UNITED
STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---

FORM 10-Q

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

For the quarterly period ended March 31, 2004

OR

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

Commission file number:1-4389

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

|Delaware(State
          or Other Jurisdiction of
     Incorporation or Organization)     | 06-1534213(I.R.S.
    Employer
    Identification No.)
|----------------------------------------------------------------------------------------- | ------------------------------------------------------
|                                                                                          |                                                       
|301
    Merritt 7, Norwalk, Connecticut      (Address
    of Principal Executive Offices) | 06851-1070(Zip
    Code)                              
|                                                                                          |                                                       
|(203)
            840-2000(Registrants
    Telephone Number, Including Area Code)       

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

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

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

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

As of the close of business on May 7, 2004, there were 201,835,054 shares of Applera Corporation-Applied Biosystems Group Common Stock and 72,953,877 shares of Applera Corporation-Celera Genomics Group Common Stock outstanding.

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APPLERA CORPORATION
INDEX

|Part
         I. Financial
         Information | Page                                                                                                                        |      
|----------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | -----
|                                                |                                                                                                                             |      
|Item 1.                                         | Financial Statements                                                                                                        |      
|                                                |                                                                                                                             |      
|                                                | Condensed
       Consolidated Statements of Operations for the Three and Nine Months Ended
    March 31, 2003 and
     2004 | 1    
|                                                |                                                                                                                             |      
|                                                | Condensed
    Consolidated Statements of Financial Position at June 30, 2003 and March
    31, 2004                         | 2    
|                                                |                                                                                                                             |      
|                                                | Condensed
    Consolidated Statements of Cash Flows for the Nine Months Ended March 31,
    2003 and 2004                   | 3    
|                                                |                                                                                                                             |      
|                                                | Notes
    to Unaudited Condensed Consolidated Financial Statements                                                          | 4-27 
|                                                |                                                                                                                             |      
|Item 2.                                         | Managements
    Discussion and Analysis of Financial Condition and Results of Operations                                   |      
|                                                |                                                                                                                             |      
|                                                | Discussion
    of Applera Corporation                                                                                       | 28-37
|                                                |                                                                                                                             |      
|                                                | Discussion
    of Applied Biosystems Group                                                                                  | 37-43
|                                                |                                                                                                                             |      
|                                                | Discussion
    of Celera Genomics Group                                                                                     | 43-46
|                                                |                                                                                                                             |      
|                                                | Discussion
    of Celera Diagnostics                                                                                        | 46-47
|                                                |                                                                                                                             |      
|                                                | Market
    Risks                                                                                                            | 47   
|                                                |                                                                                                                             |      
|                                                | Recently
    Issued Accounting Standards                                                                                    | 48   
|                                                |                                                                                                                             |      
|                                                | Outlook                                                                                                                     | 49-51
|                                                |                                                                                                                             |      
|                                                | Forward-Looking
    Statements                                                                                              | 51-74
|                                                |                                                                                                                             |      
|Item 3.                                         | Quantitative and Qualitative Disclosures About Market Risk                                                                  | 75   
|                                                |                                                                                                                             |      
|Item 4.                                         | Controls and Procedures                                                                                                     | 75   
|                                                |                                                                                                                             |      
|Part II. Other Information                      | 76                                                                                                                          |      

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|PART
    I  FINANCIAL INFORMATION
|----------------------------------
|                                  
|Item
    1.                       

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

|                                                           |  | Three
    Months Ended
    March 31, |         | Nine
    Months Ended
    March 31, |  
|---------------------------------------------------------- |  | ------------------------------------ | ------- | ----------------------------------- | -
|                                                           |  |                                      |         |                                     |  
|                                                           |  |                                      | 2003    |                                     |  
|                                                           |  |                                      |         |                                     |  
|Net Revenues                                               |  | $                                    | 431,006 |                                     | $
|Cost of sales                                              |  |                                      | 206,123 |                                     |  
|                                                           |  |                                      |         |                                     |  
|Gross Margin                                               |  |                                      | 224,883 |                                     |  
|Selling, general and administrative                        |  |                                      | 105,345 |                                     |  
|Research, development and engineering                      |  |                                      | 96,963  |                                     |  
|Amortization of intangible assets                          |  |                                      | 725     |                                     |  
|Other special charges                                      |  |                                      |         |                                     |  
|                                                           |  |                                      |         |                                     |  
|Operating Income                                           |  |                                      | 21,850  |                                     |  
|Gain (loss) on investments, net                            |  |                                      | (2,147  | )                                   |  
|Interest expense                                           |  |                                      | (211    | )                                   |  
|Interest income                                            |  |                                      | 7,156   |                                     |  
|Other income (expense), net                                |  |                                      | (13,392 | )                                   |  
|                                                           |  |                                      |         |                                     |  
|Income before Income Taxes                                 |  |                                      | 13,256  |                                     |  
|Provision (benefit) for income taxes                       |  |                                      | (329    | )                                   |  
|                                                           |  |                                      |         |                                     |  
|Income from Continuing Operations                          |  |                                      | 13,585  |                                     |  
|Loss from
    discontinued operations, net of income taxes |  |                                      |         |                                     |  
|                                                           |  |                                      |         |                                     |  
|Net Income                                                 |  | $                                    | 13,585  |                                     | $
|                                                           |  |                                      |         |                                     |  
|Applied Biosystems Group (see Note 2)                      |  |                                      |         |                                     |  
|Income
    from Continuing Operations                      |  | $                                    | 40,123  |                                     | $
|Basic
    per share                                        |  | $                                    | 0.19    |                                     | $
|Diluted
    per share                                      |  | $                                    | 0.19    |                                     | $
|                                                           |  |                                      |         |                                     |  
|Loss
    from Discontinued Operations                      |  | $                                    |        |                                     | $
|Basic
    and diluted per share                            |  | $                                    |        |                                     | $
|                                                           |  |                                      |         |                                     |  
|Net
    Income                                             |  | $                                    | 40,123  |                                     | $
|Basic
    per share                                        |  | $                                    | 0.19    |                                     | $
|Diluted
    per share                                      |  | $                                    | 0.19    |                                     | $
|                                                           |  |                                      |         |                                     |  
|Dividends
    per share                                    |  | $                                    | 0.0850  |                                     | $
|                                                           |  |                                      |         |                                     |  
|Celera Genomics Group (see Note 2)                         |  |                                      |         |                                     |  
|Net
    Loss                                               |  | $                                    | (26,743 | )                                   | $
|Basic
    and diluted per share                            |  | $                                    | (0.37   | )                                   | $

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



1

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

|                                                   |   | At
      June 30, |   |   | At
      March 31, |  
|-------------------------------------------------- | - | ----------------- | - | - | ------------------ | -
|                                                   |   | 2003              |   |   | 2004               |  
|                                                   |   |                   |   |   |                    |  
|                                                   |   |                   |   |   | (Unaudited)        |  
|Assets                                             |   |                   |   |   |                    |  
|Current
      assets                               |   |                   |   |   |                    |  
|Cash
      and cash equivalents                    | $ | 654,283           |   | $ | 631,309            |  
|Short-term
      investments                       |   | 749,785           |   |   | 692,360            |  
|Accounts
      receivable, net                     |   | 423,549           |   |   | 372,519            |  
|Inventories,
      net                             |   | 152,060           |   |   | 153,101            |  
|Prepaid
      expenses and other current assets    |   | 93,706            |   |   | 122,396            |  
|                                                   |   |                   |   |   |                    |  
|Total current
      assets                         |   | 2,073,383         |   |   | 1,971,685          |  
|Property,
      plant and equipment, net           |   | 526,591           |   |   | 496,311            |  
|Other long-term
      assets                       |   | 657,518           |   |   | 614,615            |  
|                                                   |   |                   |   |   |                    |  
|Total
      Assets                                 | $ | 3,257,492         |   | $ | 3,082,611          |  
|                                                   |   |                   |   |   |                    |  
|Liabilities
      and Stockholders Equity         |   |                   |   |   |                    |  
|Current
      liabilities                          |   |                   |   |   |                    |  
|Current
      portion of long-term debt            | $ |                  |   | $ | 6,210              |  
|Accounts
      payable                             |   | 166,319           |   |   | 130,433            |  
|Accrued
      salaries and wages                   |   | 79,623            |   |   | 71,701             |  
|Accrued
      taxes on income                      |   | 85,943            |   |   | 68,417             |  
|Other
      accrued expenses                       |   | 281,435           |   |   | 301,882            |  
|                                                   |   |                   |   |   |                    |  
|Total current
      liabilities                    |   | 613,320           |   |   | 578,643            |  
|Long-term
      debt                               |   | 17,101            |   |   |                    |  
|Other long-term
      liabilities                  |   | 286,786           |   |   | 247,286            |  
|                                                   |   |                   |   |   |                    |  
|Total
      Liabilities                            |   | 917,207           |   |   | 825,929            |  
|                                                   |   |                   |   |   |                    |  
|Stockholders
      Equity                         |   |                   |   |   |                    |  
|Capital
      stock                                |   |                   |   |   |                    |  
|Applera
      CorporationApplied Biosystems Group |   | 2,128             |   |   | 2,130              |  
|Applera
      CorporationCelera Genomics Group    |   | 723               |   |   | 729                |  
|Capital
      in excess of par value               |   | 2,102,936         |   |   | 2,109,020          |  
|Retained
      earnings                            |   | 355,252           |   |   | 407,100            |  
|Accumulated
      other comprehensive loss         |   | (54,485           | ) |   | (20,194            | )
|Treasury
      stock, at cost                      |   | (66,269           | ) |   | (242,103           | )
|                                                   |   |                   |   |   |                    |  
|Total
      Stockholders Equity                   |   | 2,340,285         |   |   | 2,256,682          |  
|                                                   |   |                   |   |   |                    |  
|Total
      Liabilities and Stockholders Equity   | $ | 3,257,492         |   | $ | 3,082,611          |  
|                                                   |   |                   |   |   |                    |  

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

2

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

|                                                                                                                     |   | Nine
      months ended |  
|-------------------------------------------------------------------------------------------------------------------- | - | ----------------------- | -
|                                                                                                                     |   | March
      31,         |  
|                                                                                                                     |   |                         |  
|                                                                                                                     |   | 2003                    |  
|                                                                                                                     |   |                         |  
|Operating
      Activities of Continuing Operations                                                                  |   |                         |  
|Income from
      continuing operations                                                                              | $ | 39,074                  |  
|Adjustments
      to reconcile income from continuing operations
      to net cash provided by operating activities: |   |                         |  
|Depreciation
      and amortization                                                                                  |   | 105,639                 |  
|Asset
      impairments                                                                                              |   | 10,017                  |  
|Provisions
      for office closures and severance and related costs                                                 |   | 23,744                  |  
|Long-term
      compensation programs                                                                                |   | 4,524                   |  
|(Gain)
      loss from investments and sale of assets, net                                                           |   | 1,330                   |  
|Deferred
      income taxes                                                                                          |   | (55,067                 | )
|Loss
      from equity method investees                                                                              |   | 19,171                  |  
|Changes
      in operating assets and liabilities:                                                                   |   |                         |  
|Accounts
      receivable                                                                                            |   | 28,717                  |  
|Inventories                                                                                                          |   | (10,725                 | )
|Prepaid
      expenses and other assets                                                                              |   | (9,476                  | )
|Accounts
      payable and other liabilities                                                                         |   | (43,994                 | )
|                                                                                                                     |   |                         |  
|                                                                                                                     |   |                         |  
|Net
          Cash Provided by Operating Activities of
      Continuing Operations                                   |   | 112,954                 |  
|                                                                                                                     |   |                         |  
|Investing
      Activities of Continuing Operations                                                                  |   |                         |  
|Additions
      to property, plant and equipment, net                                                                |   | (109,299                | )
|Proceeds
      from short-term investments, net                                                                      |   | 86,725                  |  
|Purchases
      of long-term investments                                                                             |   | (16,834                 | )
|Acquisitions
      and other investments, net                                                                        |   | (105                    | )
|Proceeds
      from the sale of assets, net                                                                          |   | 6,579                   |  
|                                                                                                                     |   |                         |  
|Net
          Cash Provided (Used) by Investing Activities of
           Continuing Operations                       |   | (32,934                 | )
|                                                                                                                     |   |                         |  
|Net
          Cash Used by Operating Activities of
      Discontinued Operations                                     |   | (2,526                  | )
|                                                                                                                     |   |                         |  
|Financing
      Activities                                                                                           |   |                         |  
|Net change
      in loans payable                                                                                    |   | (290                    | )
|Principal
      payments on debt                                                                                     |   |                         |  
|Dividends                                                                                                            |   | (26,691                 | )
|Purchases
      of common stock for treasury                                                                         |   | (19,779                 | )
|Proceeds
      from stock issued for stock plans                                                                     |   | 27,507                  |  
|                                                                                                                     |   |                         |  
|Net
      Cash Used by Financing Activities                                                                          |   | (19,253                 | )
|                                                                                                                     |   |                         |  
|Effect
      of Exchange Rate Changes on Cash                                                                        |   | 13,667                  |  
|                                                                                                                     |   |                         |  
|Net
      Change in Cash and Cash Equivalents                                                                        |   | 71,908                  |  
|Cash
      and Cash Equivalents Beginning of Period                                                                  |   | 470,218                 |  
|                                                                                                                     |   |                         |  
|Cash
      and Cash Equivalents End of Period                                                                        | $ | 542,126                 |  
|                                                                                                                     |   |                         |  

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

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APPLERA
  CORPORATION NOTES TO UNAUDITED
  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1  Interim Condensed Consolidated Financial Statements

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

We consistently
  applied the accounting policies described in our 2003 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 several notes
  and  other information included in our 2003 Annual Report to Stockholders.
  You should
  read these unaudited interim condensed consolidated financial statements in
   conjunction with our consolidated financial statements presented in our 2003

  Annual Report to Stockholders.

Note
2  Earnings (Loss) per Share, Including Pro Forma Effects of Stock-Based
Compensation

The following tables present a reconciliation of basic and diluted earnings (loss) per share and illustrate what net income and earnings per share would have been if we had applied the fair value method of accounting for employee stock plans as required by Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.

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

|                                   |                                                            | Applera
      Corporation |     
|---------------------------------- | ---------------------------------------------------------- | ------------------------- | ----
|                                   |                                                            |                           |     
|(Dollar
      amounts in millions) |                                                            | 2003                      |     
|                                   |                                                            |                           |     
|Net
      income, as reported      | $                                                          | 13.6                      |     
|Add:                               | Stock-based
      employee compensation expense            |                           |     
|                                   | included
      in reported net income, net of tax          |                           | 0.6 
|Deduct:                            | Stock-based
      employee compensation expense            |                           |     
|                                   | determined
      under fair value based method, net of tax |                           | 34.3
|                                   |                                                            |                           |     
|Pro
      forma net loss           | $                                                          | (20.1                     | )   
|                                   |                                                            |                           |     

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APPLERA
  CORPORATIONNOTES
  TO UNAUDITED CONDENSED CONSOLIDATED FINANCIALSTATEMENTS 
continued

|                                                       |  |                                                                                                              |      |       | Applied
    Biosystems |       | Celera Genomics |      
|------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------ | ---- | ----- | ---------------------- | ----- | --------------- | -----
|                                                       |  |                                                                                                              |      | Group |                        | Group |                
|                                                       |  |                                                                                                              |      |       |                        |       |                 |      
|(Dollar amounts in millions, except per share amounts) |  |                                                                                                              | 2003 |       |                        | 2004  |                 |      
|                                                       |  |                                                                                                              |      |       |                        |       |                 |      
|Net income (loss), as reported                         |  | $                                                                                                            | 40.1 |       | $                      | 46.0  |                 | $    
|Add:                                                   |  | Stock-based
       employee compensation expense included in reported net income (loss),
       net of tax   |      |       | 0.4                    |       |                 | 0.4  
|Deduct:                                                |  | Stock-based
       employee compensation expense determined under fair value based method,
       net of tax |      |       | 27.5                   |       |                 | 23.7 
|                                                       |  |                                                                                                              |      |       |                        |       |                 |      
|Pro forma net income (loss)                            |  | $                                                                                                            | 13.0 |       | $                      | 22.7  |                 | $    
|                                                       |  |                                                                                                              |      |       |                        |       |                 |      
|Weighted average number of common shares               |  |                                                                                                              |      |       |                        |       |                 |      
|                                                       |  | Basic                                                                                                        |      |       | 209.1                  |       |                 | 204.0
|                                                       |  | Common stock equivalents                                                                                     |      |       | 1.3                    |       |                 | 4.4  
|                                                       |  |                                                                                                              |      |       |                        |       |                 |      
|                                                       |  | Diluted                                                                                                      |      |       | 210.4                  |       |                 | 208.4
|                                                       |  |                                                                                                              |      |       |                        |       |                 |      
|Earnings (loss) per share                              |  |                                                                                                              |      |       |                        |       |                 |      
|                                                       |  | Basic  as reported                                                                                          |      | $     | 0.19                   |       | $               | 0.23 
|                                                       |  | Basic  pro forma                                                                                            |      | $     | 0.06                   |       | $               | 0.11 
|                                                       |  | Diluted  as reported                                                                                        |      | $     | 0.19                   |       | $               | 0.22 
|                                                       |  | Diluted  pro forma                                                                                          |      | $     | 0.06                   |       | $               | 0.11 
|                                                       |  |                                                                                                              |      |       |                        |       |                 |      

The
    earnings (loss) per share and pro forma effects on results for the nine months
    ended March 31are presented below:

|                                               |  |                                                                                                                      |       | Applera
    Corporation |       |      
|---------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | ----- | ----------------------- | ----- | -----
|                                               |  |                                                                                                                      |       |                         |       |      
|(Dollar amounts in millions)                   |  |                                                                                                                      | 2003  |                         |       | 2004 
|                                               |  |                                                                                                                      |       |                         |       |      
|Income from continuing operations, as reported |  | $                                                                                                                    | 39.1  |                         | $     | 80.7 
|Add:                                           |  | Stock-based
    employee compensation expense included in reported income from continuing
    operations, net of tax |       |                         | 2.6   |      
|Deduct:                                        |  | Stock-based
       employee compensation expense determined under fair value based method,
    net of tax            |       |                         | 110.0 |      
|                                               |  |                                                                                                                      |       |                         |       |      
|Pro forma loss from continuing operations      |  | $                                                                                                                    | (68.3 | )                       | $     | (17.7
|                                               |  |                                                                                                                      |       |                         |       |      

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APPLERA
  CORPORATIONNOTES
  TO UNAUDITED CONDENSED CONSOLIDATED FINANCIALSTATEMENTS
continued

|                                                       |  |                                                                                                                                   |       | Applied
    Biosystems |       | Celera Genomics |  
|------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------- | ----- | ---------------------- | ----- | --------------- | -
|                                                       |  |                                                                                                                                   |       | Group                  |       | Group           |  
|                                                       |  |                                                                                                                                   |       |                        |       |                 |  
|(Dollar amounts in millions, except per share amounts) |  |                                                                                                                                   | 2003  |                        |       | 2004            |  
|                                                       |  |                                                                                                                                   |       |                        |       |                 |  
|Income (loss) from continuing operations, as reported  |  | $                                                                                                                                 | 103.5 |                        | $     | 131.8           |  
|Add:                                                   |  | Stock-based
       employee compensation expense included in reported income (loss) from
       continuing operations, net of tax |       |                        | 1.9   |                 |  
|Deduct:                                                |  | Stock-based
       employee compensation expense determined under fair value based method,
       net of tax                      |       |                        | 87.0  |                 |  
|                                                       |  |                                                                                                                                   |       |                        |       |                 |  
|Pro forma income (loss) from continuing operations     |  | $                                                                                                                                 | 18.4  |                        | $     | 51.5            |  
|                                                       |  |                                                                                                                                   |       |                        |       |                 |  
|Weighted average number of common shares               |  |                                                                                                                                   |       |                        |       |                 |  
|                                                       |  | Basic                                                                                                                             |       |                        | 209.0 |                 |  
|                                                       |  | Common stock equivalents                                                                                                          |       |                        | 1.3   |                 |  
|                                                       |  |                                                                                                                                   |       |                        |       |                 |  
|                                                       |  | Diluted                                                                                                                           |       |                        | 210.3 |                 |  
|                                                       |  |                                                                                                                                   |       |                        |       |                 |  
|Earnings (loss) per share from continuing operations   |  |                                                                                                                                   |       |                        |       |                 |  
|                                                       |  | Basic  as reported                                                                                                               |       | $                      | 0.50  |                 | $
|                                                       |  | Basic  pro forma                                                                                                                 |       | $                      | 0.09  |                 | $
|                                                       |  | Diluted  as reported                                                                                                             |       | $                      | 0.49  |                 | $
|                                                       |  | Diluted  pro forma                                                                                                               |       | $                      | 0.09  |                 | $
|                                                       |  |                                                                                                                                   |       |                        |       |                 |  

