<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   FORM 10-Q


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

                 For the quarterly period ended March 31, 2003

                                       OR

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

                         Commission file number: 1-4389



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


                Delaware                                   06-1534213
    (State or Other Jurisdiction of                     (I.R.S. Employer
     Incorporation or Organization)                  Identification Number)

                                 301 Merritt 7,
                        Norwalk, Connecticut 06851-1070
          (Address of Principal Executive Offices, Including Zip Code)

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


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

                                 Yes x No ____

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

                                 Yes x No ____

As of the close of business on May 9, 2003, there were 208,965,952 shares of
Applera Corporation - Applied Biosystems Group Common Stock and 72,026,950
shares of Applera Corporation - Celera Genomics Group Common Stock outstanding.
<PAGE>

                              APPLERA CORPORATION
                                     INDEX

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

             Condensed Consolidated Statements of Operations for the
                  Three and Nine Months Ended March 31, 2002 and 2003                                       1

             Condensed Consolidated Statements of Financial Position at
                  June 30, 2002 and March 31, 2003                                                          2

             Condensed Consolidated Statements of Cash Flows for the
                  Nine Months Ended March 31, 2002 and 2003                                                 3

             Notes to Unaudited Condensed Consolidated Financial Statements                              4-26

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

             Discussion of Applera Corporation                                                          27-37

             Discussion of Applied Biosystems Group                                                     38-45

             Discussion of Celera Genomics Group                                                        46-50

             Discussion of Celera Diagnostics                                                           51-52

             Recently Issued Accounting Standards                                                          52

             Outlook                                                                                    53-54

             Forward-Looking Statements                                                                 54-76

Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                        77

Item 4.  Controls and Procedures                                                                           77

Part II. Other Information                                                                                 78
</TABLE>
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

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

<TABLE>
<CAPTION>
                                               Three Months Ended            Nine Months Ended
                                                    March 31,                     March 31,
                                           --------------------------    --------------------------
                                               2002           2003           2002           2003
                                           -----------    -----------    -----------    -----------
<S>                                       <C>            <C>            <C>            <C>
Net Revenues                               $   434,437    $   431,006    $ 1,259,457    $ 1,321,356
Cost of sales                                  202,951        206,123        595,777        631,343
                                           -----------    -----------    -----------    -----------
Gross Margin                                   231,486        224,883        663,680        690,013
Selling, general and administrative            108,582        105,345        325,011        324,872
Research, development and engineering          103,638         96,963        276,607        303,539
Amortization of intangible assets                2,636            725          4,742          5,148
Other special charges                           22,959                        22,959         24,313
Acquired research and development                                            101,181
                                           -----------    -----------    -----------    -----------
Operating Income (Loss)                         (6,329)        21,850        (66,820)        32,141
Loss on investments, net                          (350)        (2,147)          (350)        (2,420)
Interest expense                                  (500)          (211)        (1,128)          (614)
Interest income                                  9,797          7,156         36,123         23,620
Other income (expense), net                     (3,516)       (13,392)        (5,244)       (12,457)
                                           -----------    -----------    -----------    -----------
Income (Loss) Before Income Taxes                 (898)        13,256        (37,419)        40,270
Provision (benefit) for income taxes             1,959           (329)         9,886          1,196
                                           -----------    -----------    -----------    -----------
Income (Loss) From Continuing Operations        (2,857)        13,585        (47,305)        39,074
Loss from discontinued operations,
    net of income taxes                                                                     (16,400)
                                           -----------    -----------    -----------    -----------
Net Income (Loss)                          $    (2,857)   $    13,585    $   (47,305)   $    22,674
                                           ===========    ===========    ===========    ===========

Applied Biosystems Group (see Note 5)
   Income From Continuing Operations       $    49,111    $    40,123    $   130,341    $   103,532
      Basic per share                      $      0.23    $      0.19    $      0.62    $      0.50
      Diluted per share                    $      0.23    $      0.19    $      0.60    $      0.49

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

   Net Income                              $    49,111    $    40,123    $   130,341    $    87,132
      Basic per share                      $      0.23    $      0.19    $      0.62    $      0.42
      Diluted per share                    $      0.23    $      0.19    $      0.60    $      0.41

   Dividends per share                     $    0.0425    $    0.0850    $    0.1275    $    0.1700

Celera Genomics Group (see Note 5)
   Net Loss                                $   (49,496)   $   (26,743)   $  (182,998)   $   (62,516)
      Basic and diluted per share          $     (0.72)   $     (0.37)   $     (2.82)   $     (0.88)
</TABLE>


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


                                       1
<PAGE>

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

<TABLE>
<CAPTION>
                                                         At June 30,   At March 31,
                                                            2002           2003
                                                         -----------   ------------
                                                                        (unaudited)
<S>                                                     <C>            <C>
Assets
Current assets
  Cash and cash equivalents                              $   470,218    $   542,126
  Short-term investments                                     889,685        803,439
  Accounts receivable, net                                   406,244        386,559
  Inventories, net                                           146,804        154,153
  Prepaid expenses and other current assets                   99,547         85,279
                                                         -----------    -----------
Total current assets                                       2,012,498      1,971,556
Property, plant and equipment, net                           488,744        519,515
Other long-term assets                                       574,157        608,781
                                                         -----------    -----------
Total Assets                                             $ 3,075,399    $ 3,099,852
                                                         ===========    ===========

Liabilities And Stockholders' Equity
Current liabilities
  Loans payable                                          $       299    $      --
  Accounts payable                                           168,218        154,030
  Accrued salaries and wages                                  82,165         77,480
  Accrued taxes on income                                    101,209         92,360
  Other accrued expenses                                     275,348        288,969
                                                         -----------    -----------
Total current liabilities                                    627,239        612,839
Long-term debt                                                17,983         17,321
Other long-term liabilities                                  205,234        224,175
                                                         -----------    -----------
Total Liabilities                                            850,456        854,335

Stockholders' Equity
  Capital stock
        Applera Corporation - Applied Biosystems Group         2,128          2,128
        Applera Corporation - Celera Genomics Group              710            720
  Capital in excess of par value                           2,086,929      2,099,470
  Retained earnings                                          292,690        277,407
  Accumulated other comprehensive loss                       (91,574)       (63,326)
  Treasury stock, at cost                                    (65,940)       (70,882)
                                                         -----------    -----------
Total Stockholders' Equity                                 2,224,943      2,245,517
                                                         -----------    -----------
Total Liabilities And Stockholders' Equity               $ 3,075,399    $ 3,099,852
                                                         ===========    ===========
</TABLE>


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


                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                Nine months ended
                                                                    March 31,
                                                              ----------------------
                                                                2002         2003
                                                              ---------    ---------
<S>                                                          <C>          <C>
Operating Activities Of Continuing Operations
Income (loss) from continuing operations                      $ (47,305)   $  39,074
Adjustments to reconcile income (loss) from continuing
   operations to net cash provided by operating activities:
    Depreciation and amortization                                84,422      105,639
    Asset impairments                                            15,563       10,017
    Provisions for excess lease space, office closures
       and severance costs                                       10,311       23,744
    Long-term compensation programs                               5,522        4,524
    (Gain) loss on sale of assets                                   (51)       1,330
    Deferred income taxes                                       (29,049)     (55,067)
    Loss from equity method investees                             4,027       19,171
    Acquired research and development                           101,181
Changes in operating assets and liabilities:
    Accounts receivable                                          16,583       28,717
    Inventories                                                   6,240      (10,725)
    Prepaid expenses and other assets                           (49,423)      (9,476)
    Accounts payable and other liabilities                        4,374      (43,994)
                                                              ---------    ---------
Net Cash Provided By Operating Activities
  Of Continuing Operations                                      122,395      112,954
                                                              ---------    ---------
Investing Activities Of Continuing Operations
Additions to property, plant and equipment, net                 (78,005)    (109,299)
(Purchases) proceeds from short-term investments, net           (15,215)      86,725
Purchases of long-term investments                                           (16,834)
Acquisitions and other investments, net                         (41,314)        (105)
Proceeds from the sale of assets, net                             5,228        6,579
                                                              ---------    ---------
Net Cash Used By Investing Activities
  Of Continuing Operations                                     (129,306)     (32,934)
                                                              ---------    ---------
Net Cash Used By Operating Activities
  Of Discontinued Operations                                     (2,230)      (2,526)
                                                              ---------    ---------
Financing Activities
Net change in loans payable                                     (14,520)        (290)
Principal payments on long-term debt                            (38,973)
Dividends                                                       (26,984)     (26,691)
Purchases of common stock for treasury                             (941)     (19,779)
Proceeds from stock issued for stock plans                       36,597       27,507
                                                              ---------    ---------
Net Cash Used By Financing Activities                           (44,821)     (19,253)
                                                              ---------    ---------
Effect Of Exchange Rate Changes On Cash                           7,078       13,667
                                                              ---------    ---------
Net Change In Cash And Cash Equivalents                         (46,884)      71,908
Cash And Cash Equivalents Beginning Of Period                   608,535      470,218
                                                              ---------    ---------
Cash And Cash Equivalents End Of Period                       $ 561,651    $ 542,126
                                                              =========    =========
</TABLE>


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


                                       3
<PAGE>

                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Interim Condensed Consolidated Financial Statements

We prepare our unaudited interim condensed consolidated financial statements 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 judgment. While we believe we have considered all available
information, actual results could affect the reported amounts of assets and
liabilities, revenues, costs and expenses and contingent assets and liabilities.
We have reclassified certain amounts in the condensed consolidated financial
statements for comparative purposes.

We consistently applied the accounting policies described in our 2002 Annual
Report to Stockholders in preparing these unaudited interim financial
statements. 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 certain notes and other information included in our 2002 Annual
Report to Stockholders. You should read these unaudited interim condensed
consolidated financial statements in conjunction with our consolidated financial
statements presented in our 2002 Annual Report to Stockholders.

The results for the interim periods are not necessarily indicative of trends or
future financial results.

Note 2 - Stock-Based Compensation

On January 1, 2003, we adopted the Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," which amended SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value method of
accounting for stock-based employee compensation and requires more prominent and
frequent disclosures about the effects of stock-based compensation.

We continue to apply the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for stock-based compensation. In accordance with
APB Opinion No. 25, compensation cost for stock options is recognized in income
based on the excess, if any, of the quoted market price of the stock over the
exercise price of the stock options at the grant date of the award. Generally,
the exercise price of stock options granted to employees equals the fair market
value of our stock prices at the date of grant; therefore, no compensation
expense is recorded.

We determined pro forma net income and earnings per share information for
employee stock plans under the fair value method of SFAS No. 123. The fair value
of the options was estimated at the grant date using the Black-Scholes
option-pricing model with the following weighted average assumptions for the
nine months ended March 31:


                                       4
<PAGE>

                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

                                            2002          2003
====================================================================
Applied Biosystems Group
Dividend yield                                  .92%          1.07%
Volatility                                    77.85%         72.03%
Risk-free interest rate                        3.58%          3.01%
Expected option life in years                      4              5
--------------------------------------------------------------------
Celera Genomics Group
Dividend yield                                  -- %           -- %
Volatility                                   101.17%         96.88%
Risk-free interest rate                        3.71%          3.03%
Expected option life in years                    3.5              4
====================================================================

The pro forma information for the three months ended March 31 is presented
below:

<TABLE>
<CAPTION>
                                                                 Applied Biosystems     Celera Genomics
                                                                       Group                 Group
-----------------------------------------------------------------------------------------------------------
(Dollar amounts in millions, except per share amounts)            2002       2003       2002        2003
===========================================================================================================
<S>                                                            <C>        <C>        <C>         <C>
Income (loss) from continuing operations, as reported           $   49.1   $   40.1   $  (49.5)   $  (26.7)
Add:     Stock-based employee compensation expense
         included in reported income (loss) from continuing
         operations, net of tax                                      0.8        0.4        0.2         0.2

Deduct:  Stock-based employee compensation expense
         determined under fair value based method, net of tax       26.2       27.5        8.4         6.8
-----------------------------------------------------------------------------------------------------------
Pro forma income (loss) from continuing operations              $   23.7   $   13.0   $  (57.7)   $  (33.3)
===========================================================================================================

Earnings (loss) per share from continuing operations
         Basic - as reported                                    $   0.23   $   0.19   $  (0.72)   $  (0.37)
         Basic - pro forma                                      $   0.11   $   0.06   $  (0.84)   $  (0.46)

         Diluted - as reported                                  $   0.23   $   0.19   $  (0.72)   $  (0.37)
         Diluted - pro forma                                    $   0.11   $   0.06   $  (0.84)   $  (0.46)
===========================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                Applera Corporation
-----------------------------------------------------------------------------------
(Dollar amounts in millions)                                      2002       2003
===================================================================================
<S>                                                            <C>        <C>
Income (loss) from continuing operations, as reported           $  (2.9)   $  13.6
Add:     Stock-based employee compensation expense
         included in reported income (loss) from continuing
         operations, net of tax                                     1.0        0.6

Deduct:  Stock-based employee compensation expense
         determined under fair value based method, net of tax      34.6       34.3
-----------------------------------------------------------------------------------
Pro forma loss from continuing operations                       $ (36.5)   $ (20.1)
===================================================================================
</TABLE>


                                       5
<PAGE>

                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

The pro forma information for the nine months ended March 31 is presented below:

<TABLE>
<CAPTION>
                                                                 Applied Biosystems     Celera Genomics
                                                                       Group                 Group
-----------------------------------------------------------------------------------------------------------
(Dollar amounts in millions, except per share amounts)            2002       2003       2002        2003
===========================================================================================================
<S>                                                            <C>        <C>        <C>         <C>
Income (loss) from continuing operations, as reported           $  130.3   $  103.5   $ (183.0)   $  (62.5)
Add:     Stock-based employee compensation expense
         included in reported income (loss) from continuing
         operations, net of tax                                      2.6        1.9        0.7         0.7

Deduct:  Stock-based employee compensation expense
         determined under fair value based method, net of tax       78.6       87.0       24.5        23.0
-----------------------------------------------------------------------------------------------------------
Pro forma income (loss) from continuing operations              $   54.3   $   18.4   $ (206.8)   $  (84.8)
===========================================================================================================

Earnings (loss) per share from continuing operations
         Basic - as reported                                    $   0.62   $   0.50   $  (2.82)   $  (0.88)
         Basic - pro forma                                      $   0.25   $   0.09   $  (3.19)   $  (1.19)

         Diluted - as reported                                  $   0.60   $   0.49   $  (2.82)   $  (0.88)
         Diluted - pro forma                                    $   0.25   $   0.09   $  (3.19)   $  (1.19)
===========================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                Applera Corporation
-----------------------------------------------------------------------------------
(Dollar amounts in millions)                                      2002       2003
===================================================================================
<S>                                                            <C>        <C>
Income (loss) from continuing operations, as reported           $ (47.3)   $  39.1
Add:     Stock-based employee compensation expense
         included in reported income (loss) from continuing
         operations, net of tax                                     3.3        2.6

Deduct:  Stock-based employee compensation expense
         determined under fair value based method, net of tax     103.1      110.0
-----------------------------------------------------------------------------------
Pro forma loss from continuing operations                       $(147.1)   $ (68.3)
===================================================================================
</TABLE>

Note 3 - Special Charges

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


                                       6
<PAGE>

                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

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

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

                                 Employee-
                                   Related         Asset      Office
(Dollar amounts in millions)       Charges    Impairment    Closures      Total
================================================================================
Total charges                        $22.9          $9.5       $ 1.4      $33.8
Cash payments                         11.2                       0.2       11.4
Non-cash charges                                     9.5         0.5       10.0
--------------------------------------------------------------------------------
Balance at March 31, 2003            $11.7          $ --       $ 0.7      $12.4
================================================================================

Approximately 300 employees had been terminated as of March 31, 2003. The
termination of the remaining employees and the cash expenditures relating to the
workforce reductions and office closures are expected to be substantially
complete by the end of calendar year 2003, and will be funded primarily by cash
provided by operating activities.

The Celera Genomics group recorded a restructuring charge of $2.8 million during
the fourth quarter of fiscal 2002 for severance costs associated with the
termination of 132 employees primarily within the areas of DNA sequencing, data
management and analysis support, sales, and general administration. All actions
under this plan were taken as of June 30, 2002, and all cash payments were made
by March 31, 2003.

