UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 10-Q

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

For the quarterly period ended September 30, 2004

OR

|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934
|---------------------------------------------------------------------------------------

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 October 29, 2004,
    there were 196,025,010 shares of Applera Corporation-Applied Biosystems Group Common
    Stock and 73,273,830 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 Months Ended September 30, 2003 and 2004 | 1     | 
|                                      |                                                                                                            |       | 
|                                      | Condensed Consolidated Statements of Financial
    Position at June 30, 2004 and September 30, 2004        | 2     | 
|                                      |                                                                                                            |       | 
|                                      | Condensed Consolidated Statements of Cash Flows
    for the Three Months Ended September 30, 2003 and 2004 | 3     | 
|                                      |                                                                                                            |       | 
|                                      | Notes to Unaudited Condensed Consolidated Financial Statements                                             | 4-21  | 
|                                      |                                                                                                            |       | 
|Item 2.                               | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                  |       | 
|                                      |                                                                                                            |       | 
|                                      | Discussion of Applera Corporation                                                                          | 22-28 | 
|                                      |                                                                                                            |       | 
|                                      | Discussion of Applied Biosystems Group                                                                     | 28-32 | 
|                                      |                                                                                                            |       | 
|                                      | Discussion of Celera Genomics Group                                                                        | 32-34 | 
|                                      |                                                                                                            |       | 
|                                      | Discussion of Celera Diagnostics                                                                           | 34-35 | 
|                                      |                                                                                                            |       | 
|                                      | Outlook                                                                                                    | 35-36 | 
|                                      |                                                                                                            |       | 
|                                      | Forward-Looking Statements and Risk Factors                                                                | 36-53 | 
|                                      |                                                                                                            |       | 
|Item 3.                               | Quantitative and Qualitative Disclosures About Market Risk                                                 | 54    | 
|                                      |                                                                                                            |       | 
|Item 4.                               | Controls and Procedures                                                                                    | 54    | 
|                                      |                                                                                                            |       | 
|Part II. Other Information            |                                                                                                            |      
|                                      |                                                                                                            |       | 
|Item 1.                               | Legal Proceedings                                                                                          | 55-56 | 
|                                      |                                                                                                            |       | 
|Item 2.                               | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities                           | 56-57 | 
|                                      |                                                                                                            |       | 
|Item 6.                               | Exhibits and Reports on Form 8-K                                                                           | 58-59 | 

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PART I  FINANCIAL INFORMATION

Item 1. Financial Statements.

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

|                                                      | Three Months Ended
    September 30, |        
|----------------------------------------------------- | ------------------------------------ | -------
|                                                      |                                      |        
|                                                      |                                      | 2003   
|                                                      |                                      |        
|Products                                              | $                                    | 312,645
|Services                                              |                                      | 42,584 
|Other sources                                         |                                      | 49,808 
|                                                      |                                      |        
|Total Net Revenues                                    |                                      | 405,037
|                                                      |                                      |        
|Products                                              |                                      | 159,858
|Services                                              |                                      | 21,987 
|Other sources                                         |                                      | 6,890  
|                                                      |                                      |        
|Total Cost of Sales                                   |                                      | 188,735
|                                                      |                                      |        
|Gross Margin                                          |                                      | 216,302
|Selling, general and administrative                   |                                      | 109,024
|Research, development and engineering                 |                                      | 92,488 
|Amortization of intangible assets                     |                                      | 725    
|Employee-related charges, asset impairments and other |                                      |        
|Litigation settlements                                |                                      |        
|                                                      |                                      |        
|Operating Income                                      |                                      | 14,065 
|Gain on investments, net                              |                                      | 545    
|Interest expense                                      |                                      | (136   
|Interest income                                       |                                      | 6,206  
|Other income (expense), net                           |                                      | (986   
|                                                      |                                      |        
|Income before Income Taxes                            |                                      | 19,694 
|Provision for income taxes                            |                                      | 3,682  
|                                                      |                                      |        
|Net Income                                            | $                                    | 16,012 
|                                                      |                                      |        
|Applied Biosystems Group (see Note 2)                 |                                      |        
|Net Income per Share                                  |                                      |        
|Basic                                                 | $                                    | 0.16   
|Diluted                                               | $                                    | 0.16   
|                                                      |                                      |        
|Dividends Declared per Share                          | $                                    | 0.0425 
|                                                      |                                      |        
|Celera Genomics Group (see Note 2)                    |                                      |        
|Net Loss per Share                                    |                                      |        
|Basic and diluted                                     | $                                    | (0.23  

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

1

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

|                                             | At June 30, |           | At September 30, |            
|-------------------------------------------- | ----------- | --------- | ---------------- | -----------
|                                             | 2004        |           | 2004             |            
|                                             |             |           |                  |            
|                                             |             |           |                  | (Unaudited)
|Assets                                       |             |           |                  |            
|Current assets                               |             |           |                  |            
|Cash and cash equivalents                    | $           | 561,935   |                  | $          
|Short-term investments                       |             | 688,806   |                  |            
|Accounts receivable, net                     |             | 392,170   |                  |            
|Inventories, net                             |             | 140,796   |                  |            
|Prepaid expenses and other current assets    |             | 139,701   |                  |            
|                                             |             |           |                  |            
|Total current assets                         |             | 1,923,408 |                  |            
|Property, plant and equipment, net           |             | 446,027   |                  |            
|Other long-term assets                       |             | 603,416   |                  |            
|                                             |             |           |                  |            
|Total Assets                                 | $           | 2,972,851 |                  | $          
|                                             |             |           |                  |            
|Liabilities and Stockholders Equity         |             |           |                  |            
|Current liabilities                          |             |           |                  |            
|Current portion of long-term debt            | $           | 6,081     |                  | $          
|Accounts payable                             |             | 147,995   |                  |            
|Accrued salaries and wages                   |             | 89,704    |                  |            
|Accrued taxes on income                      |             | 80,599    |                  |            
|Other accrued expenses                       |             | 272,389   |                  |            
|                                             |             |           |                  |            
|Total current liabilities                    |             | 596,768   |                  |            
|Other long-term liabilities                  |             | 195,034   |                  |            
|                                             |             |           |                  |            
|Total Liabilities                            |             | 791,802   |                  |            
|                                             |             |           |                  |            
|Stockholders Equity                         |             |           |                  |            
|Capital stock                                |             |           |                  |            
|Applera CorporationApplied Biosystems Group |             | 2,130     |                  |            
|Applera CorporationCelera Genomics Group    |             | 731       |                  |            
|Capital in excess of par value               |             | 2,111,805 |                  |            
|Retained earnings                            |             | 441,069   |                  |            
|Accumulated other comprehensive loss         |             | (15,683   | )                |            
|Treasury stock, at cost                      |             | (359,003  | )                |            
|                                             |             |           |                  |            
|Total Stockholders Equity                   |             | 2,181,049 |                  |            
|                                             |             |           |                  |            
|Total Liabilities and Stockholders Equity   | $           | 2,972,851 |                  | $          
|                                             |             |           |                  |            

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)

|                                                                                      | Three months ended
    September 30, |         
|------------------------------------------------------------------------------------- | ------------------------------------ | --------
|                                                                                      |                                      |         
|                                                                                      | 2003                                 |         
|Operating Activities of Continuing Operations                                         |                                      |         
|Net income                                                                            | $                                    | 16,012  
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                      |         
|Depreciation and amortization                                                         |                                      | 32,286  
|Asset impairments                                                                     |                                      |         
|Provisions for employee-related charges and other                                     |                                      |         
|Long-term compensation programs                                                       |                                      | 1,020   
|Gain from investments and sale of assets, net                                         |                                      | (545    
|Deferred income taxes                                                                 |                                      | (4,023  
|Loss from equity method investees                                                     |                                      | 762     
|Changes in operating assets and liabilities:                                          |                                      |         
|Accounts receivable                                                                   |                                      | 70,458  
|Inventories                                                                           |                                      | (9,482  
|Prepaid expenses and other assets                                                     |                                      | 2,705   
|Accounts payable and other liabilities                                                |                                      | (91,721 
|                                                                                      |                                      |         
|Net Cash Provided by Operating Activities of
         Continuing Operations           |                                      | 17,472  
|                                                                                      |                                      |         
|Investing Activities of Continuing Operations                                         |                                      |         
|Additions to property, plant and equipment, net                                       |                                      | (18,206 
|Proceeds from maturities of available-for-sale investments                            |                                      | 662,918 
|Proceeds from sales of available-for-sale investments                                 |                                      | 133,674 
|Purchases of available-for-sale investments                                           |                                      | (715,621
|                                                                                      |                                      |         
|Net Cash Provided by Investing Activities of
         Continuing Operations           |                                      | 62,765  
|                                                                                      |                                      |         
|Net Cash Provided by Operating Activities of
         Discontinued Operations         |                                      |         
|                                                                                      |                                      |         
|Financing Activities                                                                  |                                      |         
|Principal payments on debt                                                            |                                      |         
|Dividends                                                                             |                                      | (8,880  
|Purchases of common stock for treasury                                                |                                      | (36,295 
|Proceeds from stock issued for stock plans                                            |                                      | 6,475   
|                                                                                      |                                      |         
|Net Cash Used by Financing Activities                                                 |                                      | (38,700 
|                                                                                      |                                      |         
|Effect of Exchange Rate Changes on Cash                                               |                                      | (3,340  
|                                                                                      |                                      |         
|Net Change in Cash and Cash Equivalents                                               |                                      | 38,197  
|Cash and Cash Equivalents Beginning of Period                                         |                                      | 654,283 
|                                                                                      |                                      |         
|Cash and Cash Equivalents End of Period                                               | $                                    | 692,480 
|                                                                                      |                                      |         

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

3

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APPLERA CORPORATIONNOTES 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 2004 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 2004 Annual Report to
Stockholders. You should read these unaudited interim condensed consolidated
    financial statements in conjunction with our consolidated financial statements
    presented in our 2004 Annual Report to Stockholders.

Note 2  Earnings (Loss) per Share and Stock-Based Compensation

The following table presents a reconciliation of basic and diluted earnings (loss) per share for the three months ended September 30:

|                                                       | Applied Biosystems |      | Celera Genomics |  
|------------------------------------------------------ | ------------------ | ---- | --------------- | -
|                                                       | Group              |      | Group           |  
|                                                       |                    |      |                 |  
|(Dollar amounts in millions, except per share amounts) | 2003               |      | 2004            |  
|                                                       |                    |      |                 |  
|Net income (loss)                                      | $                  | 33.4 |                 | $
|Allocated intercompany sales of assets                 |                    |      |                 |  
|Allocated taxes                                        |                    |      |                 |  
|                                                       |                    |      |                 |  
|Total net income allocated                             |                    | 33.4 |                 |  
|Less dividends declared on common stock                |                    | 8.9  |                 |  
|                                                       |                    |      |                 |  
|Undistributed earnings (loss)                          | $                  | 24.5 |                 | $
|                                                       |                    |      |                 |  
|                                                       |                    |      |                 |  
|Allocation of basic earnings (loss) per share          |                    |      |                 |  
|Basic distributed earnings per share                   | $                  | 0.04 |                 | $
|Basic undistributed earnings (loss) per share          |                    | 0.12 |                 |  
|                                                       |                    |      |                 |  
|Total basic earnings (loss) per share                  | $                  | 0.16 |                 | $
|                                                       |                    |      |                 |  
|                                                       |                    |      |                 |  
|Allocation of diluted earnings (loss) per share        |                    |      |                 |  
|Diluted distributed earnings per share                 | $                  | 0.04 |                 | $
|Diluted undistributed earnings (loss) per share        |                    | 0.12 |                 |  
|                                                       |                    |      |                 |  
|Total diluted earnings (loss) per share                | $                  | 0.16 |                 | $
|                                                       |                    |      |                 |  
|                                                       |                    |      |                 |  
|Weighted average number of common shares               |                    |      |                 |  
|Basic                                                  | 208.4              |      | 195.5           |  
|Common stock equivalents                               |                    | 3.2  |                 |  
|                                                       |                    |      |                 |  
|Diluted                                                | 211.6              |      | 198.3           |  
|                                                       |                    |      |                 |  



4

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APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

Options to purchase stock at exercise prices greater
    than the average market prices of our common stocks were excluded from the
    computation of diluted earnings per share because the effect would have been
    antidilutive.  Additionally, options and warrants to purchase shares of Applera
    Corporation-Celera Genomics Group Common Stock (Applera-Celera Genomics
    stock) were excluded from the computation of diluted loss per share
    because the effect was  antidilutive. The following table presents the number
    of shares excluded from the diluted earnings and loss per share computations
    for the three months ended September 30:

|(Shares in millions)                                          | 2003 |  | 2004
|------------------------------------------------------------- | ---- |  | ----
|                                                              |      |  |     
|Applera Corporation-Applied Biosystems Group
    Common Stock | 24.7 |  | 26.7
|Applera-Celera Genomics stock                                 | 12.2 |  | 12.5
|                                                              |      |  |     

The following tables illustrate the effect on reported
    net income (loss) and earnings (loss) per share as 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 September 30 are presented below:

|                                                       |   |                                                      |   |                    |      |                 | Applera Corporation |      
|------------------------------------------------------ | - | ---------------------------------------------------- | - | ------------------ | ---- | --------------- | ------------------- | -----
|(Dollar amounts in millions)                           |   |                                                      |   |                    |      |                 |                     | 2003 
|                                                       |   |                                                      |   |                    |      |                 |                     |      
|Net income, as reported                                |   |                                                      |   |                    |      |                 | $                   | 16.0 
|Add:                                                   |   | Stock-based employee compensation expense            |   |                    |      |                 |                     |      
|                                                       |   | included in reported net income, net of tax          |   |                    |      |                 |                     |      
|Deduct:                                                |   | Stock-based employee compensation expense            |   |                    |      |                 |                     |      
|                                                       |   | determined under fair value based method, net of tax |   |                    |      |                 |                     |      
|                                                       |   |                                                      |   |                    |      |                 |                     |      
|Pro forma net loss                                     |   |                                                      |   |                    |      |                 | $                   | (19.3
|                                                       |   |                                                      |   |                    |      |                 |                     |      
|                                                       |   |                                                      |   |                    |      |                 |                     |      
|                                                       |   |                                                      |   | Applied Biosystems |      | Celera Genomics |                    
|                                                       |   |                                                      |   | Group              |      | Group           |                    
|                                                       |   |                                                      |   |                    |      |                 |                     |      
|(Dollar amounts in millions, except per share amounts) |   | 2003                                                 |   |                    | 2004 |                 |                     | 2003 
|                                                       |   |                                                      |   |                    |      |                 |                     |      
|Total net income (loss) allocated, as calculated above | $ | 33.4                                                 |   | $                  | 36.4 |                 | $                   | (16.3
|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                                           |   | 29.3               |      |                 | 15.6                |      
|                                                       |   |                                                      |   |                    |      |                 |                     |      
|Pro forma net income (loss)                            | $ | 4.5                                                  |   | $                  | 21.2 |                 | $                   | (22.7
|                                                       |   |                                                      |   |                    |      |                 |                     |      
|                                                       |   |                                                      |   |                    |      |                 |                     |      
|Earnings (loss) per share                              |   |                                                      |   |                    |      |                 |                     |      
|                                                       |   | Basic - as reported                                  | $ | 0.16               |      | $               | 0.19                |      
|                                                       |   | Basic - pro forma                                    | $ | 0.02               |      | $               | 0.11                |      
|                                                       |   | Diluted - as reported                                | $ | 0.16               |      | $               | 0.18                |      
|                                                       |   | Diluted - pro forma                                  | $ | 0.02               |      | $               | 0.11                |      
|                                                       |   |                                                      |   |                    |      |                 |                     |      

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 months ended September 30:

5

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APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

|                                                                                                       |  |   | 2003 |  |   | 2004  |  
|------------------------------------------------------------------------------------------------------ |  | - | ---- |  | - | ----- | -
|                                                                                                       |  |   |      |  |   |       |  
|Applied Biosystems Group                                                                               |  |   |      |  |   |       |  
|Dividend yield                                                                                         |  |   | 0.8% |  |   | 0.9%  |  
|Volatility                                                                                             |  |   | 71%  |  |   | 70%   |  
|Risk-free interest rate                                                                                |  |   | 3.2% |  |   | 3.5%  |  
|Expected option life in years                                                                          |  |   | 5    |  |   | 5     |  
|                                                                                                       |  |   |      |  |   |       |  
|Celera Genomics Group                                                                                  |  |   |      |  |   |       |  
|Volatility                                                                                             |  |   | 95%  |  |   | 60%   |  
|Risk-free interest rate                                                                                |  |   | 3.2% |  |   | 3.5%  |  
|Expected option life in years                                                                          |  |   | 4    |  |   | 4     |  
|                                                                                                       |  |   |      |  |   |       |  
|                                                                                                       |  |   |      |  |   |       |  
|Note 3  Items Impacting Comparability                                                                 |  |   |      |  |   |       |  
|                                                                                                       |  |   |      |  |   |       |  
|The following table summarizes significant charges and income for the three months ended September 30: | 
|                                                                                                       |  |   |      |  |   |       |  
|(Dollar amounts in millions)                                                                           |  |   | 2003 |  |   | 2004  |  
|                                                                                                       |  |   |      |  |   |       |  
|Severance and benefit costs                                                                            |  | $ |     |  | $ | (8.5  | )
|Excess lease space                                                                                     |  |   |      |  |   | (1.5  | )
|Asset impairments                                                                                      |  |   |      |  |   | (0.2  | )
|                                                                                                       |  |   |      |  |   |       |  
|Total employee-related charges, asset impairments,
       and other                                    |  | $ |     |  | $ | (10.2 | )
|                                                                                                       |  |   |      |  |   |       |  
|Impairment of inventory recorded in cost
       of sales                                               |  | $ |     |  | $ | (1.7  | )
|                                                                                                       |  |   |      |  |   |       |  
|Litigation settlements                                                                                 |  | $ |     |  | $ | 8.5   |  
|                                                                                                       |  |   |      |  |   |       |  

Applied Biosystems group chargeDuring
    the first quarter of fiscal 2005, the Applied Biosystems group recorded a
    pre-tax charge of $7.4 million in employee-related charges, asset impairments
    and other for the termination of approximately 170 employees, mainly in the
    U.S. The positions being eliminated are primarily in the areas of research,
    manufacturing, sales and administration. The severance charges related primarily
    to staff reductions intended to better align the Applied Biosystems
groups resources with anticipated business opportunities and to integrate the Applied Biosystems MALDI Time-of-Flight (TOF)
product line into the Applied Biosystems/MDS Sciex Instruments joint venture
with MDS Inc.

As of September 30, 2004, we had notified the affected employees and we expect that the majority of these employees will be terminated by December 31, 2004. As of September 30, 2004, we had made $4.6 million of cash
payments related to employee terminations. The remaining cash expenditures are expected to be substantially completed by December 31, 2004 and will be funded by cash provided by operating activities.

Celera Genomics group chargeDuring the first quarter of fiscal 2005, the Celera Genomics group recorded pre-tax charges totaling $4.5 million related to our decision to discontinue promotion of products and most operations at Paracel, Inc., a business
we acquired in fiscal 2000. Paracel developed high-performance genomic data and text analysis systems for the pharmaceutical, biotechnology, information services and government markets. Since the focus of the Celera Genomics group has shifted to
targeted therapeutics, Paracel was no longer deemed strategic to the overall business. The $4.5 million charge consisted of $2.8 million in employee-related charges, asset impairments and other, of which $1.1 million was for severance and benefit
costs and $1.7 million was for excess facility lease expenses and asset impairments. The Celera Genomics group recorded the remaining $1.7 million in cost of sales for the impairment of Paracel inventory.

The severance and benefits charge related to the termination of approximately 25 employees, primarily in the areas of service and support. The charge for excess facility lease expenses and asset impairments was primarily
for the estimated cost of excess facility space for a lease that extends through fiscal 2011 and to write-off related fixed assets.

6

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APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

As of September 30, 2004, we had notified the affected employees and we expect that most of these employees will be terminated by November 30, 2004. The majority of the cash expenditures related to the employee terminations
are expected to be paid in the quarter ending December 31, 2004 and will be funded by available cash.

Other chargesDuring the first quarter of fiscal 2005, the Applied Biosystems group made cash payments of $1.4 million related to severance and employee benefits and office closures for charges taken prior to fiscal 2005. The majority of
the remaining cash payments of approximately $1 million related to these charges are expected to be made in fiscal 2005.

Litigation settlementIn the first quarter of fiscal 2005, the Applied Biosystems group received a payment of $8.5 million from Illumina, Inc. in connection with the termination of a joint development agreement and settlement of a patent
infringement claim. This pre-tax gain was recorded in litigation settlements.

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-month periods ended September 30 was as follows:

|(Dollar amounts in millions)                                            |   | 2003 |   |   | 2004 |  
|----------------------------------------------------------------------- | - | ---- | - | - | ---- | -
|                                                                        |   |      |   |   |      |  
|Net income                                                              | $ | 16.0 |   | $ | 16.1 |  
|Other comprehensive gain (loss):                                        |   |      |   |   |      |  
|Net
    unrealized gains on investments                                 |   | 1.1  |   |   | 0.2  |  
|Net
    unrealized gains on investments reclassified into earnings      |   | (1.5 | ) |   |      |  
|Net
    unrealized losses on hedge contracts                            |   | (9.3 | ) |   | (2.7 | )
|Net
    unrealized losses on hedge contracts reclassified into earnings |   | 2.7  |   |   | 2.0  |  
|Foreign
    currency translation adjustments                            |   | 5.0  |   |   | 5.2  |  
|                                                                        |   |      |   |   |      |  
|Total other comprehensive gain (loss)                                   |   | (2.0 | ) |   | 4.7  |  
|                                                                        |   |      |   |   |      |  
|Total comprehensive gain                                                | $ | 14.0 |   | $ | 20.8 |  
|                                                                        |   |      |   |   |      |  

Note 5 Inventories

Inventories included the following components:

|(Dollar amounts in millions) | June 30,
      2004 |       | September 30,
    2004
|---------------------------- | ------------------- | ----- | ----------------------
|                             |                     |       |                       
|Raw materials and supplies   | $                   | 52.6  |                       
|Work-in-process              |                     | 7.4   |                       
|Finished products            |                     | 80.8  |                       
|                             |                     |       |                       
|Total inventories, net       | $                   | 140.8 |                       
|                             |                     |       |                       
|                             |                     |       |                       

Note 6  Assets Held for Sale

In fiscal 2004, the Celera Genomics group decided to pursue the sale of its Rockville, MD facility. As a result of this decision, in the fourth quarter of fiscal 2004, we reclassified $40.3 million of property, plant and
equipment into assets held for sale within prepaid expenses and other current assets. The sale of this facility is expected to occur during fiscal 2005.

7

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APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

Note 7  Goodwill and Intangible
Assets

The following table presents our intangible
assets subject to amortization:

|                                                                                              |  |   |              |  | June 30, 2004 |      | September 30, 2004 |  
|--------------------------------------------------------------------------------------------- |  | - | ------------ |  | ------------- | ---- | ------------------ | -
|                                                                                              |  |   |              |  |               |      |                    |  
|                                                                                              |  |   |              |  | Gross         |      |                    |  
|                                                                                              |  |   | Weighted     |  | Carrying      |      | Accumulated        |  
|(Dollar amounts in millions)                                                                  |  |   | Average Life |  | Amount        |      | Amortization       |  
|                                                                                              |  |   |              |  |               |      |                    |  
|Patents                                                                                       |  |   | 8.0          |  | $             | 25.5 |                    | $
|Acquired technology                                                                           |  |   | 6.4          |  |               | 60.1 |                    |  
|Favorable operating leases                                                                    |  |   | 4.0          |  |               | 11.6 |                    |  
|                                                                                              |  |   |              |  |               |      |                    |  
|Total                                                                                         |  |   |              |  | $             | 97.2 |                    | $
|                                                                                              |  |   |              |  |               |      |                    |  
|                                                                                              |  |   |              |  |               |      |                    |  
|Aggregate amortization expense for the three-month periods ended September 30 was as follows: | 
|                                                                                              |  |   |              |  |               |      |                    |  
|(Dollar amounts in millions)                                                                  |  |   | 2003         |  |               | 2004 |                    |  
|                                                                                              |  |   |              |  |               |      |                    |  
|Applied Biosystems group                                                                      |  | $ | 2.6          |  | $             | 1.8  |                    |  
|Celera Genomics group                                                                         |  |   | 0.7          |  |               | 0.7  |                    |  
|Celera Diagnostics                                                                            |  |   | 0.5          |  |               | 0.5  |                    |  
|                                                                                              |  |   |              |  |               |      |                    |  
|Consolidated                                                                                  |  | $ | 3.8          |  | $             | 3.0  |                    |  
|                                                                                              |  |   |              |  |               |      |                    |  

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

At September 30, 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.

|                             |   | Applied    |  | Celera   |     |             |   |              | 
|---------------------------- | - | ---------- |  | -------- | --- | ----------- | - | ------------ | 
|                             |   | Biosystems |  | Genomics |     | Celera      |   |              | 
|(Dollar amounts in millions) |   | Group      |  | Group    |     | Diagnostics |   | Consolidated | 
|                             |   |            |  |          |     |             |   |              | 
|2005                         | $ | 6.9        |  | $        | 2.9 |             | $ | 2.2          | 
|2006                         |   | 6.5        |  |          | 1.1 |             |   | 2.2          | 
|2007                         |   | 5.3        |  |          |     |             |   | 2.0          | 
|2008                         |   | 2.6        |  |          |     |             |   | 0.4          | 
|2009                         |   | 1.6        |  |          |     |             |   |              | 
|                             |   |            |  |          |     |             |   |              | 

The carrying amount of goodwill at June 30, 2004, and September 30, 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  Debt

We repaid, on behalf of the Celera Genomics group,
    the remaining $6.0 million in principal amount of our 8% senior secured convertible
    notes
    that
    matured
    in the first
    quarter of fiscal 2005. The notes were assumed in connection with the acquisition
    of Axys  Pharmaceuticals, Inc. A portion of the proceeds from the principal
    and interest received on non-callable U.S. government obligations, which
    were pledged as collateral for the notes, was used to fund the interest and
    principal payments under the
notes.

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APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

Note 9  Supplemental Cash
Flow Information

Significant non-cash financing activities
for the three months ended September 30 were as follows:

|(Dollar amounts in millions)    | 2003 |     | 2004
|------------------------------- | ---- | --- | ----
|                                |      |     |     
|Dividends declared but not paid | $    | 8.9 |     
|Issuances of restricted stock   | $    | 6.6 |     
|                                |      |     |     

Note 10  Guarantees

LeasesThe Applied Biosystems group
    provides lease-financing options to its customers through third party financing
    companies. For some leases, the financing companies
    have recourse to us for any unpaid principal balance upon default by the
    customer. The  leases typically have terms of two to three years and are
    secured by the underlying instrument. In the event of default by a customer,
    we would repossess the underlying instrument. We record revenues from these
    transactions 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 September 30, 2004, the financing companies outstanding
    balance of  lease receivables with recourse to us was $7.8 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 $51 million
    at September 30, 2004, is
not expected to have a material adverse effect on our consolidated financial
position.

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. The warranties cover equipment installation, customer training,
    and application support. We periodically review the adequacy of our warranty
    reserve, and adjust, if necessary,
the warranty percentage and accrual based on actual experience and estimated
costs to be incurred.

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APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

The following table provides an analysis of the warranty reserve for the three months ended September 30:

|(Dollar amount in millions) |  |   | 2003 |   |   | 2004 |  
|--------------------------- |  | - | ---- | - | - | ---- | -
|                            |  |   |      |   |   |      |  
|Balance at June 30          |  | $ | 15.1 |   | $ | 15.9 |  
|Accruals for warranties     |  |   | 5.7  |   |   | 4.5  |  
|Usage of reserve            |  |   | (7.5 | ) |   | (6.5 | )
|                            |  |   |      |   |   |      |  
|Balance at September 30     |  | $ | 13.3 |   | $ | 13.9 |  
|                            |  |   |      |   |   |      |  

Note 11  Pension and Other Postretirement
Benefits

The components of net pension and postretirement benefit expenses for the
three months ended September 30 were as follows:

|(Dollar amounts in millions)   |   | 2003 |   |   | 2004  |  
|------------------------------ | - | ---- | - | - | ----- | -
|                               |   |      |   |   |       |  
|Pension                        |   |      |   |   |       |  
|Service cost                   | $ | 2.7  |   | $ | 0.6   |  
|Interest cost                  |   | 8.9  |   |   | 9.5   |  
|Expected return on plan assets |   | (9.5 | ) |   | (10.5 | )
|Amortization of losses         |   | 1.0  |   |   | 0.9   |  
|                               |   |      |   |   |       |  
|Net periodic expense           | $ | 3.1  |   | $ | 0.5   |  
|                               |   |      |   |   |       |  
|Postretirement Benefit         |   |      |   |   |       |  
|Service cost                   | $ | 0.1  |   | $ | 0.1   |  
|Interest cost                  |   | 1.2  |   |   | 1.0   |  
|Amortization of losses         |   |      |   |   | (0.1  | )
|                               |   |      |   |   |       |  
|Net periodic expense           | $ | 1.3  |   | $ | 1.0   |  
|                               |   |      |   |   |       |  

The accrual of future service benefits for all participants in our U.S. pension plan was terminated as of June 30, 2004.

We contributed, on behalf of the Applied Biosystems
    group, $0.3 million to our pension plans during the three months ended September
    30,
    2004 and
    we
    expect
    to fund
    approximately
    $0.7 million during the remainder of fiscal 2005. We contributed approximately
    $2 million  to the postretirement plan during the three months ended September
    30, 2004 and we expect to fund approximately $5 million during the remainder
    of fiscal 2005.

Note 12  Contingencies

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

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

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APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

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.

We are involved in several litigation matters with
    MJ Research, Inc. (acquired by Bio-Rad Laboratories, Inc. since the commencement
    of litigation), which commenced with our filing claims against MJ Research
    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. The antitrust phase
    of the trial has not yet commenced.

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.

Beckman Coulter, Inc. filed a patent infringement
    action against us in the U.S. District Court for the Central District of
    California on July 3, 2002. The complaint alleges that we are infringing
    Beckman Coulters U.S.
Patent Nos. RE 37,606 and 5,421,980, both entitled Capillary Electrophoresis
Using Replaceable Gels, and U.S. Patent No. 5,552,580, entitled Heated
Cover Device. The allegedly infringing products are the Applied Biosystems
groups capillary electrophoresis sequencing and genetic analysis instruments,
and PCR and real-time PCR systems. Since Beckman Coulter filed this claim, U.S.
Patent No. 5,421,980 has been reissued as U.S. Patent No. RE 37,941, entitled
Capillary Electrophoresis Using Replaceable Gels. On January 13,
2003, the court permitted Beckman Coulter to make a corresponding amendment to
its complaint. Beckman Coulter is seeking monetary damages, costs and expenses,
injunctive
relief, and

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APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

other relief as the court deems proper. On February 10, 2003, we filed our answer to Beckman Coulters allegations, and counterclaimed for declaratory relief that the Beckman Coulter patents underlying Beckman
Coulters claim are invalid, unenforceable, and not infringed. We are seeking dismissal of Beckman Coulters complaint, costs and expenses, declaratory and injunctive relief, and other relief as the court deems proper.