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 from the computation of diluted loss per share because the effect was antidilutive. The following table presents the number of shares excluded from the diluted earnings and loss per share computations for the three and nine-month periods ended March 31:

|(Shares in millions)                                      |  | 2003 |  | 2004 |  | 
|--------------------------------------------------------- |  | ---- |  | ---- |  | 
|                                                          |  |      |  |      |  | 
|Applera CorporationApplied Biosystems Group Common Stock |  | 27.3 |  | 16.5 |  | 
|AppleraCelera stock                                      |  | 12.9 |  | 11.8 |  | 
|                                                          |  |      |  |      |  | 

In determining the pro forma impact for employee stock plans under SFAS 123, we estimated the fair value of the options at the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions for the three and nine month periods ended March 31:

6

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APPLERA
      CORPORATIONNOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIALSTATEMENTS 
continued

|                              |  | Three months ended |  | Nine months ended | 
|----------------------------- |  | ------------------ |  | ----------------- | 
|                              |  | March 31,          |  | March 31,         | 
|                              |  |                    |  |                   | 
|                              |  | 2003               |  | 2004              | 
|                              |  |                    |  |                   | 
|Applied Biosystems Group      |  |                    |  |                   | 
|Dividend yield                |  | 1.1%               |  | 0.8%              | 
|Volatility                    |  | 72%                |  | 71%               | 
|Risk-free interest rate       |  | 3.0%               |  | 3.2%              | 
|Expected option life in years |  | 5                  |  | 5                 | 
|                              |  |                    |  |                   | 
|Celera Genomics Group         |  |                    |  |                   | 
|Volatility                    |  | 97%                |  | 78%               | 
|Risk-free interest rate       |  | 3.0%               |  | 3.2%              | 
|Expected option life in years |  | 4                  |  | 4                 | 
|                              |  |                    |  |                   | 
|                              |  |                    |  |                   | 
|Note 3  Special Charges      |  |                    |  |                   | 

Fiscal 2003During
the second quarter of fiscal 2003, the Applied Biosystems group recorded pre-tax
charges totaling $33.8 million associated with the termination of approximately
400 employees, mainly in the U.S. and Europe, impairment of assets, and office
closures. The $33.8 million charge consisted of $24.3 million recorded in other
special charges and $9.5 million for the impairment of assets recorded in cost
of sales. Positions eliminated were primarily within the areas of research, manufacturing,
sales, marketing and administration. The Applied Biosystems group recorded pre-tax
benefits of $4.3 million in the fourth quarter of fiscal 2003 and $0.6 million
in the second quarter of fiscal 2004 for reductions in anticipated employee-related
costs associated with this program. 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                |  |   | 17.2      |  |   |            |  |   | 0.6      |  |   | 17.8  | 
|Non-cash charges             |  |   |           |  |   | 9.5        |  |   | 0.5      |  |   | 10.0  | 
|Reduction of expected costs  |  |   | 4.9       |  |   |            |  |   |          |  |   | 4.9   | 
|                             |  |   |           |  |   |            |  |   |          |  |   |       | 
|Balance at March 31, 2004    |  | $ | 0.8       |  | $ |           |  | $ | 0.3      |  | $ | 1.1   | 
|                             |  |   |           |  |   |            |  |   |          |  |   |       | 

The termination of the employees and the cash payments relating to the workforce reductions and office closures were substantially completed by December 31, 2003. These payments were funded primarily by cash provided by operating activities.



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APPLERA CORPORATIONNOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

Fiscal 2004During
the third quarter of fiscal 2004, the Applied Biosystems group recorded pre-tax
charges of $6.3 million in other special charges for the termination of approximately
110 employees, mainly in the U.S. The savings resulting from this action are
expected to be used to support the businesses that are driving the groups revenue
growth, including through
the hiring of additional appropriately-skilled employees. As of March 31, 2004,
the affected employees had been notified and the majority are expected to be
terminated by the end of fiscal 2004. As of March 31, 2004, we had made $0.8
million of cash payments. The remaining cash expenditures are expected to be
substantially completed by the end of fiscal 2004, and will be funded primarily
by cash provided by operating activities.

Note
        4  Comprehensive
      Gain

The components of comprehensive gain (loss) are reflected net of tax, except
for foreign currency translation adjustments, which are generally not adjusted
for income taxes as they relate
to indefinite investments in nonU.S. subsidiaries. Comprehensive gain (loss)
for the three and nine month periods ended March 31 were as follows:

|                                                                            | Three
    months ended
    March 31, |      | Nine
    months ended
    March 31, |  
|--------------------------------------------------------------------------- | ------------------------------------ | ---- | ----------------------------------- | -
|                                                                            |                                      |      |                                     |  
|(Dollar amounts in millions)                                                |                                      | 2003 |                                     |  
|                                                                            |                                      |      |                                     |  
|Net income                                                                  | $                                    | 13.6 |                                     | $
|Other comprehensive gain (loss):                                            |                                      |      |                                     |  
|Net
    unrealized gains (losses) on investments                            |                                      | (0.4 | )                                   |  
|Net
    unrealized (gains) losses on investments reclassified into earnings |                                      | 0.9  |                                     |  
|Net
    unrealized losses on hedge contracts                                |                                      | (4.1 | )                                   |  
|Net
    unrealized losses on hedge contracts reclassified into earnings     |                                      | 9.1  |                                     |  
|Foreign
    currency translation adjustments                                |                                      | 6.2  |                                     |  
|                                                                            |                                      |      |                                     |  
|Total other comprehensive gain                                              |                                      | 11.7 |                                     |  
|                                                                            |                                      |      |                                     |  
|Total comprehensive gain                                                    | $                                    | 25.3 |                                     | $
|                                                                            |                                     

Note
      5  Inventories

Inventories
included the following components:

|(Dollar amounts in millions) |  |   | June
       30,
2003 |  | March
         31,
2004 |       | 
|---------------------------- |  | - | -------------------- |  | ----------------------- | ----- | 
|                             |  |  
|Raw materials and supplies   |  | $ | 54.4                 |  | $                       | 56.1  | 
|Work-in-process              |  |   | 9.8                  |  |                         | 8.9   | 
|Finished products            |  |   | 87.9                 |  |                         | 88.1  | 
|                             |  |  
|Total inventories, net       |  | $ | 152.1                |  | $                       | 153.1 | 
|                             |  |  

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APPLERA CORPORATIONNOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
continued

Note 6  Assets
Held for Sale

During the third quarter of fiscal 2004, the Applied Biosystems group decided
to pursue the sale of certain nonstrategic assets. As a result of this decision,
we have reclassified $19.5 million of assets into assets held for sale within
prepaid expenses and other current assets. The reclassified assets consist of
$16.6 million of property, plant, and equipment, net and $2.9 million of net
inventory. The sale of these assets is expected to occur over the next twelve
months.

Note 7  Goodwill
and Intangible Assets

The following table presents our intangible assets subject to amortization:

|                                 |                               |  | June 30, 2003                 |       |                         | March
    31, 2004 |     
|-------------------------------- | ----------------------------- |  | ----------------------------- | ----- | ----------------------- | ------------------ | ----
|                                 |                               |  |                               |       |                         |                    |     
|(Dollar
    amounts in millions) | Weighted
    Average
    Life |  | Gross
    Carrying
    Amount |       | AccumulatedAmortization |                    |     
|                                 |                              
|Patents                          | 7.5                           |  | $                             | 44.7  |                         | $                  | 21.2
|Acquired technology              | 6.5                           |  |                               | 60.0  |                         |                    | 30.0
|Favorable operating leases       | 4.0                           |  |                               | 11.6  |                         |                    | 4.7 
|                                 |                               |  |                               |       |                         |                    |     
|Total                            |                               |  | $                             | 116.3 |                         | $                  | 55.9
|                                 |                              

Aggregate
amortization expense was as follows:

|                                 | Three
        months ended
      March
        31, |     | Nine
    months ended
    March
    31, |     
|-------------------------------- | -------------------------------------------------- | --- | --------------------------------------- | ----
|                                 |                                                    |     |                                         |     
|(Dollar
    amounts in millions) | 2003                                               |     |                                         | 2004
|                                 |                                                   
|Applied
        Biosystems group | $                                                  | 2.4 |                                         | $   
|Celera
        Genomics group    |                                                    | 0.7 |                                         |     
|Celera
        Diagnostics       |                                                    | 0.6 |                                         |     
|                                 |                                                   
|Consolidated                     | $                                                  | 3.7 |                                         | $   
|                                 |                                                   

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. Amortization expense for the Celera Genomics group
    in fiscal 2003 included the amortization of some intangible assets acquired
    as part of the acquisition of Axys Pharmaceuticals, Inc. in fiscal 2002.

At March 31, 2004, we estimated 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.

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APPLERA CORPORATIONNOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
continued

|(Dollar
    amounts in millions) |  | Applied
    Biosystems
    Group |      | Celera
    Genomics
    Group |   | Celera
    Diagnostics |  | Consolidated |    
|-------------------------------- |  | -------------------------------- | ---- | ----------------------------- | - | ---------------------- |  | ------------ | ---
|                                 | 
|2004                             |  | $                                | 10.1 |                               | $ | 2.9                    |  | $            | 2.1
|2005                             |  |                                  | 9.8  |                               |   | 2.9                    |  |              | 2.2
|2006                             |  |                                  | 9.7  |                               |   | 1.1                    |  |              | 2.2
|2007                             |  |                                  | 8.7  |                               |   |                        |  |              | 2.0
|2008                             |  |                                  | 6.0  |                               |   |                        |  |              | 0.4
|                                 | 

The carrying amount of goodwill at June 30, 2003, and March 31, 2004, 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  Supplemental Cash Flow Information

Significant non-cash financing activities were as follows:

|                                              | Nine
    months ended
    March 31, |      | 
|--------------------------------------------- | ----------------------------------- | ---- | 
|                                              |                                     |      | 
|(Dollar
         amounts in millions)         |                                     | 2003 | 
|                                              |                                     |     
|Tax benefit related to employee stock options | $                                   | 1.1  | 
|Dividends declared but not paid               | $                                   | 17.7 | 
|Issuances of restricted stock                 | $                                   | 0.2  | 
|                                              |                                     |     

Note
9  Guarantees

LeasesWe
provide lease-financing options to our customers through third party financing
companies. For some leases, the financing companies have recourse to us for any
unpaid principal balance upon default by the customer. The leases typically have
terms of three years and are secured by the underlying instrument. In the event
of default by a customer, we would repossess the underlying instrument. We record
revenues from these transactions upon the 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,
2004, the financing companies outstanding balance of lease receivables
with recourse to us was $8.8 million. We believe that we could recover the entire
balance from the resale of the underlying instruments in the event of default
by all customers.

Guarantee of pension benefits for divested businessAs
part of the divestiture of our Analytical Instruments business in fiscal 1999,
the purchaser of the Analytical Instruments business is paying for the pension
benefits for employees of a former German subsidiary. However, we guaranteed
payment of these pension benefits should the purchaser fail to do so, as these
  benefits were not transferable to the buyer under German law. The guaranteed
  payment obligation, which approximated $52 million at March 31, 2004, is not
expected to have a material adverse effect on our consolidated financial position.

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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

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

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

The following table provides an analysis of the warranty reserve:

|(Dollar amounts in millions)                                |   |       |   |  |  | 
|----------------------------------------------------------- | - | ----- | - |  |  | 
|                                                            |   |       |   |  |  | 
|Balance
         at June 30, 2003                           | $ | 15.1  |   |  |  | 
|Accruals
         for warranties                            |   | 23.4  |   |  |  | 
|Usage
         of reserve                                   |   | (22.3 | ) |  |  | 
|                                                            |   |       |   |  |  | 
|Balance
         at March 31, 2004                          | $ | 16.2  |   |  |  | 
|                                                            |   |       |   |  |  | 
|                                                            |   |       |   |  |  | 
|Note
        10  Pension
and Other Postretirement Benefits |   |       |   |  |  | 

In December 2003, the
FASB issued a revised SFAS No. 132, Employers Disclosures about Pensions
and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88,
and 106, and a revision of FASB Statement No. 132. SFAS No. 132 (revised
2003) requires additional disclosures about the assets, obligations, cash flows,
and net periodic benefit cost of defined benefit pension plans and other postretirement
benefit plans. We adopted the interim provisions of this Statement in our fiscal
2004 third quarter. The remaining provisions of this Statement are effective
for our fiscal 2004 fourth quarter.

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APPLERA CORPORATIONNOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIALSTATEMENTS
continued

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

|                                   | Three months endedMarch 31, |       |   | Nine
    months endedMarch 31, |     
|---------------------------------- | --------------------------- | ----- | - | ------------------------------ | ----
|                                   |                             |       |   |                                |     
|(Dollar amounts in millions)       | 2003                        |       |   | 2004                           |     
|                                   |                             |       |   |                                |     
|Pension                            |                             |       |   |                                |     
|Service cost                       | $                           | 2.4   |   | $                              | 2.7 
|Interest cost                      |                             | 9.7   |   |                                | 9.2 
|Expected return on plan assets     |                             | (10.0 | ) |                                | (9.3
|Amortization of prior service cost |                             |       |   |                                |     
|Amortization of losses             |                             | 0.2   |   |                                | 1.0 
|                                   |                             |       |   |                                |     
|Net periodic expense               | $                           | 2.3   |   | $                              | 3.6 
|                                   |                             |       |   |                                |     
|Postretirement
           Benefit  |                             |       |   |                                |     
|Service cost                       | $                           | 0.1   |   | $                              | 0.1 
|Interest cost                      |                             | 1.3   |   |                                | 1.1 
|Amortization of losses             |                             |       |   |                                |     
|                                   |                             |       |   |                                |     
|Net periodic expense               | $                           | 1.4   |   | $                              | 1.2 
|                                   |                             |       |   |                                |     

We contributed $28.9 million to the pension plan during the nine months ended
March 31, 2004 and we expect to fund approximately $4.0 million during the remainder
of fiscal 2004.

Note 11  Contingencies

LitigationWe
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 some claims we are currently defending.

Applera and some of its officers are defendants in a lawsuit purportedly brought
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. The lawsuit, which was commenced with
the filing of several complaints in April and May 2000, is pending in the U.S.
District Court for the District of Connecticut, and an amended consolidated complaint
was filed on August 21, 2001. The consolidated complaint generally alleges that
the prospectus used in connection with the offering was inaccurate or misleading
because it failed to adequately disclose the alleged opposition of the Human
Genome Project and two of its supporters, the governments of the U.S. and the
U.K., to providing patent protection to our genomic-based products. Although
the Celera Genomics group has never sought, or intended to seek, a patent on
the basic human genome sequence data, the complaint also alleges that we did
not adequately disclose the risk that the Celera Genomics group would not be able to patent this data. The consolidated complaint
seeks monetary damages, rescission, costs and expenses, and other relief as the
court deems proper.

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APPLERA CORPORATIONNOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIALSTATEMENTS
continued

We are involved in several litigation matters with MJ Research, Inc., which commenced
with our filing claims against MJ Research based on its alleged infringement
of some polymerase chain reaction, or PCR, patents. In response to our claims,
MJ Research filed counterclaims including, among others, allegations that we
have licensed and enforced these patents through anticompetitive conduct in violation
of federal and state antitrust laws, and MJ Research is seeking injunctive relief,
monetary damages, costs and expenses, and other relief. A trial on these matters
commenced in March 2004. The Court elected to hold the trial in two phases: a
patent phase and an antitrust phase. In the patent phase, which has concluded,
the jury found that MJ Research infringed U.S. patent Nos. 4,683,195, 4,683,202
and 4,965,188 (each relates to PCR process technology) and U.S. patent Nos. 5,656,493,
5,333,675 and 5,475,610 (each relates to thermal cycler instrument technology).
The jury found the infringement of the 195, 202, 188 and 493 patents to be
willful. In addition to direct infringement by MJ Research of the 610 and 675
patents, the jury found that MJ Research induced its customers to infringe all
of the patents and contributed to infringement by its customers of the 610 and
675 patents. In April 2004, the jury awarded damages to us and Roche Molecular
Systems, also a party to the litigation, in the amount of $19.8 million. We intend
to seek, with Roche Molecular Systems, an enhancement of damages, including legal
fees, since several infringements were found to be willful. Additionally, we
intend to seek an injunction against MJ Research, which filed for bankruptcy
court protection on March 29, 2004. The antitrust phase of the trial is scheduled
to commence in July 2004.

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

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

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APPLERA CORPORATION
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS 
  continued

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. We are
  seeking dismissal of Beckman Coulters complaint, costs and expenses,
  declaratory and injunctive relief, and other relief
as the court deems proper.

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. A trial was completed
  on December 22, 2003, and on February 18, 2004, the judge issued a decision
  in our favor finding that Mr. Huang was not an inventor of the patents at issue.
  Mr. Huang has appealed the decision.

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APPLERA CORPORATION
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS 
  continued

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

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

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APPLERA CORPORATION
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL  STATEMENTS 
  continued

We filed claims against Roche Molecular Systems, Inc., Hoffmann-La Roche, Inc.,
Roche Probe, Inc., F. Hoffmann-La Roche Ltd., and other potential defendants
affiliated with the named
defendants (Roche) in California Superior Court on October 9, 2003.
Our complaint asserts, among other things, breach of contract and other contract
claims against the defendants arising from agreements relating to polymerase
chain reaction, or PCR, technology rights entered into between us and the defendants.
Our complaint also asserts various tort claims against the defendants, including
breach of trust, breach of fiduciary duty, and unfair competition, relating to
our PCR rights. The defendants acts and omissions that form the basis of
the complaint include, among other things, the: (i) defendants failure
to abide by contractual provisions intended to allow us to effectively compete
with the defendants with respect to (a) sales of diagnostic PCR products and
(b) conveyance of diagnostic PCR rights to third parties; (ii) defendants failure
to pay us requisite royalties for sales by them of thermal cyclers and other
products; (iii) defendants failure to negotiate in good faith new agreements
directed at modifying the relationship between the parties in accordance with
principles set forth in an existing letter agreement that states the intended
framework for the negotiations (the Letter Agreement); (iv) defendants failure
to provide us with diagnostic PCR rights on a nondiscriminatory basis as required
by a European Union commission decree; (v) defendants failure to comply
with their agreement to assign ownership to us of some PCR instrument patents
and patent applications, and (vi)
  defendants mishandling of the prosecution of patent applications that the defendants were obligated to assign to us, in a manner that damaged us and precluded us from obtaining the full potential scope of patent protection for our instrument rights. Contemporaneously with our filing of this complaint, we also commenced arbitration proceedings with the American Arbitration Association against the defendants asserting, among other things, patent infringement claims (both direct infringement, contributory infringement and infringement by inducing third parties to infringe), breach of contract and other contract claims, and tort claims such as breach of fiduciary duty, breach of trust, and unfair competition. The arbitration is based on our allegation that the defendants (i) have infringed our exclusive rights to PCR patents in fields exclusively licensed to us pursuant to agreements with the defendants; and (ii) by their acts and omissions, have undermined the value of our exclusive PCR rights.
In both





the legal complaint and the arbitration, we are seeking monetary damages, costs, expenses, injunctive
relief, and other relief as the court or arbitrator deems proper. On December 15, 2003, Roche
filed a motion in California Superior Court to compel arbitration of our state court complaint and
to stay the litigation. Concurrently with the motion to compel arbitration, Roche also filed with
the American Arbitration Association its response to our notice of arbitration in which Roche
denied all of our claims against it. Roches response included counterclaims asserting,
among other things, that our exclusive patent rights under some PCR patents licensed from Roche
under an existing distribution agreement were converted into nonexclusive rights by the
Letter Agreement, which was entered into subsequent to the distribution agreement. Roche
also alleges that (i) we breached our contractual obligation under the Letter Agreement,
including our obligation to source certain enzymes exclusively from Roche; and (ii) we failed to
pay Roche the full royalties required pursuant to the distribution agreement. In its counterclaim,
Roche is seeking a request for declaratory judgment confirming its assertions, interest, costs,
and other relief as the arbitrator deems proper. The claims and counterclaims described in this
paragraph involve PCR rights used by the Applied Biosystems group and also rights that the
Applied Biosystems group has contributed to Celera Diagnostics. On March 1, 2004 the Superior
Court denied Roches motion to compel arbitration, but Roche has appealed the decision and both
the arbitration and the litigation have been stayed pending the outcome of
the appeal.