Note 4 - Comprehensive Gain (Loss)

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) for the three and nine months ended March 31 was as
follows:


                                       7
<PAGE>

                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

<TABLE>
<CAPTION>
                                             Three months ended     Nine months ended
                                                  March 31,             March 31,
--------------------------------------------------------------------------------------
(Dollar amounts in millions)                   2002       2003       2002       2003
======================================================================================
<S>                                         <C>        <C>        <C>        <C>
Net income (loss)                            $  (2.9)   $  13.6    $ (47.3)   $  22.7
Other comprehensive gain (loss):
  Net unrealized losses on investments         (12.0)      (0.4)     (23.7)      (6.5)
  Net unrealized losses on investments
     reclassified into earnings                             0.9                   0.8
  Net unrealized gains (losses) on hedge
     contracts                                   2.6       (4.1)       4.7       (3.3)
  Net unrealized (gains) losses on hedge
    contracts reclassified into earnings        (4.9)       9.1      (10.3)      17.3
  Foreign currency translation adjustments      (4.6)       6.2        1.2       19.9
--------------------------------------------------------------------------------------
Other comprehensive gain (loss)                (18.9)      11.7      (28.1)      28.2
--------------------------------------------------------------------------------------
Comprehensive gain (loss)                    $ (21.8)   $  25.3    $ (75.4)   $  50.9
======================================================================================
</TABLE>

Note 5 - Earnings (Loss) Per Share

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


                                       8
<PAGE>

                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

<TABLE>
<CAPTION>
                                                      Applied Biosystems      Celera Genomics
                                                            Group                  Group
------------------------------------------------------------------------------------------------
(Amounts in thousands except per share amounts)        2002       2003       2002        2003
================================================================================================
<S>                                                 <C>        <C>        <C>         <C>
Weighted average number of common shares
  used in the calculation of basic earnings
  (loss) per share                                    212,289    209,068     68,406      71,676

Common stock equivalents                                4,915      1,297
------------------------------------------------------------------------------------------------
Shares used in the calculation of diluted
  earnings (loss) per share                           217,204    210,365     68,406      71,676
================================================================================================
Income (loss) from continuing operations used
  in the calculation of earnings (loss) per share
  from continuing operations                         $ 49,111   $ 40,123   $(49,496)   $(26,743)

Income (loss) per share from continuing operations
    Basic and diluted                                $   0.23   $   0.19   $  (0.72)   $  (0.37)
================================================================================================
</TABLE>

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

                                       9
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

<TABLE>
<CAPTION>
                                                      Applied Biosystems         Celera Genomics
                                                            Group                     Group
----------------------------------------------------------------------------------------------------
(Amounts in thousands except per share amounts)        2002        2003         2002        2003
====================================================================================================
<S>                                                 <C>         <C>         <C>         <C>
Weighted average number of common shares
  used in the calculation of basic earnings
  (loss) per share                                     211,802     208,993      64,987       71,395

Common stock equivalents                                 4,395       1,314
----------------------------------------------------------------------------------------------------

Shares used in the calculation of diluted
  earnings (loss) per share                            216,197     210,307      64,987       71,395
====================================================================================================

Income (loss) from continuing operations used
  in the calculation of earnings (loss) per share
  from continuing operations                         $ 130,341   $ 103,532   $(182,998)   $ (62,516)

Income (loss) per share from continuing operations
    Basic                                            $    0.62   $    0.50   $   (2.82)   $   (0.88)
    Diluted                                          $    0.60   $    0.49   $   (2.82)   $   (0.88)
====================================================================================================
</TABLE>

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 stock") were excluded in
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.

<TABLE>
<CAPTION>
                                                        Three months ended         Nine months ended
                                                             March 31,                 March 31,
-----------------------------------------------------------------------------------------------------
(Shares in millions)                                    2002          2003        2002          2003
=====================================================================================================
<S>                                                    <C>           <C>         <C>           <C>
Applera Corporation - Applied Biosystems Group          14.0          27.3        10.1          26.4
  Common Stock
Applera - Celera Stock                                  13.4          12.9        13.4          12.9
=====================================================================================================
</TABLE>


                                       10
<PAGE>

                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

Note 6 - Inventories

Inventories included the following components:

                               June 30,  March 31,
(Dollar amounts in millions)     2002       2003
==================================================
Raw materials and supplies     $  71.3    $  59.3
Work-in-process                   11.1        6.7
Finished products                 64.4       88.2
--------------------------------------------------
Total inventories              $ 146.8    $ 154.2
==================================================

Note 7 - Goodwill And Intangible Assets

The following table presents our intangible assets subject to amortization:

<TABLE>
<CAPTION>
                                     June 30, 2002            March 31, 2003
---------------------------------------------------------------------------------
                                 Gross                     Gross
                                Carrying   Accumulated    Carrying   Accumulated
(Dollar amounts in millions)     Amount    Amortization    Amount    Amortization
=================================================================================
<S>                            <C>          <C>          <C>          <C>
Patents                         $  44.7      $  16.4      $  44.7      $  20.1
Acquired technology                54.6         20.3         55.4         28.3
Favorable operating leases         11.6          1.8         11.6          4.0
---------------------------------------------------------------------------------
Total                           $ 110.9      $  38.5      $ 111.7      $  52.4
=================================================================================
</TABLE>

Aggregate amortization expense through March 31 was as follows:

                                                        March 31,
------------------------------------------------------------------------
(Dollar amounts in millions)                      2002            2003
========================================================================
Three months ended                              $   5.5         $   3.7
Nine months ended                               $  11.3            13.9
========================================================================

The amortization expense in fiscal 2003 included the amortization of intangible
assets acquired as part of the acquisition of Axys Pharmaceuticals, Inc. and
Boston Probes, Inc. in November of fiscal 2002. 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
March 31, 2003, we expected annual amortization expense of our intangible assets
for each of the next five fiscal years to be as shown in the following table.
Future acquisitions or impairment events could cause these amounts to change.


                                       11
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

<TABLE>
<CAPTION>
                                   Applied          Celera
                                  Biosystems       Genomics         Celera
(Dollar amounts in millions)        Group            Group        Diagnostics     Consolidated
==============================================================================================
<C>                                <C>              <C>             <C>             <C>
2003                                $ 9.5            $ 5.9           $ 2.0           $ 17.4
2004                                  9.0              2.9             2.1             14.0
2005                                  8.7              2.9             2.1             13.7
2006                                  8.6              1.1             2.1             11.8
2007                                  7.7                              1.9              9.6
==============================================================================================
</TABLE>

The carrying amount of goodwill at March 31, 2003 was $39.4 million, of which
$36.7 million was allocated to the Applied Biosystems group and $2.7 million was
allocated to the Celera Genomics group.

Note 8 - Patent Litigation

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

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

Note 9 - Supplemental Cash Flow Information

Significant non-cash financing activities were as follows:

                                                             Nine months ended
                                                                 March 31,
--------------------------------------------------------------------------------
 (Dollar amounts in millions)                                2002         2003
================================================================================
Tax benefit related to employee stock options              $   11.6     $    1.1
Dividends declared but not paid                            $    9.0     $   17.7
Equity instruments issued in Axys acquisition              $  181.9
Debt and capital lease obligation assumed in
    Axys acquisition                                       $   39.1
================================================================================


                                       12
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

Note 10 - Guarantees

In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of Statement of
Financial Accounting Standards Nos. 5, 57, and 107 and rescission of FIN 34."
FIN 45 extends the disclosures to be made by a guarantor about its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of certain guarantees, a liability
for the fair value of the obligation under these guarantees. The disclosure
provisions of FIN 45 were effective for financial statements for periods ending
after December 15, 2002. The provisions for initial recognition and measurement
of guarantees were effective on a prospective basis for guarantees issued or
modified after December 31, 2002.

The application of FIN 45 did not have an impact on our consolidated financial
statements. There are three types of guarantees related to our business
activities that are included in the scope of FIN 45: leases with recourse
provisions; the guarantee of pension benefits for a divested business; and
product warranties.

Leases

We provide lease-financing options to our customers through third party
financing companies. For certain leases, the financing companies have recourse
to us for any unpaid principal balance upon default by the customer. The leases
typically have terms of 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 such transactions upon the
shipment 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 March 31, 2003, the financing companies'
outstanding balance of lease receivables with recourse to us was $10.5 million.
We believe that we could recover the entire balance from the resale of the
underlying instruments in the event of default by all customers.

Guarantee of pension benefits for divested business

As part of the divestiture of the 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 $43.2 million at March 31,
2003, is not expected to have a material adverse effect on our consolidated
financial position.

Product warranties

Warranty costs for product sales are accrued at the time of shipment based on
historical experience as well as anticipated product performance. The product
warranties extend over a specified period of time ranging up to two years from
the date of sale depending on the product subject to warranty. 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.


                                       13
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

The following table provides the analysis of the warranty reserve:

(Dollar amounts in millions)
================================================================================
Balance at June 30, 2002                                               $   12.8
Accruals for warranties during the period                                  20.7
Usage of reserve during the period                                        (18.6)
Other                                                                       0.7
--------------------------------------------------------------------------------
Balance at March 31, 2003                                              $   15.6
================================================================================

Note 11 - Debt

During the second quarter of fiscal 2003, we purchased $18.1 million of
non-callable U.S. government obligations to serve as collateral for the 8%
senior secured convertible notes acquired as part of the acquisition of Axys. We
substituted these government obligations for our shares of Discovery Partners
International, Inc. ("DPI") common stock that originally collateralized the
notes. The government obligations are required to be held in a trust and the
proceeds from the maturation of, and interest payments on, these obligations
will fund the interest and principal payments under the notes. The DPI shares
were released to us during the third quarter of fiscal 2003. The government
obligations, which mature over the next two fiscal years, are classified as
available for sale at March 31, 2003, with $0.9 million in short-term
investments, and $16.7 million in other long-term assets.

Note 12 - Contingencies

Litigation

We are involved in various legal proceedings from time to time, including
actions with respect to 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 certain claims we
are currently defending.

Applera and some of its officers were served in five lawsuits between April and
May, 2000, purportedly on behalf of purchasers of Applera - Celera stock in our
follow-on public offering of Applera - Celera stock completed on March 6, 2000.
In the offering, we sold an aggregate of approximately 4.4 million shares of
Applera - Celera stock at a public offering price of $225 per share. All of
these lawsuits have been consolidated into a single case and are pending in the
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 it would not be able to patent this
data. The consolidated complaint seeks monetary damages, rescission, costs and
expenses, and other relief as the court deems proper.


                                       14
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

We are involved in several litigation matters with MJ Research, Inc., commencing
with our filing claims against MJ Research based on its alleged infringement of
certain polymerase chain reaction, or PCR, patents. MJ Research filed an action
against us in the U.S. District Court for the District of Columbia on September
21, 2000. The 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.

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.

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," although
it does not identify the specific facts on which this allegation is based. 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. Our counterclaim also alleges that Beckman Coulter has engaged in
unfair business practices against us under the California Business and
Professions Code. We are seeking dismissal of Beckman Coulter's complaint,
monetary damages, costs and expenses, declaratory and injunctive relief, and
other relief as the court deems proper.


                                       15
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

Henry Huang (an individual) filed an action against us and the Applied
Biosystems group and the other parties described below in the U.S. District
Court for the Central District of California on February 19, 2003. Mr. Huang's
complaint seeks to change inventorship of the patents described below, and
claims breach of contract, fraud, conversion, and unjust enrichment. The
complaint relates to 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." U.S. Patent Nos. 5,171,534, 5,821,058, and 6,200,748 are assigned
to the California Institute of Technology and licensed by the Applied Biosystems
group. U.S. Patent No. 4,811,218 is assigned to the Applied Biosystems group.
Also named in the complaint are the California Institute of Technology, Lloyd
Smith, Leroy Hood, Michael Hunkapiller, Timothy Hunkapiller, Charles Connell,
John Lytle, William Mordan, and John Bridgham. Lloyd Smith, Leroy Hood, Michael
Hunkapiller, Timothy Hunkapiller, and Charles Connell are the inventors named on
U.S. Patent Nos. 5,171,534, 5,821,058, and 6,200,748. Michael Hunkapiller,
Charles Connell, John Lytle, William Mordan, and John Bridgham are the inventors
named on U.S. Patent No. 4,811,218. The issues involved in this litigation are
related to the issues in the MJ Research, Inc. litigation that was filed
September 21, 2000, which is described above. Mr. Huang is alleging that he is
the sole inventor on U.S. Patent Nos. 5,171,534, 5,821,058, 6,200,748, and
4,811,218. He is seeking to substitute himself for the named inventors on the
relevant patents, and to have himself named as the sole assignee of the patents,
and is also seeking monetary damages, costs, expenses, 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. The complaint alleges that we are infringing U.S. Patent No. 5,612,179,
entitled "Intron Sequence Analysis Method for Detection of Adjacent and Remote
Locus Alleles as Haplotypes." The allegedly infringing products are cystic
fibrosis reagent kits sold through Celera Diagnostics, and our products that are
described in the complaint as "relating to non-coding variation". Genetic
Technologies Limited is seeking monetary damages, costs, expenses, injunctive
relief, and other relief as the court deems proper.

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 dismissed all
claims brought by On-Line Technologies, Inc. On-Line Technologies filed a notice
of appeal on April 24, 2003.


                                       16
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

We have not accrued for any potential losses in the cases described above
because we believe that an adverse determination is not probable, and potential
losses cannot be reasonably estimated, in any of these cases. However, the
outcome of litigation is inherently uncertain, and we cannot be sure that we
will prevail in any of the cases described above or in our other current
litigation. An adverse determination in certain of our current litigation,
particularly the cases described above, could have a material adverse effect on
our consolidated financial statements.

Note 13 - Subsequent Event

On March 12, 2003, the U.S. Court of Appeals for the Federal Circuit upheld the
judgment of the U.S. Court of the District of Delaware ruling in favor of the
Applied Biosystems group and MDS Inc. in a patent infringement lawsuit against
Micromass U.K. Ltd. and its U.S. subsidiary, Micromass, Inc., both divisions of
Waters Corporation. On April 15, 2003, the Applied Biosystems group received a
payment of approximately $26 million that represents its share of the judgment
proceeds. Accordingly, during the fourth quarter of fiscal 2003, the amount
received will be recorded in other income and is expected to increase net income
by approximately $17 million, net of the related tax effects.

Note 14 - Segment And Consolidating Information

Presented below is our segment and consolidating financial information,
including the allocation of expenses between the 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 determines earnings
attributable to each group. This determination is generally based on net income
or loss amounts of the corresponding group determined in accordance with GAAP.

See Note 14 to our consolidated financial statements included in our 2002 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 herein by reference).


                                       17
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

<TABLE>
<CAPTION>
                                                    Three Months Ended   Nine Months Ended
                                                        March 31,            March 31,
------------------------------------------------------------------------------------------
(Dollar amounts in millions)                          2002      2003      2002      2003
==========================================================================================
<S>                                                 <C>       <C>       <C>       <C>
Applied Biosystems group
   Sales to the Celera Genomics group (1)            $   4.6   $   1.0   $  19.5   $   2.6
   Sales to Celera Diagnostics (1)                   $   0.6   $   1.3   $   1.0   $   3.3
   Nonreimbursable utilization of tax benefits (2)   $   7.2   $   7.4   $  15.7   $  23.7
   Payments for reimbursable utilization of
      tax benefits (3)                               $   5.3   $   5.4   $  12.8   $  15.2
   Funding of Celera Diagnostics (4)                 $   1.6   $   2.7   $   1.4   $   5.8
==========================================================================================
Celera Genomics group
   Revenues from royalties (5)                       $  --     $   0.5   $  --     $   1.3
   Funding of Celera Diagnostics (6)                 $  13.2   $  13.1   $  29.3   $  37.5
==========================================================================================
Celera Diagnostics
   Sales to the Applied Biosystems group (7)         $   2.5   $   0.1   $   6.0   $   3.2
==========================================================================================
</TABLE>

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

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

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

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

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

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

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


                                       18
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

For the three and nine month periods ended March 31, 2002 and 2003, 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 of Celera Diagnostics, which is included both in the
"Celera Diagnostics" column and net within the "Celera Genomics group" column as
"Loss from joint venture."

