the cash applied to secure the guarantee will be
reclassified to other assets as restricted cash.

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


<TABLE>
<CAPTION>
                                                  June 30,      December 31,
(Dollar amounts in millions)                       2002            2002
--------------------------------------------------------------------------
<S>                                                <C>            <C>
Cash and cash equivalents                          $ 441.3        $ 519.8
Short-term investments                                29.7
--------------------------------------------------------------------------
Total cash and cash equivalents and
  short-term investments                           $ 471.0        $ 519.8
Total debt                                             0.3
Working capital                                      549.8          599.2
Debt to total capitalization                            -%
--------------------------------------------------------------------------
</TABLE>

Cash and cash equivalents for the six months ended December 31, 2002 increased
as cash generated from operating activities, maturities of short-term
investments and stock issuances were only partially offset by expenditures for
capital assets, the funding of the Celera Diagnostics joint venture, the payment
of dividends, and the repurchase of Applera - Applied Biosystems stock. Net cash
flows of continuing operations for the six months ended December 31 were as
follows:

<TABLE>
<CAPTION>
(Dollar amounts in millions)                       2001            2002
------------------------------------------------------------------------
<S>                                             <C>             <C>
Net cash from operating activities              $ 149.1         $ 114.6
Net cash from investing activities                (78.5)          (28.5)
Net cash from financing activities                (11.9)          (16.2)
------------------------------------------------------------------------
</TABLE>



                                       39
<PAGE>


                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

Net cash from operating activities of continuing operations for the first six
months of fiscal 2003 was $34.5 million lower than the first six months of
fiscal 2002. This decrease resulted primarily from the timing of accounts
receivable collections and higher inventory levels to support sales activity,
partially offset by lower payments under supply agreements and for purchased
licensed technology and higher income-related cash flows. An 8% increase in
revenues in the first half of fiscal 2003 resulted in a higher accounts
receivable balance. The Applied Biosystems group's days sales outstanding was 63
days at December 31, 2002 compared to 72 days at June 30, 2002 and 67 days at
December 31, 2001. Inventory on hand was 3.5 months at December 31, 2002
compared to 3.3 months at June 30, 2002.

During the second quarter of fiscal 2002, the Applied Biosystems group acquired
the remaining shares of Boston Probes for approximately $37 million in cash.

During the first six months of fiscal 2003, we repurchased 380,000 shares of
Applera - Applied Biosystems stock for $6.8 million.

Celera Genomics Group

Results of Operations--The Three Months Ended December 31, 2002 Compared With
The Three Months Ended December 31, 2001

<TABLE>
<CAPTION>
                                                               % Increase/
(Dollar amounts in millions)                 2001      2002    (Decrease)
----------------------------------------------------------------------------
<S>                                         <C>        <C>       <C>
Net revenues                                $ 35.0     $22.9     (34.6%)
Cost of sales                                 18.0       3.7     (79.4%)
R&D                                           30.6      32.9       7.5%
SG&A expenses                                 13.9       7.0     (49.6%)
Amortization of intangible assets              1.6       1.7       6.3%
Acquired IPR&D                                99.0              (100.0%)
----------------------------------------------------------------------------
Operating loss                              (128.1)    (22.4)    (82.5%)
Loss on investments                                     (0.3)
Interest income, net                           8.5       4.7     (44.7%)
Other income (expense), net                   (1.0)      0.6
Loss from joint venture                       (8.5)     (9.9)     16.5%
----------------------------------------------------------------------------
Loss before income taxes                    (129.1)    (27.3)   (78.9%)
Benefit for income taxes                      11.2      11.2         -%
----------------------------------------------------------------------------
Net loss                                  $ (117.9)  $ (16.1)   (86.3%)
----------------------------------------------------------------------------
</TABLE>

As previously described in events impacting comparability, the three month
results for fiscal 2002 were impacted by the $99.0 million pre-tax charge to
write-off acquired IPR&D, with no offsetting tax benefit.



                                       40
<PAGE>

                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

The lower net loss in the second quarter of fiscal 2003 primarily resulted from
the acquired IPR&D charge recorded in fiscal 2002, as well as lower cost of
sales and SG&A expenses in fiscal 2003. Partially offsetting these factors were
increased R&D expenses and lower interest income in fiscal 2003. Without the
acquired IPR&D charge in fiscal 2002, net loss decreased $2.8 million. Higher
Online/Information Business operating income of $9.3 million in second quarter
fiscal 2003 compared to $1.5 million in the second quarter of fiscal 2002
resulted from higher subscription revenue and reduced operating expenses
subsequent to the online marketing and distribution agreement with the Applied
Biosystems group.

Revenues decreased as lower contract sequencing revenue, resulting from the
Celera Genomics group's decision not to pursue additional sequencing service
business, was only partially offset by an increase in subscription revenue.
Online/Information Business revenues increased to $20.3 million in the second
quarter of fiscal 2003, compared to $17.3 million in the second quarter of
fiscal 2002.

Cost of sales decreased primarily due to the decrease in the sequencing service
business.

R&D expenses increased in the second quarter of fiscal 2003 in comparison to the
same quarter last year due primarily to higher expenses for therapeutic
discovery and development programs, including programs acquired with Axys. These
increases were partially offset by lower R&D expenses related to DNA sequencing
programs.

SG&A expenses decreased in the second quarter of fiscal 2003 compared to the
prior year quarter primarily due to a workforce reduction resulting from the
June 2002 restructuring of the organization to focus on drug discovery and
development, partially offset by an increased number of employees resulting from
the acquisition of Axys in November 2002.

Interest income, net decreased primarily due to lower average interest rates
and, to a lesser extent, lower average cash and cash equivalents and short-term
investments balances during the second quarter of fiscal 2003 compared to the
prior year quarter.

In the second quarter fiscal 2003, other income, net consisted primarily of a
miscellaneous non-operating income. In the second quarter of fiscal 2002, other
expense, net reflected the losses recorded for equity method investments,
partially offset by a gain on sale of the plant genotyping business.

The effective income tax benefit rate was 41% in the second quarter of fiscal
2003 compared to 9% in the second quarter of fiscal 2002. The increase in the
effective income tax benefit rate was primarily attributable to the impact of
increased R&D credits in fiscal 2003 and the acquired IPR&D charge in fiscal
2002. There was no tax benefit associated with the acquired IPR&D charge.



                                       41
<PAGE>


                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued


Results of Operations--The Six Months Ended December 31, 2002 Compared With The
Six Months Ended December 31, 2001

<TABLE>
<CAPTION>
                                                               % Increase/
(Dollar amounts in millions)                 2001      2002     (Decrease)
---------------------------------------------------------------------------
<S>                                      <C>        <C>           <C>
Net revenues                             $   62.3   $  46.5         (25.4%)
Cost of sales                                29.9       7.1         (76.3%)
R&D                                          58.4      65.5          12.2%
SG&A expenses                                26.5      14.0         (47.2%)
Amortization of intangible assets             2.1       4.4         109.5%
Acquired IPR&D                               99.0                  (100.0%)
---------------------------------------------------------------------------
Operating loss                             (153.6)    (44.5)        (71.0%)
Loss on investments                                    (0.3)
Interest income, net                         19.4       9.9         (49.0%)
Other income (expense), net                  (1.7)     (2.6)         52.9%
Loss from joint venture                     (17.9)    (23.2)         29.6%
---------------------------------------------------------------------------
Loss before income taxes                   (153.8)    (60.7)        (60.5%)
Benefit for income taxes                     20.3      24.9          22.7%
---------------------------------------------------------------------------
Net loss                                 $ (133.5)  $ (35.8)        (73.2%)
---------------------------------------------------------------------------
</TABLE>

As previously described in events impacting comparability, the six month results
for fiscal 2002 were impacted by the $99.0 million pre-tax charge to write-off
acquired IPR&D, with no offsetting tax benefit.