Promega Corporation filed an action against us and some of our affiliates and
Roche Molecular Systems, Inc. and Hoffmann-La Roche, Inc. in the U.S. District
Court for the Eastern District of Virginia on April 10, 2000. The complaint asserts
violations of the federal False Claims Act. On November 12, 2003, the court issued
an order to have the complaint, which had previously been sealed, served on us
and the other defendants. On February 9, 2004, we waived service of the complaint,
which initiated our direct involvement in the case. The complaint alleges that
we and Hoffmann-La Roche overcharged the U.S. government for thermal cyclers
and PCR reagents. The overcharges are alleged to be the result of a licensing
program based in part on U.S. Patent No. 4,889,818. Promega is asserting that
U.S. Patent No. 4,889,818 was obtained fraudulently and that the licensing program
run by us and Hoffmann-La Roche is the cause of the alleged overcharging. Promega
is seeking monetary damages. Promega claims to be suing in the name of the U.S.
government although the government has to date declined to participate in the
suit.



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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 some of our current
litigation, particularly the cases described above, could have a material adverse
effect on our consolidated financial statements.

Discontinued OperationsIn October 2002, we received
    an adverse jury verdict in Federal District Court for the District of Delaware
    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 business to EG&G, Inc. (now named
PerkinElmer, Inc.) in 1999. In fiscal 2003, the jury awarded TA Instruments $13.3
million based on lost sales, price erosion, and reasonable royalties, and also
rejected claims we had made against TA Instruments alleging that their conduct
infringed one of our patents. Subsequently, the District Court entered final
judgment on a modified award of $17.3 million, after ruling on motions filed
by us and TA Instruments which resulted in the Courts striking the price
erosion element of the jurys damage award, but granting TA Instruments enhanced
damages and attorneys fees on certain aspects of the verdict, and prejudgment
interest. We recorded a charge of $16.4 million, net of income taxes, as part
of discontinued operations in the first quarter of fiscal 2003. In June 2003,
we appealed the judgment rejecting our infringement claims to the U.S. Court
of Appeals for the Federal Circuit. On May 5, 2004, the U.S. Court of Appeals
for the Federal Circuit affirmed the District Courts judgment denying our
infringement claim, and we have elected not to pursue further
appeals.

Note 12  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 approves the method of allocating earnings
to each class of common stock for purposes of calculating earnings per share.
This determination is generally based on net income or loss amounts of the corresponding
group calculated in accordance with GAAP, consistently applied.

During fiscal 2002, the Applied Biosystems group formed the Knowledge Business
to develop and market products and services designed to meet the needs of life
science researchers in performing specific biological analysis applications.
The Knowledge Business was focused on generating value to life science customers
through products and services with high information content that support improved
experimental work-flows.
Concurrently with the Applied Biosystems groups formation of the Knowledge
Business, in April 2002, the Celera Genomics group and the Applied Biosystems
group entered into a ten-year marketing and distribution agreement pursuant to
which the Applied Biosystems group became the exclusive marketer of the Celera
Genomics groups CDS and related human genetic and other biological and
medical information. As a result of this arrangement, the Applied Biosystems
group has integrated CDS and other genomic and biological information into its
product offerings. During the second quarter of fiscal 2004, the Applied Biosystems
group reorganized
its internal operations and, among other things, integrated the operations of
the former Knowledge Business into other business units of the Applied Biosystems
group. However, the Applied Biosystems group and the Celera Genomics group continue
to operate under the marketing and distribution agreement on the same terms and
conditions as in effect prior to the reorganization.

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APPLERA CORPORATION
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS
  continued



See Note 15 to our consolidated
    financial statements included in our 2003 Annual
Report to
  Stockholders
  for a detailed description of the segments and the management and allocation
  policies applicable to the attribution of assets, liabilities, revenues and
  expenses to the segments (which information is incorporated in this quarterly
  report by reference).

The following table summarizes sales of products between segments:

|                                                | Three Months Ended |      | Nine Months Ended |  
|----------------------------------------------- | ------------------ | ---- | ----------------- | -
|                                                | March 31,          |      | March 31,         |  
|                                                |                    |      |                   |  
|(Dollar amounts in millions)                    |                    | 2003 |                   |  
|                                                |                   
|Applied Biosystems Group                        |                    |      |                   |  
|Sales to the Celera Genomics group (1)          | $                  | 1.0  |                   | $
|Sales to Celera Diagnostics (1)                 |                    | 1.3  |                   |  
|                                                |                   
|Celera Genomics Group                           |                    |      |                   |  
|Royalties from the Applied Biosystems group (2) | $                  | 0.5  |                   | $
|                                                |                   
|Celera Diagnostics                              |                    |      |                   |  
|Sales to the Applied Biosystems group (3)       | $                  | 0.1  |                   | $
|                                                |                   

The following
table summarizes supplemental cash flow activity between segments:

|                                                          | Nine
        Months Ended |     
|--------------------------------------------------------- | ------------------------- | ----
|                                                          | March
    31,             |     
|                                                          |                           |     
|(Dollar
          amounts in millions)                    |                           | 2003
|                                                          |                          
|Applied
          Biosystems Group                        |                           |     
|Nonreimbursable
          utilization of tax benefits (4) | $                         | 23.7
|Payments
          for reimbursable utilization of tax    |                           |     
|benefits
          (5)                                    |                           | 15.2
|Funding
          of Celera Diagnostics (6)               |                           | 5.8 
|                                                          |                          
|Celera
          Genomics Group                           |                           |     
|Funding
          of Celera Diagnostics (7)               | $                         | 37.5
|                                                          |                          

|    |                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Applied Biosystems group recorded net revenues from leased instruments, consumables, and project materials to the Celera Genomics group and Celera Diagnostics.                                                                                     
|    |                                                                                                                                                                                                                                                         
|(2) | The Celera Genomics group recorded net revenues primarily for royalties generated from sales by the Applied Biosystems group of products integrating CDS and some other genomic and biological information under a marketing and distribution agreement.

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APPLERA CORPORATION
  NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS
  continued

|(3) | 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 in June 2002.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                         
|(4) | The
       Applied Biosystems group used, without reimbursement, some of the tax
       benefits generated by the Celera Genomics group in accordance with our
       tax allocation policy.                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                         
|(5) | The Applied Biosystems group paid the Celera Genomics group for the use of existing tax benefits acquired by the Celera Genomics group in business combinations and other tax benefits, including those associated with Celera Diagnostics in accordance with our tax allocation policy.                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                         
|(6) | The Applied Biosystems group recorded its share of capital expenditures and working capital funding for Celera Diagnostics.                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                         
|(7) | The Celera Genomics group recorded operating losses and its share of capital expenditures and working capital funding for Celera Diagnostics.                                                                                                                                                                                                                                                                           

For the three and nine month periods ended March 31, 2003 and 2004, 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 are included both in the Celera
Diagnostics column and net within the Celera Genomics group column
as Loss
from joint venture.

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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

|Condensed
        Consolidating Statement of Operations for the Three Months Ended March
    31, 2004
|-----------------------------------------------------------------------------------------------------
|                                                                                                     
|(Dollar
    amounts in thousands)                                                                    
|                                                                                                     
|Net revenues from external customers                                                                 
|Intersegment revenues                                                                                
|                                                                                                     
|Net
    Revenues                                                                                     
|Cost of sales                                                                                        
|                                                                                                     
|Gross
    Margin                                                                                     
|Selling, general and administrative                                                                  
|Corporate allocated expenses                                                                         
|Research, development and engineering                                                                
|Amortization of intangible assets                                                                    
|Other special charges                                                                                
|                                                                                                     
|Operating
    Income (Loss)                                                                          
|Gain on investments, net                                                                             
|Interest income, net                                                                                 
|Other income (expense), net                                                                          
|Loss from joint venture                                                                              
|                                                                                                     
|Income
    (Loss) before Income Taxes                                                                
|Provision (benefit) for income taxes                                                                 
|                                                                                                     
|Net
    Income (Loss)                                                                                
|                                                                                                     

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APPLERA CORPORATIONNOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

|Condensed
        Consolidating Statement of Operations for the Nine Months Ended March
    31, 2004
|----------------------------------------------------------------------------------------------------
|                                                                                                    
|(Dollar
    amounts in thousands)                                                                   
|                                                                                                    
|Net revenues from external customers                                                                
|Intersegment revenues                                                                               
|                                                                                                    
|Net
    Revenues                                                                                    
|Cost of sales                                                                                       
|                                                                                                    
|Gross
    Margin                                                                                    
|Selling, general and administrative                                                                 
|Corporate allocated expenses                                                                        
|Research, development and engineering                                                               
|Amortization of intangible assets                                                                   
|Other special charges                                                                               
|                                                                                                    
|Operating
    Income (Loss)                                                                         
|Gain (loss) on investments, net                                                                     
|Interest income, net                                                                                
|Other income (expense), net                                                                         
|Loss from joint venture                                                                             
|                                                                                                    
|Income
    (Loss) before Income Taxes                                                               
|Provision (benefit) for income taxes                                                                
|                                                                                                    
|Net
    Income (Loss)                                                                               
|                                                                                                    

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APPLERA CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

|Condensed
    Consolidating Statement of Financial Position at March 31, 2004
|-----------------------------------------------------------------------------
|                                                                             
|(Dollar
    amounts in thousands)                                            
|                                                                             
|Assets                                                                       
|Current assets                                                               
|Cash
         and cash equivalents                                           
|Short-term
         investments                                              
|Accounts
         receivable, net                                            
|Inventories,
         net                                                    
|Prepaid
         expenses and other current assets                           
|                                                                             
|Total current assets                                                         
|Property, plant and equipment, net                                           
|Other long-term assets                                                       
|                                                                             
|Total
    Assets                                                             
|                                                                             
|                                                                             
|Liabilities
    and Stockholders Equity                                     
|Current liabilities                                                          
|Current
         portion of long-term debt                                   
|Accounts
         payable                                                    
|Accrued
         salaries and wages                                          
|Accrued
         taxes on income                                             
|Other
         accrued expenses                                              
|                                                                             
|Total current liabilities                                                    
|Other long-term liabilities                                                  
|                                                                             
|Total
    Liabilities                                                        
|                                                                             
|Total
    Stockholders Equity                                               
|                                                                             
|Total
    Liabilities and Stockholders Equity                               
|                                                                             

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APPLERA
  CORPORATIONNOTES
  TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

|Condensed Consolidating Statement of Cash Flows for the Nine Months Ended March 31, 2004 |  |   |                        |   |   |                     |  
|---------------------------------------------------------------------------------------- |  | - | ---------------------- | - | - | ------------------- | -
|                                                                                         |  |   |                        |   |   |                     |  
|(Dollar amounts in thousands)                                                            |  |   | AppliedBiosystemsGroup |   |   | CeleraGenomicsGroup |  
|                                                                                         |  |   |                        |   |   |                     |  
|Operating Activities                                                                     |  |   |                        |   |   |                     |  
|Net income (loss)                                                                        |  | $ | 131,817                |   | $ | (51,700             | )
|Adjustments to reconcile net income (loss) to net cash                                   |  |   |                        |   |   |                     |  
|provided (used) by operating activities:                                                 |  |   |                        |   |   |                     |  
|Depreciation and amortization                                                            |  |   | 74,262                 |   |   | 16,458              |  
|Provisions for severance and related costs                                               |  |   | 4,843                  |   |   |                     |  
|Long-term compensation programs                                                          |  |   | 2,348                  |   |   | 699                 |  
|(Gain) loss from investments and sale of assets, net                                     |  |   | (11,356                | ) |   | 750                 |  
|Deferred income taxes                                                                    |  |   | (25,606                | ) |   | 2,492               |  
|Loss from joint venture and equity method investees                                      |  |   |                        |   |   | 33,683              |  
|Nonreimbursable utilization of intergroup tax benefits                                   |  |   | 25,990                 |   |   | (25,990             | )
|Changes in operating assets and liabilities:                                             |  |   |                        |   |   |                     |  
|Accounts receivable                                                                      |  |   | 64,866                 |   |   | 13,870              |  
|Inventories                                                                              |  |   | (1,281                 | ) |   | 497                 |  
|Prepaid expenses and other assets                                                        |  |   | (1,695                 | ) |   | 770                 |  
|Accounts payable and other liabilities                                                   |  |   | (57,786                | ) |   | (28,433             | )
|                                                                                         |  |   |                        |   |   |                     |  
|Net Cash Provided (Used) by Operating Activities                                         |  |   | 206,402                |   |   | (36,904             | )
|                                                                                         |  |   |                        |   |   |                     |  
|Investing Activities                                                                     |  |   |                        |   |   |                     |  
|Additions to property, plant and equipment, net                                          |  |   | (46,184                | ) |   | (3,839              | )
|Proceeds from short-term investments, net                                                |  |   |                        |   |   | 71,949              |  
|Investments in joint venture and other, net                                              |  |   | (5,403                 | ) |   | (32,760             | )
|Proceeds from the sale of assets, net                                                    |  |   | 28,417                 |   |   | 859                 |  
|                                                                                         |  |   |                        |   |   |                     |  
|Net Cash Provided (Used) by Investing Activities                                         |  |   | (23,170                | ) |   | 36,209              |  
|                                                                                         |  |   |                        |   |   |                     |  
|Net Cash Used by Operating Activities of Discontinued Operations                         |  |   | (195                   | ) |   |                     |  
|                                                                                         |  |   |                        |   |   |                     |  
|Financing Activities                                                                     |  |   |                        |   |   |                     |  
|Principal payments on debt                                                               |  |   |                        |   |   | (10,000             | )
|Dividends                                                                                |  |   | (35,107                | ) |   |                     |  
|Net cash funding from groups                                                             |  |   |                        |   |   |                     |  
|Purchases of common stock for treasury                                                   |  |   | (199,999               | ) |   |                     |  
|Proceeds
    from stock issued for stock plans                                           |  |   | 17,965                 |   |   | 4,458               |  
|                                                                                         |  |   |                        |   |   |                     |  
|Net Cash Provided (Used) by Financing Activities                                         |  |   | (217,141               | ) |   | (5,542              | )
|                                                                                         |  |   |                        |   |   |                     |  
|Effect of Exchange Rate Changes on Cash                                                  |  |   | 17,367                 |   |   |                     |  
|                                                                                         |  |   |                        |   |   |                     |  
|Net Change in Cash and Cash Equivalents                                                  |  |   | (16,737                | ) |   | (6,237              | )
|Cash and Cash Equivalents Beginning of Period                                            |  |   | 601,666                |   |   | 52,617              |  
|                                                                                         |  |   |                        |   |   |                     |  
|Cash and Cash Equivalents End of Period                                                  |  | $ | 584,929                |   | $ | 46,380              |  
|                                                                                         |  |   |                        |   |   |                     |  

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APPLERA
  CORPORATIONNOTES
  TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

|Condensed
        Consolidating Statement of Operations for the Three Months Ended March
    31, 2003 |  |   |                        |   |   |                     |  
|----------------------------------------------------------------------------------------------------- |  | - | ---------------------- | - | - | ------------------- | -
|                                                                                                      |  |   |                        |   |   |                     |  
|(Dollar amounts in thousands)                                                                         |  |   | AppliedBiosystemsGroup |   |   | CeleraGenomicsGroup |  
|                                                                                                      |  |   |                        |   |   |                     |  
|                                                                                                      |  |   |                        |   |   |                     |  
|Net revenues from external customers                                                                  |  | $ | 407,107                |   | $ | 19,744              |  
|Intersegment revenues                                                                                 |  |   | 2,330                  |   |   | 509                 |  
|                                                                                                      |  |   |                        |   |   |                     |  
|Net Revenues                                                                                          |  |   | 409,437                |   |   | 20,253              |  
|Cost of sales                                                                                         |  |   | 202,340                |   |   | 2,950               |  
|                                                                                                      |  |   |                        |   |   |                     |  
|Gross Margin                                                                                          |  |   | 207,097                |   |   | 17,303              |  
|Selling, general and administrative                                                                   |  |   | 84,702                 |   |   | 6,389               |  
|Corporate allocated expenses                                                                          |  |   | 9,807                  |   |   | 1,563               |  
|Research, development and engineering                                                                 |  |   | 59,973                 |   |   | 26,923              |  
|Amortization of intangible assets                                                                     |  |   |                        |   |   | 725                 |  
|                                                                                                      |  |   |                        |   |   |                     |  
|Operating Income (Loss)                                                                               |  |   | 52,615                 |   |   | (18,297             | )
|Loss on investments, net                                                                              |  |   | (2,086                 | ) |   | (61                 | )
|Interest income, net                                                                                  |  |   | 3,111                  |   |   | 3,834               |  
|Other income (expense), net                                                                           |  |   | 1,323                  |   |   | (14,715             | )
|Loss from joint venture                                                                               |  |   |                        |   |   | (12,614             | )
|                                                                                                      |  |   |                        |   |   |                     |  
|Income (Loss) before Income Taxes                                                                     |  |   | 54,963                 |   |   | (41,853             | )
|Provision (benefit) for income taxes                                                                  |  |   | 14,840                 |   |   | (15,110             | )
|                                                                                                      |  |   |                        |   |   |                     |  
|Net Income (Loss)                                                                                     |  | $ | 40,123                 |   | $ | (26,743             | )
|                                                                                                      |  |   |                        |   |   |                     |  

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APPLERA
  CORPORATIONNOTES
  TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

|Condensed
        Consolidating Statement of Operations for the Nine Months Ended March
    31, 2003 |  |   |                        |  
|---------------------------------------------------------------------------------------------------- |  | - | ---------------------- | -
|                                                                                                     |  |   |                        |  
|(Dollar amounts in thousands)                                                                        |  |   | AppliedBiosystemsGroup |  
|                                                                                                     |  |   |                        |  
|Net revenues from external customers                                                                 |  | $ | 1,244,060              |  
|Intersegment revenues                                                                                |  |   | 5,960                  |  
|                                                                                                     |  |   |                        |  
|Net Revenues                                                                                         |  |   | 1,250,020              |  
|Cost of sales                                                                                        |  |   | 621,376                |  
|                                                                                                     |  |   |                        |  
|Gross Margin                                                                                         |  |   | 628,644                |  
|Selling, general and administrative                                                                  |  |   | 263,157                |  
|Corporate allocated expenses                                                                         |  |   | 31,172                 |  
|Research, development and engineering                                                                |  |   | 180,178                |  
|Amortization of intangible assets                                                                    |  |   |                        |  
|Other special charges                                                                                |  |   | 24,313                 |  
|                                                                                                     |  |   |                        |  
|Operating Income (Loss)                                                                              |  |   | 129,824                |  
|Loss on investments, net                                                                             |  |   | (2,086                 | )
|Interest income, net                                                                                 |  |   | 9,259                  |  
|Other income (expense), net                                                                          |  |   | 4,828                  |  
|Loss from joint venture                                                                              |  |   |                        |  
|                                                                                                     |  |   |                        |  
|Income (Loss) before Income Taxes                                                                    |  |   | 141,825                |  
|Provision (benefit) for income taxes                                                                 |  |   | 38,293                 |  
|                                                                                                     |  |   |                        |  
|Income (Loss) from Continuing Operations                                                             |  |   | 103,532                |  
|Loss from discontinued operations,net of income taxes                                                |  |   | (16,400                | )
|                                                                                                     |  |   |                        |  
|Net Income (Loss)                                                                                    |  | $ | 87,132                 |  
|                                                                                                     |  |   |                        |  

