|
|
|
|



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



---



FORM 10-Q

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

For the quarterly period ended December 31, 2005

OR

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

Commission file number:1-4389



APPLERA CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

| | Yes |  |  | No | ____ | 
| | --- |  |  | -- | ---- | 

Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
    See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):

| | Large accelerated filer | Accelerated filer ____ | Non-accelerated filer ____ | 
| | ----------------------- | ---------------------- | -------------------------- | 

Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).

| | Yes | ____ |  | No |  | 
| | --- | ---- |  | -- |  | 

As of the close of business on February
    1, 2006, there were 183,271,612 shares of Applera Corporation-Applied Biosystems
    Group Common Stock and 75,188,498 shares of Applera Corporation-Celera Genomics
    Group Common
Stock outstanding.

|
|
|
|



APPLERA CORPORATIONINDEX

|Part I.                           | Financial Information | Page                                                                                         
|--------------------------------- | --------------------- | ---------------------------------------------------------------------------------------------
|                                  |                       |                                                                                              
|Item 1.                           |                       | Financial Statements                                                                         
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|Item 2.                           |                       | Managements
    Discussion and Analysis of
    Financial Condition and Results of Operations
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|                                  |                       |                                                                                              
|Item 3.                           |                       | Quantitative and Qualitative Disclosures About Market Risk                                   
|                                  |                       |                                                                                              
|Item 4.                           |                       | Controls and Procedures                                                                      
|                                  |                       |                                                                                              
|Part
    II.Other
    Information |                      
|                                  |                       |                                                                                              
|Item 1.                           |                       | Legal Proceedings                                                                            
|                                  |                       |                                                                                              
|Item 1A.                          |                       | Risk
    Factors                                                                             
|                                  |                       |                                                                                              
|Item 2.                           |                       | Unregistered Sales of Equity Securities and Use of Proceeds                                  
|                                  |                       |                                                                                              
|Item 4.                           |                       | Submission of Matters to a Vote of Security Holders                                          
|                                  |                       |                                                                                              
|Item 5.                           |                       | Other
          Information                                                                  
|                                  |                       |                                                                                              
|Item 6.                           |                       | Exhibits                                                                                     

---



Back to Index

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
    December 31, |         |   | Six
    Months Ended
    December
    31, |   |        
|----------------------------------------------------- | --------------------------------------- | ------- | - | ----------------------------------------- | - | -------
|                                                      |                                         |         |   |                                           |   |        
|                                                      |                                         | 2004    |   |                                           |   | 2005   
|                                                      |                                         |         |   |                                           |   |        
|Products                                              | $                                       | 388,417 |   |                                           | $ | 403,109
|Services                                              |                                         | 52,049  |   |                                           |   | 55,189 
|Other                                                 |                                         | 37,070  |   |                                           |   | 31,389 
|                                                      |                                         |         |   |                                           |   |        
|Total Net Revenues                                    |                                         | 477,536 |   |                                           |   | 489,687
|                                                      |                                         |         |   |                                           |   |        
|Products                                              |                                         | 195,176 |   |                                           |   | 195,151
|Services                                              |                                         | 23,304  |   |                                           |   | 24,582 
|Other                                                 |                                         | 5,882   |   |                                           |   | 3,425  
|                                                      |                                         |         |   |                                           |   |        
|Total Cost of Sales                                   |                                         | 224,362 |   |                                           |   | 223,158
|                                                      |                                         |         |   |                                           |   |        
|Gross Margin                                          |                                         | 253,174 |   |                                           |   | 266,529
|Selling, general and administrative                   |                                         | 132,231 |   |                                           |   | 144,619
|Research, development and engineering                 |                                         | 80,211  |   |                                           |   | 73,109 
|Amortization of intangible assets                     |                                         | 725     |   |                                           |   | 366    
|Employee-related charges, asset impairments and other |                                         | 5,154   |   |                                           |   | 360    
|Asset dispositions and legal settlements              |                                         | (29,672 | ) |                                           |   | 3,032  
|                                                      |                                         |         |   |                                           |   |        
|Operating Income                                      |                                         | 64,525  |   |                                           |   | 45,043 
|Gain on investments, net                              |                                         |         |   |                                           |   |        
|Interest expense                                      |                                         |         |   |                                           |   | (78    
|Interest income                                       |                                         | 6,840   |   |                                           |   | 9,233  
|Other income (expense), net                           |                                         | 1,034   |   |                                           |   | 1,001  
|                                                      |                                         |         |   |                                           |   |        
|Income before Income Taxes                            |                                         | 72,399  |   |                                           |   | 55,199 
|Provision for income taxes                            |                                         | 17,526  |   |                                           |   | 41,114 
|                                                      |                                         |         |   |                                           |   |        
|Net Income                                            | $                                       | 54,873  |   |                                           | $ | 14,085 
|                                                      |                                         |         |   |                                           |   |        
|                                                      |                                         |         |   |                                           |   |        
|Applied Biosystems Group (see Note 3)                 |                                         |         |   |                                           |   |        
|Net Income per Share                                  |                                         |         |   |                                           |   |        
|Basic                                                 | $                                       | 0.38    |   |                                           | $ | 0.17   
|Diluted                                               | $                                       | 0.37    |   |                                           | $ | 0.17   
|                                                      |                                         |         |   |                                           |   |        
|Dividends Declared per Share                          | $                                       | 0.0425  |   |                                           | $ | 0.0425 
|                                                      |                                         |         |   |                                           |   |        
|Celera Genomics Group (see Note 3)                    |                                         |         |   |                                           |   |        
|Net Loss per Share                                    |                                         |         |   |                                           |   |        
|Basic and diluted                                     | $                                       | (0.27   | ) |                                           | $ | (0.23  
|                                                      |                                         |         |   |                                           |   |        

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

1

---



Back to Index

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

|                                                       | At June
        30,2005 |           | At
            December 31,
			2005 |  |  
|------------------------------------------------------ | ----------------------- | --------- | ----------------------------------- |  | -
|                                                       |                        
|                                                       |                         |           |                                     |  |  
|Assets                                                 |                         |           |                                     |  |  
|Current assets                                         |                         |           |                                     |  |  
|Cash and
          cash equivalents                    | $                       | 779,401   |                                     |  | $
|Short-term
          investments                       |                         | 645,084   |                                     |  |  
|Accounts
          receivable, net                     |                         | 383,938   |                                     |  |  
|Inventories,
          net                             |                         | 126,541   |                                     |  |  
|Prepaid expenses
          and other current assets    |                         | 152,645   |                                     |  |  
|                                                       |                         |           |                                     |  |  
|Total current assets                                   |                         | 2,087,609 |                                     |  |  
|Property, plant and equipment, net                     |                         | 438,398   |                                     |  |  
|Other long-term assets                                 |                         | 638,178   |                                     |  |  
|                                                       |                         |           |                                     |  |  
|Total Assets                                           | $                       | 3,164,185 |                                     |  | $
|                                                       |                         |           |                                     |  |  
|Liabilities and Stockholders Equity                   |                         |           |                                     |  |  
|Current liabilities                                    |                         |           |                                     |  |  
|Accounts
          payable                             | $                       | 174,022   |                                     |  | $
|Accrued salaries
          and wages                   |                         | 91,188    |                                     |  |  
|Accrued taxes
          on income                      |                         | 77,327    |                                     |  |  
|Other accrued
          expenses                       |                         | 250,134   |                                     |  |  
|                                                       |                         |           |                                     |  |  
|Total current liabilities                              |                         | 592,671   |                                     |  |  
|Other long-term liabilities                            |                         | 227,431   |                                     |  |  
|                                                       |                         |           |                                     |  |  
|Total Liabilities                                      |                         | 820,102   |                                     |  |  
|                                                       |                         |           |                                     |  |  
|Stockholders Equity                                   |                         |           |                                     |  |  
|Capital stock                                          |                         |           |                                     |  |  
|Applera
          CorporationApplied Biosystems Group |                         | 2,130     |                                     |  |  
|Applera
          CorporationCelera Genomics Group    |                         | 743       |                                     |  |  
|Capital in
          excess of par value               |                         | 2,132,364 |                                     |  |  
|Retained
          earnings                            |                         | 558,065   |                                     |  |  
|Accumulated
          other comprehensive loss         |                         | (41,787   | )                                   |  |  
|Treasury
          stock, at cost                      |                         | (307,432  | )                                   |  |  
|                                                       |                         |           |                                     |  |  
|Total Stockholders Equity                             |                         | 2,344,083 |                                     |  |  
|                                                       |                         |           |                                     |  |  
|Total Liabilities and Stockholders Equity             | $                       | 3,164,185 |                                     |  | $
|                                                       |                         |           |                                     |  |  

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

2

---



Back to Index

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

|                                                                   |  | Six months
        ended
		December
        31, |           
|------------------------------------------------------------------ |  | ----------------------------------------------- | ----------
|                                                                   |  |                                                 |           
|                                                                   |  | 2004                                            |           
|                                                                   |  |                                                 |           
|Operating Activities of
            Continuing Operations          |  |                                                 |           
|Net income                                                         |  | $                                               | 70,966    
|Adjustments to reconcile net income
        to net cash            |  |                                                 |           
|provided
          by operating activities:                        |  |                                                 |           
|Depreciation
          and amortization                            |  |                                                 | 52,510    
|Asset
          impairments                                        |  |                                                 | 4,225     
|Employee-related charges and other                                 |  |                                                 | 7,214     
|Share-based
          compensation programs                        |  |                                                 | 2,302     
|Sale
          of assets and legal settlements, net                |  |                                                 | (29,672   
|Deferred
          income taxes                                    |  |                                                 | (5,739    
|Changes in operating assets and liabilities:                       |  |                                                 |           
|Accounts
          receivable                                      |  |                                                 | 23,955    
|Inventories                                                        |  |                                                 | (7,597    
|Prepaid
          expenses and other assets                        |  |                                                 | (6,261    
|Accounts
          payable and other liabilities                   |  |                                                 | (50,153   
|                                                                   |  |                                                 |           
|Net Cash Provided by Operating
            Activities              |  |                                                 |           
|of Continuing
            Operations                               |  |                                                 | 61,750    
|                                                                   |  |                                                 |           
|Investing Activities of
            Continuing Operations          |  |                                                 |           
|Additions to property, plant and
        equipment, net            |  |                                                 | (19,330   
|Proceeds from maturities of available-for-sale
        investments |  |                                                 | 1,329,964 
|Proceeds from sales of available-for-sale
        investments      |  |                                                 | 371,816   
|Purchases of available-for-sale investments                        |  |                                                 | (1,620,099
|Acquisitions and other investments,
        net                    |  |                                                 | (231      
|Proceeds from the sale of assets,
        net                      |  |                                                 | 7,079     
|                                                                   |  |                                                 |           
|Net Cash Provided by Investing
            Activities              |  |                                                 |           
|of Continuing
            Operations                               |  |                                                 | 69,199    
|                                                                   |  |                                                 |           
|Net Cash Provided (Used)
            by Operating Activities       |  |                                                 |           
|of Discontinued
            Operations                             |  |                                                 | 513       
|                                                                   |  |                                                 |           
|Financing Activities                                               |  |                                                 |           
|Principal payments on debt                                         |  |                                                 | (6,000    
|Dividends                                                          |  |                                                 | (8,321    
|Purchases of common stock for treasury                             |  |                                                 |           
|Proceeds from stock issued for stock
        plans and other       |  |                                                 | 12,804    
|                                                                   |  |                                                 |           
|Net Cash Used by Financing
            Activities                  |  |                                                 | (1,517    
|                                                                   |  |                                                 |           
|Effect of Exchange Rate
            Changes on Cash                |  |                                                 | 31,030    
|                                                                   |  |                                                 |           
|Net Change in Cash and Cash
            Equivalents                |  |                                                 | 160,975   
|Cash and Cash Equivalents
            Beginning of Period          |  |                                                 | 507,870   
|                                                                   |  |                                                 |           
|Cash and Cash Equivalents
            End of Period                |  | $                                               | 668,845   
|                                                                   |  |                                                 |           

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

3

---



Back to Index

APPLERA CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1  Interim Condensed
        Consolidated Financial Statements

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

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

During the third quarter of fiscal
      2005, we reclassified costs supporting our patent related activities from
      R&D expenses to SG&A expenses. This reclassification had no impact
      on net income or earnings per share. The reclassified amount for the second
      quarter of fiscal 2005 was approximately $7 million and $13 million for
      the first six months of fiscal 2005.

Commencing in the third quarter
      of fiscal 2005, we began classifying all of our investments in auction
      rate securities as short-term investments. Prior to fiscal 2005, some of
      these securities were included in cash and cash equivalents. Short-term
      investments included approximately $87 million of auction rate securities
      at December 31, 2004. This reclassification had no impact on results of
      operations or previously reported cash flows from operations or financing
      activities.

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

Note 2  Events Impacting
        Comparability

We are providing the following
      information on some actions taken by us or events that occurred in the
      three and six-months ended December 31:

|                                                                        | Three months ended
	December 31, |      | Six months
        ended
		December
        31, |     
|----------------------------------------------------------------------- | -------------------------------- | ---- | ----------------------------------------------- | ----
|                                                                        |                                  |      |                                                 |     
|(Dollar amounts in millions)                                            |                                  | 2004 |                                                 | 2005
|                                                                        |                                  |      |                                                 |     
|Severance and benefit costs                                             |                                  | $    | (2.9                                            | )   
|Excess lease space                                                      |                                  |      | (2.3                                            | )   
|Asset impairments                                                       |                                  |      |                                                 |     
|Reduction of expected costs                                             |                                  |      |                                                 |     
|                                                                        |                                  |      |                                                 |     
|Total employee-related
    charges, asset impairmentsand other          |                                  | $    | (5.2                                            | )   
|                                                                        |                                  |      |                                                 |     
|Other events impacting comparability:                                   |                                  |      |                                                 |     
|Impairment
            of inventory recorded in cost
          of sales |                                  | $    | —                                               |     
|Asset dispositions
          and legal settlements                      |                                  |      | 29.7                                            |     
|Investment
          gains                                              |                                  |      |                                                 |     
|Tax items                                                               |                                  |      |                                                 |     
|                                                                        |                                  |      |                                                 |     

4

---



Back to Index

APPLERA CORPORATION 
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  continued

Employee-Related Charges, Asset
        Impairments and OtherThe following items have been recorded in the condensed
consolidated statements of operations in employee-related charges, asset impairments
and other, except as noted.

Applied Biosystems group Fiscal 2005During the first six
      months of fiscal 2005, the Applied Biosystems group recorded pre-tax charges
      of $12.5 million, of which $10.2 million was for employee terminations
      and $2.3 million related to the cost of excess lease space at a facility
      in Massachusetts. The charge for the excess lease space represented the
      estimated cost of excess facility space less estimated future sublease
      income for a lease that extends through fiscal 2011. The severance charges
      related primarily to staff reductions intended to better align the Applied
      Biosystems groups resources with anticipated business opportunities
      and to integrate the Applied Biosystems MALDI Time-of-Flight (TOF)
      product line into Applied Biosystems/MDS Sciex Instruments business, a
      50/50 joint venture between the Applied Biosystems group and MDS Inc. The
      positions
      eliminated were primarily in the areas of research, manufacturing, sales
      and administration.

As of June 30, 2005, all of the
      affected employees had been terminated and substantially all cash payments
      related to the terminations had been made. In regards to the excess lease
      space charge, through the six months ended December 31, 2005, we had made
      cash payments of $0.4 million. The cash expenditures were funded by cash
      provided by operating activities.

Fiscal 2006In the second quarter of
  fiscal 2006, the Applied Biosystems group recorded pre-tax charges of $1.5
  million for employee terminations related to the Applied Biosystems/MDS Sciex
  Instruments joint venture. MDS recorded a restructuring charge for a reduction
  in workforce as part of its strategy to focus on the life sciences market.
  The $1.5 million represents the Applied Biosystems groups share of the
  restructuring charge.

The Applied Biosystems group recorded
      pre-tax benefits of $1.2 million in the second quarter and $1.4 million
      in the first six months of fiscal 2006 for reductionsin
      anticipated employee-related costs associated with the severance and benefit
      charges recorded in fiscal 2005.

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

OtherDuring the first six months
of fiscal 2006, the Applied Biosystems group made cash payments of $9.5 million
for severance and employee benefits and office closures related to charges recorded
prior to fiscal 2006. The following table summarizes the remaining cash payments
by event and the expected payment dates as of December 31, 2005.

|(Dollar amounts in millions)                             |  |   | Remaining
        cash payments |  | Expected
        payment dates      | 
|-------------------------------------------------------- |  | - | ------------------------------- |  | ----------------------------------- | 
|                                                         |  |   |                                 |  |                                     | 
|Fiscal 2003 employee-related charge                      |  | $ | 0.5                             |  | Fiscal 2006  Fiscal
        2007   | 
|Fiscal 2005 employee-related charge                      |  |   | 0.9                             |  | 3rdQuarter
          of Fiscal 2006 | 
|Fiscal 2005 excess lease space and
        other charges |  |   | 2.6                             |  | Fiscal 2006  Fiscal
        2011   | 
|                                                         |  |   |                                 |  |                                     | 
|                                                         |  | $ | 4.0                             |  |                                     | 
|                                                         |  |   |                                 |  |                                     | 

Celera Genomics groupDuring the first quarter of fiscal 2005, the Celera Genomics
group recorded pre-tax charges totaling $4.5 million related to our decision
to discontinue promotion of products and most operations of Paracel, Inc., a
business we acquired in fiscal 2000. Paracel developed high-performance genomic
data and text analysis systems for the pharmaceutical, biotechnology, information
services, and government markets. Due to a shift in focus, Paracel was no longer
deemed strategic to the overall business. The $4.5 million charge consisted of
$2.8 million in employee-related charges, asset

5

---



Back to Index

APPLERA CORPORATION NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  continued

impairments and other, of which
      $1.1 million was for severance and benefit costs and $1.7 million was for
      excess facility lease expenses and asset impairments. The Celera Genomics
      group recorded the remaining $1.7 million in cost of sales for the impairment
      of Paracel inventory. The charge for excess facility lease expenses and
      asset impairments was primarily for a revision to an accrual initially
      recorded in fiscal 2002 for the estimated cost of excess facility space
      for a lease that extends through fiscal 2011 and to write off related fixed
      assets.

As of March 31, 2005, the majority
      of the affected Paracel employees had been terminated. Substantially all
      cash payments related to these terminations were made as of June 30, 2005.
      During the first six months of fiscal 2006, we made cash payments of $1.1
      million related to the excess lease space charge. The cash expenditures
      were funded by available cash. The remaining cash expenditures, of approximately
      $4.1 million related to excess lease space, are expected to be disbursed
      by fiscal 2011.

OtherIn the fourth quarter of fiscal
2005, the Celera Genomics group recorded a pre-tax charge of $3.4 million related
to the discontinuation of the Online/Information Business, an information products
and service business. This charge consisted of $1.8 million for severance and
benefit costs and $1.6 million for asset impairments, primarily related to information-technology
leases. During the first six months of fiscal 2006, the Celera Genomics group
made cash payments of $1.5 million for severance and employee benefits and $1.4
million primarily for information technology leases related to this charge. The
cash expenditures were funded by available cash. As of September 30, 2005, all
affected employees had been terminated. The remaining cash expenditures related
to this action of approximately $0.3 million are expected to be disbursed by
the end of fiscal 2006.

Other Events Impacting Comparability

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

In the first quarter of fiscal
      2006, we recorded a $23.5 million pre-tax charge related to an outstanding
      litigation matter and arbitration award. We recorded the pre-tax charge
      as follows: $22.8 million at the Applied Biosystems group, $0.5 million
      at the Celera Genomics group, and $0.2 million at Celera Diagnostics. The
      charge included an estimate of the liability that would be incurred by
      us to resolve the litigation matter and the arbitration award described
      below. In the second quarter of fiscal 2006, we recorded an additional
      pre-tax charge of $3.1 million as a result of the final determination of
      interest related to the arbitration award. We paid all amounts related
      to this matter in January 2006.

With regard to the arbitration
      matter, on November 1, 2005, an arbitrator issued his decision in a proceeding
      filed by Amersham Biosciences, now GE Healthcare. The matter involved the
      interpretation of a license agreement relating to DNA sequencing reagents
      and kits. Amersham had alleged, among other things, that the Applied Biosystems
      group had underpaid royalties under the license agreement. The arbitrator
      awarded Amersham past damages based on an increase in royalty rates for
      some of its DNA sequencing enzymes and kits that contain those enzymes,
      plus interest, fees, and other costs. As a result of this decision, the
      Applied Biosystems group recorded a pre-tax charge of $20.4 million in
      the first quarter of fiscal 2006, $19.5 million of which was recorded in
      asset dispositions and legal settlements. As mentioned above, the Applied
      Biosystems group recorded an additional charge of $3.1 million in the second
      quarter of fiscal 2006 related to the award.

During the second quarter of fiscal
      2005, the Applied Biosystems group recorded a net pre-tax gain of $29.7
      million for the sale of intellectual property, manufacturing inventory,
      and research and development assets related to the expansion of the scope
      of the Applied Biosystems/MDS Sciex Instruments joint venture with MDS
      Inc. Under the terms of the transaction, we received $8 million in cash
      and a $30 million note receivable for a 50 percent interest in intellectual
      property assets related to current Applied Biosystems MALDI TOF mass spectrometry
      systems and next-generation product-related manufacturing and research
      and development assets. The note receivable is due in 5 years, of which
      $6 million is payable in October 2006 and $8 million in October 2007, 2008,
      and 2009.

6

---



Back to Index

APPLERA CORPORATION
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
  continued

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

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

Tax itemsDuring the first quarter of fiscal 2006, the Applied
Biosystems group recorded a tax benefit of $13.5 million related to the resolution
of transfer pricing matters in Japan. During the second quarter of fiscal 2006,
the Applied Biosystems group recorded tax charges of $28.0 million related to
repatriation of cash balances held outside the U.S. This charge included the
estimated tax on a $500 million repatriation of cash as well as anticipated taxes
on additional overseas dividends.

Note 3  Earnings (Loss)
        per Share

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

|                                                                       | Applied
        Biosystems Group |   | Celera Genomics
        Group | 
|---------------------------------------------------------------------- | -------------------------------- | - | ----------------------------- | 
|                                                                       |                                  |   |                               | 
|(Dollar amounts in millions, except
        per share amounts)         |                                  |   | 2004                          | 
|                                                                       |                                  |   |                               | 
|                                                                       |                                  |   |                               | 
|Net income
          (loss)                                            |                                  | $ | 72.7                          | 
|Allocated
          interperiod taxes                                  |                                  |   | 1.6                           | 
|                                                                       |                                  |   |                               | 
|Total net
          income (loss) allocated                            |                                  |   | 74.3                          | 
|Less dividends
          declared on common stock                      |                                  |   | 8.4                           | 
|                                                                       |                                  |   |                               | 
|Undistributed
          earnings (loss)                                |                                  | $ | 65.9                          | 
|                                                                       |                                  |   |                               | 
|                                                                       |                                  |   |                               | 
|Allocation
          of basic earnings (loss) per share                |                                  |   |                               | 
|Basic distributed
          earnings per share(1)                      |                                  | $ | 0.04                          | 
|Basic undistributed
          earnings (loss) per share                |                                  |   | 0.34                          | 
|                                                                       |                                  |   |                               | 
|Total basic
          earnings (loss) per share                        |                                  | $ | 0.38                          | 
|                                                                       |                                  |   |                               | 
|                                                                       |                                  |   |                               | 
|Allocation
          of diluted earnings (loss) per share              |                                  |   |                               | 
|Diluted distributed
          earnings per share(1)                    |                                  | $ | 0.04                          | 
|Diluted undistributed
          earnings (loss) per share              |                                  |   | 0.33                          | 
|                                                                       |                                  |   |                               | 
|Total diluted
          earnings (loss) per share                      |                                  | $ | 0.37                          | 
|                                                                       |                                  |   |                               | 
|                                                                       |                                  |   |                               | 
|Weighted
          average number of common shares                     |                                  |   |                               | 
|Basic                                                                  |                                  |   | 195.9                         | 
|Common
          stock equivalents                                     |                                  |   | 2.4                           | 
|                                                                       |                                  |   |                               | 
|Diluted                                                                |                                  |   | 198.3                         | 
|                                                                       |                                  |   |                               | 
|(1)Amounts
          represent actual dividends per share distributed. |                                  |   |                               | 

7

---



Back to Index

APPLERA CORPORATION
  NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  continued

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

|                                                                 |  | Applied
    Biosystems   Group |       | Celera
         Genomics         Group |  
|---------------------------------------------------------------- |  | ------------------------------ | ----- | -------------------------------------- | -
|                                                                 |  |                                |       |                                        |  
|(Dollar amounts in millions, except per share amounts)           |  | 2004                           |       | 2005                                   |  
|                                                                 |  |                                |       |                                        |  
|Net income (loss)                                                |  | $                              | 109.8 |                                        | $
|Allocated interperiod taxes                                      |  |                                | 1.0   |                                        |  
|                                                                 |  |                                |       |                                        |  
|Total net income (loss) allocated                                |  |                                | 110.8 |                                        |  
|Less dividends declared on common stock                          |  |                                | 16.7  |                                        |  
|                                                                 |  |                                |       |                                        |  
|Undistributed earnings (loss)                                    |  | $                              | 94.1  |                                        | $
|                                                                 |  |                                |       |                                        |  
|                                                                 |  |                                |       |                                        |  
|Allocation of basic earnings (loss) per share                    |  |                                |       |                                        |  
|Basic distributed earnings per share(1)                          |  | $                              | 0.09  |                                        | $
|Basic undistributed earnings (loss) per share                    |  |                                | 0.48  |                                        |  
|                                                                 |  |                                |       |                                        |  
|Total basic earnings (loss) per share                            |  | $                              | 0.57  |                                        | $
|                                                                 |  |                                |       |                                        |  
|Allocation of diluted earnings (loss) per share                  |  |                                |       |                                        |  
|Diluted distributed earnings per share(1)                        |  | $                              | 0.09  |                                        | $
|Diluted undistributed earnings (loss) per share                  |  |                                | 0.47  |                                        |  
|                                                                 |  |                                |       |                                        |  
|Total diluted earnings (loss) per share                          |  | $                              | 0.56  |                                        | $
|                                                                 |  |                                |       |                                        |  
|Weighted average number of common shares                         |  |                                |       |                                        |  
|Basic                                                            |  |                                | 195.7 |                                        |  
|Common stock equivalents                                         |  |                                | 2.6   |                                        |  
|                                                                 |  |                                |       |                                        |  
|Diluted                                                          |  |                                | 198.3 |                                        |  
|                                                                 |  |                                |       |                                        |  
|(1)Amounts
    represent actual dividends per share distributed. |  |                                |       |                                        |  

Options to purchase stock at exercise prices greater than the average
market prices of our common stocks were excluded from the computation of diluted
earnings per share because the effect would have been antidilutive. Additionally,
options and warrants to purchase shares of Applera Corporation-Celera Genomics
Group Common Stock (Applera-Celera Genomics stock) were excluded
from the computation of diluted loss per share because the effect was antidilutive.
The following table presents the number of shares excluded from the diluted earnings
and loss per share computations for the three and six months ended December 31:

|(Shares in millions)                                      |  | 2004 |  | 2005 | 
|--------------------------------------------------------- |  | ---- |  | ---- | 
|                                                          |  |      |  |      | 
|Applera Corporation-Applied Biosystems Group Common Stock |  | 24.7 |  | 11.6 | 
|Applera-Celera Genomics stock                             |  | 11.7 |  | 11.0 | 
|                                                          |  |      |  |      | 

Note 4  Share-Based Compensation

SFAS No. 123R requires entities to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. We adopted SFAS No. 123R using the modified prospective method of transition. This method required us to apply the provisions of SFAS No. 123R to new awards and to any awards that were unvested as of our adoption date and did not require us to restate prior periods. For information on our share-based plans, refer to Note 6 to our consolidated financial statements included in our 2005 Annual Report to Stockholders and Note 4 to our condensed consolidated financial statements in our first quarter 2006 Quarterly Report on Form 10-Q (which information is incorporated in this quarterly report by reference).

