APPLERA CORP (Form: 10-Q, Received: 11/06/2006 16:53:49)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2006

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

Commission file number: 001-04389

APPLERA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware	06-1534213

(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

301 Merritt 7, Norwalk, Connecticut	06851-1070

(Address of Principal Executive Offices)	(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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

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

Yes

As of the close of business on October 31, 2006, there were 183,205,340 shares of Applera Corporation-Applied Biosystems Group Common Stock and 78,247,714 shares of Applera Corporation-Celera Genomics Group Common Stock outstanding.

APPLERA CORPORATION

INDEX

		Page

Part I. Financial Information

Item 1.	Financial Statements – (unaudited)

	Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2006 and 2005	1

	Condensed Consolidated Statements of Financial Position at September 30, 2006 and June 30, 2006	2

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2006 and 2005	3

	Notes to Unaudited Condensed Consolidated Financial Statements	4-22

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

	Discussion of Applera Corporation	23-32

	Discussion of Applied Biosystems Group	33-37

	Discussion of Celera Genomics Group	38-40

	Market Risks	40-41

	Outlook	41-42

	Forward-Looking Statements and Risk Factors	42-57

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58

Item 4.	Controls and Procedures	58

Part II. Other Information

Item 1.	Legal Proceedings	59-60

Item 1A.	Risk Factors	60-63

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 6.	Exhibits	65

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PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements.

APPLERA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(Dollar amounts in thousands except per share amounts)

	Three Months Ended September 30,

	2006			2005

Products	$	391,082		$	338,529
Services		58,140			52,267
Other		36,187			31,432

Total Net Revenues		485,409			422,228

Products		196,659			168,207
Services		24,598			23,989
Other		2,827			3,634

Total Cost of Sales		224,084			195,830

Gross Margin		261,325			226,398
Selling, general and administrative		142,385			131,865
Research, development and engineering		57,902			69,697
Amortization of purchased intangible assets		2,737			1,039
Employee-related charges, asset impairments and other		3,500			871
Asset dispositions and legal settlements		9,087			23,509
Acquired research and development		114,251

Operating Loss		(68,537	)		(583	)
Gain on investments, net		209			4,503
Interest expense		(497	)		(87	)
Interest income		9,710			9,757
Other income (expense), net		1,417			1,707

Income (Loss) before Income Taxes		(57,698	)		15,297
Provision (benefit) for income taxes		8,314			(9,882	)

Net Income (Loss)	$	(66,012	)	$	25,179


Applied Biosystems Group (see Note 4)
Net Income (Loss) per Share
Basic and diluted	$	(0.32	)	$	0.21
Dividends Declared per Share	$	0.0425		$	0.0425

Celera Genomics Group (see Note 4)
Net Loss per Share
Basic and diluted	$	(0.09	)	$	(0.23	)

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

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APPLERA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(unaudited)

(Dollar amounts in thousands)

	At September 30, 2006			At June 30, 2006

Assets
Current assets
Cash and cash equivalents	$	283,012		$	434,191
Short-term investments		567,536			509,252
Accounts receivable, net		340,455			382,509
Inventories, net		143,482			137,651
Prepaid expenses and other current assets		173,978			163,362

Total current assets		1,508,463			1,626,965
Property, plant and equipment, net		394,719			396,436
Goodwill and intangible assets, net		318,996			322,097
Other long-term assets		674,856			667,477

Total Assets	$	2,897,034		$	3,012,975

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	164,100		$	201,691
Accrued salaries and wages		51,185			98,938
Current deferred tax liability		17,587			17,560
Accrued taxes on income		38,037			50,944
Other accrued expenses		244,560			239,157

Total current liabilities		515,469			608,290
Other long-term liabilities		203,750			200,351

Total Liabilities		719,219			808,641

Stockholders’ Equity
Capital stock
Applera Corporation–Applied Biosystems Group		2,134			2,132
Applera Corporation–Celera Genomics Group		782			773
Capital in excess of par value		2,198,844			2,192,559
Retained earnings		646,356			714,137
Accumulated other comprehensive income		47,339			40,947
Treasury stock, at cost		(717,640	)		(746,214	)