The lower net loss for the first six months of fiscal 2003 primarily resulted
from the acquired IPR&D charge recorded in fiscal 2002, as well as lower cost of
sales and SG&A expenses in fiscal 2003. Partially offsetting these factors were
increased R&D expenses, higher development expenses within the Celera
Diagnostics joint venture, and lower interest income in fiscal 2003. Without the
acquired IPR&D charge in fiscal 2002, net loss increased $1.3 million. Higher
Online/Information Business operating income of $18.4 million for the first six
months fiscal 2003 compared to $3.6 million for the first six months of fiscal
2002 resulted from higher subscription revenue and reduced operating expenses
subsequent to the online marketing and distribution agreement with the Applied
Biosystems group.

Revenues decreased as lower contract sequencing revenue, resulting from the
Celera Genomics group's decision not to pursue additional sequencing service
business, was only partially offset by an increase in subscription revenue.
Online/Information Business revenues increased to $40.9 million for the first
six months of fiscal 2003, compared to $34.3 for the first six months of fiscal
2002.

Cost of sales decreased primarily due to the decrease in the sequencing service
business.

R&D expenses increased for the first six months of fiscal 2003 in comparison to
the same period last year due primarily to: higher expenses for therapeutic
discovery and development programs,


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including programs acquired with Axys; participation in the Applera Genomics
Initiative; and $2.9 million recorded in the first quarter of fiscal 2003 for
asset write-downs associated with the Rockville sequencing facility due to the
group's decision not to pursue additional sequencing service business. These
increases were partially offset by lower R&D expenses related to DNA sequencing
programs.

SG&A expenses decreased for the first six months of fiscal 2003 compared to the
prior year period primarily due to a workforce reduction resulting from the June
2002 restructuring of the organization to focus on drug discovery and
development, partially offset by an increased number of employees resulting from
the acquisition of Axys in November 2002.

Interest income, net decreased primarily due to lower average interest rates
and, to a lesser extent, lower average cash and cash equivalents and short-term
investments balances during for the first six months of fiscal 2003 compared to
the prior year period.

Other expense, net increased for the first six months of fiscal 2003 due
primarily to losses relating to an investment acquired as part of the Axys
acquisition, accounted for under the equity method, partially offset by lower
non-operating costs.

The effective income tax benefit rate was 41% for the first six months of fiscal
2003 compared to 13% for the first six months of fiscal 2002. The increase in
the effective income tax benefit rate was primarily attributable to the impact
of increased R&D credits in fiscal 2003 and the acquired IPR&D charge in fiscal
2002. There was no tax benefit associated with the acquired IPR&D charge.

Discussion of Financial Resources and Liquidity

The Celera Genomics group had cash and cash equivalents and short-term
investments of $840.0 million at December 31, 2002 and $888.9 million at June
30, 2002. We maintain a $100 million revolving credit agreement with four banks
that expires on April 20, 2005, under which there were no borrowings outstanding
at December 31, 2002.

We believe that existing funds and existing sources of debt financing are
adequate to satisfy the Celera Genomics group's normal operating cash flow
needs, planned capital expenditure requirements and funding of the Celera
Diagnostics joint venture for the foreseeable future. However, we may raise
additional capital from time to time and allocate it to the Celera Genomics
group.

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



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<TABLE>
<CAPTION>
                                                  June 30,       December 31,
(Dollar amounts in millions)                         2002           2002
---------------------------------------------------------------------------
<S>                                                  <C>           <C>
Cash and cash equivalents                           $  28.9        $ 133.2
Short-term investments                                860.0          706.8
---------------------------------------------------------------------------
Total cash and cash equivalents and
 short-term investments                             $ 888.9        $ 840.0
Total debt                                             18.0           17.5
Working capital                                       840.3          794.5
Debt to total capitalization                           1.6%           1.6%
---------------------------------------------------------------------------
</TABLE>

During the second quarter of fiscal 2003, the Celera Genomics group purchased
$18.1 million of non-callable United States government obligations to serve as
collateral for the 8% senior secured convertible notes acquired as part of the
acquisition of Axys. These government obligations are being substituted for the
shares of DPI common stock that originally collateralized the notes. The
government obligations are required to be held in a trust and the proceeds from
the maturation of, and interest payments on, these obligations will fund the
interest and principal payments under the notes. We expect that the DPI shares
will be released to us during the third quarter of fiscal 2003. The government
obligations, which mature over the next two fiscal years, are classified as
available for sale at December 31, 2002, with $0.9 million in short-term
investments, and $16.8 million in other long-term assets.

Cash and cash equivalents for the first six months of fiscal 2003 increased as
proceeds from the sales and maturities of short-term investments and stock
issuances were only partially expended on operations, the funding of the Celera
Diagnostics joint venture and the purchase of capital assets and long-term
investments. Net cash flows for the six months ended December 31 were as
follows:

<TABLE>
<CAPTION>
(Dollar amounts in millions)                       2001        2002
--------------------------------------------------------------------
<S>                                             <C>         <C>
Net cash from operating activities              $ (24.7)    $ (19.7)
Net cash from investing activities                (15.0)      110.4
Net cash from financing activities                (0.6)        13.6
--------------------------------------------------------------------
</TABLE>

Net cash used by operating activities for the first six months of fiscal 2003
was $5.0 million lower than the first six months of fiscal 2002. The lower use
of cash resulted from lower net cash operating losses and a decrease in accounts
receivable in fiscal 2003, partially offset by lower deferred revenues resulting
from the Celera Genomics group's decision to forego new contract sequencing and
service business, lower accrued salaries due to the workforce reduction from the
June 2002 restructuring of the organization, and a lower accrual for leased
instruments.

For the first six months of fiscal 2003, cash was generated from the sales and
maturities of short-term investments. These proceeds were partially offset by
increased funding of the Celera Diagnostics joint venture in the first half of
fiscal 2003 and the purchase of long-term investments to secure the 8% senior
secured convertible notes.



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Net cash from financing activities for the first six months of fiscal 2003
increased primarily due to proceeds received from employee stock option
exercises. The first half of fiscal 2002 included the repayment of a portion of
the debt assumed in the Axys acquisition.

During the first six months of fiscal 2002, we repurchased 47,700 shares of
Applera - Celera stock for $0.9 million.

