##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the quarterly period ended December 31, 2006
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 001-04389
 APPLERA CORPORATION
  Delaware
    
    06-1534213(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)301 Merritt 7, Norwalk, Connecticut
(Address of Principal Executive Offices)
    
    06851-1070
(Zip Code)
 (203) 840-2000
  þ o
  þ o o
  o þ




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##### 



APPLERA CORPORATION
INDEX
 PagePart I. Financial InformationItem 1.
    
    Financial Statements  (unaudited)Condensed Consolidated Statements of Operations for the
Three and Six Months Ended December 31, 2006 and 2005
    
    
    1Condensed Consolidated Statements of Financial Position at
December 31, 2006 and June 30, 2006
    
    
    2Condensed Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 2006 and 2005
    
    
    3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    4-26Item 2.
    
    Managements Discussion and Analysis of
Financial Condition and Results of OperationsDiscussion of Applera Corporation
    
    
    27-38Discussion of Applied Biosystems Group
    
    
    39-44Discussion of Celera Group
    
    
    45-47Market Risks
    
    
    48Outlook
    
    
    48-50Forward-Looking Statements and Risk Factors
    
    
    50-65Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    66Item 4.
    
    Controls and Procedures
    
    
    66Part II. Other InformationItem 1.
    
    Legal Proceedings
    
    
    67Item 1A.
    
    Risk Factors
    
    
    67-70Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    71Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    72Item 6.
    
    Exhibits
    
    
    73EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 APPLERA CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(Dollar amounts in thousands except per share amounts)
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Products
    
    $
    442,846
    
    
    $
    403,109
    
    
    $
    833,928
    
    
    $
    741,638Services
    
    
    60,782
    
    
    
    55,189
    
    
    
    118,922
    
    
    
    107,456Other
    
    
    38,221
    
    
    
    31,389
    
    
    
    74,408
    
    
    
    62,821Total Net Revenues
    
    
    541,849
    
    
    
    489,687
    
    
    
    1,027,258
    
    
    
    911,915Products
    
    
    209,802
    
    
    
    194,869
    
    
    
    406,461
    
    
    
    363,076Services
    
    
    26,539
    
    
    
    24,582
    
    
    
    51,137
    
    
    
    48,571Other
    
    
    3,055
    
    
    
    3,425
    
    
    
    5,882
    
    
    
    7,059Total Cost of Sales
    
    
    239,396
    
    
    
    222,876
    
    
    
    463,480
    
    
    
    418,706Gross Margin
    
    
    302,453
    
    
    
    266,811
    
    
    
    563,778
    
    
    
    493,209Selling, general and administrative
    
    
    154,842
    
    
    
    144,619
    
    
    
    297,227
    
    
    
    276,484Research, development and
engineering
    
    
    62,160
    
    
    
    73,077
    
    
    
    120,062
    
    
    
    142,774Amortization of purchased
intangible assets
    
    
    2,842
    
    
    
    680
    
    
    
    5,579
    
    
    
    1,719Employee-related charges, asset
impairments and other
    
    
    2,513
    
    
    
    360
    
    
    
    6,013
    
    
    
    1,231Asset dispositions and legal
settlements
    
    
    (10,145
    )
    
    
    3,032
    
    
    
    (1,058
    )
    
    
    26,541Acquired research and development
    
    
    
    
    
    
    
    
    
    
    114,251Operating Income
    
    
    90,241
    
    
    
    45,043
    
    
    
    21,704
    
    
    
    44,460Gain on investments, net
    
    
    
    
    
    
    
    
    
    
    209
    
    
    
    4,503Interest expense
    
    
    193
    
    
    
    (78
    )
    
    
    (304
    )
    
    
    (165
    )Interest income
    
    
    10,152
    
    
    
    9,233
    
    
    
    19,862
    
    
    
    18,990Other income (expense), net
    
    
    1,039
    
    
    
    1,001
    
    
    
    2,456
    
    
    
    2,708Income before Income Taxes
    
    
    101,625
    
    
    
    55,199
    
    
    
    43,927
    
    
    
    70,496Provision for income taxes
    
    
    27,136
    
    
    
    41,114
    
    
    
    35,450
    
    
    
    31,232Net Income
    
    $
    74,489
    
    
    $
    14,085
    
    
    $
    8,477
    
    
    $
    39,264Applied Biosystems Group (see Note
4)Net Income per ShareBasic
    
    $
    0.41
    
    
    $
    0.17
    
    
    $
    0.09
    
    
    $
    0.38Diluted
    
    $
    0.39
    
    
    $
    0.17
    
    
    $
    0.08
    
    
    $
    0.38Dividends Declared per Share
    
    $
    0.0425
    
    
    $
    0.0425
    
    
    $
    0.0850
    
    
    $
    0.0850Celera Group (see Note 4)Net Loss per ShareBasic and diluted
    
    $
    (0.01
    )
    
    $
    (0.23
    )
    
    $
    (0.10
    )
    
    $
    (0.46
    )
  1




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##### Table of Contents



APPLERA CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited)
(Dollar amounts in thousands)
 At December 31,
    
    
    At June 30,2006
    
    
    2006AssetsCurrent assetsCash and cash equivalents
    
    $
    319,345
    
    
    $
    434,191Short-term investments
    
    
    591,265
    
    
    
    509,252Accounts receivable, net
    
    
    389,336
    
    
    
    382,509Inventories, net
    
    
    151,449
    
    
    
    137,651Prepaid expenses and other current assets
    
    
    169,228
    
    
    
    163,362Total current assets
    
    
    1,620,623
    
    
    
    1,626,965Property, plant and equipment, net
    
    
    389,999
    
    
    
    396,436Goodwill and intangible assets, net
    
    
    314,058
    
    
    
    322,097Other long-term assets
    
    
    665,768
    
    
    
    667,477Total Assets
    
    $
    2,990,448
    
    
    $
    3,012,975Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    169,011
    
    
    $
    201,691Accrued salaries and wages
    
    
    72,229
    
    
    
    98,938Current deferred tax liability
    
    
    17,045
    
    
    
    17,560Accrued taxes on income
    
    
    36,314
    
    
    
    50,944Other accrued expenses
    
    
    242,734
    
    
    
    239,157Total current liabilities
    
    
    537,333
    
    
    
    608,290Other long-term liabilities
    
    
    209,845
    
    
    
    200,351Total Liabilities
    
    
    747,178
    
    
    
    808,641Stockholders EquityCapital stockApplera CorporationApplied Biosystems Group
    
    
    2,133
    
    
    
    2,132Applera CorporationCelera Group
    
    
    784
    
    
    
    773Capital in excess of par value
    
    
    2,218,062
    
    
    
    2,192,559Retained earnings
    
    
    717,379
    
    
    
    714,137Accumulated other comprehensive income
    
    
    51,291
    
    
    
    40,947Treasury stock, at cost
    
    
    (746,379
    )
    
    
    (746,214
    )Total Stockholders Equity
    
    
    2,243,270
    
    
    
    2,204,334Total Liabilities and Stockholders Equity
    
    $
    2,990,448
    
    
    $
    3,012,975
  2




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APPLERA CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollar amounts in thousands)
 Six months endedDecember 31,2006
    
    
    2005Operating Activities of Continuing OperationsNet income
    
    $
    8,477
    
    
    $
    39,264Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    42,646
    
    
    
    46,048Asset impairments
    
    
    3,000
    
    
    
    1,090Employee-related charges and other
    
    
    3,013
    
    
    
    (1,409
    )Share-based compensation programs
    
    
    8,895
    
    
    
    4,437Sale of assets and legal settlements, net
    
    
    (209
    )
    
    
    22,938Deferred income taxes
    
    
    709
    
    
    
    (6,327
    )Acquired research and development
    
    
    114,251Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,538
    )
    
    
    31,394Inventories
    
    
    (11,033
    )
    
    
    (7,626
    )Prepaid expenses and other assets
    
    
    (13,500
    )
    
    
    (2,408
    )Accounts payable and other liabilities
    
    
    (45,144
    )
    
    
    (2,762
    )Net Cash Provided by Operating Activities
of Continuing Operations
    
    
    108,567
    
    
    
    124,639Investing Activities of Continuing OperationsAdditions to property, plant and equipment, net
    
    
    (28,451
    )
    
    
    (25,747
    )Proceeds from maturities of available-for-sale investments
    
    
    130,745
    
    
    
    75,983Proceeds from sales of available-for-sale investments
    
    
    277,608
    
    
    
    227,145Purchases of available-for-sale investments
    
    
    (487,771
    )
    
    
    (250,100
    )Acquisitions and investments
    
    
    (121,403
    )
    
    
    (1,235
    )Proceeds from the sale of assets, net
    
    
    322
    
    
    
    4,503Net Cash
Provided (Used) by Investing Activities
of Continuing Operations
    
    
    (228,950
    )
    
    
    30,549Financing ActivitiesDividends
    
    
    (15,411
    )
    
    
    (8,253
    )Purchases of common stock for treasury
    
    
    (59,856
    )
    
    
    (457,120
    )Proceeds from stock issued for stock plans and other
    
    
    74,584
    
    
    
    70,432Net Cash Used by Financing Activities
    
    
    (683
    )
    
    
    (394,941
    )Effect of Exchange Rate Changes on Cash
    
    
    6,220
    
    
    
    (8,668
    )Net Change in Cash and Cash Equivalents
    
    
    (114,846
    )
    
    
    (248,421
    )Cash and Cash Equivalents Beginning of Period
    
    
    434,191
    
    
    
    779,401Cash and Cash Equivalents End of Period
    
    $
    319,345
    
    
    $
    530,980
  3




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##### Table of Contents



APPLERA CORPORATION
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Interim Condensed Consolidated Financial Statements
 Basis of Presentation
    Recently Issued Accounting Pronouncements
    4




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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
  Note 2  Events Impacting Comparability
  Three months ended
    
    Six months endedIncome/(charge)
    
    December 31,
    
    December 31,(Dollar amounts in millions)
    
    2006
    
    2005
    
    2006
    
    2005Severance and benefit costs
    
    $
    
    
    
    $
    (1.5
    )
    
    $
    
    
    
    $
    (1.5
    )Asset impairments
    
    
    (3.0
    )
    
    
    
    
    
    
    (3.0
    )
    
    
    (1.1
    )Other
    
    
    (0.1
    )
    
    
    
    
    
    
    (3.6
    )Reduction of expected costs
    
    
    0.6
    
    
    
    1.2
    
    
    
    0.6
    
    
    
    1.4Total employee-related charges, asset impairments and other
    
    $
    (2.5
    )
    
    $
    (0.3
    )
    
    $
    (6.0
    )
    
    $
    (1.2
    )Other events impacting comparability:Revenue from sale of small molecule program
    
    $
    2.5
    
    
    $
    
    
    
    $
    2.5
    
    
    $
    Asset dispositions and legal settlements
    
    
    10.2
    
    
    
    (3.1
    )
    
    
    1.1
    
    
    
    (26.6
    )Acquired research and development
    
    
    
    
    
    
    
    
    
    
    (114.3
    )Investment gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.5Tax items
    
    
    1.0
    
    
    
    (28.0
    )
    
    
    9.8
    
    
    
    (14.5
    )
 Employee-Related Charges, Asset Impairments and Other
  Applied Biosystems group
       5




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
 (Dollar amounts in millions)

    Remaining cash payments
    
    
    Expected payment datesFiscal 2003 employee-related charge
    
    $
    0.3
    
    
    Fiscal 2008Fiscal 2005 employee-related charge
    
    
    0.1
    
    
    Fiscal 2007Fiscal 2005 excess lease space and other charges
    
    
    1.1
    
    
    Fiscal 2007  Fiscal 2011$
    1.5
 Celera group
    6




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
   Employee-
    
    
    
    
    
    
    Excess
    
    
    OtherRelated
    
    
    Asset
    
    
    Lease
    
    
    Disposal(Dollar amounts in millions)
    
    Charges
    
    
    Impairments
    
    
    Space
    
    
    Costs
    
    
    TotalThird quarter
    
    $
    10.7
    
    
    $
    8.0
    
    
    $
    0.8
    
    
    $
    1.4
    
    
    $
    20.9Fourth quarter
    
    
    2.1
    
    
    
    1.8
    
    
    
    0.4
    
    
    
    1.2
    
    
    
    5.5Total charges
    
    
    12.8
    
    
    
    9.8
    
    
    
    1.2
    
    
    
    2.6
    
    
    
    26.4Cash payments
    
    
    7.9
    
    
    
    
    
    
    
    0.2
    
    
    
    2.4
    
    
    
    10.5Non-cash activity
    
    
    
    
    
    
    9.3
    
    
    
    
    
    
    
    0.2
    
    
    
    9.5Balance at June 30, 2006
    
    
    4.9
    
    
    
    0.5
    
    
    
    1.0
    
    
    
    
    
    
    
    6.4Additional charge
    
    
    
    
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    3.0Non-cash activity
    
    
    
    
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    3.0Cash payments
    
    
    4.1
    
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    4.8Reduction of expected costs
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6Balance at December 31, 2006
    
    $
    0.2
    
    
    $
    0.5
    
    
    $
    0.3
    
    
    $
    
    
    