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APPLERA CORPORATIONNOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIALSTATEMENTS
continued

|Condensed
            Consolidating Statement of Financial Position at June 30, 2003
|------------------------------------------------------------------------------------
|                                                                                    

|                                               |  |   | Applied    |  |   | Celera    |  |   |             |  |              |         |              |   |           | 
|---------------------------------------------- |  | - | ---------- |  | - | --------- |  | - | ----------- |  | ------------ | ------- | ------------ | - | --------- | 
|                                               |  |   | Biosystems |  |   | Genomics  |  |   | Celera      |  |              |         |              |   |           | 
|(Dollar amounts in thousands)                  |  |   | Group      |  |   | Group     |  |   | Diagnostics |  | Eliminations |         | Consolidated |  
|                                               |  |   |            |  |   |           |  |   |             |  |              |         |              |   |           | 
|Assets                                         |  |   |            |  |   |           |  |   |             |  |              |         |              |   |           | 
|Current assets                                 |  |   |            |  |   |           |  |   |             |  |              |         |              |   |           | 
|Cash and cash equivalents                      |  | $ | 601,666    |  | $ | 52,617    |  | $ |            |  | $            |        |              | $ | 654,283   | 
|Short-term investments                         |  |   |            |  |   | 749,785   |  |   |             |  |              |         |              |   | 749,785   | 
|Accounts receivable, net                       |  |   | 404,928    |  |   | 16,708    |  |   | 5,103       |  |              | (3,190  | )            |   | 423,549   | 
|Inventories, net                               |  |   | 140,833    |  |   | 2,526     |  |   | 8,840       |  |              | (139    | )            |   | 152,060   | 
|Prepaid expenses and other current assets      |  |   | 84,393     |  |   | 10,510    |  |   | 686         |  |              | (1,883  | )            |   | 93,706    | 
|                                               |  |   |            |  |   |           |  |   |             |  |              |         |              |   |           | 
|Total current assets                           |  |   | 1,231,820  |  |   | 832,146   |  |   | 14,629      |  |              | (5,212  | )            |   | 2,073,383 | 
|Property, plant and equipment, net             |  |   | 409,626    |  |   | 104,742   |  |   | 12,574      |  |              | (351    | )            |   | 526,591   | 
|Other long-term assets                         |  |   | 485,269    |  |   | 185,178   |  |   | 8,699       |  |              | (21,628 | )            |   | 657,518   | 
|                                               |  |   |            |  |   |           |  |   |             |  |              |         |              |   |           | 
|Total
    Assets                               |  | $ | 2,126,715  |  | $ | 1,122,066 |  | $ | 35,902      |  | $            | (27,191 | )            | $ | 3,257,492 | 
|                                               |  |   |            |  |   |           |  |   |             |  |              |         |              |   |           | 
|                                               |  |   |            |  |   |           |  |   |             |  |              |         |              |   |           | 
|Liabilities
    and Stockholders Equity       |  |   |            |  |   |           |  |   |             |  |              |         |              |   |           | 
|Current liabilities                            |  |   |            |  |   |           |  |   |             |  |              |         |              |   |           | 
|Accounts payable                               |  | $ | 153,124    |  | $ | 10,241    |  | $ | 7,651       |  | $            | (4,697  | )            | $ | 166,319   | 
|Accrued salaries and wages                     |  |   | 63,859     |  |   | 11,886    |  |   | 3,878       |  |              |         |              |   | 79,623    | 
|Accrued taxes on income                        |  |   | 73,611     |  |   | 12,332    |  |   |             |  |              |         |              |   | 85,943    | 
|Other accrued expenses                         |  |   | 232,674    |  |   | 46,907    |  |   | 2,230       |  |              | (376    | )            |   | 281,435   | 
|                                               |  |   |            |  |   |           |  |   |             |  |              |         |              |   |           | 
|Total current liabilities                      |  |   | 523,268    |  |   | 81,366    |  |   | 13,759      |  |              | (5,073  | )            |   | 613,320   | 
|Long-term debt                                 |  |   |            |  |   | 17,101    |  |   |             |  |              |         |              |   | 17,101    | 
|Other long-term liabilities                    |  |   | 265,274    |  |   | 21,373    |  |   | 139         |  |              |         |              |   | 286,786   | 
|                                               |  |   |            |  |   |           |  |   |             |  |              |         |              |   |           | 
|Total
    Liabilities                          |  |   | 788,542    |  |   | 119,840   |  |   | 13,898      |  |              | (5,073  | )            |   | 917,207   | 
|                                               |  |   |            |  |   |           |  |   |             |  |              |         |              |   |           | 
|                                               |  |   |            |  |   |           |  |   |             |  |              |         |              |   |           | 
|Total
    Stockholders Equity                 |  |   | 1,338,173  |  |   | 1,002,226 |  |   | 22,004      |  |              | (22,118 | )            |   | 2,340,285 | 
|                                               |  |   |            |  |   |           |  |   |             |  |              |         |              |   |           | 
|Total
    Liabilities and Stockholders Equity |  | $ | 2,126,715  |  | $ | 1,122,066 |  | $ | 35,902      |  | $            | (27,191 | )            | $ | 3,257,492 | 
|                                               |  |   |            |  |   |           |  |   |             |  |              |         |              |   |           | 

26

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APPLERA CORPORATIONNOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

|Condensed
            Consolidating Statement of Cash Flows for the Nine Months Ended March
            31, 2003
|----------------------------------------------------------------------------------------------------------------
|                                                                                                                

|                                                                              |  |   | Applied    |   |   | Celera   |   |   |             |   |   |              |   |   |              |  
|----------------------------------------------------------------------------- |  | - | ---------- | - | - | -------- | - | - | ----------- | - | - | ------------ | - | - | ------------ | -
|                                                                              |  |   | Biosystems |   |   | Genomics |   |   | Celera      |   |   |              |   |   |              |  
|(Dollar amounts in thousands)                                                 |  |   | Group      |   |   | Group    |   |   | Diagnostics |   |   | Eliminations |   |   | Consolidated |  
|                                                                              |  |   |            |   |   |          |   |   |             |   |   |              |   |   |              |  
|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      |  
|                                                                              |  |   |            |   |   |          |   |   |             |   |   |              |   |   |              |  

27

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

APPLERA CORPORATIONMANAGEMENTS
  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
OF OPERATIONS

The purpose of the following managements discussion and analysis is to
provide an overview of the business of Applera Corporation to help facilitate
an understanding of significant factors influencing our historical operating
results, financial condition, and cash flows and also to convey our expectations
of the potential impact of known trends, events, or uncertainties that may impact
our future results. You should read this discussion in conjunction with our consolidated
financial statements and related notes included in this report and in our 2003
Annual Report to Stockholders. Historical results and percentage relationships
are not necessarily indicative of operating results for future periods. When
used in the management discussion and analysis, the terms Applera,Company, we, us, or our mean
Applera Corporation and its subsidiaries.

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

The Applied Biosystems group serves the life science industry and research community
by developing and marketing instrument-based systems, consumables, software,
and services. Customers use these 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 SystemTMonline platform, marketed exclusively by the Applied
Biosystems group, is an integrated source of information based on the human genome
and other biological and medical sources.

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

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

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

28

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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.

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

Our fiscal year ends on June 30. The financial information for each segment is presented in Note 12 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 business developments have occurred since the beginning of fiscal 2004:

|Applied
    Biosystems Group
|----------------------------
|                            
|                           
|                            
|                           
|                            
|                           
|                            
|                           
|                            
|                           
|                            
|                           
|                            
|                           
|                            

29

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

|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                         | In April
        2004, the Applied Biosystems group announced the commercial availability
        of the Applied Biosystems Expression Array System. The product combines
        highly sensitive gene detection capabilities with easy integration to
        the Applied Biosystems groups complementary gene expression products.
        Together, these systems provide a comprehensive and streamlined solution
    for studies of human gene expression.                                                                                                                                                                                                                                                                          
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                         | On April
        19, 2004, the Applied Biosystems group announced a favorable decision
        in a patent infringement lawsuit brought by Applera Corporation and Roche
        Molecular Systems, Inc. against MJ Research, Inc. and its principals.
        Damages were awarded in the amount of $19.8 million to the Applied Biosystems
        group and Roche Molecular Systems. The Applied Biosystems group intends
        to seek, with Roche Molecular Systems, an enhancement of damages, and
        an injunction
        against MJ Research. MJ Research filed for bankruptcy court protection
        in March 2004. Please refer to Note 11 to our condensed consolidated
    financial statements for more information.
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Celera
    Genomics Group
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                         | The Celera
        Genomics groups scientists have advanced several small molecule
        therapeutic programs, including its histone deacetylaste (HDAC) program
        for cancer and its Factor VIIa anticoagulation program. Compounds for
    further preclinical evaluation have been identified.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                         | The Celera
        Genomics groups scientists
        are completing validation studies involving 14 potential pancreatic cancer
        targets. They have selected over 30 additional differentially expressed
        proteins for validation, including their first potential targets related
    to lung and colon cancer.                                                                                                                                                                                                                                                                                                                                                                                                           
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                         | In March
        2004, Paulette A. Dillon joined the Celera Genomics group as Chief Business
        Officer, responsible for leading strategic business and portfolio planning
    for the Company, as well as business development activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Celera
    Diagnostics   
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                         | In September
        2003, Celera Diagnostics announced the discovery of several novel genetic
        markers associated with an increased risk for myocardial infarction,
        or heart attack. In March 2004, Celera Diagnostics reported the discovery
        of novel markers in four genes associated with risk for myocardial infarction,
        none of which were in a previously recognized disease pathway associated
    with myocardial infarction risk.                                                                                                                                                                                                                                                                 
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                         | In October
        2003, Celera Diagnostics announced a research collaboration with Merck & Co.
        to identify and validate genetic markers useful in the development of
    prognostic tests and therapeutics for selected cancers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                         | During
        the second quarter of fiscal 2004, Celera Diagnostics and its collaborators
        presented selected results from three genomic studies, including findings
        regarding risk of distant metastasis in breast cancer, interferon responsiveness
    in hepatitis C patients, and Alzheimers disease.                                                                                                                                                                                                                                                                                                                                                                                                                
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                         | In February
        2004, Celera Diagnostics announced that it obtained special 510(k) clearance
        from the U.S. Food and Drug Administration for expanded claims related
        to its ViroSeq HIV-1 Genotyping System, a molecular diagnostic
        test designed to detect mutations associated with drug resistance in
    HIV-1, the virus that causes AIDS.                                                                                                                                                                                                                                                                                                                                                                
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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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 2003 Annual Report to Stockholders (which discussion
is incorporated in this quarterly report by reference).

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

Other Special ChargesFiscal 2004During
the third quarter of fiscal 2004, the Applied Biosystems group recorded pre-tax
charges of $6.3 million in other special charges for the termination of approximately
110 employees, mainly in the U.S. The savings resulting from this action are
expected to be used to support the businesses that are driving the groups revenue
growth, including through the hiring of additional appropriately-skilled employees.
As of March 31, 2004, the affected employees had been notified and the majority
are expected to be terminated by the end of fiscal 2004. As of March 31, 2004,
we had made $0.8 million of cash payments. The remaining cash expenditures are
expected to be substantially completed by the end of fiscal 2004, and will be
funded primarily by cash provided by operating activities.

Fiscal 2003During
the second quarter of fiscal 2003, the Applied Biosystems group recorded pre-tax
charges totaling $33.8 million associated with the termination of approximately
400 employees, mainly in the U.S. and Europe, impairment of assets, and office
closures. The $33.8 million charge consisted of $24.3 million recorded in other
special charges and $9.5 million for the impairment of assets recorded in cost
of sales. Positions eliminated were primarily within the areas of research, manufacturing,
sales, marketing and administration. The Applied Biosystems group recorded pre-tax
benefits of $4.3 million in the fourth quarter of fiscal 2003 and $0.6 million
in the second quarter of fiscal 2004 for reductions in anticipated employee-related
costs associated with this program. The following table details the major components
of the special charges:

|(Dollar
    amounts in millions) |  | Employee-
Related 
Charges |      |  | Asset
    Impairment |     |  | Office
    Closures |     |  | Total |     
|-------------------------------- |  | -------------------------- | ---- |  | -------------------- | --- |  | ------------------- | --- |  | ----- | ----
|                                 |  |                            |      |  |                      |     |  |                     |     |  |      
|Total charges                    |  | $                          | 22.9 |  | $                    | 9.5 |  | $                   | 1.4 |  | $     | 33.8
|Cash payments                    |  |                            | 17.2 |  |                      |     |  |                     | 0.6 |  |       | 17.8
|Non-cash charges                 |  |                            |      |  |                      | 9.5 |  |                     | 0.5 |  |       | 10.0
|Reduction of expected costs      |  |                            | 4.9  |  |                      |     |  |                     |     |  |       | 4.9 
|                                 |  |                            |      |  |                      |     |  |                     |     |  |       |     
|Balance at March 31, 2004        |  | $                          | 0.8  |  | $                    |    |  | $                   | 0.3 |  | $     | 1.1 
|                                 |  |                            |      |  |                      |     |  |                     |     |  |       |     
|                                 |  |                            |      |  |                      |     |  |                     |     |  |       |     

31

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

The termination of the employees and the cash payments relating to the workforce reductions and office closures were substantially completed by December 31, 2003. These payments were funded primarily by cash provided by operating activities.

Investments Fiscal 2004 The Applied Biosystems
  group recorded before tax gains of $3.6 million in the third quarter of fiscal
  2004 and $11.2 million in the first nine months of fiscal 2004 related primarily
  to the sales of minority equity investments. These investment sales resulted
  from managements decision to liquidate non-strategic investments.

Fiscal 2003 In the third quarter
  of fiscal 2003, the Celera Genomics group recognized a non-cash charge of $15.1
  million in other income (expense), net representing its share of an impairment
  charge recorded by Discovery Partners International, Inc. (DPI).
  Our investment in DPI common stock, which resulted from our fiscal 2002 acquisition
  of Axys Pharmaceuticals, Inc., 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.

Other
  Events Impacting Comparability In March 2004, the Applied
  Biosystems group and MDS Inc., through the Applied Biosystems/MDS Sciex Instruments
  joint venture, received a payment of $18.1 million from Waters Technologies
  Corporation in connection with the resolution of patent infringement claims
  between the parties. The Applied Biosystems group recorded a net gain of $6.7
  million in other income (expense), net, from legal settlements, including the
  settlement between the Applied Biosystems/MDS Sciex Instruments joint venture
  and Waters Technologies Corporation.

Acquired In-Process
  Research and Development During fiscal 2002, we
  acquired Axys and recorded a charge to write off the value of acquired in-process
  research and development (IPR&D). The following is an update
  on the status of the acquired projects.

Proprietary projects During the third quarter
  of fiscal 2004, we continued to pursue all acquired projects that were active
  as of June 30, 2003, and we expect to move our programs forward as appropriate
  toward clinical trials.

Partnered projects The Celera Genomics group
  has previously stated that a partnered compound could enter clinical trials
  during fiscal 2004. While existing partnered programs could lead to clinical
  trials in the future, the initiation of such trials now appears unlikely during
  fiscal 2004. The Celera Genomics groups partners will make clinical development
  decisions with respect to partnered compounds.

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

Please refer
  to the events impacting comparability section contained in the managements
  discussion and analysis and Note 2 to our consolidated financial statements
  in our 2003 Annual Report to Stockholders for more information on the IPR&D.

Discussion of
  Consolidated Operations

|                                           | Three
         Months Ended |       | Nine
      Months Ended |  
|------------------------------------------ | --------------------------- | ----- | ----------------------- | -
|                                           | March
      31,             |       | March
      31,         |  
|                                           |                             |       |                         |  
|                                           |                             |       |                         |  
|(Dollar
      amounts in millions)         |                             | 2003  |                         |  
|                                           |                             |       |                         |  
|Net revenues                               | $                           | 431.0 |                         | $
|Cost of
      sales                        |                             | 206.1 |                         |  
|                                           |                             |       |                         |  
|Gross margin                               |                             | 224.9 |                         |  
|SG&A
      expenses                        |                             | 105.3 |                         |  
|R&D                                        |                             | 97.0  |                         |  
|Amortization
      of intangible assets    |                             | 0.7   |                         |  
|Other special
      charges                |                             |       |                         |  
|                                           |                             |       |                         |  
|Operating
      income                     |                             | 21.9  |                         |  
|Gain (loss)
      on investments, net      |                             | (2.2  | )                       |  
|Interest
      income, net                 |                             | 6.9   |                         |  
|Other income
      (expense), net          |                             | (13.3 | )                       |  
|                                           |                             |       |                         |  
|Income before
      income taxes           |                             | 13.3  |                         |  
|Provision
      (benefit) for income taxes |                             | (0.3  | )                       |  
|                                           |                             |       |                         |  
|Income from
      continuing operations    | $                           | 13.6  |                         | $
|                                           |                             |       |                         |  
|Percentage
      of net revenues:          |                             |       |                         |  
|Gross
      margin                         |                             | 52.2% |                         |  
|SG&A
      expenses                        |                             | 24.4% |                         |  
|R&D                                        |                             | 22.5% |                         |  
|Operating
      income                     |                             | 5.1%  |                         |  
|                                           |                             |       |                         |  
|Effective
      income tax (benefit) rate  |                             | (2%   | )                       |  
|                                           |                             |       |                         |  

As previously
  described in events impacting comparability, fiscal 2004 and 2003 results were
  impacted by the following items:

| | $15.1
        million pre-tax charge included in the loss from the Celera Genomics groups
        equity interest in DPI in the third quarter of fiscal 2003. This amount
        was recorded in other income (expense), net;                      
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | $33.8 million
      charge, including $9.5 million recorded in cost of sales, at the Applied
      Biosystems group for cost reductions including severance, asset impairments,
      and other special charges in the second quarter of fiscal 2003;
| | $6.3 million
      charge at the Applied Biosystems group for severance and related costs in
      the third quarter of fiscal 2004;                                                                                                                 
| | $6.7 million
      net gain from legal settlements, including the settlement between the Applied
      Biosystems/MDS Sciex Instruments joint venture and Waters Technologies Corporation,
      in the third quarter of fiscal 2004;                
| | $0.6 million
      reduction in the second quarter of fiscal 2004 of severance costs at the
      Applied Biosystems group previously recorded in the second quarter of fiscal
      2003; and                                                       
| | $3.6 million
      for the third quarter and $11.2 million for the first nine months of fiscal
      2004 of gains relating to investments at the Applied Biosystems group.                                                                          

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

The total tax benefit recorded
    on the fiscal 2003 charges was $16.8 million. The total tax expense recorded
    was $1.3 million on the third quarter fiscal 2004 net gain and $4.2 million
    on the nine-month fiscal 2004 net gain.

The net effect of foreign
    currency on income from continuing operations was a benefit of approximately
    $3 million during the third quarter of fiscal 2004 and a benefit of approximately
    $7 million during the first nine months of fiscal 2004. Please refer to the
    discussion on pages 37 to 47 of this quarterly report for further information
    on the financial results of our segments.

The favorable
effects of foreign currency increased net revenues by approximately 3% during
the third quarter of fiscal 2004. Revenues increased at the Applied Biosystems
group, driven by strength in both the Sequence Detection Systems (SDS)/Other
Applied Genomics and Mass Spectrometry product categories, partially offset by
lower revenues in the DNA Sequencing and Other Product Lines product categories.
The increase in revenues in the SDS/Other Applied Genomics product category was
driven by the strength of TaqMan® consumables sales and to a lesser degree,
instrument sales. Sales of the Applied Biosystems groups products for human
identification in the applied markets were strong and have become a significant
contributor to the overall growth of the SDS/Other Applied Genomics product category.
In Mass Spectrometry, the revenue increase was primarily driven by the strength
of sales of the 4000 Q TRAP® LC/MS/MS System. Sales of DNA Sequencing instruments
declined, primarily as a result of more modest sales of the Applied Biosystems
3730xlDNA
Analyzer to large-scale genome centers, more than offsetting an increase in sales
of DNA Sequencing consumables. Net revenues decreased at the Celera Genomics
group, primarily as a result of the continuing expiration of Online/Information
Business customer agreements.