Celera Diagnostics

Results of Operations--The Three Months Ended December 31, 2002 Compared With
The Three Months Ended December 31, 2001

<TABLE>
<CAPTION>
                                                           % Increase/
(Dollar amounts in millions)          2001       2002       (Decrease)
----------------------------------------------------------------------
<S>                                   <C>        <C>            <C>
Net revenues                        $  1.9     $  7.8           310.5%
Cost of sales                          1.1        2.2           100.0%
R&D                                    7.5       12.6            68.0%
SG&A expenses                          1.8        2.9            61.1%
----------------------------------------------------------------------
Operating loss                      $ (8.5)    $ (9.9)           16.5%
----------------------------------------------------------------------
</TABLE>

Revenues for the second quarter of fiscal 2003 increased due to the adoption of
Celera Diagnostics' cystic fibrosis reagents by several large reference
laboratories and the inclusion of revenue relating to the profit-sharing
alliance between Abbott Laboratories and Celera Diagnostics. The Applied
Biosystems group distributed Celera Diagnostics' products and recorded end-user
sales through September 2002. On October 1, 2002, pursuant to the profit-sharing
alliance announced in June 2002, sales responsibilities for products
manufactured by Celera Diagnostics were largely transferred to the diagnostic
division of Abbott, which now records end-user sales for those products.
End-user product sales were $5.0 million for the second quarter of fiscal 2003
and $2.2 million for the second quarter of fiscal 2002. Sales of products by
Celera Diagnostics to Abbott are recorded at cost. The second quarter of fiscal
2003 included $5.1 million of revenue recorded under the Abbott alliance for the
equalization of gross margin and relative expenses incurred by the parties.

R&D expenses increased in the second quarter of fiscal 2003 as a result of
increased spending for marker discovery and product development.



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Results of Operations--The Six Months Ended December 31, 2002 Compared With The
Six Months Ended December 31, 2001

<TABLE>
<CAPTION>
                                                             % Increase/
(Dollar amounts in millions)         2001           2002      (Decrease)
------------------------------------------------------------------------
<S>                                 <C>            <C>            <C>
Net revenues                        $ 3.7          $10.8          191.9%
Cost of sales                         2.6            4.6           76.9%
R&D                                  14.5           23.7           63.4%
SG&A expenses                         4.5            5.7           26.7%
------------------------------------------------------------------------
Operating loss                    $ (17.9)       $ (23.2)          29.6%
------------------------------------------------------------------------
</TABLE>

Revenues for the first six months of fiscal 2003 increased due to higher sales
of cystic fibrosis reagents and the inclusion of revenue relating to the
profit-sharing alliance between Abbott Laboratories and Celera Diagnostics.
End-user product sales were $8.9 million for the first six months of fiscal 2003
and $4.6 million for the first six months of fiscal 2002. Fiscal 2003 included
$5.1 million of revenue recorded under the Abbott alliance for the equalization
of gross margin and relative expenses incurred by the parties.

R&D expenses increased in the first six months of fiscal 2003 as a result of
Celera Diagnostics' participation in the Applera Genomics Initiative, as well as
increased spending for marker discovery and product development.

Recently Issued Accounting Standards

In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation--Transition and Disclosure," which amends SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value method of
accounting for stock-based employee compensation and requires more prominent and
frequent disclosures about the effects of stock-based compensation. The
transition guidance and annual disclosure provisions of SFAS No. 148 are
effective for fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for interim periods beginning after December
15, 2002.

We continue to apply the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and FASB Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation - An
Interpretation of Accounting Principles Board Opinion No. 25," and accordingly
no compensation expense has been recorded for stock-based compensation plans.
Our adoption of SFAS No. 148 requires additional interim disclosures effective
for our third quarter fiscal 2003.

In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of


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Others, an interpretation of Statement of Financial Accounting Standards Nos. 5,
57, and 107 and rescission of FIN 34." FIN 45 extends the disclosures to be made
by a guarantor about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation under
certain guarantees. The disclosure provisions of FIN 45 are effective for
financial statements for periods ending after December 15, 2002. The provisions
for initial recognition and measurement of guarantees are effective on a
prospective basis for guarantees that are issued or modified after December 31,
2002. We do not expect the application of FIN 45 to have a material impact on
our consolidated financial statements. See Note 10 to our condensed consolidated
financial statements for a description of the types of guarantees we have
issued.

Outlook

Applied Biosystems Group

Business conditions remain uncertain for several reasons, including:
unpredictable spending patterns in the pharmaceutical and biotechnology sectors;
delays in appropriations for the National Institutes of Health for the current
federal government fiscal year; uncertainty about government funding levels in
Japan and parts of Europe; and difficulties in predicting trends in the
consumption of sequencing reagents. As a result, forecasting remains
challenging.

Reflecting these risks and uncertainties, the Applied Biosystems group expects
that revenue percentage growth in fiscal 2003 will be in the high single digits.
The Applied Biosystems group continues to expect that growth in fiscal 2003 will
be heavily influenced by the adoption of new products. New products include the
3730 and 3730xl DNA Analyzers, for which the group anticipates significant
additional demand from customers doing whole genome sequencing, resequencing,
and SNP genotyping. At the same time, it is difficult to predict the timing and
magnitude of future sales of these more expensive systems, particularly at the
large genome centers, until pending life science funding decisions are made by
the governments in the United States and Japan. The 3730 product line is the
successor to the ABI PRISM(R) 3700 DNA Analyzer introduced in 1998. To date,
customers have replaced a significant number of 3700s with 3730s, although this
still represents a relatively small fraction of the installed base of 3700s.

The outlook for the Applied Biosystems group's revenues from sequencing reagents
remains difficult to forecast accurately due to several variables, including:
the total volume of sequencing activity; the mix of instruments in use; the
nature of its customers' research projects; and the utilization of consumables
per unit of sequencing. For the remainder of this fiscal year, the Applied
Biosystems group continues to anticipate that revenue from sequencing
consumables will trend down on a year-to-year basis, but at a more moderate
level.

The Applied Biosystems group expects the effective tax rate for fiscal 2003 to
be approximately 27 percent, one percentage point lower than the previously
forecasted rate of 28 percent due to the effect of the second quarter special
charges. Future tax legislation may repeal or replace the existing U.S.



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export tax regime, as well as significantly change other international tax
provisions of the Internal Revenue Code. Such changes may result in a change in
the effective tax rate for the Applied Biosystems group.

The Applied Biosystems group believes that operations are on track to meet the
previous guidance for diluted earnings per share from continuing operations for
fiscal 2003, which, after reflecting the special charge of $0.11 per diluted
share in the second quarter, should be in the range of $0.74 to $0.84. Because
of the delay in the approval of the fiscal 2003 National Institutes of Health
budget and funding issues in Japan and Europe, the Applied Biosystems group
expects that some sales that would otherwise have occurred during the third
fiscal quarter, and approximately $0.03 to $0.04 of diluted earnings per share,
will now be shifted to the fourth fiscal quarter. As a result, the Applied
Biosystems group expects fiscal third quarter diluted earnings per share to be
somewhat below the level of the prior year quarter and fiscal fourth quarter
diluted earnings per share to be somewhat higher than the comparable quarter
last year.

Capital spending in fiscal 2003 is anticipated to be approximately $150 million,
including approximately $75 million for the facilities expansion in
Pleasanton, CA.

Celera Genomics Group

The Celera Genomics group intends to advance its most promising small molecule
compounds, such as tryptase inhibitors for asthma and allergic rhinitis and its
Factor VIIa inhibitors for anticoagulation, into clinical development. The
Celera Genomics group anticipates that at least one of its compounds, most
likely one of its partnered compounds, could enter clinical trials during
calendar 2003. In addition, the Celera Genomics group plans to initiate at least
one new preclinical development program and to make significant progress in
building its development organization to support these programs during the
coming year. Over the next three years, the Celera Genomics group plans to shift
a significant portion of its R&D spending toward preclinical and clinical
development activities, and to place less emphasis on target identification.