    $
    1.0
      Other Events Impacting Comparability
 Revenue from sale of small molecule program
  Asset dispositions and legal settlements
  7




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
      Acquired research and development
  Investments
  Tax items
     Note 3 Acquisition
  8




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
  (Dollar amounts in millions)
    
    Fair ValueProperty, plant and equipment
    
    $
    1.4Intangible asset  workforce
    
    
    1.5Acquired IPR&D
    
    
    114.3Deferred tax asset
    
    
    4.7Deferred tax liability
    
    
    (0.5
    )Total purchase price
    
    $
    121.4
     At Acquisition Date(Dollar amounts in millions)
    
    Fair Value
    
    
    Estimated Costs to Complete
    
    
    Approximate Percentage CompletedInstruments
    
    $
    66.6
    
    
    $
    10.0
    
    
    35%Reagents
    
    
    47.7
    
    
    
    6.0
    
    
    25%Total
    
    $
    114.3
    
    
    $
    16.0
  9




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
  Note 4  Earnings (Loss) per Share
  Applied Biosystems Group
    
    
    Celera Group(Dollar amounts in millions, except per share amounts)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    74.8
    
    
    $
    30.9
    
    
    $
    (0.5
    )
    
    $
    (17.3
    )Allocated intercompany sale of assets
    
    
    (0.1
    )Allocated interperiod taxes
    
    
    0.3
    
    
    
    0.5Total net income (loss) allocated
    
    
    75.0
    
    
    
    31.4
    
    
    
    (0.5
    )
    
    
    (17.3
    )Less dividends declared on common stock
    
    
    7.8
    
    
    
    7.8Undistributed earnings (loss)
    
    $
    67.2
    
    
    $
    23.6
    
    
    $
    (0.5
    )
    
    $
    (17.3
    )Allocation of basic earnings (loss) per shareBasic distributed earnings per share(1)
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    
    
    
    $
    Basic undistributed earnings (loss) per share
    
    
    0.37
    
    
    
    0.13
    
    
    
    (0.01
    )
    
    
    (0.23
    )Total basic earnings (loss) per share
    
    $
    0.41
    
    
    $
    0.17
    
    
    $
    (0.01
    )
    
    $
    (0.23
    )Allocation of diluted earnings (loss) per shareDiluted distributed earnings per share(1)
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    
    
    
    $
    Diluted undistributed earnings (loss) per share
    
    
    0.35
    
    
    
    0.13
    
    
    
    (0.01
    )
    
    
    (0.23
    )Total diluted earnings (loss) per share
    
    $
    0.39
    
    
    $
    0.17
    
    
    $
    (0.01
    )
    
    $
    (0.23
    )Weighted average number of common sharesBasic
    
    
    183.5
    
    
    
    185.9
    
    
    
    78.2
    
    
    
    74.8Common stock equivalents
    
    
    7.9
    
    
    
    4.3Diluted
    
    
    191.4
    
    
    
    190.2
    
    
    
    78.2
    
    
    
    74.8
 (1) Amounts represent actual dividends per share distributed.
 10




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
  Applied Biosystems Group
    
    
    Celera Group(Dollar amounts in millions, except per share amounts)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    16.1
    
    
    $
    74.0
    
    
    $
    (7.5
    )
    
    $
    (34.1
    )Allocated intercompany sale of assets
    
    
    (0.2
    )Allocated interperiod taxes
    
    
    0.1
    
    
    
    (0.7
    )Total net income (loss) allocated
    
    
    16.0
    
    
    
    73.3
    
    
    
    (7.5
    )
    
    
    (34.1
    )Less dividends declared on common stock
    
    
    15.6
    
    
    
    16.1Undistributed earnings (loss)
    
    $
    0.4
    
    
    $
    57.2
    
    
    $
    (7.5
    )
    
    $
    (34.1
    )Allocation of basic earnings (loss) per shareBasic distributed earnings per share(1)
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    
    
    
    $
    Basic undistributed earnings (loss) per share
    
    
    
    
    
    
    0.29
    
    
    
    (0.10
    )
    
    
    (0.46
    )Total basic earnings (loss) per share
    
    $
    0.09
    
    
    $
    0.38
    
    
    $
    (0.10
    )
    
    $
    (0.46
    )Allocation of diluted earnings (loss) per shareDiluted distributed earnings per share(1)
    
    $
    0.08
    
    
    $
    0.09
    
    
    $
    
    
    
    $
    Diluted undistributed earnings (loss) per share
    
    
    
    
    
    
    0.29
    
    
    
    (0.10
    )
    
    
    (0.46
    )Total diluted earnings (loss) per share
    
    $
    0.08
    
    
    $
    0.38
    
    
    $
    (0.10
    )
    
    $
    (0.46
    )Weighted average number of common sharesBasic
    
    
    182.8
    
    
    
    190.7
    
    
    
    78.0
    
    
    
    74.6Common stock equivalents
    
    
    7.5
    
    
    
    3.5Diluted
    
    
    190.3
    
    
    
    194.2
    
    
    
    78.0
    
    
    
    74.6
 (1) Amounts represent actual dividends per share distributed.
  (Shares in millions)
    
    2006
    
    
    2005Applera-Applied Biosystems stock
    
    
    4.4
    
    
    
    11.6Applera-Celera stock
    
    
    7.0
    
    
    
    11.0
 11




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
 Note 5  Comprehensive Gain
  Three months ended
    
    
    Six months endedDecember 31,
    
    
    December 31,(Dollar amounts in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    74.5
    
    
    $
    14.1
    
    
    $
    8.5
    
    
    $
    39.3Other comprehensive gain (loss):Net unrealized gains (losses) on investments
    
    
    1.1
    
    
    
    0.4
    
    
    
    3.2
    
    
    
    (0.1
    )Net unrealized gains on investments reclassified into earnings
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.3
    )Net unrealized gains (losses) on hedge contracts
    
    
    (1.5
    )
    
    
    5.4
    
    
    
    0.5
    
    
    
    7.0Net unrealized (gains) losses on hedge contracts reclassified
into earnings
    
    
    0.5
    
    
    
    (3.1
    )
    
    
    0.5
    
    
    
    (1.0
    )Foreign currency translation adjustments
    
    
    3.9
    
    
    
    (11.2
    )
    
    
    6.4
    
    
    
    (14.5
    )Total other comprehensive gain (loss)
    
    
    3.9
    
    
    
    (8.5
    )
    
    
    10.3
    
    
    
    (8.6
    )Total comprehensive gain
    
    $
    78.4
    
    
    $
    5.6
    
    
    $
    18.8
    
    
    $
    30.7
 Note 6  Inventories
  December 31,
    
    
    June 30,(Dollar amounts in millions)
    
    2006
    
    
    2006Raw materials and supplies
    
    $
    57.3
    
    
    $
    44.3Work-in-process
    
    
    7.3
    
    
    
    12.8Finished products
    
    
    86.8
    
    
    
    80.6Total inventories, net
    
    $
    151.4
    
    
    $
    137.7
 Note 7  Assets Held for Sale
  12




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
 Note 8  Goodwill and Intangible Assets
  December 31, 2006
    
    
    June 30, 2006Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Accumulated(Dollar amounts in millions)
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortized intangible assetsAcquired technology
    
    $
    83.5
    
    
    $
    51.3
    
    
    $
    83.3
    
    
    $
    44.5Patents
    
    
    29.9
    
    
    
    24.1
    
    
    
    29.9
    
    
    
    22.9Customer relationships
    
    
    27.1
    
    
    
    3.2
    
    
    
    27.1
    
    
    
    1.6Other
    
    
    1.8
    
    
    
    0.4
    
    
    
    0.3
    
    
    
    0.3Total amortized intangible assets
    
    $
    142.3
    
    
    $
    79.0
    
    
    $
    140.6
    
    
    $
    69.3Unamortized intangible assetsTrade name
    
    
    4.9
    
    
    
    
    
    
    
    4.9Total
    
    $
    147.2
    
    
    $
    79.0
    
    
    $
    145.5
    
    
    $
    69.3
  Three months ended
    
    
    Six months endedDecember 31,
    
    
    December 31,(Dollar amounts in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Applied Biosystems group
    
    $
    4.5
    
    
    $
    1.7
    
    
    $
    8.9
    
    
    $
    3.5Celera group
    
    
    0.6
    
    
    
    1.0
    
    
    
    1.2
    
    
    
    2.2Consolidated
    
    $
    5.1
    
    
    $
    2.7
    
    
    $
    10.1
    
    
    $
    5.7
  AppliedBiosystems
    
    
    Celera(Dollar amounts in millions)
    
    Group
    
    
    Group
    
    
    ConsolidatedRemainder of fiscal 2007
    
    $
    8.4
    
    
    $
    1.0
    
    
    $
    9.42008
    
    
    14.4
    
    
    
    0.6
    
    
    
    15.02009
    
    
    13.1
    
    
    
    0.2
    
    
    
    13.32010
    
    
    10.4
    
    
    
    0.2
    
    
    
    10.62011
    
    
    6.6
    
    
    
    0.2
    
    
    
    6.8
  13




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
 Note 9  Supplemental Cash Flow Information
  (Dollar amounts in millions)
    
    2006
    
    
    2005Dividends declared but not paid
    
    $
    7.8
    
    
    $
    7.9Tax benefit related to employee stock options
    
    
    14.0
    
    
    
    5.1
 Note 10  Guarantees
 Leases
  Pension Benefits
  Indemnifications
  Product Warranties
  14




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
  (Dollar amounts in millions)
    
    2006
    
    
    2005Balance beginning of period
    
    $
    10.6
    
    
    $
    14.0Accruals for warranties
    
    
    8.0
    
    
    
    9.2Usage of reserve
    
    
    (8.2
    )
    
    
    (10.4
    )Balance at December 31
    
    $
    10.4
    
    
    $
    12.8
 Note 11  Pension and Other Postretirement Benefits
  Three months ended
    
    
    Six months endedDecember 31,
    
    
    December 31,(Dollar amounts in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005PensionService cost
    
    $
    0.8
    
    
    $
    0.7
    
    
    $
    1.8
    
    
    $
    1.3Interest cost
    
    
    10.9
    
    
    
    8.9
    
    
    
    21.8
    
    
    
    18.0Expected return on plan assets
    
    
    (11.7
    )
    
    
    (9.6
    )
    
    
    (23.3
    )
    
    
    (19.1
    )Amortization of prior service cost
    
    
    0.2
    
    
    
    (0.1
    )
    
    
    0.4
    
    
    
    (0.1
    )Amortization of losses
    
    
    1.4
    
    
    
    2.0
    
    
    
    2.6
    
    
    
    3.9Net periodic expense
    
    $
    1.6
    
    
    $
    1.9
    
    
    $
    3.3
    
    
    $
    4.0Postretirement BenefitService cost
    
    $
    
    
    
    $
    0.1
    
    
    $
    0.1
    
    
    $
    0.1Interest cost
    
    
    0.9
    
    
    
    0.8
    
    
    
    1.8
    
    
    
    1.6Amortization of (gains) losses
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.2
    )
    
    
    0.1Net periodic expense
    
    $
    0.8
    
    
    $
    0.9
    
    
    $
    1.7
    
    
    $
    1.8
  Note 12  Contingencies
 Supply Arrangement
  15




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
  Legal Proceedings
     16
    Table of Contents   APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
 ®
  ®
  17




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
 Note 13  Segment and Consolidating Information
    Three months ended
    
    
    Six months endedDecember 31,
    
    
    December 31,(Dollar amounts in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Applied Biosystems GroupSales to the Celera group (a)
    
    $
    1.3
    
    
    $
    1.4
    
    
    $
    2.4
    
    
    $
    2.9Celera GroupRoyalties from the Applied Biosystems group (b)
    
    $
    
    
    
    $
    1.1
    
    
    $
    
    
    
    $
    2.0
 (a)
    
    The Applied Biosystems group recorded net revenues from leased instruments and
sales of consumables and project materials to the Celera group.(b)
    
    The Celera group recorded net revenues primarily for royalties generated from sales
by the Applied Biosystems group of products integrating the Celera Discovery SystemTM
and some other genomic and biological information under a marketing and distribution agreement.
The Celera group forgave future royalties related to this agreement as discussed in Note 15 to our
consolidated financial statements included in our 2006 Annual Report to Stockholders.
   18




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
 Condensed Consolidating Statement of Operations for the Three Months Ended December 31, 2006
 AppliedBiosystems
    
    
    Celera(Dollar amounts in thousands)
    
    Group
    
    
    Group
    
    
    Eliminations
    
    ConsolidatedProducts
    
    $
    440,088
    
    
    $
    2,758
    
    
    $
    
    
    
    $
    442,846Services
    
    
    60,782
    
    
    
    
    
    
    
    
    
    
    
    60,782Other
    
    
    27,761
    
    
    
    10,460
    
    
    
    
    
    
    
    38,221Net revenues from external customers
    
    
    528,631
    
    
    
    13,218
    
    
    
    
    
    
    
    541,849Intersegment revenues
    
    
    1,349
    
    
    
    
    
    
    