Genetic Technologies Limited filed a patent infringement action against us in the U.S. District Court for the Northern District of California on March 26, 2003. They filed an amended complaint against us on August 12, 2003.
The amended complaint 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, TaqMan®genotyping and gene expression assay products for non-coding regions, TaqMan genotyping and gene expression assay services for non-coding regions and the Celera Discovery System (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.
    On-Line Technologies filed an appeal with the U.S. Court of Appeals for the
    Federal
Circuit seeking reinstatement of its claims, and on October 13, 2004, the Appeals
    Court upheld dismissal of all claims except for the patent infringement claim,
which will be decided by the District Court in subsequent proceedings.

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

12

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APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

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. On June 29, 2004, the court granted our motion to dismiss for failure
    to state a claim upon which relief could be granted, but gave Promega the
    right to file an  amended complaint. Promega filed an amended complaint on
    July 13, 2004, and we filed another motion to dismiss on August 6, 2004.
    The court granted our second motion and dismissed the case with prejudice
    on August 20, 2004. Promega has filed an
appeal with the U.S. Court of Appeals for the Fourth Circuit.

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

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

13

---



APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

Molecular Diagnostics Laboratories filed a class
    action complaint against us and Hoffmann-La Roche, Inc. in the U.S. District
    Court for the District of Columbia on September 23, 2004. The complaint alleges
    anticompetitive  conduct in connection with the sale of Taq DNA polymerase
    and PCR-related products. The anticompetitive conduct is alleged to arise
    from the prosecution and enforcement of U.S. Patent No 4,889,818. This patent
    is assigned to Hoffmann-La Roche, with
whom we have a commercial relationship covering, among other things, this patent
    and the sale of Taq DNA polymerase. The complaint seeks monetary damages,
    costs, expenses, injunctive relief, and other relief as the court deems proper.
    This case is  largely based on the same set of contentions underlying a claim
    filed against us by Promega Corporation in the U.S. District Court for the
    Eastern District of Virginia, which is described above. The Promega claim
    was dismissed in August 2004 for,
among other reasons, failure to state a claim upon which relief could be granted.

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 legal actions is inherently
    uncertain, and we cannot be sure that we will prevail in any of the cases
    described
    above or in our other legal actions. An adverse determination in
    some of our current legal actions, particularly
the cases described above, could have a material adverse effect on our consolidated
    financial statements.

Note 13  Subsequent Event

On October 25, 2004, the Applied Biosystems group
    completed the sale of some of its intellectual property and research and
    development assets related to its MALDI TOF product line to MDS Inc, with
    a net book value of  approximately $6 million, including approximately $5
    million in inventory. Under the terms of the transaction, MDS will pay $40
    million for a 50 percent interest in intellectual property assets related
    to current Applied Biosystems MALDI TOF mass
spectrometry systems and next-generation product-related manufacturing and research
    and development assets. MDS and the Applied Biosystems group have each contributed
    the MALDI TOF and related intellectual property to Applied Biosystems/MDS
    Sciex  Instruments, a 50/50 joint venture of the Applied Biosystems group
    and MDS Sciex division. The proceeds from the sale consisted of $8 million
    in cash and a $32 million note receivable. The note receivable is due in
    5 years and payable in equal
annual installments of $8 million commencing with the first payment in October
    2006.

Note 14  Segment and Consolidating Information

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

See Note 15 to our consolidated financial statements
    included in our 2004 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
    September 30, |    
|----------------------------------------------- |  | ------------------------------------ | ---
|                                                |  |                                      |    
|(Dollar amounts in millions)                    |  | 2003                                 |    
|                                                |  |                                      |    
|Applied Biosystems Group                        |  |                                      |    
|Sales to the Celera Genomics group (1)          |  | $                                    | 0.3
|Sales to Celera Diagnostics (1)                 |  |                                      | 2.6
|                                                |  |                                      |    
|Celera Genomics Group                           |  |                                      |    
|Royalties from the Applied Biosystems group (2) |  | $                                    | 0.6
|                                                |  |                                      |    

14

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APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

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

The following table summarizes supplemental cash flow activity between segments:

|                                                          | Three Months Ended
    September 30, |     
|--------------------------------------------------------- | ------------------------------------ | ----
|                                                          |                                      |     
|(Dollar amounts in millions)                              | 2003                                 |     
|                                                          |                                      |     
|Applied Biosystems Group                                  |                                      |     
|Nonreimbursable utilization of tax benefits (1)           | $                                    | 6.1 
|Payments for reimbursable utilization of tax benefits (2) |                                      | 5.3 
|Funding of Celera Diagnostics (3)                         |                                      | 2.2 
|                                                          |                                      |     
|Celera Genomics Group                                     |                                      |     
|Funding of Celera Diagnostics (4)                         | $                                    | 12.5
|                                                          |                                      |     

|    |                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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.                                                                                                                 
|    |                                                                                                                                                                                                                                                                                         
|(2) | 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.
|    |                                                                                                                                                                                                                                                                                         
|(3) | The Applied Biosystems group recorded its share of capital expenditures and working capital funding for Celera Diagnostics.                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                         
|(4) | The Celera Genomics group recorded its share of funding of cash operating losses, capital expenditures and working capital for Celera Diagnostics.                                                                                                                                      

For the three-month periods ended September 30,
    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.

15

---



APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

Condensed Consolidating Statement of Operations for the Three Months Ended September 30, 2004

|                                      | Applied    |         | Celera   |   |         |   |             |        |   |             
|------------------------------------- | ---------- | ------- | -------- | - | ------- | - | ----------- | ------ | - | ------------
|                                      | Biosystems |         | Genomics |   | Celera  |   |             |        |   |             
|(Dollar amounts in thousands)         |            | Group   |          |   | Group   |   | Diagnostics |        |   | Eliminations
|                                      |            |         |          |   |         |   |             |        |   |             
|                                      |            |         |          |   |         |   |             |        |   |             
|Products                              | $          | 317,077 |          | $ | 721     |   | $           | 1,085  |   | $           
|Services                              |            | 45,543  |          |   | 542     |   |             | 450    |   |             
|Other sources                         |            | 26,358  |          |   | 7,745   |   |             | 7,640  |   |             
|                                      |            |         |          |   |         |   |             |        |   |             
|Net revenues from external customers  |            | 388,978 |          |   | 9,008   |   |             | 9,175  |   |             
|Intersegment revenues                 |            | 1,335   |          |   | 638     |   |             |        |   |             
|                                      |            |         |          |   |         |   |             |        |   |             
|Total Net Revenues                    |            | 390,313 |          |   | 9,646   |   |             | 9,175  |   |             
|Products                              |            | 157,631 |          |   | 2,154   |   |             | 1,010  |   |             
|Services                              |            | 21,902  |          |   | 75      |   |             |        |   |             
|Other sources                         |            | 3,195   |          |   | 381     |   |             | 2,067  |   |             
|                                      |            |         |          |   |         |   |             |        |   |             
|Cost of Sales                         |            | 182,728 |          |   | 2,610   |   |             | 3,077  |   |             
|                                      |            |         |          |   |         |   |             |        |   |             
|Gross Margin                          |            | 207,585 |          |   | 7,036   |   |             | 6,098  |   |             
|Selling, general and administrative   |            | 99,260  |          |   | 3,967   |   |             | 2,289  |   |             
|Corporate allocated expenses          |            | 9,710   |          |   | 1,494   |   |             | 669    |   |             
|Research, development and engineering |            | 51,143  |          |   | 24,422  |   |             | 12,432 |   |             
|Amortization of intangible assets     |            |         |          |   | 725     |   |             |        |   |             
|Employee-related charges, asset       |            |         |          |   |         |   |             |        |   |             
|impairments, and other                |            | 7,373   |          |   | 2,846   |   |             |        |   |             
|Litigation settlements                |            | (8,500  | )        |   |         |   |             |        |   |             
|                                      |            |         |          |   |         |   |             |        |   |             
|Operating Income (Loss)               |            | 48,599  |          |   | (26,418 | ) |             | (9,292 | ) |             
|Interest income, net                  |            | 2,376   |          |   | 2,861   |   |             |        |   |             
|Other income (expense), net           |            | 582     |          |   | 1,551   |   |             |        |   |             
|Loss from joint venture               |            |         |          |   | (9,292  | ) |             |        |   |             
|                                      |            |         |          |   |         |   |             |        |   |             
|Income (Loss) before Income Taxes     |            | 51,557  |          |   | (31,298 | ) |             | (9,292 | ) |             
|Provision (benefit) for income taxes  |            | 14,457  |          |   | (10,954 | ) |             |        |   |             
|                                      |            |         |          |   |         |   |             |        |   |             
|Net Income (Loss)                     | $          | 37,100  |          | $ | (20,344 | ) | $           | (9,292 | ) | $           
|                                      |            |         |          |   |         |   |             |        |   |             

16

---



APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

Condensed Consolidating Statement of Financial Position at September 30, 2004

|                                           | Applied    |           | Celera   |   |         |  |             |        |  |             
|------------------------------------------ | ---------- | --------- | -------- | - | ------- |  | ----------- | ------ |  | ------------
|                                           | Biosystems |           | Genomics |   | Celera  |  |             |        |  |             
|(Dollar amounts in thousands)              |            | Group     |          |   | Group   |  | Diagnostics |        |  | Eliminations
|                                           |            |           |          |   |         |  |             |        |  |             
|Assets                                     |            |           |          |   |         |  |             |        |  |             
|Current assets                             |            |           |          |   |         |  |             |        |  |             
|Cash and cash equivalents                  | $          | 534,827   |          | $ | 114,684 |  | $           |       |  | $           
|Short-term investments                     |            |           |          |   | 589,780 |  |             |        |  |             
|Accounts receivable, net                   |            | 329,173   |          |   | 2,324   |  |             | 7,728  |  |             
|Inventories, net                           |            | 139,319   |          |   | 265     |  |             | 9,346  |  |             
|Prepaid expenses and other current assets  |            | 106,882   |          |   | 47,785  |  |             | 6,849  |  |             
|                                           |            |           |          |   |         |  |             |        |  |             
|Total current assets                       |            | 1,110,201 |          |   | 754,838 |  |             | 23,923 |  |             
|Property, plant and equipment, net         |            | 393,195   |          |   | 32,958  |  |             | 8,224  |  |             
|Other long-term assets                     |            | 429,743   |          |   | 179,981 |  |             | 6,296  |  |             
|                                           |            |           |          |   |         |  |             |        |  |             
|Total Assets                               | $          | 1,933,139 |          | $ | 967,777 |  | $           | 38,443 |  | $           
|                                           |            |           |          |   |         |  |             |        |  |             
|                                           |            |           |          |   |         |  |             |        |  |             
|Liabilities and Stockholders Equity       |            |           |          |   |         |  |             |        |  |             
|Current liabilities                        |            |           |          |   |         |  |             |        |  |             
|Accounts payable                           | $          | 127,607   |          | $ | 6,206   |  | $           | 6,795  |  | $           
|Accrued salaries and wages                 |            | 41,801    |          |   | 6,488   |  |             | 2,283  |  |             
|Accrued taxes on income                    |            | 54,840    |          |   | 14,197  |  |             |        |  |             
|Other accrued expenses                     |            | 228,038   |          |   | 24,248  |  |             | 4,676  |  |             
|                                           |            |           |          |   |         |  |             |        |  |             
|Total current liabilities                  |            | 452,286   |          |   | 51,139  |  |             | 13,754 |  |             
|Other long-term liabilities                |            | 188,154   |          |   | 8,170   |  |             | 382    |  |             
|                                           |            |           |          |   |         |  |             |        |  |             
|Total Liabilities                          |            | 640,440   |          |   | 59,309  |  |             | 14,136 |  |             
|                                           |            |           |          |   |         |  |             |        |  |             
|Total Stockholders Equity                 |            | 1,292,699 |          |   | 908,468 |  |             | 24,307 |  |             
|                                           |            |           |          |   |         |  |             |        |  |             
|Total Liabilities and Stockholders Equity | $          | 1,933,139 |          | $ | 967,777 |  | $           | 38,443 |  | $           
|                                           |            |           |          |   |         |  |             |        |  |             

17

---



APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

Condensed Consolidating Statement of Cash Flows for the Three Months Ended September 30, 2004

|                                                                     | Applied    |         | Celera   |   |          |   |   |             |   |             
|-------------------------------------------------------------------- | ---------- | ------- | -------- | - | -------- | - | - | ----------- | - | ------------
|                                                                     | Biosystems |         | Genomics |   | Celera   |   |   |             |   |             
|(Dollar amounts in thousands)                                        |            | Group   |          |   | Group    |   |   | Diagnostics |   | Eliminations
|                                                                     |            |         |          |   |          |   |   |             |   |             
|Operating Activities                                                 |            |         |          |   |          |   |   |             |   |             
|Net income (loss)                                                    | $          | 37,100  |          | $ | (20,344  | ) | $ | (9,292      | ) | $           
|Adjustments to reconcile net income (loss) to net cash               |            |         |          |   |          |   |   |             |   |             
|provided (used) by operating activities:                             |            |         |          |   |          |   |   |             |   |             
|Depreciation and amortization                                        |            | 21,060  |          |   | 2,936    |   |   | 1,913       |   |             
|Asset impairments                                                    |            | 66      |          |   | 1,910    |   |   |             |   |             
|Provisions for employee-related charges and other                    |            | 2,735   |          |   | 2,638    |   |   |             |   |             
|Long-term compensation programs                                      |            | 722     |          |   | 367      |   |   |             |   |             
|Deferred income taxes                                                |            | (6,049  | )        |   | 3,344    |   |   |             |   |             
|Loss from joint venture                                              |            |         |          |   | 9,292    |   |   |             |   |             
|Nonreimbursable utilization of intergroup tax benefits               |            | 10,566  |          |   | (10,566  | ) |   |             |   |             
|Changes in operating assets and liabilities:                         |            |         |          |   |          |   |   |             |   |             
|Accounts receivable                                                  |            | 55,744  |          |   | 1,758    |   |   | (1,024)     |   |             
|Inventories                                                          |            | (8,296  | )        |   | (44      | ) |   | 184         |   |             
|Prepaid expenses and other assets                                    |            | (6,959  | )        |   | (377     | ) |   | (2,260      | ) |             
|Accounts payable and other liabilities                               |            | (67,156 | )        |   | (17,506  | ) |   | 553         |   |             
|                                                                     |            |         |          |   |          |   |   |             |   |             
|Net Cash Provided (Used) by Operating Activities                     |            | 39,533  |          |   | (26,592  | ) |   | (9,926      | ) |             
|                                                                     |            |         |          |   |          |   |   |             |   |             
|Investing Activities                                                 |            |         |          |   |          |   |   |             |   |             
|Additions to property, plant and equipment, net                      |            | (8,613  | )        |   | (1,392   | ) |   | (353        | ) |             
|Proceeds from maturities of available-for-sale investments           |            |         |          |   | 716,602  |   |   |             |   |             
|Proceeds from sales of available-for-sale investments                |            |         |          |   | 144,363  |   |   |             |   |             
|Purchases of available-for-sale investments                          |            |         |          |   | (761,782 | ) |   |             |   |             
|Acquisitions and investments in joint venture and other, net         |            | (1,451  | )        |   | (8,828   | ) |   |             |   |             
|                                                                     |            |         |          |   |          |   |   |             |   |             
|Net Cash Provided (Used) by Investing Activities                     |            | (10,064 | )        |   | 88,963   |   |   | (353)       |   |             
|                                                                     |            |         |          |   |          |   |   |             |   |             
|Net Cash Provided by Operating Activities of Discontinued Operations |            | 533     |          |   |          |   |   |             |   |             
|                                                                     |            |         |          |   |          |   |   |             |   |             
|Financing Activities                                                 |            |         |          |   |          |   |   |             |   |             
|Principal payments on debt                                           |            |         |          |   | (6,000   | ) |   |             |   |             
|Dividends                                                            |            | (8,322  | )        |   |          |   |   |             |   |             
|Net cash funding from groups                                         |            |         |          |   |          |   |   | 10,279      |   |             
|Proceeds from stock issued for stock plans                           |            | 3,886   |          |   | 1,325    |   |   |             |   |             
|                                                                     |            |         |          |   |          |   |   |             |   |             
|Net Cash Provided (Used) by Financing Activities                     |            | (4,436  | )        |   | (4,675   | ) |   | 10,279      |   |             
|                                                                     |            |         |          |   |          |   |   |             |   |             
|Effect of Exchange Rate Changes on Cash                              |            | 4,314   |          |   |          |   |   |             |   |             
|                                                                     |            |         |          |   |          |   |   |             |   |             
|Net Change in Cash and Cash Equivalents                              |            | 29,880  |          |   | 57,696   |   |   |            |   |             
|Cash and Cash Equivalents Beginning of Period                        |            | 504,947 |          |   | 56,988   |   |   |             |   |             
|                                                                     |            |         |          |   |          |   |   |             |   |             
|Cash and Cash Equivalents End of Period                              | $          | 534,827 |          | $ | 114,684  |   | $ |            |   | $           
|                                                                     |            |         |          |   |          |   |   |             |   |             