Consolidating Statement of Operations For the Three Months Ended March 31, 2003

<TABLE>
<CAPTION>
                                         Applied      Celera
                                       Biosystems    Genomics      Celera
(Dollar amounts in thousands)             Group        Group     Diagnostics  Eliminations  Consolidated
========================================================================================================
<S>                                    <C>          <C>          <C>          <C>           <C>
Net revenues from external customers    $ 407,107    $  19,744    $   4,155    $    --       $ 431,006
Intersegment revenues                       2,330          509          138       (2,977)         --
--------------------------------------------------------------------------------------------------------
Net Revenues                              409,437       20,253        4,293       (2,977)      431,006
Cost of sales                             202,340        2,950        2,315       (1,482)      206,123
--------------------------------------------------------------------------------------------------------
Gross Margin                              207,097       17,303        1,978       (1,495)      224,883
Selling, general and administrative        84,702        6,389        2,287       11,967       105,345
Corporate allocated expenses                9,807        1,563          597      (11,967)         --
Research, development and engineering      59,973       26,923       11,708       (1,641)       96,963
Amortization of intangible assets                          725                                     725
--------------------------------------------------------------------------------------------------------
Operating Income (Loss)                    52,615      (18,297)     (12,614)         146        21,850
Loss on investments, net                   (2,086)         (61)                                 (2,147)
Interest expense                             (107)        (104)                                   (211)
Interest income                             3,218        3,938                                   7,156
Other income (expense), net                 1,323      (14,715)                                (13,392)
Loss from joint venture                                (12,614)                   12,614
--------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes          54,963      (41,853)     (12,614)      12,760        13,256
Provision (benefit) for income taxes       14,840      (15,110)                      (59)         (329)
--------------------------------------------------------------------------------------------------------
Net Income (Loss)                       $  40,123    $ (26,743)   $ (12,614)   $  12,819     $  13,585
========================================================================================================
</TABLE>


                                       19
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

Condensed Consolidating Statement of Operations For the Nine Months Ended
March 31, 2003

<TABLE>
<CAPTION>
                                            Applied         Celera
                                           Biosystems      Genomics        Celera
(Dollar amounts in thousands)                Group           Group       Diagnostics    Eliminations  Consolidated
===================================================================================================================
<S>                                       <C>            <C>            <C>            <C>            <C>
Net revenues from external customers       $ 1,244,060    $    65,415    $    11,881    $      --      $ 1,321,356
Intersegment revenues                            5,960          1,339          3,236        (10,535)
-------------------------------------------------------------------------------------------------------------------
Net Revenues                                 1,250,020         66,754         15,117        (10,535)     1,321,356
Cost of sales                                  621,376         10,075          6,901         (7,009)       631,343
-------------------------------------------------------------------------------------------------------------------
Gross Margin                                   628,644         56,679          8,216         (3,526)       690,013
Selling, general and administrative            263,157         16,784          6,774         38,157        324,872
Corporate allocated expenses                    31,172          5,162          1,823        (38,157)
Research, development and engineering          180,178         92,357         35,461         (4,457)       303,539
Amortization of intangible assets                               5,148                                        5,148
Other special charges                           24,313                                                      24,313
-------------------------------------------------------------------------------------------------------------------
Operating Income (Loss)                        129,824        (62,772)       (35,842)           931         32,141
Loss on investments, net                        (2,086)          (334)                                      (2,420)
Interest expense                                  (197)          (417)                                        (614)
Interest income                                  9,456         14,164                                       23,620
Other income (expense), net                      4,828        (17,285)                                     (12,457)
Loss from joint venture                                       (35,842)                       35,842
-------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes              141,825       (102,486)       (35,842)        36,773         40,270
Provision (benefit) for income taxes            38,293        (39,970)                        2,873          1,196
-------------------------------------------------------------------------------------------------------------------
Income (Loss) From Continuing Operations       103,532        (62,516)       (35,842)        33,900         39,074
Loss from discontinued operations,
  net of income taxes                          (16,400)                                                    (16,400)
-------------------------------------------------------------------------------------------------------------------
Net Income (Loss)                          $    87,132    $   (62,516)   $   (35,842)   $    33,900    $    22,674
===================================================================================================================
</TABLE>


                                       20
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

Condensed Consolidating Statement of Financial Position At March 31, 2003

<TABLE>
<CAPTION>
                                                 Applied       Celera
                                                Biosystems    Genomics     Celera
(Dollar amounts in thousands)                     Group        Group     Diagnostics  Eliminations  Consolidated
================================================================================================================
<S>                                            <C>          <C>          <C>          <C>           <C>
Assets
Current assets
    Cash and cash equivalents                   $  521,273   $   20,853   $     --     $     --      $  542,126
    Short-term investments                                      803,439                                 803,439
    Accounts receivable, net                       365,123       19,246        3,410       (1,220)      386,559
    Inventories, net                               144,755        2,538        7,000         (140)      154,153
    Prepaid expenses and other current assets       75,961       11,103        1,433       (3,218)       85,279
----------------------------------------------------------------------------------------------------------------
Total current assets                             1,107,112      857,179       11,843       (4,578)    1,971,556
Property, plant and equipment, net                 397,179      110,403       12,571         (638)      519,515
Other long-term assets                             439,824      183,159        9,185      (23,387)      608,781
----------------------------------------------------------------------------------------------------------------
Total Assets                                    $1,944,115   $1,150,741   $   33,599   $  (28,603)   $3,099,852
================================================================================================================

Liabilities And Stockholders' Equity
Current liabilities
    Accounts payable                            $  144,175   $    6,783   $    7,149   $   (4,077)   $  154,030
    Accrued salaries and wages                      62,647       11,291        3,542                     77,480
    Accrued taxes on income                         80,252       12,108                                  92,360
    Other accrued expenses                         233,646       54,226        1,458         (361)      288,969
----------------------------------------------------------------------------------------------------------------
Total current liabilities                          520,720       84,408       12,149       (4,438)      612,839
Long-term debt                                                   17,321                                  17,321
Other long-term liabilities                        198,740       25,302          133                    224,175
----------------------------------------------------------------------------------------------------------------
Total Liabilities                                  719,460      127,031       12,282       (4,438)      854,335

Total Stockholders' Equity                       1,224,655    1,023,710       21,317      (24,165)    2,245,517
----------------------------------------------------------------------------------------------------------------
Total Liabilities And Stockholders' Equity      $1,944,115   $1,150,741   $   33,599   $  (28,603)   $3,099,852
================================================================================================================
</TABLE>


                                       21
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

Condensed Consolidating Statement of Cash Flows For the Nine Months Ended
March 31, 2003

<TABLE>
<CAPTION>
                                                              Applied       Celera
                                                             Biosystems    Genomics     Celera
(Dollar amounts in thousands)                                  Group         Group    Diagnostics  Eliminations  Consolidated
=============================================================================================================================
<S>                                                         <C>          <C>          <C>          <C>           <C>
Operating Activities Of Continuing Operations
Income (loss) from continuing operations                     $ 103,532    $ (62,516)   $ (35,842)   $  33,900     $  39,074
Adjustments to reconcile income (loss) from
   continuing operations to net cash provided (used)
   by operating activities:
    Depreciation and amortization                               74,247       28,171        4,145         (924)      105,639
    Asset impairments                                           10,017                                               10,017
    Provisions for office closures and severance costs          23,744                                               23,744
    Long-term compensation programs                              3,179        1,345                                   4,524
    Loss on sale of assets                                         996          334                                   1,330
    Deferred income taxes                                      (52,239)      (5,367)                    2,539       (55,067)
    Loss from joint venture and equity method investees                      55,013                   (35,842)       19,171
    Nonreimbursable utilization of intergroup tax benefits      23,655      (23,655)
Changes in operating assets and liabilities:
  Accounts receivable                                           20,284       10,704       (3,233)         962        28,717
  Inventories                                                   (5,255)        (678)      (4,785)          (7)      (10,725)
  Prepaid expenses and other assets                             (9,473)      (1,694)      (1,469)       3,160        (9,476)
  Accounts payable and other liabilities                       (19,235)     (25,258)       4,287       (3,788)      (43,994)
-----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) By Operating Activities
   Of Continuing Operations                                    173,452      (23,601)     (36,897)                   112,954
-----------------------------------------------------------------------------------------------------------------------------
Investing Activities Of Continuing Operations
Additions to property, plant and equipment, net                (99,292)      (4,694)      (6,431)       1,118      (109,299)
Proceeds from short-term investments, net                       29,646       57,079                                  86,725
Purchases of long-term investments                                          (16,834)                                (16,834)
Investments in joint venture and other, net                     (5,921)     (37,513)                   43,329          (105)
Proceeds from the sale of assets, net                            5,463        2,235                    (1,119)        6,579
-----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) By Investing Activities
   Of Continuing Operations                                    (70,104)         273       (6,431)      43,328       (32,934)
-----------------------------------------------------------------------------------------------------------------------------
Net Cash Used By Operating Activities
   Of Discontinued Operations                                   (2,526)                                              (2,526)
-----------------------------------------------------------------------------------------------------------------------------
Financing Activities
Net change in loans payable                                       (290)                                                (290)
Dividends                                                      (26,691)                                             (26,691)
Net cash funding from groups                                                              43,328      (43,328)
Purchases of common stock for treasury                         (19,779)                                             (19,779)
Proceeds from stock issued for stock plans                      12,216       15,291                                  27,507
-----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) By Financing Activities               (34,544)      15,291       43,328      (43,328)      (19,253)
-----------------------------------------------------------------------------------------------------------------------------
Effect Of Exchange Rate Changes On Cash                         13,667                                               13,667
-----------------------------------------------------------------------------------------------------------------------------
Net Change In Cash And Cash Equivalents                         79,945       (8,037)                                 71,908
Cash And Cash Equivalents Beginning Of Period                  441,328       28,890                                 470,218
-----------------------------------------------------------------------------------------------------------------------------
Cash And Cash Equivalents End Of Period                      $ 521,273    $  20,853    $    --      $    --       $ 542,126
=============================================================================================================================
</TABLE>


                                       22
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

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

<TABLE>
<CAPTION>
                                         Applied      Celera
                                       Biosystems    Genomics      Celera
(Dollar amounts in thousands)             Group        Group     Diagnostics  Eliminations  Consolidated
========================================================================================================
<S>                                    <C>          <C>          <C>          <C>           <C>
Net revenues from external customers    $ 403,831    $  30,487    $     119    $    --       $ 434,437
Intersegment revenues                       5,185                     2,528       (7,713)
--------------------------------------------------------------------------------------------------------
Net Revenues                              409,016       30,487        2,647       (7,713)      434,437
Cost of sales                             192,564       15,402        1,887       (6,902)      202,951
--------------------------------------------------------------------------------------------------------
Gross Margin                              216,452       15,085          760         (811)      231,486
Selling, general and administrative        83,589       11,693        1,499       11,801       108,582
Corporate allocated expenses                9,382        1,943          476      (11,801)
Research, development and engineering      56,666       37,629       11,138       (1,795)      103,638
Amortization of intangible assets                        2,636                                   2,636
Other special charges                                   22,959                                  22,959
--------------------------------------------------------------------------------------------------------
Operating Income (Loss)                    66,815      (61,775)     (12,353)         984        (6,329)
Loss on investments, net                     (350)                                                (350)
Interest expense                             (291)        (209)                                   (500)
Interest income                             2,992        6,805                                   9,797
Other income (expense), net                     5       (3,521)                                 (3,516)
Loss from joint venture                                (12,353)                   12,353
--------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes          69,171      (71,053)     (12,353)      13,337          (898)
Provision (benefit) for income taxes       20,060      (21,557)                    3,456         1,959
--------------------------------------------------------------------------------------------------------
Net Income (Loss)                       $  49,111    $ (49,496)   $ (12,353)   $   9,881     $  (2,857)
========================================================================================================
</TABLE>


                                       23
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

Condensed Consolidating Statement of Operations For the Nine Months Ended
March 31, 2002

<TABLE>
<CAPTION>
                                          Applied        Celera
                                        Biosystems      Genomics        Celera
(Dollar amounts in thousands)              Group          Group       Diagnostics    Eliminations  Consolidated
================================================================================================================
<S>                                    <C>            <C>            <C>            <C>            <C>
Net revenues from external customers    $ 1,166,293    $    92,815    $       349    $      --      $ 1,259,457
Intersegment revenues                        20,464                         5,998        (26,462)
----------------------------------------------------------------------------------------------------------------
Net Revenues                              1,186,757         92,815          6,347        (26,462)     1,259,457
Cost of sales                               568,729         45,309          4,494        (22,755)       595,777
----------------------------------------------------------------------------------------------------------------
Gross Margin                                618,028         47,506          1,853         (3,707)       663,680
Selling, general and administrative         249,490         34,426          4,947         36,148        325,011
Corporate allocated expenses                 28,870          5,771          1,507        (36,148)
Research, development and engineering       161,649         95,982         25,616         (6,640)       276,607
Amortization of intangible assets                            4,742                                        4,742
Other special charges                                       22,959                                       22,959
Acquired research and development             2,200         98,981                                      101,181
----------------------------------------------------------------------------------------------------------------
Operating Income (Loss)                     175,819       (215,355)       (30,217)         2,933        (66,820)
Loss on investments, net                       (350)                                                       (350)
Interest expense                               (781)          (347)                                      (1,128)
Interest income                               9,764         26,359                                       36,123
Other income (expense), net                      26         (5,270)                                      (5,244)
Loss from joint venture                                    (30,217)                       30,217
----------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes           184,478       (224,830)       (30,217)        33,150        (37,419)
Provision (benefit) for income taxes         54,137        (41,832)                       (2,419)         9,886
----------------------------------------------------------------------------------------------------------------
Net Income (Loss)                       $   130,341    $  (182,998)   $   (30,217)   $    35,569    $   (47,305)
================================================================================================================
</TABLE>


                                       24
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

Condensed Consolidating Statement of Financial Position At June 30, 2002

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

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

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


                                       25
<PAGE>
                              APPLERA CORPORATION
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   continued

Condensed Consolidating Statement of Cash Flows For the Nine Months Ended
March 31, 2002

<TABLE>
<CAPTION>
                                                                 Applied        Celera
                                                                Biosystems     Genomics     Celera
(Dollar amounts in thousands)                                     Group         Group     Diagnostics  Eliminations  Consolidated
=================================================================================================================================
<S>                                                             <C>          <C>          <C>          <C>           <C>
Operating Activities Of Continuing Operations
Net income (loss)                                                $ 130,341    $(182,998)   $ (30,217)   $  35,569     $ (47,305)
Adjustments to reconcile net income (loss) to net
  cash provided (used) by operating activities:
    Depreciation and amortization                                   58,357       26,791        2,198       (2,924)       84,422
    Asset impairments                                                            15,563                                  15,563
    Provision for excess lease space and severance costs                         10,311                                  10,311
    Long-term compensation programs                                  4,210        1,312                                   5,522
    Gain (loss) on sale of assets                                      350         (401)                                    (51)
    Deferred income taxes                                          (11,249)     (15,381)                   (2,419)      (29,049)
    Loss from joint venture and equity method investees                          34,244                   (30,217)        4,027
    Nonreimbursable utilization of intergroup tax benefits          15,663      (15,663)
    Acquired research and development                                2,200       98,981                                 101,181
Changes in operating assets and liabilities:
  Accounts receivable                                               19,500          666         (100)      (3,483)       16,583
  Inventories                                                        4,037          821        1,391           (9)        6,240
  Prepaid expenses and other assets                                (46,017)        (223)      (3,263)          80       (49,423)
  Accounts payable and other liabilities                             7,564      (11,733)       5,140        3,403         4,374
---------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) By Operating Activities
  Of Continuing Operations                                         184,956      (37,710)     (24,851)                   122,395
---------------------------------------------------------------------------------------------------------------------------------
Investing Activities Of Continuing Operations
Additions to property, plant and equipment, net                    (57,169)     (14,944)      (5,892)                   (78,005)
Purchases of short-term investments, net                                        (15,215)                                (15,215)
Acquisitions and investments in joint ventures and others, net     (37,993)     (34,064)                   30,743       (41,314)
Proceeds from the sale of assets, net                                5,228                                                5,228
---------------------------------------------------------------------------------------------------------------------------------
Net Cash Used By Investing Activities
  Of Continuing Operations                                         (89,934)     (64,223)      (5,892)      30,743      (129,306)
---------------------------------------------------------------------------------------------------------------------------------
Net Cash Used By Operating Activities
  Of Discontinued Operations                                        (2,230)                                              (2,230)
---------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Net change in loans payable                                         (6,077)      (8,443)                                (14,520)
Principal payments on long-term debt                               (28,973)     (10,000)                                (38,973)
Dividends                                                          (26,984)                                             (26,984)
Net cash funding from groups                                                                  30,743      (30,743)
Purchases of common stock for treasury                                             (941)                                   (941)
Proceeds from stock issued for stock plans                          17,394       19,203                                  36,597
---------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) By Financing Activities                   (44,640)        (181)      30,743      (30,743)      (44,821)
---------------------------------------------------------------------------------------------------------------------------------
Effect Of Exchange Rate Changes On Cash                              7,078                                                7,078
---------------------------------------------------------------------------------------------------------------------------------
Net Change In Cash And Cash Equivalents                             55,230     (102,114)                                (46,884)
Cash And Cash Equivalents Beginning Of Period                      392,459      216,076                                 608,535
---------------------------------------------------------------------------------------------------------------------------------
Cash And Cash Equivalents End Of Period                          $ 447,689    $ 113,962    $    --      $    --       $ 561,651
=================================================================================================================================
</TABLE>


                                       26
<PAGE>

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

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

The purpose of the following Management's Discussion and Analysis is to provide
an overview of the business of Applera Corporation to help facilitate an
understanding of significant factors influencing the historical operating
results, financial condition and cash flows and also to convey our expectations
of the potential impact of known trends, events or uncertainties that may impact
future results. You should read this discussion in conjunction with our
consolidated financial statements and related notes included in this report and
in our 2002 Annual Report to Stockholders. Historical results and percentage
relationships are not necessarily indicative of operating results for future
periods.

Overview

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

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

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

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

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

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


                                       27
<PAGE>
                              APPLERA CORPORATION
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                        RESULTS OF OPERATIONS continued

Holders of Applera - Applied Biosystems stock and Applera - Celera stock are
stockholders of Applera. The Applied Biosystems group and the Celera Genomics
group are not separate legal entities, and holders of these stocks are
stockholders of a single company, Applera. As a result, holders of these stocks
are subject to all of the risks associated with an investment in Applera and all
of its businesses, assets, and liabilities.

The Applied Biosystems group and the Celera Genomics group do not have separate
boards of directors. Applera has one board of directors, which will make any
decision in accordance with its good faith business judgment that the decision
is in the best interests of Applera and all of its stockholders as a whole.

Our fiscal year ends on June 30. The financial information for each segment is
presented in Note 14 to our condensed consolidated financial statements, Segment
and Consolidating Information. Management's Discussion and Analysis addresses
the consolidated financial results followed by the discussions of our three
segments.