8

---



Back to Index

APPLERA CORPORATION
  NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  continued

We recognize share-based compensation costs on a straight-line basis
over the requisite service period for the entire grant. We recorded pre-tax charges
of $2.8 million ($2.1 million net of tax) for the second quarter of fiscal 2006
and $4.4 million ($3.2 million net of tax) for the first six months of fiscal
2006 in our condensed consolidated statements of operations for compensation
costs related to our share-based plans. These amounts included pre-tax charges
of $1.9 million for the second quarter and $2.6 million for the first six months
for our restricted stock plans, which would have been recorded as compensation
expense under Accounting Principles Board Opinion No. (APB Opinion No.) 25, Accounting for Stock Issued to Employees. Cash
received from option exercises under these plans was $70.4 million and the total
intrinsic value of options exercised was $17.1 million in the first six months
of fiscal 2006. In connection with these exercises, we realized a tax benefit
of $5.1 million in the first six months of fiscal 2006.

We settle employee stock option exercises primarily with treasury
shares, if available. As of December 31, 2005, we had 30.7 million treasury shares
of Applera Corporation-Applied Biosystems Group Common Stock (Applera-Applied Biosystems stock).
In January 2006, we announced that our board of directors authorized the repurchase
of up to 5 million shares of Applera-Applied Biosystems stock. This authorization
supplements our existing authority to repurchase shares of Applera-Applied Biosystems
stock and Applera-Celera Genomics stock from time to time to replenish shares
issued under our various employee stock benefit plans. This new authorization
has no time restrictions and delegates to management discretion to purchase shares
at times and prices it deems appropriate through open market purchases, privately
negotiated transactions, tender offers, exchange offers, or otherwise.

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

|                                     |                  | Applera-Applied
    Biosystems Stock |                                   
|------------------------------------ | ---------------- | ------------------------------------ | ----------------------------------
|                                     |                  |                                      |                                   
|                                     | Number ofOptions |                                      | Weighted-AverageExercise
    Price
|                                     |                  |                                      |                                   
|Outstanding at June
    30, 2005     |                  | 35,348,668                           |                                   
|Granted                              |                  | 436,750                              |                                   
|Exercised                            |                  | (3,252,390                           | )                                 
|Cancelled                            |                  | (1,937,249                           | )                                 
|                                     |                  |                                      |                                   
|Outstanding at December
    31, 2005 |                  | 30,595,779                           |                                   
|Exercisable at December
    31, 2005 |                  | 29,903,379                           |                                   
|                                     |                  |                                      |                                   



|                                         |                      | Applera-Celera
    Genomics Stock |                                   
|---------------------------------------- | -------------------- | --------------------------------- | ----------------------------------
|                                         |                      |                                   |                                   
|                                         | Number
    ofOptions |                                   | Weighted-AverageExercise
    Price
|                                         |                      |                                   |                                   
|Outstanding
        at June 30, 2005     |                      | 10,412,800                        |                                   
|Granted                                  |                      | 64,800                            |                                   
|Exercised                                |                      | (540,900                          | )                                 
|Cancelled                                |                      | (453,918                          | )                                 
|                                         |                      |                                   |                                   
|Outstanding
        at December 31, 2005 |                      | 9,482,782                         |                                   
|Exercisable
        at December 31, 2005 |                      | 9,422,307                         |                                   
|                                         |                      |                                   |                                   

9



Back to Index

APPLERA CORPORATION
  NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  continued

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

|                                   | Applera-Applied Biosystems Stock |                 | Applera-Celera Genomics Stock |  
|---------------------------------- | -------------------------------- | --------------- | ----------------------------- | -
|                                   |                                  |                 |                               |  
|                                   |                                  | Number ofAwards |                               |  
|                                   |                                  |                 |                               |  
|Nonvested at June
    30, 2005     |                                  | 197,748         |                               | $
|Granted                            |                                  | 1,106,713       |                               |  
|Vested                             |                                  | (69,166         | )                             |  
|Cancelled                          |                                  | (4,675          | )                             |  
|                                   |                                  |                 |                               |  
|Nonvested at December
    31, 2005 |                                  | 1,230,620       |                               | $
|                                   |                                  |                 |                               |  

As of December 31, 2005, we had $25.5 million of total unrecognized compensation costs related to nonvested awards and units that are expected to be recognized over a weighted average period of two years.

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

Prior to fiscal 2006, we applied the provisions of APB Opinion No.
25 in accounting for our share-based plans. Under APB Opinion No. 25, we did
not record any compensation cost related to stock options since the exercise
price of stock options granted to employees, generally, equaled the fair market
value of our stock prices at the date of grant. We also did not record any compensation
expense related to our employee stock purchase plans since the provisions of
these plans were deemed non-compensatory under APB Opinion No. 25. However, for
restricted stock, the intrinsic value as of the grant date was amortized to compensation
expense over the vesting period. We recorded pre-tax charges of $1.0 million
($0.7 million net of tax) for the second quarter and $2.1 million ($1.4 million
net of tax) for the first six months of fiscal 2005 for restricted stock under
ABP Opinion No. 25. The following tables illustrate the effect on reported net
income (loss) and earnings (loss) per share for the second quarter and first
six months of fiscal 2005 as if we had applied the fair value method of accounting
for employee stock plans as required by SFAS No. 123, Accounting for Share-Based
Compensation.

The earnings (loss) per share and pro forma effects on results for the three months ended December 31, 2004, are presented below:

|(Dollar amounts in millions)    | AppleraCorporation                           |   | AppliedBiosystemsGroup | CeleraGenomicsGroup |  
|------------------------------- | -------------------------------------------- | - | ---------------------- | ------------------- | -
|                                |                                              |   |                        |                     |  
|Net income (loss), as allocated |                                              | $ | 54.9                   |                     | $
|Add:                            | Share-based employee compensation expense    |   |                        |                     |  
|                                | included in allocated net income, net of tax |   |                        | 0.7                 |  
|Deduct:                         | Share-based employee compensation expense    |   |                        |                     |  
|                                | determined under fair value based method,    |   |                        |                     |  
|                                | net of tax                                   |   |                        | 16.1                |  
|                                |                                              |   |                        |                     |  
|Pro forma net income (loss)     |                                              | $ | 39.5                   |                     | $
|                                |                                              |   |                        |                     |  
|                                |                                              |   |                        |                     |  
|Earnings (loss) per share       |                                              |   |                        |                     |  
|                                | Basic    – as reported                       |   |                        |                     |  
|                                | Basic – pro forma                            |   |                        |                     |  
|                                | Diluted – as reported                        |   |                        |                     |  
|                                | Diluted – pro forma                          |   |                        |                     |  
|                                |                                              |   |                        |                     |  

10

---



Back to Index

APPLERA
CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

The earnings (loss) per share and pro forma effects on results for the six months ended December 31, 2004, are presented below:

|(Dollar amounts in millions)    | AppleraCorporation                               |   | AppliedBiosystemsGroup |      | CeleraGenomicsGroup |      
|------------------------------- | ------------------------------------------------ | - | ---------------------- | ---- | ------------------- | -----
|                                |                                                  |   |                        |      |                     |      
|Net income (loss), as allocated |                                                  | $ | 71.0                   |      | $                   | 110.8
|Add:                            | Share-based employee compensation expense        |   |                        |      |                     |      
|                                | included
    in allocated net income, net of tax |   |                        | 1.4  |                     |      
|Deduct:                         | Share-based employee compensation expense        |   |                        |      |                     |      
|                                | determined under fair value based method,        |   |                        |      |                     |      
|                                | net of tax                                       |   |                        | 35.2 |                     |      
|                                |                                                  |   |                        |      |                     |      
|Pro forma net income (loss)     |                                                  | $ | 37.2                   |      | $                   | 82.7 
|                                |                                                  |   |                        |      |                     |      
|                                |                                                  |   |                        |      |                     |      
|Earnings (loss) per share       |                                                  |   |                        |      |                     |      
|                                | Basic  as
    reported                          |   |                        |      |                     | $    
|                                | Basic     pro
       forma                      |   |                        |      |                     | $    
|                                | Diluted  as reported                            |   |                        |      |                     | $    
|                                | Diluted  pro forma                              |   |                        |      |                     | $    
|                                |                                                  |   |                        |      |                     |      

Valuation Assumptions in Estimating Fair Value

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

|                                               | Three
    months endedDecember
    31, |   | Six
    months endedDecember
    31, | 
|---------------------------------------------- | -------------------------------------- | - | ------------------------------------ | 
|                                               |                                        |   |                                      | 
|                                               |                                        |   | 2004                                 | 
|                                               |                                        |   |                                      | 
|Applied Biosystems Group                       |                                        |   |                                      | 
|Dividend yield                                 |                                        |   | 0.8%                                 | 
|Risk-free interest rate                        |                                        |   | 3.4%                                 | 
|Expected option life in years                  |                                        |   | 5                                    | 
|Volatility                                     |                                        |   | 70%                                  | 
|Weighted-average fair value per option granted |                                        | $ | 11.14                                | 
|                                               |                                        |   |                                      | 
|Celera Genomics Group                          |                                        |   |                                      | 
|Risk-free interest rate                        |                                        |   | 3.4%                                 | 
|Expected option life in years                  |                                        |   | 4                                    | 
|Volatility                                     |                                        |   | 51%                                  | 
|Weighted-average fair value per option granted |                                        | $ | 5.32                                 | 
|                                               |                                        |   |                                      | 

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

Prior to fiscal 2006, we determined expected volatility based on historical volatilities of our two classes of common stock over the expected term. With the adoption of SFAS No. 123R, we continue to determine expected volatility based on

11

---



Back to Index

APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

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

Note 5  Comprehensive Gain

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

|                                                                   | Three months endedDecember 31, |   | Six months endedDecember 31, |  
|------------------------------------------------------------------ | ------------------------------ | - | ---------------------------- | -
|                                                                   |                                |   |                              |  
|(Dollar amounts in millions)                                       |                                |   | 2004                         |  
|                                                                   |                                |   |                              |  
|Net income                                                         |                                | $ | 54.9                         |  
|Other comprehensive gain (loss):                                   |                                |   |                              |  
|Net unrealized gains (losses) on investments                       |                                |   | (1.6                         | )
|Net unrealized gains (losses) on hedge contracts                   |                                |   | (17.2                        | )
|Net unrealized (gains) losses on hedge contracts reclassified into |                                |   |                              |  
|earnings                                                           |                                |   | 5.7                          |  
|Foreign currency translation adjustments                           |                                |   | 47.4                         |  
|                                                                   |                                |   |                              |  
|Total other comprehensive gain (loss)                              |                                |   | 34.3                         |  
|                                                                   |                                |   |                              |  
|Total comprehensive gain                                           |                                | $ | 89.2                         |  
|                                                                   |                                |   |                              |  

Note 6  Inventories

Inventories included the following components:

|(Dollar amounts in millions) | June 30,2005 |   | December 31,2005 | 
|---------------------------- | ------------ | - | ---------------- | 
|                             |              |   |                  | 
|Raw materials and supplies   |              | $ | 45.9             | 
|Work-in-process              |              |   | 5.3              | 
|Finished products            |              |   | 75.3             | 
|                             |              |   |                  | 
|Total inventories, net       |              | $ | 126.5            | 
|                             |              |   |                  | 

Note 7  Assets Held for Sale

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

Also, during the second quarter of fiscal 2006, we reclassified $3.6 million of property, plant and equipment into assets held for sale. This reclassification is for a facility in Connecticut that was previously used for manufacturing and administration.

12

---



Back to Index

APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

The facility was vacant but we have entered into a contract to sell this facility and expect the sale to now close no later than the end of fiscal 2006.

At December 31, 2005, we had $9.1 million of assets held for sale within prepaid expenses and other current assets related to these facilities.

Note 8  Goodwill and Intangible Assets

The following table presents our intangible assets subject to amortization:

|                             | June 30, 2005       |   | December 31, 2005       | 
|---------------------------- | ------------------- | - | ----------------------- | 
|                             |                     |   |                         | 
|(Dollar amounts in millions) | GrossCarryingAmount |   | AccumulatedAmortization | 
|                             |                     |   |                         | 
|Patents                      |                     | $ | 25.5                    | 
|Acquired technology          |                     |   | 60.5                    | 
|Favorable operating leases   |                     |   | 11.6                    | 
|                             |                     |   |                         | 
|Total                        |                     | $ | 97.6                    | 
|                             |                     |   |                         | 

Aggregate amortization expense was as follows:

|                                 | Three
      months endedDecember
    31, |   | Six
      months endedDecember
    31, | 
|-------------------------------- | ---------------------------------------- | - | -------------------------------------- | 
|                                 |                                          |   |                                        | 
|(Dollar
    amounts in millions) |                                          |   | 2004                                   | 
|                                 |                                          |   |                                        | 
|Applied Biosystems group         |                                          | $ | 1.8                                    | 
|Celera Genomics group            |                                          |   | 0.7                                    | 
|Celera Diagnostics               |                                          |   | 0.6                                    | 
|                                 |                                          |   |                                        | 
|Consolidated                     |                                          | $ | 3.1                                    | 
|                                 |                                          |   |                                        | 

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

At December 31, 2005, we estimated annual amortization expense of our intangible assets for each of the next five fiscal years as shown in the following table. Future acquisitions or impairment events could cause these amounts to change.

|(Dollar
    amounts in millions) | AppliedBiosystemsGroup |   | CeleraGenomicsGroup |  | CeleraDiagnostics |   | Consolidated |  
|-------------------------------- | ---------------------- | - | ------------------- |  | ----------------- | - | ------------ | -
|                                 |                        |   |                     |  |                   |   |              |  
|Remainder
        of fiscal 2006 |                        | $ | 4.4                 |  | $                 | — |              | $
|2007                             |                        |   | 6.5                 |  |                   |   |              |  
|2008                             |                        |   | 3.8                 |  |                   |   |              |  
|2009                             |                        |   | 2.8                 |  |                   |   |              |  
|2010                             |                        |   | 2.5                 |  |                   |   |              |  
|                                 |                        |   |                     |  |                   |   |              |  

The carrying amount of goodwill at June 30, 2005, and December 31, 2005, was $39.4 million, of which $36.7 million was allocated to the Applied Biosystems group and $2.7 million was allocated to the Celera Genomics group.

13

---



Back to Index

APPLERA CORPORATION
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  continued

Note 9  Supplemental Cash Flow Information

Significant non-cash financing activity for the six months ended December 31 was as follows:

|(Dollar amounts in millions)    |  | 2004 |     | 2005 |  
|------------------------------- |  | ---- | --- | ---- | -
|                                |  |      |     |      |  
|Dividends declared but not paid |  | $    | 8.4 |      | $
|                                |  |      |     |      |  

Note 10  Guarantees

LeasesThe
Applied Biosystems group provides lease-financing options to its customers through
third party financing companies. For some leases, the financing companies have
recourse to us for any unpaid principal balance on default by the customer. The
leases typically have terms of two to three years and are secured by the underlying
instrument. In the event of default by a customer, we would repossess the underlying
instrument. We record revenues from these transactions on the completion of installation/acceptance
of products and maintain a reserve for estimated losses on all lease transactions
with recourse provisions based on historical default rates and current economic
conditions. At December 31, 2005, the financing companies outstanding balance
of lease receivables with recourse to us was $10.0 million. We believe that we
could recover the entire balance from the resale of the underlying instruments
in the event of default by all customers.

Guarantee
of Pension Benefits for Divested BusinessAs part of the divestiture of our Analytical Instruments business in fiscal 1999, the purchaser of the Analytical Instruments business is paying for the pension benefits for employees of a former German subsidiary. However, we guaranteed payment of these pension benefits should the purchaser fail to do so, as these benefits were not transferable to the buyer under German law. The guaranteed payment obligation, which approximated $53 million at December 31, 2005, is not expected to have a material adverse effect on our condensed consolidated statement of financial position.

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

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

14

---



Back to Index

APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

The following table provides an analysis of the warranty reserve for the six
months ended December 31:

|(Dollar
    amount in millions) |  |   | 2004  |   |   | 2005  |  
|------------------------------- |  | - | ----- | - | - | ----- | -
|                                |  |   |       |   |   |       |  
|Balance at
    June 30          |  | $ | 15.9  |   | $ | 14.0  |  
|Accruals for
    warranties     |  |   | 10.0  |   |   | 9.2   |  
|Usage of reserve                |  |   | (11.2 | ) |   | (10.4 | )
|                                |  |   |       |   |   |       |  
|Balance at
    December 31      |  | $ | 14.7  |   | $ | 12.8  |  
|                                |  |   |       |   |   |       |  

Note 11  Pension and Other Postretirement Benefits

The components of net pension and postretirement benefit expenses for the three
and six-month periods ended December 31 were as follows:

|                                       | Three
    months ended
    December
    31, |   | Six
    months ended
    December 31, |  
|-------------------------------------- | ------------------------------------------- | - | ------------------------------------- | -
|                                       |                                             |   |                                       |  
|(Dollar
    amounts in millions)       |                                             |   | 2004                                  |  
|                                       |                                             |   |                                       |  
|Pension                                |                                             |   |                                       |  
|Service cost                           |                                             | $ | 0.6                                   |  
|Interest cost                          |                                             |   | 9.9                                   |  
|Expected return
    on plan assets     |                                             |   | (10.4                                 | )
|Amortization
    of prior service cost |                                             |   |                                       |  
|Amortization
    of losses             |                                             |   | 0.9                                   |  
|                                       |                                             |   |                                       |  
|Net periodic
    expense               |                                             | $ | 1.0                                   |  
|                                       |                                             |   |                                       |  
|Postretirement
    Benefit             |                                             |   |                                       |  
|Service cost                           |                                             | $ | —                                     |  
|Interest cost                          |                                             |   | 1.0                                   |  
|Amortization
    of (gains)losses      |                                             |   | (0.1                                  | )
|                                       |                                             |   |                                       |  
|Net periodic
    expense               |                                             | $ | 0.9                                   |  
|                                       |                                             |   |                                       |  

We expect to contribute approximately $31 million to our pension plans for the
fiscal year ended June 30, 2006. Through December 31, 2005, we have not made
any contributions to the pension plans. We made benefit payments of approximately
$4 million during the six months ended December 31, 2005, and we expect to make
approximately $2 million of additional benefit payments during the remainder
of fiscal 2006 under our postretirement plan.

Note 12  Contingencies

Supply Arrangement
On October
8, 2005, Delphi Medical Systems Texas Corporation, a supplier of some instruments
and parts for the Applied Biosystems group ("Delphi Medical Systems"), and its
parent Delphi Corporation, filed a petition in the United States Bankruptcy Court
for the Southern District of New York seeking relief under the provisions of
Chapter 11 of the federal Bankruptcy Code. As of December 31, 2005, the Applied
Biosystems group had an accounts receivable balance of approximately $8 million
and an accounts payable balance of approximately $8 million with Delphi Medical
Systems. At the present time, no assessment can be made as to if and when or
how much of the balance due from Delphi Medical Systems may be paid, how much
of the amount owed to Delphi Medical Systems may be offset against the amounts
payable by Delphi Medical Systems, or the effect of the Chapter 11 filing on
the supply contracts in effect between the companies.

15

---



Back to Index

APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

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

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

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

16

---



Back to Index

APPLERA CORPORATION 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

Subsequent to the filing of our claims against MJ Research which are described
  in the preceding paragraph, on September 21, 2000, MJ Research filed an action
  against us in the U.S. District Court for the District of Columbia. This complaint
  is based on the allegation that the patents underlying our DNA sequencing instruments
  were improperly obtained because one of the alleged inventors, whose work was
  funded in part by the U.S. government, was knowingly omitted from the patent
  applications. Our patents at issue are U.S. Patent Nos. 5,171,534, entitled Automated
  DNA Sequencing Technique, 5,821,058, entitled Automated DNA Sequencing
  Technique, 6,200,748, entitled Tagged Extendable Primers and Extension
  Products, and 4,811,218, entitled Real Time Scanning Electrophoresis
  Apparatus for DNA Sequencing. The complaint asserts violations of the
  federal False Claims Act and the federal Bayh Dole Act, invalidity and unenforceability
  of the patents at issue, patent infringement, and various other civil claims
  against us. MJ Research is seeking monetary damages, costs and expenses, injunctive
  relief, transfer of ownership of the patents in dispute, and other relief as
  the court deems proper. MJ Research claims to be suing in the name of the U.S.
  government although the government has to date declined to participate in the
  suit. On October 9, 2003, the case against us was dismissed but MJ Research
  filed an appeal. On November 21, 2005, the U.S. Court of Appeals for the Ninth
Circuit affirmed the dismissal.

Promega Corporation filed a patent infringement action against Lifecodes Corporation,
Cellmark Diagnostics, Genomics International Corporation, and us in the U.S.
District Court for the Western District of Wisconsin on April 24, 2001. The complaint
alleges that the defendants are infringing Promegas U.S. Patent Nos. 6,221,598
and 5,843,660, both entitled Multiplex Amplification of Short Tandem Repeat
Loci, due to the defendants sale of forensic identification and paternity
testing kits. Promega is seeking monetary damages, costs and expenses, injunctive
relief, and other relief as the court deems proper. The defendants answered the
complaint on July 9, 2001, and we asserted counterclaims alleging that Promega
is infringing our U.S. Patent No. 6,200,748, entitled Tagged Extendable
Primers and Extension Products, due to Promegas sale of forensic
identification and paternity testing kits. Because of settlement negotiations,
the case was dismissed on October 29, 2002. However, the case was dismissed without
prejudice, which means that Promega could re-file its claim
against us.

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

Genetic Technologies Limited filed a patent infringement action against us in
the U.S. District Court for the Northern District of California on March 26,
2003. They filed an amended complaint against us on August 12, 2003. The amended
complaint alleged that we were infringing U.S. Patent No. 5,612,179,
entitled Intron Sequence Analysis Method for Detection of Adjacent and
Remote Locus Alleles as Haplotypes, and U.S. Patent No. 5,851,762, entitled Genomic
Mapping Method by Direct Haplotyping Using Intron Sequence Analysis. The
allegedly infringing products were cystic fibrosis reagent kits, TaqMan® genotyping
and gene expression assay products for non-coding regions, TaqMan genotyping
and gene expression assay services for non-coding regions, AmpFLSTR® kits,
the SNPlex Genotyping System, the SNPbrowser tool, and the Celera
Discovery System (CDS). The complaint also alleged that haplotyping
analysis performed by our businesses infringed the patents identified above.
Genetic Technologies Limited was seeking monetary damages, costs, expenses, injunctive
relief, and other relief as the court deemed proper. On December 30, 2005, the
case was dismissed pursuant to
a settlement agreement signed on December 9, 2005.

17

---



Back to Index

APPLERA CORPORATION 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

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

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

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

Molecular Diagnostics Laboratories filed a class action complaint against us
and Hoffmann-La Roche, Inc. in the U.S. District Court for the District of Columbia
on September 23, 2004. The complaint alleges anticompetitive conduct in connection
with the sale of Taq DNA polymerase and PCR-related products. The anticompetitive
conduct is alleged to arise from the prosecution and enforcement of U.S. Patent
No. 4,889,818. This patent is assigned to Hoffmann-La Roche, with whom we have
a commercial relationship covering, among other things, this patent and the sale
of Taq DNA polymerase. The complaint seeks monetary damages, costs, expenses,
injunctive relief, and other relief as the court deems proper.