    (1,349
    )Total Net Revenues
    
    
    529,980
    
    
    
    13,218
    
    
    
    (1,349
    )
    
    
    541,849Products
    
    
    205,905
    
    
    
    4,397
    
    
    
    (500
    )
    
    
    209,802Services
    
    
    26,622
    
    
    
    
    
    
    
    (83
    )
    
    
    26,539Other
    
    
    2,956
    
    
    
    99
    
    
    
    
    
    
    
    3,055Cost of Sales
    
    
    235,483
    
    
    
    4,496
    
    
    
    (583
    )
    
    
    239,396Gross Margin
    
    
    294,497
    
    
    
    8,722
    
    
    
    (766
    )
    
    
    302,453Selling, general and administrative
    
    
    134,229
    
    
    
    5,557
    
    
    
    15,056
    
    
    
    154,842Corporate allocated expenses
    
    
    13,295
    
    
    
    1,768
    
    
    
    (15,063
    )Research, development and engineering
    
    
    50,876
    
    
    
    11,935
    
    
    
    (651
    )
    
    
    62,160Amortization of purchased intangible assets
    
    
    2,842
    
    
    
    
    
    
    
    
    
    
    
    2,842Employee-related charges, asset
impairments and other
    
    
    
    
    
    
    2,513
    
    
    
    
    
    
    
    2,513Asset dispositions and legal settlements
    
    
    (7,788
    )
    
    
    (2,357
    )
    
    
    
    
    
    
    (10,145
    )Operating Income (Loss)
    
    
    101,043
    
    
    
    (10,694
    )
    
    
    (108
    )
    
    
    90,241Interest income, net
    
    
    3,391
    
    
    
    6,954
    
    
    
    
    
    
    
    10,345Other income (expense), net
    
    
    927
    
    
    
    112
    
    
    
    
    
    
    
    1,039Income (Loss) before Income Taxes
    
    
    105,361
    
    
    
    (3,628
    )
    
    
    (108
    )
    
    
    101,625Provision (benefit) for income taxes
    
    
    30,579
    
    
    
    (3,142
    )
    
    
    (301
    )
    
    
    27,136Net Income (Loss)
    
    $
    74,782
    
    
    $
    (486
    )
    
    $
    193
    
    
    $
    74,489
 19




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
 Condensed Consolidating Statement of Operations for the Six Months Ended December 31, 2006
 AppliedBiosystems
    
    
    Celera(Dollar amounts in thousands)
    
    Group
    
    
    Group
    
    
    Eliminations
    
    
    ConsolidatedProducts
    
    $
    828,684
    
    
    $
    5,244
    
    
    $
    
    
    
    $
    833,928Services
    
    
    118,922
    
    
    
    
    
    
    
    
    
    
    
    118,922Other
    
    
    56,205
    
    
    
    18,203
    
    
    
    
    
    
    
    74,408Net revenues from external customers
    
    
    1,003,811
    
    
    
    23,447
    
    
    
    
    
    
    
    1,027,258Intersegment revenues
    
    
    2,442
    
    
    
    
    
    
    
    (2,442
    )Total Net Revenues
    
    
    1,006,253
    
    
    
    23,447
    
    
    
    (2,442
    )
    
    
    1,027,258Products
    
    
    399,281
    
    
    
    8,041
    
    
    
    (861
    )
    
    
    406,461Services
    
    
    51,291
    
    
    
    
    
    
    
    (154
    )
    
    
    51,137Other
    
    
    5,626
    
    
    
    256
    
    
    
    
    
    
    
    5,882Cost of Sales
    
    
    456,198
    
    
    
    8,297
    
    
    
    (1,015
    )
    
    
    463,480Gross Margin
    
    
    550,055
    
    
    
    15,150
    
    
    
    (1,427
    )
    
    
    563,778Selling, general and administrative
    
    
    257,774
    
    
    
    11,204
    
    
    
    28,249
    
    
    
    297,227Corporate allocated expenses
    
    
    24,900
    
    
    
    3,362
    
    
    
    (28,262
    )Research, development and engineering
    
    
    95,991
    
    
    
    25,156
    
    
    
    (1,085
    )
    
    
    120,062Amortization of purchased intangible assets
    
    
    5,579
    
    
    
    
    
    
    
    
    
    
    
    5,579Employee-related charges, asset
impairments, and other
    
    
    
    
    
    
    6,013
    
    
    
    
    
    
    
    6,013Asset dispositions and legal settlements
    
    
    1,299
    
    
    
    (2,357
    )
    
    
    
    
    
    
    (1,058
    )Acquired research and development
    
    
    114,251
    
    
    
    
    
    
    
    
    
    
    
    114,251Operating Income (Loss)
    
    
    50,261
    
    
    
    (28,228
    )
    
    
    (329
    )
    
    
    21,704Gain on investments, net
    
    
    209
    
    
    
    
    
    
    
    
    
    
    
    209Interest income, net
    
    
    6,021
    
    
    
    13,537
    
    
    
    
    
    
    
    19,558Other income (expense), net
    
    
    2,241
    
    
    
    215
    
    
    
    
    
    
    
    2,456Income (Loss) before Income Taxes
    
    
    58,732
    
    
    
    (14,476
    )
    
    
    (329
    )
    
    
    43,927Provision (benefit) for income taxes
    
    
    42,672
    
    
    
    (6,939
    )
    
    
    (283
    )
    
    
    35,450Net Income (Loss)
    
    $
    16,060
    
    
    $
    (7,537
    )
    
    $
    (46
    )
    
    $
    8,477
 20




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
 Condensed Consolidating Statement of Financial Position at December 31, 2006
 AppliedBiosystems
    
    
    Celera(Dollar amounts in thousands)
    
    Group
    
    
    Group
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assetsCash and cash equivalents
    
    $
    296,514
    
    
    $
    22,831
    
    
    $
    
    
    
    $
    319,345Short-term investments
    
    
    47,221
    
    
    
    544,044
    
    
    
    
    
    
    
    591,265Accounts receivable, net
    
    
    384,480
    
    
    
    5,915
    
    
    
    (1,059
    )
    
    
    389,336Inventories, net
    
    
    143,452
    
    
    
    8,350
    
    
    
    (353
    )
    
    
    151,449Prepaid expenses and other current assets
    
    
    139,056
    
    
    
    32,259
    
    
    
    (2,087
    )
    
    
    169,228Total current assets
    
    
    1,010,723
    
    
    
    613,399
    
    
    
    (3,499
    )
    
    
    1,620,623Property, plant and equipment, net
    
    
    381,868
    
    
    
    8,368
    
    
    
    (237
    )
    
    
    389,999Goodwill and intangible assets, net
    
    
    309,264
    
    
    
    4,794
    
    
    
    
    
    
    
    314,058Other long-term assets
    
    
    531,859
    
    
    
    133,659
    
    
    
    250
    
    
    
    665,768Total Assets
    
    $
    2,233,714
    
    
    $
    760,220
    
    
    $
    (3,486
    )
    
    $
    2,990,448Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    167,982
    
    
    $
    3,639
    
    
    $
    (2,610
    )
    
    $
    169,011Accrued salaries and wages
    
    
    66,791
    
    
    
    5,438
    
    
    
    
    
    
    
    72,229Current deferred tax liability
    
    
    17,045
    
    
    
    
    
    
    
    
    
    
    
    17,045Accrued taxes on income
    
    
    21,789
    
    
    
    14,525
    
    
    
    
    
    
    
    36,314Other accrued expenses
    
    
    233,132
    
    
    
    10,343
    
    
    
    (741
    )
    
    
    242,734Total current liabilities
    
    
    506,739
    
    
    
    33,945
    
    
    
    (3,351
    )
    
    
    537,333Other long-term liabilities
    
    
    204,441
    
    
    
    5,658
    
    
    
    (254
    )
    
    
    209,845Total Liabilities
    
    
    711,180
    
    
    
    39,603
    
    
    
    (3,605
    )
    
    
    747,178Total Stockholders Equity
    
    
    1,522,534
    
    
    
    720,617
    
    
    
    119
    
    
    
    2,243,270Total Liabilities and Stockholders Equity
    
    $
    2,233,714
    
    
    $
    760,220
    
    
    $
    (3,486
    )
    
    $
    2,990,448
 21




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
 Condensed Consolidating Statement of Cash Flows for the Six Months Ended December 31, 2006
 AppliedBiosystems
    
    
    Celera(Dollar amounts in thousands)
    
    Group
    
    
    Group
    
    
    Eliminations
    
    
    ConsolidatedOperating Activities of Continuing OperationsNet income (loss)
    
    $
    16,060
    
    
    $
    (7,537
    )
    
    $
    (46
    )
    
    $
    8,477Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:Depreciation and amortization
    
    
    39,405
    
    
    
    3,391
    
    
    
    (150
    )
    
    
    42,646Asset impairments
    
    
    
    
    
    
    3,000
    
    
    
    
    
    
    
    3,000Employee-related charges and other
    
    
    
    
    
    
    3,013
    
    
    
    
    
    
    
    3,013Share-based compensation programs
    
    
    7,422
    
    
    
    1,473
    
    
    
    
    
    
    
    8,895Deferred income taxes
    
    
    (3,960
    )
    
    
    6,134
    
    
    
    (1,465
    )
    
    
    709Sale of assets and legal settlements, net
    
    
    (209
    )
    
    
    
    
    
    
    
    
    
    
    (209
    )Acquired research and development
    
    
    114,251
    
    
    
    
    
    
    
    
    
    
    
    114,251Nonreimbursable utilization of intergroup tax benefits
    
    
    13,309
    
    
    
    (13,309
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (6,578
    )
    
    
    3,711
    
    
    
    329
    
    
    
    (2,538
    )Inventories
    
    
    (11,270
    )
    
    
    (116
    )
    
    
    353
    
    
    
    (11,033
    )Prepaid expenses and other assets
    
    
    (5,892
    )
    
    
    (4,324
    )
    
    
    (3,284
    )
    
    
    (13,500
    )Accounts payable and other liabilities
    
    
    (38,776
    )
    
    
    (10,585
    )
    
    
    4,217
    
    
    
    (45,144
    )Net Cash Provided (Used) by Operating Activities
of Continuing Operations
    
    
    123,762
    
    
    
    (15,149
    )
    
    
    (46
    )
    
    
    108,567Investing Activities of Continuing OperationsAdditions to property, plant and equipment, net
    
    
    (27,283
    )
    
    
    (1,214
    )
    
    
    46
    
    
    
    (28,451
    )Proceeds from maturities of available-for-sale investments
    
    
    
    
    
    
    130,745
    
    
    
    
    
    
    
    130,745Proceeds from sales of available-for-sale investments
    
    
    29,113
    
    
    
    248,495
    
    
    
    
    
    
    
    277,608Purchases of available-for-sale investments
    
    
    (76,334
    )
    
    
    (411,437
    )
    
    
    
    
    
    
    (487,771
    )Acquisitions and investments, net of cash acquired
    
    
    (121,403
    )
    
    
    
    
    
    
    
    
    
    
    (121,403
    )Proceeds from the sale of assets, net
    
    
    322
    
    
    
    
    
    
    
    
    
    
    
    322Net Cash Used by Investing Activities
of Continuing Operations
    
    
    (195,585
    )
    
    
    (33,411
    )
    
    
    46
    
    
    
    (228,950
    )Financing ActivitiesDividends
    
    
    (15,411
    )
    
    
    
    
    
    
    
    
    
    
    (15,411
    )Purchases of common stock for treasury
    
    
    (59,856
    )
    
    
    
    
    
    
    
    
    
    
    (59,856
    )Proceeds from stock issued for stock plans and other
    
    
    63,463
    
    
    
    11,121
    
    
    
    
    
    
    
    74,584Net Cash Provided (Used) by Financing Activities
    
    
    (11,804
    )
    
    
    11,121
    
    
    
    
    
    
    
    (683
    )Effect of Exchange Rate Changes on Cash
    
    
    6,220
    
    
    
    
    
    
    
    
    
    
    
    6,220Net Change in Cash and Cash Equivalents
    
    
    (77,407
    )
    
    
    (37,439
    )
    
    
    
    
    
    
    (114,846
    )Cash and Cash Equivalents Beginning of Period
    
    
    373,921
    
    
    
    60,270
    
    
    
    
    
    
    
    434,191Cash and Cash Equivalents End of Period
    
    $
    296,514
    
    
    $
    22,831
    
    
    $
    
    
    
    $
    319,345
 22




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
 Condensed Consolidating Statement of Operations for the Three Months Ended December 31, 2005
 AppliedBiosystems
    
    
    Celera(Dollar amounts in thousands)
    
    Group
    
    
    Group
    
    
    Eliminations
    
    ConsolidatedProducts
    
    $
    400,195
    
    
    $
    2,914
    
    
    $
    
    
    
    $
    403,109Services
    
    
    54,982
    
    
    
    207
    
    
    
    
    
    
    
    55,189Other
    
    
    25,330
    
    
    
    6,059
    
    
    
    
    
    
    
    31,389Net revenues from external customers
    
    
    480,507
    
    
    
    9,180
    
    
    
    
    
    
    