Total Stockholders’ Equity		2,177,815			2,204,334

Total Liabilities and Stockholders’ Equity	$	2,897,034		$	3,012,975

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

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APPLERA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(Dollar amounts in thousands)

	Three months ended September 30,

	2006			2005

Operating Activities of Continuing Operations
Net income (loss)	$	(66,012	)	$	25,179
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		21,079			20,978
Asset impairments					1,090
Employee-related charges and other		3,500			(219	)
Share-based compensation programs		4,503			1,651
Sale of assets and legal settlements, net		(209	)		19,906
Deferred income taxes		(3,670	)		(920	)
Acquired research and development		114,251
Changes in operating assets and liabilities:
Accounts receivable		41,510			52,415
Inventories		(5,139	)		(13,070	)
Prepaid expenses and other assets		(16,281	)		3,795
Accounts payable and other liabilities		(84,867	)		(104,286	)

Net Cash Provided by Operating Activities of Continuing Operations		8,665			6,519

Net Cash Used by Operating Activities of Discontinued Operations					(50	)

Investing Activities of Continuing Operations
Additions to property, plant and equipment, net		(14,911	)		(14,327	)
Proceeds from maturities of available-for-sale investments		40,870			55,278
Proceeds from sales of available-for-sale investments		115,800			103,360
Purchases of available-for-sale investments		(212,585	)		(144,254	)
Acquisitions and investments		(121,403	)
Proceeds from the sale of assets, net		322			4,503

Net Cash Provided (Used) by Investing Activities of Continuing Operations		(191,907	)		4,560

Financing Activities
Dividends		(7,647	)
Purchases of common stock for treasury					(201,236	)
Proceeds from stock issued for stock plans and other		34,376			36,289

Net Cash Provided (Used) by Financing Activities		26,729			(164,947	)

Effect of Exchange Rate Changes on Cash		5,334			(2,272	)

Net Change in Cash and Cash Equivalents		(151,179	)		(156,190	)
Cash and Cash Equivalents Beginning of Period		434,191			779,401

Cash and Cash Equivalents End of Period	$	283,012		$	623,211

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

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APPLERA CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Interim Condensed Consolidated Financial Statements

Basis of Presentation

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

Through December 31, 2005, we were comprised of three business segments: the Applied Biosystems group, the Celera Genomics group, and Celera Diagnostics, a 50/50 joint venture between the Applied Biosystems group and the Celera Genomics group. Effective January 1, 2006, the Celera Genomics group acquired the Applied Biosystems group’s 50 percent interest in the Celera Diagnostics joint venture such that it now owns 100 percent of Celera Diagnostics. As a result of this restructuring and the manner by which our management now operates and assesses our businesses, Celera Diagnostics is no longer a separate segment within Applera and we have restated prior period consolidating financial information to reflect this change. See Note 15 to our consolidated financial statements included in our 2006 Annual Report to Stockholders for a detailed description of the Celera Diagnostic restructuring.

We consistently applied the accounting policies described in our 2006 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 2006 Annual Report to Stockholders. You should read these unaudited interim condensed consolidated financial statements in conjunction with our consolidated financial statements presented in our 2006 Annual Report to Stockholders. We have reclassified some prior year amounts in the condensed consolidated financial statements and notes for comparative purposes.

Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for our 2009 fiscal year beginning July 1, 2008, and interim periods within that fiscal year. We are currently evaluating the provisions of SFAS No. 157 and the resulting impact of adoption on our financial statements.

Also in September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R). SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and recognize changes in the funded status in the year in which the changes occur through comprehensive income. As the recognition and disclosure provisions of SFAS No. 158 are effective for our fiscal year ending June 30, 2007, we will be evaluating the provisions of SFAS No. 158 and the resulting impact of adoption on our financial statements nearer to the time of adoption. The amount we will record in our statement of financial position related to this Statement depends on numerous future events and circumstances, such as the assumptions used to value our pension plan assets and liabilities, and therefore, is not reasonably estimable at the time of filing this report.

Also in September 2006, the Securities and Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 established an approach that requires quantification of financial statement errors based on the effects of an error on a company’s balance sheet and income statement and related disclosures. Historically, we have used the “rollover approach” for quantifying identified financial statement misstatements. This approach quantifies misstatements based on the amount of the error originating in the current year. We are required to apply the provisions of SAB 108 in connection with the preparation of our annual financial statements for our fiscal year ended June 30, 2007.