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

18

---



Back to Index

APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

We are involved in several legal actions with Thermo Electron Corporation and
its subsidiary Thermo Finnigan LLC. These legal actions commenced when we, together
with MDS, Inc. and our Applied Biosystems/MDS Sciex Instruments joint venture
with MDS, filed a patent infringement action against Thermo Electron in the U.S.
District Court for the District of Delaware on September 3, 2004. The complaint
alleges infringement by Thermo Electron of U.S. Patent No. 4,963,736, and seeks
monetary damages, costs, expenses, and other relief as the court deems proper.
Thermo Electron has answered the complaint and counterclaimed for declaratory
relief that the 736 patent is invalid, not infringed, and unenforceable,
and is seeking dismissal of our complaint, a judgment that the 736 patent
is invalid, not infringed, and unenforceable, costs and expenses, and other relief
as the court deems proper. Subsequent to the filing of the action against Thermo
Electron, on December 8, 2004, Thermo Finnigan filed a patent infringement action
against us in the U.S. District Court for the District of Delaware. The complaint
alleges that we have infringed U.S. Patent No. 5,385,654 as a result of, for
example, our Applied Biosystems groups
commercialization of the ABI PRISM® 3700 Genetic Analyzer. Thermo
Finnigan is seeking monetary damages, costs, expenses, and other relief as the
court deems proper. We have answered the complaint and counterclaimed for declaratory
relief that the 654 patent is invalid, not infringed, and unenforceable,
and are seeking dismissal of Thermo Finnigans complaint, a judgment that
the 654 patent is invalid, not infringed, and unenforceable, costs and
expenses, and other relief as the court deems proper. Thermo Finnigan subsequently
filed a second patent infringement action against us, MDS, and the Applied Biosystems/MDS
Sciex Instruments joint venture, in the U.S. District Court for the District
of Delaware on February 23, 2005. The complaint alleges that we and the other
defendants have infringed U.S. Patent No. 6,528,784 as a result of, for example,
our commercialization of the API 5000 LC/MS/MS system. Thermo Finnigan
is seeking monetary damages, costs, expenses, and other relief as the court deems
proper. We have answered the complaint and counterclaimed for declaratory relief
that the 784 patent is invalid and not infringed, and are seeking dismissal
of Thermo Finnigans complaint, a judgment that the 784 patent is
invalid and not infringed, costs and expenses, and other relief as the court
deems proper.

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

Note 13  Pending Acquisition

In December 2005, we signed a definitive agreement to acquire the Research Products
Division of Ambion, Inc. for approximately $273 million in cash. Ambion, which
is based in Austin, Texas, is a leading supplier of ribonucleic acid (RNA) based
reagents for life science research and drug development. Ambion develops and
supplies innovative consumable products for stabilizing, synthesizing, handling,
isolating, storing, detecting and quantifying RNA. We believe that the acquisition
will drive growth by delivering more complete customer workflow solutions and
by expanding the Applied Biosystems groups consumables product offering.
We expect that Ambions RNA R&D expertise, consumables manufacturing
capabilities, and culture of scientific innovation will complement our existing
strengths. The acquired Research Products Division will continue to be based
in Austin, Texas.

The transaction is subject to regulatory and other customary closing conditions,
and is expected to close in the third quarter of fiscal 2006. The net assets
and results of operations of the Research Products Division of Ambion will be
allocated to the Applied Biosystems group from the date of acquisition.

Note 14  Subsequent Events

Celera Diagnostics Restructuring
In January 2006, we announced that our board of directors had approved a restructuring of the Celera Diagnostics joint venture between the Applied Biosystems group and the Celera Genomics group. The joint venture was formed pursuant to a Celera Diagnostics Joint Venture Agreement dated as of April 1, 2001, and amended as of June 22, 2004.

19

---



Back to Index

APPLERA CORPORATION 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

As a result of the restructuring, effective as of January 1, 2006, the Applied
Biosystems groups interest in Celera Diagnostics was transferred to the
Celera Genomics group in exchange for various considerations to the Applied Biosystems
group. In determining that the restructuring is in the best interests of the
Company and its stockholders, our board of directors considered numerous factors
and used the assistance and advice of several independent advisors. Included
in the process were independent analyses of: the Applied Biosystems groups
50 percent interest in Celera Diagnostics; the various considerations made to
the Applied Biosystems group in the restructuring; and the pro forma impact of
the restructuring on the Applied Biosystems group and the Celera Genomics group
businesses.

The financial elements of the consideration made to the Applied Biosystems group
in connection with the restructuring of Celera Diagnostics included:

|• | The
        Applied Biosystems group gained the right to sell instrument platforms
        to end-user diagnostic customers, a field of activity previously reserved
        for Celera Diagnostics. The Applied Biosystems group anticipates its
        entry into the clinical diagnostic instrumentation market will increase
        revenue and margin. The Applied Biosystems group will also be the preferred
        supplier of some diagnostic instruments to the Celera/Abbott alliance,
        and the Celera/Abbott alliance will be the preferred diagnostics company
        marketing some of the Applied Biosystems groups instruments. Please
        refer to the Abbott Alliance Restructuring discussion below for more
        information.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|• | The
        Celera Genomics group provides some R&D and regulatory support to
        the Applied Biosystems group at cost, including assistance in the development
        of new PCR reagents and clinical diagnostic instrument systems that are
        expected to lead to increased revenue and margin for the Applied Biosystems
        group. Additionally, the Celera Genomics group will use its GMP reagent
        manufacturing capability to manufacture selected products for the Applied
        Biosystems groups customers.                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|• | The
        Celera Genomics group forgave future royalties due through 2017 on sales
        of selected Applied Biosystems groups products under the terms
        of a marketing and distribution agreement between the Groups.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|• | The
        Celera Genomics group paid the Applied Biosystems group $30 million in
        cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Abbott Alliance RestructuringIn January 2006, we also announced that we had restructured our strategic
alliance agreement with Abbott Laboratories. The restructured agreement was entered into on
January 9, 2006. This agreement was originally entered into to discover, develop, and
commercialize a broad range of in vitro diagnostic products for disease detection,
 prediction of disease predisposition, disease progression monitoring, and therapy selection.
 Under the agreement prior to the restructuring of the Abbott alliance, the parties were obligated
 to work exclusively with each other in the commercialization of nucleic acid-based (DNA or RNA)
  diagnostic products. Under the relationship as restructured, the companies will continue to
   work with each other exclusively through a profit sharing arrangement in specifically agreed
   areas of nucleic acid-based diagnostic products, and both companies may work independently
   outside the exclusive areas. This restructuring also enables the Applied Biosystems group
   to develop and sell diagnostic instruments to end-users for clinical diagnostic
   applications, an activity that was previously restricted under the Abbott alliance
   agreement.

20

---



Back to Index

APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

Under the Abbott alliance agreement as restructured, the companies will continue
  to jointly fund their separate but coordinated research and development activities
  that are within the scope of the alliance. Generally, Abbott markets products
  developed and manufactured by the parties that are covered by the alliance.
  The Celera Genomics group believes that Abbotts expertise in the diagnostics
  industry and its global distribution system enhances the Celera Genomics groups
  ability to bring diagnostic products to market. The Celera Genomics group does
  not expect to develop its own marketing and distribution organization for its
  diagnostic products in the foreseeable future. Under the terms of its strategic
  alliance with Abbott, Abbott serves as the Celera Genomics groups exclusive
  worldwide distributor of nucleic acid-based diagnostic products developed under
  the agreement. Under the Abbott alliance agreement as restructured, the Celera
  Genomics group will be entitled to a royalty based on sales by Abbott of nucleic
  acid-based products that are within the scope of the alliance but which are
  manufactured by other companies. These products had previously been part of
  the profit sharing arrangement.

The Celera Genomics group expects to rely substantially on its alliance with
  Abbott for the success of its diagnostic products business strategy for the
  foreseeable future. Although this is a long-term alliance, the alliance agreement
  contains provisions that could result in early termination for reasons that
  include the following: breach by either company; a change in control of either
  company; or either companys dissatisfaction with the financial performance
  of the alliance according to specifically-agreed parameters and a measurement
  period set forth in the alliance agreement. Also, the Celera Genomics group
  cannot ensure that Abbott will perform its obligations as expected. If Abbott
  terminates the alliance or otherwise fails to conduct its collaborative activities
  in a timely manner, the Celera Genomics groups development or commercialization
  of diagnostic products may be delayed or otherwise adversely affected.

The Celera Genomics Groups Small Molecule ProgramsIn January
2006, we also announced plans for the Celera Genomics group to partner or sell
its small molecule drug development and discovery programs, and are currently
in discussion with several companies that have expressed an interest in acquiring
one or more of these programs, two of which recently entered the clinic. Programs
that are not partnered or sold will be terminated. As a consequence of this decision
and the integration of Celera Diagnostics into the Celera Genomics group, there
was a workforce reduction of approximately 180 positions, primarily in small
molecule drug development. As of the end of January 2006, the Celera Genomics
group had approximately 360 employees, and it is anticipated that there will
be a further reduction involving approximately 60 employees who are supporting
the small molecule programs as the partnering activities are completed. While
we are still evaluating the effect of the Celera Genomics groups decision
to reduce its small molecule program workforce, we anticipate that the Celera
Genomics group will record pre-tax restructuring charges of approximately $30
million over the balance of fiscal 2006 associated with this decision to reduce
its small molecule program workforce.

Note 15  Segment and Consolidating Information

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

Through December 31, 2005, we operated in the life science industry through three
reportable segments: the Applied Biosystems group, the Celera Genomics group,
and Celera Diagnostics. See Note 14 to our consolidated financial statements
included in our 2005 Annual Report to Stockholders for a detailed description
of the segments and the management and allocation policies applicable to the
attribution of assets, liabilities, revenues and expenses to the segments (which
information is incorporated in this quarterly report by reference).

21

---



Back to Index

APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

The following table summarizes revenues earned between segments:

|                                                | Three months endedDecember 31, |   | Six months endedDecember 31, | 
|----------------------------------------------- | ------------------------------ | - | ---------------------------- | 
|                                                |                                |   |                              | 
|(Dollar amounts in millions)                    |                                |   | 2004                         | 
|                                                |                                |   |                              | 
|Applied Biosystems Group                        |                                |   |                              | 
|Sales to the Celera Genomics group (a)          |                                | $ | 0.7                          | 
|Sales to Celera Diagnostics (a)                 |                                |   | 0.5                          | 
|                                                |                                |   |                              | 
|Celera Genomics Group                           |                                |   |                              | 
|Royalties from the Applied Biosystems group (b) |                                | $ | 0.8                          | 
|                                                |                                |   |                              | 

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

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

The following table summarizes additional related party transactions between
segments:

|                                                          | Six
    months endedDecember
    31, |  
|--------------------------------------------------------- | ------------------------------------ | -
|                                                          |                                      |  
|(Dollar
    amounts in millions)                          |                                      |  
|                                                          |                                      |  
|Applied Biosystems
    Group                              |                                      |  
|Nonreimbursable utilization of tax benefits (a)           |                                      | $
|Payments for reimbursable utilization of tax benefits (b) |                                      |  
|Funding of Celera Diagnostics (c)                         |                                      |  
|                                                          |                                      |  
|Celera Genomics
    Group                                 |                                      |  
|Funding of Celera Diagnostics (d)                         |                                      | $
|                                                          |                                      |  

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

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

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

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

For the three and six month periods ended December 31, 2004 and 2005, the Celera
Genomics group recorded 100% of the losses of Celera Diagnostics in its net loss
as well as the tax benefit associated with those losses. In the following tables,
the Eliminations column represents the elimination of intersegment
activity and the losses on Celera Diagnostics, which are included both in the Celera
Diagnostics column and net within the Celera Genomics group column
as Loss
from joint venture.

22

---



Back to Index

APPLERA CORPORATION
  NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  continued

Condensed Consolidating Statement of Operations for the Three Months Ended December 31, 2005



|(Dollar amounts in thousands)            |  | AppliedBiosystemsGroup |         | CeleraGenomicsGroup |   | CeleraDiagnostics |   | Eliminations |        | Consolidated |  
|---------------------------------------- |  | ---------------------- | ------- | ------------------- | - | ----------------- | - | ------------ | ------ | ------------ | -
|                                         |  |                        |         |                     |   |                   |   |              |        |              |  
|                                         |  |                        |         |                     |   |                   |   |              |        |              |  
|Products                                 |  | $                      | 400,195 |                     | $ | 887               |   | $            | 2,027  |              | $
|Services                                 |  |                        | 54,982  |                     |   | 100               |   |              | 107    |              |  
|Other                                    |  |                        | 25,330  |                     |   |                   |   |              | 6,059  |              |  
|                                         |  |                        |         |                     |   |                   |   |              |        |              |  
|Net revenues from external customers     |  |                        | 480,507 |                     |   | 987               |   |              | 8,193  |              |  
|Intersegment revenues                    |  |                        | 1,409   |                     |   | 1,068             |   |              |        |              |  
|                                         |  |                        |         |                     |   |                   |   |              |        |              |  
|Total Net Revenues                       |  |                        | 481,916 |                     |   | 2,055             |   |              | 8,193  |              |  
|                                         |  |                        |         |                     |   |                   |   |              |        |              |  
|Products                                 |  |                        | 193,908 |                     |   |                   |   |              | 2,839  |              |  
|Services                                 |  |                        | 23,055  |                     |   | 1,653             |   |              |        |              |  
|Other                                    |  |                        | 2,718   |                     |   |                   |   |              | 707    |              |  
|                                         |  |                        |         |                     |   |                   |   |              |        |              |  
|Cost of Sales                            |  |                        | 219,681 |                     |   | 1,653             |   |              | 3,546  |              |  
|                                         |  |                        |         |                     |   |                   |   |              |        |              |  
|Gross Margin                             |  |                        | 262,235 |                     |   | 402               |   |              | 4,647  |              |  
|Selling, general and administrative      |  |                        | 125,052 |                     |   | 5,471             |   |              | 1,241  |              |  
|Corporate allocated expenses             |  |                        | 10,808  |                     |   | 1,278             |   |              | 773    |              |  
|Research, development and engineering    |  |                        | 45,202  |                     |   | 20,939            |   |              | 7,760  |              |  
|Amortization of intangible assets        |  |                        |         |                     |   | 366               |   |              |        |              |  
|Employee-related charges, asset          |  |                        |         |                     |   |                   |   |              |        |              |  
|impairments and other                    |  |                        | 360     |                     |   |                   |   |              |        |              |  
|Asset dispositions and legal settlements |  |                        | 3,032   |                     |   |                   |   |              |        |              |  
|                                         |  |                        |         |                     |   |                   |   |              |        |              |  
|Operating Income (Loss)                  |  |                        | 77,781  |                     |   | (27,652           | ) |              | (5,127 | )            |  
|Interest income, net                     |  |                        | 3,233   |                     |   | 5,922             |   |              |        |              |  
|Other income (expense), net              |  |                        | 1,240   |                     |   | (239              | ) |              |        |              |  
|Loss from joint venture                  |  |                        |         |                     |   | (5,127            | ) |              |        |              |  
|                                         |  |                        |         |                     |   |                   |   |              |        |              |  
|Income (Loss) before Income Taxes        |  |                        | 82,254  |                     |   | (27,096           | ) |              | (5,127 | )            |  
|Provision (benefit) for income taxes     |  |                        | 51,349  |                     |   | (9,765            | ) |              |        |              |  
|                                         |  |                        |         |                     |   |                   |   |              |        |              |  
|Net Income (Loss)                        |  | $                      | 30,905  |                     | $ | (17,331           | ) | $            | (5,127 | )            | $
|                                         |  |                        |         |                     |   |                   |   |              |        |              |  

23

---



Back to Index

APPLERA CORPORATION
  NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  continued

Condensed Consolidating Statement of Operations for the Six Months Ended December 31, 2005



|(Dollar
          amounts in thousands)  |  | AppliedBiosystemsGroup |         | CeleraGenomicsGroup |   | CeleraDiagnostics |   | Eliminations |         | Consolidated |  
|---------------------------------------- |  | ---------------------- | ------- | ------------------- | - | ----------------- | - | ------------ | ------- | ------------ | -
|                                         |  |                        |         |                     |   |                   |   |              |         |              |  
|                                         |  |                        |         |                     |   |                   |   |              |         |              |  
|Products                                 |  | $                      | 736,003 |                     | $ | 1,540             |   | $            | 4,095   |              | $
|Services                                 |  |                        | 106,425 |                     |   | 595               |   |              | 436     |              |  
|Other                                    |  |                        | 52,054  |                     |   |                   |   |              | 10,767  |              |  
|                                         |  |                        |         |                     |   |                   |   |              |         |              |  
|Net revenues from external customers     |  |                        | 894,482 |                     |   | 2,135             |   |              | 15,298  |              |  
|Intersegment revenues                    |  |                        | 2,899   |                     |   | 2,024             |   |              |         |              |  
|                                         |  |                        |         |                     |   |                   |   |              |         |              |  
|Total Net Revenues                       |  |                        | 897,381 |                     |   | 4,159             |   |              | 15,298  |              |  
|                                         |  |                        |         |                     |   |                   |   |              |         |              |  
|Products                                 |  |                        | 361,271 |                     |   |                   |   |              | 5,611   |              |  
|Services                                 |  |                        | 46,532  |                     |   | 2,317             |   |              |         |              |  
|Other                                    |  |                        | 5,437   |                     |   |                   |   |              | 1,622   |              |  
|                                         |  |                        |         |                     |   |                   |   |              |         |              |  
|Cost of Sales                            |  |                        | 413,240 |                     |   | 2,317             |   |              | 7,233   |              |  
|                                         |  |                        |         |                     |   |                   |   |              |         |              |  
|Gross Margin                             |  |                        | 484,141 |                     |   | 1,842             |   |              | 8,065   |              |  
|Selling, general and administrative      |  |                        | 237,264 |                     |   | 10,778            |   |              | 3,873   |              |  
|Corporate allocated expenses             |  |                        | 20,579  |                     |   | 2,571             |   |              | 1,423   |              |  
|Research, development and engineering    |  |                        | 86,073  |                     |   | 42,789            |   |              | 15,462  |              |  
|Amortization of intangible assets        |  |                        |         |                     |   | 1,091             |   |              |         |              |  
|Employee-related charges, asset          |  |                        |         |                     |   |                   |   |              |         |              |  
|impairments, and other                   |  |                        | 1,231   |                     |   |                   |   |              |         |              |  
|Asset dispositions and legal settlements |  |                        | 25,866  |                     |   | 490               |   |              | 185     |              |  
|                                         |  |                        |         |                     |   |                   |   |              |         |              |  
|Operating Income (Loss)                  |  |                        | 113,128 |                     |   | (55,877           | ) |              | (12,878 | )            |  
|Gain on investments, net                 |  |                        |         |                     |   | 4,503             |   |              |         |              |  
|Interest income, net                     |  |                        | 7,655   |                     |   | 11,170            |   |              |         |              |  
|Other income (expense), net              |  |                        | 2,905   |                     |   | (197              | ) |              |         |              |  
|Loss from joint venture                  |  |                        |         |                     |   | (12,878           | ) |              |         |              |  
|                                         |  |                        |         |                     |   |                   |   |              |         |              |  
|Income (Loss) before Income Taxes        |  |                        | 123,688 |                     |   | (53,279           | ) |              | (12,878 | )            |  
|Provision (benefit) for income taxes     |  |                        | 49,659  |                     |   | (19,200           | ) |              |         |              |  
|                                         |  |                        |         |                     |   |                   |   |              |         |              |  
|Net Income (Loss)                        |  | $                      | 74,029  |                     | $ | (34,079           | ) | $            | (12,878 | )            | $
|                                         |  |                        |         |                     |   |                   |   |              |         |              |  

24

---



Back to Index

APPLERA CORPORATION
  NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  continued

Condensed Consolidating Statement of Financial Position at December 31, 2005



|(Dollar amounts in thousands)                 |  |   | AppliedBiosystemsGroup |  |   | CeleraGenomicsGroup |  | CeleraDiagnostics |        |  | Eliminations |         |   | Consolidated |          
|--------------------------------------------- |  | - | ---------------------- |  | - | ------------------- |  | ----------------- | ------ |  | ------------ | ------- | - | ------------ | ---------
|                                              |  |   |                        |  |   |                     |  |                   |        |  |              |         |   |              |          
|Assets                                        |  |   |                        |  |   |                     |  |                   |        |  |              |         |   |              |          
|Current assets                                |  |   |                        |  |   |                     |  |                   |        |  |              |         |   |              |          
|Cash and cash
    equivalents                 |  | $ | 499,324                |  | $ | 31,656              |  | $                 | —      |  | $            | —       |   | $            | 530,980  
|Short-term investments                        |  |   | 3,195                  |  |   | 588,064             |  |                   |        |  |              |         |   |              | 591,259  
|Accounts receivable,
    net                  |  |   | 339,427                |  |   | 911                 |  |                   | 6,480  |  |              | (873    | ) |              | 345,945  
|Inventories, net                              |  |   | 125,821                |  |   | 227                 |  |                   | 9,446  |  |              |         |   |              | 135,494  
|Prepaid expenses
    and other current assets |  |   | 152,975                |  |   | 6,602               |  |                   | 13,855 |  |              | (3,696  | ) |              | 169,736  
|                                              |  |   |                        |  |   |                     |  |                   |        |  |              |         |   |              |          
|Total current assets                          |  |   | 1,120,742              |  |   | 627,460             |  |                   | 29,781 |  |              | (4,569  | ) |              | 1,773,414
|Property, plant and equipment, net            |  |   | 386,019                |  |   | 29,925              |  |                   | 4,896  |  |              | (451    | ) |              | 420,389  
|Other long-term assets                        |  |   | 500,190                |  |   | 155,092             |  |                   | 4,166  |  |              | (31,514 | ) |              | 627,934  
|                                              |  |   |                        |  |   |                     |  |                   |        |  |              |         |   |              |          
|Total Assets                                  |  | $ | 2,006,951              |  | $ | 812,477             |  | $                 | 38,843 |  | $            | (36,534 | ) | $            | 2,821,737
|                                              |  |   |                        |  |   |                     |  |                   |        |  |              |         |   |              |          
|                                              |  |   |                        |  |   |                     |  |                   |        |  |              |         |   |              |          
|Liabilities and Stockholders' Equity          |  |   |                        |  |   |                     |  |                   |        |  |              |         |   |              |          
|Current liabilities                           |  |   |                        |  |   |                     |  |                   |        |  |              |         |   |              |          
|Accounts payable                              |  | $ | 182,761                |  | $ | 5,340               |  | $                 | 3,714  |  | $            | (3,822  | ) | $            | 187,993  
|Accrued salaries
    and wages                |  |   | 59,521                 |  |   | 5,199               |  |                   | 3,594  |  |              |         |   |              | 68,314   
|Accrued taxes
    on income                   |  |   | 67,955                 |  |   | 12,485              |  |                   |        |  |              |         |   |              | 80,440   
|Other accrued
    expenses                    |  |   | 289,339                |  |   | 7,304               |  |                   | 856    |  |              | (1,094  | ) |              | 296,405  
|                                              |  |   |                        |  |   |                     |  |                   |        |  |              |         |   |              |          
|Total current liabilities                     |  |   | 599,576                |  |   | 30,328              |  |                   | 8,164  |  |              | (4,916  | ) |              | 633,152  
|Other long-term liabilities                   |  |   | 200,715                |  |   | 7,007               |  |                   | 34     |  |              | (367    | ) |              | 207,389  
|                                              |  |   |                        |  |   |                     |  |                   |        |  |              |         |   |              |          
|Total Liabilities                             |  |   | 800,291                |  |   | 37,335              |  |                   | 8,198  |  |              | (5,283  | ) |              | 840,541  
|                                              |  |   |                        |  |   |                     |  |                   |        |  |              |         |   |              |          
|Total Stockholders' Equity                    |  |   | 1,206,660              |  |   | 775,142             |  |                   | 30,645 |  |              | (31,251 | ) |              | 1,981,196
|                                              |  |   |                        |  |   |                     |  |                   |        |  |              |         |   |              |          
|Total Liabilities and Stockholders' Equity    |  | $ | 2,006,951              |  | $ | 812,477             |  | $                 | 38,843 |  | $            | (36,534 | ) | $            | 2,821,737
|                                              |  |   |                        |  |   |                     |  |                   |        |  |              |         |   |              |          