The Celera Genomics group has obtained pilot-scale quantities of its lead asthma
compound, and plans to initiate additional toxicology and safety evaluations
during the third quarter of fiscal 2003. Investigational New Drug-enabling
studies with these asthma compounds are anticipated in calendar 2003, pending
analysis of the data from these additional evaluations.

The financial outlook for the Celera Genomics group for fiscal 2003 is as
follows:

The Celera Genomics group's cash use during fiscal year 2003 is expected to be
between $75 and $85 million, reflecting reductions in SG&A expenses and
increased operating income due to the online marketing and distribution
agreement with the Applied Biosystems group, and including the Celera Genomics
group's portion of the funding for the Celera Diagnostics joint venture. This
outlook excludes the conversion of $17 million of short-term investments to
long-term investments.


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The Celera Genomics group anticipates R&D expenses during fiscal year 2003 to be
in the range of $130 to $140 million, including approximately $10 million for
its share of the Applera Genomics Initiative. A larger portion of R&D expenses
should support development activities as the year progresses. SG&A expenses are
expected to be between $30 and $35 million. Pre-tax losses related to the Celera
Diagnostics joint venture are expected to be approximately $50 to $60 million.

The Celera Genomics group anticipates total revenues for fiscal year 2003
between $85 and $95 million, including revenues from CDS subscriptions and from
Knowledge Business royalties, of between $75 and $80 million.

Celera Diagnostics

For fiscal 2003, Celera Diagnostics continues to anticipate end-user sales,
including those from its alliance with Abbott Laboratories, to be in the range
of $18 to $22 million. This outlook assumes continued demand growth, both for
new products and from higher sales of existing products. For fiscal 2003, Celera
Diagnostics anticipates pretax losses of $50 to $60 million and net cash use in
the range of $55 to $65 million, including capital spending of approximately $10
million.

During calendar 2003, Celera Diagnostics anticipates it will launch several new
products, including analyte specific reagents (ASRs) for hepatitis viral load
and genotyping. In addition, Celera Diagnostics plans to commercialize new ASRs
for additional diseases, contingent upon success in its disease association
studies.

Forward-Looking Statements

Certain statements contained in this report, including the Outlook section, are
forward-looking and are subject to a variety of risks and uncertainties. These
statements may be identified by the use of forward-looking words or phrases such
as "expect," "anticipate," "forecast," "believe," "should," "plan," "intend,"
"estimate," and "potential," among others. These forward-looking statements are
based on the Company's current expectations. The Private Securities Litigation
Reform Act of 1995 provides a "safe harbor" for such forward-looking statements.
In order to comply with the terms of the safe harbor, the Company notes that a
variety of factors could cause actual results and experience to differ
materially from the anticipated results or other expectations expressed in such
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's businesses
include, but are not limited to:

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 improve existing products,
develop new products, and pursue new market opportunities. A significant portion
of the net revenues for the Applied Biosystems group each year is derived from
products that did not exist in the prior year. The Applied Biosystems group's
future success depends on its ability to continually improve its current
products, develop and introduce, on a timely and cost-effective basis, new
products that address the evolving needs of its


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customers, and pursue new market opportunities that develop as a result of
technological and scientific advances in life sciences. The Applied Biosystems
group's products are based on complex technology which is subject to rapid
change as new technologies are developed and introduced in the marketplace.
Unanticipated difficulties or delays in replacing existing products with new
products, or the inability to gain market acceptance of new products on a timely
basis, could adversely affect the Applied Biosystems group's future operating
results. The pursuit of new market opportunities will add further complexity and
require additional management attention and resources as these markets are
addressed.

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. 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.

The Applied Biosystems group's new Knowledge Business may not be successful. In
April 2002, the Applied Biosystems group became the exclusive distributor of the
Celera Genomics group's Celera Discovery System and related human genomic and
other biological and medical information under the terms of a 10-year marketing
and distribution agreement. The Applied Biosystems group expects to integrate
the Celera Discovery System and the Celera Genomics group's related information
into a new Knowledge Business that combines current Applied Biosystems assay,
human identification and forensics, and cell biology products with new
biological information content and analytical tools. The Knowledge Business is
an emerging business and the Applied Biosystems group believes that in order for
it to be successful the Applied Biosystems group may have to devote a
significant amount of resources to researching, developing, marketing, and
distributing Knowledge Business products and services. The market for these
products and services is intensely competitive, and there can be no assurance
that there will be market acceptance of the utility and value of the product and
service offerings of the Knowledge Business.

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, and policies regarding capital expenditures during recessionary
periods. Any



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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
level 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. Although research funding has increased during the
past several years, grants have, in the past, 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
claims for infringement of patents and other intellectual property rights. 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, there are relatively few decided court cases
interpreting the scope of patent claims in these technologies, and 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. 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 theft of trade secret claim
against the Applied Biosystems group asserting that the Applied Biosystems
group's products improperly use technologies which are not patented but which
are protected as trade secrets. The Applied Biosystems group has been made a
party to litigation regarding intellectual property matters, including the
litigation described in the following paragraph and elsewhere in this quarterly
report, some of which, if determined adversely, could have a material adverse
effect on the Applied Biosystems group. Due to the fact that the Applied
Biosystems group's business depends in large part on rapidly developing and
dynamic technologies, there remains a constant risk of intellectual property
litigation affecting the group. The Applied Biosystems group has from time to
time been notified that it may be infringing patents and other intellectual
property rights of others. 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.

MJ Research, Inc. has filed a lawsuit against the Company based on the
allegation that four patents underlying the Applied Biosystems group's DNA
sequencing instruments were invalidly obtained because one of the alleged
inventors, whose work was funded in part by the United States government, was
knowingly omitted from the patent applications. MJ Research claims to be suing
in the name of the United States government although the government has to date
declined to participate in the lawsuit. Promega Corporation has filed a lawsuit
against the Company alleging that the Applied Biosystems group, along with
certain other named defendants, is infringing two Promega



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patents due to the sale of forensic identification and paternity testing kits.
Beckman Coulter, Inc. has filed a lawsuit against the Company alleging that the
Applied Biosystems group is infringing three Beckman Coulter patents, although
it has not identified the specific facts on which the allegation is based. If
any of these matters proceed to trial, the cost of the litigation, and the
amount of management time that will be devoted to the litigation, will be
significant. There can be no assurance that these matters will be resolved
favorably, that the Company, the Applied Biosystems group, or the Celera
Genomics group will not be enjoined from selling the products in question or
other products as a result, or that any monetary or other damages assessed
against the Company will not have a material adverse effect on the financial
condition of the Company, the Applied Biosystems group, or the Celera Genomics
group.

Since the Applied Biosystems group's business is dependent on foreign sales,
fluctuating currencies will make revenues and operating results more volatile.
Approximately 50% of the Applied Biosystems group's net revenues during fiscal
2002 were derived from sales to customers outside of the United States. 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.

Integrating acquired technologies may be costly and may not result in
technological advances. The future growth of the Applied Biosystems group
depends in part on its ability to acquire complementary technologies through
acquisitions and investments. The consolidation of employees, operations, and
marketing and distribution methods could present significant managerial
challenges. For example, the Applied Biosystems group may encounter operational
difficulties in the integration of manufacturing or other facilities. In
addition, technological advances resulting from the integration of technologies
may not be achieved as successfully or rapidly as anticipated, if at all.