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APPLERA CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

We are currently evaluating the provisions of SAB 108 and do not expect the resulting impact of adoption to have a material impact on our financial statements.

Note 2 – Events Impacting Comparability

We are providing the following information on some actions taken by us or events that occurred in the periods indicated:

	Three months ended September 30,

Income/(charge)
(Dollar amounts in millions)		2006			2005

Asset impairments	$	—		$	(1.1	)
Other		(3.5	)
Reduction of expected costs					0.2

Total employee-related charges, asset impairments and other	$	(3.5	)	$	(0.9	)

Other events impacting comparability:
Asset dispositions and legal settlements	$	(9.1	)	$	(23.5	)
Acquired research and development		(114.3	)
Investment gains					4.5
Tax items		8.8			13.5

Employee-Related Charges, Asset Impairments and Other

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

Applied Biosystems group

Fiscal 2006

In the first quarter of fiscal 2006, the Applied Biosystems group recorded a pre-tax benefit of $0.2 million for a reduction in anticipated employee-related costs associated with a severance and benefit charge recorded in fiscal 2005.

Also in the first quarter of fiscal 2006, the Applied Biosystems group recorded a $1.1 million pre-tax impairment charge to write-down the carrying amount of its San Jose, California facility to its estimated market value at that time less estimated selling costs. This charge was in addition to a charge recorded in fiscal 2005. In the fourth quarter of fiscal 2006, the Applied Biosystems group completed the sale and recognized a $0.9 million pre-tax favorable adjustment to the charges previously recorded based on the actual sales price per the agreement.

Other

During the first quarter of fiscal 2007, the Applied Biosystems group made cash payments of $0.4 million for severance and employee benefits and office closures related to charges recorded prior to fiscal 2006. The following table summarizes the remaining cash payments by event and the expected payment dates as of September 30, 2006.

(Dollar amounts in millions)	Remaining cash payments		Expected payment dates

Fiscal 2003 employee-related charge	$	0.4	Fiscal 2007
Fiscal 2005 employee-related charge		0.1	Fiscal 2007
Fiscal 2005 excess lease space and other charges		1.4	Fiscal 2007 – Fiscal 2011

	$	1.9

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APPLERA CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

Celera Genomics group

Fiscal 2007

During the first quarter of fiscal 2007, the Celera Genomics group recorded a pre-tax charge of $3.5 million for its estimated share of a damage award in continuing litigation between Abbott Laboratories, our alliance partner, and Innogenetics N.V. In September 2006, a jury found that the sale of Hepatitis C Virus (“HCV”) genotyping analyte specific reagents (“ASRs”) products by Abbott willfully infringed a U.S. patent owned by Innogenetics. These products are manufactured by the Celera Genomics group and are sold through its alliance with Abbott. The U.S. District Court for the Western District of Wisconsin found Abbott liable for $7 million in damages. The Court set a schedule to address Innogenetics’ request for an injunction and enhanced damages, and this is ongoing. Abbott has informed the Celera Genomics group that it has brought post-trial motions and intends to appeal this judgment as both Abbott and the Celera Genomics group believe that Innogenetics’ patent is invalid and that the alliance’s HCV genotyping ASRs do not infringe Innogenetics’ patent. Innogenetics did not name the Celera Genomics group as a party in this lawsuit. However, as these products are part of its alliance with Abbott, the Celera Genomics group shares equally in the costs of, and any financial implications relating to, this litigation.

Fiscal 2006

During fiscal 2006, the Celera Genomics group recorded pre-tax charges related to its decision to exit its small molecule drug discovery and development programs and the integration of Celera Diagnostics into the Celera Genomics group. These charges consisted of the following components:

(Dollar amounts in millions)	Employee- Related Charges		Asset Impairments		Excess Lease Space		Other Disposal Costs		Total

Third quarter	$	10.7	$	8.0	$	0.8	$	1.4	$	20.9
Fourth quarter		2.1		1.8		0.4		1.2		5.5