    489,687Intersegment revenues
    
    
    1,409
    
    
    
    1,068
    
    
    
    (2,477
    )Total Net Revenues
    
    
    481,916
    
    
    
    10,248
    
    
    
    (2,477
    )
    
    
    489,687Products
    
    
    193,626
    
    
    
    2,839
    
    
    
    (1,596
    )
    
    
    194,869Services
    
    
    23,055
    
    
    
    1,653
    
    
    
    (126
    )
    
    
    24,582Other
    
    
    2,718
    
    
    
    707
    
    
    
    
    
    
    
    3,425Cost of Sales
    
    
    219,399
    
    
    
    5,199
    
    
    
    (1,722
    )
    
    
    222,876Gross Margin
    
    
    262,517
    
    
    
    5,049
    
    
    
    (755
    )
    
    
    266,811Selling, general and administrative
    
    
    125,052
    
    
    
    6,712
    
    
    
    12,855
    
    
    
    144,619Corporate allocated expenses
    
    
    10,808
    
    
    
    2,051
    
    
    
    (12,859
    )Research, development and engineering
    
    
    45,170
    
    
    
    28,699
    
    
    
    (792
    )
    
    
    73,077Amortization of purchased intangible assets
    
    
    314
    
    
    
    366
    
    
    
    
    
    
    
    680Employee-related charges, asset
impairments and other
    
    
    360
    
    
    
    
    
    
    
    
    
    
    
    360Asset dispositions and legal settlements
    
    
    3,032
    
    
    
    
    
    
    
    
    
    
    
    3,032Operating Income (Loss)
    
    
    77,781
    
    
    
    (32,779
    )
    
    
    41
    
    
    
    45,043Interest income, net
    
    
    3,233
    
    
    
    5,922
    
    
    
    
    
    
    
    9,155Other income (expense), net
    
    
    1,240
    
    
    
    (239
    )
    
    
    
    
    
    
    1,001Income (Loss) before Income Taxes
    
    
    82,254
    
    
    
    (27,096
    )
    
    
    41
    
    
    
    55,199Provision (benefit) for income taxes
    
    
    51,349
    
    
    
    (9,765
    )
    
    
    (470
    )
    
    
    41,114Net Income (Loss)
    
    $
    30,905
    
    
    $
    (17,331
    )
    
    $
    511
    
    
    $
    14,085
 23




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
 Condensed
Consolidating Statement of Operations for the Six Months Ended December 31, 2005
 AppliedBiosystems
    
    
    Celera(Dollar amounts in thousands)
    
    Group
    
    
    Group
    
    
    Eliminations
    
    ConsolidatedProducts
    
    $
    736,003
    
    
    $
    5,635
    
    
    $
    
    
    
    $
    741,638Services
    
    
    106,425
    
    
    
    1,031
    
    
    
    
    
    
    
    107,456Other
    
    
    52,054
    
    
    
    10,767
    
    
    
    
    
    
    
    62,821Net revenues from external customers
    
    
    894,482
    
    
    
    17,433
    
    
    
    
    
    
    
    911,915Intersegment revenues
    
    
    2,899
    
    
    
    2,024
    
    
    
    (4,923
    )Total Net Revenues
    
    
    897,381
    
    
    
    19,457
    
    
    
    (4,923
    )
    
    
    911,915Products
    
    
    360,708
    
    
    
    5,611
    
    
    
    (3,243
    )
    
    
    363,076Services
    
    
    46,532
    
    
    
    2,317
    
    
    
    (278
    )
    
    
    48,571Other
    
    
    5,437
    
    
    
    1,622
    
    
    
    
    
    
    
    7,059Total Cost of Sales
    
    
    412,677
    
    
    
    9,550
    
    
    
    (3,521
    )
    
    
    418,706Gross Margin
    
    
    484,704
    
    
    
    9,907
    
    
    
    (1,402
    )
    
    
    493,209Selling, general and administrative
    
    
    237,264
    
    
    
    14,651
    
    
    
    24,569
    
    
    
    276,484Corporate allocated expenses
    
    
    20,579
    
    
    
    3,994
    
    
    
    (24,573
    )Research, development and engineering
    
    
    86,008
    
    
    
    58,251
    
    
    
    (1,485
    )
    
    
    142,774Amortization of purchased intangible assets
    
    
    628
    
    
    
    1,091
    
    
    
    
    
    
    
    1,719Employee-related charges, asset
impairments, and other
    
    
    1,231
    
    
    
    
    
    
    
    
    
    
    
    1,231Asset dispositions and legal settlements
    
    
    25,866
    
    
    
    675
    
    
    
    
    
    
    
    26,541Operating Income (Loss)
    
    
    113,128
    
    
    
    (68,755
    )
    
    
    87
    
    
    
    44,460Gain on investments, net
    
    
    
    
    
    
    4,503
    
    
    
    
    
    
    
    4,503Interest income, net
    
    
    7,655
    
    
    
    11,170
    
    
    
    
    
    
    
    18,825Other income (expense), net
    
    
    2,905
    
    
    
    (197
    )
    
    
    
    
    
    
    2,708Income (Loss) before Income Taxes
    
    
    123,688
    
    
    
    (53,279
    )
    
    
    87
    
    
    
    70,496Provision (benefit) for income taxes
    
    
    49,659
    
    
    
    (19,200
    )
    
    
    773
    
    
    
    31,232Net Income (Loss)
    
    $
    74,029
    
    
    $
    (34,079
    )
    
    $
    (686
    )
    
    $
    39,264
 24




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
 Condensed Consolidating Statement of Financial Position at June 30, 2006
 AppliedBiosystems
    
    
    Celera(Dollar amounts in thousands)
    
    Group
    
    
    Group
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assetsCash and cash equivalents
    
    $
    373,921
    
    
    $
    60,270
    
    
    $
    
    
    
    $
    434,191Short-term investments
    
    
    
    
    
    
    509,252
    
    
    
    
    
    
    
    509,252Accounts receivable, net
    
    
    373,613
    
    
    
    9,626
    
    
    
    (730
    )
    
    
    382,509Inventories, net
    
    
    129,417
    
    
    
    8,234
    
    
    
    
    
    
    
    137,651Prepaid expenses and other current assets
    
    
    135,711
    
    
    
    32,966
    
    
    
    (5,315
    )
    
    
    163,362Total current assets
    
    
    1,012,662
    
    
    
    620,348
    
    
    
    (6,045
    )
    
    
    1,626,965Property, plant and equipment, net
    
    
    387,170
    
    
    
    9,607
    
    
    
    (341
    )
    
    
    396,436Goodwill and intangible assets, net
    
    
    316,269
    
    
    
    5,828
    
    
    
    
    
    
    
    322,097Other long-term assets
    
    
    529,671
    
    
    
    137,895
    
    
    
    (89
    )
    
    
    667,477Total Assets
    
    $
    2,245,772
    
    
    $
    773,678
    
    
    $
    (6,475
    )
    
    $
    3,012,975Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    200,591
    
    
    $
    6,497
    
    
    $
    (5,397
    )
    
    $
    201,691Accrued salaries and wages
    
    
    89,883
    
    
    
    9,055
    
    
    
    
    
    
    
    98,938Current deferred tax liability
    
    
    17,560
    
    
    
    
    
    
    
    
    
    
    
    17,560Accrued taxes on income
    
    
    38,157
    
    
    
    12,787
    
    
    
    
    
    
    
    50,944Other accrued expenses
    
    
    227,001
    
    
    
    13,089
    
    
    
    (933
    )
    
    
    239,157Total current liabilities
    
    
    573,192
    
    
    
    41,428
    
    
    
    (6,330
    )
    
    
    608,290Other long-term liabilities
    
    
    194,844
    
    
    
    5,817
    
    
    
    (310
    )
    
    
    200,351Total Liabilities
    
    
    768,036
    
    
    
    47,245
    
    
    
    (6,640
    )
    
    
    808,641Total Stockholders Equity
    
    
    1,477,736
    
    
    
    726,433
    
    
    
    165
    
    
    
    2,204,334Total Liabilities and Stockholders Equity
    
    $
    2,245,772
    
    
    $
    773,678
    
    
    $
    (6,475
    )
    
    $
    3,012,975
 25




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##### Table of Contents



APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued
 Condensed Consolidating Statement of Cash Flows for the Six Months Ended December 31, 2005
 AppliedBiosystems
    
    
    Celera(Dollar amounts in thousands)
    
    Group
    
    
    Group
    
    
    Eliminations
    
    
    ConsolidatedOperating Activities of Continuing OperationsNet income (loss)
    
    $
    74,029
    
    
    $
    (34,079
    )
    
    $
    (686
    )
    
    $
    39,264Adjustments to reconcile net income (loss) to net cashprovided (used) by operating activities:Depreciation and amortization
    
    
    37,950
    
    
    
    8,320
    
    
    
    (222
    )
    
    
    46,048Asset impairments
    
    
    1,090
    
    
    
    
    
    
    
    
    
    
    
    1,090Employee-related charges and other
    
    
    (1,409
    )
    
    
    
    
    
    
    
    
    
    
    (1,409
    )Share-based compensation programs
    
    
    3,792
    
    
    
    645
    
    
    
    
    
    
    
    4,437Deferred income taxes
    
    
    (11,266
    )
    
    
    4,608
    
    
    
    331
    
    
    
    (6,327
    )Sale of assets and legal settlements, net
    
    
    26,758
    
    
    
    (3,820
    )
    
    
    
    
    
    
    22,938Nonreimbursable utilization of intergroup tax benefits
    
    
    19,135
    
    
    
    (19,135
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    32,133
    
    
    
    (630
    )
    
    
    (109
    )
    
    
    31,394Inventories
    
    
    (7,326
    )
    
    
    (300
    )
    
    
    
    
    
    
    (7,626
    )Prepaid expenses and other assets
    
    
    429
    
    
    
    (2,553
    )
    
    
    (284
    )
    
    
    (2,408
    )Accounts payable and other liabilities
    
    
    10,284
    
    
    
    (13,934
    )
    
    
    888
    
    
    
    (2,762
    )Net Cash Provided (Used) by Operating Activities
of Continuing Operations
    
    
    185,599
    
    
    
    (60,878
    )
    
    
    (82
    )
    
    
    124,639Investing Activities of Continuing OperationsAdditions to property, plant and equipment, net
    
    
    (23,348
    )
    
    
    (2,550
    )
    
    
    151
    
    
    
    (25,747
    )Proceeds from maturities of available-for-sale investments
    
    
    
    
    
    
    75,983
    
    
    
    
    
    
    
    75,983Proceeds from sales of available-for-sale investments
    
    
    81,214
    
    
    
    145,931
    
    
    
    
    
    
    
    227,145Purchases of available-for-sale investments
    
    
    (84,409
    )
    
    
    (165,691
    )
    
    
    
    
    
    
    (250,100
    )Acquisitions and investments, net of cash acquired
    
    
    (1,235
    )
    
    
    
    
    
    
    
    
    
    
    (1,235
    )Proceeds from the sale of assets, net
    
    
    
    
    
    
    4,572
    
    
    
    (69
    )
    
    
    4,503Net Cash Provided (Used) by Investing Activities
of Continuing Operations
    
    
    (27,778
    )
    
    
    58,245
    
    
    
    82
    
    
    
    30,549Financing ActivitiesDividends
    
    
    (8,253
    )
    
    
    
    
    
    
    
    
    
    
    (8,253
    )Net cash funding from groups
    
    
    (4,356
    )
    
    
    4,356Purchases of common stock for treasury
    
    
    (457,120
    )
    
    
    
    
    
    
    
    
    
    
    (457,120
    )Proceeds from stock issued for stock plans and other
    
    
    63,664
    
    
    
    6,768
    
    
    
    
    
    
    
    70,432Net Cash Provided (Used) by Financing Activities
    
    
    (406,065
    )
    
    
    11,124
    
    
    
    
    
    
    
    (394,941
    )Effect of Exchange Rate Changes on Cash
    
    
    (8,668
    )
    
    
    
    
    
    
    
    
    
    
    (8,668
    )Net Change in Cash and Cash Equivalents
    
    
    (256,912
    )
    
    
    8,491
    
    
    
    
    
    
    
    (248,421
    )Cash and Cash Equivalents Beginning of Period
    
    
    756,236
    
    
    
    23,165
    
    
    
    
    
    
    
    779,401Cash and Cash Equivalents End of Period
    
    $
    499,324
    
    
    $
    31,656
    
    
    $
    
    
    
    $
    530,980
 26




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##### Table of Contents



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
   Overview
      27




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##### Table of Contents



APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
     Business Developments:
 Applied Biosystems Group
 
    
    In January 2007, the Applied Biosystems group announced the
worldwide availability of its StepOne Real-Time PCR system.
The StepOne system was developed in response to the growing
market of researchers interested in lower throughput
applications of real-time PCR. The StepOne system
complements the Applied Biosystems groups comprehensive
portfolio of real-time PCR instruments for high and
mid-throughput applications, providing life scientists with a
variety of systems that are appropriate for their particular
laboratory environment and budget.
    