25

---



Back to Index

APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

Condensed Consolidating Statement of Cash Flows for the Six Months Ended
  December 31, 2005



|(Dollar amounts in thousands)                                                        |  |   | AppliedBiosystemsGroup |   |   | CeleraGenomicsGroup |   |   | CeleraDiagnostics |   |   | Eliminations |   | Consolidated |         
|------------------------------------------------------------------------------------ |  | - | ---------------------- | - | - | ------------------- | - | - | ----------------- | - | - | ------------ | - | ------------ | --------
|                                                                                     |  |   |                        |   |   |                     |   |   |                   |   |   |              |   |              |         
|Operating Activities of Continuing
    Operations                                    |  |   |                        |   |   |                     |   |   |                   |   |   |              |   |              |         
|Net income (loss)                                                                    |  | $ | 74,029                 |   | $ | (34,079             | ) | $ | (12,878           | ) | $ | 12,192       |   | $            | 39,264  
|Adjustments to reconcile net income (loss) to net cash                               |  |   |                        |   |   |                     |   |   |                   |   |   |              |   |              |         
|provided
    (used) by operating activities:                                         |  |   |                        |   |   |                     |   |   |                   |   |   |              |   |              |         
|Depreciation
    and amortization                                                    |  |   | 37,950                 |   |   | 4,885               |   |   | 3,435             |   |   | (222         | ) |              | 46,048  
|Asset
    impairments                                                                |  |   | 1,090                  |   |   |                     |   |   |                   |   |   |              |   |              | 1,090   
|Employee-related charges and other                                                   |  |   | (1,409                 | ) |   |                     |   |   |                   |   |   |              |   |              | (1,409  
|Share-based
    compensation programs                                                |  |   | 3,792                  |   |   | 645                 |   |   |                   |   |   |              |   |              | 4,437   
|Sale
    of assets and legal settlements, net                                        |  |   | 26,758                 |   |   | (4,013              | ) |   | 193               |   |   |              |   |              | 22,938  
|Deferred
    income taxes                                                            |  |   | (11,266                | ) |   | 4,608               |   |   |                   |   |   | 331          |   |              | (6,327  
|Loss
    from joint venture                                                          |  |   |                        |   |   | 12,878              |   |   |                   |   |   | (12,878      | ) |              |         
|Nonreimbursable
    utilization of intergroup tax benefits                           |  |   | 19,135                 |   |   | (19,135             | ) |   |                   |   |   |              |   |              |         
|Changes in operating assets and liabilities:                                         |  |   |                        |   |   |                     |   |   |                   |   |   |              |   |              |         
|Accounts receivable                                                                  |  |   | 32,133                 |   |   | 498                 |   |   | (1,128            | ) |   | (109         | ) |              | 31,394  
|Inventories                                                                          |  |   | (7,326                 | ) |   | 108                 |   |   | (408              | ) |   |              |   |              | (7,626  
|Prepaid expenses
    and other assets                                                |  |   | 494                    |   |   | 857                 |   |   | (2,376            | ) |   | (1,318       | ) |              | (2,343  
|Accounts payable
    and other liabilities                                           |  |   | 10,284                 |   |   | (10,968             | ) |   | (4,000            | ) |   | 1,922        |   |              | (2,762  
|                                                                                     |  |   |                        |   |   |                     |   |   |                   |   |   |              |   |              |         
|Net
    Cash Provided (Used) by Operating Activities of
       Continuing Operations |  |   | 185,664                |   |   | (43,716             | ) |   | (17,162           | ) |   | (82          | ) |              | 124,704 
|                                                                                     |  |   |                        |   |   |                     |   |   |                   |   |   |              |   |              |         
|Investing Activities of Continuing
    Operations                                    |  |   |                        |   |   |                     |   |   |                   |   |   |              |   |              |         
|Additions to property, plant and equipment, net                                      |  |   | (23,348                | ) |   | (1,750              | ) |   | (800              | ) |   | 151          |   |              | (25,747 
|Proceeds from maturities of available-for-sale investments                           |  |   |                        |   |   | 75,983              |   |   |                   |   |   |              |   |              | 75,983  
|Proceeds from sales of available-for-sale investments                                |  |   | 81,214                 |   |   | 145,931             |   |   |                   |   |   |              |   |              | 227,145 
|Purchases of available-for-sale investments                                          |  |   | (84,409                | ) |   | (165,691            | ) |   |                   |   |   |              |   |              | (250,100
|Acquisitions and investments in joint venture and other, net                         |  |   | (5,591                 | ) |   | (13,606             | ) |   |                   |   |   | 17,962       |   |              | (1,235  
|Proceeds from the sale of assets, net                                                |  |   |                        |   |   | 4,572               |   |   |                   |   |   | (69          | ) |              | 4,503   
|                                                                                     |  |   |                        |   |   |                     |   |   |                   |   |   |              |   |              |         
|Net
    Cash Provided (Used) by Investing Activities of
   Continuing Operations     |  |   | (32,134                | ) |   | 45,439              |   |   | (800              | ) |   | 18,044       |   |              | 30,549  
|                                                                                     |  |   |                        |   |   |                     |   |   |                   |   |   |              |   |              |         
|Net
    Cash Provided by Operating Activities of
   Discontinued Operations          |  |   | (65                    | ) |   |                     |   |   |                   |   |   |              |   |              | (65     
|                                                                                     |  |   |                        |   |   |                     |   |   |                   |   |   |              |   |              |         
|Financing Activities                                                                 |  |   |                        |   |   |                     |   |   |                   |   |   |              |   |              |         
|Dividends                                                                            |  |   | (8,253                 | ) |   |                     |   |   |                   |   |   |              |   |              | (8,253  
|Net cash funding from groups                                                         |  |   |                        |   |   |                     |   |   | 17,962            |   |   | (17,962      | ) |              |         
|Purchases of common stock for treasury                                               |  |   | (457,120               | ) |   |                     |   |   |                   |   |   |              |   |              | (457,120
|Proceeds from stock issued for stock plans and other                                 |  |   | 63,664                 |   |   | 6,768               |   |   |                   |   |   |              |   |              | 70,432  
|                                                                                     |  |   |                        |   |   |                     |   |   |                   |   |   |              |   |              |         
|Net Cash Provided (Used) by Financing
    Activities                                 |  |   | (401,709               | ) |   | 6,768               |   |   | 17,962            |   |   | (17,962      | ) |              | (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              |   |   |                   |   |   |              |   |              | 779,401 
|                                                                                     |  |   |                        |   |   |                     |   |   |                   |   |   |              |   |              |         
|Cash and Cash Equivalents End
    of Period                                          |  | $ | 499,324                |   | $ | 31,656              |   | $ | —                 |   | $ | —            |   | $            | 530,980 
|                                                                                     |  |   |                        |   |   |                     |   |   |                   |   |   |              |   |              |         

26

---



Back to Index

APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

Condensed Consolidating Statement of Operations for the Three Months Ended
  December 31, 2004



|(Dollar amounts in thousands)                                |  | AppliedBiosystemsGroup |         |   | CeleraGenomicsGroup |         |   | CeleraDiagnostics |        |   | Eliminations |         |   | Consolidated |        
|------------------------------------------------------------ |  | ---------------------- | ------- | - | ------------------- | ------- | - | ----------------- | ------ | - | ------------ | ------- | - | ------------ | -------
|                                                             |  |                        |         |   |                     |         |   |                   |        |   |              |         |   |              |        
|Products                                                     |  | $                      | 386,679 |   | $                   | 216     |   | $                 | 1,522  |   | $            | —       |   | $            | 388,417
|Services                                                     |  |                        | 50,210  |   |                     | 461     |   |                   | 1,378  |   |              |         |   |              | 52,049 
|Other                                                        |  |                        | 25,292  |   |                     | 6,792   |   |                   | 4,986  |   |              |         |   |              | 37,070 
|                                                             |  |                        |         |   |                     |         |   |                   |        |   |              |         |   |              |        
|Net revenues from external customers                         |  |                        | 462,181 |   |                     | 7,469   |   |                   | 7,886  |   |              | —       |   |              | 477,536
|Intersegment revenues                                        |  |                        | 1,257   |   |                     | 751     |   |                   |        |   |              | (2,008  | ) |              |        
|                                                             |  |                        |         |   |                     |         |   |                   |        |   |              |         |   |              |        
|Total Net Revenues                                           |  |                        | 463,438 |   |                     | 8,220   |   |                   | 7,886  |   |              | (2,008  | ) |              | 477,536
|                                                             |  |                        |         |   |                     |         |   |                   |        |   |              |         |   |              |        
|Products                                                     |  |                        | 193,999 |   |                     | 129     |   |                   | 1,520  |   |              | (472    | ) |              | 195,176
|Services                                                     |  |                        | 22,715  |   |                     | 700     |   |                   |        |   |              | (111    | ) |              | 23,304 
|Other                                                        |  |                        | 3,582   |   |                     | 381     |   |                   | 2,821  |   |              | (902    | ) |              | 5,882  
|                                                             |  |                        |         |   |                     |         |   |                   |        |   |              |         |   |              |        
|Cost of sales                                                |  |                        | 220,296 |   |                     | 1,210   |   |                   | 4,341  |   |              | (1,485  | ) |              | 224,362
|                                                             |  |                        |         |   |                     |         |   |                   |        |   |              |         |   |              |        
|Gross Margin                                                 |  |                        | 243,142 |   |                     | 7,010   |   |                   | 3,545  |   |              | (523    | ) |              | 253,174
|Selling, general and administrative                          |  |                        | 112,223 |   |                     | 4,350   |   |                   | 2,509  |   |              | 13,149  |   |              | 132,231
|Corporate allocated expenses                                 |  |                        | 10,852  |   |                     | 1,595   |   |                   | 702    |   |              | (13,149 | ) |              |        
|Research, development and engineering                        |  |                        | 47,258  |   |                     | 24,951  |   |                   | 8,569  |   |              | (567    | ) |              | 80,211 
|Amortization of intangible assets                            |  |                        |         |   |                     | 725     |   |                   |        |   |              |         |   |              | 725    
|Employee-related
    charges, assetimpairments and
    other |  |                        | 5,154   |   |                     |         |   |                   |        |   |              |         |   |              | 5,154  
|Asset dispositions and legal settlements                     |  |                        | (29,672 | ) |                     |         |   |                   |        |   |              |         |   |              | (29,672
|                                                             |  |                        |         |   |                     |         |   |                   |        |   |              |         |   |              |        
|Operating Income (Loss)                                      |  |                        | 97,327  |   |                     | (24,611 | ) |                   | (8,235 | ) |              | 44      |   |              | 64,525 
|Interest income, net                                         |  |                        | 3,504   |   |                     | 3,336   |   |                   |        |   |              |         |   |              | 6,840  
|Other income (expense), net                                  |  |                        | 1,439   |   |                     | (405    | ) |                   |        |   |              |         |   |              | 1,034  
|Loss from joint venture                                      |  |                        |         |   |                     | (8,235  | ) |                   |        |   |              | 8,235   |   |              |        
|                                                             |  |                        |         |   |                     |         |   |                   |        |   |              |         |   |              |        
|Income (Loss) before Income Taxes                            |  |                        | 102,270 |   |                     | (29,915 | ) |                   | (8,235 | ) |              | 8,279   |   |              | 72,399 
|Provision (benefit) for income taxes                         |  |                        | 29,599  |   |                     | (10,471 | ) |                   |        |   |              | (1,602  | ) |              | 17,526 
|                                                             |  |                        |         |   |                     |         |   |                   |        |   |              |         |   |              |        
|Net Income (Loss)                                            |  | $                      | 72,671  |   | $                   | (19,444 | ) | $                 | (8,235 | ) | $            | 9,881   |   | $            | 54,873 
|                                                             |  |                        |         |   |                     |         |   |                   |        |   |              |         |   |              |        

27

---



Back to Index

APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

Condensed Consolidating Statement of Operations for the Six Months Ended December
31, 2004



|(Dollar amounts in thousands)                              |  | AppliedBiosystemsGroup |         |   | CeleraGenomicsGroup |         |   | CeleraDiagnostics |         |   | Eliminations |         |   | Consolidated |        
|---------------------------------------------------------- |  | ---------------------- | ------- | - | ------------------- | ------- | - | ----------------- | ------- | - | ------------ | ------- | - | ------------ | -------
|                                                           |  |                        |         |   |                     |         |   |                   |         |   |              |         |   |              |        
|Products                                                   |  | $                      | 703,756 |   | $                   | 937     |   | $                 | 2,607   |   | $            | —       |   | $            | 707,300
|Services                                                   |  |                        | 95,753  |   |                     | 1,003   |   |                   | 1,828   |   |              |         |   |              | 98,584 
|Other                                                      |  |                        | 51,650  |   |                     | 14,537  |   |                   | 12,626  |   |              |         |   |              | 78,813 
|                                                           |  |                        |         |   |                     |         |   |                   |         |   |              |         |   |              |        
|Net revenues from external customers                       |  |                        | 851,159 |   |                     | 16,477  |   |                   | 17,061  |   |              | —       |   |              | 884,697
|Intersegment revenues                                      |  |                        | 2,592   |   |                     | 1,389   |   |                   |         |   |              | (3,981  | ) |              |        
|                                                           |  |                        |         |   |                     |         |   |                   |         |   |              |         |   |              |        
|Total Net Revenues                                         |  |                        | 853,751 |   |                     | 17,866  |   |                   | 17,061  |   |              | (3,981  | ) |              | 884,697
|                                                           |  |                        |         |   |                     |         |   |                   |         |   |              |         |   |              |        
|Products                                                   |  |                        | 351,630 |   |                     | 2,283   |   |                   | 2,530   |   |              | (891    | ) |              | 355,552
|Services                                                   |  |                        | 44,617  |   |                     | 775     |   |                   |         |   |              | (207    | ) |              | 45,185 
|Other                                                      |  |                        | 6,777   |   |                     | 762     |   |                   | 4,888   |   |              | (1,576  | ) |              | 10,851 
|                                                           |  |                        |         |   |                     |         |   |                   |         |   |              |         |   |              |        
|Total Cost of Sales                                        |  |                        | 403,024 |   |                     | 3,820   |   |                   | 7,418   |   |              | (2,674  | ) |              | 411,588
|                                                           |  |                        |         |   |                     |         |   |                   |         |   |              |         |   |              |        
|Gross Margin                                               |  |                        | 450,727 |   |                     | 14,046  |   |                   | 9,643   |   |              | (1,307  | ) |              | 473,109
|Selling, general and administrative                        |  |                        | 216,875 |   |                     | 9,106   |   |                   | 4,798   |   |              | 25,022  |   |              | 255,801
|Corporate allocated expenses                               |  |                        | 20,562  |   |                     | 3,089   |   |                   | 1,371   |   |              | (25,022 | ) |              |        
|Research, development and engineering                      |  |                        | 93,009  |   |                     | 48,584  |   |                   | 21,001  |   |              | (1,247  | ) |              | 161,347
|Amortization of intangible assets                          |  |                        |         |   |                     | 1,450   |   |                   |         |   |              |         |   |              | 1,450  
|Employee-related
    charges, asset impairments, and other |  |                        | 12,527  |   |                     | 2,846   |   |                   |         |   |              |         |   |              | 15,373 
|Asset dispositions and legal settlements                   |  |                        | (38,172 | ) |                     |         |   |                   |         |   |              |         |   |              | (38,172
|                                                           |  |                        |         |   |                     |         |   |                   |         |   |              |         |   |              |        
|Operating Income (Loss)                                    |  |                        | 145,926 |   |                     | (51,029 | ) |                   | (17,527 | ) |              | (60     | ) |              | 77,310 
|Interest income, net                                       |  |                        | 5,880   |   |                     | 6,197   |   |                   |         |   |              |         |   |              | 12,077 
|Other income (expense), net                                |  |                        | 2,021   |   |                     | 1,146   |   |                   |         |   |              |         |   |              | 3,167  
|Loss from joint venture                                    |  |                        |         |   |                     | (17,527 | ) |                   |         |   |              | 17,527  |   |              |        
|                                                           |  |                        |         |   |                     |         |   |                   |         |   |              |         |   |              |        
|Income (Loss) before Income Taxes                          |  |                        | 153,827 |   |                     | (61,213 | ) |                   | (17,527 | ) |              | 17,467  |   |              | 92,554 
|Provision (benefit) for income taxes                       |  |                        | 44,056  |   |                     | (21,425 | ) |                   |         |   |              | (1,043  | ) |              | 21,588 
|                                                           |  |                        |         |   |                     |         |   |                   |         |   |              |         |   |              |        
|Net Income (Loss)                                          |  | $                      | 109,771 |   | $                   | (39,788 | ) | $                 | (17,527 | ) | $            | 18,510  |   | $            | 70,966 
|                                                           |  |                        |         |   |                     |         |   |                   |         |   |              |         |   |              |        

28

---



Back to Index

APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

Condensed Consolidating
Statement of Financial Position at June 30, 2005

|(Dollar amounts in thousands)                  |  |   | AppliedBiosystemsGroup |  | CeleraGenomicsGroup |         | CeleraDiagnostics |   | Eliminations |  | Consolidated |        
|---------------------------------------------- |  | - | ---------------------- |  | ------------------- | ------- | ----------------- | - | ------------ |  | ------------ | -------
|                                               |  |   |                        |  |                     |         |                   |   |              |  |              |        
|Assets                                         |  |   |                        |  |                     |         |                   |   |              |  |              |        
|Current assets                                 |  |   |                        |  |                     |         |                   |   |              |  |              |        
|Cash and cash equivalents                      |  | $ | 756,236                |  | $                   | 23,165  |                   | $ | —            |  | $            | —      
|Short-term investments                         |  |   |                        |  |                     | 645,084 |                   |   |              |  |              |        
|Accounts receivable, net                       |  |   | 378,159                |  |                     | 1,409   |                   |   | 5,352        |  |              | (982   
|Inventories, net                               |  |   | 117,168                |  |                     | 335     |                   |   | 9,038        |  |              |        
|Prepaid expenses and other current assets      |  |   | 139,246                |  |                     | 7,150   |                   |   | 11,630       |  |              | (5,381 
|                                               |  |   |                        |  |                     |         |                   |   |              |  |              |        
|Total current assets                           |  |   | 1,390,809              |  |                     | 677,143 |                   |   | 26,020       |  |              | (6,363 
|Property, plant and equipment, net             |  |   | 400,422                |  |                     | 32,131  |                   |   | 6,436        |  |              | (591   
|Other long-term assets                         |  |   | 498,832                |  |                     | 159,957 |                   |   | 4,679        |  |              | (25,290
|                                               |  |   |                        |  |                     |         |                   |   |              |  |              |        
|Total Assets                                   |  | $ | 2,290,063              |  | $                   | 869,231 |                   | $ | 37,135       |  | $            | (32,244
|                                               |  |   |                        |  |                     |         |                   |   |              |  |              |        
|                                               |  |   |                        |  |                     |         |                   |   |              |  |              |        
|Liabilities and Stockholders'
    Equity       |  |   |                        |  |                     |         |                   |   |              |  |              |        
|Current liabilities                            |  |   |                        |  |                     |         |                   |   |              |  |              |        
|Accounts payable                               |  | $ | 167,060                |  | $                   | 7,689   |                   | $ | 5,302        |  | $            | (6,029 
|Accrued salaries and wages                     |  |   | 74,598                 |  |                     | 11,925  |                   |   | 4,665        |  |              |        
|Accrued taxes on income                        |  |   | 66,792                 |  |                     | 10,535  |                   |   |              |  |              |        
|Other accrued expenses                         |  |   | 238,242                |  |                     | 11,098  |                   |   | 1,528        |  |              | (734   
|                                               |  |   |                        |  |                     |         |                   |   |              |  |              |        
|Total current liabilities                      |  |   | 546,692                |  |                     | 41,247  |                   |   | 11,495       |  |              | (6,763 
|Other long-term liabilities                    |  |   | 220,461                |  |                     | 6,891   |                   |   | 79           |  |              |        
|                                               |  |   |                        |  |                     |         |                   |   |              |  |              |        
|Total Liabilities                              |  |   | 767,153                |  |                     | 48,138  |                   |   | 11,574       |  |              | (6,763 
|                                               |  |   |                        |  |                     |         |                   |   |              |  |              |        
|                                               |  |   |                        |  |                     |         |                   |   |              |  |              |        
|Total Stockholders' Equity                     |  |   | 1,522,910              |  |                     | 821,093 |                   |   | 25,561       |  |              | (25,481
|                                               |  |   |                        |  |                     |         |                   |   |              |  |              |        
|Total Liabilities and Stockholders'
    Equity |  | $ | 2,290,063              |  | $                   | 869,231 |                   | $ | 37,135       |  | $            | (32,244
|                                               |  |   |                        |  |                     |         |                   |   |              |  |              |        

29

---



Back to Index

APPLERA CORPORATION
  NOTES TO UNAUDITED
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  continued

Condensed Consolidating Statement of Cash Flows
      for the Six Months Ended December 31, 2004

|(Dollar
            amounts in thousands)                            |  | Applied
      Biosystems
      Group |          | Celera
      Genomics
      Group |   | Celera
      Diagnostics |   | Eliminations |         | Consolidated |  
|-------------------------------------------------------------------- |  | ------------------------------------ | -------- | --------------------------------- | - | ------------------------ | - | ------------ | ------- | ------------ | -
|                                                                     |  |                                      |          |                                   |   |                          |   |              |         |              |  
|Operating Activities of Continuing
          Operations              |  |                                      |          |                                   |   |                          |   |              |         |              |  
|Net income (loss)                                                    |  | $                                    | 109,771  |                                   | $ | (39,788                  | ) | $            | (17,527 | )            | $
|Adjustments to reconcile net
        income (loss) to net cash       |  |                                      |          |                                   |   |                          |   |              |         |              |  
|provided
        (used) by operating activities:                     |  |                                      |          |                                   |   |                          |   |              |         |              |  
|Depreciation
        and amortization                                |  |                                      | 42,862   |                                   |   | 5,823                    |   |              | 3,912   |              |  
|Asset
        impairments                                            |  |                                      | 2,315    |                                   |   | 1,910                    |   |              |         |              |  
|Employee-related
        charges and other                           |  |                                      | 4,576    |                                   |   | 2,638                    |   |              |         |              |  
|Share-based
        compensation programs                            |  |                                      | 1,546    |                                   |   | 756                      |   |              |         |              |  
|Sale
        of assets and legal settlements, net                    |  |                                      | (29,672  | )                                 |   |                          |   |              |         |              |  
|Deferred
        income taxes                                        |  |                                      | (12,955  | )                                 |   | 8,578                    |   |              |         |              |  
|Loss
        from joint venture                                      |  |                                      |          |                                   |   | 17,527                   |   |              |         |              |  
|Nonreimbursable
        utilization of intergroup tax benefits       |  |                                      | 23,080   |                                   |   | (23,080                  | ) |              |         |              |  
|Changes in operating assets
        and liabilities:                 |  |                                      |          |                                   |   |                          |   |              |         |              |  
|Accounts
        receivable                                          |  |                                      | 27,660   |                                   |   | 1,436                    |   |              | (4,475  | )            |  
|Inventories                                                          |  |                                      | (9,111   | )                                 |   | (50                      | ) |              | 1,564   |              |  
|Prepaid
        expenses and other assets                            |  |                                      | (1,538   | )                                 |   | 711                      |   |              | (4,491  | )            |  
|Accounts
        payable and other liabilities                       |  |                                      | (27,418  | )                                 |   | (22,649                  | ) |              | (1,881  | )            |  
|                                                                     |  |                                      |          |                                   |   |                          |   |              |         |              |  
|Net Cash Provided (Used)
          by Operating Activities           |  |                                      |          |                                   |   |                          |   |              |         |              |  
|of Continuing
          Operations                                   |  |                                      | 131,116  |                                   |   | (46,188                  | ) |              | (22,898 | )            |  
|                                                                     |  |                                      |          |                                   |   |                          |   |              |         |              |  
|Investing Activities of Continuing
          Operations              |  |                                      |          |                                   |   |                          |   |              |         |              |  
|Additions to property, plant
        and equipment, net              |  |                                      | (15,980  | )                                 |   | (2,963                   | ) |              | (666    | )            |  
|Proceeds from maturities of
        available-for-sale investments   |  |                                      |          |                                   |   | 1,329,964                |   |              |         |              |  
|Proceeds from sales of available-for-sale
        investments        |  |                                      | 111,450  |                                   |   | 260,366                  |   |              |         |              |  
|Purchases of available-for-sale
        investments                  |  |                                      | (109,525 | )                                 |   | (1,510,574               | ) |              |         |              |  
|Acquisitions and investments
        in joint venture and other, net |  |                                      | (5,206   | )                                 |   | (18,590                  | ) |              |         |              |  
|Proceeds from the sale of assets,
        net                        |  |                                      | 7,079    |                                   |   |                          |   |              |         |              |  
|                                                                     |  |                                      |          |                                   |   |                          |   |              |         |              |  
|Net Cash Provided (Used)
          by Investing Activities           |  |                                      |          |                                   |   |                          |   |              |         |              |  
|of Continuing
          Operations                                   |  |                                      | (12,182  | )                                 |   | 58,203                   |   |              | (666    | )            |  
|                                                                     |  |                                      |          |                                   |   |                          |   |              |         |              |  
|Net Cash Provided by Operating
          Activities                  |  |                                      |          |                                   |   |                          |   |              |         |              |  
|of Discontinued
          Operations                                 |  |                                      | 513      |                                   |   |                          |   |              |         |              |  
|                                                                     |  |                                      |          |                                   |   |                          |   |              |         |              |  
|Financing Activities                                                 |  |                                      |          |                                   |   |                          |   |              |         |              |  
|Principal payments on debt                                           |  |                                      |          |                                   |   | (6,000                   | ) |              |         |              |  
|Dividends                                                            |  |                                      | (8,321   | )                                 |   |                          |   |              |         |              |  
|Net cash funding from groups                                         |  |                                      |          |                                   |   |                          |   |              | 23,564  |              |  
|Proceeds from stock issued for
        stock plans and other         |  |                                      | 9,881    |                                   |   | 2,923                    |   |              |         |              |  
|                                                                     |  |                                      |          |                                   |   |                          |   |              |         |              |  
|Net Cash Provided (Used)
          by Financing Activities           |  |                                      | 1,560    |                                   |   | (3,077                   | ) |              | 23,564  |              |  
|                                                                     |  |                                      |          |                                   |   |                          |   |              |         |              |  
|Effect of Exchange Rate Changes
          on Cash                    |  |                                      | 31,030   |                                   |   |                          |   |              |         |              |  
|                                                                     |  |                                      |          |                                   |   |                          |   |              |         |              |  
|Net Change in Cash and Cash
          Equivalents                    |  |                                      | 152,037  |                                   |   | 8,938                    |   |              |        |              |  
|Cash and Cash Equivalents
          Beginning of Period              |  |                                      | 456,322  |                                   |   | 51,548                   |   |              |         |              |  
|                                                                     |  |                                      |          |                                   |   |                          |   |              |         |              |  
|Cash and Cash Equivalents
          End of Period                    |  | $                                    | 608,359  |                                   | $ | 60,486                   |   | $            |        |              | $
|                                                                     |  |                                      |          |                                   |   |                          |   |              |         |              |  
|                                                                     |  |                                      |          |                                   |   |                          |   |              |         |              |  



30

---



Back to Index

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

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

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

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

During the third quarter of fiscal 2005, we reclassified costs supporting
our patent related activities from R&D expenses to SG&A expenses. This
reclassification had no impact on net income or earnings per share. The reclassified
amount was approximately $7 million for the second quarter of fiscal 2005 and
$13 million for the first six months of fiscal 2005.

Commencing in the third quarter of fiscal 2005, we began classifying all of our investments in auction rate securities as short-term investments. Prior to fiscal 2005, some of these securities were included in cash and cash equivalents. Short-term investments included approximately $87 million of auction rate securities at December 31, 2004. This reclassification had no impact on results of operations or previously reported cash flows from operations or financing activities.

OverviewThrough December 31, 2005, we were comprised of three business segments: the Applied Biosystems group, the Celera Genomics group, and Celera Diagnostics.