Total charges		12.8		9.8		1.2		2.6		26.4

Cash payments		7.9				0.2		2.4		10.5
Non-cash activity				9.3				0.2		9.5

Balance at June 30, 2006		4.9		0.5		1.0				6.4

Cash payments		4.1				0.5				4.6

Balance at September 30, 2006	$	0.8	$	0.5	$	0.5	$	—	$	1.8

The employee-related charges were severance costs primarily for staff reductions in small molecule drug discovery and development. The asset impairment charges primarily related to a write-down of the carrying amount of an owned facility to its current estimated market value less estimated selling costs, as well as write-offs of leasehold improvements and equipment. All of the affected employees have been notified and substantially all were terminated by July 31, 2006. Cash expenditures were funded by available cash. The remaining cash expenditures related to these charges are expected to be disbursed by the end of fiscal 2007.

Other

During the first quarter of fiscal 2007, the Celera Genomics group made cash payments of approximately $0.4 million related to an excess facility lease space charge that was recorded prior to fiscal 2006. The remaining cash expenditures of approximately $2.5 million related to this charge are expected to be disbursed by fiscal 2011.

Other Events Impacting Comparability

Asset dispositions and legal settlements

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

In the first quarter of fiscal 2007, the Applied Biosystems group recorded a $9.1 million pre-tax charge related to a settlement agreement entered into with another company which resolved outstanding legal disputes with that company.

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APPLERA CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

In the first quarter of fiscal 2006, we recorded a $23.5 million pre-tax charge related to a litigation matter and an award in an arbitration proceeding with Amersham Biosciences, now GE Healthcare. We recorded the pre-tax charge as follows: $22.8 million at the Applied Biosystems group and $0.7 million at the Celera Genomics group. The charge included an estimate of the liability that was incurred by us to resolve the litigation matter and the arbitration settlement. The arbitrator awarded Amersham past damages based on an increase in royalty rates for some of its DNA sequencing enzymes and kits that contain those enzymes, plus interest, fees, and other costs in an amount to be determined. As a result of this decision, the Applied Biosystems group recorded a pre-tax charge of $20.4 million in the first quarter of fiscal 2006, $19.5 million of which was recorded in asset dispositions and legal settlements.

Acquired research and development

In the first quarter of fiscal 2007, the Applied Biosystems group recorded a $114.3 million charge to write-off the value of acquired in-process research and development (“IPR&D”) in connection with the acquisition of Agencourt Personal Genomics (“APG”). As of the acquisition date, the technological feasibility of the acquired project had not been established, and it was determined that the acquired project had no future alternative use. The determination of the amount attributed to acquired IPR&D took into consideration an independent appraisal performed by an outside consultant. See Note 3 for more information on this acquisition.

Investments

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

Tax items

In the first quarter of fiscal 2007, the Applied Biosystems group recorded a tax benefit of $8.8 million related to a reduction in the valuation allowance for some German net operating loss carryforwards. In the first quarter of fiscal 2006, the Applied Biosystems group recorded a tax benefit of $13.5 million related to the resolution of transfer pricing matters in Japan.

Note 3 – Acquisition

In July 2006, we acquired APG for approximately $121 million in cash, including transaction costs. At the time of the purchase, APG was a privately-held developer of next-generation genetic analysis technology. APG’s proprietary technology was based on stepwise ligation, a novel and very high throughput approach to DNA analysis.

In accordance with SFAS No. 141, “Business Combinations,” we accounted for this transaction as a purchase of assets as defined by Emerging Issues Task Force (“EITF”) Abstracts Issue 98-3, “Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business” rather than a business combination. The key considerations impacting our accounting determination were that APG was primarily focused on research and development activities, had not commenced principal operations, and did not have products, customers or revenues. Because APG did not meet the definition of a business as defined by EITF 98-3, we allocated the purchase price, as follows:

(Dollar amounts in millions)	Fair Value

Property, plant and equipment	$	1.4

Intangible asset – workforce		1.5
Acquired IPR&D		114.3

Deferred tax asset		4.7
Deferred tax liability		(0.5	)

Total purchase price	$	121.4

We allocated this transaction to the Applied Biosystems group. The estimated fair value attributed to the workforce was determined based on the estimated cost to recruit, hire, and train a workforce comparable to that in existence at APG at

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APPLERA CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
continued

the time of our purchase of its assets. At the time of the acquisition, approximately 20 employees of APG became employees of the Applied Biosystems group. The recorded fair value of the workforce intangible asset will be amortized over its expected period of benefit of 3 years.