The favorable effects of foreign currency increased net revenues by approximately 2% during the first nine months of fiscal 2004. As a result, net revenues for the first nine months of fiscal 2004 were relatively flat compared with the prior year period. Revenues increased slightly at the Applied Biosystems group, due primarily to strength in the SDS/Other Applied Genomics and Mass Spectrometry product categories, partially offset by lower sequencing-related revenues. Net revenues decreased at the Celera Genomics group, primarily as a result of the continuing expiration of Online/Information Business customer agreements.

The higher gross margin percentage for both the third quarter and first nine months of fiscal 2004 compared to fiscal 2003 was due primarily to a shift in product mix, operational efficiencies, and the favorable effects of foreign currency at the Applied Biosystems group. In addition, for the nine months of fiscal 2003, gross margin was lower due to the asset impairment charges recorded in the second quarter of fiscal 2003 at the Applied Biosystems group. This increase was partially offset by lower revenues in fiscal 2004 at the Celera Genomics group.

SG&A expenses,
  as a percentage of net revenues, increased in both the third quarter and the
  nine-month periods of fiscal 2004 primarily due to: higher litigation-related
  legal fees; the unfavorable effects of foreign currency; increased spending
  on the development of, and enhancements to, the Applied Biosystems myScienceSMvirtual research community and e-commerce website (collectively known as the
  Applied Biosystems Portal); and increased insurance and pension costs. In addition,
  the increase
  in the nine-month period was partially offset by the reduction in personnel
  at the Applied Biosystems group announced in December 2002.

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APPLERA CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
OF OPERATIONS
continued

R&D expenses decreased for both the third quarter and nine-month periods
of fiscal 2004 compared to the same periods last year primarily due to the completion
of the funding for the Applera Genomics Initiative, the costs of which were shared
among our three businesses, reduction in personnel at the Applied Biosystems
group in fiscal 2003, cost reductions in the Online/Information Business, and
the elimination of non-strategic activities at the Celera Genomics group. This
decrease was partially offset by support for new product introductions at the
Applied Biosystems group, increased expenditures to support preclinical development
activities and the hiring of additional therapeutic R&D personnel at the
Celera Genomics group, and increased spending for discovery programs and product
development at Celera Diagnostics.

Interest income, net decreased during the third quarter and first nine months
of fiscal 2004 compared to the prior year periods primarily due to lower average
interest rates, partially offset by slightly higher average cash and cash equivalents
and short-term investments.

Other income (expense), net changed for both the third quarter and nine-month
periods in comparison to the prior year periods primarily due to the net gain
of $6.7 million recorded in fiscal 2004 from legal settlements, including the
settlement between the Applied Biosystems/MDS Sciex Instruments joint venture
and Waters Technologies Corporation, and the loss for the DPI equity method investment
recorded in fiscal 2003, which included our share of the impairment charge previously
described.

The change in the effective tax rate for both the third quarter and nine-month
periods of 2004 was primarily due to the previously discussed special charges
recorded in fiscal 2003 and 2004,
as well as changes in forecasted R&D credits.

Applera CorporationDiscussion
of Condensed Consolidated Financial Resources and Liquidity

We had cash and cash equivalents and short-term investments of $1.3 billion at
March 31, 2004 and $1.4 billion at June 30, 2003. 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, 2004. Cash provided by operating
activities has been our primary source of funds over the last fiscal year.

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

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APPLERA CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
OF OPERATIONS
continued

|                                    |   | June 30, |   | March
    31, |         |   |  | 
|----------------------------------- | - | -------- | - | ------------- | ------- | - |  | 
|(Dollar amounts in millions)        |   | 2003     |   | 2004          |         |   |  | 
|                                    |   |          |   |               |         |   |  | 
|Cash and cash equivalents           | $ | 654.3    |   | $             | 631.3   |   |  | 
|Short-term investments              |   | 749.8    |   |               | 692.4   |   |  | 
|                                    |   |          |   |               |         |   |  | 
|Total cash and cash equivalents and |   |          |   |               |         |   |  | 
|short-term investments              | $ | 1,404.1  |   | $             | 1,323.7 |   |  | 
|Total debt                          |   | 17.1     |   |               | 6.2     |   |  | 
|Working capital                     |   | 1,460.1  |   |               | 1,393.0 |   |  | 
|Debt to total capitalization        |   | 0.7      | % |               | 0.3     | % |  | 
|                                    |   |          |   |               |         |   |  | 

Cash and cash equivalents decreased during the first nine months of fiscal 2004
from June 30, 2003 as the amount expended on the purchase of capital and other
assets, repayment of debt, payment of dividends, and the repurchase of 8.9 million
shares of Applera-Applied Biosystems stock for $200.0 million exceeded the cash
generated from operating activities, proceeds from the sales and maturities of
short-term investments, sales of assets and proceeds from stock issuances, and
the favorable impact of the exchange rate valuation on our cash and cash equivalents.
Net cash flows of continuing operations for the nine months ended March 31 were
as follows:

|(Dollar amounts in millions)            |   | 2003  |   |   | 2004   |   |  |  | 
|--------------------------------------- | - | ----- | - | - | ------ | - |  |  | 
|                                        |   |       |   |   |        |   |  |  | 
|Net cash from operating activities      | $ | 113.0 |   | $ | 133.2  |   |  |  | 
|Net cash from investing activities      |   | (32.9 | ) |   | 49.3   |   |  |  | 
|Net cash from financing activities      |   | (19.3 | ) |   | (222.7 | ) |  |  | 
|Effect of exchange rate changes on cash |   | 13.7  |   |   | 17.4   |   |  |  | 
|                                        |   |       |   |   |        |   |  |  | 

Operating activities:The
increase in net cash from operating activities of continuing operations for the
first nine months of fiscal 2004 compared to the first nine months of fiscal
2003 resulted primarily from: strong working capital management, including improved
accounts receivable collections in fiscal 2004; the timing of the receipt of
dividends and distributions from investments in unconsolidated subsidiaries at
the Applied Biosystems group; and lower tax and severance and related benefits
payments at the Applied Biosystems group in fiscal 2004. This increase was partially
offset by the funding of our U.S. pension plan of approximately $28 million in
fiscal 2004, the timing of royalty and vendor payments at the Applied Biosystems
group, and lower cash receipts in fiscal 2004 due to the continuing expiration
of Online/Information Business customer agreements at the Celera Genomics group.

Investing activities:Capital
expenditures, net of disposals, were $58.0 million less than in the prior fiscal
year period primarily due to lower expenditures for the Applied Biosystems groups
Pleasanton, California facility. During the first nine months of fiscal 2004,
proceeds generated from sales and maturities of short-term investments were $14.8
million lower than in the prior year period. Proceeds from the sale of assets,
which consisted primarily of minority equity investments, were $22.4 million
higher in fiscal 2004. Fiscal 2003 investing activities also included the purchase
of long-term investments to secure
the 8% senior secured convertible notes assumed in connection with the Axys acquisition
in fiscal 2002.

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APPLERA CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
OF OPERATIONS
continued

Financing activities:During the first nine months of fiscal 2004, we repurchased $10.0 million in principal amount of the outstanding 8% senior secured convertible notes assumed in connection with the Axys acquisition, that were scheduled to mature in October 2004. During the first nine months of fiscal 2004, we repurchased 8.9 million shares of Applera-Applied Biosystems stock for $200.0 million. During the first nine months of fiscal 2003, we repurchased 1.1 million shares of Applera-Applied Biosystems stock for $19.8 million. Proceeds received from employee stock option exercises during the first nine months of fiscal 2004 were $5.1 million less than in the prior fiscal year period.

Discussion of
  Segments Operations, Financial Resources and Liquidity

Applied Biosystems Group

|                                  | Three Months Ended |       | Nine Months Ended |  
|--------------------------------- | ------------------ | ----- | ----------------- | -
|                                  | March 31,          |       | March 31,         |  
|                                  |                    |       |                   |  
|                                  |                    |       |                   |  
|(Dollar amounts in millions)      |                    | 2003  |                   |  
|                                  |                   
|Net revenues                      | $                  | 409.4 |                   | $
|Cost of sales                     |                    | 202.3 |                   |  
|                                  |                   
|Gross margin                      |                    | 207.1 |                   |  
|SG&A
    expenses                 |                    | 94.5  |                   |  
|R&D                               |                    | 60.0  |                   |  
|Other special charges             |                    |       |                   |  
|                                  |                   
|Operating income                  |                    | 52.6  |                   |  
|Gain (loss) on investments, net   |                    | (2.1  | )                 |  
|Interest income, net              |                    | 3.1   |                   |  
|Other income (expense), net       |                    | 1.3   |                   |  
|                                  |                   
|Income before income taxes        |                    | 54.9  |                   |  
|Provision for income taxes        |                    | 14.8  |                   |  
|                                  |                   
|Income from continuing operations | $                  | 40.1  |                   | $
|                                  |                   
|Percentage of net revenues:       |                    |       |                   |  
|Gross margin                      |                    | 50.6% |                   |  
|SG&A
    expenses                 |                    | 23.1% |                   |  
|R&D                               |                    | 14.7% |                   |  
|Operating income                  |                    | 12.8% |                   |  
|                                  |                    |       |                   |  
|Effective income tax rate         |                    | 27%   |                   |  
|                                  |                   

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

As previously described in events impacting comparability, fiscal 2004 and 2003
results were impacted by the following items:

| | $33.8 million
        charge, including $9.5 million recorded in cost of sales, for cost reductions
        including severance, asset impairments, and other special charges in
      the second quarter of fiscal 2003;                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | $6.3 million
        charge for severance and related costs in the third quarter of fiscal
      2004;                                                                                                                                   
| | $6.7 million
        net gain from legal settlements, including the settlement between the
        Applied Biosystems/MDS Sciex Instruments joint venture and Waters Technologies
      Corporation, in the third quarter of fiscal 2004;
| | $0.6 million
        reduction in the second quarter of fiscal 2004 of severance costs previously
      recorded in the second quarter of fiscal 2003; and                                                                               
| | $3.6 million
        for the third quarter and $11.2 million for the first nine months of
      fiscal 2004 of gains relating to investments.                                                                                            

The total tax benefit recorded
    on the fiscal 2003 charges was $10.9 million. The total tax expense recorded
    was $1.3 million on the third quarter fiscal 2004
net gain and $4.2 million on the nine-month fiscal 2004 net gain.

The net effect of foreign currency on income from continuing operations was a
benefit of approximately $3 million during the third quarter of fiscal 2004 and
a benefit of approximately $7 million during the first nine months of fiscal
2004.

Revenues  overall
  summary

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

|                               | Three Months Ended |       | Nine Months Ended |  
|------------------------------ | ------------------ | ----- | ----------------- | -
|                               | March 31,          |       | March 31,         |  
|                               |                    |       |                   |  
|                               |                    |       |                   |  
|(Dollar amounts in millions)   |                    | 2003  |                   |  
|                               |                   
|DNA Sequencing                 | $                  | 143.6 |                   | $
|% of total revenues            |                    | 35%   |                   |  
|                               |                    |       |                   |  
|SDS/Other Applied Genomics(a)  |                    | 86.8  |                   |  
|% of total revenues            |                    | 21%   |                   |  
|                               |                    |       |                   |  
|Mass Spectrometry(b)           |                    | 93.3  |                   |  
|% of total revenues            |                    | 23%   |                   |  
|                               |                    |       |                   |  
|Core DNA Synthesis and PCR     |                    | 50.7  |                   |  
|% of total revenues            |                    | 12%   |                   |  
|                               |                    |       |                   |  
|Other Product Lines(a)
    (b) |                    | 35.0  |                   |  
|% of total revenues            |                    | 9%    |                   |  
|                               |                   
|Total                          | $                  | 409.4 |                   | $
|                               |                   

|    |                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | A reclassification of $0.2 million for the quarter ended March 31, 2003, and $0.4 million for the nine months ended March 31, 2003, was made from Other Product Lines to SDS/Other Applied Genomics.
|    |                                                                                                                                                                                                     
|(b) | A reclassification of $1.8 million for the quarter ended March 31, 2003, and $3.7 million for the nine months ended March 31, 2003, was made from Other Product Lines to Mass Spectrometry.         

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

The favorable effects
of foreign currency increased net revenues by approximately 3% during the third
quarter of fiscal 2004. Revenue growth in the quarter was driven by strength
in both the SDS/Other Applied Genomics and Mass Spectrometry product categories.
Revenues in the SDS/Other Applied Genomics product category increased, driven
by the strength of TaqMan® consumables sales and, to a lesser
degree, instrument sales. Sales of our products for human identification in the
applied
markets
were strong and have become a significant contributor to the overall growth of
the SDS/Other Applied Genomics product category. In Mass Spectrometry, the revenue
increase was driven by the strength of sales of the 4000 Q TRAP® LC/MS/MS
System. The Applied Biosystems/MDS Sciex Instruments joint venture ramped-up
manufacturing capacity for the 4000 Q TRAP System during the third quarter of
fiscal 2004. As a result, the Applied Biosystems group was able to reduce the
second quarter of fiscal 2004 backlog of orders for the system, fill a substantial
number of new orders during the third quarter of fiscal 2004, and finish the
third quarter with substantial backlog in place. DNA Sequencing revenues declined
as compared to the prior year quarter. Sales of DNA Sequencing instruments declined,
primarily as a result of more modest sales of the Applied Biosystems 3730xlDNA
Analyzer to large-scale genome centers, more than offsetting an increase in sales
of DNA Sequencing consumables.



The decrease in revenues from Other Product Lines for both the third quarter and first nine months of fiscal 2004 resulted primarily fromlower software sales, consulting revenues, and instrument sales compared with the prior year periods.

Revenues by geographic area

The following table sets
forth the Applied Biosystems groups revenues by geographic area for the
third quarter and nine months ended March 31:

|                                | Three Months Ended |       | Nine Months Ended |  
|------------------------------- | ------------------ | ----- | ----------------- | -
|                                | March 31,          |       | March 31,         |  
|                                |                    |       |                   |  
|                                |                    |       |                   |  
|(Dollar amounts in millions)    |                    | 2003  |                   |  
|                                |                   
|United States                   | $                  | 187.0 |                   | $
|Europe                          |                    | 113.4 |                   |  
|Asia Pacific                    |                    | 95.4  |                   |  
|Latin America and other markets |                    | 13.6  |                   |  
|                                |                   
|Total                           | $                  | 409.4 |                   | $
|                                |                   

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APPLERA CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
ANDRESULTS
OF OPERATIONS
continued

The effects of foreign currency increased revenues by approximately 7% in Europe
and 2% in Asia Pacific during the third quarter of fiscal 2004. Revenues in the
U.S. increased during the third quarter, as capital equipment spending by customers
that are funded
by the National Institutes of Health (NIH) improved late in the third
quarter of fiscal 2004. Revenues also increased in Europe, driven by sales of
the 4000 Q TRAP and SDS instruments and consumables. During the third quarter
of fiscal 2004, revenues from Japan declined 14% compared to the prior year quarter,
net of a positive impact from foreign currency of approximately 2%. This decline
primarily resulted from a disruption in customer purchasing patterns due to the
transition of our university customers to Independent Administrative Agency status.
Elsewhere in the Asia Pacific area, political uncertainties in Taiwan and South
Korea began to negatively impact the Applied Biosystems groups business.
In Hong Kong, a resolution to reduce university funding led to some reduction
in the Applied Biosystems groups customers life
science spending.

The effects of foreign currency increased revenues by approximately 6% in Europe and 2% in Asia Pacific during the first nine months of fiscal 2004. European revenues increased due primarily to sales of the 4000 Q TRAP and SDS instruments and consumables. European revenues were also impacted by an order from a large-scale genome center for a substantial number of 3730xlinstrument systems in fiscal 2003 that was not repeated in fiscal 2004.

|Revenue by sources           |   |                             |  |   |       |                            |                 | 
|---------------------------- | - | --------------------------- |  | - | ----- | -------------------------- | --------------- | 
|                             |   | Three Months EndedMarch 31, |  |   |       | Nine Months EndedMarch 31, |                 | 
|                             |   |                             |  |   |       |                            |                 | 
|                             |   |                             |  |   |       |                            | %
    Increase/ | 
|(Dollar amounts in millions) |   | 2003                        |  |   | 2004  |                            | (Decrease)      | 
|                             |   |                             |  |   |       |                            |                 | 
|Instruments                  | $ | 199.0                       |  | $ | 202.5 |                            | 1.8%            | 
|Consumables                  |   | 143.8                       |  |   | 167.2 |                            | 16.3%           | 
|Other sources                |   | 66.6                        |  |   | 69.9  |                            | 5.0%            | 
|                             |   |                             |  |   |       |                            |                 | 
|Total                        | $ | 409.4                       |  | $ | 439.6 |                            | 7.4%            | 
|                             |   |                             |  |   |       |                            |                 | 

InstrumentsFor
the third quarter of fiscal 2004, instrument revenues increased in both the Mass
Spectrometry product category and the SDS/Other Applied Genomics product category,
which more than offset the decline in both the DNA Sequencing and the Other Product
Lines product categories. Sales growth in Mass Spectrometry was driven by the
strength of sales of the 4000 Q TRAP® LC/MS/MS System. During the third quarter
of fiscal 2004, the SDS/Other Applied Genomics product line included sales of
the new 7300 and 7500 Real-Time PCR Systems. The decrease in sales in DNA Sequencing
resulted from a decline in sales of the Applied Biosystems 3730xlDNA Analyzer to large-scale genome centers.

For the first nine months of fiscal 2004, revenues from instrument sales decreased as sales of the Applied Biosystems 3730xlDNA Analyzer to large-scale genome centers declined, which more than offset growth in instrument sales in the Mass Spectrometry and SDS/Other Applied Genomics product categories.

ConsumablesFor
the third quarter and first nine months of fiscal 2004, consumables sales increased
primarily due to growth in sales of SDS/Other Applied Genomics consumables. Also,
for the third quarter of fiscal 2004, consumables sales increased due to growth
in DNA sequencing consumables. Sales growth in SDS/Other Applied Genomics consumables
was due in part to the increasing adoption of the Applied Biosystems Assays-on-DemandTM and
Assays-by-DesignSM products for gene expression and genotyping experiments
in both basic research and drug discovery and development, as well as growth
in sales of other SDS consumables, and human identification products used in
forensics.

40

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APPLERA CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
OF OPERATIONS continued

Other sourcesRevenues
from other sources, which included service and support, royalties, licenses,
and contract research, increased for the third quarter of fiscal 2004 primarily
due to an increase in service and support revenues. Revenues from other sources
increased for the fiscal year to date period primarily from higher service and
support revenues, partially offset by lower technology licensing fees.

Gross margin, as a percentage of net revenues, increased for both the third quarter
and nine-month periods over the prior year periods due primarily to a shift in
product mix, operational efficiencies, and the favorable effects of foreign currency.
In addition, for the nine months of fiscal 2003, gross margin was lower due to
the asset impairment charges recorded in the second quarter of fiscal 2003.

SG&A expenses, as a percentage of net revenues, increased over the third
quarter of fiscal 2003 due primarily to: increased litigation-related legal fees
of $9.1 million; the unfavorable effects of foreign currency of approximately
$4 million; increased spending on the development of, and enhancements to the
Applied Biosystems Portal; and increased insurance and pension costs. SG&A
expenses, as a percentage of net revenues, increased over the first nine months
of fiscal 2003 due primarily to: increased litigation-related legal fees of $17.6
million; the unfavorable effects of foreign currency of approximately $12 million;
increased spending on the development of, and enhancements to the Applied Biosystems
Portal; and increased insurance and pension costs. The increase in the first
nine months of fiscal 2004 was partially offset by the reduction in personnel
announced in December 2002. A significant portion of the Applied Biosystems groups
increased legal fees related to defending the Applied Biosystems groups
intellectual property assets.

R&D expenses decreased for both the third quarter and nine-month periods
of fiscal 2004 from the prior year periods. The decrease for the third quarter
resulted primarily from a reduction in personnel in fiscal 2003. The decrease
for the nine-month period resulted primarily from the completion of funding for
the Applera Genomics Initiative
and a reduction in personnel in fiscal 2003.

Other income (expense), net increased for both the third quarter and nine-month
periods in comparison to the prior year periods primarily due to the net gain
of $6.7 million from legal settlements, including the settlement between the
Applied Biosystems/MDS Sciex Instruments joint venture and Waters Technologies
Corporation. Also impacting the nine-month period of fiscal 2004 were lower
benefits associated with our foreign currency risk management program.