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

The Celera Genomics group has been engaged principally in the discovery and development of targeted therapeutics for cancer, autoimmune, and inflammatory diseases. The Celera Genomics group has been focused on leveraging its proteomic, bioinformatic, and genomic capabilities to identify and validate drug targets, as well as advancing therapeutic antibody and selected small molecule drug programs in collaboration with global technology and market leaders. On January 9, 2006, the Celera Genomics group announced that it will sell or partner its small molecule drug discovery and development programs. Please see Note 14 to our condensed consolidated financial statements for more information.

Through December 31, 2005, Celera Diagnostics was a 50/50 joint
venture between the Applied Biosystems group and the Celera Genomics group. Effective
January 1, 2006, the Celera Genomics group acquired the Applied Biosystems groups
50 percent interest in the Celera Diagnostics joint venture such that it now
owns 100 percent of Celera Diagnostics. Please see Note 14 to our condensed consolidated
financial statements for more information. Since its formation in fiscal 2001,
Celera Diagnostics has been focused on the discovery, development, and commercialization
of diagnostic products. As part of the Celera Genomics group, the diagnostics
business will continue to focus on these areas.

31

---



Back to Index

APPLERA CORPORATION
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS continued

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

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

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

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

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

Business Highlights:

|Applera
    Corporation     
|----------------------------
|•                           
|                            
|Applied
    Biosystems Group
|•                           
|•                           
|                            
|Celera
    Genomics Group   
|•                           

32

---



Back to Index

APPLERA CORPORATION
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS continued

|•                  | The proteomics
        discovery program has now yielded 38 validated cancer targets, while
        124 additional potential targets have been selected for functional and
        expression validation studies. These targets represent discoveries from
        pancreatic, colon, breast, and lung cancer specimens, while discovery
    efforts are underway in gastric and prostate programs.                                                                                                                                                                                                                                                                                                                                                                                             
|------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Celera Diagnostics
|•                  | In October 2005, Celera
        Diagnostics published a paper in the American Journal of Human Geneticson
        an additional novel association of rheumatoid arthritis (RA)
        with two variants in the PTPN22 gene. This is the continuation of Celera
        Diagnostics work in RA and the discovery of a phosphatase gene
        that is associated with multiple autoimmune diseases. The business plans
        to use the resultant information, along with that on other unpublished
        biomarkers for RA and psoriasis, to assess these markers pharmacogenomic
        utility in drug trials for these autoimmune diseases.                                                                                                                                       
|•                  | In November 2005, Celera
        Diagnostics presented data at the Association for Molecular Pathology
        (AMP) meeting on amplification of normal and pre-mutation
        triplet repeats in the fragile X gene and determining the size of these
        repeats on the ABI PRISM®3100 and 3130 Genetic Analyzers.
        Fragile X Syndrome is the leading cause of inherited mental retardation.
        Also included were data on the amplification of a novel gender gene that
        can be used to determine whether females have two normal copies of the
        repeat. The business is providing reagents and training to nine participating
        laboratories as part of an AMP-sponsored program to develop and characterize
    new controls for fragile X testing.
|•                  | At the American Heart
        Association meeting in Dallas, Texas in November 2005, Professor Eric
        Boerwinkle, Director of the Human Genetics Center at the University of
        Texas, gave a lecture that described the results of his collaboration
        with Celera Diagnostics on a genetic analysis of the Atherosclerosis
        Risk in Communities study and the concept of a Genetic Risk Score for
    coronary heart disease.                                                                                                                                                                                                                                                                                                                                        
|•                  | In January 2006, we
        announced that we restructured Celera Diagnostics strategic alliance
        with Abbott Laboratories. Under the alliance agreement as restructured,
        the companies will continue to work with each other exclusively through
        a profit sharing arrangement in most areas of molecular diagnostics,
        while both companies will also work independently outside the alliance
        in other selected areas. As part of this restructured agreement, a low
        resolution human leukocyte antigen (HLA) product line was
        removed from the alliance as a result of Abbotts termination of
    its distribution agreement with Innogenetics in December 2005.                                                                    

Critical Accounting Estimates
  There were no material changes to our critical accounting estimates during
      the first six months of fiscal 2006. For further information on our critical
accounting estimates, please refer to the discussion contained in the managements
discussion and analysis section of our 2005 Annual Report to Stockholders (which
discussion is incorporated in this quarterly report by reference).

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

|                                                            |  | Three
    months endedDecember
    31, |      | Six
    months endedDecember 31, |  
|----------------------------------------------------------- |  | -------------------------------------- | ---- | -------------------------------- | -
|                                                            |  |                                        |      |                                  |  
|(Dollar amounts in millions)                                |  |                                        | 2004 |                                  |  
|                                                            |  |                                        |      |                                  |  
|Severance and benefit costs                                 |  | $                                      | (2.9 | )                                | $
|Excess lease space                                          |  |                                        | (2.3 | )                                |  
|Asset impairments                                           |  |                                        |      |                                  |  
|Reduction of expected costs                                 |  |                                        |      |                                  |  
|                                                            |  |                                        |      |                                  |  
|Total employee-related charges, asset impairments and other |  | $                                      | (5.2 | )                                | $
|                                                            |  |                                        |      |                                  |  
|Other events impacting comparability:                       |  |                                        |      |                                  |  
|Impairment
    of inventory recorded in cost of sales       |  | $                                      | —    |                                  | $
|Asset
    dispositions and legal settlements                |  |                                        | 29.7 |                                  |  
|Investment
    gains                                        |  |                                        |      |                                  |  
|Tax
    items                                               |  |                                        |      |                                  |  
|                                                            |  |                                        |      |                                  |  

33

---



Back to Index



APPLERA
CORPORATION
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS continued



Employee-Related Charges, Asset Impairments and Other
  The following items have been recorded in the condensed consolidated statements
    of operations in employee-related charges, asset impairments and other, except
    as noted.

Applied Biosystems group
Fiscal 2006
In the second quarter
    of fiscal 2006, the Applied Biosystems group recorded pre-tax charges of
    $1.5 million for employee terminations related to
the Applied Biosystems/MDS Sciex Instruments business, a 50/50 joint venture
between the Applied Biosystems group and MDS Inc. MDS recorded a restructuring
charge for a reduction in workforce as part of its strategy to focus on the life
sciences market. The $1.5 million represents the Applied Biosystems groups
share of the restructuring charge.

The Applied Biosystems group recorded pre-tax benefits of $1.2 million in the
    second quarter and $1.4 million in the first six months of fiscal 2006 for
    reductions in anticipated employee-related costs associated with the severance
    and benefit charges recorded in fiscal 2005.

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

Fiscal 2005
During the first six
    months of fiscal 2005, the Applied Biosystems group recorded pre-tax charges
    of $12.5 million, of which $10.2 million was for
employee terminations and $2.3 million related to the cost of excess lease space
at a facility in Massachusetts. The charge for the excess lease space represented
the estimated cost of excess facility space less estimated future sublease income
for a lease that extends through fiscal 2011. The severance charges related primarily
to staff reductions intended to better align the Applied Biosystems groups resources with anticipated business opportunities and to integrate the Applied Biosystems MALDI Time-of-Flight (TOF)
product line into Applied Biosystems/MDS Sciex Instruments joint venture. The
positions eliminated were primarily in the areas of research, manufacturing,
sales and administration. Following these actions, the Applied Biosystems group
has hired, and may continue to hire, additional appropriately skilled employees
to support future business needs.

As of June 30, 2005, all of the affected employees had been terminated and substantially
    all cash payments related to the terminations had been made. In regards to
    the excess lease space charge, through the six months ended December 31,
    2005, we had made cash payments of $0.4 million. The cash expenditures were
    funded by cash provided by operating activities.

Other
During the first six months of fiscal 2006, the Applied Biosystems group made
    cash payments of $9.5 million for severance and employee benefits and office
    closures related to charges recorded prior to fiscal 2006. The following
    table summarizes the remaining cash payments by event and the expected payment
    dates as of December 31, 2005.

|(Dollar amounts in millions)                     |  |   | Remaining
    cash payments |  | Expected payment dates        | 
|------------------------------------------------ |  | - | --------------------------- |  | ----------------------------- | 
|                                                 |  |   |                             |  |                               | 
|Fiscal 2003 employee-related charge              |  | $ | 0.5                         |  | Fiscal 2006  Fiscal
    2007 | 
|Fiscal 2005 employee-related charge              |  |   | 0.9                         |  | 3rd Quarter of Fiscal 2006    | 
|Fiscal 2005 excess lease space and other charges |  |   | 2.6                         |  | Fiscal 2006  Fiscal
    2011 | 
|                                                 |  |   |                             |  |                               | 
|                                                 |  | $ | 4.0                         |  |                               | 
|                                                 |  |   |                             |  |                               | 

Celera Genomics group
During the first quarter of fiscal 2005, the Celera Genomics group recorded pre-tax
    charges totaling $4.5 million related to our decision to discontinue promotion
    of products and most operations of Paracel, Inc., a business we acquired
    in fiscal 2000. Paracel developed high-performance genomic data and text
    analysis systems for the pharmaceutical,

34

---



Back to Index

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

biotechnology, information services, and government markets. Due to a shift in focus, Paracel was no longer deemed strategic to the overall business. The $4.5 million charge consisted of $2.8 million in employee-related charges, asset impairments and other, of which $1.1 million was for severance and benefit costs and $1.7 million was for excess facility lease expenses and asset impairments. The Celera Genomics group recorded the remaining $1.7 million in cost of sales for the impairment of Paracel inventory. The charge for excess facility lease expenses and asset impairments was primarily for a revision to an accrual initially recorded in fiscal 2002 for the estimated cost of excess facility space for a lease that extends through fiscal 2011 and to write off related fixed assets.

As of March 31, 2005, the majority of the affected Paracel employees had been terminated. Substantially all cash payments related to these terminations were made as of June 30, 2005. During the first six months of fiscal 2006, we made cash payments of $1.1 million related to the excess lease space charge. The cash expenditures were funded by available cash. The remaining cash expenditures, of approximately $4.1 million related to excess lease space, are expected to be disbursed by fiscal 2011. Although the Celera Genomics group anticipates modest expenses related to the closure of the Paracel business and completion of remaining service obligations during fiscal 2006, these amounts are not expected to have a material impact on future operating results.

OtherIn the fourth quarter of fiscal 2005, the Celera Genomics group recorded a pre-tax charge of $3.4 million related to the discontinuation of the Online/Information Business, an information products and service business. This charge consisted of $1.8 million for severance and benefit costs and $1.6 million for asset impairments, primarily related to information-technology leases. During the first six months of fiscal 2006, the Celera Genomics group made cash payments of $1.5 million for severance and employee benefits and $1.4 million primarily for information technology leases related to this charge. The cash expenditures were funded by available cash. As of September 30, 2005, all affected employees had been terminated. The remaining cash expenditures related to this action of approximately $0.3 million are expected to be disbursed by the end of fiscal 2006.

Other Events Impacting Comparability

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

In the first quarter of fiscal 2006, we recorded a $23.5 million pre-tax charge related to an outstanding litigation matter and arbitration award. We recorded the pre-tax charge as follows: $22.8 million at the Applied Biosystems group, $0.5 million at the Celera Genomics group, and $0.2 million at Celera Diagnostics. The charge included an estimate of the liability that would be incurred by us to resolve the litigation matter and the arbitration award described below. In the second quarter of fiscal 2006, we recorded an additional pre-tax charge of $3.1 million as a result of the final determination of interest related to the arbitration award.

With regard to the arbitration matter, on November 1, 2005, an arbitrator issued his decision in a proceeding filed by Amersham Biosciences, now GE Healthcare. The matter involved the interpretation of a license agreement relating to DNA sequencing reagents and kits. Amersham had alleged, among other things, that the Applied Biosystems group had underpaid royalties under the license agreement. The arbitrator awarded Amersham past damages based on an increase in royalty rates for some of its DNA sequencing enzymes and kits that contain those enzymes, plus interest, fees, and other costs. As a result of this decision, the Applied Biosystems group recorded a pre-tax charge of $20.4 million in the first quarter of fiscal 2006, $19.5 million of which was recorded in asset dispositions and legal settlements. As mentioned above, the Applied Biosystems group recorded an additional charge of $3.1 million in the second quarter of fiscal 2006 related to the award. We paid all amounts related to this matter
 in January 2006.

During the second quarter of fiscal 2005, the Applied Biosystems group recorded a net pre-tax gain of $29.7 million for the sale of intellectual property, manufacturing inventory, and research and development assets related to the expansion of the scope of the Applied Biosystems/MDS Sciex Instruments joint venture with MDS Inc. Under the terms of the transaction, we received $8 million in cash and a $30 million note receivable for a 50 percent interest in intellectual property assets related to current Applied Biosystems MALDI TOF mass spectrometry systems and next-generation

35

---



Back to Index

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

product-related manufacturing and research and development assets. The note receivable is due in 5 years, of which $6 million is payable in October 2006 and $8 million in October 2007, 2008, and 2009.

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

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

Tax itemsDuring the first quarter of fiscal 2006, the Applied Biosystems group recorded a tax benefit of $13.5 million related to the resolution of transfer pricing matters in Japan. During the second quarter of fiscal 2006, the Applied Biosystems group recorded tax charges of $28.0 million related to repatriation of cash balances held outside the U.S. This charge included the estimated tax on a $500 million repatriation of cash as well as anticipated taxes on additional overseas dividends.

Adoption
of SFAS No. 123RWe
adopted Statement of Financial Accounting Standards (SFAS) No. 123, Share-Based Payment (revised 2004) in
July 2005. SFAS No. 123R requires entities to measure and recognize the cost
of employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. We adopted SFAS No. 123R using
the modified prospective method of transition. This method requires us to apply
the provisions of SFAS No. 123R to new awards and to any awards that were unvested
as of our adoption date and does not require us to restate prior periods.

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

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

We recorded pre-tax charges of $2.8 million ($2.1 million net of tax) for the second quarter of fiscal 2006 and $4.4 million ($3.2 million net of tax) for the first six months of fiscal 2006 in our condensed consolidated statements of operations for compensation costs related to our share-based plans. These amounts included $1.9 million in the second quarter and $2.6 million in the first six months of fiscal 2006 for our restricted stock plans, which would have been recorded as compensation expense under APB Opinion No. 25. As of December 31, 2005, $25.5 million of total unrecognized compensation costs related to nonvested awards is expected to be recognized over a weighted average period of two years.

36

---



Back to Index

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

Discussion of Applera Corporations Consolidated Operations

|                                                  | Three Months EndedDecember 31, |      | Six Months EndedDecember 31, |     
|------------------------------------------------- | ------------------------------ | ---- | ---------------------------- | ----
|                                                  |                                |      |                             
|                                                  |                                |      |                              |     
|(Dollar amounts in millions)                      | 2004                           | 2005 | (Decrease)                   | 2004
|                                                  |                                |      |                              |     
|Net revenues                                      |                                | $    | 477.5                        |     
|Cost of sales                                     |                                |      | 224.3                        |     
|                                                  |                                |      |                              |     
|Gross margin                                      |                                |      | 253.2                        |     
|SG&A expenses                                     |                                |      | 132.2                        |     
|R&D                                               |                                |      | 80.3                         |     
|Amortization of intangible assets                 |                                |      | 0.7                          |     
|Employee-related charges, asset                   |                                |      |                              |     
|impairments and other                             |                                |      | 5.2                          |     
|Asset
         dispositions and legal settlements |                                |      | (29.7                        | )   
|                                                  |                                |      |                              |     
|Operating income                                  |                                |      | 64.5                         |     
|Gain on investments, net                          |                                |      |                              |     
|Interest income, net                              |                                |      | 6.8                          |     
|Other income (expense), net                       |                                |      | 1.1                          |     
|                                                  |                                |      |                              |     
|Income before income taxes                        |                                |      | 72.4                         |     
|Provision for income taxes                        |                                |      | 17.5                         |     
|                                                  |                                |      |                              |     
|Net income                                        |                                | $    | 54.9                         |     
|                                                  |                                |      |                              |     
|Percentage of net revenues:                       |                                |      |                              |     
|Gross margin                                      |                                |      | 53.0%                        |     
|SG&A expenses                                     |                                |      | 27.7%                        |     
|R&D                                               |                                |      | 16.8%                        |     
|Operating income                                  |                                |      | 13.5%                        |     
|                                                  |                                |      |                              |     
|Effective income tax rate                         |                                |      | 24%                          |     
|                                                  |                                |      |                              |     

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

|                                                                | Three Months Ended
    December 31, |   | Six
    Months Ended
   December 31, | 
|--------------------------------------------------------------- | ----------------------------------- | - | ------------------------------------ | 
|                                                                |                                     |   |                                      | 
|(Dollar amounts in millions)                                    |                                     |   | 2004                                 | 
|                                                                |                                     |   |                                      | 
|Income
         (charge) included in income before income taxes |                                     | $ | 24.5                                 | 
|Provision for income taxes                                      |                                     |   | 7.8                                  | 
|                                                                |                                     |   |                                      | 

Net income decreased in the second quarter and first six months
of fiscal 2006 primarily due to the previously described events impacting comparability,
higher SG&A expenses at the Applied Biosystems group, and lower revenues at the Celera Genomics group. Partially offsetting this decrease were higher net revenues and lower R&D
expenses at the Applied Biosystems group. The net unfavorable effect of foreign
currency on net income was approximately $3 million during the second quarter
of fiscal 2006 and approximately $4 million during the first six months of fiscal
2006 as compared to the prior year periods. Please read our discussion of segments
for information on their financial results.

Net revenues, including the unfavorable effects of foreign currency, increased in the second quarter and first six months of fiscal 2006 compared with the prior year periods. The unfavorable effects of foreign currency decreased net revenues by approximately 2% for the second quarter and approximately 1% for the first six months of fiscal 2006 compared to the prior year periods.

37

---



Back to Index

APPLERA
        CORPORATIONMANAGEMENTS
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS
  continued

|• | Net
      revenues increased at the Applied Biosystems group, driven by strength in
      the Real-Time PCR/Applied Genomics and Mass Spectrometry product categories.
      For the first six months of fiscal 2006, net revenues also increased in
      the DNA Sequencing product category.                                                                                                                                                                                                                                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Net revenues decreased at the Celera Genomics group, primarily as a result of the discontinuation of the Online/Information Business.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|• | Celera Diagnostics net revenues
        increased for the second quarter of fiscal 2006 primarily as a result
        of higher equalization payments under the profit and cost-sharing arrangement
        with Abbott Laboratories and higher sales to  Abbott, partially offset
        by lower licensing and collaborative revenues.
      Celera Diagnostics net revenues decreased for the first six months
      of fiscal 2006 due to lower equalization payments under the Abbott profit
      and cost-sharing arrangement, partially offset by higher
	  sales to Abbott.

The unfavorable effects of foreign currency decreased revenues by approximately 4% in Europe and by approximately 6% in Asia
 Pacific during the second quarter of fiscal 2006 as compared to the prior year quarter. Excluding the
 effects of foreign currency, revenues increased in Europe primarily as a result of sales of genetic
 analyzers and human identification products used in forensics and chromatography media. During the
 second quarter of fiscal 2006, revenues in Japan, which are included in total revenues for Asia
 Pacific, decreased approximately 12% as compared to the prior year quarter primarily due to
 unfavorable foreign currency effects of approximately 9%. In addition, the decrease was impacted by
 a large instrument order in the second quarter of fiscal 2005 that was not repeated in the second
 quarter of fiscal 2006. Revenues increased in other Asia Pacific countries by approximately 16%
 as compared to the prior year quarter, which included unfavorable foreign currency effects of
 approximately 1%, primarily due to higher sales of LC/MS/MS instruments for small molecule
 applications. Sales in the U.S. increased primarily due to sales of API triple quadrupole, or
 quad, systems, the purchase by a large customer of high throughput genetic analyzers, and
 increased royalty and licensing revenue.

The unfavorable effects of foreign currency decreased revenues by approximately 2% in Europe and by approximately 4% in Asia Pacific during the first six months of fiscal 2006 as compared to the prior year period. Revenues increased in Europe, driven primarily by sales of genetic analyzers and human identification products used in forensics, API triple quad systems, and chromatography media. During the first six months of fiscal 2006, revenues in Japan declined approximately 9% as compared to the prior year period primarily due to unfavorable foreign currency effects of approximately 7%. In addition, the decline resulted from a large instrument order in the second quarter of fiscal 2005 that was not repeated in the second quarter of fiscal 2006. Revenues increased in other Asia Pacific countries by approximately 16% as compared to the prior year period primarily due to higher sales of LC/MS/MS instruments for small molecule applications. Sales in the U.S. increased primarily due to sales of API
triple quad systems, the purchase by a large customer of high throughput genetic analyzers, and increased royalty and licensing revenue.

The higher gross margin percentage for both the second quarter and first six months of fiscal 2006 as compared to the prior year periods was due primarily to an increase in royalty and licensing revenues, sales of some higher margin products in the Real-Time PCR/Applied Genomics product category, and a decrease in software amortization. Service margins at the Applied Biosystems group improved for the second quarter and first six months of fiscal 2006 primarily driven by growth in the volume of service contracts, as well as higher pricing on selected billable parts and service contracts. Partially offsetting these increases were lower revenues at the Celera Genomics group and higher royalty expenses and the unfavorable effects of foreign currency at the Applied Biosystems group.

SG&A expenses for the second quarter of fiscal 2006 increased
compared to the prior year quarter due primarily to: increased employee-related
costs and sales force investments of approximately $5 million at the Applied
Biosystems group, including the impact of adopting SFAS No. 123R; increased spending
of approximately $5 million on strategic initiatives, legal expenses, the development
of, and enhancements to, the Applied Biosystems Portal, and outside consultant
costs at the Applied Biosystems group; and higher professional and legal services
at the Celera Genomics group. This increase was partially offset by the favorable
effects of foreign currency of approximately $2 million and lower expenses due
to the discontinuation of the Online/Information Business.

SG&A expenses for the first six months of fiscal 2006 increased
compared to the prior year period due primarily to: increased employee-related
costs and sales force investments of approximately $10 million at the Applied
Biosystems

38

---



Back to Index

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

group, including the impact of adopting SFAS No. 123R; increased spending of approximately $7 million on strategic initiatives, the development of, and enhancements to, the Applied Biosystems Portal, and outside consultant costs at the Applied Biosystems group; and higher professional and legal services at the Celera Genomics group. This increase was partially offset by the favorable effects of foreign currency, lower legal expenses of approximately $3 million at the Applied Biosystems group, and lower expenses due to the discontinuation of most of the operations of Paracel and the discontinuation of the Online/Information Business.

R&D expenses decreased for both the second quarter and first six months of fiscal 2006 compared to the prior year periods primarily as a result of cost savings realized from the integration in fiscal 2005 of the MALDI TOF product line into the Applied Biosystems/MDS Sciex Instruments joint venture with MDS Inc. at the Applied Biosystems group and the elimination of Online/Information Business R&D
expenses at the Celera Genomics group. Additionally, favorably impacting the
six month period was enhanced operational efficiencies at Celera Diagnostics.

Interest income, net increased during the second quarter and first six months of fiscal 2006 as compared to the same periods last year primarily due to higher average interest rates, partially offset by lower average cash and cash equivalents and short-term investments. The lower cash and cash equivalents and short-term investments were primarily as a result of the completion of the authorization granted by the board of directors in July 2005 for the repurchase of up to 10% of Applera Corporation-Applied Biosystems group outstanding shares.

The effective tax rate increased in the second quarter and first
six months of fiscal 2006 compared to the prior year periods primarily due to
the previously discussed events impacting comparability and, in particular, the
tax charge relating to the repatriation, under the American Jobs Creation Act,
of cash balances held outside the U.S., partially offset by an increase in R&D
credits at the Celera Genomics group. Partially offsetting this increase for
the year to date period was the benefit from the resolution of transfer pricing
matters in Japan recorded in the first quarter of fiscal 2006.

Applera
  Corporation
  Discussion
  of Condensed Consolidated Financial Resources and Liquidity

We had cash and cash equivalents and short-term investments of $1.1 billion at December 31, 2005, and $1.4 billion at June 30, 2005. We maintain a $200 million unsecured revolving credit agreement with four banks that matures on April 15, 2010, under which there were no borrowings outstanding at December 31, 2005. Cash provided by operating activities has been our primary source of funds over the last fiscal year.

We believe that existing funds, cash generated from operations, and existing sources of debt financing are more than adequate to satisfy our normal operating cash flow needs, planned capital expenditures, acquisitions, dividends, and approved plan share repurchases for the next twelve months and for the foreseeable future.

In January 2006, we announced that our board of directors authorized
the repurchase of up to 5 million shares of Applera-Applied Biosystems stock.
This authorization supplements our existing authority to repurchase shares of
Applera-Applied Biosystems stock and Applera-Celera Genomics stock from time
to time to replenish shares issued under our various employee stock benefit plans.
This new authorization has no time restrictions and delegates to management discretion
to purchase shares at times and prices it deems appropriate through open market
purchases, privately negotiated transactions, tender offers, exchange offers,
or otherwise. It is anticipated that repurchases will be made from time to time
depending on market conditions and will be funded using the Applied Biosystems
group's U.S. surplus cash and cash generated from domestic operations, as well
as funds to be borrowed under our revolving credit agreement, if and when required.

|(Dollar
    amounts in millions)                                         | June
      30,2005 |   | December
      31,2005 | 
|------------------------------------------------------------------------ | ------------------ | - | ---------------------- | 
|                                                                         |                    |   |                        | 
|Cash
      and cash equivalents                                          |                    | $ | 779.4                  | 
|Short-term
      investments                                             |                    |   | 645.1                  | 
|                                                                         |                    |   |                        | 
|Total
        cash and cash equivalents and short-term
      investments |                    | $ | 1,424.5                | 
|Working
      capital                                                    |                    |   | 1,494.9                | 
|                                                                         |                    |   |                        | 

39

---



Back to Index

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

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

Net cash flows from continuing operations for the six months ended December 31 were as follows:

|(Dollar
      amounts in millions)            |  |   | 2004 |   |   | 2005   |  
|--------------------------------------------- |  | - | ---- | - | - | ------ | -
|                                              |  |   |      |   |   |        |  
|Net
      cash from operating activities      |  | $ | 61.8 |   | $ | 124.7  |  
|Net
      cash from investing activities      |  |   | 69.2 |   |   | 30.5   |  
|Net
      cash used in financing activities   |  |   | (1.5 | ) |   | (394.9 | )
|Effect
      of exchange rate changes on cash |  |   | 31.0 |   |   | (8.7   | )
|                                              |  |   |      |   |   |        |  

Operating
  activities:The increase in net
  cash provided from operating activities for the first six months of fiscal
  2006 compared to the first six months of fiscal 2005 resulted primarily from
  higher
  income-related cash flows and a higher source of cash from an increase in accounts
  payable and other liabilities, primarily due to the timing of income tax payments
  at the Applied Biosystems group. At the Celera Genomics group, working capital
  primarily benefited from a lower decrease in accounts payable and other liabilities,
  in part due to the discontinuation of the Online/Information Business, partially
  offset by higher severance and lease payments in the first six months of fiscal
  2006 compared to the first six months of fiscal 2005.