18

---



APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

Condensed Consolidating Statement of Operations for the Three Months Ended September 30, 2003

|                                      | Applied    |         | Celera   |   |         |   |             |         |   |             
|------------------------------------- | ---------- | ------- | -------- | - | ------- | - | ----------- | ------- | - | ------------
|                                      | Biosystems |         | Genomics |   | Celera  |   |             |         |   |             
|(Dollar amounts in thousands)         |            | Group   |          |   | Group   |   | Diagnostics |         |   | Eliminations
|                                      |            |         |          |   |         |   |             |         |   |             
|                                      |            |         |          |   |         |   |             |         |   |             
|Products                              | $          | 309,251 |          | $ | 1,078   |   | $           | 2,316   |   | $           
|Services                              |            | 41,559  |          |   | 1,025   |   |             |         |   |             
|Other sources                         |            | 28,913  |          |   | 14,703  |   |             | 6,192   |   |             
|                                      |            |         |          |   |         |   |             |         |   |             
|Net revenues from external customers  |            | 379,723 |          |   | 16,806  |   |             | 8,508   |   |             
|Intersegment revenues                 |            | 2,948   |          |   | 551     |   |             | 13      |   |             
|                                      |            |         |          |   |         |   |             |         |   |             
|Total Net Revenues                    |            | 382,671 |          |   | 17,357  |   |             | 8,521   |   |             
|Products                              |            | 159,351 |          |   | 553     |   |             | 1,291   |   |             
|Services                              |            | 22,140  |          |   | 92      |   |             |         |   |             
|Other sources                         |            | 3,056   |          |   | 2,077   |   |             | 2,364   |   |             
|                                      |            |         |          |   |         |   |             |         |   |             
|Total Cost of Sales                   |            | 184,547 |          |   | 2,722   |   |             | 3,655   |   |             
|                                      |            |         |          |   |         |   |             |         |   |             
|Gross Margin                          |            | 198,124 |          |   | 14,635  |   |             | 4,866   |   |             
|Selling, general and administrative   |            | 86,940  |          |   | 6,749   |   |             | 3,844   |   |             
|Corporate allocated expenses          |            | 9,358   |          |   | 1,477   |   |             | 656     |   |             
|Research, development and engineering |            | 59,673  |          |   | 21,750  |   |             | 12,422  |   |             
|Amortization of intangible assets     |            |         |          |   | 725     |   |             |         |   |             
|                                      |            |         |          |   |         |   |             |         |   |             
|Operating Income (Loss)               |            | 42,153  |          |   | (16,066 | ) |             | (12,056 | ) |             
|Gain (loss) on investments, net       |            | 1,188   |          |   | (643    | ) |             |         |   |             
|Interest income, net                  |            | 2,933   |          |   | 3,137   |   |             |         |   |             
|Other income (expense), net           |            | 84      |          |   | (1,070  | ) |             |         |   |             
|Loss from joint venture               |            |         |          |   | (12,056 | ) |             |         |   |             
|                                      |            |         |          |   |         |   |             |         |   |             
|Income (Loss) before Income Taxes     |            | 46,358  |          |   | (26,698 | ) |             | (12,056 | ) |             
|Provision (benefit) for income taxes  |            | 12,980  |          |   | (10,412 | ) |             |         |   |             
|                                      |            |         |          |   |         |   |             |         |   |             
|Net Income (Loss)                     | $          | 33,378  |          | $ | (16,286 | ) | $           | (12,056 | ) | $           
|                                      |            |         |          |   |         |   |             |         |   |             

19

---



APPLERA CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS continued

Consolidating Statement of Financial
Position at June 30, 2004

|                                           | Applied    |           | Celera   |   |           |  |   |             |  |  
|------------------------------------------ | ---------- | --------- | -------- | - | --------- |  | - | ----------- |  | -
|                                           | Biosystems |           | Genomics |   | Celera    |  |   |             |  |  
|(Dollar amounts in thousands)              |            | Group     |          |   | Group     |  |   | Diagnostics |  |  
|                                           |            |           |          |   |           |  |   |             |  |  
|Assets                                     |            |           |          |   |           |  |   |             |  |  
|Current assets                             |            |           |          |   |           |  |   |             |  |  
|Cash and cash equivalents                  | $          | 504,947   |          | $ | 56,988    |  | $ |            |  | $
|Short-term investments                     |            |           |          |   | 688,806   |  |   |             |  |  
|Accounts receivable, net                   |            | 382,977   |          |   | 4,082     |  |   | 6,704       |  |  
|Inventories, net                           |            | 129,342   |          |   | 1,924     |  |   | 9,530       |  |  
|Prepaid expenses and other current assets  |            | 92,440    |          |   | 47,346    |  |   | 4,590       |  |  
|                                           |            |           |          |   |           |  |   |             |  |  
|Total current assets                       |            | 1,109,706 |          |   | 799,146   |  |   | 20,824      |  |  
|Property, plant and equipment, net         |            | 402,908   |          |   | 34,093    |  |   | 9,245       |  |  
|Other long-term assets                     |            | 435,146   |          |   | 184,475   |  |   | 6,834       |  |  
|                                           |            |           |          |   |           |  |   |             |  |  
|Total Assets                               | $          | 1,947,760 |          | $ | 1,017,714 |  | $ | 36,903      |  | $
|                                           |            |           |          |   |           |  |   |             |  |  
|                                           |            |           |          |   |           |  |   |             |  |  
|Liabilities and Stockholders Equity       |            |           |          |   |           |  |   |             |  |  
|Current liabilities                        |            |           |          |   |           |  |   |             |  |  
|Current portion of long-term debt          | $          |          |          | $ | 6,081     |  | $ |            |  |  
|Accounts payable                           |            | 139,866   |          |   | 9,223     |  |   | 4,767       |  |  
|Accrued salaries and wages                 |            | 72,513    |          |   | 12,733    |  |   | 4,458       |  |  
|Accrued taxes on income                    |            | 66,967    |          |   | 13,632    |  |   |             |  |  
|Other accrued expenses                     |            | 238,340   |          |   | 30,715    |  |   | 3,741       |  |  
|                                           |            |           |          |   |           |  |   |             |  |  
|Total current liabilities                  |            | 517,686   |          |   | 72,384    |  |   | 12,966      |  |  
|Other long-term liabilities                |            | 186,516   |          |   | 7,901     |  |   | 617         |  |  
|                                           |            |           |          |   |           |  |   |             |  |  
|Total Liabilities                          |            | 704,202   |          |   | 80,285    |  |   | 13,583      |  |  
|                                           |            |           |          |   |           |  |   |             |  |  
|                                           |            |           |          |   |           |  |   |             |  |  
|Total Stockholders Equity                 |            | 1,243,558 |          |   | 937,429   |  |   | 23,320      |  |  
|                                           |            |           |          |   |           |  |   |             |  |  
|Total Liabilities and Stockholders Equity | $          | 1,947,760 |          | $ | 1,017,714 |  | $ | 36,903      |  | $
|                                           |            |           |          |   |           |  |   |             |  |  

20

---



APPLERA CORPORATIONNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
continued

Condensed Consolidating Statement of Cash Flows for the Three Months Ended September 30, 2003

|                                                           | Applied    |         | Celera   |   |          |   |             |         |              |  
|---------------------------------------------------------- | ---------- | ------- | -------- | - | -------- | - | ----------- | ------- | ------------ | -
|                                                           | Biosystems |         | Genomics |   | Celera   |   |             |         |              |  
|(Dollar amounts in thousands)                              |            | Group   |          |   | Group    |   | Diagnostics |         | Eliminations |  
|                                                           |            |         |          |   |          |   |             |         |              |  
|Operating Activities                                       |            |         |          |   |          |   |             |         |              |  
|Net income (loss)                                          | $          | 33,378  |          | $ | (16,286  | ) | $           | (12,056 | )            | $
|Adjustments to reconcile net income (loss) to net cash     |            |         |          |   |          |   |             |         |              |  
|provided (used) by operating activities:                   |            |         |          |   |          |   |             |         |              |  
|Depreciation and amortization                              |            | 24,990  |          |   | 5,507    |   |             | 1,823   |              |  
|Long-term compensation programs                            |            | 736     |          |   | 284      |   |             |         |              |  
|(Gains) losses on investments                              |            | (1,188  | )        |   | 643      |   |             |         |              |  
|Deferred income taxes                                      |            | (5,168  | )        |   | 59       |   |             |         |              |  
|Loss from joint venture and equity method investees        |            |         |          |   | 12,818   |   |             |         |              |  
|Nonreimbursable utilization of intergroup tax benefits     |            | 6,079   |          |   | (6,079   | ) |             |         |              |  
|Changes in operating assets and liabilities:               |            |         |          |   |          |   |             |         |              |  
|Accounts receivable                                        |            | 64,867  |          |   | 8,548    |   |             | (480    | )            |  
|Inventories                                                |            | (7,473  | )        |   | 187      |   |             | (2,196  | )            |  
|Prepaid expenses and other assets                          |            | 3,392   |          |   | (3,299   | ) |             | (169    | )            |  
|Accounts payable and other liabilities                     |            | (71,977 | )        |   | (18,010  | ) |             | (1,458  | )            |  
|                                                           |            |         |          |   |          |   |             |         |              |  
|Net Cash Provided (Used) by Operating Activities           |            | 47,636  |          |   | (15,628  | ) |             | (14,536 | )            |  
|                                                           |            |         |          |   |          |   |             |         |              |  
|Investing Activities                                       |            |         |          |   |          |   |             |         |              |  
|Additions to property, plant and equipment, net            |            | (17,196 | )        |   | (857     | ) |             | (156    | )            |  
|Proceeds from maturities of available-for-sale investments |            |         |          |   | 662,918  |   |             |         |              |  
|Proceeds from sales of available-for-sale investments      |            | 4,123   |          |   | 129,551  |   |             |         |              |  
|Purchases of available-for-sale investments                |            |         |          |   | (715,621 | ) |             |         |              |  
|Investments in joint venture                               |            | (2,229  | )        |   | (12,463  | ) |             |         |              |  
|Proceeds from the sale of assets, net                      |            |         |          |   | 3        |   |             |         |              |  
|                                                           |            |         |          |   |          |   |             |         |              |  
|Net Cash Provided (Used) by Investing Activities           |            | (15,302 | )        |   | 63,531   |   |             | (156    | )            |  
|                                                           |            |         |          |   |          |   |             |         |              |  
|Financing Activities                                       |            |         |          |   |          |   |             |         |              |  
|Dividends                                                  |            | (8,880  | )        |   |          |   |             |         |              |  
|Net cash funding from groups                               |            |         |          |   |          |   |             | 14,692  |              |  
|Purchases of common stock for treasury                     |            | (36,295 | )        |   |          |   |             |         |              |  
|Proceeds from stock issued for stock plans                 |            | 5,309   |          |   | 1,166    |   |             |         |              |  
|                                                           |            |         |          |   |          |   |             |         |              |  
|Net Cash Provided (Used) by Financing Activities           |            | (39,866 | )        |   | 1,166    |   |             | 14,692  |              |  
|                                                           |            |         |          |   |          |   |             |         |              |  
|Effect of Exchange Rate Changes on Cash                    |            | (3,340  | )        |   |          |   |             |         |              |  
|                                                           |            |         |          |   |          |   |             |         |              |  
|Net Change in Cash and Cash Equivalents                    |            | (10,872 | )        |   | 49,069   |   |             |        |              |  
|Cash and Cash Equivalents Beginning of Period              |            | 601,666 |          |   | 52,617   |   |             |         |              |  
|                                                           |            |         |          |   |          |   |             |         |              |  
|Cash and Cash Equivalents End of Period                    | $          | 590,794 |          | $ | 101,686  |   | $           |        |              | $
|                                                           |            |         |          |   |          |   |             |         |              |  

21

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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 AND 
RESULTS OFOPERATIONS

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 2004 Annual Report to Stockholders. Historical results and percentage
    relationships are not necessarily indicative of operating results for future
    periods. We  have reclassified some prior year amounts in the condensed consolidated
    financial statements and notes for comparative purposes. When used in this
    management discussion, 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 the discovery and development of targeted therapeutics for cancer, autoimmune
    and inflammatory diseases. The Celera Genomics group is leveraging its proteomic,
     bioinformatic, and genomic capabilities to identify and validate drug targets,
    and to discover and develop small molecule therapeutics. It is also seeking
    to advance therapeutic antibody and selected small molecule drug programs
    in collaboration
with global technology and market leaders.

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

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

More information about the risks relating to our
    capital structure, particularly our two classes of capital stock, is contained
    in our Annual Report on Form 10-K for fiscal 2004 filed with the Securities
    and Exchange
Commission.

22

---



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

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

Business Highlights:

Applied Biosystems Group

| | In August 2004, Catherine
       M. Burzik, formerly Executive Vice President and Chief Operating Officer
       of the Applied  Biosystems group, was promoted to President of the Applied
       Biosystems group, following the retirement of Michael W. Hunkapiller,
       Ph.D.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | In September 2004,
       the Applied Biosystems group and MDS Inc. announced the signing of a definitive
       agreement to expand the scope of their joint venture in life science mass
       spectrometry.  Under the terms of the agreement, MDS agreed to pay $40
       million for a 50 percent interest in intellectual property assets related
       to current Applied Biosystems MALDI Time-of-Flight (TOF) mass spectrometry
       systems and next-generation products under
development, together with a 100 percent interest in certain MALDI TOF product-related
       manufacturing and research and development assets. MDS and the Applied
       Biosystems group each also agreed to contribute the MALDI TOF and related
       intellectual  property to Applied Biosystems/MDS Sciex Instruments, a
       50/50 joint venture of the Applied Biosystems group and the MDS Sciex
       division. This transaction was completed in October 2004.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Also in September 2004, the Applied Biosystems group announced the introduction of LS*LIMS Software, a new workflow management and process automation solution designed to increase
productivity, improve data quality, and integrate data from many different sources for genomics and proteomics laboratories.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | In October 2004, the Applied Biosystems group announced the introductions of the Applied Biosystems 7900HT Fast Real-Time PCR System and the Applied Biosystems 9800 Fast PCR System. Both
systems are designed to reduce the time to results and increase productivity for performing polymerase chain reaction (PCR).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Also in October 2004, the Applied Biosystems group announced the introduction of a new line of Genetic Analyzers for low- to medium-throughput laboratories. The Applied Biosystems 3130 Series
Genetic Analyzers, which replace the ABI PRISM® 3100 and 3100-Avant Genetic Analyzers, are
designed to deliver enhanced automation, faster turnaround times, higher reliability, and higher data quality than previous generation technologies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Celera Genomics Group

| | In September 2004, the Celera Genomics group announced a collaboration with Genentech, Inc. to discover and develop targeted therapies for cancer. Genentech may develop various products against
therapeutic targets licensed from the Celera Genomics group, including antibodies, antibody fragments, proteins or small molecule drugs.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Celera Diagnostics

| | In October 2004, Celera Diagnostics announced and published that it has identified genetic variants associated with late-onset Alzheimers disease. The findings may have pharmacogenomic implications
for drugs in development as well as current and future therapies for Alzheimers and other neurodegenerative diseases.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies

Please refer to the discussion of our critical accounting policies contained in the managements discussion and analysis section of our 2004 Annual Report to Stockholders (which discussion is incorporated in this
quarterly report by reference).