The Applied Biosystems group's Knowledge Business depends on the continuous,
effective, reliable, and secure operation of its computer hardware, software,
and Internet applications and related tools and functions. Because the Applied
Biosystems group's Knowledge 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, the Applied Biosystems
group 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 Knowledge Business research personnel or Knowledge Business customers
through the Internet is interrupted, the Knowledge 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, and similar events. In addition, the Knowledge
Business online products are complex and sophisticated, and as such, could
contain data, design, or software errors that could be difficult to detect and
correct. Software defects



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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 the Knowledge
Business product 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 Knowledge Business.

Electricity shortages and earthquakes could disrupt operations in California.
The headquarters and principal operations of the Applied Biosystems group are
located in Foster City, California. In 2001, the State of California experienced
a statewide electricity shortage due to a variety of factors. Although some of
the factors causing this shortage have been eliminated or mitigated, there are
ongoing concerns about the availability of electricity in California,
particularly during peak usage periods. Blackouts in Foster City, even of modest
duration, could impair or cause a temporary suspension of the group's
operations, including the manufacturing and shipment of new products. Power
disruptions of an extended duration or high frequency could have a material
adverse effect on operating results. In addition, Foster City is located 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 is volatile. The market price of
Applera - Applied Biosystems stock has been and may continue to be volatile due
to the risks and uncertainties described in this section of this quarterly
report, as well as other factors that may have affected or may in the future
affect the market price, such as:

o     conditions and publicity regarding the genomics, biotechnology,
      pharmaceutical, or life sciences industries generally;
o     price and volume fluctuations in the stock market at large which do
      not relate to the Applied Biosystems group's operating performance; and
o     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.



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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 $612.6
million as of December 31, 2002, and expects that it will continue to incur
additional 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 its
therapeutics business and the Applera Genomics Initiative, 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
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. As an early stage business, the
Celera Genomics group faces significant challenges in expanding its operations
into the therapeutics research and development business. As a result, there is a
high degree of uncertainty that the Celera Genomics group will be able to
achieve profitable operations.

The Celera Genomics group has entered into an exclusive arrangement with the
Applied Biosystems group to distribute the Celera Discovery System and related
information as part of the Applied Biosystems group's new Knowledge Business,
and the revenue that the Celera Genomics group receives from the Applied
Biosystems group will depend heavily on the Applied Biosystems group's ability
to market and distribute its Knowledge Business products. Effective April 2002,
the Applied Biosystems group became the exclusive distributor of the Celera
Discovery System and the Celera Genomics group's related human genomic and other
biological and medical information under the terms of a ten-year marketing and
distribution agreement. The Celera Genomics group expects that the Applied
Biosystems group will integrate the Celera Discovery System and the related
information into a new Knowledge Business that combines current Applied
Biosystems assay, human identification and forensics, and cell biology products
with new biological information content and analytical tools.

Under the terms of the agreement, the Applied Biosystems group is obligated to
pay a royalty to the Celera Genomics group based on sales, if any, of certain
Knowledge Business products after July 1, 2002. The amount of any royalty paid
to the Celera Genomics group depends on the Applied Biosystems group's ability
to successfully commercialize Knowledge Business products subject to the
royalty. The Knowledge Business is an emerging business, and the Applied
Biosystems group has not proven its ability to successfully commercialize these
products. The Celera Genomics group believes that in order for the Knowledge
Business to be successful, the Applied Biosystems group may have to devote a
significant amount of its resources to researching, developing, marketing, and
distributing Knowledge Business products and services. However, the Celera
Genomics group has no control over the amount and timing of the Applied
Biosystems group's use of its resources, including for products subject to the
Celera Genomics group's royalty. In addition, the market for these products is
intensely competitive, and there can be no assurance that there will be market
acceptance of the utility and value of the product offerings of the Knowledge
Business.



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The Celera Genomics group does not intend to seek any new customers for its
Celera Discovery System and related information products and services after June
30, 2002, and therefore its future revenues from these products and services
will be limited. Under the terms of the marketing and distribution agreement
between the Celera Genomics group and the Applied Biosystems group, the Celera
Genomics group will receive all revenues under, and be responsible for all costs
and expenses associated with, Celera Discovery System and related information
contracts that were in effect on April 1, 2002, the effective date of the
agreement, or which were entered into during a three-month transition period
ended June 30, 2002 (as well as renewals of these contracts, if any). However,
the revenue anticipated by the Celera Genomics group under these contracts could
be adversely impacted as a result of changes made to Celera Discovery System
products by or at the request of the Applied Biosystems group pursuant to the
agreement, although the Applied Biosystems group has agreed to reimburse the
Celera Genomics group for any shortfall in earnings before interest, taxes,
depreciation, and amortization from these contracts (as well as renewals, if
any) below $62.5 million during the four fiscal years ending with the 2006
fiscal year if the shortfall is due to these changes, provided the Celera
Genomics group otherwise continues to perform under these contracts. However,
during the term of the marketing and distribution agreement (other than the
transition period), the Celera Genomics group will not be marketing Celera
Discovery System products and services to, and will not be contracting with, new
customers. Accordingly, except for the anticipated revenue under Celera
Discovery System contracts existing on June 30, 2002 and renewals of these
contracts, if any, and the Applied Biosystems group's corresponding
reimbursement obligation, the Celera Genomics group does not expect any revenues
from Celera Discovery System and related products and services other than the
potential royalty payments from the Applied Biosystems group under the marketing
and distribution agreement. Although under certain contracts with existing
Celera Discovery System customers the Celera Genomics group is entitled to
milestone payments or future royalties based on products developed by its
customers, the Celera Genomics group believes these arrangements are unlikely to
produce any significant revenue for the group.

The Celera Genomics group's ability to maintain its relationships with existing
Celera Discovery System customers depends heavily on continued assembly and
annotation of the human and mouse genomes. In June 2000, the Celera Genomics
group and the Human Genome Project each announced the "first assembly" of the
human genome, and in April 2001, the Celera Genomics group announced the
assembly of the mouse genome. Assembly is the process by which individual
fragments of DNA, the molecule that forms the basis of the genetic material in
virtually all living organisms, are pieced together into their appropriate order
and place on each chromosome within the genome. The Celera Genomics group's
first assembly of the human genome covered approximately 95% of that genome, and
its assembly of the mouse genome covered approximately 99% of that genome. The
Celera Genomics group intends to continue updating the assembly of the human and
mouse genomes as it continues to annotate these genomes. Annotation is the
process of assigning features or characteristics to each chromosome. Each gene
on each chromosome is given a name, its structural features are described, and
proteins encoded by genes are classified into possible or known function. The
Celera Genomics group's ability to maintain its relationship with the existing
Celera Discovery System customers depends heavily upon the continued assembly
and annotation of these genomes. Failure to continue to update the assembly and
annotation efforts in a timely manner may have a material adverse effect on the
Celera Genomics group's revenues.



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The Celera Genomics group's ability to develop and commercialize proprietary
therapeutics is unproven. As the Celera Genomics group expands its therapeutics
discovery and development business, it faces the difficulties inherent in
developing and commercializing therapeutic products. It is possible that the
Celera Genomics group's discovery and development efforts will not result in any
commercial products. In particular, the Celera Genomics group and its
collaborators are seeking to develop new therapeutic products based on
information derived from the study of the genetic material of organisms, or
genomics, and the study of proteins, or proteomics. These methods are unproven,
as few therapeutic products based on genomic or proteomic discoveries have been
developed and commercialized and, to date, no one has developed or
commercialized any therapeutic products based on the Celera Genomics group's
technologies.