At the time of the acquisition, APG was in the process of prosecuting certain patents, but none had been issued. Any licenses APG had were not exclusive and did not provide it a measurable technological advantage. As a result, neither the patents or licenses were deemed to be identifiable assets and no value was assigned.

As of the acquisition date, the technological feasibility of the acquired IPR&D project had not been established, and it was determined that the project had no future alternative use. The amount attributed to acquired IPR&D took into consideration an independent appraisal performed by an outside consultant and was developed using an income approach. The project was valued using a discounted cash flow model and a discount rate of 30%. This discount rate was based on an estimated weighted average cost of capital given APG’s stage and development lifecycle. The projected cash flows from the project were based on an estimate of future revenues and expenses attributable to the project. The valuation assumptions were made solely for the purpose of calculating projected cash flows and valuing the intangible assets acquired at the date of acquisition. Additionally, the amount of purchase price which was in excess of the identifiable assets was allocated to IPR&D, as goodwill could not result from an acquisition of assets. Actual results may vary from the projected results.

The following table briefly describes the APG IPR&D project.

(Dollar amounts in millions)	At Acquisition Date

Project	Fair Value		Estimated Costs to Complete		Approximate Percentage Completed

Instruments	$	66.6	$	10.0	35%
Reagents		47.7		6.0	25%

Total	$	114.3	$	16.0

The instruments and reagents being developed are designed for very high throughput genetic analysis applications, which are expected to include DNA sequencing and expression profiling. The initial instrument and reagents are expected to begin generating revenue in fiscal 2008. Enhanced platforms are expected to begin generating revenues in fiscal 2010 and fiscal 2013.

The APG project will require additional research and development efforts by the Applied Biosystems group before any eventual product can be marketed, if ever.

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APPLERA CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

continued

Note 4 – Earnings (Loss) per Share

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

	Applied Biosystems Group						Celera Genomics Group

(Dollar amounts in millions, except per share amounts)	2006			2005			2006			2005

Net income (loss)	$	(58.7	)	$	43.1		$	(7.1	)	$	(16.7	)
Allocated intercompany sale of assets		(0.1	)
Allocated interperiod taxes		(0.1	)		(1.2	)

Total net income (loss) allocated		(58.9	)		41.9			(7.1	)		(16.7	)
Less dividends declared on common stock		7.7			8.3

Undistributed earnings (loss)	$	(66.6	)	$	33.6		$	(7.1	)	$	(16.7	)

Allocation of basic earnings (loss) per share
Basic distributed earnings per share ⁽¹⁾		NA	*	$	0.04		$	—		$	—
Basic undistributed earnings (loss) per share		NA	*		0.17			(0.09	)		(0.23	)

Total basic earnings (loss) per share	$	(0.32	)	$	0.21		$	(0.09	)	$	(0.23	)

Allocation of diluted earnings (loss) per share
Diluted distributed earnings per share ⁽¹⁾		NA	*	$	0.04		$	—		$	—
Diluted undistributed earnings (loss) per share		NA	*		0.17			(0.09	)		(0.23	)

Total diluted earnings (loss) per share	$	(0.32	)	$	0.21		$	(0.09	)	$	(0.23	)

Weighted average number of common shares
Basic		182.1			195.5			77.8			74.4
Common stock equivalents					2.4

Diluted		182.1			197.9			77.8			74.4

⁽¹⁾ Amounts represent actual dividends per share distributed.

* Due to the net loss incurred for the first three months ended September 30, 2006, undistributed earnings per share have not been presented. Dividends of $0.04 per share for the first three months ended September 30, 2006 were distributed from prior period earnings.