Events Impacting Comparability

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

23

---



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

Employee-Related Charges, Asset and Goodwill Impairments, and OtherApplied Biosystems group chargeDuring the first quarter of fiscal 2005, the Applied
Biosystems group recorded a pre-tax charge of $7.4 million in employee-related
charges, asset impairments and other for the termination of approximately 170
employees,  mainly in the U.S. The positions being eliminated are primarily in
the areas of research, manufacturing, sales and administration.

The severance charges related primarily to staff
    reductions intended to better align the Applied Biosystems groups resources
    with anticipated business opportunities and to integrate the Applied Biosystems
    MALDI
Time-of-Flight (TOF) product line into the Applied Biosystems/MDS
Sciex Instruments joint venture with MDS Inc. Following this action, the Applied
Biosystems group expects to hire additional appropriately-skilled employees to
support
future business needs.

As of September 30, 2004, we had notified the affected
    employees and we expect that the majority of these employees will be terminated
    by December 31, 2004. As of September 30, 2004, we had made $4.6 million
    of cash  payments related to employee terminations. The remaining cash expenditures
    are expected to be substantially completed by December 31, 2004 and will
    be funded by cash provided by operating activities.

Celera Genomics group chargeDuring the first quarter of fiscal 2005, the Celera
Genomics group recorded pre-tax charges totaling $4.5 million related to our
decision to discontinue promotion of products and most operations at Paracel,
Inc., a business  we acquired in fiscal 2000. Paracel developed high-performance
genomic data and text analysis systems for the pharmaceutical, biotechnology,
information services and government markets. Since the focus of the Celera Genomics
group has shifted to
targeted therapeutics, Paracel was no longer deemed strategic to the overall
business. The $4.5 million charge consisted of $2.8 million in employee-related
charges, asset impairments and other, of which $1.1 million was for severance
and benefit  costs and $1.7 million was for excess facility lease expenses and
asset impairments. The Celera Genomics group recorded the remaining $1.7 million
in cost of sales for the impairment of Paracel inventory.

The severance and benefits charge related to the
    termination of approximately 25 employees, primarily in the areas of service
    and support. The charge for excess facility lease expenses and asset impairments
    was primarily  for the estimated cost of excess facility space for a lease
    that extends through fiscal 2011 and to write-off related fixed assets. Although
    the Celera Genomics group anticipates modest expenses related to the closure
    of the business and completion
of remaining service obligations over the next several quarters, these amounts
    are not expected to have a material impact on future operating results.

As of September 30, 2004, we had notified the affected
    employees and we expect that most of these employees will be terminated by
    November 30, 2004. The majority of the cash expenditures related to the employee
    terminations  are expected to be paid in the quarter ending December 31,
    2004 and will be funded by available cash.

Other chargesDuring the first quarter of fiscal 2005, the Applied
Biosystems group made cash payments of $1.4 million related to severance and
employee benefits and office closures for charges taken prior to fiscal 2005.
The majority of  the remaining cash payments of approximately $1 million related
to these charges are expected to be made in fiscal 2005.

Other Events Impacting ComparabilityLitigation settlementIn the first quarter of fiscal 2005, the Applied Biosystems
group received a payment of $8.5 million from Illumina, Inc. in connection with
the termination of a joint development agreement and settlement of a patent
infringement claim. This pre-tax gain was recorded in litigation settlements.

24

---



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

Discussion of Applera Corporations Consolidated Operations

|                                  | Three Months Ended |      
|--------------------------------- | ------------------ | -----
|                                  | September 30,      |      
|                                  |                    |      
|                                  |                    |      
|(Dollar amounts in millions)      |                    | 2003 
|                                  |                    |      
|Net revenues                      | $                  | 405.0
|Cost of sales                     |                    | 188.7
|                                  |                    |      
|Gross margin                      |                    | 216.3
|SG&A expenses                     |                    | 109.1
|R&D                               |                    | 92.4 
|Amortization of intangible assets |                    | 0.7  
|Employee-related charges, asset   |                    |      
|impairments and other             |                    |      
|Litigation settlements            |                    |      
|                                  |                    |      
|Operating income                  |                    | 14.1 
|Gain on investments, net          |                    | 0.5  
|Interest income, net              |                    | 6.0  
|Other income (expense), net       |                    | (0.9 
|                                  |                    |      
|Income before income taxes        |                    | 19.7 
|Provision for income taxes        |                    | 3.7  
|                                  |                    |      
|Net income                        | $                  | 16.0 
|                                  |                    |      
|Percentage of net revenues:       |                    |      
|Gross margin                      | 53.4%              |      
|SG&A expenses                     | 26.9%              |      
|R&D                               | 22.8%              |      
|Operating income                  |                    | 3.5% 
|                                  |                    |      
|Effective income tax rate         |                    | 19%  
|                                  |                    |      

|                                                                                                                                      
|--------------------------------------------------------------------------------------------------------------------------------------
|As previously described in events
      impacting comparability, fiscal 2005 results were impacted by the following
    pre-tax items:
|                                                                                                                                     
|                                                                                                                                     
|                                                                                                                                     

The tax benefit recorded on the fiscal 2005 net charge was $1.3 million.

Net income increased slightly in the first quarter of fiscal 2005 primarily due to: revenue growth at the Applied Biosystems group and Celera Diagnostics; improved gross margin at the Applied Biosystems group; lower R&D
expenses at the Applied Biosystems group; and higher other income, net, offset by higher SG&A expenses at the Applied Biosystems group. The net effect of foreign currency on net income was a benefit of approximately $4 million when comparing the
first quarter of fiscal 2005 with the first quarter of fiscal 2004. Please read our discussion of segments for information on their financial results.

The favorable effects of foreign currency increased net revenues in the first quarter of fiscal 2005 by approximately 2% compared to the first quarter of fiscal 2004. As a result, net revenues, excluding the effects of
foreign currency, decreased in comparison to the prior year quarter. Including the favorable effects of foreign currency, revenues increased at the Applied Biosystems group, driven by strength in both the Real-Time PCR/Other Applied Genomics and
Mass Spectrometry product categories, partially offset by lower revenues in the DNA Sequencing, Core DNA Synthesis and PCR, and Other Product Lines product categories. Revenues in the Real-Time PCR/Other Applied Genomics product

25

---



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

category increased primarily due to the continued
    strength of the TaqMan® Assays and consumable sales, both
    for gene expression and for SNP  genotyping, human identification products,
    and the expanding line of biosecurity products. Additionally, sales of the
    7300 and 7500 Real-Time PCR Systems, introduced during fiscal 2004 for low-to-medium
    throughput applications, contributed to growth
in this category. Mass Spectrometry revenue growth was led by sales of the 4000
    Q TRAP® LC/MS/MS System. In contrast, DNA Sequencing revenue
    declined compared to the  prior year quarter, primarily as a result of decreased
    sales of 3730xl DNA
    Analyzers. The decrease in revenues from Other Product Lines for the first
    quarter of fiscal 2005  resulted primarily from the informatics business,
    where the Applied Biosystems group had a large project in the first quarter
    of
    fiscal 2004 that was not repeated in fiscal 2005. Revenues in the Core DNA
    Synthesis & PCR product category declined
in part due to decreased sales to one customer. Net revenues decreased at the
    Celera Genomics group, primarily as a result of the continuing expiration
    of Online/Information Business customer agreements. Celera Diagnostics net
    revenues  increased due to an increase in equalization payments under the
    profit-sharing arrangement with Abbott Laboratories and technology-related
    revenues.

The higher gross margin percentage for first quarter
    of fiscal 2005 compared to fiscal 2004 was due primarily to: reduced software
    amortization; reduced warranty costs; increased sales of higher margin products,
    such as  sequencing consumables, human identification products used in forensics,
    and Real-Time PCR TaqMan® based Systems; and the favorable
    effects of foreign currency at the Applied Biosystems group. The increase
    in the first
    quarter of fiscal 2005 was  partially offset by lower revenues at the Celera
    Genomics group and the $1.7 million charge for the impairment of inventory
    for Paracel.

SG&A expenses, as a percentage of net revenues,
    increased in the first quarter of fiscal 2005 primarily due to: higher litigation-related
    legal expenses of $4.1 million; the unfavorable effects of foreign currency
    of  approximately $2 million; higher costs associated with an enterprise
    systems software upgrade; and the strategic business review. This increase
    was partially offset by lower insurance and pension costs of approximately
    $2.5 million and lower
Online/Information Business expenses, resulting from lower employee-related costs
    and bad debt expense, at the Celera Genomics group.

R&D expenses decreased for the first quarter
    of fiscal 2005 compared to the same quarter last year primarily as a result
    of the recent realignment of the Applied Biosystems groups R&D
    product portfolio and  cost reductions in the Online/Information Business
    at the Celera Genomics group. This decrease was partially offset by increased
    expenditures at the Celera Genomics group to support preclinical development
    activities and proteomic and genomic target
discovery programs.

Interest income, net decreased during the first
    quarter of fiscal 2005 compared to the prior year quarter primarily due to
    lower average cash and cash equivalents and short term investments and, to
    a lesser extent, lower
average interest rates.

Other income (expense), net in the first quarter
    of fiscal 2005 was impacted by: higher benefits associated with our foreign
    currency risk management program; lower losses recorded from equity method
    investments in fiscal  2005; and the receipt of $1.0 million related to a
    financing activity for one of the Celera Genomics groups investments
    in fiscal 2005.

The effective tax rate increased for the first quarter
    of fiscal 2005 compared to the first quarter of fiscal 2004 primarily due
    to a reduction in R&D credits.

Applera CorporationDiscussion of Condensed Consolidated Financial Resources and Liquidity

We had cash and cash equivalents and short-term
    investments of $1.2 billion at September 30, 2004 and $1.3 billion at June
    30, 2004. 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 September 30, 2004. We intend to renew this agreement prior
    to expiration. 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  potential share repurchases for the next twelve months and
    for the foreseeable future. However, if the Celera Genomics group is

26

---



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

successful in its preclinical programs, it may require additional funds to advance these programs through the regulatory process.

|                                                                  | June 30, |         |  | September 30, |        
|----------------------------------------------------------------- | -------- | ------- |  | ------------- | -------
|(Dollar amounts in millions)                                      |          | 2004    |  |               |        
|                                                                  |          |         |  |               |        
|Cash and cash equivalents                                         | $        | 561.9   |  |               | $      
|Short-term investments                                            |          | 688.8   |  |               |        
|                                                                  |          |         |  |               |        
|Total cash and cash equivalents and short-term
       investments | $        | 1,250.7 |  |               | $      
|Total debt                                                        |          | 6.1     |  |               |        
|Working capital                                                   |          | 1,326.6 |  |               | 1,371.8
|Debt to total capitalization                                      |          | 0.3%    |  |               |        
|                                                                  |          |         |  |               |        

Cash and cash equivalents increased during the first three months of fiscal 2005 from June 30, 2004 as cash generated from operating activities, proceeds from the sales and maturities of available-for-sale investments, net
of purchases, proceeds from stock issuances, and the favorable impact of the exchange rate valuation on our cash and cash equivalents exceeded the amount expended on the purchase of capital and other assets, repayment of debt, and payment of
dividends. Net cash flows for the three month periods ended September 30 were as follows:

|(Dollar amounts in millions)            | 2003 |       | 2004 |  
|--------------------------------------- | ---- | ----- | ---- | -
|                                        |      |       |      |  
|Net cash from operating activities      | $    | 17.5  |      | $
|Net cash from investing activities      |      | 62.8  |      |  
|Net cash from financing activities      |      | (38.7 | )    |  
|Effect of exchange rate changes on cash |      | (3.3  | )    |  
|                                        |      |       |      |  

Operating activities:The decrease in net cash provided from operating activities
for the first three months of fiscal 2005 compared to the first three months
of fiscal 2004 resulted primarily from: lower accounts receivable balance in
fiscal 2005; the timing of the receipt of dividends and distributions from investments
in unconsolidated subsidiaries at the Applied Biosystems group; the timing of
royalty payments at the Applied Biosystems group; higher severance and related
benefit
payments at the Applied Biosystems group in fiscal 2005; and lower cash receipts
in fiscal 2005 due to the continuing expiration of the Online/Information Business
customer agreements at the Celera Genomics group. This decrease was partially
offset
by higher incomerelated cash flows and the funding of our U.S. pension
plan of approximately $28 million in fiscal 2004.

Investing activities:Capital
    expenditures, net of disposals, were $8.0 million less than in the prior
    fiscal year period primarily due to lower
    expenditures for the Applied Biosystems groups Bedford, MA facility
    and, to a lesser extent,
thePleasanton,
CA facility. The first quarter of fiscal 2005 included the maturation of non-callable
U.S. government obligations, pledged as collateral for the 8% senior  secured
convertible notes assumed in connection with the acquisition of Axys Pharmaceuticals,
Inc. A portion of the proceeds from the principal and interest received on these
U.S. government obligations was used to fund the interest and principal
payments under the notes. During the first three months of fiscal 2005, proceeds
generated from sales and maturities of available-for-sale investments, net of
purchases, were $18.2 million higher than in the prior year period.

Financing activities:In the first quarter of fiscal 2005, we repaid, on
behalf of the Celera Genomics group, the remaining $6.0 million principal amount
of
the
convertible
notes
assumed
in connection
with the acquisition of Axys. In the first quarter of fiscal 2004, we repurchased
1.7
million shares of Applera-Applied Biosystems stock for $36.3 million.

Contractual Obligations

For a discussion of our contractual obligations,
    please refer to the contractual obligations section of the managements
    discussion and analysis included on page 30 of our 2004 Annual Report to
    Stockholders (which
section is incorporated in

27

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

this report by reference). Other than the repayment of $6 million of the convertible notes referred to above, there have been no significant developments with respect to our contractual obligations since June 30, 2004.

Discussion of Segments Operations, Financial Resources and Liquidity

|Applied Biosystems Group                                     |                    |       |       |   |       |   |             |  
|------------------------------------------------------------ | ------------------ | ----- | ----- | - | ----- | - | ----------- | -
|                                                             | Three Months Ended |      
|                                                             | September 30,      |      
|                                                             |                    |       |       |  
|                                                             |                    |       |       |   |       |   | % Increase/ |  
|(Dollar amounts in millions)                                 |                    | 2003  |       |   | 2004  |   | (Decrease)  |  
|                                                             |                    |       |       |   |       |   |             |  
|Net revenues                                                 | $                  | 382.7 |       | $ | 390.3 |   | 2.0%        |  
|Cost of sales                                                |                    | 184.6 |       |   | 182.7 |   | (1.0%       | )
|                                                             |                    |       |       |   |       |   |             |  
|Gross margin                                                 |                    | 198.1 |       |   | 207.6 |   | 4.8%        |  
|SG&A expenses                                                |                    | 96.3  |       |   | 109.0 |   | 13.2%       |  
|R&D                                                          |                    | 59.6  |       |   | 51.1  |   | (14.3%      | )
|Employee-related charges, asset 
      impairments and other |                    |       |       |   | 7.4   |   |             |  
|Litigation settlements                                       |                    |       |       |   | (8.5  | ) |             |  
|                                                             |                    |       |       |   |       |   |             |  
|Operating income                                             |                    | 42.2  |       |   | 48.6  |   | 15.2%       |  
|Gain on investments, net                                     |                    | 1.2   |       |   |       |   | (100.0%     | )
|Interest income, net                                         |                    | 2.9   |       |   | 2.4   |   | (17.2%      | )
|Other income (expense), net                                  |                    | 0.1   |       |   | 0.6   |   | 500.0%      |  
|                                                             |                    |       |       |   |       |   |             |  
|Income before income taxes                                   |                    | 46.4  |       |   | 51.6  |   | 11.2%       |  
|Provision for income taxes                                   |                    | 13.0  |       |   | 14.5  |   | 11.5%       |  
|                                                             |                    |       |       |   |       |   |             |  
|Net income                                                   | $                  | 33.4  |       | $ | 37.1  |   | 11.1%       |  
|                                                             |                    |       |       |   |       |   |             |  
|Percentage of net revenues:                                  |                    |       |       |   |       |   |             |  
|Gross margin                                                 | 51.8%              |       | 53.2% |   |       |  
|SG&A expenses                                                | 25.2%              |       | 27.9% |   |       |  
|R&D                                                          | 15.6%              |       | 13.1% |   |       |  
|Operating income                                             | 11.0%              |       | 12.5% |   |       |  
|                                                             |                    |       |       |   |       |   |             |  
|Effective income tax rate                                    |                    | 28%   |       |   | 28%   |   |             |  
|                                                             |                    |       |       |   |       |   |             |  

|                                                                                                                                        |                                                                                                                       
|--------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------
|As previously described in events
        impacting comparability, fiscal 2005 results were impacted by the following
    pre-tax items
|                                                                                                                                       | $7.4 million charge for severance and related costs, and                                                              
|                                                                                                                                       | $8.5 million gain from the termination of a joint development agreement and settlement of a patent infringement claim.