Investing
  activities:Capital
  expenditures, net of disposals, in the first six months of fiscal 2006 were
  $6.4 million higher than in the prior year period due primarily to the development
  of, and enhancements to, the Applied Biosystems Portal. The first six months
  of fiscal 2006 included lower proceeds generated from sales and maturities of
  available-for-sale investments, net of purchases. The first six months of fiscal
  2005 included approximately $7 million received from MDS representing the first
  installment payment related to the previously discussed sale of MALDI TOF assets,
  net of expenses, and the maturation of non-callable U.S. government obligations,
  pledged as collateral for the 8% senior secured convertible notes assumed in
  connection with the acquisition of Axys. A portion of the proceeds from the
  principal and interest received on these U.S. government obligations was used
  to fund the interest and principal payments under the notes.

Financing
  activities:In the
  first six months of fiscal 2006, we repurchased approximately 19.5 million shares
  of Applera-Applied Biosystems stock at a cost of $457.1 million. During the
  first six months of fiscal 2006, we received higher proceeds from stock issued
  for stock plans than in the first six months of fiscal 2005. In the first quarter
  of fiscal 2005, we repaid the remaining principal amount of the 8% senior secured
  convertible notes assumed in connection with the Axys acquisition of approximately
  $6 million.

40

---



Back to Index

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

Contractual Obligations

Our significant contractual obligations at December 31, 2005, and the anticipated payments under these obligations were as follows:

|                                    | Payments by Period |   |      
|----------------------------------- | ------------------ | - | -----
|                                    |                    |   |      
|(Dollar amounts in millions)        |                    |   | Total
|                                   
|                                    |                    |   |      
|Minimum operating lease payments(b) |                    | $ | 139.0
|Purchase obligations(c)             |                    |   | 116.0
|Other long-term liabilities(d)      |                    |   | 35.7 
|                                    |                    |   |      
|Total                               |                    | $ | 290.7
|                                    |                    |   |      

|(a) | Represents cash obligations for the remainder of fiscal 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | Please
      refer to Note 9 to our consolidated financial statements in our 2005 Annual
    Report to Stockholders for further information.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(c) | Purchase obligations
        are entered into with various vendors in the normal course of business,
        and include commitments related to capital expenditures, R&D arrangements
    and collaborations, license agreements, and other services.                                                                                                                                                                                                                                                                                                                                                   
|(d) | We have excluded
        deferred revenues as they have no impact on our future liquidity. We
        have also excluded deferred tax liabilities and obligations connected
        with our pension and postretirement plans and other foreign employee-related
        plans as they are not contractually fixed as to timing and amount. Please
        see Note 11 to our condensed consolidated financial statements contained
        in this Report and Note 4 to our consolidated financial statements in
        our 2005 Annual Report to Stockholders for more information on these
    plans.

41

---



Back to Index

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 Ended |  
|---------------------------------------------------------------- | ---------------------- | - | -------------------- | -
|                                                                 | December
    31,       |   | December
    31,     |  
|                                                                 |                        |   |                      |  
|(Dollar amounts in millions)                                     |                        |   | 2004                 |  
|                                                                 |                        |   |                      |  
|Net revenues                                                     |                        | $ | 463.4                |  
|Cost of sales                                                    |                        |   | 220.3                |  
|                                                                 |                        |   |                      |  
|Gross margin                                                     |                        |   | 243.1                |  
|SG&A expenses                                                    |                        |   | 123.1                |  
|R&D                                                              |                        |   | 47.2                 |  
|Employee-related
    charges, asset
   impairments
    and other |                        |   | 5.2                  |  
|Asset
    dispositions and legalsettlements                      |                        |   | (29.7                | )
|                                                                 |                        |   |                      |  
|Operating income                                                 |                        |   | 97.3                 |  
|Interest income, net                                             |                        |   | 3.5                  |  
|Other income (expense), net                                      |                        |   | 1.5                  |  
|                                                                 |                        |   |                      |  
|Income before income taxes                                       |                        |   | 102.3                |  
|Provision for income taxes                                       |                        |   | 29.6                 |  
|                                                                 |                        |   |                      |  
|Net income                                                       |                        | $ | 72.7                 |  
|                                                                 |                        |   |                      |  
|Percentage of net revenues:                                      |                        |   |                      |  
|Gross margin                                                     |                        |   | 52.5%                |  
|SG&A expenses                                                    |                        |   | 26.6%                |  
|R&D                                                              |                        |   | 10.2%                |  
|Operating income                                                 |                        |   | 21.0%                |  
|                                                                 |                        |   |                      |  
|Effective income tax rate                                        |                        |   | 29%                  |  
|                                                                 |                        |   |                      |  

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

|                                                              | Three
    Months EndedDecember
    31, |   | Six
    Months EndedDecember
    31, | 
|------------------------------------------------------------- | -------------------------------------- | - | ------------------------------------ | 
|                                                              |                                        |   |                                      | 
|(Dollar amounts in millions)                                  |                                        |   | 2004                                 | 
|                                                              |                                        |   |                                      | 
|Income
    (charge) included inincome
    before income taxes |                                        | $ | 24.5                                 | 
|Provision for income taxes                                    |                                        |   | 7.8                                  | 
|                                                              |                                        |   |                                      | 

Net income decreased in the second quarter and first six months
of fiscal 2006 primarily due to the previously described events impacting comparability
and higher SG&A expenses. Partially offsetting this decrease were higher net revenues and lower R&D
expenses. The net effect of foreign currency on net income was a charge of approximately
$3 million during the second quarter of fiscal 2006 and a charge of approximately
$4 million during the first six months of fiscal 2006 compared to the prior year
periods.

42

---



Back to Index

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

Revenues  overall summaryThe
            following table sets forth the Applied Biosystems groups revenues
            by product categories for the three and six-month periods ended December
31:

|                               | Three Months Ended |   | Six Months Ended | 
|------------------------------ | ------------------ | - | ---------------- | 
|                               | December
    31,   |   | December
    31, | 
|                               |                    |   |                  | 
|(Dollar amounts in millions)   |                    |   | 2004             | 
|                               |                    |   |                  | 
|DNA Sequencing                 |                    | $ | 142.4            | 
|% of total revenues            |                    |   | 31%              | 
|                               |                    |   |                  | 
|Real-Time PCR/Applied Genomics |                    |   | 133.2            | 
|% of total revenues            |                    |   | 29%              | 
|                               |                    |   |                  | 
|Mass Spectrometry              |                    |   | 113.8            | 
|% of total revenues            |                    |   | 24%              | 
|                               |                    |   |                  | 
|Core PCR & DNA Synthesis       |                    |   | 47.2             | 
|% of total revenues            |                    |   | 10%              | 
|                               |                    |   |                  | 
|Other Product Lines            |                    |   | 26.8             | 
|% of total revenues            |                    |   | 6%               | 
|                               |                    |   |                  | 
|Total                          |                    | $ | 463.4            | 
|                               |                    |   |                  | 

|                                                                                                                                                                                                                                                                                                                                                                                        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Net
        revenues, including the unfavorable effects of foreign currency, increased
        in the second quarter of fiscal 2006 compared with the prior year quarter.
        The unfavorable effects of foreign currency decreased net revenues in
        the second quarter of fiscal 2006 by approximately 2% as compared to
    the second quarter of fiscal 2005.             
|•                                                                                                                                                                                                                                                                                                                                                                                       
|•                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                        
|Net
          revenues, including the unfavorable effects of foreign currency, increased
          in the first six months of fiscal 2006 compared with the prior year
          period. The unfavorable effects of foreign currency decreased net revenues
          in the first six months of fiscal 2006 by approximately 2% as compared
    to the first six months of fiscal 2005.
|•                                                                                                                                                                                                                                                                                                                                                                                       
|•                                                                                                                                                                                                                                                                                                                                                                                       

43

---



Back to Index

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

Revenue by sourcesThe following
table sets forth the Applied Biosystems groups revenues by sources for
the three and six-month periods ended December 31:

|                             | Three
       Months EndedDecember 31, |   | Six Months EndedDecember 31, | 
|---------------------------- | ------------------------------------- | - | ---------------------------- | 
|                             |                                       |   |                              | 
|(Dollar amounts in millions) |                                       |   | 2004                         | 
|                             |                                       |   |                              | 
|Instruments                  |                                       | $ | 217.3                        | 
|Consumables                  |                                       |   | 170.3                        | 
|Other sources                |                                       |   | 75.8                         | 
|                             |                                       |   |                              | 
|Total                        |                                       | $ | 463.4                        | 
|                             |                                       |   |                              | 

InstrumentsFor the second
quarter of fiscal 2006, instrument sales in the Core PCR & DNA Synthesis
category increased primarily due to higher sales of thermal cyclers as a result
of our increased sales and marketing focus on molecular biology consumables.
Contributing to the increased sales in the Mass Spectrometry category were the
API triple quad systems, which benefited from new product introductions in the
second half of fiscal 2005. The DNA Sequencing category benefited in fiscal 2006
from the purchase by a large customer of high throughput genetic analyzers.

For the first six months of fiscal 2006, instrument revenues increased as compared to the prior year period due primarily to higher sales in both the Mass Spectrometry and DNA Sequencing product categories. Contributing to the increased sales in the Mass Spectrometry category were the API triple quad systems, which benefited from new product introductions in the second half of fiscal 2005, and MALDI TOF/TOF products. The DNA Sequencing category benefited in fiscal 2006 from the purchase by a large customer of high throughput genetic analyzers and increased sales of low-to-medium throughput analyzers in directed or medical sequencing and forensics applications.

ConsumablesThe increase in consumables sales in the second quarter and first six months of fiscal 2006 primarily reflected the strength of Real-Time PCR/Applied Genomics consumables sales. These sales increased primarily as a result of higher sales of human identification products used in forensics, as a result of both existing and new DNA database legislation driving market expansion both domestically and internationally, especially in Europe, TaqMan® Gene Expression Assay products, and chromatography media. This increase was partially offset by lower sales of Core PCR and DNA Synthesis consumables.

Other sourcesRevenues from other sources, which included service and support, royalties, licenses, and contract research, increased for the second quarter and first six months of fiscal 2006 primarily due to higher service and support and royalties and licensing revenues. In the Real-Time PCR/Applied Genomics category, revenues increased in part due to the issuance of a Real-Time instrument license in the second quarter of fiscal 2006.

44

---



Back to Index

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

Revenues by geographic areaThe following table sets forth the Applied Biosystems groups
  revenues by geographic area for the three and six-month periods ended December
31:

|                                |  | Three Months EndedDecember 31, |       |  | Six Months EndedDecember 31, |      
|------------------------------- |  | ------------------------------ | ----- |  | ---------------------------- | -----
|                                |  |                                |       |  |                              |      
|(Dollar amounts in millions)    |  |                                | 2004  |  |                              | 2005 
|                                |  |                                |       |  |                              |      
|United States                   |  | $                              | 190.3 |  | $                            | 206.6
|Europe                          |  |                                | 171.5 |  |                              | 173.1
|Asia Pacific                    |  |                                | 85.1  |  |                              | 83.0 
|Latin America and other markets |  |                                | 16.5  |  |                              | 19.2 
|                                |  |                                |       |  |                              |      
|Total                           |  | $                              | 463.4 |  | $                            | 481.9
|                                |  |                                |       |  |                              |      

The unfavorable effects of foreign currency decreased revenues by approximately
4% in Europe and by approximately 6% in Asia Pacific during the second quarter
of fiscal 2006 as compared to the prior year quarter. Excluding the effects of
foreign currency, revenues increased in Europe primarily as a result of sales
of genetic analyzers and human identification products used in forensics and
chromatography media. During the second quarter of fiscal 2006, revenues in Japan,
which are included in total revenues for Asia Pacific, decreased approximately
12% as compared to the prior year quarter primarily due to unfavorable foreign
currency effects of approximately 9%. In addition, the decrease was impacted
by a large instrument order in the second quarter of fiscal 2005 that was not
repeated in the second quarter of fiscal 2006. Revenues increased in other Asia
Pacific countries by approximately 16% as compared to the prior year quarter,
which included unfavorable foreign currency effects of approximately 1%, primarily
due to higher sales of LC/MS/MS instruments for small molecule applications.
Sales in the U.S. increased primarily due to sales of API triple quad systems,
the purchase by a large customer of high throughput genetic analyzers, and increased
royalty and licensing revenue.

The unfavorable effects of foreign currency decreased revenues by approximately
2% in Europe and by approximately 4% in Asia Pacific during the first six months
of fiscal 2006 as compared to the prior year period. Revenues increased in Europe,
driven primarily by sales of genetic analyzers and human identification products
used in forensics, API triple quad systems, and chromatography media. During
the first six months of fiscal 2006, revenues in Japan declined approximately
9% as compared to the prior year period primarily due to unfavorable foreign
currency effects of approximately 7%. In addition, the decline resulted from
a large instrument order in the second quarter of fiscal 2005 that was not repeated
in the second quarter of fiscal 2006. Revenues increased in other Asia Pacific
countries by approximately 16% as compared to the prior year period primarily
due to higher sales of LC/MS/MS instruments for small molecule applications.
Sales in the U.S. increased primarily due to sales of API triple quad systems,
the purchase by a large customer of high throughput genetic analyzers, and increased
royalty and licensing revenue.

Gross margin, as a percentage of net revenues, increased for the second quarter
and first six months over the prior year periods due primarily to higher royalty
and licensing revenues, sales of some higher margin products in the Real-Time
PCR/Applied Genomics product category, and decreased software amortization costs.
Service margins also improved for the second quarter and first six months of
fiscal 2006 primarily driven by growth in the volume of service contracts, as
well as higher pricing on selected billable parts and service contracts. Partially
offsetting these increases were higher royalty expenses and the unfavorable effects
of foreign currency.

SG&A expenses for the second quarter of fiscal 2006 increased compared to
the prior year quarter due primarily to: increased employee-related costs and
sales force investments of approximately $5 million, including the impact of
adopting SFAS No. 123R; and increased spending of approximately $5 million on
strategic initiatives, legal expenses, the development of, and enhancements to,
the Applied Biosystems Portal, and outside consultant costs. This increase was
partially offset by the favorable effects of foreign currency of approximately
$2 million.

SG&A expenses for the first six months of fiscal 2006 increased compared
to the prior year period due primarily to: increased employee-related costs and
sales force investments of approximately $10 million, including the impact of
adopting SFAS No. 123R; and increased spending of approximately $7 million on
strategic initiatives,
the development

45

---



Back to Index

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

of, and enhancements to, the Applied Biosystems Portal, and outside consultant
costs. This increase was partially offset by the favorable effects of foreign
currency and lower legal expenses of approximately $3 million.

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

Interest income, net decreased during the second quarter of fiscal 2006 as compared
to the prior year quarter due to lower average cash and cash equivalents and
short-term investments, partially offset by higher average interest rates. The
lower cash and cash equivalents and short-term investments were primarily as
a result of the completion of the authorization granted by the board of directors
in July 2005 for the repurchase of up to 10% of Applera Corporation-Applied Biosystems
group outstanding shares. Interest income, net increased in the first six months
of fiscal 2006 compared to the same period last year due to higher average interest
rates and higher average cash and cash equivalents and short-term investments.

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

The effective tax rate increased in the second quarter and first six months of
fiscal 2006 compared to the prior year periods primarily due to the previously
discussed events impacting comparability and, in particular, the tax charge relating
to the repatriation, under the American Jobs Creation Act, of cash balances held
outside the U.S. Partially offsetting this increase for the year to date period
was the benefit from the resolution of transfer pricing matters in Japan recorded
in the first quarter of fiscal 2006.

Applied Biosystems Group
Discussion of Financial Resources and Liquidity

The Applied Biosystems group had cash and cash equivalents and short-term investments of $502.5 million at December 31, 2005, and $756.2 million at June 30, 2005. We maintain a $200 million unsecured revolving credit agreement with four banks that matures on April 15, 2010, under which there were no borrowings outstanding at December 31, 2005. Cash provided by operating activities has been our primary source of funds over the last fiscal year.

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

In January 2006, we announced that our board of directors authorized the repurchase
of up to 5 million shares of Applera-Applied Biosystems stock. This authorization
supplements our existing authority to repurchase shares of Applera-Applied Biosystems
stock and Applera-Celera Genomics stock from time to time to replenish shares
issued under our various employee stock benefit plans. This new authorization
has no time restrictions and delegates to management discretion to purchase shares
at times and prices it deems appropriate through open market purchases, privately
negotiated transactions, tender offers, exchange offers, or otherwise. It is
anticipated that repurchases will be made from time to time depending on market
conditions and will be funded using the Applied Biosystems group's U.S. surplus
cash and cash generated from domestic operations, as well as funds to be borrowed
under our revolving credit agreement, if and when required.

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

46

---



Back to Index

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

|(Dollar amounts in millions)                                   |  | June 30,2005 |       | December
    31,2005 |  
|-------------------------------------------------------------- |  | ------------ | ----- | -------------------- | -
|                                                               |  |              |       |                      |  
|Cash and cash equivalents                                      |  | $            | 756.2 |                      | $
|Short-term investments                                         |  |              |       |                      |  
|                                                               |  |              |       |                      |  
|Total
    cash and cash equivalents and short-term investments |  | $            | 756.2 |                      | $
|Working capital                                                |  |              | 844.1 |                      |  
|                                                               |  |              |       |                      |  

Cash and cash equivalents decreased from June 30, 2005, as cash expenditures
for the repurchase of common stock, capital and other assets, purchases of available
for sale investments, net of sales, the funding of the Celera Diagnostics joint
venture, and the payment of dividends, exceeded cash generated from operating
activities and the proceeds from stock issuances. Net cash flows of continuing
operations for the six-months ended December 31 were as follows:

|(Dollar amounts in millions)            |  |   | 2004  |   |   | 2005   |  
|--------------------------------------- |  | - | ----- | - | - | ------ | -
|                                        |  |   |       |   |  
|Net cash from operating activities      |  | $ | 131.1 |   | $ | 185.7  |  
|Net cash from investing activities      |  |   | (12.2 | ) |   | (32.1  | )
|Net cash from financing activities      |  |   | 1.6   |   |   | (401.7 | )
|Effect of exchange rate changes on cash |  |   | 31.0  |   |   | (8.7   | )
|                                        |  |   |       |   |  

Operating activities:
Net cash from
operating activities of continuing operations for the first six months of fiscal
2006 was $54.6 million higher than in the first six months of fiscal 2005. This
increase resulted primarily from higher incomerelated cash flows and a higher source of cash from an increase in accounts payable and other liabilities, primarily due to the timing of income tax payments. The Applied Biosystems groups
days sales outstanding was 53 days at December 31, 2005, 56 days at June 30,
2005, and 61 days at December 31, 2004. Inventory on hand was 2.6 months at December
31, 2005 compared to 2.4 months at June 30, 2005.

Investing activities:
Capital expenditures for the first six months of fiscal 2006, net of disposals, were $7.4 million higher than in the prior year period due primarily to the development of, and enhancements to, the Applied Biosystems Portal. The first six months of fiscal 2006 included lower proceeds from sales of available for sale investments, net of purchases. The first six months of fiscal 2005 included approximately $7 million received from MDS representing the first installment payment related to the previously discussed sale of MALDI TOF assets, net of expenses.

Financing activities:
During the first six months of fiscal 2006, we repurchased approximately 19.5 million shares of Applera-Applied Biosystems stock at a cost of $457.1 million. In the first six months of fiscal 2006, we received higher proceeds from stock issued for stock plans than in the first six months of fiscal 2005.



47

---



Back to Index

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

Celera Genomics Group

|                                  |  | Three Months EndedDecember 31, |       |      | Six Months EndedDecember 31, |                       |      
|--------------------------------- |  | ------------------------------ | ----- | ---- | ---------------------------- | --------------------- | -----
|                                  |  |                                |       |      |                              |                       |      
|(Dollar amounts in millions)      |  | 2004                           |       | 2005 |                              | % Increase/(Decrease) |      
|                                  |  |                                |       |      |                              |                       |      
|Net revenues                      |  | $                              | 8.2   |      | $                            | 2.1                   |      
|Cost of sales                     |  |                                | 1.2   |      |                              | 1.7                   |      
|R&D                               |  |                                | 25.0  |      |                              | 20.9                  |      
|SG&A expenses                     |  |                                | 5.9   |      |                              | 6.8                   |      
|Amortization of intangible assets |  |                                | 0.7   |      |                              | 0.4                   |      
|Employee-related charges, asset   |  |                                |       |      |                              |                       |      
|impairments and other             |  |                                |       |      |                              |                       |      
|Asset dispositions and legal      |  |                                |       |      |                              |                       |      
|settlements                       |  |                                |       |      |                              |                       |      
|                                  |  |                                |       |      |                              |                       |      
|Operating loss                    |  |                                | (24.6 | )    |                              | (27.7                 | )    
|Gain on investments, net          |  |                                |       |      |                              |                       |      
|Interest income, net              |  |                                | 3.3   |      |                              | 5.9                   |      
|Other income (expense), net       |  |                                | (0.4  | )    |                              | (0.2                  | )    
|Loss from joint venture           |  |                                | (8.2  | )    |                              | (5.1                  | )    
|                                  |  |                                |       |      |                              |                       |      
|Loss before income taxes          |  | (29.9                          | )     |      | (27.1                        | )                     | (9.4%
|Benefit for income taxes          |  |                                | 10.5  |      |                              | 9.8                   |      
|                                  |  |                                |       |      |                              |                       |      
|Net loss                          |  | $                              | (19.4 | )    | $                            | (17.3                 | )    
|                                  |  |                                |       |      |                              |                       |      
|Effective income tax benefit rate |  |                                | 35%   |      |                              | 36%                   |      
|                                  |  |                                |       |      |                              |                       |      

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

|                                                                  |  |   | Three Months EndedDecember 31, |  | Six
    Months EndedDecember
    31, |     
|----------------------------------------------------------------- |  | - | ------------------------------ |  | ------------------------------------ | ----
|                                                                  |  |   |                                |  |                                      |     
|(Dollar amounts in millions)                                      |  |   | 2004                           |  |                                      | 2005
|                                                                  |  |   |                                |  |                                      |     
|Income (charge)
       included in
    income before income taxes |  | $ | —                              |  | $                                    | —   
|Provision (benefit)
    for income taxes                          |  |   |                                |  |                                      |     
|                                                                  |  |   |                                |  |                                      |     

The lower net loss in the second quarter and first six months of fiscal 2006
compared to the same periods last year primarily resulted from: lower
R&D expenses; the lower loss from the Celera Diagnostics joint venture; higher
interest income, net; and the impact of the previously described events impacting
comparability for the year to date periods. This lower net loss was partially
offset by lower net revenues.

Revenues decreased for the second quarter and first six months of fiscal 2006
compared to the prior year periods primarily as a result of the discontinuation
of the Online/Information Business. Substantially all of the existing customer
contracts related to this Business terminated prior to June 30, 2005.

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

R&D expenses decreased in the second quarter and first six months of fiscal
2006 compared to the prior year periods primarily due to the elimination of Online/Information
Business R&D expenses. R&D expenses also decreased in the second quarter
compared to the prior year quarter due to reduced expenditures to support preclinical
development activities and
proteomic and genomic target discovery programs.

48

---



Back to Index

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

SG&A expenses increased in the second quarter of fiscal 2006 compared to
the same period last year primarily due to higher professional and legal services,
partially offset by lower expenses due to the discontinuation of the Online/Information
Business. SG&A expenses increased in the first half of fiscal 2006 compared
to the first half of fiscal 2005 primarily due to higher professional and legal
services, partially offset by lower expenses due to the discontinuation of most
of the operations of Paracel and the discontinuation of the Online/Information
Business.

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

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

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

Celera Genomics Group
Discussion of Financial Resources and Liquidity

The Celera Genomics group had cash and cash equivalents and short-term investments
of $619.7 million at December 31, 2005, and $668.3 million at June 30, 2005.
We maintain a $200 million unsecured revolving credit agreement with four banks
that matures on April 15, 2010, under which there were no borrowings outstanding
at December 31, 2005.

We believe that existing funds and existing sources of debt financing are more
than adequate to satisfy the Celera Genomics groups normal operating cash
flow needs and planned capital expenditures for the next twelve months and for
the foreseeable future, including those of Celera Diagnostics following the acquisition
by the Celera Genomics group, effective January 1, 2006, of the Applied Biosystems
groups
50 percent interest in Celera Diagnostics.