The increase in the effective tax rate for both the third quarter and nine-month
periods of fiscal 2004 was primarily due to the previously discussed special
charges recorded in fiscal 2003 and 2004.

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APPLERA CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
OF OPERATIONS continued

Applied Biosystems GroupDiscussion
of Financial Resources and Liquidity

The Applied Biosystems group had cash and cash equivalents of $584.9 million
at March 31, 2004 and $601.7 million at June 30, 2003. 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, 2004. 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 more than adequate to satisfy the Applied Biosystems
groups normal operating cash flow needs, planned capital expenditures,
its share of funding of the Celera Diagnostics joint venture, dividends, and
authorized share repurchases for the next twelve months and for the foreseeable
future.

We manage the investment of surplus cash and the issuance and repayment of short-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)        | 2003     |       | 2004          |   |       |  | 
|                                    |          |       |               |   |       |  | 
|Cash and cash equivalents           | $        | 601.7 |               | $ | 584.9 |  | 
|Short-term investments              |          |       |               |   |       |  | 
|                                    |          |       |               |   |       |  | 
|Total cash and cash equivalents and |          |       |               |   |       |  | 
|short-term investments              | $        | 601.7 |               | $ | 584.9 |  | 
|Working capital                     |          | 708.6 |               |   | 701.5 |  | 
|                                    |          |       |               |   |       |  | 

Cash and cash equivalents for the nine months ended March 31, 2004 decreased
from June 30, 2003 as expenditures for capital and other assets, the funding
of the Celera Diagnostics joint venture, the payment of dividends, and the repurchase
of 8.9 million shares of Applera-Applied Biosystems stock for $200.0 million
exceeded the cash generated from operating activities, proceeds from stock issuances
and the sale of assets, and the favorable impact of the exchange rate valuation
on cash and cash equivalents. Net cash flows of continuing operations for the
nine months ended March 31 were as follows:

|(Dollar amounts in millions)            |   | 2003  |   |   | 2004   |   |  |  | 
|--------------------------------------- | - | ----- | - | - | ------ | - |  |  | 
|                                        |   |       |   |   |        |   |  |  | 
|Net cash from operating activities      | $ | 173.5 |   | $ | 206.4  |   |  |  | 
|Net cash from investing activities      |   | (70.1 | ) |   | (23.2  | ) |  |  | 
|Net cash from financing activities      |   | (34.5 | ) |   | (217.1 | ) |  |  | 
|Effect of exchange rate changes on cash |   | 13.7  |   |   | 17.4   |   |  |  | 
|                                        |   |       |   |   |        |   |  |  | 

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APPLERA CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
OF OPERATIONS continued

Operating activities:Net
cash from operating activities of continuing operations for the first nine months
of fiscal 2004 was $32.9 million higher than in the first nine months of fiscal
2003. This increase
resulted primarily from higher incomerelated cash flows, improved accounts
receivable collections in fiscal 2004, the timing of the receipt of dividends
and distributions from investments in unconsolidated subsidiaries, and lower
tax and severance and related benefits payments in fiscal 2004. This increase
was partially offset by the funding of our U.S. pension plan of approximately
$28 million in fiscal 2004 and the timing of royalty and vendor payments. The
Applied Biosystems groups days sales outstanding was 66 days at March 31,
2004, 75 days at June 30, 2003, and 73 days at March 31, 2003. Inventory on
hand was 3.1 months at March 31,
2004 compared to 3.3 months at June 30, 2003.

Investing activities:Capital
expenditures for the first nine months of fiscal 2004, net of disposals, were
$53.1 million less than in the prior fiscal year period primarily due to lower
expenditures for the Pleasanton, California facility. The first nine months of
fiscal 2004 included $28.4 million of proceeds primarily from the sale of minority
equity investments. The first nine months of fiscal 2003 also included $29.6
million of proceeds from the maturity of a short-term investment.

Financing activities:During
the first nine months of fiscal 2004, we repurchased 8.9 million shares of Applera-Applied
Biosystems stock for $200.0 million. During the first nine months of fiscal 2003,
we repurchased 1.1 million shares of Applera-Applied Biosystems stock for $19.8
million.

|Celera
              Genomics Group
|-----------------------------------
|                                   

|                                  |  |   | Three Months Ended |   |   | Nine Months Ended |  
|--------------------------------- |  | - | ------------------ | - | - | ----------------- | -
|                                  |  |   | March 31,          |   |   | March 31,         |  
|                                  |  |   |                    |   |   |                   |  
|                                  |  |   |                    |   |   |                   |  
|(Dollar amounts in millions)      |  |   | 2003               |   |   | 2004              |  
|                                  |  |   |                    |   |   |                   |  
|Net revenues                      |  | $ | 20.3               |   | $ | 11.2              |  
|Cost of sales                     |  |   | 3.0                |   |   | 2.0               |  
|R&D                               |  |   | 27.0               |   |   | 28.3              |  
|SG&A expenses                     |  |   | 7.9                |   |   | 7.1               |  
|Amortization of intangible assets |  |   | 0.7                |   |   | 0.7               |  
|                                  |  |   |                    |   |   |                   |  
|Operating loss                    |  |   | (18.3              | ) |   | (26.9             | )
|Loss on investments, net          |  |   | (0.1               | ) |   |                   |  
|Interest income, net              |  |   | 3.8                |   |   | 2.5               |  
|Other income (expense), net       |  |   | (14.6              | ) |   | 0.5               |  
|Loss from joint venture           |  |   | (12.6              | ) |   | (11.9             | )
|                                  |  |   |                    |   |   |                   |  
|Loss before income taxes          |  |   | (41.8              | ) |   | (35.8             | )
|Benefit for income taxes          |  |   | 15.1               |   |   | 13.9              |  
|                                  |  |   |                    |   |   |                   |  
|Net loss                          |  | $ | (26.7              | ) | $ | (21.9             | )
|                                  |  |   |                    |   |   |                   |  
|Effective income tax benefit rate |  |   | 36%                |   |   | 39%               |  
|                                  |  |   |                    |   |   |                   |  

As previously described in events impacting comparability, fiscal 2003 results
  were impacted by the $15.1 million pre-tax charge included in the loss from
  the Celera Genomics groups equity interest in DPI in the third quarter
  of fiscal 2003. This amount was recorded in other income (expense), net. The
  tax benefit recorded on this charge was $5.9 million.

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APPLERA CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
OF OPERATIONS continued

The lower net loss in the third quarter of fiscal 2004 in comparison to fiscal
  2003 primarily resulted from the DPI charge recorded in fiscal 2003, partially
  offset by lower revenues and net interest income and higher R&D expenses.
  The lower net loss in the first nine months of fiscal 2004 in comparison to
  fiscal 2003 primarily resulted from lower R&D expenses, lower amortization
  of intangible assets, and the DPI charge recorded in fiscal 2003, partially
  offset by lower revenues and net interest income. Revenues decreased for both
  the third quarter and first nine months of fiscal 2004 primarily as a result
  of the continuing expiration of Online/Information Business customer agreements.
  Under the terms of the marketing and distribution agreement between the Celera Genomics group and the Applied Biosystems group, the Celera Genomics group
  has not sought any new customers for its Celera Discovery System and related
  information products and services since June 2002, and therefore its revenues
  from these products and services have continued to decline as expected.

R&D expenses increased in the third quarter of fiscal 2004 in comparison
  to the same quarter last year primarily due to increased expenditures to support
  preclinical development activities and the hiring of additional therapeutic
  R&D personnel. R&D expenses decreased for the first nine months of
  fiscal 2004 compared to the same period last year due primarily to the completion
  of the Applera Genomics Initiative and cost reductions in the Online/Information
  Business. These reductions were partially offset by higher therapeutic R&D expenditures.

SG&A expenses decreased in the third quarter of fiscal 2004 compared to the
prior year quarter primarily due to lower employee-related costs. SG&A expenses
increased in the first nine months of fiscal 2004 compared to the prior year
period primarily due to higher employee-related costs, including severance.

Amortization expense of intangible assets decreased in the first nine months
of fiscal 2004 due to the completion of the amortization of some intangible assets
acquired as part of the acquisition of Axys in fiscal 2002.

Interest income, net decreased during both the third quarter and first nine months
of fiscal 2004 compared to the prior year periods primarily due to lower average
interest rates and, to a lesser extent, lower average cash and cash equivalents
and short-term investments.

The decrease in other income (expense), net for both the third quarter and nine-month
periods in comparison to the prior year periods resulted primarily from the loss
for the DPI equity method investment, which included our share of the impairment
charge previously described. In addition, for the first nine months of fiscal
2004, other income (expense), net included a non-recurring receipt of $2.0 million
related to the
March 2002 sale of the Celera Genomics groups animal genomics and genotyping
business.

The increase in the effective income tax benefit rate for the third quarter of
fiscal 2004 was primarily attributable to the impact of the DPI charge recorded
in fiscal 2003, partially offset by
changes in forecasted R&D credits.

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APPLERA CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
OF OPERATIONS continued

|Celera Genomics GroupDiscussion of Financial Resources and Liquidity
|--------------------------------------------------------------------

The Celera
Genomics group had cash and cash equivalents and short-term investments of $738.8
million at March 31, 2004 and $802.4 million at June 30, 2003. 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, 2004.

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

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.

|                                    |  |   | June
    30, |   |   | March
    31, |   | 
|----------------------------------- |  | - | ------------ | - | - | ------------- | - | 
|(Dollar amounts in millions)        |  |   | 2003         |   |   | 2004          |   | 
|                                    |  |   |              |   |   |               |   | 
|Cash and cash equivalents           |  | $ | 52.6         |   | $ | 46.4          |   | 
|Short-term investments              |  |   | 749.8        |   |   | 692.4         |   | 
|                                    |  |   |              |   |   |               |   | 
|Total cash and cash equivalents and |  |   |              |   |   |               |   | 
|short-term investments              |  | $ | 802.4        |   | $ | 738.8         |   | 
|Total debt                          |  |   | 17.1         |   |   | 6.2           |   | 
|Working capital                     |  |   | 750.8        |   |   | 682.1         |   | 
|Debt to total capitalization        |  |   | 1.7          | % |   | 0.7           | % | 
|                                    |  |   |              |   |   |               |   | 

Cash and cash equivalents for the first nine months of fiscal 2004 decreased
  from June 30, 2003 as the amount expended on operations, the funding of the
  Celera Diagnostics joint venture, the purchase of capital assets, and the repayment
  of debt exceeded the proceeds from the sales and maturities of short-term investments,
  sales of assets, and stock issuances. Net cash flows for the nine months ended
  March 31 were as follows:

|(Dollar amounts in millions)       |  |   | 2003  |   |   | 2004  |   | 
|---------------------------------- |  | - | ----- | - | - | ----- | - | 
|                                   |  |   |       |   |   |       |   | 
|Net cash from operating activities |  | $ | (23.6 | ) | $ | (36.9 | ) | 
|Net cash from investing activities |  |   | 0.3   |   |   | 36.2  |   | 
|Net cash from financing activities |  |   | 15.3  |   |   | (5.5  | ) | 
|                                   |  |   |       |   |   |       |   | 

Operating activities:Net
cash used by operating activities for the first nine months of fiscal 2004 was
$13.3 million higher than in the first nine months of fiscal 2003. The higher
use of cash resulted primarily from higher net cash operating losses and lower
cash receipts in fiscal 2004 due to the continuing expiration of Online/Information
Business customer agreements.

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

Investing activities:Net
cash from investing activities for the first nine months of fiscal 2004 increased
from the first nine months of fiscal 2003 due to higher proceeds received from
the sales and maturities of short-term investments in fiscal 2004 and the purchase
of long-term investments in fiscal 2003 to secure the 8% senior secured convertible
notes assumed in connection with the Axys acquisition in fiscal 2002.

Financing activities:Net
cash from financing activities for the first nine months of fiscal 2004 decreased
from the first nine months of fiscal 2003. During the first nine months of fiscal
2004, we repurchased $10.0 million in principal amount of the outstanding 8%
senior secured convertible notes assumed in connection with the Axys acquisition
that were scheduled to mature in October 2004. In addition, we
received lower proceeds received from employee stock option exercises in the
first nine months of fiscal 2004 compared to the first nine months of fiscal
2003.

|                                                                                                                                      |  |                             |       |                            |   |       |   |  |                                  |   |   |       |   |   |       |   |  |                                  |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----- | -------------------------- | - | ----- | - |  | -------------------------------- | - | - | ----- | - | - | ----- | - |  | -------------------------------- | -
|                                                                                                                                      |  | Three Months EndedMarch 31, |       | Nine Months EndedMarch 31, |  
|                                                                                                                                      |  |                             |       |                            |   |       |   |  |                                  |   |   |       |   |   |       |   |  |                                  |  
|(Dollar amounts in millions)                                                                                                          |  |                             | 2003  |                            |   | 2004  |   |  | %
           Increase/(Decrease) |   |   | 2003  |   |   | 2004  |   |  | %
           Increase/(Decrease) |  
|                                                                                                                                      |  |                             |       |                            |   |       |   |  |                                  |   |   |       |   |   |       |   |  |                                  |  
|Net revenues                                                                                                                          |  | $                           | 4.3   |                            | $ | 7.5   |   |  | 74.4%                            |   | $ | 15.1  |   | $ | 27.0  |   |  | 78.8%                            |  
|Cost of sales                                                                                                                         |  |                             | 2.3   |                            |   | 5.5   |   |  | 139.1%                           |   |   | 6.9   |   |   | 15.4  |   |  | 123.2%                           |  
|R&D                                                                                                                                   |  |                             | 11.7  |                            |   | 10.7  |   |  | (8.5%                            | ) |   | 35.4  |   |   | 33.7  |   |  | (4.8%                            | )
|SG&A
    expenses                                                                                                                     |  |                             | 2.9   |                            |   | 3.2   |   |  | 10.3%                            |   |   | 8.6   |   |   | 11.2  |   |  | 30.2%                            |  
|                                                                                                                                      |  |                             |       |                            |   |       |   |  |                                  |   |   |       |   |   |       |   |  |                                  |  
|Operating loss                                                                                                                        |  | $                           | (12.6 | )                          | $ | (11.9 | ) |  | (5.6%                            | ) | $ | (35.8 | ) | $ | (33.3 | ) |  | (7.0%                            | )
|                                                                                                                                      |  |                             |       |                            |   |       |   |  |                                  |   |   |       |   |   |       |   |  |                                  |  
|Equalization payments                                                                                                                 |  | $                           | 2.6   |                            | $ | 4.5   |   |  |                                  |   | $ | 7.7   |   | $ | 18.7  |   |  |                                  |  
|End-user
       sales of products manufactured
         by Celera Diagnostics,
    marketed primarily through
    Abbott Laboratories |  | $                           | 5.8   |                            | $ | 9.8   |   |  |                                  |   | $ | 14.7  |   | $ | 29.3  |   |  |                                  |  
|End-user
       alliance sales for all products
    sold primarily through Abbott Laboratories                                        |  | $                           | 6.3   |                            | $ | 12.7  |   |  |                                  |   | $ | 15.4  |   | $ | 33.7  |   |  |                                  |  
|                                                                                                                                      |  |                             |       |                            |   |       |   |  |                                  |   |   |       |   |   |       |   |  |                                  |  

In June 2002, Celera Diagnostics and Abbott Laboratories announced a long-term strategic alliance to develop, manufacture and market a broad range ofin vitromolecular diagnostic products, including third party products brought into the alliance. On October 1, 2002, sales responsibilities for products manufactured by Celera Diagnostics were largely transferred to Abbott.

The majority of reported net revenues consisted of equalization payments from
Abbott resulting from the profit-sharing arrangement between Abbott and Celera
Diagnostics. The increase in equalization payments primarily accounted for the
increase in net revenues. Fluctuation in these equalization payments can lead
to fluctuation in both reported revenues and gross margins from period to period
due to differences in end-user sales of alliance products and operating expenses
between the alliance partners. End-user alliance sales for all products sold
primarily through Abbott increased, for both the quarter and nine-month periods,
primarily due to continued growth in sales of cystic fibrosis analyte specific
reagents (ASRs). Also impacting the results for the third quarter
fiscal 2004 was growth in products sourced from third parties and products for
infectious disease testing. The results for the first nine months of fiscal 2003
included $3.9 million of end-user sales of products manufactured by Celera Diagnostics
and sold by the Applied Biosystems
group during the first fiscal quarter 2003.

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

R&D expenses decreased in both the third quarter and first nine months of
fiscal 2004 as a result of the completion of the Applera Genomics Initiative,
partially offset by increased
spending for discovery programs and product development.

SG&A expenses for the first nine months of fiscal 2004 included a $1.1 million
charge related to
a facility lease agreement.

Market Risks

Our foreign currency risk management strategy uses derivative instruments to hedge certain foreign currency forecasted revenues and to offset the impact of changes in foreign currency exchange rates on certain foreign currency-denominated assets and liabilities. The principal objective of this strategy is to minimize the risks and/or costs associated with our global financial and operating activities. We use foreign exchange forward, option, and range forward contracts to manage our foreign currency exposures. At March 31, 2004, we recorded in our condensed consolidated financial statements a net liability of $14.5 million related to these currency forwards and option contracts, compared with a net liability of $2.3 million at June 30, 2003. This increase was primarily attributed to the fluctuations in foreign currency rates. We do not use derivative financial instruments for trading or speculative purposes, nor are we a party to leveraged
derivatives
..

We performed a sensitivity analysis as of March 31, 2004. Assuming a hypothetical
adverse change of 10% in foreign exchange rates in relation to the U.S. dollar
as of March 31, 2004, we calculated a hypothetical after-tax loss of $43.6 million,
as compared to a hypothetical after-tax loss of $36.8 million at June 30, 2003.
Our analysis included the change in value of the derivative financial instruments,
along with the impact of translation on foreign currency-denominated assets and
liabilities. Our analysis excluded the impact of translation of foreign currency-denominated
forecasted sales. If foreign currency exchange rates actually change in a manner
similar to the assumed change in the foregoing calculation, the hypothetical
loss calculated would be more than offset by the recognition of higher U.S. dollar
equivalent foreign revenues. Actual gains and losses in the future could, however,
differ materially from this analysis, based on changes in the timing and amount
of foreign currency exchange rate movements and actual exposures and hedges.

For more information on our market risks, please refer to the market risk section
of the managements
discussion and analysis included on pages 34 and 35 of our 2003 Annual Report to Stockholders (which section is incorporated in this quarterly report by reference).

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

Recently Issued Accounting Standards

In December 2003, the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (the Act) introduced a prescription drug benefit under Medicare,
as well as a federal subsidy to sponsors of retiree health care benefit plans.
In January 2004, the Financial
Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS
106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003. This FSP permits a sponsor
of a postretirement health care plan that provides a prescription drug benefit
to retirees to make a one-time election to defer accounting for the effects of
the Act if there is insufficient data, time or guidance available to ensure appropriate
accounting. The guidance in this FSP is effective for interim or annual financial
statements of fiscal years ending after December 7, 2003. We have elected to
defer accounting for any effects of the Act while evaluating the Act further
and pending the issuance of authoritative guidance on the accounting for the
Act and its effect, if any, on our results of operations, financial position
and financial statement disclosures. Therefore, the amounts included in the accompanying
condensed consolidated financial statements related
to our postretirement benefit plans do not reflect the effects of the Act, the
impact of which is not expected to materially affect our consolidated financial
statements.

In December 2003, the
  FASB issued a revised Statement of Financial Accounting Standards (SFAS) No. 132, Employers Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106, and a revision of FASB Statement No. 132. SFAS
  No. 132 (revised 2003) requires additional disclosures about the assets, obligations,
  cash flows, and net periodic benefit cost of defined benefit pension plans
  and other postretirement benefit plans. We have adopted the interim provisions
  of this Statement in our fiscal 2004 third quarter. The remaining provisions
  of this Statement are effective for our fiscal 2004 fourth quarter.