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

Applied Biosystems Group

o        In August 2002, the Applied Biosystems group announced two
         collaborations to develop new technologies and applications for
         proteomics, one with Myriad Proteomics, Inc. and the other with the
         Institute for Systems Biology.

o        In September 2002, Applied Biosystems/MDS SCIEX Instruments, a
         partnership between the Applied Biosystems group and MDS Inc.,
         introduced the QSTAR(R) XL LC/MS/MS system. This system is designed to
         provide improved sensitivity and resolution to proteomics researchers
         as well as improved sensitivity and mass accuracy to pharmaceutical
         drug discovery researchers.

o        In October 2002, the Applied Biosystems group, as successor to The
         Perkin-Elmer Corporation, received an adverse jury verdict in a patent
         lawsuit with TA Instruments, Inc., a subsidiary of Waters Corporation,
         relating to thermal analysis products. Please refer to Note 8 to our
         condensed consolidated financial statements for more information.

o        In December 2002, the Applied Biosystems group announced
         organization-wide cost reductions in response to uncertain economic
         conditions and to return long-term research and development investment
         to more traditional levels. Please refer to Note 3 to our condensed
         consolidated financial statements for more information.

o        In January 2003, the Applied Biosystems group announced the SNPlex(TM)
         system, a reagent and software product, designed to allow researchers
         to conduct ultra high throughput genotyping. This genotyping product
         could enable production scale laboratories to analyze more than one
         million genotypes per instrument per day, at an expected cost as low as
         one cent or less per genotype.

o        In March 2003, the U.S. Court of Appeals for the Federal Circuit upheld
         a ruling in favor of the Applied Biosystems group and MDS Inc. in a
         patent infringement lawsuit against Micromass U.K. Ltd. and its U.S.
         subsidiary Micromass, Inc., both divisions of Waters Corporation.
         Please refer to Note 13 to our condensed consolidated financial
         statements for more information.


                                       28
<PAGE>

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

Celera Genomics Group

o        In August 2002, Robert Booth, Ph.D. joined the Celera Genomics group,
         as Senior Vice President of Research & Development, responsible for
         integrating and leading all of the Celera Genomics group's therapeutic
         discovery and development activities.

o        In December 2002, the Celera Genomics group announced its refined
         business and scientific plan, which supports increased investment in
         clinical programs, and greater efficiency and economy in target
         discovery, while continuing to place emphasis on management of the
         Celera Genomics group's cash as a strategic asset.

o        In January 2003, James P. Yee, M.D., Ph.D. joined the Celera Genomics
         group as Head of Development, responsible for building the development
         organization at the group's facilities in South San Francisco,
         California, and for leading therapeutic development activities and
         clinical trial processes at the Celera Genomics group.

o        In April 2003, Steven M. Ruben, Ph.D., joined the Celera Genomics group
         as Vice President, Protein Therapeutics, responsible for programs to
         discover and validate novel targets for therapeutic antibody
         intervention.

Celera Diagnostics

o        In October 2002, Celera Diagnostics announced three new collaborations,
         with:

         -        Bristol-Meyers Squibb to study genes that may be useful in the
                  diagnosis and treatment of cardiovascular disease and
                  diabetes;

         -        Laboratory Corporation of America to establish the clinical
                  utility of laboratory tests based on novel diagnostic markers
                  for Alzheimer's disease, breast cancer and prostate cancer;
                  and

         -        Quest Diagnostics Incorporated to establish the clinical
                  utility of laboratory tests based on novel diagnostic markers
                  for cardiovascular disease and diabetes.

o        In November 2002, Celera Diagnostics announced a research initiative
         with the University of California, San Francisco (UCSF) to develop new
         diagnostic tools for breast cancer. The UCSF research activities will
         be funded in part by the UC Discovery Grant from the
         Industry-University Cooperative Research Program, and in part by Celera
         Diagnostics.

o        In December 2002, Celera Diagnostics received marketing clearance from
         the U.S. Food and Drug Administration for its 510(k) submission of the
         ViroSeq(TM) HIV-1 Genotyping System as an in vitro diagnostic product.
         The system is being manufactured by Celera Diagnostics and distributed
         by Abbott Diagnostics. In February 2003, the U.S. Food and Drug
         Administration granted additional marketing clearance for the
         ViroSeq(TM) HIV-1 Genotyping System.

o        In January 2003, Celera Diagnostics announced a collaborative agreement
         with Genomics Collaborative, Inc. supporting Celera Diagnostics'
         efforts to identify genetic patterns associated with rheumatoid
         arthritis.


                                       29
<PAGE>

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

Critical Accounting Policies

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

Events Impacting Comparability

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

Acquisitions

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

Acquired In-Process Research and Development

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

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

Since June 30, 2002, we have taken the following actions:


                                       30
<PAGE>

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

o        In the second quarter of fiscal 2003, the Serm-beta research project
         was completed and the project is not expected to be pursued.

o        In October 2002, the Celera Genomics group purchased from Bayer AG a
         number of pre-clinical tryptase inhibitors, including study data and a
         broad intellectual property estate pertaining to use of these compounds
         in all fields, for the treatment of asthma. These compounds were
         generated under a prior collaboration between Axys and Bayer. The
         Celera Genomics group is no longer pursuing the original lead compound
         acquired from Bayer but has shifted its efforts to other compounds in
         the tryptase program.

o        Our portion of the Cathepsin K collaboration was completed in February
         2003.

o        As of April 2003, pre-clinical studies of Cathepsin F inhibitors are no
         longer being pursued.

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

As of March 31, 2003, the Celera Genomics group's portion of the estimated costs
to complete the partnered projects is not expected to be significant. The costs
to complete the proprietary projects depend on how the Celera Genomics group
decides to commercialize the projects, including whether to partner the
projects, and at what stage to partner. The Celera Genomics group has in the
past reviewed and continues to review the proprietary pre-clinical projects,
which may lead to revised prioritization, resourcing and strategy to move toward
clinical trials and commercialization. As a result of these actions, actual
results for some programs have varied, and for others in the future may vary,
from the valuation assumptions outlined in Note 2 to our consolidated financial
statements contained in our 2002 Annual Report to Stockholders.

Other Special Charges

Fiscal year 2003 charges:

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


                                       31
<PAGE>

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

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

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

                             Employee-
                               Related          Asset        Office
(Dollar amounts in millions)   Charges     Impairment      Closures       Total
================================================================================
Total charges                  $  22.9         $  9.5       $   1.4     $  33.8
Cash payments                     11.2                          0.2        11.4
Non-cash charges                                  9.5           0.5        10.0
--------------------------------------------------------------------------------
Balance at March 31, 2003      $  11.7         $   --       $   0.7     $  12.4
================================================================================

Approximately 300 employees had been terminated as of March 31, 2003. The
termination of the remaining employees and the cash expenditures relating to the
workforce reductions and office closures are expected to be substantially
complete by the end of calendar year 2003, and will be funded primarily by cash
provided by operating activities.

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

Fiscal year 2002 charges:
During the third quarter of fiscal 2002, the Celera Genomics group recorded a
before-tax charge of $25.9 million related to Paracel, a company we acquired in
fiscal 2000. This charge was comprised of $23.0 million recorded in other
special charges primarily for the impairment of goodwill and other intangible
assets and estimated cost of excess lease space. This charge also included $2.9
million recorded in cost of sales for impairment of Paracel inventory.

Investments

Our investment in Discovery Partners International, Inc. ("DPI") common stock,
which resulted from our acquisition of Axys, is accounted for under the equity
method of accounting. Based on the decline in its market capitalization, DPI
re-assessed the value of its goodwill and other long-lived assets and recorded
an impairment charge as a result of this evaluation. Accordingly, the Celera
Genomics group recognized a non-cash charge of $15.1 million in other income
(expense), net in the third quarter of fiscal 2003, representing its share of
the impairment charge.


                                       32
<PAGE>

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

Discussion of Consolidated Operations

Results of Operations--The Three Months Ended March 31, 2003 Compared With The
Three Months Ended March 31, 2002

We reported net income of $13.6 million in the third quarter of fiscal 2003
compared with a net loss of $2.9 million in the third quarter of fiscal 2002.
Net income for the third quarter of fiscal 2003 included the loss from our
equity interest in DPI described above, while the net loss for the third quarter
of fiscal 2002 included the Paracel-related charges described above. Also
impacting the increase in net income were lower R&D and SG&A expenses and a
change in the effective tax rate, partially offset by lower gross margin. Please
refer to the discussion on pages 38 to 52 of this quarterly report for further
information on the financial results of our segments.

Our net revenues in the third quarter of fiscal 2003 decreased slightly compared
with the prior year quarter. Revenues were flat at the Applied Biosystems group,
due primarily to delays in government funding, both domestically and abroad,
weak economic conditions, and reduced purchases by pharmaceutical customers, and
decreased at the Celera Genomics group, primarily resulting from the group's
decision not to pursue additional contract sequencing service business. The
effects of foreign currency increased net revenues by approximately $12 million,
or 3%, for the same period.

Gross margin, as a percentage of net revenues, was 52.2% for the third quarter
of fiscal 2003 compared with 53.3% for the third quarter of fiscal 2002. The
lower gross margin percentage in fiscal 2003 was due primarily to a change in
product sales and geographic mix and an increase in lower margin service
business at the Applied Biosystems group, partially offset by a decrease in the
lower margin sequencing service business for the Celera Genomics group. The
special charges in the third quarter of fiscal 2002 reduced gross margin by
approximately one percentage point.

Our SG&A expenses, as a percentage of net revenues, decreased to 24.4% for the
third quarter of fiscal 2003 compared to 25.0% for the third quarter of fiscal
2002 primarily due to a workforce reduction at the Celera Genomics group,
resulting from the June 2002 restructuring of the organization, partially offset
by increased staffing at Celera Diagnostics.

R&D expenses decreased by $6.6 million for the third quarter of fiscal 2003 to
$97.0 million from $103.6 million for the third quarter of fiscal 2002. This
decrease was primarily due to a decline in the funding of the Applera Genomics
Initiative, the costs of which are shared among our three businesses, and fewer
DNA sequencing programs at the Celera Genomics group resulting from the June
2002 restructuring of the organization. This decrease was partially offset by
spending on: the development of new products and technologies by the Applied
Biosystems group, including support for Knowledge Business initiatives;
therapeutic discovery and development programs by the Celera Genomics group; and
diagnostics discovery and development programs by Celera Diagnostics.

Interest income, net decreased slightly for the third quarter of fiscal 2003,
primarily due to lower average interest rates as compared to the third quarter
of fiscal 2002.


                                       33
<PAGE>

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

Other expense, net increased in the third quarter of fiscal 2003 primarily due
to losses recorded for equity method investments, including the DPI charge
described above, offset by benefits associated with our foreign currency risk
management program and miscellaneous non-operating income. In the third quarter
of fiscal 2002, other expense, net included our share of losses from equity
method investments.

The change in the effective tax rate is primarily due to increased R&D and
foreign tax credits, which partially offset the impact of higher forecasted
taxable income, as well as the previously discussed special charges recorded in
both periods. The effective income tax rate for the third quarter of fiscal 2003
included a non-cash charge related to amended returns, offset by the release of
valuation allowances on deferred tax assets. The valuation allowance release
resulted from the realization of foreign tax credits.

Results of Continuing Operations--The Nine Months Ended March 31, 2003 Compared
With The Nine Months Ended March 31, 2002

We reported income from continuing operations of $39.1 million for the first
nine months of fiscal 2003 compared with a loss from continuing operations of
$47.3 million in the same period last year. Income from continuing operations
for fiscal 2003 included the cost reduction, asset impairment and other special
charges and the loss from our equity interest in DPI described above, while the
loss from continuing operations for fiscal 2002 included the acquired IPR&D and
Paracel-related charges described above. Also impacting the increase in income
from continuing operations were higher revenues and a change in the effective
tax rate, partially offset by higher R&D expenses and lower interest income.
Please refer to the discussion on pages 38 to 52 of this quarterly report for
further information on the financial results of our segments.

Our net revenues increased 4.9% in the first nine months of fiscal 2003 compared
with the prior year period. Revenues increased primarily due to improved
instrument sales at the Applied Biosystems group, partially offset by lower
revenues at the Celera Genomics group primarily resulting from the group's
decision not to pursue additional sequencing service business. The effects of
foreign currency increased net revenues by approximately $20 million, or 2%, for
the same period.

Gross margin, as a percentage of net revenues, was 52.2% for the first nine
months of fiscal 2003 compared with 52.7% for the first nine months of fiscal
2002. The lower gross margin percentage in fiscal 2003 was due primarily to
higher asset impairment charges recorded in fiscal 2003 and a change in product
sales and geographic mix at the Applied Biosystems group, partially offset by a
decrease in the lower margin sequencing service business for the Celera Genomics
group. The fiscal 2003 and 2002 special charges reduced gross margin by less
than one percentage point in both periods.

Our SG&A expenses, as a percentage of net revenues, decreased to 24.6% for the
first nine months of fiscal 2003 compared with 25.8% for the first nine months
of fiscal 2002. This decrease was primarily due a workforce reduction at the
Celera Genomics group, resulting from the June 2002 restructuring of the
organization, partially offset by an increased number of employees resulting
from the acquisition of Axys in November 2001 and increased staffing at Celera
Diagnostics.


                                       34
<PAGE>

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

R&D expenses increased by $26.9 million for the first nine months of fiscal 2003
to $303.5 million from $276.6 million for the first nine months of fiscal 2002.
This increase was primarily due to spending on: the Applera Genomics Initiative,
the costs of which are shared among our three businesses; the development of new
products and technologies by the Applied Biosystems group, including support for
Knowledge Business initiatives; therapeutic discovery and development programs
by the Celera Genomics group, including the programs acquired with Axys; and
diagnostics discovery and development programs by Celera Diagnostics.

Interest income, net decreased by $12.0 million for the first nine months of
fiscal 2003, primarily due to lower average interest rates and, to a lesser
extent, lower average cash and cash equivalents and short-term investment
balances during the first nine months of fiscal 2003 as compared to the first
nine months of fiscal 2002.

Other expense, net increased in the first nine months of fiscal 2003 due
primarily to losses recorded for equity method investments, including the DPI
charge described above, partially offset by benefits associated with our foreign
currency risk management program. In the first nine months of fiscal 2002, other
expense, net included our share of losses from equity method investments.

The change in the effective tax rate is primarily due to increased R&D and
foreign tax credits, which partially offset the impact of higher forecasted
taxable income, as well as the previously discussed special charges recorded in
both periods. The effective income tax rate for the first nine months of fiscal
2003 included a non-cash charge related to amended returns, offset by the
release of valuation allowances on deferred tax assets. The valuation allowance
release resulted from the realization of foreign tax credits.

Discussion of Condensed Consolidated Financial Resources and Liquidity

We had cash and cash equivalents and short-term investments of $1.3 billion at
March 31, 2003 and $1.4 billion at June 30, 2002. We maintain a $50 million
revolving credit agreement with three banks that expires on April 20, 2005,
under which there were no borrowings outstanding at March 31, 2003. Cash
provided by operating activities has been our primary source of funds over the
last fiscal year.

We believe that existing funds, cash generated from operations, and existing
sources of debt financing are adequate to satisfy our normal operating cash flow
needs, planned capital expenditures, and dividends for the foreseeable future.
However, we may raise additional capital from time to time.

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


                                       35
<PAGE>

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

                                                   June 30,       March 31,
(Dollar amounts in millions)                           2002            2003
============================================================================
Cash and cash equivalents                         $   470.2       $   542.1
Short-term investments                                889.7           803.4
----------------------------------------------------------------------------
Total cash and cash equivalents and               $ 1,359.9       $ 1,345.5
  short-term investments
Total debt                                             18.3            17.3
Working capital                                     1,385.3         1,358.7
Debt to total capitalization                            0.8%            0.8%
============================================================================

During the second quarter of fiscal 2003, we purchased $18.1 million of
non-callable U.S. government obligations to serve as collateral for the 8%
senior secured convertible notes acquired as part of the acquisition of Axys. We
substituted these government obligations for our shares of DPI common stock that
originally collateralized the notes. The government obligations are required to
be held in a trust and the proceeds from the maturation of and interest payments
on these obligations will fund the interest and principal payments under the
notes. The DPI shares were released to us during the third quarter of fiscal
2003. The government obligations, which mature over the next two fiscal years,
are classified as available for sale at March 31, 2003, with $0.9 million in
short-term investments, and $16.7 million in other long-term assets.

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

(Dollar amounts in millions)                               2002            2003
================================================================================
Net cash from operating activities                     $  122.4        $  113.0
Net cash from investing activities                       (129.3)          (32.9)
Net cash from financing activities                        (44.8)          (19.3)
================================================================================

Operating activities:

Net cash from operating activities of continuing operations for the first nine
months of fiscal 2003 decreased $9.4 million in comparison to the first nine
months of fiscal 2002 resulting primarily from higher inventory levels due to
the timing of shipments and to support fiscal year-to-date sales activity,
higher compensation-related payments, the timing of income tax payments,
approximately $13 million of severance payments made under the fiscal 2002
restructuring program and the fiscal 2003 cost reduction program, and lower
deferred revenues. Partially offsetting this decrease is the timing of accounts
receivable collections, lower payments under supply agreements and for purchased
licensed technology, timing of vendor and value added tax payments, and slightly
higher income-related cash flows.


                                       36
<PAGE>

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

Investing activities:

Capital expenditures, net of disposals, increased approximately $31 million over
the prior fiscal year period primarily related to the expansion of the Applied
Biosystems group's facilities, primarily in Pleasanton, CA. During the first
nine months of fiscal 2003, approximately $87 million was generated from the
sales and maturities of short-term investments, of which approximately $17
million of these proceeds was used to purchase long-term investments to secure
the 8% senior secured convertible notes described above. During the second
quarter of fiscal 2002, we acquired the remaining shares of Boston Probes, not
previously owned, for approximately $37 million in cash.