Options to purchase shares of Applera Corporation-Celera Genomics Group Common Stock (“Applera-Celera stock”) were excluded from the computation of diluted loss per share because the effect was antidilutive. For the three months ended September 30, 2006, options to purchase shares of Applera Corporation-Applied Biosystems Group Common Stock (“Applera-Applied Biosystems stock”) were excluded from the computation of diluted loss per share because the effect was antidilutive. Additionally, for the three months ended September 30, 2005, options to purchase shares of Applera-Applied Biosystems stock at exercise prices greater than the average market prices were excluded from the computation of diluted earnings per share because the effect would have been antidilutive. The following table presents the number of shares excluded from the diluted earnings and loss per share computations at September 30:

(Shares in millions)	2006	2005

Applera-Applied Biosystems stock	5.1	15.0
Applera-Celera stock	7.1	11.2

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APPLERA CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

continued

Note 5 – Comprehensive Gain

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

	Three months ended September 30,

(Dollar amounts in millions)	2006			2005

Net income (loss)	$	(66.0	)	$	25.2
Other comprehensive gain (loss):
Net unrealized gains (losses) on investments		2.1			(0.5	)
Net unrealized gains on investments reclassified into earnings		(0.2	)
Net unrealized gains on hedge contracts		2.0			1.6
Net unrealized losses on hedge contracts reclassified into earnings					2.1
Foreign currency translation adjustments		2.5			(3.3	)

Total other comprehensive gain (loss)		6.4			(0.1	)

Total comprehensive gain (loss)	$	(59.6	)	$	25.1

Note 6 – Inventories

Inventories included the following components:

(Dollar amounts in millions)	September 30, 2006		June 30, 2006

Raw materials and supplies	$	44.7	$	44.3
Work-in-process		11.7		12.8
Finished products		87.1		80.6

Total inventories, net	$	143.5	$	137.7

Note 7 – Goodwill and Intangible Assets

The carrying amounts of our intangible assets were as follows:

	September 30, 2006				June 30, 2006

(Dollar amounts in millions)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization

Amortized intangible assets:
Acquired technology	$	83.5	$	47.9	$	83.3	$	44.5
Patents		29.9		23.6		29.9		22.9
Customer relationships		27.1		2.3		27.1		1.6
Other		1.7		0.2		0.3		0.3

Total amortized intangible assets	$	142.2	$	74.0	$	140.6	$	69.3

Unamortized intangible assets:
Trade name		4.9				4.9

Total	$	147.1	$	74.0	$	145.5	$	69.3

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Aggregate amortization expense was as follows:

	Three months ended September 30,

(Dollar amounts in millions)	2006		2005

Applied Biosystems group	$	4.4	$	1.7
Celera Genomics group		0.6		1.3

Consolidated	$	5.0	$	3.0

We record amortization expense in cost of sales. However, amortization of acquisition-related intangible assets is recorded in the amortization of purchased intangible assets in the condensed consolidated statements of operations. At September 30, 2006, we estimated annual amortization expense of our intangible assets for each of the next five fiscal years as shown in the following table. Future acquisitions or impairment events could cause these amounts to change.

(Dollar amounts in millions)	Applied Biosystems Group		Celera Genomics Group		Consolidated

Remainder of fiscal 2007	$	12.9	$	1.6	$	14.5
2008		14.7		0.6		15.3
2009		13.0		0.2		13.2
2010		10.2		0.2		10.4
2011		6.6		0.1		6.7

The carrying amount of goodwill at September 30, 2006 and June 30, 2006, was $245.9 million, of which $243.2 million was allocated to the Applied Biosystems group and $2.7 million was allocated to the Celera Genomics group.

Note 8 – Supplemental Cash Flow Information

Significant non-cash financing activity for the three months ended September 30 was as follows:

(Dollar amounts in millions)	2006		2005

Dividends declared but not paid	$	7.7	$	8.3
Tax benefit related to employee stock options		4.8		0.6
Issuances of restricted stock		8.8

Note 9 – Guarantees

Leases

We provide lease-financing options to our customers through third party financing companies. For some leases, the financing companies have recourse to us for any unpaid principal balance on default by the customer. The leases typically have terms of two to three years and are secured by the underlying instrument. In the event of default by a customer, we would repossess the underlying instrument. We record revenues from these transactions on the completion of installation and acceptance of products and maintain a reserve for estimated losses on all lease transactions with recourse provisions based on historical default rates and current economic conditions. At September 30, 2006, the financing companies’ outstanding balance of lease receivables with recourse to us was $7.4 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.

Pension Benefits

As 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 payment obligations were not transferable to the buyer under German law. The guaranteed payment obligation, which approximated $56 million at

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September 30, 2006, is not expected to have a material adverse effect on our condensed consolidated statement of financial position.