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 and clearance or
approval by the United States 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 a 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:

o     the Celera Genomics group or its collaborators may not successfully
      complete any research and development efforts;
o     the Celera Genomics group or its collaborators may not successfully build
      the necessary preclinical and clinical development organizations;
o     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;
o     the Celera Genomics group or its collaborators may fail to obtain required
      regulatory approvals for products they develop;
o     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;
o     the Celera Genomics group or its collaborators may fail to build necessary
      distribution channels;
o     the Celera Genomics group's or its collaborator's products may not be
      competitive with other existing or future products;
o     adequate reimbursement for the Celera Genomics group's or its
      collaborators products may not be available to physicians and patients
      from the government or insurance companies; and


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o     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
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 certain circumstances. In addition, the amount and timing of
resources to be devoted to research, development, eventual 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 or elect to cancel 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 certain development programs.

If the Celera Genomics group fails to satisfy regulatory requirements for any
therapeutic product candidate, the Celera Genomics group will be unable to
complete the development and commercialization of that product. The Celera
Genomics group does not currently have the internal capability to move potential
products through clinical testing, manufacturing and the approval processes of
the United States Food and Drug Administration and comparable agencies in other
countries. In the United States, 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 therapeutic product candidates is safe and
effective in humans for each indication before obtaining regulatory clearance
from the United States Food and Drug Administration for the commercial sale of
that product. Outside of the United States, the regulatory requirements vary
from country to country. If the Celera Genomics group or its collaborator fails
to adequately show the safety and effectiveness of a therapeutic 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
large-scale clinical trials. The Celera Genomics group cannot be certain
that it will show sufficient safety and effectiveness in its clinical trials
to allow it 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



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successful. Many companies in the therapeutic industry, including
biotechnology companies, have suffered significant setbacks in advanced clinical
trials, even after promising results in earlier studies.

Even if the Celera Genomics group obtains regulatory clearance or approval, it
will be subject to certain risks and uncertainties relating to regulatory
compliance, including: post-approval clinical studies and inability to meet the
compliance requirements of the United States Food and Drug Administration's Good
Manufacturing Practices regulations. In addition, identification of certain
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.

For certain 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. In
addition, government regulation in the United States 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.

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:

o     develop new therapeutic products in advance of the Celera Genomics group;
o     develop therapeutic products which are more effective or more
      cost-effective than those developed by the Celera Genomics group;
o     obtain regulatory approvals of their therapeutic products more rapidly
      than the Celera Genomics group; or
o     obtain patent protection or other intellectual property rights that would
      limit the Celera Genomics group's ability 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




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expects to seek and maintain product liability insurance to cover claims
relating to the testing and use of therapeutic 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 therapeutics discovery and development business is highly technical, and
there is a competitive market for personnel with the necessary expertise to
develop and expand the Celera Genomics group's therapeutics business. The Celera
Genomics group believes that in order to develop and commercialize therapeutic
products, it will need to recruit and retain scientific and management personnel
having specialized training 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 therapeutics discovery and development business 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 hazardous materials, chemicals and various radioactive materials. In the
event of an accidental contamination or injury from these materials, the Celera
Genomics group could be held liable for damages in excess of its resources.

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. Because 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 and
to its customers via the Internet, the Celera Genomics group 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 or customers through the Internet is interrupted, its
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, and similar events. In addition, the Celera
Genomics group's online products 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 Celera Genomics group fails to maintain and further develop the necessary
computer capacity and data to support its computational needs and its customers'
therapeutics 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 the Celera Genomics group's
business.



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The Celera Genomics group's competitive position depends on maintaining its
intellectual property protection and obtaining licenses to intellectual property
it may need from others. The Celera Genomics group's ability to compete and to
achieve and maintain profitability depends on its ability to protect its
proprietary discoveries and technologies, in large part, 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 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 United States 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. Although others have been successful in obtaining patents to
biotechnology inventions, since the adoption of these guidelines, these patents
have been issued with increasingly less frequency. As a result, patents may not
issue from patent applications that the Celera Genomics group may own or license
if the applicant is unable to satisfy the new guidelines.

The United States Patent and Trademark Office has issued several patents to
third parties covering inventions involving single nucleotide polymorphisms
("SNPs"), naturally occurring genetic variations that scientists believe can be
correlated with susceptibility to disease, disease prognosis, therapeutic
efficiency, and therapeutic toxicity. These inventions are subject to the same
new guidelines as other biotechnology inventions. In addition, the Celera
Genomics group may need to obtain rights to patented SNPs in order to develop,
use and sell analyses of the overall human genome or particular full-length
genes. These licenses may not be available to the Celera Genomics group on
commercially acceptable terms, or at all.

In some instances, patent applications in the United States are maintained in
secrecy until a patent issues. In most instances, the content of United States
and international patent applications is made available to the public
approximately 18 months after the application's filing date. 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 United States Patent and Trademark Office.
These proceedings determine the priority of invention and the right to a patent
for the claimed invention in the United States.

Furthermore, lawsuits may be necessary to enforce any patents issued to the
Celera Genomics group or to determine the scope and validity of the rights of
third parties. Lawsuits and interference proceedings, even if they are
successful, are expensive to pursue, and the Celera Genomics group could use a
substantial amount of its financial resources in either case. An adverse outcome
could subject the Celera Genomics group to significant liabilities to third
parties and require the Celera Genomics group to license disputed rights from
third parties or to cease using the technology.



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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 and may become involved in expensive intellectual property litigation.
The intellectual property rights of biotechnology companies, including the
Celera Genomics group, are generally uncertain and involve complex legal,
scientific and factual questions. The Celera Genomics group's success in
therapeutics 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.

There has been substantial litigation regarding patents and other intellectual
property rights in the biotechnology and pharmaceutical industries. The Celera
Genomics group may become a party to patent litigation or proceedings at the
United States Patent and Trademark Office to determine its patent rights with
respect to third parties. Interference proceedings may be necessary to establish
which party was the first to make the invention sought to be patented. The
Celera Genomics group may become involved in patent litigation against third
parties to enforce its patent rights, to invalidate patents held by the third
parties, or to defend against these claims. The cost to the Celera Genomics
group of any patent litigation or similar proceeding could be substantial, and
it may absorb significant




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management time. If infringement litigation against the Celera Genomics group is
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. The Celera Genomics group may not be able to obtain
a license on commercially acceptable terms, or at all.

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 certain diseases, particularly
those that have no known cure. Any of these scenarios could reduce the potential
markets for products of the Celera Genomics group.

Future acquisitions and other transactions may absorb significant resources, may
be unsuccessful and could dilute the holders of Applera - Celera stock. The
Celera Genomics group expects to pursue acquisitions, investments and other
strategic relationships and alliances. Acquisitions, investments and other
strategic relationships and alliances 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:

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

It may be difficult for the Celera Genomics group to complete these transactions
quickly and to integrate these businesses efficiently into its current business.
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. For example, future acquisitions may not be as
successful as originally anticipated and may result in special charges, such as
the charges for impairment of Paracel goodwill, intangibles and other assets and
other charges in the amounts of $69.1 million during fiscal 2001 and $25.9
million during fiscal 2002 and for the Molecular Informatics business in the
amount of $14.5 million during fiscal 1999.