Financing activities:

Financing activities for the first nine months of fiscal 2002 included the
repayment of a yen loan at its maturity date and a portion of the debt assumed
in the Axys acquisition. During the first nine months of fiscal 2003, we
repurchased 1.1 million shares of Applera - Applied Biosystems stock for $19.8
million and during the first nine months of fiscal 2002, we repurchased 47,700
shares of Applera - Celera stock for $0.9 million. These purchases are made from
time to time under standing resolutions of our board of directors to replenish
shares issued under our various stock plans.


                                       37
<PAGE>

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

Discussion of Segments' Operations, Financial Resources and Liquidity

Applied Biosystems Group

Results of Operations--The Three Months Ended March 31, 2003 Compared With The
Three Months Ended March 31, 2002

                                                                   % Increase/
(Dollar amounts in millions)                      2002      2003    (Decrease)
===============================================================================
Net revenues                                   $ 409.0   $ 409.4          0.1%
Cost of sales                                    192.6     202.3          5.0%
-------------------------------------------------------------------------------
Gross margin                                     216.4     207.1         (4.3%)
SG&A expenses                                     93.0      94.5          1.6%
R&D                                               56.6      60.0          6.0%
-------------------------------------------------------------------------------
Operating income                                  66.8      52.6        (21.3%)
Loss on investments, net                          (0.4)     (2.1)         425%
Interest income, net                               2.7       3.1         14.8%
Other income (expense), net                                  1.3
-------------------------------------------------------------------------------
Income before income taxes                        69.1      54.9        (20.5%)
Provision for income taxes                        20.0      14.8        (26.0%)
-------------------------------------------------------------------------------
Net income                                      $ 49.1    $ 40.1        (18.3%)
-------------------------------------------------------------------------------
Percentage of net revenues:
  Gross margin                                    52.9%     50.6%
  SG&A expenses                                   22.7%     23.1%
  R&D                                             13.8%     14.7%
  Operating income                                16.3%     12.8%

Effective income tax rate                           29%       27%
===============================================================================

Net income decreased in the third quarter of fiscal 2003 primarily due to lower
gross margin, primarily resulting from a change in product sales and geographic
mix, and higher spending related to new products in development and support for
Knowledge Business initiatives, partially offset by a decrease in the effective
tax rate. The foreign currency impact on net income was immaterial for the
quarter.

Net revenues increased slightly over the prior year quarter due to increases in
service and royalty revenue, offset by decreased spending by both institutional
and commercial customers due to delays in government funding, both domestically
and abroad, and weak economic conditions. Net revenues from the Celera Genomics
group and Celera Diagnostics, primarily from leased instruments, consumables,
and project materials, and contracted R&D services, were $2.3 million for the
third quarter of fiscal 2003, or 0.6% of the Applied Biosystems group's net
revenues, and $5.2 million for the third quarter of fiscal 2002, or 1.3%. The
favorable effects of foreign currency increased net revenues during the third
quarter of fiscal 2003 by approximately $12 million, or 3%, as compared to the
prior year period. The following table sets forth the Applied Biosystems group's
revenues by geographic area for the quarters ended March 31:


                                       38
<PAGE>

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

                                                                    % Increase/
(Dollar amounts in millions)                    2002        2003     (Decrease)
================================================================================
United States                                $ 182.7     $ 187.0           2.4%
Europe                                         107.5       113.4           5.5%
Asia Pacific                                   107.2        95.4         (11.0%)
Latin America and other markets                 11.6        13.6          17.2%
--------------------------------------------------------------------------------
Total                                        $ 409.0     $ 409.4           0.1%
================================================================================

Excluding the effects of foreign currency, revenues decreased approximately 3%
in Europe and decreased approximately 15% in Asia Pacific during the third
quarter of fiscal 2003 compared to the prior year period. The decrease in Asia
Pacific was due in large part to the delays by the Japanese government in
releasing appropriated funds from the budget.

For the third quarter of fiscal 2003, revenues from instrument sales were $199.0
million, a decrease of 1.1% from $201.3 million in the prior year period.
Revenue growth for the Applied Biosystems 3730 DNA Analyzer product line, the
ABI PRISM(R) 3100-Avant Genetic Analyzer, and most mass spectrometry instruments
was offset by revenue declines in other instrument product lines, including the
ABI PRISM(R) 3100 Genetic Analyzer, Sequence Detection System (SDS) instruments
and PCR thermal cyclers. Demand in the drug metabolism and pharmacokinetics and
the protein discovery markets helped drive sales increases of mass spectrometry
instruments compared to the prior year quarter.

Consumables sales were $143.8 million in the third quarter of fiscal 2003
compared to $149.1 million in the third quarter of fiscal 2002, a decrease of
3.6%. This decrease was primarily due to declines in sales of core DNA synthesis
and PCR consumables, and, to a lesser degree, DNA sequencing consumables, which
more than offset the growth of SDS and other consumables revenues. Within the
SDS and Other Applied Genomics product category, revenue from the TaqMan(R)
chemistry-based consumable products, which are used for both gene expression and
genotyping, increased.

Revenues from other sources, which included service, royalties, and licenses,
increased 13.7% to $66.6 million in the third quarter of fiscal 2003 from $58.6
million in the third quarter of fiscal 2002. The increase in revenues resulted
primarily from higher service and royalty revenues.

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


                                       39
<PAGE>

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

(Dollar amounts in millions)                      2002       2003     % Change
===============================================================================
DNA sequencing products                         $149.2    $ 143.6          (4%)
% of total revenues                                 36%        35%

SDS and other applied genomics products           86.7       86.6         -- %
% of total revenues                                 21%        21%

Mass Spectrometry                                 75.7       91.5          21%
% of total revenues                                 19%        22%

Core DNA synthesis and PCR products               58.2       50.7         (13%)
% of total revenues                                 14%        13%

Other                                             39.2       37.0          (6%)
% of total revenues                                 10%         9%
-------------------------------------------------------------------------------
Total                                          $ 409.0    $ 409.4         -- %
===============================================================================

Gross margin, as a percentage of net revenues, decreased from the prior year
quarter, due primarily to changes in product sales mix, including increased
sales of lower-margin LC/MS products and lower-margin service revenues, and
changes in geographic mix, including lower sales in Japan.

As a percentage of net revenues, SG&A expenses increased over the third quarter
of fiscal 2002 due primarily to the unfavorable effects of currency.

As a percentage of net revenues, R&D expenses increased over the third quarter
of fiscal 2002 primarily as a result of increased support for Knowledge Business
initiatives and new products in development, which more than offset the decline
in funding for the Applera Genomics Initiative.

Interest income, net increased slightly primarily due to higher average cash and
cash equivalents for the third quarter of fiscal 2003 compared with the third
quarter of fiscal 2002, offset to some degree by lower average interest rates.

The effective income tax rate was 27% in the third quarter of fiscal 2003
compared to 29% in the third quarter of fiscal 2002. The decrease in the
effective tax rate was primarily due to the implementation of certain tax
planning strategies allowing for the increased utilization of foreign tax
credits. The effective income tax rate for fiscal 2003 included a non-cash
charge related to amended returns, offset by the release of valuation allowances
on deferred tax assets. The valuation allowance release resulted from the
utilization of foreign tax credits.


                                       40
<PAGE>

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

Results of Continuing Operations--The Nine Months Ended March 31, 2003 Compared
With The Nine Months Ended March 31, 2002

                                                                     % Increase/
(Dollar amounts in millions)                    2002         2003    (Decrease)
================================================================================
Net revenues                               $ 1,186.7    $ 1,250.0          5.3%
Cost of sales                                  568.7        621.4          9.3%
--------------------------------------------------------------------------------
Gross margin                                   618.0        628.6          1.7%
SG&A expenses                                  278.4        294.3          5.7%
R&D                                            161.6        180.2         11.5%
Other special charges                                        24.3
Acquired IPR&D                                   2.2                    (100.0%)
--------------------------------------------------------------------------------
Operating income                               175.8        129.8        (26.2%)
Loss on investments, net                        (0.4)        (2.1)         425%
Interest income, net                             9.0          9.3          3.3%
Other income (expense), net                                   4.8
--------------------------------------------------------------------------------
Income before income taxes                     184.4        141.8        (23.1%)
Provision for income taxes                      54.1         38.3        (29.2%)
--------------------------------------------------------------------------------
Income from continuing operations            $ 130.3      $ 103.5        (20.6%)
--------------------------------------------------------------------------------
Percentage of net revenues:
  Gross margin                                  52.1%        50.3%
  SG&A expenses                                 23.5%        23.5%
  R&D                                           13.6%        14.4%
  Operating income                              14.8%        10.4%

Effective income tax rate                         29%          27%
================================================================================

As previously described in events impacting comparability, the nine month
results for fiscal 2003 and 2002 were impacted by the following pre-tax items:

o        $2.2 million charge to write off acquired IPR&D in fiscal 2002 and

o        $33.8 million charge, including $9.5 million recorded in cost of sales,
         for cost reductions, asset impairments, and other special charges in
         fiscal 2003.

There was no tax effect on the acquired IPR&D charge in fiscal 2002. The total
tax benefit recorded on the cost reductions and other special charges in fiscal
2003 was $10.9 million.

Income from continuing operations decreased for the first nine months of fiscal
2003 primarily due to the special charges described above, as well as due to
higher R&D spending related to products in development and support for Knowledge
Business initiatives. Partially offsetting this decrease were higher instrument,
service, and license revenues and a lower effective income tax rate. The foreign
currency impact on net income was immaterial for the first nine months of fiscal
2003.


                                       41
<PAGE>

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

Net revenues from the Celera Genomics group and Celera Diagnostics, primarily
from leased instruments, consumables, and project materials, and contracted R&D
services, were $5.9 million for the first nine months of fiscal 2003, or 0.5% of
the Applied Biosystems group's net revenues, and $20.5 million for the first
nine months of fiscal 2002, or 1.7%. The favorable effects of foreign currency
increased net revenues during the nine months of fiscal 2003 by approximately
$20 million, or 2%, as compared to the prior year period. The following table
sets forth the Applied Biosystems group's revenues by geographic area for the
nine months ended March 31:

                                                                     % Increase/
(Dollar amounts in millions)                   2002         2003     (Decrease)
================================================================================
United States                             $   560.8    $   606.3           8.1%
Europe                                        323.2        352.6           9.1%
Asia Pacific                                  270.4        253.8          (6.1%)
Latin America and other markets                32.3         37.3          15.5%
--------------------------------------------------------------------------------
Total                                     $ 1,186.7    $ 1,250.0           5.3%
================================================================================

Excluding the effects of foreign currency, revenues increased approximately 3%
in Europe and decreased approximately 7% in Asia Pacific during the first nine
months of fiscal 2003 compared to the prior year period. The decrease in Asia
Pacific was due in large part to the delays by the Japanese government in
releasing appropriated funds from the budget.

For the first nine months of fiscal 2003, revenues from instrument sales were
$613.9 million, an increase of 9.0% from $563.3 million in the prior year
period. Instrument sales increased in the DNA sequencing and mass spectrometry
product lines and decreased in the SDS product line. The DNA sequencing
instrument growth was driven by shipments of the 3730xl DNA Analyzer to some of
the large genome centers, as well as demand for the ABI PRISM(R) 3100-Avant
Genetic Analyzer, 3730 and the 3730xl systems from smaller academic and
commercial laboratories. This growth was partially offset by revenue declines in
other DNA sequencing instruments, including the ABI PRISM(R) 3100 Genetic
Analyzer. Although the overall SDS and other applied genomics product line grew
in the first nine months of fiscal 2003 compared to the prior year period, SDS
instrument sales decreased due primarily to restrained pharmaceutical spending
on certain high-end instruments, partially offset by strong sales of the ABI
Prism(R) 7000 system. Demand in the drug metabolism and pharmacokinetics and the
protein discovery markets helped drive sales increases of mass spectrometry
instruments compared to the prior year period.

Consumables sales were $426.2 million for the first nine months of fiscal 2003
compared to $448.5 million for the first nine months of fiscal 2002, a decrease
of 5.0%. This decrease was primarily due to declines in sales of core DNA
synthesis and PCR consumables, and, to a lesser degree, DNA sequencing
consumables, which more than offset the growth of SDS and other consumables
revenues. Within the SDS and Other Applied Genomics product category, revenue
from the TaqMan(R) chemistry-based consumable products, which are used for both
gene expression and genotyping, increased.


                                       42
<PAGE>

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

Revenues from other sources, which included service, royalties, and licenses,
increased 20.0% to $209.9 million for the first nine months of fiscal 2003 from
$174.9 million for the first nine months of fiscal 2002. The increase in
revenues resulted from higher service revenues, license fees, and royalties,
including $5.4 million for licenses related to certain mass spectrometry
technology and $6.7 million for licenses related to genetic analysis technology.

The following table sets forth the Applied Biosystems group's revenues by
product categories for the nine-month periods ended March 31:

(Dollar amounts in millions)                     2002          2003    % Change
================================================================================
DNA sequencing products                     $   455.7     $   467.5          3%
% of total revenues                                39%           37%

SDS and other applied genomics products         234.0         255.3          9%
% of total revenues                                20%           21%

Mass Spectrometry                               206.1         266.5         29%
% of total revenues                                17%           21%

Core DNA synthesis and PCR products             179.9         151.6        (16%)
% of total revenues                                15%           12%

Other                                           111.0         109.1         (2%)
% of total revenues                                 9%            9%
--------------------------------------------------------------------------------
Total                                       $ 1,186.7     $ 1,250.0          5%
================================================================================

Gross margin, as a percentage of net revenues, decreased from the prior year
period, as the asset impairment charges and changes in product sales mix,
including increased sales of lower-margin LC/MS products and lower-margin
service revenues, and geographic mix, including lower sales in Japan, were only
partially offset by higher margins from royalty and license revenues and the
favorable effects of foreign currency. The asset impairment charges reduced
gross margin by less than one percentage point for the nine month period.

As a percentage of net revenues, SG&A expenses were the same as the first nine
months of fiscal 2002.

As a percentage of net revenues, the increase in R&D expenses was primarily due
to the support for Knowledge Business initiatives and new products in
development.

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


                                       43
<PAGE>

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

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

The effective income tax rate was 27% for the first nine months of fiscal 2003
compared to 29% for the first nine months of fiscal 2002. The decrease in the
effective income tax rate was primarily due to the implementation of certain tax
planning strategies allowing for the increased utilization of foreign tax
credits, as well as the previously discussed special charges recorded in both
periods. The effective income tax rate for fiscal 2003 included a non-cash
charge related to amended returns, offset by the release of valuation allowances
on deferred tax assets. The valuation allowance release resulted from the
realization of foreign tax credits.

Discussion of Financial Resources and Liquidity

The Applied Biosystems group had cash and cash equivalents and short-term
investments of $521.3 million at March 31, 2003 and $471.0 million at June 30,
2002. We maintain a $50 million revolving credit agreement with three banks that
expires on April 20, 2005, under which there were no borrowings outstanding at
March 31, 2003. Cash provided by operating activities has been the Applied
Biosystems group's primary source of funds.

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

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

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

                                                       June 30,        March 31,
(Dollar amounts in millions)                               2002            2003
================================================================================
Cash and cash equivalents                               $ 441.3         $ 521.3
Short-term investments                                     29.7
--------------------------------------------------------------------------------
Total cash and cash equivalents and
  short-term investments                                $ 471.0         $ 521.3
Total debt                                                  0.3
Working capital                                           549.8           586.4
Debt to total capitalization                               --  %
================================================================================


                                       44
<PAGE>

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

Cash and cash equivalents for the nine months ended March 31, 2003 increased as
cash generated from operating activities, maturities of short-term investments
and proceeds from stock issuances were only partially offset by expenditures for
capital assets, the funding of the Celera Diagnostics joint venture, the payment
of dividends, and the repurchase of Applera - Applied Biosystems stock. Net cash
flows of continuing operations for the nine months ended March 31 were as
follows:

(Dollar amounts in millions)                                  2002         2003
================================================================================
Net cash from operating activities                         $ 185.0      $ 173.5
Net cash from investing activities                           (89.9)       (70.1)
Net cash from financing activities                           (44.6)       (34.5)
================================================================================

Operating activities:

Net cash from operating activities of continuing operations for the first nine
months of fiscal 2003 was $11.5 million lower than the first nine months of
fiscal 2002. This decrease resulted primarily from lower income-related cash
flows, higher inventory levels due to the timing of shipments and to support
fiscal year-to-date sales activity, higher compensation-related payments, the
timing of income tax payments, and $11.2 million of severance payments made
under the fiscal 2003 cost reduction program. Partially offsetting this decrease
were lower payments under supply agreements and for purchased licensed
technology, and the timing of vendor and value added tax payments. The Applied
Biosystems group's days sales outstanding was 73 days at March 31, 2003 compared
to 72 days at June 30, 2002 and 68 days at March 31, 2002. Inventory on hand was
3.4 months at March 31, 2003 compared to 3.3 months at June 30, 2002.

Investing activities:

Capital expenditures for the first nine months of fiscal 2003, net of disposals,
increased approximately $42 million over the prior fiscal year period primarily
related to the expansion of facilities, primarily in Pleasanton, CA. During the
first nine months of fiscal 2002, the Applied Biosystems group acquired the
remaining shares of Boston Probes for approximately $37 million in cash.