    Also in January 2007, the Applied Biosystems group announced
the release of a new series of TaqMan® Gene
Signature Panels for accelerating drug discovery research.
The TaqMan Low Density Array Gene Signature Panels enable
researchers to simultaneously observe and determine the
expression level of genes that encode proteins involved with
critical cellular functions. Researchers who use these gene
signature panels will be able to more thoroughly study
difficult-to-detect genes that are important to the drug
research needs of the pharmaceutical industry.
 Celera Group
 
    
    Innogenetics N.V., Ghent, Belgium, brought a patent
infringement suit against Abbott Laboratories, our alliance
partner, in September 2005 regarding Abbotts hepatitis C
virus (HCV) genotyping products. In September 2006, a jury
in Madison, Wisconsin found that the sale of these products
willfully infringed a U.S. patent owned by Innogenetics and awarded Innogenetics $7.0 million in damages. In
January 2007, the U.S. District Court for the Western
District of Wisconsin ruled in favor of Innogenetics request
for a permanent injunction, and as such, ordered Abbott to
withdraw its products from the market. The Court also
reversed the jury verdict of willful infringement and ruled
that Abbott did not willfully infringe Innogenetics patent
and denied Innogenetics request for enhanced damages and
attorneys fees. Innogenetics did not name the Celera group
as a party in this lawsuit, but the Celera group has an
interest in these products and in the outcome of the
litigation because the enjoined products are manufactured by
the Celera group and sold through its alliance with Abbott. Also, as
these products are part of its alliance with Abbott, the Celera group
has agreed to share the cost of this litigation, including the damage
award described above. Abbott has informed the Celera group that it will appeal the
judgment as both Abbott and
the Celera group believe that Innogenetics patent is invalid and that the alliances HCV
genotyping analyte specific
 28




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##### Table of Contents



APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 reagents (ASRs) do not infringe Innogenetics patent. Abbott has filed an
emergency motion with the Court of Appeals for the Federal Circuit
seeking a stay of the permanent injunction during the appeal process.
On January 19, 2007, Abbott obtained a temporary stay of the injunction from the Court pending the
Courts consideration of the emergency motion for a stay of the permanent injunction.
    
    In January 2007, Health Canada approved the Abbott m2000
instrument system and the Abbott RealTime HIV-1 and
HCV viral load tests for marketing in Canada. This is the first
HIV-1 viral load assay approved by Health Canada that can detect
and accurately measure HIV-1 group M, group O and group N
subtypes.
    
    In December 2006, the Celera group published findings in the
American Journal of Human Genetics (AJHG)that variants in two
genes (IL12Band IL23R) involved in regulating the behavior of
cells of the immune system independently contribute to psoriasis
risk. These findings provide genetic evidence to support the
ongoing development of therapeutics that target the interleukin-12
and interleukin-23 (IL-12 and IL-23) pathways. This publication
will appear in the February 2007 print edition of AJHG.
    
    In November 2006, the Celera group and its collaborators presented
results from two studies as part of the scientific sessions at the
American Heart Association 2006 meeting in Chicago, IL. One study
was from the Atherosclerosis Risk in Communities (ARIC) study
describing progress in the development of an initial combination
of genetic variants that predicts risk for coronary heart disease
(CHD), and the other described the association of one of these
variants (VAMP8) with CHD in the Johns Hopkins Sibling Study.
 Critical Accounting Estimates
  Events Impacting Comparability
  Three months ended
    
    
    Six months endedIncome/(charge)
    
    December 31,
    
    
    December 31,(Dollar amounts in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Severance and benefit costs
    
    $
    
    
    
    $
    (1.5
    )
    
    $
    
    
    
    $
    (1.5
    )Asset impairments
    
    
    (3.0
    )
    
    
    
    
    
    
    (3.0
    )
    
    
    (1.1
    )Other
    
    
    (0.1
    )
    
    
    
    
    
    
    (3.6
    )Reduction of expected costs
    
    
    0.6
    
    
    
    1.2
    
    
    
    0.6
    
    
    
    1.4Total employee-related charges, asset
impairments and other
    
    $
    (2.5
    )
    
    $
    (0.3
    )
    
    $
    (6.0
    )
    
    $
    (1.2
    )Other events impacting comparability:Revenue from sale of small molecule program
    
    $
    2.5
    
    
    $
    
    
    
    $
    2.5
    
    
    $
    Asset dispositions and legal settlements
    
    
    10.2
    
    
    
    (3.1
    )
    
    
    1.1
    
    
    
    (26.6
    )Acquired research and development
    
    
    
    
    
    
    
    
    
    
    (114.3
    )Investment gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.5Tax items
    
    
    1.0
    
    
    
    (28.0
    )
    
    
    9.8
    
    
    
    (14.5
    )
 Acquisition
  29




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
  Acquired Research and Development
   At Acquisition Date
    
    
    At December 31, 2006Approximate
    
    
    
    
    
    
    ApproximateFair
    
    Estimated Costs
    
    Percentage
    
    
    Estimated Costs
    
    Percentage(Dollar amounts in millions)
    
    Value
    
    to Complete
    
    Completed
    
    
    to Complete
    
    CompletedInstruments
    
    $
    66.6
    
    
    $
    10.0
    
    
    
    35
    %
    
    
    $
    10.8
    
    
    
    45
    %Reagents
    
    
    47.7
    
    
    
    6.0
    
    
    
    25
    %
    
    
    
    6.2
    
    
    
    35
    %Total
    
    $
    114.3
    
    
    $
    16.0
    
    
    
    
    
    
    
    $
    17.0
   Employee-Related Charges, Asset Impairments and Other
  30




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 Applied Biosystems group
       (Dollar amounts in millions)
    
    Remaining cash payments
    
    
    Expected payment datesFiscal 2003 employee-related charge
    
    $
    0.3
    
    
    Fiscal 2008Fiscal 2005 employee-related charge
    
    
    0.1
    
    
    Fiscal 2007Fiscal 2005 excess lease space and other charges
    
    
    1.1
    
    
    Fiscal 2007  Fiscal 2011$
    1.5
 Celera group
    31




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
    Employee-
    
    
    
    
    
    
    Excess
    
    
    OtherRelated
    
    
    Asset
    
    
    Lease
    
    
    Disposal(Dollar amounts in millions)
    
    Charges
    
    
    Impairments
    
    
    Space
    
    
    Costs
    
    
    TotalThird quarter
    
    $
    10.7
    
    
    $
    8.0
    
    
    $
    0.8
    
    
    $
    1.4
    
    
    $
    20.9Fourth quarter
    
    
    2.1
    
    
    
    1.8
    
    
    
    0.4
    
    
    
    1.2
    
    
    
    5.5Total charges
    
    
    12.8
    
    
    
    9.8
    
    
    
    1.2
    
    
    
    2.6
    
    
    
    26.4Cash payments
    
    
    7.9
    
    
    
    
    
    
    
    0.2
    
    
    
    2.4
    
    
    
    10.5Non-cash activity
    
    
    
    
    
    
    9.3
    
    
    
    
    
    
    
    0.2
    
    
    
    9.5Balance at June 30, 2006
    
    
    4.9
    
    
    
    0.5
    
    
    
    1.0
    
    
    
    
    
    
    
    6.4Additional charge
    
    
    
    
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    3.0Non-cash activity
    
    
    
    
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    3.0Cash payments
    
    
    4.1
    
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    4.8Reduction of expected costs
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6Balance at December 31, 2006
    
    $
    0.2
    
    
    $
    0.5
    
    
    $
    0.3
    
    
    $
    
    
    
    $
    1.0
      Other Events Impacting Comparability
 Revenue from sale of small molecule program
  32




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 Asset dispositions and legal settlements
       Investments
  Tax items
     33




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 Discussion of Applera Corporations Consolidated Operations
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,% Increase/
    
    
    
    
    
    
    
    
    
    
    % Increase/(Dollar amounts in millions)
    
    2006
    
    
    2005
    
    
    (Decrease)
    
    
    2006
    
    
    2005
    
    
    (Decrease)Net revenues
    
    $
    541.9
    
    
    $
    489.7
    
    
    
    10.7%
    
    
    $
    1,027.3
    
    
    $
    911.9
    
    
    
    12.7%Cost of sales
    
    
    239.4
    
    
    
    222.9
    
    
    
    7.4%
    
    
    
    463.5
    
    
    
    418.7
    
    
    
    10.7%Gross margin
    
    
    302.5
    
    
    
    266.8
    
    
    
    13.4%
    
    
    
    563.8
    
    
    
    493.2
    
    
    
    14.3%SG&A expenses
    
    
    154.9
    
    
    
    144.6
    
    
    
    7.1%
    
    
    
    297.2
    
    
    
    276.5
    
    
    
    7.5%R&D
    
    
    62.2
    
    
    
    73.1
    
    
    
    (14.9%
    )
    
    
    120.1
    
    
    
    142.8
    
    
    
    (15.9%
    )Amortization of purchased intangible assets
    
    
    2.9
    
    
    
    0.7
    
    
    
    314.3%
    
    
    
    5.6
    
    
    
    1.7
    
    
    
    229.4%Employee-related charges, asset
impairments and other
    
    
    2.5
    
    
    
    0.3
    
    
    
    733.3%
    
    
    
    6.0
    
    
    
    1.2
    
    
    
    400.0%Asset dispositions and legal settlements
    
    
    (10.2
    )
    
    
    3.1
    
    
    
    (429.0%
    )
    
    
    (1.1
    )
    
    
    26.6
    
    
    
    (104.1%
    )Acquired research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114.3Operating income
    
    
    90.2
    
    
    
    45.0
    
    
    
    100.4%
    
    
    
    21.7
    
    
    
    44.4
    
    
    
    (51.1%
    )Gain on investments, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    4.5
    
    
    
    (95.6%
    )Interest income, net
    
    
    10.4
    
    
    
    9.2
    
    
    
    13.0%
    
    
    
    19.6
    
    
    
    18.9
    
    
    
    3.7%Other income (expense), net
    
    
    1.0
    
    
    
    1.0
    
    
    
    %
    
    
    
    2.4
    
    
    
    2.7
    
    
    
    (11.1%
    )Income before income taxes
    
    
    101.6
    
    
    
    55.2
    
    
    
    84.1%
    
    
    
    43.9
    
    
    
    70.5
    
    
    
    (37.7%
    )Provision for income taxes
    
    
    27.1
    
    
    
    41.1
    
    
    
    (34.1%
    )
    
    
    35.4
    
    
    
    31.2
    
    
    
    13.5%Net income
    
    $
    74.5
    
    
    $
    14.1
    
    
    
    428.4%
    
    
    $
    8.5
    
    
    $
    39.3
    
    
    
    (78.4%
    )Percentage of net revenues:Gross margin
    
    
    55.8%
    
    
    
    54.5%
    
    
    
    
    
    
    
    54.9%
    
    
    
    54.1%SG&A expenses
    
    
    28.6%
    
    
    
    29.5%
    
    
    
    
    
    
    
    28.9%
    
    
    
    30.3%R&D
    
    
    11.5%
    
    
    
    14.9%
    
    
    
    
    
    
    
    11.7%
    
    
    
    15.7%Operating income
    
    
    16.6%
    
    
    
    9.2%
    
    
    
    
    
    
    
    2.1%
    
    
    
    4.9%Effective income tax rate
    
    
    27%
    
    
    
    74%
    
    
    
    
    
    
    
    81%
    
    
    
    44%
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,(Dollar amounts in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Income (charge) included in income
before income taxes
    
    
    $ 10.2
    
    
    
    $  (3.4
    )
    
    $
    (116.7
    )
    
    $
    (23.3
    )Provision (benefit) for income taxes
    
    
    2.3
    
    
    
    26.5
    
    
    
    (10.4
    )
    
    
    7.8
   34




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
  
    
    Net revenues increased at the Applied Biosystems group, driven by
strength in the Real-Time PCR/Applied Genomics product category,
primarily due to higher sales of consumables products, and in the
Mass Spectrometry product category, led by sales of Q TRAP®and QSTAR®systems and increased instrument
service contract revenue. Partially offsetting this growth in the
second quarter of fiscal 2007 were lower sales of the API triple
quadrupole, or quad, system compared to the prior year quarter.
Higher sales of DNA sequencing consumables and increased
instrument service contract revenue contributed to the growth in
the DNA Sequencing product category.
    