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

Electricity shortages and earthquakes could disrupt operations in California.
The Celera Genomics group has research and development facilities in South San
Francisco, California. In 2001, the State of California experienced a statewide
electricity shortage due to a variety of factors. Although some of the factors
causing this shortage have been eliminated or mitigated, there are ongoing
concerns about the availability of electricity in California, particularly
during peak usage periods. Blackouts in South San Francisco, even of modest
duration, could impair or cause a temporary suspension of the group's South San
Francisco operations. Power disruptions of an extended duration or high
frequency could have a material adverse effect on operating results. In
addition, 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 stock price is volatile. The market price of Applera - Celera
stock has been and may continue to be volatile due to the risks and
uncertainties described in this section of this quarterly report, as well as
other factors that may have affected or may in the future affect the market
price, such as:

o     conditions and publicity regarding the genomics, biotechnology,
      pharmaceutical, or life sciences industries generally;
o     price and volume fluctuations in the stock market at large which do not
      relate to the Celera Genomics group's operating performance; and
o     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 purported class action lawsuit relating to its 2000
offering of shares of Applera - Celera stock that may be expensive and time
consuming. Our company and some of its officers were served in five lawsuits
purportedly on behalf of purchasers of Applera - Celera stock in our company's
follow-on public offering of Applera - Celera stock completed on March 6, 2000.
In the offering, our company sold an aggregate of approximately 4.4 million
shares of Applera - Celera stock at a public offering price of $225 per share.
All of these lawsuits have been consolidated into a single case and an amended
consolidated complaint was filed on August 21, 2001. The consolidated




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                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

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 United States and the United Kingdom, to providing patent
protection to our company's 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 our company did not adequately
disclose the risk that it 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. Our company and the other
defendants have filed a motion to dismiss the case, which motion is pending
before the court. Although our company believes the asserted claims are without
merit and intends 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 to Celera Diagnostics, a 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 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 United States 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:

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


                                       64
<PAGE>

o     any diagnostic products Celera Diagnostics or its collaborators develop
      may not be competitive with other existing or future products;
o     adequate reimbursement for Celera Diagnostics' and its collaborators'
      products may not be available to physicians or patients from the
      government or insurance companies; and
o     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 fails to satisfy regulatory requirements for any
diagnostic product candidate, it 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 United States Food and Drug
Administration and comparable agencies in other countries. In the United States,
either Celera Diagnostics or its collaborators must show through pre-clinical
studies and clinical trials that each of Celera Diagnostics' diagnostic product
candidates is safe and effective for each indication before obtaining regulatory
clearance or approval from the United States Food and Drug Administration for
the commercial sale of that product. Outside of the United States, the
regulatory requirements vary from country to country. If Celera Diagnostics or
its collaborator fails 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 large-scale clinical trials. Celera Diagnostics cannot be certain
that it will show sufficient safety and effectiveness in its clinical trials to
allow it 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 obtains regulatory clearance or approval, it will be
subject to certain risks and uncertainties relating to regulatory compliance,
including: post-clearance or approval clinical studies and inability to meet the
compliance requirements of the United States Food and Drug Administration's
Quality System Regulations. 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.



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                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

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 certain diseases, particularly
those that have no known cure. Any of these scenarios could reduce the potential
markets for products of Celera Diagnostics.

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 United States, 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.



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                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

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 has entered into a strategic alliance agreement with Abbott
Laboratories for the joint discovery, development, manufacturing, and
commercialization of nucleic acid-based diagnostic products. The Abbott
Laboratories agreement may be terminated by the non-breaching party in the event
of a material breach and, under certain circumstances, by either party in the
event of a change in control of the other party. 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 collaborations with other third parties are likely
to be subject to similar terms and conditions. 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 certain development programs.

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 or
work with Abbott Laboratories under their current agreement, or a combination of
both. 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 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 United
States Food and Drug Administration's Quality System Regulations, international
quality standards and other regulatory requirements, including requirements for
good manufacturing practices and the State of California



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                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

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 has relocated most of its manufacturing operations to a new
facility in Alameda, California, though it has maintained a limited but key
component of its manufacturing operations at an Applied Biosystems group
facility. Celera Diagnostics expects to operate its manufacturing out of these
facilities for the foreseeable future, and it does not have alternative
production plans in place or alternative facilities available should its
existing manufacturing facilities 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
samples and other biological materials. Celera Diagnostics needs access to human
tissue 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. In addition, government
regulation in the United States and foreign countries could result in restricted
access to, or use of, human tissue samples. If Celera Diagnostics loses access
to sufficient numbers or sources of tissue samples, or if tighter restrictions
are imposed on its use of the information generated from tissue 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 and fluorescent dyes.
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 longer periods 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 fluorescent dyes. 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, 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 United States Food and Drug Administration or
foreign regulatory agencies prior to commercialization.

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                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

Celera Diagnostics' competitive position depends on maintaining its intellectual
property protection and obtaining licenses to intellectual property it may need
from others. Celera Diagnostics' ability to compete and to achieve and maintain
profitability depends on its ability to protect its proprietary discoveries and
technologies, in large part, 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 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 United States 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. Although others have been successful in obtaining patents to
biotechnology inventions, since the adoption of these guidelines, these patents
have been issued with increasingly less frequency. As a result, patents may not
issue from patent applications that Celera Diagnostics may own or license if the
applicant is unable to satisfy the new guidelines.

In some instances, patent applications in the United States are maintained in
secrecy until a patent issues. In most instances, the content of United States
and international patent applications is made available to the public
approximately 18 months after the application's filing date. 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 United States Patent and
Trademark Office. These proceedings determine the priority of invention and the
right to a patent for the claimed invention in the United States.

Furthermore, lawsuits may be necessary to enforce any patents issued to Celera
Diagnostics or to determine the scope and validity of the patent rights of third
parties. Lawsuits and interference proceedings, even if they are successful, are
expensive to pursue, and Celera Diagnostics could use a substantial amount of
its financial resources in either case. An adverse outcome could subject Celera
Diagnostics to significant liabilities to third parties and require Celera
Diagnostics to license disputed rights from third parties or to cease
development or sales of a product.

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 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.


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                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued


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 and may become involved in expensive intellectual property litigation.
The intellectual property rights of biotechnology companies, including Celera
Diagnostics, are generally uncertain and involve complex legal, scientific and
factual 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.

There has been substantial litigation regarding patents and other intellectual
property rights in the biotechnology and pharmaceutical industries. Celera
Diagnostics may become a party to patent litigation or proceedings at the United
States Patent and Trademark Office to determine its patent rights with respect
to third parties. Interference proceedings may be necessary to establish which
party was the first to make the invention sought to be patented. Celera
Diagnostics may become involved in patent litigation against third parties to
enforce its patent rights, to invalidate patents held by the third parties, or
to defend against these claims. The cost to Celera Diagnostics of any patent
litigation or similar proceeding could be substantial, and it may absorb
significant management time. If infringement litigation against Celera
Diagnostics is 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. Celera Diagnostics may not be able to obtain a
license on commercially acceptable terms, or at all.

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.