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

|(Dollar amounts in millions)                                       |  | June 30,2005 |       | December
    31,2005 |  
|------------------------------------------------------------------ |  | ------------ | ----- | -------------------- | -
|                                                                   |  |              |       |                      |  
|Cash and cash equivalents                                          |  | $            | 23.2  |                      | $
|Short-term investments                                             |  |              | 645.1 |                      |  
|                                                                   |  |              |       |                      |  
|Total cash and cash
    equivalents and short-term
    investments |  | $            | 668.3 |                      | $
|Working capital                                                    |  |              | 635.9 |                      |  
|                                                                   |  |              |       |                      |  

Cash and cash equivalents increased from June 30, 2005, as proceeds from the
sales and maturities of available for sale investments, net of purchases, and
from the sale of assets, and stock issuances exceeded the amount expended on
operations, the funding of the Celera Diagnostics joint venture, and the purchase
of capital assets. Net cash flows for the six months ended December 31 were as
follows:

|(Dollar amounts in millions)       |  |   | 2004  |   |   | 2005  |  
|---------------------------------- |  | - | ----- | - | - | ----- | -
|                                   |  |   |       |   |  
|Net cash from operating activities |  | $ | (46.2 | ) | $ | (43.7 | )
|Net cash from investing activities |  |   | 58.2  |   |   | 45.4  |  
|Net cash from financing activities |  |   | (3.1  | ) |   | 6.8   |  
|                                   |  |   |       |   |  



49

---



Back to Index

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

Operating activities:
Net cash used by operating activities for the first six months of fiscal 2006 was $2.5 million lower than in the first six months of fiscal 2005. The lower use of cash resulted primarily from lower working capital requirements in fiscal 2006, partially offset higher net cash operating losses in fiscal 2006. Working capital primarily benefited from a lower decrease in accounts payable and other liabilities, in part due to the discontinuation of the Online/Information Business, partially offset by higher severance and lease payments in the first six months of fiscal 2006 compared to the first six months of fiscal 2005.

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

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

50

---



Back to Index

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

Celera Diagnostics

|                                                            |  | Three Months Ended     December 31, |      | Six Months Ended     December 31, |  
|----------------------------------------------------------- |  | ----------------------------------- | ---- | --------------------------------- | -
|                                                            |  |                                     |      |                                   |  
|(Dollar amounts in millions)                                |  | 2004                                |      | 2005                              |  
|                                                            |  |                                     |      |                                   |  
|Net revenues                                                |  | $                                   | 7.9  |                                   | $
|Cost of sales                                               |  |                                     | 4.3  |                                   |  
|R&D                                                         |  |                                     | 8.6  |                                   |  
|SG&A expenses                                               |  |                                     | 3.2  |                                   |  
|Asset dispositions and legal settlements                    |  |                                     |      |                                   |  
|                                                            |  |                                     |      |                                   |  
|Operating loss                                              |  | $                                   | (8.2 | )                                 | $
|                                                            |  |                                     |      |                                   |  
|                                                            |  |                                     |      |                                   |  
|Supplemental information                                    |  |                                     |      |                                   |  
|Equalization revenue, net                                   |  | $                                   | 3.9  |                                   | $
|End-user
    alliance sales for all products sold primarily |  |                                     |      |                                   |  
|through Abbott
         Laboratories                        |  | $                                   | 14.9 |                                   | $
|                                                            |  |                                     |      |                                   |  

In June 2002, Celera Diagnostics and Abbott Laboratories announced a long-term
strategic alliance to develop, manufacture and market a broad range of in
vitro molecular diagnostic products, including third party products brought
into the alliance. In January 2006, we announced that we had restructured this
alliance. Please
see the Business Highlights section of this MD&A for further information.

Reported revenues increased in the second quarter of fiscal 2006 compared to
the same quarter last year primarily as a result of higher equalization payments
from Abbott and higher sales to Abbott, partially offset by lower licensing and
collaborative revenues. Reported revenues decreased for the first six months
of fiscal 2006 compared to the same period last year primarily as a result of
decreased equalization revenues from Abbott, partially offset by higher sales
to Abbott. Reported revenues differ from end-user sales and consist primarily
of equalization payments from Abbott resulting from the profit and cost-sharing
arrangement between Abbott and Celera Diagnostics and technology-related revenues.
Fluctuation in equalization payments can lead to variability in reported revenues,
gross margins and cash use from period to period due to differences in end-user
sales of alliance products and operating expenses between the alliance partners.
End-user alliance sales for all products sold primarily through Abbott increased
for the second quarter of fiscal 2006 compared to the prior year quarter primarily
due to increased sales of Celera Diagnostics Hepatitis C Virus (HCV)
and Human Immunodeficiency Virus (HIV)
RealTime assays used on the m2000 system, and increased
sales of third party high resolution human leukocyte antigen (HLA)
products, as well as Celera Diagnostics analyte specific reagents for HCV.
End-user alliance sales for all products sold primarily through Abbott increased
for the first six months of fiscal 2006 compared to the prior year period primarily
due to increased sales of HLA products, Celera Diagnostics analyte specific
reagents for HCV, and the RealTime HIV and HCV assays used
on the m2000 system.

R&D expenses decreased for the second quarter and first six months of fiscal
2006 compared to the prior year periods due to the reimbursement by the Applied
Biosystems group of some expenses incurred by Celera Diagnostics for research
performed to assist the Applied Biosystems group in product development activities.
Additionally, favorably impacting the six month period were enhanced operational
efficiencies.

SG&A expenses decreased for the second quarter and first six months of fiscal
2006 compared to the prior year periods due to a one-time payment received related
to a subleasing arrangement.

Market Risks

Our foreign currency risk management strategy uses derivative instruments to
hedge various foreign currency forecasted revenues and intercompany transactions
and to offset the impact of changes in currency rates on various foreign currency-denominated
assets and liabilities. The principal objective of this strategy is to minimize
the risks and/or costs associated

51

---



Back to Index

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

with our global financial and operating activities. We use forward, option, and
range forward contracts to manage our foreign currency exposures. At December
31, 2005, we recorded in our condensed consolidated financial statements a net
asset of $20.4 million related to these forwards and option contracts, compared
with a net asset of $14.0 million at June 30, 2005. This increase was primarily
attributed to the fluctuations in currency rates. We do not use derivative financial
instruments for trading or speculative purposes, nor are we a party to leveraged
derivatives.

We performed a sensitivity analysis as of December 31, 2005. Assuming a hypothetical
10% adverse change in currency rates relative to the U.S. dollar as of December
31, 2005, we calculated a hypothetical after-tax loss of $18.4 million, as compared
to a hypothetical after-tax loss of $13.8 million at June 30, 2005. Our analysis
included the change in value of the derivative financial instruments, along with
the impact of translation on foreign currency-denominated assets and liabilities.
Our analysis excluded the impact of translation of foreign currency-denominated
forecasted revenues and intercompany transactions. If currency rates actually
change in a manner similar to the assumed change in the foregoing calculation,
the hypothetical loss calculated would be more than offset by the recognition
of higher U.S. dollar equivalent foreign revenues. Actual gains and losses in
the future could, however, differ materially from this analysis, based on changes
in the timing and amount of currency rate movements and actual exposures and
hedges.

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

Outlook

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

Subject to the inherent uncertainty associated with these factors, the Applied
Biosystems group has the following expectations for fiscal 2006. This Outlook
excludes the impact from the pending acquisition of the Research Products Division
of Ambion, Inc. and any outcome of the previously announced settlement discussions
    with Bio-Rad Laboratories.

|• | At
        exchange rates existing as of mid January 2006, the Applied Biosystems
    group expects low to mid single digit revenue growth for fiscal 2006.                                                                                                                                                                       
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                   
|• | The
        Applied Biosystems group anticipates revenue growth in the Real-Time
        PCR/Applied Genomics and Mass Spectrometry product categories and revenue
        declines in the remaining categories: Core PCR and DNA Synthesis, DNA
    Sequencing, and Other Product Lines.                                         
|  |                                                                                                                                                                                                                                                                                                                                   
|• | Excluding
        specified items that affect the comparability of both fiscal periods,
        the Applied Biosystems group expects EPS growth to increase at a rate
    above the fiscal 2006 revenue growth rate.                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                   
|• | The
        Applied Biosystems group continues to expect the effective tax rate to
        be approximately 29%. We continue to analyze certain tax strategies that
        could positively impact the rate. In addition, we anticipate that several
    outstanding tax matters may be resolved in our favor during fiscal 2006.
|  |                                                                                                                                                                                                                                                                                                                                   
|• | The
        Applied Biosystems group expects capital spending for fiscal 2006 to
    be in the range of $65-70 million.                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                   
|• | The
        Applied Biosystems group expects the pre-tax impact of adopting SFAS
        No. 123R (accounting for stock based compensation) to be approximately
    $8 million, with an EPS impact of approximately $0.03.                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                   

52

---



Back to Index

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

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

Celera Genomics GroupWith
the acquisition of the Applied Biosystems groups interest in Celera Diagnostics
effective January 1, 2006, this outlook for the Celera Genomics group includes
the outlook for Celera Diagnostics. The Celera Genomics group anticipates that
its fiscal 2006 financial performance will be affected by, among other things,
continued growth in demand for current and new diagnostic products sold through
the alliance with Abbott and potential revenue from technology licenses and collaborations.
Additionally, the Celera Genomics group intends to partner, or sell, its small
molecule pipeline, and programs that are not partnered or sold will be terminated.

Subject to the inherent uncertainty associated with these factors, the Celera
Genomics group has the following expectations regarding its financial performance
for fiscal 2006:

|• | The
        Celera Genomics group anticipates end-user sales of products sold though
        the alliance with Abbott of $75 to $85 million. This estimate excludes
        Innogenetics low resolution HLA product, which was removed from
        the alliance in the second half of fiscal 2006. Approximately 8 percent
        of these end-user sales are expected to be generated by third-party products
        during the second half of fiscal 2006 from third party products, which
        will be royalty-bearing for the Celera Genomics group and not based on
    the profit-sharing arrangement with Abbott.                                                                                                                  
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|• | While
        we are still evaluating the effect of the Celera Genomics groups
        decision to reduce its small molecule program workforce, we anticipate
        that the Celera Genomics group will record pre-tax restructuring charges
        of approximately $30 million over the balance of fiscal 2006. Approximately
    $20 million of these charges will be cash charges.                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|• | The
        Celera Genomics group anticipates that its net loss will be in the range
        of $70 to $78 million. This net loss includes the estimated charges and
        shutdown costs, as well as the estimated expenses, associated with the
        completion of the partnering, or sale, of the small molecule programs.
        This net loss does not include any value that might be received from
        the planned partnering, or sale, of its small molecule programs and its
        associated assets. On an annualized basis for fiscal 2006, variable spending
        associated with the small molecule programs would have been approximately
    $75 million, of which approximately 90% would have been cash expenses.

At the end of fiscal 2006, the Celera Genomics group expects to have cash and
shortterm investments in the range of $530 and $560 million. This outlook
excludes any potential proceeds from the planned partnering, or sale, of its
small molecule programs and its associated assets.

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

Forward-Looking Statements and Risk Factors

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

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe harbor,
we note that a variety of factors could cause actual results and experience to
differ materially from anticipated results or other expectations expressed in
forward-looking statements. We also note that achievement of anticipated results
or expectations in forward-looking statements is subject to the possibility that
assumptions underlying forward-looking statements will prove to be inaccurate.
Investors should bear this in mind as

53

---



Back to Index

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

they consider forward-looking statements. The risks and uncertainties that may
affect the operations, performance, development, and results of our business
include, but are not limited to, those described below under the headings Factors
Relating to Applied Biosystems, Factors Relating to Celera Genomics, and Factors
Relating to Celera Diagnostics, a 50/50 Joint Venture between Applied Biosystems
and Celera Genomics contained in our Form 10-K Annual Report for fiscal
2005.

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

Factors Relating to the Applied Biosystems Group

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

The Applied Biosystems group 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 intends to commit significant resources to the development of instruments
for use in the clinical diagnostics market. Although the group has experience
in developing and commercializing instrumentation for the life science research
market, the group has only limited prior experience with products of any type
for use in the regulated clinical diagnostics market. This is an emerging business
area for the Applied Biosystems group, and the group may not have or be able
to obtain the necessary expertise to successfully develop instruments for use
in this market. In addition, in the U.S. and other countries,
instruments cannot be marketed for clinical diagnostics use until they first
receive regulatory clearance or approval. The regulatory review and clearance
or approval process can be time consuming and require substantial expense and
may not be successful. Even if the Applied Biosystems group obtains regulatory
clearance or approval for an instrument for use in the clinical diagnostics market,
the manufacture, sale, and distribution of that product may be subject to ongoing
regulatory requirements. The inability to comply with these requirements could
cause the Applied Biosystems group to suspend the manufacture or sale of these
products and delay or prevent the group from generating revenues from the sale
of these products.

The Applied Biosystems group relies on third parties for the
manufacture of some of its products and also for the supply of some components
of the products it manufactures on its own.Although
the Applied Biosystems group has contracts with most of these manufacturers and
suppliers, there can be no assurance that their operations will not be disrupted.

54

---



Back to Index

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

These disruptions could be caused by conditions unrelated to the business or
operations of the Applied Biosystems group, including the bankruptcy of the manufacturer
or supplier. For example, Delphi Medical Systems Texas Corporation, which supplies
some instruments and parts to the group, recently filed a petition in the United
States Bankruptcy Court seeking relief under the provisions of Chapter 11 of
the federal Bankruptcy Code. As of the date of this report, the Applied Biosystems
group does not know the effect of this filing, if any, on
Delphis or the groups operations. The Applied Biosystems group does
not currently have alternative third party manufacturing or supply arrangements
for some of the key products and key components manufactured or supplied by third
parties. Although the Applied Biosystems group has its own manufacturing facilities,
and believes it might be able to manufacture some of the products and components
currently sourced from third parties, it also believes that it would take considerable
time and resources to establish the capability to do so. Accordingly, if third
party manufacturers or suppliers are unable or fail to fulfill their obligations
to the Applied Biosystems group, the Applied Biosystems group might not be able
to satisfy customer demand in a timely manner, and its business could be adversely
affected.

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

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

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

The Applied Biosystems groups products are based on complex, rapidly developing
technologies. These products could be developed without knowledge of previously
filed patent applications that mature into patents that cover some aspect of
these technologies. In addition, because patent litigation is complex and the
outcome inherently uncertain, the Applied Biosystems groups belief that
its products do not infringe the technology covered by valid and enforceable
patents could be successfully challenged by third parties. The Applied Biosystems
group has from time to time been notified that it may be infringing patents and
other intellectual property rights of others. Also, in the course of its business,
the Applied Biosystems group may from time to time have access to confidential
or proprietary information of third parties, and these parties could bring a
claim against the Applied Biosystems group asserting that the Applied Biosystems
group had misappropriated their technologies, which though not patented are protected
as trade secrets, and had improperly incorporated such technologies into the
Applied Biosystems groups products. Due to these factors, there remains
a constant risk of intellectual property litigation and other legal actions,
which could include antitrust claims, affecting the group. The Applied Biosystems
group has been made a party to litigation and has been subject to other legal
actions

55

---



Back to Index

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

regarding intellectual property matters, which have included claims of violations
of antitrust laws. Such actions currently include the legal proceedings described
in the following paragraph, some of which, if determined adversely, could have
a material adverse effect on the Applied Biosystems group. To avoid or settle
legal claims, it may be necessary or desirable in the future to obtain licenses
relating to one or more products or relating to current or future technologies,
and the Applied Biosystems group cannot be assured that it will be able to obtain
these licenses or other rights on commercially reasonable terms, or at all.

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

| | • | In
        response to claims by us against MJ Research, Inc., MJ Research filed
        counterclaims against us including, among others, allegations that we
        have licensed and enforced some polymerase chain reaction, or PCR, patents
        through anticompetitive conduct in violation of federal and state antitrust
        laws. These claims have been rejected as a result of a jury verdict and
        a series of summary judgment rulings by the court, but MJ Research has
        filed a notice of appeal. Subsequently, MJ Research filed a lawsuit against
        us based on the allegation that four patents underlying the Applied Biosystems
        groups DNA sequencing instruments were invalidly obtained because
        an alleged inventor, whose work was funded in part by the U.S. government,
        was knowingly omitted from the patent applications. MJ Research claims
        to be suing in the name of the U.S. government although the government
        has to date declined to participate in the lawsuit. The case was dismissed
        but the decision was appealed by MJResearch.
        On November 21, 2005, the U.S. Court of Appeals for the Ninth Circuit
    affirmed the dismissal.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | Promega
        Corporation has filed a lawsuit against us alleging that the Applied
        Biosystems group, along with some other named defendants, is infringing
        two Promega patents due to the sale of forensic identification and paternity
    testing kits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Beckman
        Coulter, Inc. has filed a lawsuit against us alleging that the Applied
        Biosystems group is infringing three Beckman Coulter patents. The allegedly
        infringing products are the Applied Biosystems groups capillary
        electrophoresis sequencing and genetic analysis instruments, and PCR
    and real-time PCR systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | • | Enzo
        Biochem, Inc., Enzo Life Sciences, Inc., and Yale University have filed
        a lawsuit against us alleging that we are infringing six patents due
        to the sale of sequencing reagent kits, TaqMan®genotyping
        and gene expression assays, and the gene expression microarrays used
    with the Applied Biosystems groups Expression Array System.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | • | Bio-Rad
        Laboratories, Inc. has filed a lawsuit against us alleging that we are
        infringing one of its patents due to our sale of instruments using, and
        reagents used for, capillary electrophoresis, and one of its trademarks
    due to our use of the BioCAD®name.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | • | Molecular
        Diagnostics Laboratories has filed a class action complaint against us
        and Hoffmann-La Roche, Inc. alleging anticompetitive conduct in connection
        with the sale of Taq DNA polymerase and PCR-related products. The anticompetitive
        conduct is alleged to arise from the prosecution and enforcement of U.S.
        Patent No 4,889,818. This patent is assigned to Hoffmann-La Roche, with
        whom we have a commercial relationship covering, among other things,
    this patent and the sale of Taq DNA polymerase.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | • | In
        response to patent infringement claims made by us against Bio-Rad Laboratories,
        Inc., MJ Research, Inc. and Stratagene Corporation, Bio-Rad, MJ Research,
        and Stratagene have filed counterclaims seeking declaratory judgments
        that our U.S. Patent No. 6,814,934 in the field of real-time PCR is invalid
    and not infringed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | • | 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. Subsequent to
        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.                                                                                                                                                                                                                                            

These cases are described in further detail in Part I, Item 3, of our 2005 Annual
Report on Form 10-K under the heading Legal Proceedings  Commercial
Litigation, as updated by the information in Part II, Item 1 of our subsequent
Quarterly Reports on Form 10-Q, including Part II, Item 1 of this report. The
cost of litigation
and the amount of

56

---



Back to Index

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

management time associated with these cases is expected to be significant. There
can be no assurance that these matters will be resolved favorably; that we will
not be enjoined from selling the products or services in question or other products
or services as a result; or that any monetary or other damages assessed against
us will not have a material adverse effect on the financial condition of our
company, the Applied Biosystems group, the Celera Genomics group, or Celera Diagnostics.

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

Since the Applied Biosystems groups business is dependent
on foreign sales, fluctuating currencies will make revenues and operating results
more volatile.Approximately 55% of the Applied Biosystems
groups net revenues for our 2005 fiscal year were derived from sales to customers outside of the U.S. The majority of these sales were based on the relevant customers local currency. A significant portion of the related costs for the Applied Biosystems group are based on the U.S. dollar. As a result, the Applied Biosystems groups reported and anticipated operating results and cash flows are subject to fluctuations due to material changes in foreign currency exchange rates that are beyond the Applied Biosystems groups
control.

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

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

57

---



Back to Index

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

the Applied Biosystems groups data by internal research personnel or
  customers through the Internet is interrupted, the Applied Biosystems groups
  business could suffer.

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

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

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

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

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

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

58

---



Back to Index

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

Factors Relating to the Celera Genomics Group

The Celera Genomics group has incurred net losses to date and may not achieve profitability.The Celera Genomics group has accumulated net losses of approximately $828 million as of December 31, 2005, and expects that it will continue to incur net losses for the foreseeable future. These cumulative losses are expected to increase as the Celera Genomics group continues to make investments in new technology and diagnostic and therapeutic product discovery and development. As an early stage business, the Celera Genomics group faces significant challenges in expanding its business operations. As a result, the Celera Genomics group may not be able to achieve profitable operations.

The Celera Genomics groups therapeutic product business
is focused on the discovery of potential therapeutic targets, and the group does
not have the capability to advance therapeutic targets into development without
collaborating with other companies or licensing its targets to other companies.We recently announced plans for the Celera Genomics group to partner or sell its small molecule drug development and discovery programs. As a consequence of this decision, the Celera Genomics group reduced its workforce and eliminated substantially all of its personnel with capabilities in the field of drug development. Although the Celera Genomics group continues to conduct therapeutic target discovery research, it does not currently have the personnel or other resources necessary to develop any potential therapeutic products for those targets or to move any potential therapeutic products through pre-clinical or clinical development, and the Celera Genomics group does not currently plan to develop those capabilities. As a result, for the foreseeable future the Celera Genomics group expects that it will only be able to develop, or participate in the development of, therapeutic products for targets that it
discovers by collaborating with other companies or by licensing targets to other companies. There can be no assurance that other companies will be interested in entering into these relationships with the Celera Genomics group, or that they will be interested in doing so on terms that we consider acceptable.

The Celera Genomics groups diagnostics business is substantially
dependent on a strategic alliance agreement with Abbott Laboratories.The
Celera Genomics group entered into this agreement with Abbott for the joint discovery,
development, manufacturing, and commercialization of nucleic acid-based diagnostic
products. Although this is a long-term alliance, the alliance agreement contains
provisions that could result in early termination for reasons that include the
following: breach by either company; a change in control of either company; or
either companys dissatisfaction with the financial performance of the alliance according to specifically-agreed parameters and a measurement period set forth in the alliance agreement. In addition, the amount and timing of resources to be devoted to research, development, eventual clinical trials and commercialization activities by Abbott are not within the Celera Genomics groups
control. Future strategic alliances, if any, with other third parties are likely
to be subject to similar terms and conditions.

The Celera Genomics groups diagnostic product business
is dependent on entering into other partnerships, joint ventures, alliances,
and other forms of collaborations with other companies.The
Celera Genomics groups strategy for the discovery, development, clinical
testing, manufacturing and/or commercialization of most of its diagnostic product
candidates includes entering into these types of arrangements with other companies,
in addition to its strategic alliance with Abbott Laboratories. Although the
Celera Genomics group has expended, and continues to expend, time and money on
internal research and development programs, it may be unsuccessful in creating
diagnostic product candidates that would enable it to form additional collaborations
and alliances and, if applicable, receive milestone and/or royalty payments from
collaborators.

The Celera Genomics groups diagnostics and/or therapeutics
businesses could be adversely affected if collaborators or licensees fail to
perform under their agreements with the Celera Genomics group or if they terminate
those agreements.Each
of the Celera Genomics groups existing collaboration and other agreements may be canceled under some circumstances. In addition, the amount and timing of resources to be devoted to research, development, clinical trials and commercialization activities by the Celera Genomics groups collaborators are not within the Celera Genomics groups control. The Celera Genomics group cannot ensure that its collaborators or licensees will perform their obligations as expected. If any of the Celera Genomics groups
collaborators or licensees terminate their agreements or otherwise fail to conduct
their collaborative or licensed activities in a timely manner, the development
or commercialization of diagnostic or therapeutic products may be delayed or
otherwise adversely affected. If the Celera Genomics group assumes responsibilities
for continuing programs on its own after termination of a collaboration or other
agreement, the Celera

59

---



Back to Index

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

Genomics group may be required to devote additional resources to product development and commercialization or the Celera Genomics group may need to cancel some development programs.

The Celera Genomics groups efforts to discover diagnostic
markers and therapeutic targets depend, in part, on the use of novel and unproven
discovery methods.It is therefore possible that the
Celera Genomics groups discovery efforts will not result in any new diagnostic
markers or therapeutic targets that could be developed into commercial diagnostic
or therapeutic products. The Celera Genomics group and its collaborators are
seeking to identify diagnostic markers that can be used to develop new diagnostic
products based on information derived from the study of the genetic material
of organisms, or genomics. This method carries inherent risks, as only a limited
number of diagnostic products based on genomic discoveries have been developed
and commercialized to date. Also, the Celera Genomics group is seeking to identify
novel targets for the development of new treatments for disease through the use
of technology in the field of proteomics, the study of proteins. The Celera Genomics
group is also seeking to incorporate novel disease association study findings
arising from its disease association studies conducted as part of its diagnostic
marker discovery efforts into its therapeutic target discovery efforts. To our
knowledge, neither of these approaches to target discovery has to date been effectively
used to develop a therapeutic product that has been commercialized, and therefore
the potential benefit to the Celera Genomics group of its use of proteomics technology
and disease association study information to support therapeutic target discovery
is unknown.

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

Diagnostic product candidates and therapeutic target discoveries
may never result in a commercialized product.Most
of the Celera Genomics groups diagnostic product candidates are in various
stages of research and development and will require significant additional research
and development efforts by the Celera Genomics group or its collaborators before
they can be marketed. For potential diagnostic products, these efforts include
extensive clinical testing and may require lengthy regulatory review and clearance
or approval by the U.S. Food and Drug Administration and comparable agencies
in other countries. All of the Celera Genomics groups therapeutic small
molecule program product candidates, which will be partnered, sold or terminated,
will require significant additional research and development efforts by the companies
with which they are partnered or to whom they are sold before they can be marketed.
Similarly, all of the Celera Genomics groups therapeutic target discoveries
will require significant additional research and development efforts before therapeutic
product candidates against such targets are identified, if any. For potential
therapeutic products, these efforts include extensive preclinical and clinical
testing and lengthy regulatory review for approval by the U.S. Food and Drug
Administration and comparable agencies in other countries. For the foreseeable
future, the Celera Genomics group expects that it will only be able to develop,
or participate in the development of, therapeutic products for targets that it
discovers by collaborating with other companies or by licensing targets to other
companies. The Celera Genomics groups
development of diagnostic and therapeutic products, including development efforts
through collaborators or licensees, is highly uncertain and subject to a number
of significant risks. To date, the Celera Genomics group, whether working alone
or with collaborators, has not commercialized any therapeutic product and the
Celera Genomics group does not expect any of its therapeutic product candidates
to be commercially available for a number of years, if ever. Diagnostic and therapeutic
product candidates that appear to be promising at early stages of development
may later be found to be ineffective or to cause harmful side effects, or to
have limited medical value. Furthermore, even if these products are found to
be safe and effective they may never be developed into commercial products due
to considerations such as: inability to obtain required regulatory clearances
or approvals; inability to obtain needed licenses to intellectual property owned
by others; market and competitive conditions; and manufacturing difficulties
or cost considerations.