    Net revenues increased at the Celera group, primarily due to
revenue from the sale of a small molecule program and licensing
revenues related to the previously disclosed settlement with
Beckman Coulter. Equalization payments from Abbott Laboratories
were lower in the second quarter of fiscal 2007 and higher in the
first six months of fiscal 2007 compared to the prior year
periods.
       35




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
     Applera Corporation  Discussion of Condensed Consolidated Financial Resources and Liquidity
    December 31,
    
    
    June 30,(Dollar amounts in millions)
    
    2006
    
    
    2006Cash and cash equivalents
    
    $
    319.3
    
    
    $
    434.2Short-term investments
    
    
    591.3
    
    
    
    509.2Total cash and cash equivalents and
short-term investments
    
    $
    910.6
    
    
    $
    943.4Working capital
    
    
    1,083.3
    
    
    
    1,018.7
 36




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
   (Dollar amounts in millions)
    
    2006
    
    
    2005Net cash from operating activities
    
    $
    108.6
    
    
    $
    124.7Net cash from investing activities
    
    
    (229.0
    )
    
    
    30.5Net cash from financing activities
    
    
    (0.7
    )
    
    
    (394.9
    )Effect of exchange rate changes on cash
    
    
    6.2
    
    
    
    (8.7
    )
 Operating activities:
  Investing activities:
  Financing activities:
  37




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 Contractual Obligations
  Payments by Period2008 -
    
    
    2010 -(Dollar amounts in millions)
    
    Total
    
    
    2007 (a)
    
    
    2009
    
    
    2011
    
    
    ThereafterMinimum operating lease payments
(b)
    
    $
    132.4
    
    
    $
    19.5
    
    
    $
    56.8
    
    
    $
    30.8
    
    
    $
    25.3Purchase obligations (c)
    
    
    162.3
    
    
    
    87.0
    
    
    
    56.8
    
    
    
    18.5
    
    
    
    -Other long-term liabilities (d)
    
    
    38.6
    
    
    
    2.2
    
    
    
    2.2
    
    
    
    1.5
    
    
    
    32.7Total
    
    $
    333.3
    
    
    $
    108.7
    
    
    $
    115.8
    
    
    $
    50.8
    
    
    $
    58.0
 (a)
    
    Represents cash obligations for the remainder of fiscal 2007.(b)
    
    Refer to Note 10 to our consolidated financial statements in our 2006 Annual Report
to Stockholders for further information.(c)
    
    Purchase obligations are entered into with various vendors in the normal course of
business, and include commitments related to capital expenditures, R&D arrangements and
collaborations, license agreements, and other services.(d)
    
    We have excluded deferred revenues as they have no impact on our future liquidity.
We have also excluded deferred tax liabilities and obligations connected with our pension and
postretirement plans and other foreign employee-related plans as they are not contractually fixed
as to timing and amount. See Note 11 to our condensed consolidated financial statements contained
in this report and Note 5 to our consolidated financial statements in our 2006 Annual Report to
Stockholders for more information on these plans. 38




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 Discussion of Segments Operations, Financial Resources and Liquidity
 
 Applied Biosystems Group
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,%Increase/
    
    
    
    
    
    
    
    
    
    
    %Increase/(Dollar amounts in millions)
    
    2006
    
    
    2005
    
    
    (Decrease)
    
    
    2006
    
    
    2005
    
    
    (Decrease)Net revenues
    
    $
    530.0
    
    
    $
    481.9
    
    
    
    10.0%
    
    
    $
    1,006.3
    
    
    $
    897.4
    
    
    
    12.1%Cost of sales
    
    
    235.5
    
    
    
    219.4
    
    
    
    7.3%
    
    
    
    456.2
    
    
    
    412.7
    
    
    
    10.5%Gross margin
    
    
    294.5
    
    
    
    262.5
    
    
    
    12.2%
    
    
    
    550.1
    
    
    
    484.7
    
    
    
    13.5%SG&A expenses
    
    
    147.5
    
    
    
    135.8
    
    
    
    8.6%
    
    
    
    282.6
    
    
    
    257.8
    
    
    
    9.6%R&D
    
    
    50.9
    
    
    
    45.2
    
    
    
    12.6%
    
    
    
    96.0
    
    
    
    86.1
    
    
    
    11.5%Amortization
of purchased
 intangible assets
    
    
    2.9
    
    
    
    0.3
    
    
    
    866.7%
    
    
    
    5.6
    
    
    
    0.6
    
    
    
    833.3%Employee-related charges, asset
impairments and other
    
    
    
    
    
    
    0.3
    
    
    
    (100.0%
    )
    
    
    
    
    
    
    1.2
    
    
    
    (100.0%
    )Asset dispositions and legal
settlements
    
    
    (7.8
    )
    
    
    3.1
    
    
    
    (351.6%
    )
    
    
    1.3
    
    
    
    25.9
    
    
    
    (95.0%
    )Acquired research and
development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114.3Operating income
    
    
    101.0
    
    
    
    77.8
    
    
    
    29.8%
    
    
    
    50.3
    
    
    
    113.1
    
    
    
    (55.5%
    )Gain on investments, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Interest income, net
    
    
    3.4
    
    
    
    3.3
    
    
    
    3.0%
    
    
    
    6.0
    
    
    
    7.7
    
    
    
    (22.1%
    )Other income (expense), net
    
    
    0.9
    
    
    
    1.2
    
    
    
    (25.0%
    )
    
    
    2.2
    
    
    
    2.9
    
    
    
    (24.1%
    )Income before income taxes
    
    
    105.3
    
    
    
    82.3
    
    
    
    27.9%
    
    
    
    58.7
    
    
    
    123.7
    
    
    
    (52.5%
    )Provision for income taxes
    
    
    30.5
    
    
    
    51.4
    
    
    
    (40.7%
    )
    
    
    42.6
    
    
    
    49.7
    
    
    
    (14.3%
    )Net income
    
    $
    74.8
    
    
    $
    30.9
    
    
    
    142.1%
    
    
    $
    16.1
    
    
    $
    74.0
    
    
    
    (78.2%
    )Percentage of net revenues:Gross margin
    
    
    55.6%
    
    
    
    54.5%
    
    
    
    
    
    
    
    54.7%
    
    
    
    54.0%SG&A expenses
    
    
    27.8%
    
    
    
    28.2%
    
    
    
    
    
    
    
    28.1%
    
    
    
    28.7%R&D
    
    
    9.6%
    
    
    
    9.4%
    
    
    
    
    
    
    
    9.5%
    
    
    
    9.6%Operating income
    
    
    19.1%
    
    
    
    16.1%
    
    
    
    
    
    
    
    5.0%
    
    
    
    12.6%Effective income tax rate
    
    
    29%
    
    
    
    62%
    
    
    
    
    
    
    
    73%
    
    
    
    40%
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,(Dollar amounts in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Income (charge) included in income
before income taxes
    
    $
    7.8
    
    
    $
    (3.4
    )
    
    $
    (115.6
    )
    
    $
    (27.1
    )Provision (benefit) for income taxes
    
    
    2.5
    
    
    
    26.5
    
    
    
    (9.2
    )
    
    
    (6.0
    )
  39




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##### Table of Contents



APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 Revenues  overall summary
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,% Increase/
    
    
    
    
    
    
    
    
    
    
    % Increase/(Dollar amounts in millions)
    
    
    2006
    
    
    
    2005
    
    
    (Decrease)
    
    
    
    2006
    
    
    
    2005
    
    
    (Decrease)DNA Sequencing
    
    
    $146.8
    
    
    
    $140.7
    
    
    
    4%
    
    
    $
    278.3
    
    
    
    $265.6
    
    
    
    5%% of total revenues
    
    
    28%
    
    
    
    29%
    
    
    
    
    
    
    
    28%
    
    
    
    30%Real-Time PCR/Applied Genomics
    
    
    172.6
    
    
    
    146.8
    
    
    
    18%
    
    
    
    330.7
    
    
    
    268.5
    
    
    
    23%% of total revenues
    
    
    32%
    
    
    
    30%
    
    
    
    
    
    
    
    33%
    
    
    
    30%Mass Spectrometry
    
    
    135.9
    
    
    
    119.4
    
    
    
    14%
    
    
    
    251.9
    
    
    
    216.7
    
    
    
    16%% of total revenues
    
    
    26%
    
    
    
    25%
    
    
    
    
    
    
    
    25%
    
    
    
    24%Core PCR & DNA Synthesis
    
    
    49.2
    
    
    
    47.6
    
    
    
    3%
    
    
    
    95.4
    
    
    
    95.0
    
    
    
    %% of total revenues
    
    
    9%
    
    
    
    10%
    
    
    
    
    
    
    
    9%
    
    
    
    10%Other Product Lines
    
    
    25.5
    
    
    
    27.4
    
    
    
    (7%
    )
    
    
    50.0
    
    
    
    51.6
    
    
    
    (3%
    )% of total revenues
    
    
    5%
    
    
    
    6%
    
    
    
    
    
    
    
    5%
    
    
    
    6%Total
    
    
    $530.0
    
    
    
    $481.9
    
    
    
    10%
    
    
    $
    1,006.3
    
    
    
    $897.4
    
    
    
    12%
  
    
    Revenues in the Real-Time PCR/Applied Genomics product category
increased primarily due to higher sales of consumables products,
largely due to the acquisition of Ambion. Sales of
TaqMan® Gene Expression Assays products used in
academic, clinical research and agricultural biotechnology
settings and human identification products used in forensics also
contributed to the product category growth. Additionally,
instrument revenues increased due to higher sales of low
throughput real-time PCR instruments. Revenues for the year to
date period were also favorably impacted by increased service
revenue. In the research market, we are benefiting from a
decentralization trend where a growing number of smaller labs are
purchasing their own real-time PCR technology rather than relying
on core facilities. We are also seeing growth in quality and
safety testing applications within the applied markets, especially
in high-volume food manufacturing and environmental testing.
Consumables growth in the second quarter of fiscal 2007 benefited
from sales of DNA forensic kits in the applied markets, expansion
of our overall installed base of real-time instruments, and demand
for TaqManassays for validation and screening
applications. Growth in the real-time product category was
affected by year-over-year comparables in our BioSecurity business
as well as from on-going competition within the real-time PCR
instruments market.
 
    
    Mass Spectrometry revenue growth for the second quarter of fiscal
2007 was led by sales of Q TRAP® and QSTAR®
systems, as well as increased instrument service contract revenue.
Partially offsetting this growth were lower sales of the API
triple quad. Our small molecule business performed well in the
second quarter of fiscal 2007 with growth across our family of Q
TRAP hybrid instruments for traditional pharmaceutical and
contract research organizations (CRO) applications, as well as
within quality and safety testing applications in the applied
markets. Our proteomics business was led by sales of our new
QSTAR Elite platform and continued demand for our 4800 MALDI
TOF/TOF system for biomarker discovery and validation workflows.
For the year to date period, revenues were led by sales of Q TRAP,
QSTAR, API triple quad, and MALDI TOF/TOF systems, as well as
increased instrument service contract revenue.
 
    
    Revenues in the DNA Sequencing product category increased due to
higher sales of DNA sequencing consumables and instrument service
contract revenue. Our performance in this area continues to
benefit from the ongoing expansion and adoption of DNA forensics,
increased demand for quality assurance applications in
pharmaceutical
 40




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 and healthcare companies, and clinical research
customers performing medical sequencing and genotyping
applications. Consumables growth was driven by the increase in
the total number of reactions performed on the Applied Biosystems
groups installed base of sequencers, primarily the result of
increased focus in applications such as re-sequencing and fragment
analysis.
 Revenue by sources
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,% Increase/
    
    
    
    
    
    
    
    
    
    
    % Increase/(Dollar amounts in millions)
    
    2006
    
    
    2005
    
    
    (Decrease)
    
    
    2006
    
    
    2005
    
    
    (Decrease)Instruments
    
    $
    234.4
    
    
    $
    223.3
    
    
    
    5.0%
    
    
    $
    431.1
    
    
    $
    394.4
    
    
    
    9.3%Consumables
    
    
    206.8
    
    
    
    177.9
    
    
    
    16.2%
    
    
    
    399.6
    
    
    
    343.9
    
    
    
    16.2%Other sources
    
    
    88.8
    
    
    
    80.7
    
    
    
    10.0%
    
    
    
    175.6
    
    
    
    159.1
    
    
    
    10.4%Total
    
    $
    530.0
    
    
    $
    481.9
    
    
    
    10.0%
    
    
    $
    1,006.3
    
    
    $
    897.4
    
    
    
    12.1%
 Instruments
   Consumables
  Other sources
  41




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 Revenues by geographic area
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,% Increase/
    
    
    
    
    
    
    
    
    
    
    % Increase/(Dollar amounts in millions)
    
    2006
    
    
    2005
    
    
    (Decrease)
    
    
    2006
    
    
    2005
    
    
    (Decrease)United States
    
    $
    216.3
    
    
    $
    206.6
    
    
    
    4.7%
    
    
    $
    435.0
    
    
    $
    406.3
    
    
    
    7.1%Europe
    
    
    196.1
    
    
    
    173.1
    
    
    
    13.3%
    
    
    
    345.4
    
    
    
    301.7
    
    
    
    14.5%Asia Pacific
    
    
    95.9
    
    
    
    83.0
    
    
    
    15.5%
    
    
    
    182.5
    
    
    
    155.7
    
    
    
    17.2%Latin America and other markets
    
    
    21.7
    
    
    
    19.2
    
    
    
    13.0%
    
    
    
    43.4
    
    
    
    33.7
    
    
    
    28.8%Total
    
    $
    530.0
    
    
    $
    481.9
    
    
    
    10.0%
    
    
    $
    1,006.3
    
    
    $
    897.4
    
    
    
    12.1%
 
    42




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
       Applied Biosystems Group  Discussion of Financial Resources and Liquidity
    43




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
  December 31,
    
    
    June 30,(Dollar amounts in millions)
    