Indemnifications

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

Product Warranties

We 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 product warranty accrual covers parts and labor for repairs and replacements covered by our product warranties. We periodically review the adequacy of our warranty reserve, and adjust, if necessary, the warranty percentage and accrual based on actual experience and estimated costs to be incurred.

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

(Dollar amounts in millions)	2006			2005

Balance beginning of period	$	10.6		$	14.0
Accruals for warranties		3.4			5.0
Usage of reserve		(3.8	)		(5.5	)
Other, including currency		(0.1	)

Balance at September 30	$	10.1		$	13.5

Note 10 – Pension and Other Postretirement Benefits

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

	Three months ended September 30,

(Dollar amounts in millions)		2006			2005

Pension
Service cost	$	0.3		$	0.7
Interest cost		10.5			8.9
Expected return on plan assets		(11.5	)		(9.5	)
Amortization of prior service cost		0.2
Amortization of losses		1.2			1.9

Net periodic expense	$	0.7		$	2.0

Postretirement Benefit
Service cost	$	—		$	0.1
Interest cost		0.9			0.8
Amortization of gains		(0.1	)

Net periodic expense	$	0.8		$	0.9

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We contributed approximately $0.8 million to our foreign and non-qualified domestic plans during the three months ended September 30, 2006, and expect to contribute an additional $1.6 million during the remainder of fiscal 2007. Based on the level of our contributions to the qualified U.S. pension plan during fiscal 2006 and previous years, combined with the performance of the assets invested in the plan, we do not expect to have to fund our qualified U.S. pension plan in fiscal 2007 in order to meet minimum statutory funding requirements. We made benefit payments of approximately $0.7 million under the postretirement plan during the three months ended September 30, 2006, and we expect to make approximately $5.0 million of additional benefit payments during the remainder of fiscal 2007 under our postretirement plan.

Note 11 – Contingencies

Supply Arrangement

Delphi Medical Systems Texas Corporation (“Delphi Medical Systems”) is a supplier of some instruments, parts, and components to the Applied Biosystems group under a manufacturing and supply contract. On October 8, 2005, Delphi Medical Systems and its parent Delphi Corporation, filed a petition in the United States Bankruptcy Court for the Southern District of New York seeking relief under the provisions of Chapter 11 of the federal Bankruptcy Code. As of September 30, 2006, the Applied Biosystems group had a pre-petition accounts receivable balance of approximately $7 million and a pre-petition accounts payable balance of approximately $4 million with Delphi Medical Systems. As of September 30, 2006, the Applied Biosystems group had in addition a post-petition accounts payable balance with Delphi Medical Systems of approximately $5 million. On October 23, 2006, the Bankruptcy Court entered an order granting a motion for recoupment filed by the Applied Biosystems group. Under the terms of the recoupment order, which became final on November 3, 2006, the Applied Biosystems group may offset and recoup all pre-petition amounts owed by Delphi Medical Systems to the Applied Biosystems group against amounts, pre-petition and post-petition, owed by the Applied Biosystems group to Delphi Medical Systems, so that all pre-petition amounts owed by Delphi Medical Systems to the Applied Biosystems group will be paid in full by application of the offset and recoupment. In addition, Delphi Medical Systems recently informed the Applied Biosystems group that it does not intend to continue performing under the manufacturing and supply agreement after approximately May 2007. The Applied Biosystems group intends to use its own existing manufacturing facilities to replace the supply of some critical items that it has been purchasing from Delphi Medical Systems, and it is evaluating the use of new suppliers for other critical items and is seeking to mitigate potential supply issues by increasing inventory of some critical items. However, it is uncertain whether the group will be able to transition the manufacture of these items to its own facilities, or hire new suppliers on acceptable terms, and whether it will be able to do so as quickly as needed. Also, the Applied Biosystems group does not expect to replace the supply of all items purchased from Delphi Medical Systems and accordingly some of its older, low demand products will be discontinued earlier than originally planned.

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. The following is a description of some claims we are currently defending, including some counterclaims brought against us in response to claims filed by us against others. We believe that we have meritorious defenses against the claims currently asserted against us, including those described below, and intend to defend them vigorously.