60

---



Back to Index

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

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

Even if the Celera Genomics group or its collaborators or licensees obtain regulatory clearance or approval for a particular diagnostic or therapeutic 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.Our
manufacture of diagnostic products is subject to the U.S. Food and Drug Administrations Quality System Regulations, and manufacture of therapeutic products by our collaborators or licensees is subject to the FDAs
Good Manufacturing Practices regulations. In addition, identification of some
adverse side effects after a therapeutic product is on the market or the occurrence
of manufacturing problems for either diagnostic or therapeutic products could
cause subsequent suspension of product manufacture or withdrawal of regulatory
approval, or could require reformulation of a diagnostic or therapeutic product,
additional testing, or changes in labeling of the product. This could delay or
prevent the Celera Genomics group from generating revenues from the sale of that
diagnostic or therapeutic product.

Clinical trials of diagnostic or therapeutic product candidates may not be successful.
This is particularly applicable to clinical trials of therapeutic product candidates,
which are subject to more extensive regulatory requirements than clinical trials
of potential diagnostic products. Clinical trials may not begin on time, may
not be completed on schedule, or at all, or may not be sufficient for registration
of the products or result in products that can receive necessary clearances or
approvals. Numerous unforeseen events during, or as a result of, clinical testing
could delay or prevent commercialization of the Celera Genomics group's or its
collaborators or licensees' diagnostic or therapeutic product candidates.
Many companies in the pharmaceutical and diagnostics industries, including biotechnology
companies, have suffered significant setbacks in advanced clinical trials, even
after promising results in earlier studies. The results from pre-clinical studies
may be different from the results that are obtained in clinical trials. Factors
that could cause delays in or termination of or otherwise adversely affect the
success of clinical trials of a therapeutic product candidate include:

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

Also, the
    clinical testing of therapeutic product candidates may be delayed or abandoned
    if other therapeutic product candidates are later discovered that show significantly
    improved safety or efficacy compared to the then-current product candidates.
    Any of the foregoing events could limit the Celera Genomics groups ability to generate revenues, cause the Celera Genomics group to incur additional expenses, and adversely affect the Celera Genomics groups
    financial results.

61

---



Back to Index

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

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

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

The Celera Genomics group relies on other companies to conduct ongoing clinical trials of small molecule drug candidates.
    The Celera Genomics group is continuing to conduct clinical trials of some
    of its small molecule drug candidates while it seeks to partner or sell its
    small molecule drug and discovery programs. The Celera Genomics group has
    limited experience in conducting clinical trials and may not be able to rapidly
    or effectively continue the further development of these small molecule drug
    candidates and meet current or future requirements, if any, identified by
    the U.S. Food and Drug Administration. The Celera Genomics group does not
    have the ability to independently conduct these clinical trials, and must
    rely on other companies, such as contract research organizations, medical
    institutions, clinical investigators, and contract laboratories to conduct
    clinical trials. If these other companies do not successfully perform their
    contractual duties or regulatory obligations or meet expected deadlines,
    if the other companies need to be replaced, or if the quality or accuracy
    of the data they obtain is compromised due to the failure to adhere to the
    Celera Genomics groups clinical protocols or regulatory requirements
    or for other reasons, these clinical trials may be extended, delayed, suspended,
    or terminated.

The Celera Genomics group does not have sales and service capability in the clinical diagnostics market.The Celera Genomics group currently does not have a sales and service organization for its diagnostic products. Accordingly, its ability to successfully sell these products depends on its ability to develop a sales and service organization, work with Abbott Laboratories under the existing strategic alliance agreement that is described above, work with another distributor, or pursue a combination of these alternatives. In jurisdictions where the Celera Genomics group uses third party distributors for its diagnostic products, its success in marketing these products depends to a great extent on the efforts of the distributors.

The Celera Genomics group has limited manufacturing experience and capability for its diagnostic products and may encounter difficulties expanding the operations of its diagnostic products business.If
diagnostic product sales or clinical trial usage needs increase, the Celera Genomics
group may have to increase the capacity of its diagnostic product manufacturing
processes and facilities or rely on its collaborators in this field of business,
if any. The Celera Genomics group may encounter difficulties in scaling-up diagnostic
product manufacturing processes and may be unsuccessful in overcoming such difficulties.
In such circumstances, the Celera Genomics groups ability to meet diagnostic
product demand or clinical trial usage needs may be impaired or delayed.

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

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

62

---



Back to Index

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

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

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

The pharmaceutical and diagnostics industries are intensely competitive and evolving.There is intense competition among healthcare, pharmaceutical, diagnostic, and biotechnology companies attempting to discover candidates for potential new diagnostic and therapeutic products. These companies may:

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

The Celera
    Genomics groups diagnostic products business competes with companies
    in the U.S. and abroad that are engaged in the development and commercialization
    of products and services that provide genetic information. These companies
    may develop products or services that are competitive with the diagnostic
    products offered by the Celera Genomics group or its collaborators, such
    as analyte specific reagents, diagnostic test kits or diagnostic testing
    services

63

---



Back to Index

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

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

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

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

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

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

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

64

---



Back to Index

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

The Celera Genomics 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 Genomics
group. The Celera Genomics groups diagnostic and
therapeutic research and development activities, and diagnostic manufacturing
activities involve the controlled use of potentially hazardous materials, including
biological materials, chemicals, and various radioactive compounds. Also, some
of the Celera Genomics groups diagnostic products, including products sold
through its strategic alliance with Abbott Laboratories, are hazardous materials
or include hazardous materials. The Celera Genomics group cannot completely eliminate
the risk of accidental or other contamination or injury from these materials,
and the Celera Genomics group could be held liable for resulting damages, which
could be substantial. Under some laws and regulations, a party can be subject
to strict liability for damages caused by some hazardous materials,
which means that a party can be liable without regard to fault or negligence.
Furthermore, the Celera Genomics group could be held indirectly responsible for
contamination or injury arising from the conduct of Abbott Laboratories in manufacturing,
selling, or distributing alliance diagnostic products. The group could be held
similarly responsible for the actions of its other collaborators or licensees.
In addition, the Celera Genomics group is subject to federal, state, local, and
foreign laws, regulations, and permits governing the use, storage, handling,
and disposal of hazardous materials and specified waste products, as well as
the shipment and labeling of materials and products containing hazardous materials.
If the Celera Genomics group fails to comply with any of these laws, regulations,
or permits, or if the Celera Genomics group is held indirectly responsible for
conduct of Abbott Laboratories or other collaborators or licensees found to be
non-compliant, we could be subject to substantial fine or penalty, payment of
remediation costs, loss of permits, and/or other adverse governmental action.
Any of these events could have a material adverse effect on the Celera Genomics
groups
business and financial condition.

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

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

The Celera Genomics groups competitive position depends
on maintaining its intellectual property protection.The
Celera Genomics groups ability to compete and to achieve and maintain profitability
depends, in part, on its ability to

65

---



Back to Index

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

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

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

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

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

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

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

66

---



Back to Index

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

Genomics group is successful, could be substantial, and these legal
actions may absorb significant management time. If infringement claims against
the Celera Genomics group are resolved unfavorably to the Celera Genomics group,
the Celera Genomics group may be enjoined from manufacturing or selling its products
or services without a license from a third party, and the Celera Genomics group
may not be able to obtain a license on commercially acceptable terms, or at all.
Also, the Celera Genomics group could become subject to significant liabilities
to third parties if these claims are resolved unfavorably to the Celera Genomics
group. Similarly, contractual disputes related to existing license rights under
third party patents may affect the Celera Genomics groups ability
to develop, manufacture, and sell its products.

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

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

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

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

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

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

67

---



Back to Index

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

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

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

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

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

68

---



Back to Index

Item 3.    Quantitative and Qualitative Disclosures
      About Market Risk.

We are exposed to potential loss from exposure to market risks represented
principally by changes in foreign exchange rates, interest rates, and equity
prices. Please refer to the market risks section of the managements discussion and analysis included on pages 51-52 of this report. Additional information can also be found in the market risk section of the managements
discussion and analysis included on page 44 of our 2005 Annual Report to Stockholders
(which section is incorporated in this report by reference).

Item 4.    Controls and Procedures.

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

69

---



Back to Index

PART II - OTHER INFORMATION

Item 1.    Legal Proceedings.

We are involved in various lawsuits, arbitrations, investigations, and other legal actions from time to time with both private parties and governmental entities. These legal actions currently involve, for example, commercial, intellectual property, antitrust, environmental, securities, and employment matters. We disclosed information about some of our legal actions in Part I, Item 3, of our 2005 Annual Report on Form 10-K. We made additional disclosures regarding our legal actions in Item 1 of Part II of our previously filed Quarterly Report on Form10-Q for the first quarter of our current fiscal year, updating the information disclosed in our 2005 10-K. Set forth below is a further update to those disclosures, including specifically a description of some cases that were not previously disclosed as well as previously-disclosed cases in which there have been recent developments that may be material.

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

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

Subsequent to the filing of our claims against MJ Research which
are described in the preceding paragraph, on September 21, 2000, MJ Research
filed an action against us in the U.S. District Court for the District of Columbia.
This complaint is based on the allegation that the patents underlying our DNA
sequencing instruments were improperly obtained because one of the alleged inventors,
whose work was funded in part by the U.S. government, was knowingly omitted from
the patent applications. Our patents at issue are U.S. Patent Nos. 5,171,534,
entitled Automated DNA Sequencing Technique, 5,821,058, entitled Automated DNA Sequencing Technique, 6,200,748, entitled Tagged Extendable Primers and Extension Products, and 4,811,218, entitled Real Time Scanning Electrophoresis Apparatus for DNA Sequencing. The
complaint asserts violations of the federal False Claims Act and the federal
Bayh Dole Act, invalidity and unenforceability of the patents at issue, patent
infringement, and various other civil claims against us. MJ Research is seeking
monetary damages, costs and expenses, injunctive relief, transfer of ownership
of the patents in dispute, and other relief as the court deems proper. MJ Research
claims to be suing in the name of the U.S. government although the government
has to date declined to participate in the suit. On October 9, 2003, the case
against us was dismissed but MJ Research filed an appeal. On November 21, 2005,
the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal.

70

---



Back to Index

Genetic Technologies Limited filed a patent infringement action
against us in the U.S. District Court for the Northern District of California
on March 26, 2003. They filed an amended complaint against us on August 12, 2003.
The amended complaint alleged that we were infringing U.S. Patent No. 5,612,179,
entitled Intron Sequence Analysis Method for Detection of Adjacent and Remote Locus Alleles as Haplotypes, and
U.S. Patent No.
5,851,762,
entitled Genomic Mapping Method by Direct Haplotyping Using Intron Sequence Analysis. The
allegedly infringing products were cystic fibrosis reagent kits, TaqMan® genotyping and gene expression assay products for non-coding regions, TaqMan genotyping and gene expression assay services for non-coding regions, AmpFLSTR® kits,
the SNPlex Genotyping System, the SNPbrowser tool, and the Celera Discovery System (CDS).
The complaint also alleged that haplotyping analysis performed by our businesses
infringed the patents identified above. Genetic Technologies Limited was seeking
monetary damages, costs, expenses, injunctive relief, and other relief as the
court deemed proper. On December 30, 2005, the case was dismissed pursuant to
a settlement agreement signed on December 9, 2005.

We are involved in several legal actions with Thermo Electron Corporation
and its subsidiary Thermo Finnigan LLC. These legal actions commenced when we,
together with MDS, Inc. and our Applied Biosystems/MDS Sciex Instruments joint
venture with MDS, filed a patent infringement action against Thermo Electron
in the U.S. District Court for the District of Delaware on September 3, 2004.
The complaint alleges infringement by Thermo Electron of U.S. Patent No. 4,963,736,
and seeks monetary damages, costs, expenses, and other relief as the court deems
proper. Thermo Electron has answered the complaint and counterclaimed for declaratory
relief that the 736 patent is invalid, not infringed, and unenforceable, and is seeking dismissal of our complaint, a judgment that the 736 patent is invalid, not infringed, and unenforceable, costs and expenses, and other relief as the court deems proper. Subsequent to the filing of the action against Thermo Electron, on December 8, 2004, Thermo Finnigan filed a patent infringement action against us in the U.S. District Court for the District of Delaware. The complaint alleges that we have infringed U.S. Patent No. 5,385,654 as a result of, for example, our Applied Biosystems groups
commercialization of the ABI PRISM® 3700 Genetic Analyzer. Thermo
Finnigan is seeking monetary damages, costs, expenses, and other relief as the
court deems proper. We have answered the complaint and counterclaimed for declaratory
relief that the 654 patent is invalid, not infringed, and unenforceable, and are seeking dismissal of Thermo Finnigans complaint, a judgment that the 654 patent is invalid, not infringed, and unenforceable, costs and expenses, and other relief as the court deems proper. Thermo Finnigan subsequently filed a second patent infringement action against us, MDS, and the Applied Biosystems/MDS Sciex Instruments joint venture, in the U.S. District Court for the District of Delaware on February 23, 2005. The complaint alleges that we and the other defendants have infringed U.S. Patent No. 6,528,784 as a result of, for example, our commercialization of the API 5000 LC/MS/MS system. Thermo Finnigan is seeking monetary damages, costs, expenses, and other relief as the court deems proper. We have answered the complaint and counterclaimed for declaratory relief that the 784 patent is invalid and not infringed, and are seeking dismissal of Thermo Finnigans complaint, a judgment that the
784
patent is invalid and not infringed, costs and expenses, and other relief as
the court deems proper.

Item 1A. Risk Factors.

Pages 53 through 68 of Management's Discussion and Analysis of Financial
  Condition and Results of Operations, contained in Part I, Item 2 of this report,
  include a restated description of the risk factors associated with the Applied
  Biosystems group and the Celera Genomics group businesses. These descriptions
  are incorporated into this Item by reference and supersede the descriptions
  of the risk factors associated with our businesses, including the Applied
  Biosystems group, the Celera Genomics group, and Celera Diagnostic businesses,
  contained in our 2005 Annual Report on Form 10-K. The risks relating to our
  capital structure with two separate classes of common stock, contained in pages
  95 through 102 of our 2005 10-K, remain applicable as set forth therein.

71

---



Back to Index

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

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

|Period                        |  |  | Total
    Number of
    Shares Purchased |  |   | Average
         Price
         Paid
    per
    Share |  |  | Total
         Number of
         Shares
     Purchased
         as
         Part
         of Publicly
         Announced
     Plans
    or
    Programs |  |  | Approximate
     Number
         of Shares
         (or
         Approximate
         Dollar
         Value) that
         May
         Yet Be
         Purchased
         Under the
         Plans
    or Programs
    (1)(2)(3) | 
|----------------------------- |  |  | ---------------------------------------- |  | - | ------------------------------------------------------ |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                              |  |  |                                          |  |   |                                                        |  |  |                                                                                                                                                          |  |  |                                                                                                                                                                                                                                   | 
|October 1-October 31, 2005    |  |  | 3,772,703                                |  | $ | 23.0228                                                |  |  | 3,772,703                                                                                                                                                |  |  | 10,125,700                                                                                                                                                                                                                        | 
|November 1-November 30, 2005  |  |  | 3,252,400                                |  | $ | 25.7045                                                |  |  | 3,252,400                                                                                                                                                |  |  | 6,352,997                                                                                                                                                                                                                         | 
|December 1- December 31, 2005 |  |  | 3,100,597                                |  | $ | 27.4528                                                |  |  | 3,100,597                                                                                                                                                |  |  | 3,100,597                                                                                                                                                                                                                         | 
|                              |  |  |                                          |  |   |                                                        |  |  |                                                                                                                                                          |  |  |                                                                                                                                                                                                                                   | 
|Total                         |  |  | 10,125,700                               |  | $ | 25.2407                                                |  |  | 10,125,700                                                                                                                                               |  |  | —                                                                                                                                                                                                                                 | 
|                              |  |  |                                          |  |   |                                                        |  |  |                                                                                                                                                          |  |  |                                                                                                                                                                                                                                   | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On
        July 27, 2005, we announced that our board of directors authorized the
        repurchase of up to 19,450,000 shares of Applera-Applied Biosystems stock,
        in addition to the authorization described in footnote (3) below. The
        authorization had no time restrictions and delegated to Company management
        discretion to purchase shares at times and prices it deemed appropriate
        through open market purchases, privately negotiated transactions, tender
        offers, exchange offers, or otherwise. During the second quarter of fiscal
        2006, the Company completed all repurchases under this authorization.
        All repurchases under this program were made through open market purchases
    and were funded using the Applied Biosystems groups U.S. surplus
        cash and cash generated from domestic operations. Share amounts reflected
        in this column indicate the number of shares that remain authorized for
        repurchase under this authorization as of the first day of each of the
    months indicated and as of the end of the fiscal quarter.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | On
        January 25, 2006, we announced that our board of directors authorized
        the repurchase of up to 5,000,000 shares of Applera-Applied Biosystems
        stock, in addition to the completed repurchase program described in footnote
        (1) above and the authorization described in footnote (3) below. The
        new authorization has no time restrictions and delegates to Company management
        discretion to purchase shares at times and prices it deems appropriate
        through open market purchases, privately negotiated transactions, tender
        offers, exchange offers, or otherwise. It is anticipated that repurchases
        will be made from time to time depending on market conditions and will
        be funded using the Applied Biosystems groups U.S. surplus cash
        and cash generated from domestic operations, as well as funds to be borrowed
        under our revolving corporate credit facility or from other sources,
        if and when required. Share amounts reflected in this column do not reflect
    this new authorization.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(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 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 fiscal 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                         

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

|Period                       |  | Total
    Number of
    Shares Purchased |  |   | Average
         Price
         Paid
    per
    Share |  | Total
         Number of
         Shares
     Purchased
         as
         Part
         of Publicly
         Announced
     Plans
    or
    Programs |  | Approximate
  Number of Shares
  (or Approximate
  Dollar Value) that
  May Yet be
  Purchased Under the
  Plans or Programs
  (1) | 
|---------------------------- |  | ---------------------------------------- |  | - | ------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------- | 
|                             |  |                                          |  |   |                                                        |  |                                                                                                                                                          |  |                                                                                                                                    | 
|October 1-October 31, 2005   |  | —                                        |  | $ | —                                                      |  | —                                                                                                                                                        |  | —                                                                                                                                  | 
|November 1-November 30, 2005 |  | —                                        |  | $ | —                                                      |  | —                                                                                                                                                        |  | —                                                                                                                                  | 
|December 1-December 31, 2005 |  | —                                        |  | $ | —                                                      |  | —                                                                                                                                                        |  | —                                                                                                                                  | 
|                             |  |                                          |  |   |                                                        |  |                                                                                                                                                          |  |                                                                                                                                    | 
|Total                        |  | —                                        |  | $ | —                                                      |  | —                                                                                                                                                        |  | —                                                                                                                                  | 
|                             |  |                                          |  |   |                                                        |  |                                                                                                                                                          |  |                                                                                                                                    | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(l) | We
        previously announced that our board of directors has authorized the repurchase
        of shares of Applera-Celera Genomics 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 fiscal 2006.

72

---



Back to Contents

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

We held our 2005 Annual Meeting of
    Stockholders on October 20, 2005. At that meeting, our stockholders elected
    all of the nominees for director and ratified the selection of our independent registered public
    accounting firm. These proposals are described in the Proxy Statement and Notice
    of 2005 Annual Meeting of Stockholders dated September 12, 2005. The results
    of the voting of the stockholders with respect to these matters is set forth
    below.

| | I. | Election of Directors.
| | -- | ----------------------

|                     |  |                                   |  |  |                                                 | 
|-------------------- |  | --------------------------------- |  |  | ----------------------------------------------- | 
|                     |  | Total Vote ForEach
      Director |  |  | Total Vote
        Withheld 
From Each Director | 
|                     |  |                                   |  |  |                                                 | 
|Richard H. Ayers     |  | 209,175,931                       |  |  | 4,845,412                                       | 
|Jean-Luc Bélingard   |  | 205,887,406                       |  |  | 8,133,937                                       | 
|Robert H. Hayes      |  | 209,155,456                       |  |  | 4,865,887                                       | 
|Arnold J. Levine     |  | 211,690,090                       |  |  | 2,331,253                                       | 
|William H. Longfield |  | 211,688,483                       |  |  | 2,332,860                                       | 
|Theodore E. Martin   |  | 208,317,740                       |  |  | 5,703,603                                       | 
|Carolyn W. Slayman   |  | 209,159,739                       |  |  | 4,861,604                                       | 
|Orin R. Smith        |  | 211,661,875                       |  |  | 2,359,468                                       | 
|James R. Tobin       |  | 211,577,994                       |  |  | 2,443,349                                       | 
|Tony L. White        |  | 207,320,038                       |  |  | 6,701,305                                       | 

| |     |                                                                                                                                                                           
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | II. | Ratification of the selection
        of PricewaterhouseCoopers LLP as our independent registered public accounting
        firm for the fiscal year ending June 30, 2006.

|            |  |           |  |         | 
|----------- |  | --------- |  | ------- | 
|FOR         |  | AGAINST   |  | ABSTAIN | 
|            |  |           |  |         | 
|            |  |           |  |         | 
|209,281,044 |  | 3,822,178 |  | 918,121 | 

Item 5. Other Information.

In January 2006, we announced plans
    for the Celera Genomics group to partner or sell its small molecule drug
    development and discovery programs. See Note 14 of the Notes to Unaudited
    Condensed Consolidated Financial Statements set forth in Item 1 of Part I
    of this report for further information about this decision. We are still
    evaluating the financial effect of this decision and are unable to provide
    an estimate of the total amount expected to be incurred for each major type
    of cost associated with this decision. However, we currently expect that
    we will take pre-tax restructuring charges of approximately $30 million over
    the balance of fiscal 2006 associated with the decision, of which approximately
    $20 million will be cash charges.

73

---



Back to Index

Item 6.   Exhibits.

|10.1 |  | Agreement
        dated October 25, 2005, between Applera Corporation and Robert F.G. Booth,
        Vice President of Applera Corporation and Chief Scientific Officer of
    the Celera Genomics group.                                                                                                            
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  |                                                                                                                                                                                                                                                                                                                      
|10.2 |  | Form
        of Restricted Stock Unit Award Agreement for fiscal 2006 awards to executive
        officers pursuant to the Applera Corporation/Applied Biosystems Group
        Amended
        and Restated
    1999 Stock Incentive Plan.                                                                          
|     |  |                                                                                                                                                                                                                                                                                                                      
|10.3 |  | Amendment,
        dated as of November 17, 2005, to the Applera Corporation Deferred Compensation
    Plan.                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                      
|10.4 |  | Agreement
        and Plan of Merger dated as of December 24, 2005, by and among Ambion,
        Inc., Applera Corporation, Ambion Acquisition Corp., and Matthew M. Winkler,
        in
his capacity as Representative.                                                                                             
|     |  |                                                                                                                                                                                                                                                                                                                      
|10.5 |  | Applera
        Corporation Supplemental Executive Retirement Plan effective as of December
    31, 2005.                                                                                                                                                                                                            
|     |  |                                                                                                                                                                                                                                                                                                                      
|13.1 |  | Annual
        Report to Stockholders for the fiscal year ended June 30, 2005, to the
        extent incorporated herein by reference (incorporated by reference to
        Exhibit 13 to Annual Report on Form 10-K of the Company for the fiscal
        year ended June 30, 2005 (Commission
file number 1-4389)).
|     |  |                                                                                                                                                                                                                                                                                                                      
|13.2 |  | Quarterly
        Report on Form 10-Q of Applera Corporation for the fiscal quarter ended
        September 30, 2005, to the extent incorporated herein by reference (Commission
        file
number 1-4389).                                                                                                        
|     |  |                                                                                                                                                                                                                                                                                                                      
|31.1 |  | Certification
        of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                      
|31.2 |  | Certification
        of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                      
|32.1 |  | Certification
          of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                      
|32.2 |  | Certification
        of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
        pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                   
|     |  |                                                                                                                                                                                                                                                                                                                      
|     |  |                                                                                                                                                                                                                                                                                                                      
|     |  |                                                                                                                                                                                                                                                                                                                      

74

---



Back to Index

SIGNATURES

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



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

Dated: February 7, 2006

75

---



Back to Index

EXHIBIT INDEX

|Exhibit
    Number |                                                                                                                                                                                                                                  
|------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                   |                                                                                                                                                                                                                                  
|10.1               | Agreement
        dated October 25, 2005, between Applera Corporation and Robert F.G. Booth,
        Vice President of Applera Corporation and Chief Scientific Officer of
        the Celera Genomics
group.                    
|                   |                                                                                                                                                                                                                                  
|10.2               | Form
        of Restricted Stock Unit Award Agreement forfiscal
        2006 awards toexecutive officers pursuant
        to the Applera Corporation/Applied Biosystems Group Amended and Restated
    1999 Stock Incentive Plan.
|                   |                                                                                                                                                                                                                                  
|10.3               | Amendment,
        dated as of November 17, 2005, to the Applera Corporation Deferred Compensation
    Plan.                                                                                                                     
|                   |                                                                                                                                                                                                                                  
|10.4               | Agreement
        and Plan of Merger dated as of December 24, 2005, by and among Ambion,
        Inc., Applera Corporation, Ambion Acquisition Corp., and Matthew M. Winkler,
        in his
capacity as Representative.         
|                   |                                                                                                                                                                                                                                  
|10.5               | Applera
        Corporation Supplemental Executive Retirement Plan effective as of December
    31, 2005.                                                                                                                        
|                   |                                                                                                                                                                                                                                  
|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                                                                

---