    2006
    
    
    2006Cash and cash equivalents
    
    
    $ 296.5
    
    
    $
    373.9Short-term investments
    
    
    47.2Total cash and cash equivalents and
short-term investments
    
    
    $ 343.7
    
    
    $
    373.9Working capital
    
    
    504.0
    
    
    
    439.5
  (Dollar amounts in millions)
    
    2006
    
    
    2005Net cash from operating activities
    
    $
    123.8
    
    
    $
    185.6Net cash from investing activities
    
    
    (195.6
    )
    
    
    (27.8
    )Net cash from financing activities
    
    
    (11.8
    )
    
    
    (406.1
    )Effect of exchange rate changes on cash
    
    
    6.2
    
    
    
    (8.7
    )
 Operating activities:
  Investing activities:
  Financing activities:
  44




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 
 Celera Group
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,% Increase/
    
    
    
    
    
    
    
    
    
    
    % Increase/(Dollar amounts in millions)
    
    2006
    
    
    2005
    
    
    (Decrease)
    
    
    2006
    
    
    2005
    
    
    (Decrease)Net revenues
    
    
    $  13.2
    
    
    
    $ 10.3
    
    
    
    28.2%
    
    
    
    $  23.4
    
    
    
    $ 19.5
    
    
    
    20.0%Cost of sales
    
    
    4.5
    
    
    
    5.2
    
    
    
    (13.5%
    )
    
    
    8.3
    
    
    
    9.6
    
    
    
    (13.5%
    )Gross margin
    
    
    8.7
    
    
    
    5.1
    
    
    
    70.6%
    
    
    
    15.1
    
    
    
    9.9
    
    
    
    52.5%R&D
    
    
    12.0
    
    
    
    28.7
    
    
    
    (58.2%
    )
    
    
    25.2
    
    
    
    58.2
    
    
    
    (56.7%
    )SG&A expenses
    
    
    7.3
    
    
    
    8.8
    
    
    
    (17.0%
    )
    
    
    14.5
    
    
    
    18.7
    
    
    
    (22.5%
    )Amortization of purchased
intangible assets
    
    
    
    
    
    
    0.4
    
    
    
    (100.0%
    )
    
    
    
    
    
    
    1.1
    
    
    
    (100.0%
    )Employee-related charges, asset
impairments and other
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    6.0Asset dispositions and legal
settlements
    
    
    (2.4
    )
    
    
    
    
    
    
    
    
    
    
    (2.4
    )
    
    
    0.7
    
    
    
    (442.9%
    )Operating loss
    
    
    (10.7
    )
    
    
    (32.8
    )
    
    
    (67.4%
    )
    
    
    (28.2
    )
    
    
    (68.8
    )
    
    
    (59.0%
    )Gain on investments, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.5
    
    
    
    (100.0%
    )Interest income, net
    
    
    7.0
    
    
    
    5.9
    
    
    
    18.6%
    
    
    
    13.5
    
    
    
    11.2
    
    
    
    20.5%Other income (expense), net
    
    
    0.1
    
    
    
    (0.2
    )
    
    
    (150.0%
    )
    
    
    0.2
    
    
    
    (0.2
    )
    
    
    (200.0%
    )Loss before income taxes
    
    
    (3.6
    )
    
    
    (27.1
    )
    
    
    (86.7%
    )
    
    
    (14.5
    )
    
    
    (53.3
    )
    
    
    (72.8%
    )Benefit for income taxes
    
    
    3.1
    
    
    
    9.8
    
    
    
    (68.4%
    )
    
    
    7.0
    
    
    
    19.2
    
    
    
    (63.5%
    )Net loss
    
    
    $  (0.5
    )
    
    
    $(17.3
    )
    
    
    (97.1%
    )
    
    
    $  (7.5
    )
    
    
    $(34.1
    )
    
    
    (78.0%
    )Effective income tax benefit rate
    
    
    86%
    
    
    
    36%
    
    
    
    
    
    
    
    48%
    
    
    
    36%
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,(Dollar amounts in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Income (charge) included in loss
before income taxes
    
    $
    2.4
    
    
    $
    
    
    
    $
    (1.1
    )
    
    $
    3.8Provision (benefit) for income taxes
    
    
    (0.3
    )
    
    
    
    
    
    
    (1.5
    )
    
    
    1.4
     45




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
       Supplemental Information
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,(Dollar amounts in millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Equalization revenue, net
    
    $
    3.5
    
    
    $
    4.5
    
    
    $
    7.9
    
    
    $
    7.7End-user revenues
    
    
    23.2
    
    
    
    19.1
    
    
    
    49.0
    
    
    
    36.9
 m m 
 Celera Group  Discussion of Financial Resources and Liquidity
    46




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
   December 31,
    
    June 30,(Dollar amounts in millions)
    
    2006
    
    2006Cash and cash equivalents
    
    
    $   22.8
    
    
    $
    60.3Short-term investments
    
    
    544.1
    
    
    
    509.2Total cash and cash equivalents and
short-term investments
    
    
    $ 566.9
    
    
    $
    569.5Working capital
    
    
    579.5
    
    
    
    578.9
  (Dollar amounts in millions)
    
    2006
    
    
    2005Net cash from operating activities
    
    $
    (15.1
    )
    
    $
    (60.9
    )Net cash from investing activities
    
    
    (33.4
    )
    
    
    58.2Net cash from financing activities
    
    
    11.1
    
    
    
    11.1
 Operating activities:
  Investing activities:
  47




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 
 Market Risks
    Recently Issued Accounting Pronouncements
  
 Outlook
  48




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 Applied Biosystems Group
   
    
    The Applied Biosystems group expects high single digit to low
double digit revenue growth for fiscal 2007 assuming current
exchange rates. This outlook includes the full fiscal year impact
from the March 2006 acquisition of Ambion.
    
    The Applied Biosystems group anticipates revenue growth in the DNA
Sequencing, Real-Time PCR/Applied Genomics, and Mass Spectrometry
product categories and revenue declines in the Core PCR and DNA
Synthesis and Other Product Lines categories. Quarterly
year-over-year revenue changes may be different from our annual
expectations due to a variety of factors, including the timing of
customer orders and disbursements of government funding.
    
    The Applied Biosystems group expects the effective annual tax rate
used to calculate non-GAAP financial measures to be approximately
30%.
    
    The Applied Biosystems group expects non-GAAP EPS to increase at a
rate equal to, or slightly above, the annual revenue growth rate.
This includes the incremental impact of the Agencourt expenses,
the incremental impact of stock based compensation, and the
increase in the effective annual tax rate from 29% in fiscal 2006.
The total impact of these three items on fiscal 2007 non-GAAP EPS
is expected to be approximately $0.10. The Applied Biosystems
group also expects that the year-over-year non-GAAP EPS growth
rate will be lower in the third quarter than in the fourth quarter
due to income from licensing fees and royalties associated with a
litigation settlement in the third quarter of fiscal 2006.
    
    The total pre-tax impact of SFAS No. 123R (accounting for stock
based compensation) in fiscal 2007 is expected to be approximately
$15 million, with an EPS impact of approximately $0.05.
  Celera Group
 m
 
    
    Total reported revenues are anticipated to be $43 - $48 million,
up from the prior guidance of $40 - $45 million. This includes
revenues from licensing and collaborations, which are anticipated
to be $10 - $15 million, up from the prior guidance of $8 - $12
million.
    
    Reported R&D expenses are anticipated to be $50 - $55 million,
down from the prior guidance of $55 - $65 million. SG&A expenses
are unchanged and anticipated to be $30 - $35 million.
    
    Net loss from operations is anticipated to be $18 - $25 million,
down from the prior guidance of $28 - $35 million.
 49




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 
    
    The Celera group expects to consume approximately $10 - $20
million in cash and short-term investments, down from the prior
guidance of $35 - $45 million, to fund operations, anticipated
growth in placements of the m2000
system, and cash costs related to the fiscal 2006 restructuring. This does not include any
proceeds that might be received from the sale of the Celera groups small molecule facility in
South San Francisco, CA.
    
    Total end-user revenues recognized through the Celera groups alliance with Abbott and
total revenue from unpartnered new genetic tests are unchanged and anticipated to be $105 -
$115 million.
  
 Forward-Looking Statements and Risk Factors
    Risks Relating to the Applied Biosystems Group
 Rapidly changing technology in life sciences could make the Applied Biosystems groups product line
obsolete unless it continues to develop and manufacture new and improved products and services, and
pursue new market opportunities.
 50




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
  The Applied Biosystems group may not successfully develop instruments for use in the clinical
diagnostics market, and even if it does develop these products they may not receive needed
regulatory clearances or approvals and the Applied Biosystems group may not be able to manufacture
these products in accordance with regulatory requirements.
 The Applied Biosystems group relies on other companies for the manufacture of some of its products
and also for the supply of some components of the products it manufactures on its own.
 A significant portion of sales depends on customers capital spending policies that may be subject
to significant and unexpected decreases.
 51




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
  A substantial portion of the Applied Biosystems groups sales is to customers at universities or
research laboratories whose funding is dependent on both the amount and timing of funding from
government sources.
 The Applied Biosystems group is currently, and could in the future be, subject to lawsuits,
arbitrations, investigations, and other legal actions with private parties and governmental
entities, particularly involving claims for infringement of patents and other intellectual property
rights, and it may need to obtain licenses to intellectual property from others.
   
    
    Enzo Biochem, Inc., Enzo Life Sciences, Inc., and Yale University have filed a
lawsuit against us alleging that we are infringing six patents due to the sale of sequencing
reagent kits, TaqMan® genotyping and gene expression assays, and the gene
expression microarrays used with the Applied Biosystems groups Expression Array System.
    
    Molecular Diagnostics Laboratories has filed a class action complaint against us
and Hoffmann-La Roche, Inc. alleging anticompetitive conduct in connection with the sale of
Taq DNA polymerase. The anticompetitive conduct is alleged to arise from the prosecution
and enforcement of U.S. Patent No 4,889,818. This patent is assigned to Hoffmann-La Roche,
with whom we have a commercial relationship covering, among other things, this patent and
the sale of Taq DNA polymerase.
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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 
    
    In response to patent infringement claims made by us against Stratagene
Corporation, Stratagene has filed counterclaims seeking declaratory judgment that our U.S.
Patent No. 6,814,934 in the field of real-time PCR is invalid and not infringed.
    
    In response to a claim that we, MDS, Inc., and our Applied Biosystems/MDS Sciex
Instruments joint venture with MDS filed against Thermo Electron Corporation, Thermo
Electron has filed a counterclaim seeking a
declaratory judgment that our U.S. Patent No. 4,963,736 is invalid. After the filing of this
action against Thermo Electron, its subsidiary Thermo Finnigan LLC filed a lawsuit against us
alleging that we are infringing one of its patents as a result of, for example, the Applied
Biosystems groups commercialization of the ABI PRISM® 3700 Genetic Analyzer.
Thermo Finnigan subsequently filed a second lawsuit against us, MDS, and the Applied
Biosystems/MDS Sciex Instruments joint venture alleging that we and the other defendants have
infringed one of Thermo Finnigans patents as a result of, for example, our commercialization
of the API 5000 LC/MS/MS system.
  Some of the intellectual property that is important to our business is owned by other companies or
institutions and licensed to us, and legal actions against them could harm the Applied Biosystems
groups business.
 The Applied Biosystems group may become involved in legal proceedings to enforce its intellectual
property rights.
 Since the Applied Biosystems groups business is dependent on foreign sales, fluctuating currencies
will make revenues and operating results more volatile.
 53




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 The future growth of the Applied Biosystems group depends in part on its ability to acquire
complementary technologies through acquisitions, investments, or other strategic relationships or
alliances, which may absorb significant resources, may be unsuccessful, and could dilute holders of
Applera-Applied Biosystems stock.
 The Applied Biosystems groups businesses, particularly those focused on developing and marketing
information-based products and services, depend on the continuous, effective, reliable, and secure
operation of its computer hardware, software, and Internet applications and related tools and
functions.
  The Applied Biosystems groups operations involve the use, manufacture, sale, and distribution of
hazardous materials, and the mishandling of these hazardous materials could result in substantial
liabilities and harm to Applied Biosystems.
 54




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
  Earthquakes could disrupt operations in California.
 Applera-Applied Biosystems stock price may be volatile.
 
    
    conditions and publicity regarding the genomics, biotechnology, pharmaceutical,
or life sciences industries generally;
    
    price and volume fluctuations in the stock market at large which do not relate
to Applied Biosystems operating performance; and
    
    comments by securities analysts or government officials, including with regard
to the viability or profitability of the biotechnology sector generally or with regard to
intellectual property rights of life science companies, or the Applied Biosystems groups
ability to meet market expectations.
  55




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 Risks Relating to the Celera Group
 The Celera group has incurred net losses to date and may not achieve profitability.
 The Celera groups diagnostics business is substantially dependent on a strategic alliance
agreement with Abbott Laboratories.
 The Celera groups diagnostic product business is dependent on entering into other collaborations,
alliances, and similar arrangements with other companies.
 The Celera group lacks the capability to develop or commercialize therapeutic products
 The Celera groups diagnostics business, and its commercialization of discovered therapeutic
targets, could be harmed if collaborators or licensees fail to perform under their agreements with
the Celera group or if they terminate those agreements.
 56