The tax charge recorded on the fiscal 2005 net $1.1 million gain was $0.3 million.

Net income increased in the first quarter of fiscal 2005 primarily due to improved gross margin and lower R&D expenses, offset by higher SG&A expenses. The net effect of foreign currency on net income in the first
quarter of fiscal 2005 was a benefit of approximately $4 million compared to the first quarter of fiscal 2004.

28

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

Revenues  overall summaryThe
    following table sets forth the Applied Biosystems groups revenues by
    product categories for the three
month periods ended September 30:

|                                        | Three Months Ended |      
|--------------------------------------- | ------------------ | -----
|                                        | September 30,      |      
|                                        |                    |      
|                                        |                    |      
|(Dollar amounts in millions)            |                    | 2003 
|                                        |                    |      
|DNA Sequencing                          | $                  | 124.8
|% of total revenues                     |                    | 33%  
|                                        |                    |      
|Real-Time PCR/Other Applied Genomics(a) |                    | 94.3 
|% of total revenues                     |                    | 25%  
|                                        |                    |      
|Mass Spectrometry                       |                    | 82.4 
|% of total revenues                     |                    | 21%  
|                                        |                    |      
|Core DNA Synthesis and PCR              |                    | 51.2 
|% of total revenues                     |                    | 13%  
|                                        |                    |      
|Other Product Lines                     |                    | 30.0 
|% of total revenues                     |                    | 8%   
|                                        |                    |      
|Total                                   | $                  | 382.7
|                                        |                    |      

| |     |                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------
| | (a) | The product category Real-Time PCR/Other Applied Genomics was previously referred to as SDS/Other Applied Genomics.

The favorable effects of foreign currency increased
    net revenues in the first quarter of fiscal 2005 by approximately 2% compared
    to the first quarter of fiscal 2004. As a result, net revenues, excluding
    the effects of  foreign currency, were relatively flat with the prior fiscal
    quarter. Revenues in the Real-Time PCR/Other Applied Genomics product category
    increased primarily due to the continued strength of the TaqMan® Assays
    and consumable sales, both for gene expression and for SNP genotyping, human
    identification
    products, and the expanding line of biosecurity products. Additionally, sales
    of the 7300  and 7500 Real-Time PCR Systems, introduced during fiscal 2004
    for low-to-medium throughput applications, contributed to growth in this
    category. Mass Spectrometry revenue growth was led by sales of our 4000 Q
    TRAP® LC/MS/MS System. In
    contrast, DNA Sequencing revenue declined compared to the prior year quarter,
    primarily as a result of decreased sales of 3730xl DNA Analyzers. The decrease
    in revenues from Other Product Lines for the first quarter of fiscal 2005
    resulted primarily from our informatics business, where we had a large project
    in the first  quarter of fiscal 2004 that was not repeated in fiscal 2005.
    Revenues in the Core DNA Synthesis & PCR product category declined in
    part due to decreased sales to one customer.

Revenues by geographic areaThe following table sets forth the Applied Biosystems
groups revenues by geographic area for the three month periods ended September
30:

29

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

|                                | Three Months Ended |      
|------------------------------- | ------------------ | -----
|                                | September 30,      |      
|                                |                    |      
|                                |                    |      
|(Dollar amounts in millions)    |                    | 2003 
|                                |                    |      
|United States                   | $                  | 189.7
|Europe                          |                    | 104.2
|Asia Pacific                    |                    | 77.3 
|Latin America and other markets |                    | 11.5 
|                                |                    |      
|Total                           | $                  | 382.7
|                                |                    |      

The favorable effects of foreign currency increased
    revenues by approximately 5% in Europe and 4% in Asia Pacific during the
    first quarter of fiscal 2005 compared to the prior year quarter. Revenues
    increased in Europe,  driven primarily by continued strong sales of the Applied
    Biosystems 7300 and 7500 Real-Time PCR Systems and the 4000 Q Trap® LC/MS/MS
    System. During the first quarter  of fiscal 2005, revenues from Japan declined
    13% compared to the prior year quarter, net of a positive impact from foreign
    currency of approximately 6%. This decline resulted from the ongoing transition
    of universities to Independent Administrative
Agency status which continued to negatively affect sales in Japan.

Revenue by sources

|                             | Three Months Ended |      
|---------------------------- | ------------------ | -----
|                             | September 30,      |      
|                             |                    |      
|                             |                    |      
|(Dollar amounts in millions) |                    | 2003 
|                             |                    |      
|Instruments                  | $                  | 172.2
|Consumables                  |                    | 139.7
|Other sources                |                    | 70.8 
|                             |                    |      
|Total                        | $                  | 382.7
|                             |                    |      

InstrumentsFor the first quarter of fiscal 2005, instrument revenues
decreased primarily due to reduced sales of DNA sequencing instruments, including
sales of the Applied Biosystems 3730xl/3730 DNA Analyzers.

ConsumablesFor the first quarter of fiscal 2005, the increase
    in consumables sales primarily reflected the strength of Real-Time PCR/Other
    Applied Genomics consumables due primarily to higher sales of
	TaqMan® Assays and consumables
    for gene expression and SNP genotyping, human identification products used
    in forensics, and the expanding line of biosecurity products.

Other sourcesRevenues from other sources, which included service
  and support, royalties, licenses, and contract research, increased for the first
  quarter of fiscal 2005 primarily due to increased service and support revenues.

Gross margin, as a percentage of net revenues, increased
    for the first quarter of fiscal 2005 over the prior year quarter due primarily
    to: reduced software amortization costs; reduced warranty costs; increased
    sales of  higher margin products, such as sequencing consumables, human identification
    products used in forensics, and Real-Time PCR TaqMan® based
    Systems; and the favorable
effects of foreign currency.

SG&A expenses increased over the first quarter
    of fiscal 2004 due primarily to: increased litigation-related legal expenses
    of $4.1 million; the unfavorable effects of foreign currency of approximately
    $2 million;  higher costs associated with an enterprise systems software
    upgrade; and the strategic business review. The increase in the first three
    months of fiscal 2005 was partially offset by lower insurance and pension
    costs of approximately $2 million. A
significant portion of the Applied Biosystems groups increased legal expenses
related to defending the Applied Biosystems groups intellectual property
assets.

30

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

R&D expenses decreased in the first quarter
    of fiscal 2005 from the prior year period as a result of the recent realignment
    of the R&D product portfolio.

Interest income, net decreased during the first
    quarter of fiscal 2005 compared to the prior year period primarily due to
    lower average cash and cash equivalents and, to a lesser extent, lower average
    interest rates.

Other income, net increased in the first quarter
    of fiscal 2005 in comparison to the prior year period primarily due to the
    higher benefits associated with our foreign currency risk management program,
    partially offset by
lower other non-operating income.

The effective tax rate was 28% for both the first
    quarters of fiscal 2005 and fiscal 2004.

Applied Biosystems GroupDiscussion of Financial Resources and Liquidity

The Applied Biosystems group had cash and cash equivalents
    of $534.8 million at September 30, 2004 and $504.9 million at June 30, 2004.
    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 September 30, 2004. We intend to renew this agreement prior to expiration.
    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 potential 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, |       | September 30, |  
|---------------------------- | -------- | ----- | ------------- | -
|(Dollar amounts in millions) |          | 2004  |               |  
|                             |          |       |               |  
|Cash and cash equivalents    | $        | 504.9 |               | $
|Working capital              |          | 592.0 |               |  
|                             |          |       |               |  

Cash and cash equivalents for the first three months
    ended September 30, 2004 increased from June 30, 2004 as cash generated from
    operating activities, the proceeds from stock issuances, and the favorable
    impact of the  exchange rate valuation on cash and cash equivalents exceeded
    expenditures for capital and other assets, the funding of the Celera Diagnostics
    joint venture, and the payment of dividends. Net cash flows of continuing
    operations for the three month
periods ended September 30 were as follows:

|(Dollar amounts in millions)            | 2003 |       | 2004 |  
|--------------------------------------- | ---- | ----- | ---- | -
|                                        |      |       |      |  
|Net cash from operating activities      | $    | 47.6  |      | $
|Net cash from investing activities      |      | (15.3 | )    |  
|Net cash from financing activities      |      | (39.9 | )    |  
|Effect of exchange rate changes on cash |      | (3.3  | )    |  
|                                        |      |       |      |  

Operating activities:Net cash from operating activities of continuing
    operations for the first three months of fiscal 2005 was $8.0 million lower
    than in the first three months of fiscal 2004. This decrease resulted primarily
    from lower  accounts receivable balance in fiscal 2005, the timing of the
    receipt of dividends and distributions from investments in unconsolidated
    subsidiaries, the timing of royalty payments, and higher severance and related
    benefit payments in fiscal 2005.
This

31

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

decrease was partially offset by higher incomerelated
    cash flows and the funding of our U.S. pension plan of approximately $28
    million in fiscal 2004. The Applied Biosystems groups days sales outstanding
    was 65  days at September 30, 2004, 61 days at June 30, 2004, and 75 days
    at September 30, 2003. Inventory on hand was 3.7 months at September 30,
    2004 compared to 2.8 months at June 30, 2004.

Investing activities:Capital expenditures for the first three months of
fiscal 2005, net of disposals, were $8.6 million less than in the prior fiscal
year period primarily due to lower expenditures for the Bedford, MA facility
and, to a lesser  extent, the Pleasanton, CA facility. The first three months
of fiscal 2004 included $4.1 million of proceeds primarily from the sale of minority
equity investments.

Financing activities:During the first three months of fiscal 2004, we repurchased
1.7 million shares of Applera-Applied Biosystems stock for $36.3 million.

Celera Genomics Group

|                                  | Three Months Ended |      
|--------------------------------- | ------------------ | -----
|                                  | September 30,      |      
|                                  |                    |      
|                                  |                    |      
|(Dollar amounts in millions)      |                    | 2003 
|                                  |                    |      
|Net revenues                      | $                  | 17.3 
|Cost of sales                     |                    | 2.7  
|R&D                               |                    | 21.8 
|SG&A expenses                     |                    | 8.2  
|Amortization of intangible assets |                    | 0.7  
|Employee-related charges, asset   |                    |      
|impairments and other             |                    |      
|                                  |                    |      
|Operating loss                    |                    | (16.1
|Loss on investments, net          |                    | (0.7 
|Interest income, net              |                    | 3.1  
|Other income (expense), net       |                    | (1.0 
|Loss from joint venture           |                    | (12.0
|                                  |                    |      
|Loss before income taxes          |                    | (26.7
|Benefit for income taxes          |                    | 10.4 
|                                  |                    |      
|Net loss                          | $                  | (16.3
|                                  |                    |      
|Effective income tax benefit rate |                    | 39%  
|                                  |                    |      

As previously described in events impacting comparability,
    fiscal 2005 results were impacted by the $4.5 million pre-tax charge, including
    $1.7 million recorded in cost of sales, related to the decision to discontinue
    most  operations of Paracel. The tax benefit recorded on this charge was
    $1.6 million.

The higher net loss in the first quarter of fiscal
    2005 in comparison to the first quarter of fiscal 2004 primarily resulted
    from lower net revenues and the Paracel charge recorded in fiscal 2005, partially
    offset by the  lower losses for the Celera Diagnostics joint venture in fiscal
    2005.

Revenues decreased for the first quarter of fiscal
    2005 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.

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

32

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

R&D expenses increased in the first quarter
    of fiscal 2005 in comparison to the same quarter last year primarily due
    to increased expenditures to support preclinical development activities and
    proteomic and genomic  target discovery programs. These increases were partially
    offset by lower Online/Information Business R&D expenses.

SG&A expenses decreased in the first quarter
    of fiscal 2005 compared to the prior year quarter primarily due to lower
    Online/Information Business expenses resulting from lower employee-related
    costs and bad debt
expense.

Interest income, net decreased during the first
    quarter of fiscal 2005 compared to the prior year quarter primarily due to
    lower average cash and cash equivalents and short-term investments.

The decrease in other income (expense), net for
    the first quarter of fiscal 2005 in comparison to the prior year quarter
    resulted primarily from losses recorded from equity method investments in
    fiscal 2004 and the receipt  of $1.0 million related to a financing activity
    for one of the Celera Genomics groups investments in fiscal 2005.

The decrease in the effective income tax benefit
    rate for the first quarter of fiscal 2005 was primarily attributable to a
    reduction in R&D credits.

Celera Genomics Group
Discussion of Financial Resources and Liquidity

The Celera Genomics group had cash and cash equivalents
    and short-term investments of $704.5 million at September 30, 2004 and $745.8
    million at June 30, 2004. 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 September 30, 2004. We intend to renew this
    agreement prior to expiration.

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, |       | September 30, |  
|----------------------------------------------------------------- | -------- | ----- | ------------- | -
|(Dollar amounts in millions)                                      |          | 2004  |               |  
|                                                                  |          |       |               |  
|Cash and cash equivalents                                         | $        | 57.0  |               | $
|Short-term investments                                            |          | 688.8 |               |  
|                                                                  |          |       |               |  
|Total cash and cash equivalents and short-term
       investments | $        | 745.8 |               | $
|Total debt                                                        |          | 6.1   |               |  
|Working capital                                                   |          | 726.8 |               |  
|Debt to total capitalization                                      |          | 0.6%  |               |  
|                                                                  |          |       |               |  

Cash and cash equivalents for the first three months of fiscal 2005 increased from June 30, 2004 as proceeds from the sales and maturities of available for sale investments, net of purchases, and stock issuances exceeded
the amount expended on operations, the funding of the Celera Diagnostics joint venture, the purchase of capital assets, and the repayment of debt. Net cash flows for the three month periods ended September 30 were as follows:

33

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

|(Dollar amounts in millions)       |   | 2004   |   |   | 2004   |  
|---------------------------------- | - | ------ | - | - | ------ | -
|                                   |   |        |   |   |        |  
|Net cash from operating activities | $ | $(15.6 | ) | $ | (26.67 | )

|Net cash from investing activities |  | 63.5 |  |  | 89.0 |  
|---------------------------------- |  | ---- |  |  | ---- | -
|Net cash from financing activities |  | 1.2  |  |  | (4.7 | )
|                                   |  |      |  |  |      |  

Operating activities:Net cash used by operating activities for the first
three months of fiscal 2005 was $11.0 million higher than in the first three
months of fiscal 2004. The higher use of cash resulted primarily from higher
net cash  operating losses and lower cash receipts in fiscal 2005 due to the
continuing expiration of Online/Information Business customer agreements.