Financing activities:

Financing activities for the first nine months of fiscal 2002 included the
repayment of a yen loan at its maturity date. During the first nine months of
fiscal 2003, we repurchased 1.1 million shares of Applera - Applied Biosystems
stock for $19.8 million. These purchases are made from time to time under
standing resolutions of our board of directors to replenish shares issued under
our various stock plans.


                                       45
<PAGE>

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

Celera Genomics Group

Results of Operations--The Three Months Ended March 31, 2003 Compared With The
Three Months Ended March 31, 2002

                                                                    % Increase/
(Dollar amounts in millions)                       2002      2003    (Decrease)
================================================================================
Net revenues                                     $ 30.5     $20.3        (33.4%)
Cost of sales                                      15.4       3.0        (80.5%)
R&D                                                37.6      27.0        (28.2%)
SG&A expenses                                      13.7       7.9        (42.3%)
Amortization of intangible assets                   2.6       0.7        (73.1%)
Other special charges                              23.0                   (100%)
--------------------------------------------------------------------------------
Operating loss                                    (61.8)    (18.3)       (70.4%)
Loss on investments, net                                     (0.1)
Interest income, net                                6.6       3.8        (42.4%)
Other income (expense), net                        (3.6)    (14.6)         306%
Loss from joint venture                           (12.3)    (12.6)         2.4%
--------------------------------------------------------------------------------
Loss before income taxes                          (71.1)    (41.8)       (41.2%)
Benefit for income taxes                           21.6      15.1        (30.1%)
--------------------------------------------------------------------------------
Net loss                                        $ (49.5)  $ (26.7)       (46.1%)
--------------------------------------------------------------------------------
Effective income tax benefit rate                    30%       36%
================================================================================

As previously described in events impacting comparability, the three month
results for fiscal 2003 and 2002 were impacted by the following pre-tax items:

o        $25.9 million charge, including $2.9 million recorded in cost of sales,
         for asset impairments and excess lease space related to the Paracel
         business in fiscal 2002, and

o        $15.1 million charge included in the loss from our equity interest in
         DPI in fiscal 2003. This amount was recorded in other income (expense),
         net.

The total tax benefit recorded was $4.9 million on the fiscal 2002 charge and
$5.9 million on the fiscal 2003 charge.

The lower net loss in the third quarter of fiscal 2003 primarily resulted from
the special items recorded in fiscal 2003 and 2002 described above, as well as
lower R&D and SG&A expenses in fiscal 2003, partially offset by lower interest
income in fiscal 2003. Higher Online/Information Business operating income of
$5.2 million in the third quarter of fiscal 2003 compared to $4.6 million in the
third quarter of fiscal 2002 resulted from reduced operating expenses as a
result of the online marketing and distribution agreement with the Applied
Biosystems group. Expenses related to the Applera Genomics Initiative are not
allocated to the Online/Information Business.

Revenues decreased primarily as a result of the Celera Genomics group's decision
not to pursue additional contract sequencing service business.
Online/Information Business revenues decreased to $16.4 million in the third
quarter of fiscal 2003, compared to $18.5 million in the third quarter of fiscal
2002.


                                       46
<PAGE>

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

Cost of sales decreased primarily due to the decrease in the sequencing service
business and the Paracel inventory-related write-offs recorded in fiscal 2002 as
described above.

R&D expenses decreased in the third quarter of fiscal 2003 in comparison to the
same quarter last year due primarily to the wind down of the research phase of
the Applera Genomics Initiative and the elimination of programs as a result of
the June 2002 restructuring of the organization. This decrease was partially
offset by higher expenses for therapeutic discovery and development programs.

SG&A expenses decreased in the third quarter of fiscal 2003 compared to the
prior year quarter primarily due to a workforce reduction resulting from the
June 2002 restructuring of the organization.

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

In the third quarter of fiscal 2003, other expense, net consisted primarily of
the loss for the DPI equity method investment, which included our share of the
impairment charge described above. In the third quarter of fiscal 2002, other
expense, net reflected the losses recorded for equity method investments.

The effective income tax benefit rate was 36% in the third quarter of fiscal
2003 compared to 30% in the third quarter of fiscal 2002. The increase in the
effective income tax benefit rate was primarily attributable to the impact of
increased R&D credits and the previously discussed special charges recorded in
both periods.

Results of Operations--The Nine Months Ended March 31, 2003 Compared With The
Nine Months Ended March 31, 2002

                                                                     % Increase/
(Dollar amounts in millions)                       2002       2003    (Decrease)
================================================================================
Net revenues                                     $  92.8    $  66.8     (28.0%)
Cost of sales                                       45.3       10.1     (77.7%)
R&D                                                 96.0       92.3      (3.9%)
SG&A expenses                                       40.2       22.0     (45.3%)
Amortization of intangible assets                    4.7        5.2      10.6%
Other special charges                               23.0               (100.0%)
Acquired IPR&D                                      99.0               (100.0%)
--------------------------------------------------------------------------------
Operating loss                                    (215.4)     (62.8)    (70.8%)
Loss on investments, net                                       (0.3)
Interest income, net                                26.0       13.7     (47.3%)
Other income (expense), net                         (5.3)     (17.3)     (226%)
Loss from joint venture                            (30.2)     (35.8)     18.5%
--------------------------------------------------------------------------------
Loss before income taxes                          (224.9)    (102.5)    (54.4%)
Benefit for income taxes                            41.9       40.0      (4.5%)
--------------------------------------------------------------------------------
Net loss                                         $(183.0)   $ (62.5)    (65.8%)
--------------------------------------------------------------------------------
Effective income tax benefit rate                     19%        39%
================================================================================


                                       47
<PAGE>

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

As previously described in events impacting comparability, the nine month
results for fiscal 2003 and 2002 were impacted by the following pre-tax items:

o        $25.9 million charge, including $2.9 million recorded in cost of sales,
         for asset impairments and excess lease space related to the Paracel
         business in fiscal 2002;

o        $99.0 million charge to write off acquired IPR&D in fiscal 2002; and

o        $15.1 million charge included in the loss from our equity interest in
         DPI in fiscal 2003. This amount was recorded in other income (expense),
         net.

The total tax benefit recorded was $4.9 million on the fiscal 2002 charges and
$5.9 million on the fiscal 2003 charge. There was no tax benefit associated with
the fiscal 2002 acquired IPR&D charge.

The lower net loss for the first nine months of fiscal 2003 primarily resulted
from the special charges recorded in fiscal 2003 and 2002, as well as lower cost
of sales, and R&D and SG&A expenses in fiscal 2003, partially offset by lower
interest income in fiscal 2003. Higher Online/Information Business operating
income of $23.6 million for the first nine months fiscal 2003 compared to $8.2
million for the first nine months of fiscal 2002 resulted from higher
subscription revenue and reduced operating expenses as a result of the online
marketing and distribution agreement with the Applied Biosystems group. Expenses
related to the Applera Genomics Initiative are not allocated to the
Online/Information Business.

Revenues decreased as a result of the Celera Genomics group's decision not to
pursue additional contract sequencing service business. This decrease was
partially offset by an increase in subscription revenue. Online/Information
Business revenues increased to $57.3 million for the first nine months of fiscal
2003, compared to $52.8 for the first nine months of fiscal 2002.

Cost of sales decreased primarily due to the decrease in the sequencing service
business and the Paracel inventory-related write-offs recorded in fiscal 2002 as
described above.

R&D expenses decreased for the first nine months of fiscal 2003 in comparison to
the same period last year due primarily to: lower R&D expenses related to
programs eliminated in the June 2002 restructuring of the organization,
partially offset by higher expenses for therapeutic discovery and development
programs, including programs acquired with Axys; and $2.9 million recorded in
the third quarter of fiscal 2002 for asset write-downs associated with the
Rockville sequencing facility due to the group's decision not to pursue
additional sequencing service business.


                                       48
<PAGE>

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

SG&A expenses decreased for the first nine months of fiscal 2003 compared to the
prior year period primarily due to a workforce reduction resulting from the June
2002 restructuring of the organization, partially offset by an increased number
of employees resulting from the acquisition of Axys in November 2001.

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

Other expense, net increased for the first nine months of fiscal 2003 due
primarily to losses recorded for equity method investments, including our share
of the impairment charge recorded by DPI described above.

The effective income tax benefit rate was 39% for the first nine months of
fiscal 2003 compared to 19% for the first nine months of fiscal 2002. The
increase in the effective income tax benefit rate was primarily attributable to
the impact of increased R&D credits and the previously discussed special charges
recorded in both periods.

Discussion of Financial Resources and Liquidity

The Celera Genomics group had cash and cash equivalents and short-term
investments of $824.3 million at March 31, 2003 and $888.9 million at June 30,
2002. We maintain a $50 million revolving credit agreement with three banks that
expires on April 20, 2005, under which there were no borrowings outstanding at
March 31, 2003.

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

We manage the investment of surplus cash and the issuance and repayment of
short-term and long-term debt for the Celera Genomics group and the Applied
Biosystems group 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, 2002    March 31, 2003
================================================================================
Cash and cash equivalents                             $  28.9           $  20.9
Short-term investments                                  860.0             803.4
--------------------------------------------------------------------------------
Total cash and cash equivalents and
 short-term investments                               $ 888.9           $ 824.3
Total debt                                               18.0              17.3
Working capital                                         840.3             772.8
Debt to total capitalization                              1.6%              1.7%
================================================================================


                                       49
<PAGE>

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

During the second quarter of fiscal 2003, the Celera Genomics group purchased
$18.1 million of non-callable U.S. government obligations to serve as collateral
for the 8% senior secured convertible notes acquired as part of the acquisition
of Axys. We substituted these government obligations for our shares of DPI
common stock that originally collateralized the notes. The government
obligations are required to be held in a trust and the proceeds from the
maturation of, and interest payments on, these obligations will fund the
interest and principal payments under the notes. The DPI shares were released to
us during the third quarter of fiscal 2003. The government obligations, which
mature over the next two fiscal years, are classified as available for sale at
March 31, 2003, with $0.9 million in short-term investments and $16.7 million in
other long-term assets.

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

(Dollar amounts in millions)                             2002              2003
================================================================================
Net cash from operating activities                    $ (37.7)          $ (23.6)
Net cash from investing activities                      (64.2)              0.3
Net cash from financing activities                       (0.2)             15.3
================================================================================

Operating activities:

Net cash used by operating activities for the first nine months of fiscal 2003
was $14.1 million lower than the first nine months of fiscal 2002. The lower use
of cash resulted from lower net cash operating losses and a decrease in accounts
receivable in fiscal 2003, partially offset by lower deferred revenues.

Investing activities:

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

Financing activities:

Net cash from financing activities for the first nine months of fiscal 2003
increased due to proceeds received from employee stock option exercises. The
first nine months of fiscal 2002 included the repayment of a portion of the debt
assumed in the Axys acquisition. During the first nine months of fiscal 2002, we
repurchased 47,700 shares of Applera - Celera stock for $0.9 million. These
purchases are made from time to time under standing resolutions of our board of
directors to replenish shares issued under our various stock plans.


                                       50
<PAGE>

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

Celera Diagnostics

Results of Operations--The Three Months Ended March 31, 2003 Compared With The
Three Months Ended March 31, 2002

                                                                     % Increase/
(Dollar amounts in millions)                       2002       2003    (Decrease)
================================================================================
Net revenues                                     $   2.7    $   4.3      59.3%
Cost of sales                                        1.9        2.3      21.1%
R&D                                                 11.1       11.7       5.4%
SG&A expenses                                        2.0        2.9      45.0%
--------------------------------------------------------------------------------
Operating loss                                   $ (12.3)   $ (12.6)      2.4%
================================================================================

Revenues for the third quarter of fiscal 2003 increased due to higher sales of
cystic fibrosis analyte specific reagents and the inclusion of revenue relating
to the profit-sharing alliance between Abbott Laboratories and Celera
Diagnostics. The Applied Biosystems group distributed Celera Diagnostics'
products and recorded end-user sales through September 2002. On October 1, 2002,
pursuant to the profit-sharing alliance announced in June 2002, sales
responsibilities for products manufactured by Celera Diagnostics were largely
transferred to the diagnostic division of Abbott, which now records end-user
sales for those products. End-user product sales were $5.8 million for the third
quarter of fiscal 2003 and $3.4 million for the third quarter of fiscal 2002.
Sales of products by Celera Diagnostics to Abbott are recorded at cost. The
third quarter of fiscal 2003 included $2.6 million of revenue recorded under the
Abbott alliance for the equalization of gross margin and relative expenses
incurred by the parties.

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

Results of Operations--The Nine Months Ended March 31, 2003 Compared With The
Nine Months Ended March 31, 2002

                                                                     % Increase/
(Dollar amounts in millions)                       2002       2003    (Decrease)
================================================================================
Net revenues                                     $   6.4    $  15.1     135.9%
Cost of sales                                        4.5        6.9      53.3%
R&D                                                 25.6       35.4      38.3%
SG&A expenses                                        6.5        8.6      32.3%
--------------------------------------------------------------------------------
Operating loss                                   $ (30.2)   $ (35.8)     18.5%
================================================================================

Revenues for the first nine months of fiscal 2003 increased due to higher sales
of cystic fibrosis analyte specific reagents and the inclusion of revenue
relating to the profit-sharing alliance between Abbott Laboratories and Celera
Diagnostics. End-user product sales were $14.7 million for the first nine months
of fiscal 2003 and $8.0 million for the first nine months of fiscal 2002. Fiscal
2003 included $7.7 million of revenue recorded under the Abbott alliance for the
equalization of gross margin and relative expenses incurred by the parties.


                                       51
<PAGE>

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

R&D expenses increased in the first nine months of fiscal 2003 as a result of
increased spending for discovery programs and product development.

Recently Issued Accounting Standards

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

We continue to apply the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and FASB Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation - An
Interpretation of Accounting Principles Board Opinion No. 25." We adopted the
disclosure provisions of SFAS No. 148 in our fiscal 2003 third quarter. See Note
2 to our condensed consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of Statement of
Financial Accounting Standards Nos. 5, 57, and 107 and rescission of FIN 34."
FIN 45 extends the disclosures to be made by a guarantor about its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of certain guarantees, a liability
for the fair value of the obligation under these guarantees. The disclosure
provisions of FIN 45 were effective for financial statements for periods ending
after December 15, 2002. The provisions for initial recognition and measurement
of guarantees were effective on a prospective basis for guarantees issued or
modified after December 31, 2002. The application of FIN 45 did not have a
material impact on our consolidated financial statements. See Note 10 to our
condensed consolidated financial statements for a description of the types of
guarantees we have issued.


                                       52
<PAGE>

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

Outlook

Applied Biosystems Group

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. From a macro perspective,
governments in all three of our major geographic markets presently face fiscal
and economic problems. In recent months, the governments in the U.S. and Japan
approved healthy funding increases for the life sciences. However, in view of
weak economic conditions and increasing public deficits, the Applied Biosystems
group cannot be certain that those increases will be realized. Within Europe's
Economic Union, negotiated ceilings on deficit spending as a percentage of gross
domestic product continue to put pressure on appropriations for life science
research. Similarly, throughout most of the Applied Biosystems group's
geographic markets, commercial customers' purchasing patterns appear cautious.
The current situation in the Middle East has also increased the business
uncertainty for both customers and the Applied Biosystems group. Additional
factors affecting our outlook for the Applied Biosystems group include
difficulty in predicting the level of customer dilution of sequencing
consumables and the rate of adoption of new products and technologies. As a
result of these and other factors, the Applied Biosystems group cannot provide
guidance on revenues or diluted earnings per share for the fourth quarter of
fiscal 2003 to the degree of accuracy that is normally expected.

The Applied Biosystems group expects the effective tax rate for fiscal 2003 to
be approximately 27 percent. However, future tax legislation may repeal or
replace the existing U.S. export tax regime, as well as significantly change
other international tax provisions of the Internal Revenue Code. Such changes
may result in a change in the effective tax rate for the Applied Biosystems
group.

Capital spending in fiscal 2003 is anticipated to be approximately $140 million,
including approximately $70 million for the facilities expansion in Pleasanton,
CA.

Celera Genomics Group

Although the Celera Genomics group's partners will make clinical development
decisions with respect to partnered compounds, the Celera Genomics group
continues to believe that one of its compounds, most likely one of its partnered
compounds, could enter clinical trials during calendar year 2003. The Celera
Genomics group also plans to initiate at least one new pre-clinical development
program and to make significant progress in building its development
organization to support these programs during this calendar year.

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

The Celera Genomics group's cash use is expected to be between $83 and $89
million, due to lower than previously anticipated R&D expenses. This outlook
includes the Celera Genomics group's portion of the funding for the Celera
Diagnostics joint venture and the conversion of $17 million of short-term
investments to long-term investments that occurred during the second fiscal
quarter.


                                       53
<PAGE>

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

The Celera Genomics group anticipates R&D expenses to be in the range of $118 to
$123 million, reflecting both lower than expected costs and expenditure delays.
SG&A expenses are expected to be at the low end of the previously anticipated
$30 to $35 million range. Pre-tax losses related to the Celera Diagnostics joint
venture are expected to be at the low end of the previously forecasted $50 to
$60 million range.

The Celera Genomics group anticipates total revenues between $85 and $90
million. Revenues from subscriptions to CDS and from Knowledge Business
royalties are expected to be between $71 and $76 million.