Also in December 2003,
the FASB issued a revised FASB Interpretation No. 46 (FIN 46R),
  Consolidation
  of Variable Interest Entities, an interpretation of ARB No. 51. The FASB
  published the revision to clarify and amend some of the original provisions
  of FIN 46, which was issued in January 2003, and to exempt certain entities
  from its requirements. A variable interest entity (VIE) refers
  to an entity subject to consolidation according to the provisions of this Interpretation.
  FIN 46R applies to entities whose equity investment at risk is insufficient
  to finance that entitys activities without receiving additional subordinated
  financial support provided by any parties, including equity holders, or where
  the equity investors (if any) do not have a controlling financial interest.
  FIN 46R provides that if an entity is the primary beneficiary of a VIE, the
  assets, liabilities, and results of operations of the VIE should be consolidated
  in the entitys financial statements. In addition, FIN 46R requires that
  both the primary beneficiary and all other enterprises with a significant variable
  interest in a VIE provide additional disclosures. The adoption of FIN 46R in
  our fiscal 2004 third quarter
did not impact our consolidated financial statements.

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APPLERA CORPORATIONMANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS continued

Outlook

Applied Biosystems Group

The Applied Biosystems group believes demand from commercial customers will remain
healthy during the remainder of fiscal 2004. The Applied Biosystems group continues
to believe there are a number of issues relating to government funding for life
science research in Japan, as well as new political uncertainties in South Korea
and Taiwan, that have the potential to negatively impact fiscal 2004 fourth quarter
financial results. Additionally, in the U.S., the Applied Biosystems group believes
there is a possibility that customer concern about the timing and level of future
NIH funding could lead to more conservative purchase behavior by laboratories
operated or funded by the NIH.

The Applied Biosystems group forecasts single-digit annual revenue growth for
fiscal 2004. The Applied Biosystems group expects this growth to be driven by
sales increases in both the SDS/Other Applied Genomics and the Mass Spectrometry
product categories, partially offset by declines in the DNA Sequencing product
category. The Applied Biosystems group expects fiscal 2004 annual earnings per
share growth at a rate equal to or slightly above annual revenue growth.

The Applied
  Biosystems group estimates that the fiscal 2004 annual gross margin will be
  slightly above that of fiscal 2003. The Applied Biosystems group expects annual
  SG&A expenses to increase as a percent of total revenues during fiscal 2004
  due to a number of factors, including: increased litigation-related legal fees
  associated with Appleras patent litigation with MJ Research, Inc.; the
  unfavorable effects of foreign currency; costs associated with the development
  of, and enhancements to, the new Applied Biosystems Portal; and increased insurance
  and pension costs. The Applied Biosystems group expects that the fiscal 2004
  annual operating margin, excluding special items, as a percent of total revenues
  will be slightly below that of fiscal 2003.

The Applied
  Biosystems group expects the effective tax rate for fiscal 2004 to be approximately
  28 percent. 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 2004 is anticipated to be within the range of $60-70 million.

On April 5,
  2004, the Applied Biosystems group announced that the Applera Board of Directors
  authorized the repurchase of up to $100 million in additional shares of Applera-Applied
  Biosystems stock. This authorization supplements the Applied Biosystems groups
  existing authority to repurchase shares issued under its employee stock benefit
  plans.

The Applied
  Biosystems group derives some rights to PCR technology under a series of agreements
  with Hoffmann-La Roche, Inc. and its affiliates which own some of the patents
  covering the PCR process. The Applied Biosystems group receives royalties from
  third-party sales of products incorporating this technology through a series
  of licensing programs. The first of these patents expires in March 2005 in
  the U.S., and in March 2006 in Europe and some other jurisdictions. The expiration
  of these patents may result in reduced royalty payments to the Applied Biosystems
  group. However, the Applied Biosystems group expects that a possible reduction
  in PCR royalties would be offset to a substantial degree by income from real-time
  PCR and other PCR-related technologies. In addition, the Applied Biosystems
  group has rights to multiple other PCR-related patents that should support a
  PCR-related royalty stream beyond fiscal 2005 and 2006. Taken together, the
  Applied Biosystems group believes these factors should mitigate the effects
  of the patent expirations. The PCR agreements are the subject of legal proceedings
  described in Note 11 to our condensed consolidated financial statements included
  in this report. The outcome of legal proceedings is inherently uncertain, and
  an adverse outcome in these proceedings could negatively affect the value of
  our PCR rights.

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The Applied
  Biosystems group has engaged a leading strategy consulting firm to assist management
  in an in-depth review of the entire product portfolio. The purpose of this review
  is to identify opportunities for growth, increased profitability, and shareholder
  value creation. The first phase of the project, which has been completed, was
  a rigorous fact-based analysis of the Applied Biosystems groups current
  product portfolio. In the second phase, the Applied Biosystems group is evaluating
  its R&D investments in an attempt to achieve optimum alignment with future
  growth opportunities. In this phase, the Applied Biosystems group is also examining
  its business processes with a goal to improving
  operational efficiency and productivity. As part of this business review,
  the Applied Biosystems group will also be evaluating portfolio decisions that
  could change our product and business mix. Financial statement
  implications, if any, as a result of this review will be addressed when appropriate.

Celera Genomics Group

The Celera
  Genomics group expects to continue to advance its ongoing proteomic oncology
  programs and its unpartnered small molecule programs. The Celera Genomics group
  plans to establish relationships to develop therapeutic antibodies against targets
  it discovers from proteomics studies. Consistent with the Celera Genomics groups
  Targeted Medicine strategy, it intends to establish one or more strategic relationships
  that advance its therapeutic pipeline and/or take advantage of its combination
  of genomic, proteomic, and bioinformatic capabilities.

Previously,
  the Celera Genomics group stated that a partnered compound could enter clinical
  trials during fiscal 2004. While existing partnered programs could lead to clinical
  trials in the future, the initiation of such trials now appears unlikely during
  fiscal 2004. Clinical development decisions with respect to partnered compounds
  will be made by the partner. The Celera Genomics group does not have any current
  intention to predict the future development progress of these partnered programs.

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

| | The
        Celera Genomics groups net cash use for fiscal 2004 is expected
        to be between $85 and $90 million, including an anticipated $25 to $30
        million for the Celera Genomics groups portion of the funding for
        the Celera Diagnostics joint venture. The impact of lower Online/Information
        Business revenues and operating profit should be partially offset by lower
        losses and cash demands related to Celera Diagnostics and the first quarter
        of fiscal 2004 conversion of approximately $16 million of long-term treasury
        securities to short-term investments. This outlook excludes approximately
        $10 million of cash used to repurchase convertible notes, and net proceeds
        that the Celera Genomics group received from the sale of its Discovery
        Partners International, Inc. investment. On May 11, 2004, the Celera Genomics
        group completed the sale of its investment in DPI from which it expects
        to receive net proceeds of approximately $32 million.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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| | The Celera
         Genomics group anticipates R&D expenses for fiscal 2004 to be in
         the  range of $101 to $106 million. Actual R&D expenses will depend
         on the  rate of progress in discovery and development programs. Pre-tax
         losses related
      to the Celera Diagnostics joint venture for fiscal 2004 are expected to
          be in the range of $38 to $44 million.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                          
| | The Celera
      Genomics group anticipates revenues for fiscal 2004 will continue to trend
      downward to a range of $55 to $60 million. Additional Online/Information
      Business agreements are expected to expire through fiscal 2006.                                                                                                                                                         

Celera Diagnostics

For fiscal
  2004, total end user sales for the alliance between Celera Diagnostics and Abbott
  Laboratories are anticipated to be in range of $46 to $50 million. End-user
  sales of products manufactured by Celera Diagnostics and marketed primarily
  through the alliance with Abbott are expected to be in a range of $39 to $41
  million. Celera Diagnostics anticipates fiscal 2004 pre-tax losses to be in
  a range of $38 to $44 million, and fiscal 2004 net cash use to be in a range
  of $46 to $52 million, including capital spending of approximately $3 million.
  This outlook assumes continued demand growth for current products, such as ASRs
  for cystic fibrosis and products for infectious disease testing.

Celera Diagnostics
  is preparing for the transfer of its first prototype assays based on its association
  studies to one or more laboratory partners this summer.

Forward-Looking
  Statements

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

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

Factors
  Relating to the Applied Biosystems Group

Rapidly changing technology in life sciences
       could make the Applied Biosystems groups product line obsolete unless
       it continues  to develop and manufacture new and improved products, and
       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
  products are based on complex technology which is subject to rapid change as
   new technologies are developed and introduced in the
  marketplace. The Applied Biosystems groups future success depends on
  its ability  to continually improve its current products, 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. These new market opportunities may
   be outside the scope of the groups proven expertise or in areas which
    have unproven market demand. For example, the Applied Biosystems group has
   committed
  significant resources to researching, developing, marketing, and distributing
    new products and services designed to integrate laboratory experimentation
   with
  relevant scientific information, and to new Internet web sites devoted to promoting
    the groups products and supporting customer research and development
     activities. These are emerging business areas for the Applied Biosystems
    group,
  and there can be no assurance that there will be market acceptance of the utility
     and value of these products and services. The inability to gain market acceptance

  of new products and services could adversely affect the groups future
   operating results. The groups future success also depends on its ability
    to manufacture these improved and new products to meet customer demand in
   a
  timely and cost-effective manner, including its ability to resolve in a timely
    manner manufacturing issues that may arise from time to time as the group
   commences
  production of these complex products. Unanticipated difficulties or delays
   in  replacing existing products with new products or in manufacturing improved
   or
  new products in sufficient quantities to meet customer demand could adversely
    affect future demand for the groups products and its future operating results.

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

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

A substantial portion of the Applied Biosystems
  groups sales is to customers at universities or research laboratories whose
  funding is dependent on both the amount and timing of funding from government
  sources.As a result, the timing and amount of revenues from these sources
  may vary significantly due to factors that can be difficult to forecast. 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 claim against
  the Applied Biosystems group asserting that the Applied Biosystems group had
  misappropriated their technologies, which though not patented are protected
  as trade secrets, and had improperly incorporated such technologies into the
  Applied Biosystems groups products. 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 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.

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

| |  | In response to claims by us against MJ Research,
      Inc., MJ Research filed counterclaims against us including, among others,
      allegations that we have licensed and enforced some polymerase chain reaction,
      or PCR, patents through anticompetitive conduct in violation of federal
      and state antitrust laws. Subsequently, MJ Research filed a lawsuit against
      us based on the allegation that four patents underlying the Applied Biosystems
      groups DNA sequencing instruments were invalidly obtained because
      an alleged inventor, whose work was funded in part by the U.S. government,
      was knowingly omitted from the patent applications. MJ Research claims to be suing in the name
      of the U.S. government although the government has to date declined to participate
      in the lawsuit. Henry Huang has filed a lawsuit against us alleging that
      he is the sole inventor of the four patents referred to above, and the issues
      involved in his claims are related to the issues in the MJ Research claims.
      The MJ Research case has been dismissed but the decision has been appealed by MJ Research.
          A trial was held on the claims made by Henry Huang, and the judge issued a decision
          in our favor finding that Mr. Huang was not an inventor of the patents at issue.
          Mr. Huang has appealed the decision.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Promega Corporation has filed a lawsuit against
      us alleging that the Applied Biosystems group, along with some other named
      defendants, is infringing two Promega patents due to the sale of forensic
      identification and paternity testing kits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Beckman Coulter, Inc. has filed a lawsuit
      against us alleging that the Applied Biosystems group is infringing three
      Beckman Coulter patents, although it has not identified the specific facts
      on which the allegation is based.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | Genetic Technologies Limited has filed a
        lawsuit  against us alleging that we are infringing two of its patents
        due to the
      sale of cystic fibrosis reagent kits, some of our Assays-on-DemandTMproducts and Assays-by-DesignSMservices, and the Celera
       Discovery System. Genetic Technologies Limited has also alleged that haplotyping

      analysis performed by our businesses
       infringes these patents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | In response to an arbitration claim filed
      by us against Roche Molecular Systems, Inc., Hoffmann-La Roche, Inc., Roche
      Probe, Inc., F. Hoffmann-La Roche Ltd., and other potential defendants affiliated
      with those defendants, they have asserted counterclaims against us in the
      arbitration that could affect our exclusive rights to some PCR patents licensed
      from them.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

The cost of litigation and the amount of management
  time associated with these cases is expected to be significant. There can be
  no assurance that these matters will be resolved favorably; that we will not
  be enjoined from selling the products 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 the nine months
  ended of our 2004 fiscal year were derived from sales to customers outside of
  the U.S. The majority of these sales were based on the relevant customers local
  currency. A significant portion of the related costs for the Applied Biosystems
  group are based on the U.S. dollar. As a result, the Applied Biosystems groups
  reported and anticipated operating results and cash flows are subject to fluctuations
  due to material changes in foreign currency exchange rates that are beyond the
  Applied Biosystems groups control.

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 businesses,
  particularly those focused on developing and marketing information-based products
  and services, depend on the continuous, effective, reliable, and secure operation
  of its computer hardware, software, and Internet applications and related tools
  and functions.Because the Applied Biosystems groups business requires
  manipulating and analyzing large amounts of data, and communicating the results
  of the analysis to its internal research personnel and to its customers via
  the Internet, 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 research personnel or customers through
  the Internet is interrupted, the Applied Biosystems groups business could
  suffer.

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

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

Applera-Applied Biosystems stock price 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 report, as well as other factors that may have affected or may in the
  future affect the market price, such as:

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

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

Factors Relating to the Celera Genomics Group

The Celera Genomics group has incurred net
  losses to date and may not achieve profitability. The Celera Genomics group
  has accumulated net losses of approximately $711 million as of March 31, 2004,
  and expects that it will continue to incur net losses for the foreseeable future.
  These cumulative losses are expected to increase as the Celera Genomics group
  continues to make investments in new technology and product development, including
  its investments in the discovery and development of therapeutic products, as
  well as investments in diagnostics through Celera Diagnostics, its joint venture
  with the Applied Biosystems group. The Celera Genomics group will record all
  initial cash operating losses of Celera Diagnostics up to a maximum of $300
  million, after which any additional operating losses would be shared equally
  by the Celera Genomics group and the Applied Biosystems group. However, the
  Applied Biosystems group reimburses the Celera Genomics group for all tax benefits
  generated by Celera Diagnostics to the extent such tax benefits are used by
  the Applied Biosystems group, and the effect of recording Celera Diagnostics
  operating losses on the Celera Genomics groups net losses will be partially
  offset by this reimbursement. Celera Diagnostics has accumulated cash operating
  losses of approximately $119 million as of March 31, 2004. As an early stage
  business, the Celera Genomics group faces significant challenges in expanding
  its business operations into the discovery and development of therapeutic products.
  As a result, there is a high degree of uncertainty that the Celera Genomics
  group will be able to achieve profitable operations.

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The marketing and distribution agreement with
  the Applied Biosystems group may not generate significant royalty payments.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. Under the terms of
  that agreement, the Applied Biosystems group is obligated to pay a royalty to
  the Celera Genomics group based on sales of some products sold by the Applied
  Biosystems group after July 1, 2002. This royalty rate and the corresponding
  payments to be made to the Celera Genomics group were based on the sales of
  these products that the groups anticipated at the time of the execution of the
  agreement. The Applied Biosystems group has not guaranteed any minimum royalty
  payments to the Celera Genomics group, and the actual amount of royalty payments
  to be paid to the Celera Genomics group depends on the Applied Biosystems groups
  ability to successfully commercialize the products subject to the royalty. The
  Applied Biosystems group has not proven
  its ability to successfully commercialize these products. The Celera Genomics
  group believes
  that in order for the Applied Biosystems groups sales of these products
  to meet original expectations, the Applied Biosystems group will have to continue
  devoting a significant amount of its resources to researching, developing,
  marketing,
  and distributing them. 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 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
  these product offerings.

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 its
  sale of 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 described in the preceding paragraph, the Celera
  Genomics group will receive all revenues under, and be responsible for all costs
  and expenses associated with, the Celera Discovery System and related information
  contracts that were entered into on or prior to June 30, 2002. However, the
  Applied Biosystems group took full responsibility for marketing and contracting
  for the Celera Discovery System and related products and services after that
  date. Accordingly, the Celera Genomics group does not expect any revenues from
  the Celera Discovery System and related products and services other than under
  contracts existing on June 30, 2002, so long as they remain in effect, and from
  potential royalty payments from the Applied Biosystems group under the marketing
  and distribution agreement. 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 below a total of $62.5 million
  during the four fiscal years ending with the 2006 fiscal year, if the shortfall
  is due to the actions of the Applied Biosystems group including changes in marketing
  strategy for the Celera Discovery System. However, this commitment is also subject
  to the Celera Genomics group otherwise continuing to perform under these contracts
  and does not protect the Celera Genomics group from lost revenue due to other
  circumstances such as a customer bankruptcy. Although under some 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.

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Because of the close working relationship between
  the Celera Genomics group and the Applied Biosystems group under the marketing
  and distribution agreement, it may be difficult to ascertain responsibility
  for claims, liabilities, or other issues that may arise under Celera Discovery
  System contracts or the marketing and distribution agreement.Under the
  marketing and distribution agreement described above, the two groups have agreed
  to cooperation guidelines to enable the Celera Genomics group to perform its
  obligations under existing Celera Discovery System agreements and to facilitate
  the development of the Applied Biosystems groups products covered by the
  agreement. These guidelines provide for the application of relevant resources
  and expertise of the groups to the relationship, and have led to a close working
  relationship among personnel within the two groups. Because of this working
  relationship, if any customers assert any claims under Celera Discovery System
  contracts, it may be difficult to determine which group was responsible for
  the actions that gave rise to the claim. In addition, the Applied Biosystems
  group may from time to time take good faith actions in pursuit of its marketing
  strategy that affect Celera Discovery System contracts that were in existence
  on June 30, 2002. Because of the working relationship between the two groups,
  it may be difficult to determine whether the actions of the Applied Biosystems
  group are within the scope of the reimbursement obligation described above.

The Celera Genomics groups ability to
      develop and
commercialize proprietary therapeutic products is unproven.As the Celera
Genomics group  expands its business operations in the area of therapeutic product
discovery and development,
it faces the difficulties inherent in developing and commercializing these products.
It is
possible that the Celera Genomics groups discovery and development efforts
will not result in any commercial products. 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.  Also, pursuant to its current business
and scientific plan, the Celera Genomics group is seeking to capitalize on its
relationship with Celera Diagnostics through the evaluation of the therapeutic
relevance of targets that Celera Diagnostics may identify in the
disease association studies it is performing on its own behalf as well as additional
disease association studies it has agreed to perform specifically for the Celera
Genomics group. To our knowledge, no one to date has developed or commercialized
any therapeutic products
based on the Celera Genomics groups genomics or proteomics technologies
or

Celera Diagnostics disease association studies, and therefore the benefit
of these technologies and studies to the development of therapeutics is unproven.
In
addition,
while
Celera
Diagnostics
has
agreed
to
perform
some
studies
specifically
for
the Celera Genomics group, Celera Diagnostics is not obligated to continue
the disease association studies that it performs on its own behalf.  If Celera
Diagnostics  discontinues in whole or in part its disease association study program,

or if this program or the studies performed specifically for the Celera
Genomics group do not result in any targets with therapeutic relevance, the
Celera Genomics groups business and scientific plan could be adversely

affected.

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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 FDA 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:

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

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

If the Celera Genomics group fails to maintain its existing collaborative relationships and enter into new collaborative
  relationships, or if collaborators do not perform under collaboration agreements,
  development of its therapeutic product candidates could be delayed.The Celera Genomics groups strategy for the discovery, development, clinical
  testing, manufacturing and 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.

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APPLERA CORPORATIONMANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS continued

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

If the Celera Genomics group 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 is currently developing its internal
  capability to move potential products through clinical testing, manufacturing
  and the approval processes of the FDA and comparable agencies in other countries.
  In the U.S., either the Celera Genomics group or its collaborators must show
  through pre-clinical studies and clinical trials that each of the Celera Genomics
  groups therapeutic product candidates is safe and effective in humans
  for each indication before obtaining regulatory clearance from the FDA for
  the commercial sale of that product. Outside of the U.S., 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 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
  for any therapeutic product candidate. 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 for a particular therapeutic product, it will be subject
  to risks and uncertainties relating to regulatory compliance, including post-approval
  clinical studies and inability to meet the compliance requirements of the FDAs
  Good Manufacturing Practices regulations. In addition, identification of some
  adverse side effects after a therapeutic product is on the market or the occurrence
  of manufacturing problems could cause subsequent suspension of product manufacture
  or withdrawal of approval, or could require reformulation of a therapeutic product,
  additional testing, or changes in labeling of the product. This could delay
  or prevent the Celera Genomics group from generating revenues from the sale
  of that therapeutic product.