Investing activities:Net cash from investing activities for the first
    three months of fiscal 2005 increased from the first three months of fiscal
    2004 due to higher proceeds received from the sales and maturities of available
    for sale  investments, net of purchases, in fiscal 2005. The first quarter
    of fiscal 2005 included the maturation of non-callable U.S. government obligations,
    pledged as collateral for the 8% senior secured convertible notes assumed
    in connection with the
acquisition of Axys Pharmaceuticals, Inc. A portion of the proceeds from the
    principal and interest received from these U.S. government obligations was
used to fund the interest and principal payments under the notes.

Financing activities:Net cash from financing activities for the first three
months of fiscal 2005 decreased from the first three months of fiscal 2004 due
to the repayment of the remaining $6 million principal amount of the convertible
notes
assumed in connection with the acquisition of Axys.

Celera Diagnostics

|                                | Three Months Ended |       
|------------------------------- | ------------------ | ------
|                                | September 30,      |       
|                                |                    |       
|(Dollar amounts in millions)    |                    | 2003  
|                                |                    |       
|Net revenues                    | $                  | 8.5   
|Cost of sales                   |                    | 3.6   
|R&D                             |                    | 12.4  
|SG&A expenses                   |                    | 4.5   
|                                |                    |       
|Operating loss                  | $                  | (12.0)
|                                |                    |       
|                                |                    |       
|Supplemental information        |                    |       
|Equalization payments           | $                  | 6.1   
|End-user alliance sales for all |                    |       
|products sold primarily through |                    |       
|Abbott Laboratories             | $                  | 9.6   
|                                |                    |       

In June 2002, Celera Diagnostics and Abbott Laboratories
    announced a long-term strategic alliance to develop, manufacture and market
    a broad range of in vitro molecular
    diagnostic products, including third party products brought into the alliance.

The majority of reported net revenues for both the
    first quarters of fiscal 2005 and 2004 consisted of equalization payments
    from Abbott under the profit-sharing arrangement between Abbott and Celera
    Diagnostics, and  technology-related revenues for fiscal 2005. Fluctuation
    in 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 the first quarter fiscal 2005
    primarily due to higher demand for products sourced during the second half
    of fiscal 2004 from  third

34

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

parties, including products for HLA typing, and
    higher demand for Abbott alliance products, including infectious disease
    products and instruments.

SG&A expenses for the first three months of
    fiscal 2005 decreased in comparison to the first three months of fiscal 2004
    primarily due to a $1.1 million charge recorded in fiscal 2004 related to
    a facility lease
agreement.

Outlook

Applied Biosystems Group

The Applied Biosystems group has the following expectations regarding its financial performance for fiscal 2005.

| | The Applied Biosystems group expects
       low- to mid-single digit revenue growth.                                                                                                                                                                                                                                                                                                                                                                                                    
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Gross margin should equal,
       or slightly exceed, the fiscal 2004 gross margin. SG&A expense as
       a percent of total revenues should approximate, and R&D expense as
       a percent of total revenues  should decline from, the fiscal 2004 levels.
       Operating margin should increase from the fiscal 2004 level, excluding
       special items in both fiscal years.                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The effective tax rate is expected
       to be 28 percent. However, the effective tax rate may be impacted by the
       recent U.S. tax legislation.                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The Applied Biosystems group expects
       EPS growth for fiscal 2005 at a rate exceeding that of the annual revenue
       growth rate. This expectation excludes certain types of items which are
       included in EPS  under GAAP, such as gains or losses from sales of operating
       assets and investments; restructuring charges, including severance charges;
       charges and recoveries relating to significant legal proceedings and asset
       impairment charges.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Capital spending should be in the
       range of $50-55 million.                                                                                                                                                                                                                                                                                                                                                                                                                       

The Applied Biosystems group believes this outlook
    and its fiscal 2005 financial performance will continue to be affected by,
    among other things, the timing and level of future NIH funding in the U.S.
    and the ongoing  transition of universities in Japan to Independent Administrative
    Agency status. Other risks and uncertainties that may affect the Applied
    Biosystems groups financial performance are detailed in the Forward-Looking
    Statements section of this
report.

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
    that it has established for industry access to some of its intellectual property.
    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 that
    it owns or licenses. In addition, the Applied Biosystems group has rights
    to multiple other PCR-related patents
that should support a PCR-related royalty stream beyond our 2005 and 2006 fiscal
    years. Taken together, the Applied Biosystems group believes these factors
    should mitigate the effects of the patent expirations. The agreements with
    Hoffmann-LaRoche  and its affiliates are the subject of legal proceedings
    described in Note 12 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.

Celera Genomics Group

The Celera Genomics group intends to continue to
    advance its most promising programs toward IND filings and clinical trials.
    In support of its recently established collaborations, the Celera Genomics
    group expects to  continue to identify and validate additional targets within
    its ongoing proteomic discovery programs in cancer. The Celera Genomics group
    plans to initiate at least one new proteomic study during fiscal 2005 and
    to collaborate with Celera
Diagnostics to exploit any diagnostic value from proteomic discoveries.

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

The fiscal 2005 financial outlook for the Celera
    Genomics group is as follows:

| | The Celera Genomics groups
       net cash use is expected to be between $135 and $150 million, including
       an anticipated $16 to $20 million for the Celera Genomics groups
       portion of the funding for  the Celera Diagnostics joint venture. This
       outlook includes cash used to retire the remaining $6 million in principal
       amount of the convertible notes that matured during the first quarter
       of fiscal 2005. This outlook excludes any potential proceeds
from the planned sale of the Rockville, MD facility.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The Celera Genomics group anticipates
       R&D expenses to be in the range of $110 to $125 million, and SG&A
       expenses to be in the range of $25 to $30 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 are expected
       to be in the range of $28 to $35 million.                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The Celera Genomics group anticipates
       revenues will continue to trend downward to a range of $25 to $30 million
       for fiscal 2005 due to the continuing expiration of Online/Information
       Business customer
agreements.                                                                                                                                                                                                                                                                                                                

Risks and uncertainties that may affect the Celera
    Genomics groups financial performance are detailed in the Forward-Looking
    Statements section of this report.

Celera Diagnostics

Celera Diagnostics intends to continue advancing
    its disease association and medical utility studies during fiscal 2005. It
    also anticipates increased sales of existing products sold through its alliance
    with Abbott,
particularly analyte specific reagents (ASRs) for cystic fibrosis
and products for infectious disease testing. Celera Diagnostics is also planning
the introduction of new products. For fiscal 2005, Celera Diagnostics anticipates
pre-tax  losses to be in a range of $28 to $35 million, and fiscal 2005 net cash
use to be in a range of $30 to $40 million. Total end-user sales for the alliance
between Celera Diagnostics and Abbott are anticipated to be in range of $60 to
$70 million
during fiscal 2005.

Risks and uncertainties that may affect Celera Diagnostics financial
    performance are detailed in the Forward-Looking Statements section of this
    report.

Forward-Looking Statements and Risk Factors

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.

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.

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

Also, we note that owners of Applera-Applied Biosystems
    stock and Applera-Celera Genomics stock are subject to risks arising from
    their ownership of common stock of a corporation with two separate classes
    of common stock. The risks and uncertainties that arise from our capital
    structure, particularly our two separate classes of common stock, include,
    but are not limited to, those described in Part II, Item 5 of our 2004 Annual
    Report on Form 10-K under the heading Forward Looking Statements and
    Risk FactorsRisks Relating to a Capital Structure with Two Separate
Classes of Common Stock.

Factors Relating to the Applied Biosystems Group

Rapidly changing technology in
      life sciences could make the Applied Biosystems groups product line
      obsolete unless it continues to develop and manufacture new and improved
      products, and 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.

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

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

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

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

The Applied Biosystems groups
    products are based on complex, rapidly developing technologies. These products
    could be developed without knowledge of previously filed patent applications
    that mature into patents that cover some aspect of these technologies. In
    addition, 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.
    The Applied Biosystems group has from time to time been notified that it
    may be infringing patents and other intellectual property rights of others.
    Also, in the course of its business, the Applied Biosystems group may from
    time to time have access to confidential or proprietary information of third
    parties, and these parties could bring a claim against the Applied Biosystems
    group asserting that the Applied Biosystems group had misappropriated their
    technologies, which though not patented are protected as trade secrets, and
    had improperly incorporated such technologies into the Applied Biosystems
    groups products. Due to these factors, there remains a constant risk
    of intellectual property litigation, which could include antitrust claims,
    affecting the group. The Applied Biosystems group has been made a party to
    litigation and has been subject to other legal actions regarding intellectual
    property matters, which have included claims of violations of antitrust laws.
    Such actions currently include the litigation described in the following
    paragraph, some of which, if determined adversely, could have a material
    adverse effect on the Applied Biosystems group. To avoid or settle legal
    claims, it may be necessary or desirable in the future to obtain licenses
    relating to one or more products or relating to current or future technologies,
    and the Applied Biosystems group cannot be assured that it will be able to
    obtain these licenses or other rights on commercially reasonable terms.

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

| |  | In response to claims by us against MJ Research,
        Inc., MJ Research filed counterclaims against us including, among others,
        allegations that we have licensed and enforced some polymerase chain
        reaction, or PCR, patents through anticompetitive conduct
        in violation of federal and state antitrust laws. Subsequently, MJ Research
        filed a lawsuit against us based on the allegation that four patents
        underlying the Applied Biosystems groups DNA sequencing instruments
        were invalidly obtained because an alleged inventor, whose work was funded
        in part by the U.S. government, was knowingly omitted from the patent
        applications. MJ Research claims to be suing in the name of the U.S.
        government although the government has to date declined to participate
        in the lawsuit. The case was dismissed but the decision has been appealed
        by MJ Research.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |   |                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Promega Corporation has filed a lawsuit
        against us alleging that the Applied Biosystems group, along with some
        other named defendants, is infringing two Promega patents due to the
        sale of forensic identification and paternity testing kits.

| |   |                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Beckman Coulter, Inc. has filed a lawsuit
        against us alleging that the Applied Biosystems group is infringing three
        Beckman Coulter patents. The allegedly infringing products are the Applied
        Biosystems groups capillary electrophoresis sequencing and genetic
        analysis instruments, and PCR and real-time PCR systems.

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 TaqMan® genotyping
        and gene expression products and services, and the Celera Discovery System.
        Genetic Technologies has also alleged that haplotyping analysis performed
        by our businesses infringes these patents.

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

| |  | In response to an arbitration claim filed
        by us against Roche Molecular Systems, Inc., Hoffmann-LaRoche, Inc.,
        Roche Probe, Inc., F. Hoffmann-LaRoche 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.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |   |                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Enzo Biochem, Inc., Enzo Life Sciences,
        Inc., and Yale University have filed a lawsuit against us alleging that
        we are infringing six patents due to the sale of sequencing reagent kits,
        TaqMan® genotyping and gene expression assays, and the
        gene expression microarrays used with the Applied Biosystems groups
        Expression Array System.

| |   |                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Bio-Rad Laboratories, Inc. has filed a lawsuit
        against us alleging that we are infringing one of its patents due to
        our sale of instruments using, and reagents used for, capillary electrophoresis,
        and one of its trademarks due to our use of the BioCAD name.

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Molecular Diagnostics Laboratories has filed
        a class action complaint against us and Hoffmann-La Roche, Inc. alleging
        anticompetitive conduct in connection with the sale of Taq DNA polymerase
        and PCR-related products. The anticompetitive conduct is alleged to arise
        from the prosecution and enforcement of U.S. Patent No 4,889,818. This
        patent is assigned to Hoffmann-La Roche, with whom we have a commercial
        relationship covering, among other things, this patent and the sale of
        Taq DNA polymerase.

These cases are described in further
    detail in Part I, Item 3, of our 2004 Annual Report on Form 10-K, as updated
    by the information in Part II, Item 1 of this report. 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 or services
    in question or other products or services as a result; or that any monetary
    or other damages assessed against us will not have a material adverse effect
    on the financial condition of our company, the Applied Biosystems group,
    the Celera Genomics group, or Celera Diagnostics.

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

The Applied Biosystems groups
    computer and communications hardware is protected through physical and software
    safeguards. However, it is still vulnerable to fire, storm, flood, power
    loss, earthquakes, telecommunications failures, physical or software break-ins,
    software viruses, and similar events. In addition, the Applied Biosystems
    groups online products and services are complex and sophisticated,
    and as such, could contain data, design, or software errors that could

39

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

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.

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 Applied Biosystems operating
        performance; and

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

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

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 $737
      million as of September 30, 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 $133 million as
      of September 30, 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.

The marketing and distribution
      agreement with the Applied Biosystems group may not generate significant
      royalty payments. 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 that
      was effective in April 2002. 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 on
      and 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

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    FINANCIAL CONDITION AND 
  RESULTS OFOPERATIONS
continued

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, and sales
      of these products may not meet original expectations. Such sales will depend
      on several factors that are not controlled by the Celera Genomics group,
      including general market conditions, customer acceptance, and the efforts
      of 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 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 receives all revenues under, and is
      responsible for all costs and expenses associated with, 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 or
      default. 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.

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

41

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

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.

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 U.S. Food
      and Drug Administration, or 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.

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 in some cases 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.



42

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

If the Celera Genomics group or
      its collaborators fail to satisfy regulatory requirements for any therapeutic
      product candidate, the Celera Genomics group or its collaborators 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 or its collaborators 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 collaborators fail 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 or its collaborators
      will show sufficient safety and effectiveness in their clinical trials
      to allow them 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
    or its collaborators obtain regulatory clearance or approval for a particular
    therapeutic product, that product 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.

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 or its collaborators;
| | - | ------------------------------------------------------------------------------------------------------

| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | develop therapeutic products which are more
        effective as therapeutics, or more cost-effective than those developed
        by the Celera Genomics group or its collaborators;

| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | obtain regulatory approvals of their therapeutic
        products more rapidly than the Celera Genomics group or its collaborators;
        or

| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | obtain patent protection or other intellectual
        property rights that would limit the ability of the Celera Genomics group
        or its collaborators 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



43

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

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.

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. 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. Also, the Celera Genomics group relies on a global enterprise
      software system to operate and manage its business. The Celera Genomics
      groups business therefore depends on the continuous, effective,
      reliable, and secure operation of its computer hardware, software, networks,
      Internet servers, and related infrastructure. To the extent that the Celera
      Genomics groups hardware or software malfunctions or access to the
      Celera Genomics groups data by the Celera Genomics groups
      internal research personnel or 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,
    software viruses, 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 therapeutic products discovery and development
    programs and its online products, 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.

44

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

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.

45

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

There has been substantial litigation
    regarding patents and other intellectual property rights in the biotechnology,
    pharmaceutical, and diagnostic 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.

Future acquisitions and other
      transactions may absorb significant resources, may be unsuccessful and
      could dilute the holders of Applera-Celera Genomics 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:

| |  | diversion of management from daily operations;
| | - | ----------------------------------------------

| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | difficulties integrating acquired technologies
        and personnel into the business of the Celera Genomics group;

| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | inability to obtain required financing on
        favorable terms;

| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | entry into new markets in which the Celera
        Genomics group has little previous experience;

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

| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | assumption of the liabilities and exposure
        to unforeseen liabilities of acquired companies.

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 Boston Probes, Inc.,
    we incurred charges for the impairment of patents and acquired technology
    in the amount of $14.9 million during our 2004 fiscal year.

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

Earthquakes could disrupt operations
      in California. The Celera Genomics group has research and development
      and administrative 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 AND 
  RESULTS OFOPERATIONS
continued

Applera-Celera Genomics stock
      price is volatile. The market price of Applera-Celera Genomics 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
      Genomics 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 Genomics stock in our follow-on
      public offering of Applera-Celera Genomics stock completed on March 6,
      2000. In the offering, we sold an aggregate of approximately 4.4 million
      shares of Applera-Celera Genomics stock at a public offering price of $225
      per share. The lawsuit was commenced with the filing of several complaints
      in 2000, which have been consolidated into a single case. 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.