Celera Diagnostics

For fiscal 2003, Celera Diagnostics anticipates end-user sales, including those
from its alliance with Abbott Laboratories, to be near the top of the previous
$18 to $22 million outlook range. This outlook assumes continued demand growth.
For fiscal 2003, Celera Diagnostics now anticipates pretax losses to be at the
low end of the previously forecasted $50 to $60 million range, and net cash use
of $55 to $65 million, including capital spending of approximately $10 million.

During calendar year 2003, Celera Diagnostics continues to anticipate that it
will launch several new products, including new analyte specific reagents for at
least two diseases, contingent upon success of its disease association studies.

Forward-Looking Statements

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

Factors Relating to the Applied Biosystems Group


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Rapidly changing technology in life sciences could make the Applied Biosystems
group's product line obsolete unless it continues to improve existing products,
develop new products, and pursue new market opportunities. A significant portion
of the net revenues for the Applied Biosystems group each year is derived from
products that did not exist in the prior year. The Applied Biosystems group's
future success depends on its ability to continually improve its current
products, develop and introduce, on a timely and cost-effective basis, new
products that address the evolving needs of its customers, and pursue new market
opportunities that develop as a result of technological and scientific advances
in life sciences. The Applied Biosystems group's products are based on complex
technology which is subject to rapid change as new technologies are developed
and introduced in the marketplace. Unanticipated difficulties or delays in
replacing existing products with new products, or the inability to gain market
acceptance of new products on a timely basis, could adversely affect the Applied
Biosystems group's future operating results. The pursuit of new market
opportunities will add further complexity and require additional management
attention and resources as these markets are addressed.

The Applied Biosystems group relies on third parties for the manufacture of some
of its products and also for the supply of some components of the products it
manufactures on its own. Although the Applied Biosystems group has contracts
with most of these manufacturers and suppliers, there can be no assurance that
their operations will not be disrupted. The Applied Biosystems group does not
currently have alternative third party manufacturing or supply arrangements for
some of the key products and key components manufactured or supplied by third
parties. Although the Applied Biosystems group has its own manufacturing
facilities, and believes it might be able to manufacture some of the products
and components currently sourced from third parties, it also believes that it
would take considerable time and resources to establish the capability to do so.
Accordingly, if third party manufacturers or suppliers are unable or fail to
fulfill their obligations to the Applied Biosystems group, the Applied
Biosystems group might not be able to satisfy customer demand in a timely manner
and its business could be adversely affected.

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

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


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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. Although research funding has increased
during the past several years, grants have, in the past, been frozen for
extended periods or otherwise become unavailable to various institutions,
sometimes without advance notice. Budgetary pressures may result in reduced
allocations to government agencies that fund research and development
activities. If government funding necessary to purchase the Applied Biosystems
group's products were to become unavailable to researchers for any extended
period of time, or if overall research funding were to decrease, the business of
the Applied Biosystems group could be adversely affected.

The Applied Biosystems group is currently and could in the future be subject to
claims for infringement of patents and other intellectual property rights. The
Applied Biosystems group's products are based on complex, rapidly developing
technologies. These products could be developed without knowledge of previously
filed patent applications that mature into patents that cover some aspect of
these technologies. In addition, there are relatively few decided court cases
interpreting the scope of patent claims in these technologies, and the Applied
Biosystems group's belief that its products do not infringe the technology
covered by valid and enforceable patents could be successfully challenged by
third parties. Also, in the course of its business, the Applied Biosystems group
may from time to time have access to confidential or proprietary information of
third parties, and these parties could bring a theft of trade secret claim
against the Applied Biosystems group asserting that the Applied Biosystems
group's products improperly use technologies which are not patented but which
are protected as trade secrets. The Applied Biosystems group has been made a
party to litigation regarding intellectual property matters, including the
litigation described in the following paragraph and elsewhere in this quarterly
report, some of which, if determined adversely, could have a material adverse
effect on the Applied Biosystems group. Due to the fact that the Applied
Biosystems group's business depends in large part on rapidly developing and
dynamic technologies, there remains a constant risk of intellectual property
litigation affecting the group. The Applied Biosystems group has from time to
time been notified that it may be infringing patents and other intellectual
property rights of others. It may be necessary or desirable in the future to
obtain licenses relating to one or more products or relating to current or
future technologies, and the Applied Biosystems group cannot be assured that it
will be able to obtain these licenses or other rights on commercially reasonable
terms.

MJ Research, Inc. has filed a lawsuit against us based on the allegation that
four patents underlying the Applied Biosystems group's DNA sequencing
instruments were invalidly obtained because one of the alleged inventors, whose
work was funded in part by the United States government, was knowingly omitted
from the patent applications. MJ Research claims to be suing in the name of the
United States government although the government has to date declined to
participate in the lawsuit. Promega Corporation has filed a lawsuit against us
alleging that the Applied Biosystems group, along with certain 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, although it has not identified the specific facts
on which the allegation is based. If any of these matters proceed to trial, the
cost of the litigation, and the amount of management time that will be devoted
to the litigation, will be significant. There can be no assurance that these
matters will be resolved favorably, that our company, the Applied Biosystems
group, or the Celera Genomics group will not be enjoined from selling the
products in question or other products as a result, or that any monetary or
other damages assessed against us will not have a material adverse effect on the
financial condition of our company, the Applied Biosystems group, or the Celera
Genomics group.


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Since the Applied Biosystems group's business is dependent on foreign sales,
fluctuating currencies will make revenues and operating results more volatile.
Approximately 50% of the Applied Biosystems group's net revenues for fiscal 2002
were derived from sales to customers outside of the United States. The majority
of these sales were based on the relevant customer's local currency. A
significant portion of the related costs for the Applied Biosystems group are
based on the U.S. dollar. As a result, the Applied Biosystems group's reported
and anticipated operating results and cash flows are subject to fluctuations due
to material changes in foreign currency exchange rates that are beyond the
Applied Biosystems group's control.

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

The Applied Biosystems group's Knowledge Business depends on the continuous,
effective, reliable, and secure operation of its computer hardware, software,
and Internet applications and related tools and functions. Because the Applied
Biosystems group's Knowledge Business requires manipulating and analyzing large
amounts of data, and communicating the results of the analysis to its internal
research personnel and to its customers via the Internet, the Applied Biosystems
group depends on the continuous, effective, reliable, and secure operation of
its computer hardware, software, networks, Internet servers, and related
infrastructure. To the extent that the Applied Biosystems group's hardware or
software malfunctions or access to the Applied Biosystems group's data by
internal Knowledge Business research personnel or Knowledge Business customers
through the Internet is interrupted, the Knowledge Business could suffer.


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

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

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

         o        conditions and publicity regarding the genomics,
                  biotechnology, pharmaceutical, or life sciences industries
                  generally;

         o        price and volume fluctuations in the stock market at large
                  which do not relate to the Applied Biosystems group's
                  operating performance; and

         o        comments by securities analysts or government officials,
                  including with regard to the viability or profitability of the
                  biotechnology sector generally or with regard to intellectual
                  property rights of life science companies, or the Applied
                  Biosystems group's ability to meet market expectations.

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

SARS (Severe Acute Respiratory Syndrome) could disrupt the Applied Biosystems
group's operations. The Applied Biosystems group has significant instrument
manufacturing operations in Singapore. In addition, Applied Biosystems/MDS SCIEX
Instruments, a joint venture between the Applied Biosystems group and MDS Inc.,
manufactures mass spectrometry instruments sold by the Applied Biosystems group
at its facility in Toronto, Canada. The Applied Biosystems group also relies on
suppliers located in other countries in Asia for various raw materials and
components used in its manufacturing operations. Singapore and a number of other
countries in Asia and, to a lesser degree, Toronto have been identified by world
health organizations as among the areas most affected by SARS. The Applied
Biosystems group's operations could be disrupted if it or one of its key
suppliers is forced to close its facilities or otherwise limit operations in
Singapore or in another affected Asian country or if Applied Biosystems/MDS
SCIEX Instruments is forced to close its facility or otherwise limit operations
in Toronto due to SARS. Similarly, sales of the Applied Biosystems group's
products could be adversely affected if customers or potential customers are
forced to close facilities or otherwise limit operations due to SARS. Sales of
the Applied Biosystems group's products could also be adversely affected if
potential customers are unable or unwilling to travel to one of the Applied
Biosystems group's sales offices or if employees of the Applied Biosystems group
are unable or unwilling to visit existing and potential customer sites due to
SARS.


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Factors Relating to the Celera Genomics Group

The Celera Genomics group has incurred net losses to date and may not achieve
profitability. The Celera Genomics group has accumulated net losses of $639.3
million as of March 31, 2003, and expects that it will continue to incur
additional net losses for the foreseeable future. These cumulative losses are
expected to increase as the Celera Genomics group continues to make investments
in new technology and product development, including its investments in its
therapeutics business, as well as investments in diagnostics through Celera
Diagnostics, its joint venture with the Applied Biosystems group. The Celera
Genomics group will record all initial cash operating losses of Celera
Diagnostics up to a maximum of $300 million, after which any additional
operating losses would be shared equally by the Celera Genomics group and the
Applied Biosystems group. However, the Applied Biosystems group reimburses the
Celera Genomics group for all tax benefits generated by Celera Diagnostics to
the extent such tax benefits are utilized by the Applied Biosystems group, and
the effect of recording Celera Diagnostics' operating losses on the Celera
Genomics group's net losses will be partially offset by this reimbursement.
Celera Diagnostics has accumulated cash operating losses of $77.6 million as of
March 31, 2003. As an early stage business, the Celera Genomics group faces
significant challenges in expanding its operations into the therapeutics
research and development business. As a result, there is a high degree of
uncertainty that the Celera Genomics group will be able to achieve profitable
operations.

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

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


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

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


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

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

         o        the Celera Genomics group or its collaborators may not
                  successfully complete any research and development efforts;

         o        the Celera Genomics group or its collaborators may not
                  successfully build the necessary preclinical and clinical
                  development organizations;

         o        any therapeutic product candidates that the Celera Genomics
                  group or its collaborators develop may be found during
                  preclinical testing or clinical trials to be ineffective or to
                  cause harmful side effects;

         o        the Celera Genomics group or its collaborators may fail to
                  obtain required regulatory approvals for products they
                  develop;


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         o        the Celera Genomics group or its collaborators may be unable
                  to manufacture enough of any potential products at an
                  acceptable cost and with appropriate quality;

         o        the Celera Genomics group or its collaborators may fail to
                  build necessary distribution channels;

         o        the Celera Genomics group's or its collaborator's products may
                  not be competitive with other existing or future products;

         o        adequate reimbursement for the Celera Genomics group's or its
                  collaborators products may not be available to physicians and
                  patients from the government or insurance companies; and

         o        the Celera Genomics group or its collaborators may be unable
                  to obtain necessary intellectual property protection, or third
                  parties may own proprietary rights that prevent the Celera
                  Genomics group or its collaborators from commercializing their
                  products.

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

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


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If the Celera Genomics group fails to satisfy regulatory requirements for any
therapeutic product candidate, the Celera Genomics group will be unable to
complete the development and commercialization of that product. The Celera
Genomics group does not currently have the internal capability to move potential
products through clinical testing, manufacturing and the approval processes of
the United States Food and Drug Administration and comparable agencies in other
countries. In the United States, either the Celera Genomics group or its
collaborators must show through pre-clinical studies and clinical trials that
each of the Celera Genomics group's therapeutic product candidates is safe and
effective in humans for each indication before obtaining regulatory clearance
from the United States Food and Drug Administration for the commercial sale of
that product. Outside of the United States, the regulatory requirements vary
from country to country. If the Celera Genomics group or its collaborator fails
to adequately show the safety and effectiveness of a therapeutic product,
regulatory clearance or approval could be delayed or denied. The results from
pre-clinical studies may be different from the results that are obtained in
large-scale clinical trials. The Celera Genomics group cannot be certain that it
will show sufficient safety and effectiveness in its clinical trials to allow it
to obtain the needed regulatory clearance or approval. The regulatory review and
approval process can take many years and require substantial expense and may not
be successful. Many companies in the therapeutic industry, including
biotechnology companies, have suffered significant setbacks in advanced clinical
trials, even after promising results in earlier studies.

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

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

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

         o        develop new therapeutic products in advance of the Celera
                  Genomics group;

         o        develop therapeutic products which are more effective or more
                  cost-effective than those developed by the Celera Genomics
                  group;


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         o        obtain regulatory approvals of their therapeutic products more
                  rapidly than the Celera Genomics group; or

         o        obtain patent protection or other intellectual property rights
                  that would limit the Celera Genomics group's ability to
                  develop and commercialize therapeutic products.

Introduction of new products may expose the Celera Genomics group to product
liability claims. New products developed by the Celera Genomics group or its
collaborators could expose the Celera Genomics group to potential product
liability risks that are inherent in the testing, manufacturing, marketing and
sale of human therapeutic products. Product liability claims or product recalls,
regardless of the ultimate outcome, could require the Celera Genomics group to
spend significant time and money in litigation and to pay significant damages.
Although the Celera Genomics group expects to seek and maintain product
liability insurance to cover claims relating to the testing and use of
therapeutic products, there can be no assurance that such insurance will be
available on commercially reasonable terms, if at all, or that the amount of
coverage obtained will be adequate to cover losses from any particular claim.

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

The Celera Genomics group could incur liabilities relating to hazardous
materials that it uses in its research and development activities. The Celera
Genomics group's research and development activities involve the controlled use
of hazardous materials, chemicals and various radioactive materials. In the
event of an accidental contamination or injury from these materials, the Celera
Genomics group could be held liable for damages in excess of its resources.

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


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

The Celera Genomics group's competitive position depends on maintaining its
intellectual property protection and obtaining licenses to intellectual property
it may need from others. The Celera Genomics group's ability to compete and to
achieve and maintain profitability depends on its ability to protect its
proprietary discoveries and technologies, in large part, through obtaining and
enforcing patent rights, obtaining copyright protection, maintaining its trade
secrets, and operating without infringing the intellectual property rights of
others. The Celera Genomics group's ability to obtain patent protection for the
inventions it makes is uncertain. The patentability of biotechnology and
pharmaceutical inventions involves complex factual and legal questions. As a
result, it is difficult to predict whether patents will issue or the breadth of
claims that will be allowed in biotechnology and pharmaceutical patents. This
may be particularly true with regard to the patenting of gene sequences, gene
functions, and genetic variations. In this regard, the United States Patent and
Trademark Office has adopted guidelines for use in the review of the utility of
inventions, particularly biotechnology inventions. These guidelines increased
the amount of evidence required to demonstrate utility in order to obtain a
patent in the biotechnology field, making patent protection more difficult to
obtain. Although others have been successful in obtaining patents to
biotechnology inventions, since the adoption of these guidelines, these patents
have been issued with increasingly less frequency. As a result, patents may not
issue from patent applications that the Celera Genomics group may own or license
if the applicant is unable to satisfy the new guidelines.

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


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

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

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

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

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


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The Celera Genomics group may infringe the intellectual property rights of third
parties and may become involved in expensive intellectual property litigation.
The intellectual property rights of biotechnology companies, including the
Celera Genomics group, are generally uncertain and involve complex legal,
scientific and factual questions. The Celera Genomics group's success in
therapeutics discovery and development may depend, in part, on its ability to
operate without infringing the intellectual property rights of others and to
prevent others from infringing its intellectual property rights.

There has been substantial litigation regarding patents and other intellectual
property rights in the biotechnology and pharmaceutical industries. The Celera
Genomics group may become a party to patent litigation or proceedings at the
United States Patent and Trademark Office to determine its patent rights with
respect to third parties. Interference proceedings may be necessary to establish
which party was the first to make the invention sought to be patented. The
Celera Genomics group may become involved in patent litigation against third
parties to enforce its patent rights, to invalidate patents held by the third
parties, or to defend against these claims. The cost to the Celera Genomics
group of any patent litigation or similar proceeding could be substantial, and
it may absorb significant management time. If infringement litigation against
the Celera Genomics group is resolved unfavorably to the Celera Genomics group,
the Celera Genomics group may be enjoined from manufacturing or selling its
products or services without a license from a third party. The Celera Genomics
group may not be able to obtain a license on commercially acceptable terms, or
at all.

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

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

         o        difficulties integrating acquired technologies and personnel
                  into the business of the Celera Genomics group;

         o        diversion of management from daily operations;

         o        inability to obtain required financing on favorable terms;

         o        entry into new markets in which the Celera Genomics group has
                  little previous experience;


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         o        potential loss of key employees, key contractual
                  relationships, or key customers of acquired companies or of
                  the Celera Genomics group; and

         o        assumption of the liabilities and exposure to unforeseen
                  liabilities of acquired companies.

It may be difficult for the Celera Genomics group to complete these transactions
quickly and to integrate these businesses efficiently into its current business.
Any acquisitions, investments or other strategic relationships and alliances by
the Celera Genomics group may ultimately have a negative impact on its business
and financial condition. For example, future acquisitions may not be as
successful as originally anticipated and may result in special charges. We have
incurred special charges in recent years as a result of acquisitions. As a
result of the Celera Genomics group's acquisition of Paracel, Inc., we incurred
charges for impairment of goodwill, intangibles and other assets and other
charges in the amounts of $69.1 million during fiscal 2001 and $25.9 million
during fiscal 2002. Similarly, as a result of the Applied Biosystems group's
acquisition of Molecular Informatics, Inc., we incurred charges related to the
impairment of assets in the amount of $14.5 million during fiscal 1999.