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
  The Celera groups efforts to discover diagnostic markers and therapeutic targets depend, in part,
on the use of novel and unproven discovery methods.
 For some of the Celera groups diagnostic research and product development programs and therapeutic
target discovery research programs, the Celera group needs access to human tissue and/or blood
samples from diseased and healthy individuals, other biological materials, and related clinical and
other information, which may be in limited supply
 Our diagnostic product candidates may never result in a commercialized product.
 If the Celera group or its collaborators or licensees fail to satisfy regulatory requirements for
any diagnostic product candidate, the Celera group or its collaborators or licensees may be unable
to complete the development and commercialization of that product. in vitro
 57




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 The U.S. Food and Drug Administration has issued a draft interpretation of the regulations
governing the sale of Analyte Specific Reagent products which could prevent or delay our or our
collaborators or licensees sales of these products and harm our business.
 Even if the Celera group or its collaborators or licensees obtain regulatory clearance or approval
for a particular diagnostic product, that product will remain subject to ongoing regulatory
requirements, and our inability to meet these requirements could prevent or require us to suspend
commercialization of a product.
 Clinical trials of diagnostic product candidates may not be successful
 Collaborators or licensees may never successfully develop and commercialize therapeutic product
candidates.
 The Celera group lacks sales capability in the clinical diagnostics market.
 The Celera group has limited manufacturing experience and capability for its diagnostic products
and may encounter difficulties expanding the operations of its diagnostic products business.
 58




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
    Single suppliers or a limited number of suppliers provide key components of the Celera groups
diagnostic products. If these suppliers fail to supply these components, the Celera group may be
unable to satisfy product demand or clinical trial usage needs.
  The Celera groups collaborations with outside experts may be subject to restriction and change
 The diagnostics industry is intensely competitive and evolving.
 59




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
  
    
    develop new diagnostic products in advance of the Celera group or its collaborators or
licensees;
    
    develop products that are more effective diagnostic products, or more cost-effective,
than those developed by the Celera group or its collaborators or licensees;
    
    obtain regulatory clearances or approvals of their diagnostic products more rapidly than
the Celera group or its collaborators or licensees; or
    
    obtain patent protection or other intellectual property rights that would limit the
ability of the Celera group or its collaborators or licensees to develop and commercialize
diagnostic products, or that would limit the ability of customers to use those products.
   The Celera groups diagnostic products may not be fully accepted by physicians and laboratories.
  If insurance companies and other third-party payors do not reimburse doctors and patients for the
Celera groups diagnostic tests, its ability to sell its products to the clinical diagnostics
market will be impaired.
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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
   Introduction of new diagnostic and therapeutic products may expose the Celera group to product
liability claims.
 The Celera groups operations involve the use, manufacture, sale, and distribution of hazardous
materials, and the mishandling of these hazardous materials could result in substantial liabilities
and harm to the Celera group
 The Celera 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.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
   The Celera groups competitive position depends on maintaining its intellectual property
protection.
    62




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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 The Celera group may infringe the intellectual property rights of others, may become involved in
expensive intellectual property legal proceedings, and may need to obtain licenses to intellectual
property from others.
   Ethical, legal, and social issues related to the use of genetic information and genetic testing may
cause less demand for the Celera groups diagnostic products.
 The Celera group may pursue acquisitions, investments, or other strategic relationships or
alliances, which may consume significant resources, may be unsuccessful, and could dilute the
holders of Applera-Celera stock.
 
    
    diversion of management from daily operations;
    
    difficulties integrating acquired technologies and personnel into the Celera groups business;
    
    inability to obtain required financing on favorable terms;
    
    entry into new markets in which the Celera group has little previous experience;
    
    potential loss of key employees, key contractual relationships, or key customers of
acquired companies or of the Celera group; and
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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
 
    
    assumption of the liabilities and exposure to unforeseen liabilities of acquired
companies.
   Earthquakes could disrupt operations in California.
 Applera-Celera stock price may be volatile.
 
    
    conditions and publicity regarding the genomics, biotechnology, pharmaceutical,
diagnostics, or life sciences industries generally;
    
    price and volume fluctuations in the stock market at large which do not relate to the
Celera groups operating performance; and
    
    comments by securities analysts or government officials, including with regard to the
viability or profitability of the biotechnology sector generally or with regard to
intellectual property rights of life science companies, or the Celera groups ability to
meet market expectations.
  Our company is subject to a class action lawsuit relating to its 2000 offering of shares of
Applera-Celera stock that may be expensive and time consuming.
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APPLERA CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
  65




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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
 Disclosure Controls and Procedures
  Internal Control Over Financial Reporting
  66




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Item 1. Legal Proceedings.
    
 Item 1A. Risk Factors.
 Overview
    67




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Changes to Applied Biosystems group risk factors
  The Applied Biosystems group relies on other companies for the manufacture of some of its products
and also for the supply of some components of the products it manufactures on its own.
 The Applied Biosystems group is currently, and could in the future be, subject to lawsuits,
arbitrations, investigations, and other legal actions with private parties and governmental
entities, particularly involving claims for infringement of patents and other intellectual property
rights, and it may need to obtain licenses to intellectual property from others.
  68




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
    
    Enzo Biochem, Inc., Enzo Life Sciences, Inc., and Yale University have filed a
lawsuit against us alleging that we are infringing six patents due to the sale of sequencing
reagent kits, TaqMan® genotyping and gene expression assays, and the gene
expression microarrays used with the Applied Biosystems groups Expression Array System.
    
    Molecular Diagnostics Laboratories has filed a class action complaint against us
and Hoffmann-La Roche, Inc. alleging anticompetitive conduct in connection with the sale of
Taq DNA polymerase. The anticompetitive conduct is alleged to arise from the prosecution
and enforcement of U.S. Patent No 4,889,818. This patent is assigned to Hoffmann-La Roche,
with whom we have a commercial relationship covering, among other things, this patent and
the sale of Taq DNA polymerase.
    
    In response to patent infringement claims made by us against Stratagene
Corporation, Stratagene has filed counterclaims seeking declaratory judgment that our U.S.
Patent No. 6,814,934 in the field of real-time PCR is invalid and not infringed.
    
    In response to a claim that we, MDS, Inc., and our Applied Biosystems/MDS Sciex
Instruments joint venture with MDS filed against Thermo Electron Corporation, Thermo
Electron has filed a counterclaim seeking a declaratory judgment that our U.S. Patent No.
4,963,736 is invalid. After the filing of this action against Thermo Electron, its
subsidiary Thermo Finnigan LLC filed a lawsuit against us alleging that we are infringing
one of its patents as a result of, for example, the Applied Biosystems groups
commercialization of the ABI PRISM® 3700 Genetic Analyzer. Thermo Finnigan
subsequently filed a second lawsuit against us, MDS, and the Applied Biosystems/MDS Sciex
Instruments joint venture alleging that we and the other defendants have infringed one of
Thermo Finnigans patents as a result of, for example, our commercialization of the API
5000 LC/MS/MS system.
   Some of the intellectual property that is important to our business is owned by other companies or
institutions and licensed to us, and legal actions against them could harm the Applied Biosystems
groups business.
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Changes to Celera group risk factors
  The Celera group may infringe the intellectual property rights of others, may become involved in
expensive intellectual property legal proceedings, and may need to obtain licenses to intellectual
property from others.
    The U.S. Food and Drug Administration has issued a draft interpretation of the regulations
governing the sale of Analyte Specific Reagent products which could prevent or delay our or our
collaborators or licensees sales of these products and harm our business.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Total Number of
    
    
    Maximum NumberShares
    
    
    (or ApproximatePurchased as
    
    
    Dollar Value) ofPart of Publicly
    
    
    Shares that May YetTotal Number of
    
    
    Average Price
    
    
    Announced
    
    
    Be Purchased UnderShares Purchased
    
    
    Paid per
    
    
    Plans or
    
    
    the Plans orPeriod
    
    (1)
    
    
    Share
    
    
    Programs (2)
    
    
    Programs (3)October 1-October 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    November 1-November 30, 2006
    
    
    376,212
    
    
    $
    36.9584
    
    
    
    340,000
    
    
    
    December 1- December 31, 2006
    
    
    1,272,900
    
    
    $
    37.1204
    
    
    
    1,272,900
    
    
    
    Total
    
    
    1,649,112
    
    
    $
    37.0835
    
    
    
    1,612,900
    
    
    
    
 (1)
    
    Share repurchases reported in this column consist of shares repurchased under the
authorization described in footnote (3) below as well as 36,212 shares tendered by employees
in November 2006 to cover taxes relating to the vesting of restricted stock units.
 (2)
    
    Share repurchases reported in this column consist of shares repurchased under the
authorization described in footnote (3) below. Market purchases are reported in this column
based on trade settlement date.
 (3)
    
    We previously announced that our Board of Directors has authorized the repurchase of shares
of Applera-Applied Biosystems stock from time to time to replenish shares issued under our
various employee stock benefit plans. This authorization has no set dollar or time limits and
delegates to our management discretion to purchase shares at times and prices it deems
appropriate through open market or negotiated purchases. Accordingly, the amounts in this
column do not reflect this authorization.
  Total Number of
    
    
    Maximum NumberShares
    
    
    (or ApproximatePurchased as
    
    
    Dollar Value) ofPart of Publicly
    
    
    Shares that May YetTotal Number of
    
    
    Average Price
    
    
    Announced
    
    
    Be Purchased UnderShares Purchased
    
    
    Paid per
    
    
    Plans or
    
    
    the Plans orPeriod
    
    (1)
    
    
    Share
    
    
    Programs
    
    
    Program (2)October 1-October 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    November 1-November 30, 2006
    
    
    1,730
    
    
    $
    14.9200
    
    
    
    
    
    
    
    December 1- December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,730
    
    
    $
    14.9200
    
    
    
    
    
    
    
    
 (1)
    
    Share repurchases reported in this column consist of 1,730 shares tendered by employees in
November 2006 to cover taxes relating to the vesting of restricted stock units.
 (2)
    
    We previously announced that our Board of Directors has authorized the repurchase of shares
of Applera-Celera stock from time to time to replenish shares issued under our various
employee stock benefit plans. This authorization has no set dollar or time limits and
delegates to Company management discretion to purchase shares at times and prices it deems
appropriate through open market or negotiated purchases. Accordingly, the amounts in this
column do not reflect this authorization. No shares were purchased under this authorization
during the second quarter of our 2007 fiscal year.
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Item 4. Submission of Matters to a Vote of Security Holders.
   Total Vote WithheldTotal Vote For
    
    FromEach Director
    
    Each DirectorRichard H. Ayers
    
    
    185,416,885
    
    
    
    6,986,158Jean-Luc Bélingard
    
    
    146,480,850
    
    
    
    45,922,193Robert H. Hayes
    
    
    185,390,779
    
    
    
    7,012,264Arnold J. Levine
    
    
    189,682,893
    
    
    
    2,720,150William H. Longfield
    
    
    188,858,475
    
    
    
    3,544,568Theodore E. Martin
    
    
    190,581,933
    
    
    
    1,821,110Carolyn W. Slayman
    
    
    184,490,106
    
    
    
    7,912,937Orin R. Smith
    
    
    184,428,066
    
    
    
    7,974,977James R. Tobin
    
    
    118,723,717
    
    
    
    73,679,326Tony L. White
    
    
    184,740,526
    
    
    
    7,662,517
  FOR
    
    AGAINST
    
    ABSTAIN184,083,046
    
    
    7,157,665
    
    
    
    1,162,332
  FOR
    
    AGAINST
    
    ABSTAIN190,902,959
    
    
    314,762
    
    
    
    1,185,322
  FOR
    
    AGAINST
    
    ABSTAIN
    

BROKER
NON-
VOTES135,570,399
    
    
    28,333,021
    
    
    
    2,179,866
    
    
    
    26,319,757
  FOR
    
    AGAINST
    
    ABSTAIN
    

BROKER
NON-
VOTES135,754,193
    
    
    28,151,776
    
    
    
    2,177,318
    
    
    
    26,319,756
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Item 6. Exhibits.
 3.1
    
    Restated Certificate of Incorporation of Applera Corporation
(incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K dated
November 30, 2006, and filed December 1, 2006 (Commission file number 001-04389)).13.1
    
    Annual Report to Stockholders for the fiscal year ended June 30, 2006,
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, 2006 (Commission file number 001-04389)).31.1
    
    Certification of Principal Executive Officer pursuant to Exchange Act
Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.31.2
    
    Certification of Principal Financial Officer pursuant to Exchange Act
Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
  APPLERA CORPORATIONBy:
    /s/ Dennis L. WingerDennis L. WingerSenior Vice President and
Chief Financial OfficerBy:
    /s/ Ugo D. DeBlasiUgo D. DeBlasiVice President and
Controller
(Chief Accounting Officer)  74




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EXHIBIT INDEX
  31.1
    
    Certification of Principal Executive Officer pursuant to Exchange Act Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal Financial Officer pursuant to Exchange Act Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.