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 U.S. Food and Drug Administration,
      or 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;
| | - | -------------------------------------------------------------------------------------------------------------------

47

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

| |  | 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 or its collaborators
      fail to satisfy regulatory requirements for any diagnostic product candidate,
      they 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 or
      its collaborators 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-vitro diagnostic
      product with clinical claims. Outside of the U.S., the regulatory requirements
      vary from country to country. If Celera Diagnostics or its collaborators
      fail 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 or its
      collaborators will show sufficient safety and effectiveness in its clinical
      trials to allow them to obtain the needed regulatory clearance or approval.
      The regulatory review and approval process can take many years and require
      substantial expense and may not be successful. A number of companies in
      the diagnostics industry, including biotechnology companies, have suffered
      significant setbacks in advanced clinical trials, even after promising
      results in earlier studies.

Even if Celera Diagnostics or its
    collaborators obtain regulatory clearance or approval for a product, that
    product 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

48

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

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.

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. Although this is a long-term alliance, the alliance agreement contains
    provisions that could result in early termination for reasons that include
    the following: breach by either company; a change in control of either company;
    either companys dissatisfaction with the performance of the alliance
    according to specific timelines for such judgments set forth in the alliance
    agreement; or by either company if the other party fails to meet performance
    criteria applicable to the other party set forth in the alliance agreement.
    In addition, the amount and timing of resources to be devoted to research,
    development, eventual clinical trials and commercialization activities by
    Abbott are not within 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.

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, work with Abbott Laboratories
      under their current agreement, work with another distributor, or a combination
      of these alternatives. In jurisdictions where Celera Diagnostics uses third
      party distributors, its success will depend to a great extent on the efforts
      of the distributors.

49

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

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 manufacturing
    operations are located in a facility in Alameda, California. Celera Diagnostics
    expects to operate its manufacturing out of this facility for the foreseeable
    future, and it does not have alternative production plans in place or alternative
    facilities available should its existing manufacturing facility cease to
    function. Accordingly, 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.

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, florescent dyes, phosphoramadites,
      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 business
      depends on the continuous, effective, reliable, and secure operation of
      its computer hardware, software, and Internet applications and related
      tools and functions. Celera Diagnostics business requires manipulating
      and analyzing large amounts of data, and communicating the results of the
      analysis to its internal research personnel and to its collaborators via
      the Internet. Also, Celera Diagnostics relies on a global enterprise software
system



50

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

to operate and manage its business.
    Celera Diagnostics business
      therefore depends on the continuous, effective, reliable, and secure operation
      of its computer hardware, software, networks, Internet servers, and related
      infrastructure. To the extent that Celera Diagnostics hardware or
      software malfunctions or access to Celera Diagnostics data by Celera
      Diagnostics internal research personnel or collaborators through
    the Internet is interrupted, the groups business could suffer.

Celera Diagnostics computer
      and communications hardware is protected through physical and software safeguards.
      However, it is still vulnerable to fire, storm, flood, power loss, earthquakes,
      telecommunications failures, physical or software break-ins, software viruses,
      and similar events. If Celera Diagnostics fails to maintain and further develop
      the necessary computer capacity and data to support its computational needs,
      its diagnostic product discovery and research efforts, and the Celera Genomics
      groups and its collaborators 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 Celera Diagnostics business.

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.

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



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

addition, these disputes could require
    or result in lawsuits or arbitration. Lawsuits and arbitration are time-consuming
    and expensive. Even if Celera
    Diagnostics wins, the cost of these proceedings could adversely affect its
    business, financial condition and operating results.

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

There has been substantial litigation
    regarding patents and other intellectual property rights in the biotechnology,
    pharmaceutical, and diagnostic 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-LaRoche,
    Inc., Roche Probe, Inc., and F. Hoffmann-LaRoche, Ltd. may adversely affect
    the PCR patent rights that the Applied Biosystems group has contributed to
    Celera Diagnostics. The cases referred to in this paragraph are described
    in further detail in Part I, Item 3, of our 2004 Annual Report on Form 10-K,
    as updated by the information in Part II, Item 1 of this report.

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 or its collaborators;
| | - | ----------------------------------------------------------------------------------------------

| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | develop diagnostic products which are more
        effective or more cost-effective than those developed by Celera Diagnostics
        or its collaborators;

| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | obtain regulatory clearances or approvals
        of their diagnostic products more rapidly than Celera Diagnostics or
        its collaborators; or

| |   |                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | obtain patent protection or other intellectual
        property rights that would limit Celera Diagnostics or its collaborators ability
        to develop and commercialize, or their customers ability to use,
        Celera Diagnostics or its collaborators diagnostic products.

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

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

that are competitive with the products
    offered by Celera Diagnostics or its collaborators, such as analyte specific
    reagents or diagnostic test kits that perform the same or similar purposes
    as Celera Diagnostics or its collaborators products. Also,
    clinical laboratories may offer testing services that are competitive with
    the products sold by Celera Diagnostics or its collaborators. 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
    or its collaborators 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 diagnostic testing services market
    is dominated by a small number of large clinical testing laboratories, including
    Laboratory Corporation of America Holdings, Quest Diagnostics Inc., and Specialty
    Laboratories, Inc.

Also, a substantial portion of all
    sales of diagnostic products are made to a small number of clinical reference
    laboratories, including those identified above, and therefore 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.



53

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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 38 of our 2004 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 first quarter of our 2005 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 first quarter of our 2005 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 lawsuits,
    arbitrations, investigations, and other legal actions from time to time with
    both private parties and governmental entities. These legal actions currently
    involve, for example, commercial, intellectual property, antitrust, environmental,
    securities, and employment matters. We disclosed information about some of
    our legal actions in Part I, Item 3, of our 2004 Annual Report on Form 10-K.
    Set forth below is an update to that disclosure, including a description
    of previously-disclosed cases in which there have been recent material developments,
    as well as a description of a recently-initiated lawsuit.

We believe that we have meritorious
    defenses against the claims currently asserted against us, including the
    claims described in our 2004 10-K as updated by the disclosures in this Item
    1, and we intend to defend them vigorously. However, the outcome of legal
    actions is inherently uncertain, and we cannot be sure that we will prevail
    in any of our current legal actions. An adverse determination in the
    cases we are currently defending, particularly the claims against us described
    in our 2004 10-K as updated by the disclosures in this Item 1, could have
    a material adverse effect on us, the Applied Biosystems group, the Celera
    Genomics group, or Celera Diagnostics.

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 had
appealed the decision, but on July 22, 2004, he filed a stipulation with the
court withdrawing his appeal, resulting in the termination of this litigation.

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. On June 29, 2004, the court granted our motion to dismiss for failure
    to state a claim  upon which relief could be granted, but gave Promega the
    right to file an amended complaint. Promega filed an amended complaint on
    July 13, 2004, and we filed another motion to dismiss on August 6, 2004.
    The court granted our second motion and
dismissed the case with prejudice on August 20, 2004. Promega has filed an appeal
    with the U.S. Court of Appeals for the Fourth Circuit.

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

55

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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. On-Line Technologies filed an appeal with the U.S. Court
    of Appeals for the Federal Circuit seeking reinstatement of its claims, and
    on October 13, 2004, the Appeals Court upheld dismissal of all claims except
    for the patent infringement claim, which will be decided by the District
Court in subsequent proceedings.

Molecular Diagnostics Laboratories filed a class
    action complaint against us and Hoffmann-La Roche, Inc. in the U.S. District
    Court for the District of Columbia on September 23, 2004. The complaint alleges
    anticompetitive conduct in connection with the sale of Taq DNA polymerase
    and PCR-related products. The anticompetitive conduct is alleged to arise
    from the prosecution and enforcement of U.S. Patent No 4,889,818. This patent
    is assigned to Hoffmann-La Roche, with whom we have a commercial relationship
    covering, among other things, this patent and the sale of Taq DNA polymerase. The complaint
      seeks monetary damages, costs, expenses, injunctive relief, and other relief
      as the court deems proper. This case is largely based on the same set of
      contentions  underlying a claim filed against us by Promega Corporation
    in the U.S. District Court for the Eastern District of Virginia, which is
    described
      above. The Promega claim was dismissed in August 2004 for, among other
    reasons, failure to state a claim
  upon which relief could be granted.

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 first quarter of
    fiscal 2005.

|Period                                 | Total Number ofShares Purchased (1) |  |   | Average PricePaid
    per Share |  | Total Number ofShares Purchasedas Part ofPubliclyAnnounced Plansor Programs |  | Approximate
         DollarValue of Shares thatMay
         Yet Be PurchasedUnder the Plans
         orPrograms (2)
|-------------------------------------- | ----------------------------------- |  | - | ------------------------------- |  | --------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------
|                                       |                                     |  |   |                                 |  |                                                                             |  |                                                                                                                    
|July 1-July 31, 2004                   |                                    |  | $ |                                |  |                                                                            |  | $                                                                                                                 
|August 1-August 31, 2004               | 26,335                              |  | $ | 19.51                           |  |                                                                            |  | $                                                                                                                 
|September 1- September
       30, 2004 | 4,086                               |  | $ | 18.86                           |  |                                                                            |  | $                                                                                                                 
|                                       |                                     |  |   |                                 |  |                                                                             |  |                                                                                                                    
|Total                                  | 30,421                              |  | $ | 19.42                           |  |                                                                            |  | $                                                                                                                 
|                                       |                                     |  |   |                                 |  |                                                                             |  |                                                                                                                    

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists of shares repurchased
       from employees in connection with the exercise of employee stock options
    and the payment of taxes relating to the vesting of restricted stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(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.Accordingly, the amounts in this column do not reflect this authorization.
      No shares were purchased under this authorization during the first quarter
    of fiscal 2005.

56

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This table provides information regarding our purchases of shares of Applera-Celera Genomics stock during the first quarter of fiscal 2005.

|Period                         | Total Number
         ofShares
     Purchased (1) |  |   | Average PricePaid
    per Share |  | Total Number ofShares
         Purchasedas Part ofPubliclyAnnounced
         Plansor Programs |  | Maximum Number of
         Shares that may yet be Purchased Under
         the Plans or Programs (2)
|------------------------------ | ------------------------------------------------- |  | - | ------------------------------- |  | --------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------
|                               |                                                   |  |   |                                 |  |                                                                                              
|July 1-July 31, 2004           |                                                  |  | $ |                                |  |                                                                                              |  | $                                                                                                  
|August 1-August 31, 2004       | 11,247                                            |  | $ | 10.79                           |  |                                                                                              |  | $                                                                                                  
|September 1-September 30, 2004 | 180                                               |  | $ | 11.65                           |  |                                                                                              |  | $                                                                                                  
|                               |                                                   |  |   |                                 |  |                                                                                               |  |                                                                                                     
|Total                          | 11,427                                            |  | $ | 10.80                           |  |                                                                                              |  | $                                                                                                  
|                               |                                                   |  |   |                                 |  |                                                                                               |  |                                                                                                     

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consists of shares repurchased from employees in connection with the exercise of employee stock options and the payment of taxes relating to the vesting of restricted stock.                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(2) | We previously announced that our Board of Directors has authorized the repurchase of shares of Applera-Celera Genomics stock from time to time to replenish shares issued under our various employee stock
benefit plans. This authorization has no set dollar or time limits and delegates to Company management discretion to purchase shares at times and prices it deems appropriate through open market or negotiated purchases. Accordingly, the amounts in
this column do not reflect this authorization. No shares were purchased under this authorization during the first quarter of fiscal 2005.

57

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

(a) Exhibits.


| |      |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.1 | Applera Corporation 1999 Employee Stock Purchase
        Plan, as amended October 21, 2004 (incorporated by reference to Annex
        A to Schedule 14A, filed September 17, 2004, containing Appleras
        definitive Proxy Statement for its 2004 Annual Meeting of Stockholders
    (Commission file number 1-4389)).                                                                                           
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 10.2 | Applera Corporation/Applied Biosystems Group
        Amended and Restated 1999 Stock Incentive Plan, effective October 21,
        2004 (incorporated by reference to Annex B to Schedule 14A, filed September
        17, 2004, containing
Appleras definitive Proxy Statement for its 2004 Annual Meeting of Stockholders
(Commission file number 1-4389)).                                                          
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 10.3 | Applera Corporation/Celera Genomics Group
        Amended and Restated 1999 Stock Incentive Plan, effective October 21,
        2004 (incorporated by reference to Annex C to Schedule 14A, filed September
        17, 2004, containing Appleras definitive Proxy Statement for its
    2004 Annual Meeting of Stockholders (Commission file number 1-4389)).                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 10.4 | Form of Director Stock Award Agreement pursuant
        to which restricted stock awards are granted to directors under the Applera
        Corporation/Applied Biosystems Group Amended and Restated 1999 Stock
        Incentive Plan (incorporated by reference to Exhibit 10.4 to our Current
        Report on Form 8-K dated October 21, 2004, and filed on October 27, 2004
    (Commission file number 1-4389)).
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 10.5 | Form of Director Stock Award Agreement pursuant
        to which restricted stock awards are granted to directors under the Applera
        Corporation/Celera Genomics Group Amended and Restated 1999 Stock Incentive
        Plan (incorporated by reference to Exhibit 10.5 to our Current Report
        on Form 8-K dated October 21, 2004, and filed on October 27, 2004 (Commission
    file number 1-4389)).   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 10.6 | Form of Director Stock Option Agreement pursuant
        to which stock options are granted to directors under the Applera Corporation/Applied
        Biosystems Group Amended and Restated 1999 Stock Incentive Plan (incorporated
        by reference to Exhibit 10.6 to our Current Report on Form 8-K dated
        October 21, 2004, and filed on October 27, 2004 (Commission file number
    1-4389)).         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 10.7 | Form of Director Stock Option Agreement pursuant
        to which stock options are granted to directors under the Applera Corporation/Celera
        Genomics Group Amended and Restated 1999 Stock Incentive Plan (incorporated
        by reference to Exhibit 10.7 to our Current Report on Form 8-K dated
        October 21, 2004, and filed on October 27, 2004 (Commission file number
    1-4389)).            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 10.8 | Description of Applera Corporation Fiscal
        2005 Incentive Compensation Program (incorporated by reference to Exhibit
        10.8 to our Current Report on Form 8-K dated October 21, 2004, and filed
        on October 27, 2004 (Commission
file number 1-4389)).                                                                                                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 13   | Annual Report to Stockholders for the fiscal
        year ended June 30, 2004, 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, 2004 (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.                                                                                                                                                                                                                                                          

58

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|                            | 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 first quarter of our 2005 fiscal year, we filed the following reports:
|                            |                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                            | (1)                                                                               | A Current Report on Form 8-K dated July 13,
       2004, and filed July 14, 2004, to discloseunder Item 9 thereof information regarding the
       implementation of a new organizationalstructure within the Applied Biosystems group;                                                                                                                                                                                                                       
|                            |                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                            | (2)                                                                               | A Current Report on Form 8-K dated and filed
       July 28, 2004, to disclose under Item 12thereof our July 28, 2004, press releases setting
       forth the financial results of Applera andthe Applied Biosystems group and the Celera
       Genomics group for the fourth quarter of our2004 fiscal year and for our full 2004 fiscal year;                                                                                                             
|                            |                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                            | (3)                                                                               | A Current Report on Form 8-K dated and filed
       August 5, 2004, to disclose under Item 11thereof the termination of a previously-disclosed
       trading blackout period under Section 306of the Sarbanes-Oxley Act of 2002 and Rule 104
       of the Securities and ExchangeCommissions Regulation BTR; and                                                                                                                                           
|                            |                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                            | (4)                                                                               | A Current Report on Form 8-K dated August 20,
       2004, and filed August 23, 2004, todisclose (i) under Item 5.02 thereof the retirement
       of Michael W. Hunkapiller, Ph.D.,Senior Vice President and President, Applied
       Biosystems Group, and the promotion ofCatherine M. Burzik to the position left by
       Dr. Hunkapiller, and (ii) under Item 7.01 thereofour August 23, 2004, press release announcing such retirement and promotion.

59

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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. DeBlasiUgo
    D. DeBlasi 
                Vice President and Controller
               (Chief Accounting Officer)




Dated: November 9, 2004

60

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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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