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APPLERA CORPORATIONMANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS continued

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

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

| |  | develop new therapeutic products in advance
      of the Celera Genomics group;                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | develop therapeutic products which are more
      effective as therapeutics, or more cost-effective, than those developed
      by the Celera Genomics group;                     
| |  | obtain regulatory approvals of their therapeutic
      products more rapidly than the Celera Genomics group; or                                                                   
| |  | 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.

Therapeutics discovery and development is
      a  highly technical field and there is a competitive market for personnel
      with
  the expertise needed for the expansion of the Celera Genomics groups
  business  operations within this field.The Celera Genomics group believes
  that in  order to develop and commercialize therapeutic products, it will need
  to 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 business operations
    in the area of therapeutic product discovery and development could be delayed

  or curtailed.

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APPLERA CORPORATIONMANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS continued

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,
  the groups business could suffer.

The Celera Genomics groups computer and communications
  hardware is protected through physical and software safeguards. However, it
  is still vulnerable to fire, storm, flood, power loss, earthquakes, telecommunications
  failures, physical or software break-ins, 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 therapeutic
  products discovery and research efforts, it could experience a loss of or delay
  in revenues. In addition, any sustained disruption in Internet access provided
  by third parties could adversely affect 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 U.S.
  Patent and Trademark Office has adopted guidelines for use in the review of
  the utility of inventions, particularly biotechnology inventions. These guidelines
  increased the amount of evidence required to demonstrate utility in order to
  obtain a patent in the biotechnology field, making patent protection more difficult
  to obtain. 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.

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APPLERA CORPORATIONMANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS continued

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

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

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.



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APPLERA CORPORATIONMANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS continued

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

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

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

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APPLERA CORPORATIONMANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS continued

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:

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

It may be difficult for the Celera Genomics group
  to complete these transactions quickly and to integrate these acquired operations
  efficiently into its current business operations. Any acquisitions, investments
  or other strategic relationships and alliances by the Celera Genomics group
  may ultimately have a negative impact on its business and financial condition.
  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 our 2001 fiscal
  year and $25.9 million during our 2002 fiscal year. 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 our 1999 fiscal year.

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.

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APPLERA CORPORATIONMANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS continued

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 report,
  as well as other factors that may have affected or may in the future affect
  the market price, such as:

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

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

Our company is subject to a 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 our officers
  are defendants in a lawsuit purportedly brought 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.
  The lawsuit was commenced with the filing of several complaints in 2000, which
  have been consolidated into a single case. The consolidated complaint generally
  alleges that the prospectus used in connection with the offering was inaccurate
  or misleading because it failed to adequately disclose the alleged opposition
  of the Human Genome Project and two of its supporters, the governments
  of the U.S. and the U.K., to providing patent protection to our genomic-based
  products. Although the Celera Genomics group has never sought, or intended to
  seek, a patent on the basic human genome sequence data, the complaint also alleges
  that we did not adequately disclose the risk that the Celera Genomics group
  would not be able to patent this data. The consolidated complaint seeks unspecified monetary damages, rescission, costs and expenses, and other relief as the
  court deems proper. Although we believe the asserted claims are without merit
  and intend to defend the case vigorously, the outcome of this or any other litigation
  is inherently uncertain. The defense of this case will require management attention
  and resources.

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

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

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

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 FDA and comparable agencies in other countries.
  Celera Diagnostics development of new diagnostic products is highly uncertain
  and subject to a number of significant risks. Diagnostic product candidates
  that appear to be promising at early stages of development may not be developed
  into commercial products, or may not be successfully marketed, for a number
  of reasons, including:

| |  | Celera Diagnostics or its collaborators may
      not successfully complete any research and development efforts;                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any diagnostic products that Celera Diagnostics
      or its collaborators develop may be found during clinical trials to have
      limited medical value;                                                                                     
| |  | Celera Diagnostics or its collaborators may
      fail to obtain required regulatory clearances or approvals for products
      they develop;                                                                                                   
| |  | Celera Diagnostics or its collaborators may
      be unable to manufacture enough of any potential products at an acceptable
      cost and with appropriate quality;                                                                           
| |  | any diagnostic products Celera Diagnostics
      or its collaborators develop may not be competitive with other existing
      or future products;                                                                                              
| |  | adequate reimbursement for Celera Diagnostics
      and its collaborators products may not be available to physicians
      or patients from the government or insurance companies; and                                                       
| |  | Celera Diagnostics
        may be unable to obtain necessary intellectual property protection, or
        third parties may own proprietary rights that prevent Celera Diagnostics
    or its collaborators from commercializing their products.

If Celera Diagnostics
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 FDA and comparable agencies
in other countries. In the U.S., either Celera Diagnostics or its collaborators
must show through pre-clinical studies and clinical trials that each of Celera
Diagnostics diagnostic product candidates is safe and effective for each
indication before obtaining regulatory clearance or approval from the FDA for
the commercial sale of that product as anin-vitrodiagnostic
product with clinical claims. Outside of the U.S., 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 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.

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

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

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

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

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

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

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

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

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

Celera Diagnostics 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 some
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 some development programs.



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

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

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

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

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

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

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 oligonucleotides. Celera Diagnostics acquires some of these and other key components on a purchase-order basis, meaning that the supplier is not required to supply Celera Diagnostics with specified quantities over 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 oligonucleotides.Furthermore,
in order to maintain compliance with Quality System regulations, Celera Diagnostics
must verify that its suppliers of key components are in compliance with all applicable
FDA regulations. Celera Diagnostics believes that compliance with these regulatory
requirements would increase the difficulty in arranging for needed alternative
supply sources, particularly for components that are from single source suppliers,
which means that they are currently the only supplier of custom-ordered components.
If Celera Diagnostics product sales increase beyond the forecast levels,
or if its suppliers are unable or unwilling to supply it on commercially acceptable
terms or comply with regulations applicable to manufacturing of Celera Diagnostics products,
it may not have access to sufficient quantities of key components on a timely
basis and may be unable to satisfy product demand.

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

Celera Diagnostics 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 U.S. Patent and
  Trademark Office
  has adopted guidelines for use in the review of the utility of inventions,
  particularly biotechnology inventions. These guidelines increased the amount
  of evidence required to demonstrate utility in order to obtain a patent in
  the biotechnology field, making patent protection more difficult to obtain.
  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.

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APPLERA CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
OF OPERATIONS continued

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

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

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

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.

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

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 U.S. Patent and
Trademark Office to determine its patent rights with respect to third parties.
For example, Genetic Technologies Limited has filed a lawsuit against us alleging
that we are infringing two of its patents due to the sale of cystic fibrosis
reagent kits. In addition, interference proceedings may be necessary to establish
which party was the first to make the invention sought to be patented. Also,
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. Similarly, contractual disputes related to existing license rights
under third party patents may affect
Celera Diagnostics ability to develop, manufacture, and sell its products.
For example, existing legal proceedings between Applera Corporation and Roche Molecular Systems,
  Inc., Hoffmann-La Roche, Inc., Roche Probe, Inc., and F. Hoffmann-La Roche,
  Ltd. may adversely affect the PCR patent rights that the Applied Biosystems
  group has contributed to Celera Diagnostics.

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

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

| |  | develop
    new diagnostic products in advance of Celera Diagnostics;                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | develop
        diagnostic products which are more effective or more cost-effective than
    those developed by Celera Diagnostics;                                                                                                     
| |  | obtain
        regulatory clearances or approvals of their diagnostic products more
    rapidly than Celera Diagnostics; or                                                                                                             
| |  | 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.

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APPLERA CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
OF OPERATIONS continued

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

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

Earthquakes
could disrupt operations in California.The
headquarters and 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.

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|Item
    3.Quantitative
    and Qualitative Disclosures About Market Risk.
|--------------------------------------------------------------------------

We are exposed to potential loss from exposure to market risks represented principally by changes in foreign exchange rates, interest rates, and equity prices. Please refer to the market risk section of the managements discussion and analysis included on page 47 of this report. Additional information can also be found in the market risk section of the managements discussion and analysis included on pages 34 and 35 of our 2003 Annual Report to Stockholders (which section is incorporated in this report by reference).

|Item
    4.Controls
    and Procedures.
|---------------------------------------

We maintain disclosure controls and procedures designed to ensure that the information required to be disclosed in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of these disclosure controls and procedures as of the end of the third quarter of our 2004 fiscal year, the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to achieve their stated purpose. However, there is no assurance that our disclosure controls and procedures will operate effectively under all circumstances. No changes were made to our internal control
over financial reporting during the third quarter of our 2004 fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II  OTHER INFORMATION

Item 1.  Legal Proceedings.

We are involved in various legal proceedings from time to time, including actions with respect to commercial, intellectual property, antitrust, environmental, securities, and employment matters.  The following paragraphs contain a description of some of the legal proceedings that we are currently a party to.  We are describing these proceedings because there have been recent developments.

We believe that we have meritorious defenses against the claims currently asserted against us, including the claims described below, and we 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 the cases we are currently defending, particularly the claims against us described below and the other claims we are defending that are described elsewhere in this report, could have a material adverse effect on us, the Applied Biosystems group, or the Celera Genomics group.  See Note 11  Contingencies to our unaudited Condensed Consolidated Financial Statements in this
report for a description of additional litigation that we are currently a party to.

We are involved in several litigation
    matters with MJ Research, Inc., which commenced with our filing claims against
    MJ Research based on its alleged infringement of some polymerase chain reaction,
    or PCR, patents. In response to our claims, MJ Research filed counterclaims
    including, among others, allegations that we have licensed and enforced these
    patents through anticompetitive conduct in violation of federal and state
    antitrust laws, and MJ Research is seeking injunctive relief, monetary damages,
    costs and expenses, and other relief. A trial on these matters commenced
    in March 2004. The Court elected to hold the trial in two phases: a patent
    phase and an antitrust phase. In the patent phase, which has concluded, the
    jury found that MJ Research infringed U.S. patent Nos. 4,683,195, 4,683,202
    and 4,965,188 (each relates to PCR process technology) and U.S. patent Nos.
    5,656,493, 5,333,675 and 5,475,610 (each relates to thermal cycler instrument
    technology). The jury found the infringement of the '195, '202, '188
    and '493 patents to be willful. In addition to direct infringement by
    MJ Research of the '610 and '675 patents, the jury found that MJ Research
    induced its customers to infringe all of the patents and contributed to infringement
    by its customers of the 610 and '675 patents. In April 2004, the
    jury awarded damages to us and Roche Molecular Systems, also a party to the
    litigation, in the amount of $19.8 million. We intend to seek, with Roche
    Molecular Systems, an enhancement of damages, including legal fees, since
    several infringements were found to be willful. Additionally, we intend to
    seek an injunction against MJ Research, which filed for bankruptcy court
    protection on March 29, 2004. The antitrust phase of the trial is scheduled
to commence in July 2004.

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



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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.  A trial was completed on December 22, 2003, and on February 18, 2004, the judge issued  a decision in our favor finding that
Mr. Huang was not an inventor of  the patents at issue.  Mr. Huang has appealed the decision.

We filed claims against Roche Molecular Systems, Inc., Hoffmann-La Roche, Inc., Roche Probe, Inc., F. Hoffmann-La Roche Ltd., and other potential defendants affiliated with the named defendants (Roche) in California Superior Court on October 9, 2003.  Our complaint asserts, among other things, breach of contract and other contract claims against the defendants arising from agreements relating to polymerase chain reaction, or PCR, technology rights entered into between us and the defendants.  Our complaint also asserts various tort claims against the defendants, including breach of trust, breach of fiduciary duty, and unfair competition, relating to our PCR rights.  The defendants acts and omissions that form the basis of the
complaint include, among other things, the: (i) defendants failure to abide by contractual provisions intended to allow us to effectively compete with the defendants with respect to (a) sales of diagnostic PCR products and (b) conveyance of diagnostic PCR rights to third parties; (ii) defendants failure to pay us requisite royalties for sales by them of thermal cyclers and other products; (iii) defendants failure to negotiate in good faith new agreements directed at modifying the relationship between the parties in accordance with principles set forth in an existing letter agreement that states the intended framework for the negotiations (the Letter Agreement); (iv) defendants failure to provide us with diagnostic PCR rights on a nondiscriminatory
basis as required by a European Union commission decree; (v) defendants failure to comply with their agreement to assign ownership to us of some PCR instrument patents and patent applications, and (vi) defendants mishandling of the prosecution of patent applications that the defendants were obligated to assign to us, in a manner that damaged us and precluded us from obtaining the full potential scope of patent protection for our instrument rights.  Contemporaneously with our filing of this complaint, we also commenced arbitration proceedings with the American Arbitration Association against the defendants asserting, among other things, patent infringement claims (both direct infringement, contributory infringement and infringement by inducing third parties to infringe),
breach of contract and other contract claims, and tort claims such as breach of fiduciary duty, breach of trust, and unfair competition.  The arbitration is based on our allegation that the defendants (i) have infringed our exclusive rights to PCR patents in fields exclusively licensed to us pursuant to agreements with the defendants; and (ii) by their acts and omissions, have undermined the value of our exclusive PCR rights.  In both the legal complaint and the arbitration, we are seeking monetary damages, costs, expenses, injunctive relief, and other relief as the court or arbitrator deems proper.  On December 15, 2003, Roche filed a motion in California Superior Court to compel arbitration of our state court complaint and to stay the litigation.  Concurrently with the motion to compel
arbitration, Roche also filed with the American Arbitration Association its response to our notice of arbitration in which Roche denied all of our claims against it.  Roches response included counterclaims asserting, among other things, that our exclusive patent rights under some PCR patents licensed from Roche under an existing distribution agreement were converted into nonexclusive rights by the Letter Agreement, which was entered into subsequent to the distribution agreement.  Roche also alleges that (i) we breached our contractual obligation under the Letter Agreement, including our obligation to source certain enzymes exclusively from Roche; and (ii) we failed to pay Roche the full royalties required pursuant to the distribution agreement.  In its counterclaim, Roche is seeking
a request for declaratory judgment confirming its assertions, interest, costs, and other relief as the arbitrator deems proper.  The claims and counterclaims described in this paragraph involve PCR rights used by the Applied Biosystems group and also rights that the Applied Biosystems group has contributed to Celera Diagnostics.  On March 1, 2004 the Superior Court denied Roches motion to compel arbitration, but Roche has appealed the decision and both the arbitration and the litigation have been stayed pending the outcome of the appeal.

We have made disclosures regarding
    our litigation in Item 1 of Part II of our prior  quarterly reports for this
    fiscal year. Refer to those reports for additional information about developments
    in our
litigation during this fiscal year.



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Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

This table provides information regarding our purchases of shares of Applera-Applied Biosystems stock during the third quarter of fiscal 2004.

|Period                | Total Number of
Shares Purchased (1) |  |  | Average Price
Paid per Share |  |  | Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs |  |  | Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans
or Programs (2)(in millions) |    
|--------------------- | ------------------------------------ |  |  | ---------------------------- |  |  | -------------------------------------------------------------------------------- |  |  | --------------------------------------------------------------------------------------------------------- | ---
|                     
|January 5-30, 2004    | 10,771                               |  |  | $21.42                       |  |  |                                                                                 |  |  | $116.0                                                                                                    |    
|February 2-27, 2004   | 4,285,505                            |  |  | $23.09                       |  |  | 4,269,400                                                                        |  |  | $  17.5                                                                                                   |    
|March 1-April 2, 2004 | 778,600                              |  |  | $22.46                       |  |  | 778,600                                                                          |  |  | $                                                                                                        |    
|                     
|Total                 | 5,074,876                            |  |  | $22.99                       |  |  | 5,048,000                                                                        |  |  | $100.0                                                                                                    | (3)
|                     

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On August 28, 2003, we announced that our Board of Directors had authorized the repurchase of up to $200 million in Applera-Applied Biosystems stock.  We completed our share repurchases under this authorization in March 2004.  The difference between the total number of shares purchased and the total number of shares purchased as part of publicly announced plans or programs consists of shares repurchased from
employees in connection with the exercise of employee stock options as well as the payment of
taxes relating to stock option exercises.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(2) | We previously announced that our Board of Directors has authorized the
repurchase of shares of Applera-Applied Biosystems stock from time to time to replenish shares issued
under our various employee stock benefit plans.  This authorization has no set dollar or time
limits and delegates to Company management discretion to purchase shares at times and prices it deems
appropriate through open market or negotiated purchases.  No shares were purchased
under this authorization during the third quarter of fiscal 2004.                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(3) | The dollar amount shown reflects a new share repurchase authorization obtained from our Board of Directors after the end of the third quarter of fiscal 2004 and announced on April 5, 2004.  Under this authorization, we may repurchase up to an additional $100 million in Applera-Applied Biosystems stock.  This authorization has no expiration date.                                                                                                                                                                                                        

This table provides information regarding our purchases of shares of Applera-Celera stock during the third quarter of fiscal 2004.

|Period                |  |  | Total Number of Shares Purchased (1) |  |  | Average Price Paid per Share |  |  | Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs |  |  | Maximum Number of Shares that may yet be Purchased Under the Plans or Programs (2) | 
|--------------------- |  |  | ------------------------------------ |  |  | ---------------------------- |  |  | -------------------------------------------------------------------------------- |  |  | ---------------------------------------------------------------------------------- | 
|                     
|January 5-30, 2004    |  |  | 5,218                                |  |  | $15.58                       |  |  |                                                                                 |  |  | $                                                                                 | 
|February 2-27, 2004   |  |  | 3,660                                |  |  | $15.57                       |  |  |                                                                                 |  |  | $                                                                                 | 
|March 1-April 2, 2004 |  |  |                                     |  |  | $                           |  |  |                                                                                 |  |  | $                                                                                 | 
|                     
|Total                 |  |  | 8,878                                |  |  | $15.57                       |  |  |                                                                                 |  |  | $                                                                                 | 
|                     

|    |                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists of shares repurchased from employees in connection with the exercise of
employee stock options as well as the payment of taxes relating to stock option exercises.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | We previously announced that our Board of Directors has authorized the repurchase of
shares of Applera-Celera stock from time to time to replenish shares issued under our various employee stock
benefit plans.  This authorization has no set dollar or time limits and delegates to Company management
discretion to purchase shares at times and prices it deems appropriate through open market  or
negotiated purchases.  No shares were purchased under this
authorization during the third quarter of fiscal 2004.



78

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

| | (a) | Exhibits.
| | --- | ---------

| |  |      |                                                                                                                                                                                                                                                                                      
| |  | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 13   | Annual Report to Stockholders for the fiscal year ended June 30, 2003, 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, 2003 (Commission file number 1-4389)).
| |  |      |                                                                                                                                                                                                                                                                                      
| |  | 31.1 | Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                 
| |  |      |                                                                                                                                                                                                                                                                                      
| |  | 31.2 | Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                 
| |  |      |                                                                                                                                                                                                                                                                                      
| |  | 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                   
| |  |      |                                                                                                                                                                                                                                                                                      
| |  | 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                   

(b)Reports on Form 8-K.

| |  | During the quarter ended March 31, 2004, we filed a Current Report on Form 8-K dated January 28, 2004, to disclose under Item 12 thereof our January 28, 2004, press releases setting forth the financial results of Applera and the Applied Biosystems group and the Celera Genomics group for the second quarter of our 2004 fiscal year.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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SIGNATURES

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

| |     |                              
| | --- | -----------------------------
| |     | APPLERA CORPORATION          
| |     |                              
| |     |                              
| |     |                              
| | By: | /s/ Dennis L. Winger         
| |     |                              
| |     | Dennis L. Winger             
| |     | Senior Vice President and    
| |     | Chief Financial Officer      
| |     |                              
| |     |                              
| |     |                              
| | By: | /s/ Ugo D. DeBlasi           
| |     |                              
| |     | Ugo DeBlasi                  
| |     | Vice President and Controller
| |     | (Chief Accounting Officer)   

Dated:  May 13, 2004

80

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EXHIBIT INDEX

Exhibit Number

|31.1 |  |  | Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|---- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     |  |  |                                                                                                                                                                     
|---- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.2 |  |  | Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

|     |  |  |                                                                                                                                                  
|---- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|32.1 |  |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

|     |  |  |                                                                                                                                                  
|---- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|32.2 |  |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





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