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

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

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

         o        conditions and publicity regarding the genomics,
                  biotechnology, pharmaceutical, or life sciences industries
                  generally;

         o        price and volume fluctuations in the stock market at large
                  which do not relate to the Celera Genomics group's operating
                  performance; and

         o        comments by securities analysts or government officials,
                  including with regard to the viability or profitability of the
                  biotechnology sector generally or with regard to intellectual
                  property rights of life science companies, or the Celera
                  Genomics group's ability to meet market expectations.

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


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Our company is subject to a purported class action lawsuit relating to its 2000
offering of shares of Applera - Celera stock that may be expensive and time
consuming. Our company and some of its officers were served in five lawsuits
purportedly on behalf of purchasers of Applera - Celera stock in our company's
follow-on public offering of Applera - Celera stock completed on March 6, 2000.
In the offering, our company sold an aggregate of approximately 4.4 million
shares of Applera - Celera stock at a public offering price of $225 per share.
All of these lawsuits have been consolidated into a single case and an amended
consolidated complaint was filed on August 21, 2001. The consolidated complaint
generally alleges that the prospectus used in connection with the offering was
inaccurate or misleading because it failed to adequately disclose the alleged
opposition of the Human Genome Project and two of its supporters, the
governments of the United States and the United Kingdom, to providing patent
protection to our company's genomic-based products. Although the Celera Genomics
group has never sought, or intended to seek, a patent on the basic human genome
sequence data, the complaint also alleges that our company did not adequately
disclose the risk that it would not be able to patent this data. The
consolidated complaint seeks unspecified monetary damages, rescission, costs and
expenses, and other relief as the court deems proper. Our company and the other
defendants have filed a motion to dismiss the case, which motion is pending
before the court. Although our company believes the asserted claims are without
merit and intends to defend the case vigorously, the outcome of this or any
other litigation is inherently uncertain. The defense of this case will require
management attention and resources.

Factors Relating to Celera Diagnostics, a Joint Venture between the Applied
Biosystems Group and the Celera Genomics Group

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

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


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         o        Celera Diagnostics or its collaborators may not successfully
                  complete any research and development efforts;

         o        any diagnostic products that Celera Diagnostics or its
                  collaborators develop may be found during clinical trials to
                  have limited medical value;

         o        Celera Diagnostics or its collaborators may fail to obtain
                  required regulatory clearances or approvals for products they
                  develop;

         o        Celera Diagnostics or its collaborators may be unable to
                  manufacture enough of any potential products at an acceptable
                  cost and with appropriate quality;

         o        any diagnostic products Celera Diagnostics or its
                  collaborators develop may not be competitive with other
                  existing or future products;

         o        adequate reimbursement for Celera Diagnostics' and its
                  collaborators' products may not be available to physicians or
                  patients from the government or insurance companies; and

         o        Celera Diagnostics may be unable to obtain necessary
                  intellectual property protection, or third parties may own
                  proprietary rights that prevent Celera Diagnostics or its
                  collaborators from commercializing their products.

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

Even if Celera Diagnostics obtains regulatory clearance or approval, it will be
subject to certain risks and uncertainties relating to regulatory compliance,
including: post-clearance or approval clinical studies and inability to meet the
compliance requirements of the United States Food and Drug Administration's
Quality System Regulations. In addition, the occurrence of manufacturing
problems could cause subsequent suspension of product manufacture or withdrawal
of clearance or approval, or could require reformulation of a diagnostic
product, additional testing, or changes in labeling of the product. This could
delay or prevent Celera Diagnostics from generating revenues from the sale of
that diagnostic product.


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

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

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

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


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

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

Celera Diagnostics has entered into a strategic alliance agreement with Abbott
Laboratories for the joint discovery, development, manufacturing, and
commercialization of nucleic acid-based diagnostic products. The Abbott
Laboratories agreement may be terminated by the non-breaching party in the event
of a material breach and, under certain circumstances, by either party in the
event of a change in control of the other party. In addition, the amount and
timing of resources to be devoted to research, development, eventual clinical
trials and commercialization activities by Abbott are not within Celera
Diagnostics' control. Future collaborations with other third parties are likely
to be subject to similar terms and conditions. Celera Diagnostics cannot ensure
that its collaborators will perform their obligations as expected. If any of
Celera Diagnostics' collaborators terminate or elect to cancel their agreements
or otherwise fail to conduct their collaborative activities in a timely manner,
the development or commercialization of diagnostics products may be delayed or
otherwise adversely affected. If in some cases Celera Diagnostics assumes
responsibilities for continuing programs on its own after termination of a
collaboration, Celera Diagnostics may be required to devote additional resources
to product development and commercialization or Celera Diagnostics may need to
cancel certain development programs.

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


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Celera Diagnostics has limited manufacturing capability and may encounter
difficulties expanding Celera Diagnostics' operations. Celera Diagnostics has
limited commercial manufacturing experience and capabilities. If product sales
increase, Celera Diagnostics will have to increase the capacity of its
manufacturing processes and facilities or rely on its collaborators, if any.
Celera Diagnostics may encounter difficulties in scaling-up manufacturing
processes and may be unsuccessful in overcoming such difficulties. In such
circumstances, Celera Diagnostics' ability to meet product demand may be
impaired or delayed.

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

Celera Diagnostics has relocated most of its manufacturing operations to a new
facility in Alameda, California, though it has maintained a limited but key
component of its manufacturing operations at an Applied Biosystems group
facility. Celera Diagnostics expects to operate its manufacturing out of these
facilities for the foreseeable future, and it does not have alternative
production plans in place or alternative facilities available should its
existing manufacturing facilities cease to function. Accordingly, Celera
Diagnostics' business could be adversely affected by unexpected interruptions in
manufacturing caused by events such as labor problems, equipment failures, or
other factors, and the resulting inability to meet customer orders on a timely
basis.

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

Single suppliers or a limited number of suppliers provide key components of
Celera Diagnostics' products. If these suppliers fail to supply these
components, Celera Diagnostics may be unable to satisfy product demand. Several
key components of Celera Diagnostics' products come from, or are manufactured
for Celera Diagnostics by, a single supplier or a limited number of suppliers.
This applies in particular to components such as enzymes and fluorescent dyes.
Celera Diagnostics acquires some of these and other key components on a
purchase-order basis, meaning that the supplier is not required to supply Celera
Diagnostics with specified quantities over longer periods of time or set-aside
part of its inventory for Celera Diagnostics' forecasted requirements. Celera
Diagnostics has not arranged for alternative supply sources for some of these
components and it may be difficult to find alternative suppliers, especially to
replace enzymes and fluorescent dyes. If Celera Diagnostics' product sales
increase beyond the forecast levels, or if its suppliers are unable or unwilling
to supply it on commercially acceptable terms, it may not have access to
sufficient quantities of key components on a timely basis and may be unable to
satisfy product demand.


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

Celera Diagnostics' competitive position depends on maintaining its intellectual
property protection and obtaining licenses to intellectual property it may need
from others. Celera Diagnostics' ability to compete and to achieve and maintain
profitability depends on its ability to protect its proprietary discoveries and
technologies, in large part, through obtaining and enforcing patent rights,
maintaining its trade secrets, and operating without infringing the intellectual
property rights of others. Celera Diagnostics' ability to obtain patent
protection for the inventions it makes is uncertain. The patentability of
biotechnology inventions involves complex factual and legal questions. As a
result, it is difficult to predict whether patents will issue or the breadth of
claims that will be allowed in biotechnology and pharmaceutical patents. This
may be particularly true with regard to the patenting of gene sequences, gene
functions, and genetic variations. In this regard, the United States Patent and
Trademark Office has adopted guidelines for use in the review of the utility of
inventions, particularly biotechnology inventions. These guidelines increased
the amount of evidence required to demonstrate utility in order to obtain a
patent in the biotechnology field, making patent protection more difficult to
obtain. Although others have been successful in obtaining patents to
biotechnology inventions, since the adoption of these guidelines, these patents
have been issued with increasingly less frequency. As a result, patents may not
issue from patent applications that Celera Diagnostics may own or license if the
applicant is unable to satisfy the new guidelines.

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

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


                                       74
<PAGE>

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

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

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

Celera Diagnostics may infringe the intellectual property rights of third
parties and may become involved in expensive intellectual property litigation.
The intellectual property rights of biotechnology companies, including Celera
Diagnostics, are generally uncertain and involve complex legal, scientific and
factual questions. Celera Diagnostics' success in diagnostic discovery and
development may depend, in part, on its ability to operate without infringing
the intellectual property rights of others and to prevent others from infringing
its intellectual property rights.

There has been substantial litigation regarding patents and other intellectual
property rights in the biotechnology and pharmaceutical industries. Celera
Diagnostics may become a party to patent litigation or proceedings at the United
States Patent and Trademark Office to determine its patent rights with respect
to third parties. Interference proceedings may be necessary to establish which
party was the first to make the invention sought to be patented. Celera
Diagnostics may become involved in patent litigation against third parties to
enforce its patent rights, to invalidate patents held by the third parties, or
to defend against these claims. The cost to Celera Diagnostics of any patent
litigation or similar proceeding could be substantial, and it may absorb
significant management time. If infringement litigation against Celera
Diagnostics is resolved unfavorably to Celera Diagnostics, Celera Diagnostics
may be enjoined from manufacturing or selling its products or services without a
license from a third party. Celera Diagnostics may not be able to obtain a
license on commercially acceptable terms, or at all.


                                       75
<PAGE>

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

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

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

         o        develop new diagnostic products in advance of Celera
                  Diagnostics;

         o        develop diagnostic products which are more effective or more
                  cost-effective than those developed by Celera Diagnostics;

         o        obtain regulatory clearances or approvals of their diagnostic
                  products more rapidly than Celera Diagnostics; or

         o        obtain patent protection or other intellectual property rights
                  that would limit Celera Diagnostics' ability to develop and
                  commercialize, or its customers' ability to use, Celera
                  Diagnostics' diagnostic products.

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

         o        purveyors of genetic testing services, which are not subject
                  to the same clinical validation requirements as Celera
                  Diagnostics' products, and which do not require United States
                  Food and Drug Administration or other regulatory clearance or
                  approval, including Laboratory Corporation of America
                  Holdings, Quest Diagnostics Inc., and Specialty Laboratories,
                  Inc.;

         o        manufacturers of analyte specific reagents and genotyping test
                  kits;

         o        purveyors of phenotyping assay services; and

         o        manufacturers and distributors of DNA probe-based diagnostic
                  systems.

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


                                       76
<PAGE>

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to potential loss from exposure to market risks represented
principally by changes in foreign exchange rates, interest rates, and equity
prices. Please refer to the market risk section of the Management's Discussion
and Analysis included on page 30 of our 2002 Annual Report to Stockholders
(which section is incorporated herein by reference).

Item 4.  Controls and Procedures.

We maintain disclosure controls and procedures designed to ensure that the
information required to be disclosed in the reports that we file or submit under
the Securities Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms. We evaluated the effectiveness of the design and operation of
these disclosure controls and procedures under the supervision and with the
participation of management, including our Chief Executive Officer and Chief
Financial Officer, within 90 days prior to the filing of this report. Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are effective to achieve
their stated purpose. No significant changes were made to our internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their most recent evaluation.


                                       77
<PAGE>

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

We are involved in various legal proceedings from time to time, including
actions with respect to commercial, intellectual property, antitrust,
environmental, securities, and employment matters. The following is a
description of claims currently being defended by us. We believe that we have
meritorious defenses against the claims currently asserted against us, including
the claims described below, and intend to defend them vigorously. However, the
outcome of litigation is inherently uncertain, and we cannot be sure that we
will prevail in the cases described below or in our other current litigation. An
adverse determination in certain of our current litigation, particularly the
cases described below or elsewhere in this quarterly report, could have a
material adverse effect on us, the Applied Biosystems group, or the Celera
Genomics group.

Henry Huang (an individual) filed an action against us and the Applied
Biosystems group and the other parties described below in the U.S. District
Court for the Central District of California on February 19, 2003. Mr. Huang's
complaint seeks to change inventorship of the patents described below, and
claims breach of contract, fraud, conversion, and unjust enrichment. The
complaint relates to 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." U.S. Patent Nos. 5,171,534, 5,821,058, and 6,200,748 are assigned
to the California Institute of Technology and licensed by the Applied Biosystems
group. U.S. Patent No. 4,811,218 is assigned to the Applied Biosystems group.
Also named in the complaint are the California Institute of Technology, Lloyd
Smith, Leroy Hood, Michael Hunkapiller, Timothy Hunkapiller, Charles Connell,
John Lytle, William Mordan, and John Bridgham. Lloyd Smith, Leroy Hood, Michael
Hunkapiller, Timothy Hunkapiller, and Charles Connell are the inventors named on
U.S. Patent Nos. 5,171,534, 5,821,058, and 6,200,748. Michael Hunkapiller,
Charles Connell, John Lytle, William Mordan, and John Bridgham are the inventors
named on U.S. Patent No. 4,811,218. The issues involved in this litigation are
related to the issues in the MJ Research, Inc. litigation that was filed
September 21, 2000, which is described in Note 12 to our Unaudited Condensed
Consolidated Financial Statements contained in Part I of this quarterly report.
Mr. Huang is alleging that he is the sole inventor on U.S. Patent Nos.
5,171,534, 5,821,058, 6,200,748, and 4,811,218. He is seeking to substitute
himself for the named inventors on the relevant patents, and to have himself
named as the sole assignee of the patents, and is also seeking monetary damages,
costs, expenses, 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. The complaint alleges that we are infringing U.S. Patent No. 5,612,179,
entitled "Intron Sequence Analysis Method for Detection of Adjacent and Remote
Locus Alleles as Haplotypes." The allegedly infringing products are cystic
fibrosis reagent kits sold through Celera Diagnostics, and our products that are
described in the complaint as "relating to non-coding variation". Genetic
Technologies Limited is seeking monetary damages, costs, expenses, injunctive
relief, and other relief as the court deems proper.

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 dismissed all
claims brought by On-Line Technologies, Inc. On-Line Technologies filed a notice
of appeal on April 24, 2003.


                                       78
<PAGE>

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

     (a) Exhibits.

         10.1     Celera Genomics/Applied Biosystems Marketing and Distribution
                  Agreement dated as of February 27, 2003 and effective as of
                  April 1, 2002, by and among the Company, its Applied
                  Biosystems Group, and its Celera Genomics Group.

         13       Annual Report to Stockholders for the fiscal year ended June
                  30, 2002, to the extent incorporated herein by reference
                  (incorporated by reference to Exhibit 13 to Annual Report on
                  Form 10-K of the Company for the fiscal year ended June 30,
                  2002 (Commission file number 1-4389)).

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

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

     (b) Reports on Form 8-K.

         During the quarter ended March 31, 2003, the Company filed the
         following Current Reports on Form 8-K:

         (1) Current Report on Form 8-K dated January 23, 2003, to incorporate
         under Item 5 thereof the text of the Company's press releases issued
         January 23, 2003, with respect to financial results for the second
         quarter of fiscal year 2003, of the Company and the Applied Biosystems
         group and Celera Genomics group.

         (2) Current Report on Form 8-K dated March 18, 2003, to incorporate
         under Item 5 thereof the text of the Company's press release issued
         March 18, 2003, in which the Applied Biosystems group addresses current
         business conditions.


     *   Pursuant to Commission Release No. 33-8212, this certification will be
         treated as "accompanying" this quarterly report on Form 10-Q and not
         "filed" as part of such report for purposes of Section 18 of the
         Exchange Act, or otherwise subject to the liability of Section 18 of
         the Exchange Act and this certification will not be deemed to be
         incorporated by reference into any filing under the Securities Act of
         1933, as amended, or the Exchange Act, except to the extent that the
         registrant specifically incorporates it by reference.


                                       79
<PAGE>

                                   SIGNATURES


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


                                             APPLERA CORPORATION


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



                                             By: /s/ Ugo D. DeBlasi
                                                 -------------------------------
                                                 Ugo De Blasi
                                                 Vice President and
                                                 Controller
                                                 (Chief Accounting Officer)


Dated:  May 14, 2003


                                       80
<PAGE>

                                 CERTIFICATIONS


Principal Executive Officer Certification

I, Tony L. White, certify that:

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

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

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

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

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

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

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

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

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

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

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

         Date:  May 14, 2003

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


                                       81
<PAGE>

Principal Financial Officer Certification

I, Dennis L. Winger, certify that:

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

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

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

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

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

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

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

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

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

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

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


         Date:  May 14, 2003

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

                                       82
<PAGE>

                                  EXHIBIT INDEX


Exhibit Number

10.1              Celera Genomics/Applied Biosystems Marketing and Distribution
                  Agreement dated as of February 27, 2003 and effective as of
                  April 1, 2002, by and among the Company, its Applied
                  Biosystems Group, and its Celera Genomics Group.

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

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



*        Pursuant to Commission Release No. 33-8212, this certification will be
treated as "accompanying" this quarterly report on Form 10-Q and not "filed" as
part of such report for purposes of Section 18 of the Exchange Act, or otherwise
subject to the liability of Section 18 of the Exchange Act and this
certification will not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that the registrant specifically incorporates it by reference.