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<PAGE>

                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

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:

o     develop new diagnostic products in advance of Celera Diagnostics;
o     develop diagnostic products which are more effective or more
      cost-effective than those developed by Celera Diagnostics;
o     obtain regulatory clearances or approvals of their diagnostic products
      more rapidly than Celera Diagnostics; or
o     obtain patent protection or other intellectual property rights that would
      limit Celera Diagnostics' ability to develop and commercialize, or its
      customers' ability to use, Celera Diagnostics' diagnostic products.

Celera Diagnostics competes with entities in the United States and abroad that
are engaged in the development and commercialization of products that provide
genetic information. They include:

o     purveyors of genetic testing services, which are not subject to the same
      clinical validation requirements as Celera Diagnostics' products, and
      which do not require United States Food and Drug Administration or other
      regulatory clearance or approval, including Laboratory Corporation of
      America Holdings, Quest Diagnostics Inc., and Specialty Laboratories,
      Inc.;
o     manufacturers of analyte specific reagents and genotyping test kits;
o     purveyors of phenotyping assay services; and
o     manufacturers and distributors of DNA probe-based diagnostic systems.

Electricity shortages and earthquakes could disrupt operations in California.
The headquarters and principal operations of Celera Diagnostics are located in
Alameda, California, and Celera Diagnostics has manufacturing facilities in
Foster City, California. In 2001, the State of California experienced a
statewide electricity shortage due to a variety of factors. Although some of the
factors causing this shortage have been eliminated or mitigated, there are
ongoing concerns about the availability of electricity in California,
particularly during peak usage periods. Blackouts in Alameda or Foster City,
even of modest duration, could impair or cause a temporary suspension of Celera
Diagnostics' operations, including the manufacturing and shipment of new
products. Power disruptions of an extended duration or high frequency could have
a material adverse effect on operating results. In addition, Alameda and Foster
City are 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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<PAGE>



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 risk section of the Management's Discussion
and Analysis included on page 30 of our 2002 Annual Report to Stockholders
(which section is incorporated herein 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. We evaluated the effectiveness of the design and operation of
these disclosure controls and procedures under the supervision and with the
participation of management, including our Chief Executive Officer and Chief
Financial Officer, within 90 days prior to the filing of 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. No significant changes were made to our internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their most recent evaluation.


                                       72

<PAGE>



PART II - OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders.

         The Company held its Annual Meeting of Stockholders on October 17,
2002. At that meeting, the stockholders of the Company elected all of the
nominees for director and approved all other proposals submitted by the Company
to stockholders for approval at the meeting, each as described in the Notice of
Annual Meeting and Proxy Statement dated September 4, 2002. The results of the
voting of the stockholders with respect to these matters is set forth below.

   I. Election of Directors.

                                   Total Vote For Each    Total Vote Withheld
                                          Director         From Each Director
                                    -------------------    ------------------

   Richard H. Ayers                     201,176,956            18,075,045
   Jean-Luc Belingard                   203,232,993            16,019,008
   Robert H. Hayes                      201,178,661            18,073,340
   Arnold J. Levine                     203,204,123            16,047,878
   Theodore E. Martin                   201,229,290            18,022,711
   Georges C. St. Laurent, Jr.          203,192,427            16,059,574
   Carolyn W. Slayman                   203,228,298            16,023,703
   Orin R. Smith                        203,163,566            16,088,435
   James R. Tobin                       201,252,408            17,999,593
   Tony L. White                        217,039,522             2,212,479


   II.   Ratification of the selection of PricewaterhouseCoopers LLP as
         the Company's independent accountants for the fiscal year ending
         June 30, 2003.

              FOR                 AGAINST              ABSTAIN
              ---                 -------              -------

          196,141,583            22,104,536            1,005,882


   III.  Approval of amendments to the Applera Corporation 1999 Employee
         Stock Purchase Plan.

              FOR                 AGAINST              ABSTAIN
              ---                 -------              -------

          211,996,454             4,028,993            3,226,554


    IV.  Approval of an amendment to the Applera Corporation/Applied
         Biosystems Group 1999 Stock Incentive Plan.

              FOR                 AGAINST              ABSTAIN
              ---                 -------              -------

          130,989,170            84,716,835            3,545,996


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<PAGE>

    V.   Approval of an amendment to the Applera Corporation/Celera Genomics
         Group 1999 Stock Incentive Plan.

              FOR                 AGAINST              ABSTAIN
              ---                 -------              -------

          133,165,620            82,510,687            3,575,694


Item 6.  Exhibits and Reports on Form 8-K.

(a)  Exhibits.

       13         Annual Report to Stockholders for the fiscal year ended
                  June 30, 2002, 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, 2002 (Commission file number
                  1-4389)).

       99.1       Certification of Chief Executive Officer pursuant to Section
                  906 of the Sarbanes-Oxley Act of 2002.

       99.2       Certification of Chief Financial Officer pursuant to Section
                  906 of the Sarbanes-Oxley Act of 2002.

     (b)  Reports on Form 8-K.

          During the quarter ended December 31, 2002, the Company filed the
          following Current Reports on Form 8-K:

          (1) Current Report on Form 8-K dated October 2, 2002, to
          incorporate under Item 9 thereof the text of the Company's press
          release issued October 4, 2002, regarding an unfavorable jury
          verdict relating to discontinued operations.

          (2) Current Report on Form 8-K dated December 17, 2002, to
          incorporate under Item 9 thereof: (i) the text of the Company's
          press release issued December 10, 2002, in which it announced a
          meeting with the investment community on December 17, 2002, to
          discuss the Company's Celera Genomics Group and Celera
          Diagnostics, a joint venture between the Company's Applied
          Biosystems and Celera Genomics groups; (ii) the text of the
          presentations proposed to be made by the Company at such meeting;
          and (iii) the text of the Company's press release issued December
          17, 2002, with respect to certain matters expected to be
          discussed at such meeting.



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<PAGE>

                                   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:       /s/ Dennis L. Winger
                                    ----------------------------------
                                      Dennis L. Winger
                                      Senior Vice President and
                                      Chief Financial Officer



                                By:       /s/ Vikram Jog
                                    ----------------------------------
                                      Vikram Jog
                                      Corporate Controller
                                      Chief Accounting Officer


Dated:  February 14, 2003



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<PAGE>

                                 CERTIFICATIONS


Principal Executive Officer Certification

I, Tony L. White, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Applera Corporation;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this quarterly report is being
     prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     quarterly report (the "Evaluation Date"); and

     c) presented in this quarterly report our conclusions about the
     effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of the registrant's board of directors (or persons performing the
     equivalent function):

     a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

     Date:  February 14, 2003

                                      /s/ Tony L. White
                                      -----------------------------------
                                      Chief Executive Officer



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<PAGE>

Principal Financial Officer Certification

I, Dennis L. Winger, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Applera Corporation;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this quarterly report is being
     prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     quarterly report (the "Evaluation Date"); and

     c) presented in this quarterly report our conclusions about the
     effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of the registrant's board of directors (or persons performing the
     equivalent function):

     a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


     Date:  February 14, 2003

                                         /s/ Dennis L. Winger
                                         -----------------------------------
                                         Chief Financial Officer



                                       77
<PAGE>




                                  EXHIBIT INDEX


Exhibit
Number

99.1  Certification of Chief Executive Officer under Section 906 of the
      Sarbanes-Oxley Act of 2002

99.2  Certification of Chief Financial Officer under Section 906 of the
      Sarbanes-Oxley Act of 2002