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

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would not be able to patent this data. The consolidated complaint seeks monetary damages, rescission, costs and expenses, and other relief as the court deems proper. On March 31, 2005, the court certified the case as a class action.

We filed a patent infringement action against Bio-Rad Laboratories, Inc., MJ Research, Inc., and Stratagene Corporation in the U.S. District Court for the District of Connecticut on November 9, 2004. The complaint alleges that the defendants infringe U.S. Patent No. 6,814,934. The complaint specifically alleges that the defendants’ activities involving instruments for real-time PCR detection result in infringement. We are seeking monetary damages, costs, expenses, injunctive relief, and other relief as the court deems proper. Bio-Rad and MJ Research answered the complaint and counterclaimed for declaratory relief that the ‘934 patent was invalid and not infringed, but we settled all of these claims with Bio-Rad and MJ Research in February 2006. Stratagene also answered the complaint and counterclaimed for declaratory relief that the ‘934 patent is invalid and not infringed. Stratagene is seeking dismissal of our complaint, a judgment that the ‘934 patent is invalid and not infringed, costs and expenses, and other relief as the court deems proper.

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 alleged that the defendants infringed 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 was seeking monetary damages, costs and expenses, injunctive relief, and other relief as the court deemed proper. The defendants answered the complaint on July 9, 2001, and we asserted counterclaims that alleged that Promega was infringing our U.S. Patent No. 6,200,748, entitled “Tagged Extendable Primers and Extension Products,” due to Promega’s sale of forensic identification and paternity testing kits. Because of settlement negotiations, the case was dismissed on October 29, 2002. The dismissal was without prejudice, which means that Promega could have refiled its claim against us. However, on September 5, 2006, we announced that we had entered into a settlement agreement with Promega that resolved the claims and counterclaims between us and Promega described above.

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 alleges 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 seeks monetary damages, costs, expenses, injunctive relief, and other relief. On April 2, 2003, the U.S. District Court for the District of Connecticut granted our summary judgment motion and dismissed all claims brought by On-Line Technologies. On-Line Technologies filed an appeal with the U.S. Court of Appeals for the Federal Circuit seeking reinstatement of its claims, and on October 13, 2004, the Court of Appeals upheld dismissal of all claims except for the patent infringement claim, which will be decided by the District Court in subsequent proceedings.

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

Molecular Diagnostics Laboratories filed a class action complaint against us and Hoffmann-La Roche, Inc. in the U.S. District Court for the District of Columbia on September 23, 2004, and filed an amended complaint on July 5, 2006. The

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amended complaint alleges anticompetitive conduct in connection with the sale of Taq DNA polymerase. The anticompetitive conduct is alleged to arise from the prosecution and enforcement of U.S. Patent No. 4,889,818. This patent is assigned to Hoffmann-La Roche, with whom we have a commercial relationship covering, among other things, this patent and the sale of Taq DNA polymerase. The complaint seeks monetary damages, costs, expenses, injunctive relief, and other relief as the court deems proper. On July 5, 2006, the court certified the case as a class action.

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

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

Note 12 – 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.

As a result of the restructuring effective January 1, 2006 and the manner by which our management now operates and assesses our businesses, Celera Diagnostics is no longer a separate segment within Applera and we have restated prior period condensed consolidating financial information to reflect this change. See Note 16 to our consolidated financial statements included in our 2006 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).

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The following table summarizes revenues earned between segments:

	Three months ended September 30,

(Dollar amounts in millions)	2006		2005

Applied Biosystems Group
Sales to the Celera Genomics group (a)	$	1.1	$	1.5

Celera Genomics Group
Royalties from the Applied Biosystems group (b)	$	—	$	0.9

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

^(b) The Celera Genomics group recorded net revenues primarily for royalties generated from sales by the Applied Biosystems group of products integrating Celera Discovery System ^TM (“CDS”) and some other genomic and biological information under a marketing and distribution agreement. The Celera Genomics group forgave future royalties related to this agreement as discussed in Note 15 to our consolidated financial statements included in our 2006 Annual Report to Stockholders.

Additionally, the Applied Biosystems group received, without reimbursement, $8.6 million in the first three months of fiscal 2007 and $8.5 million in the first three months of fiscal 2006 of tax benefits generated by the Celera Genomics group in accordance with our tax allocation policy.

In the following consolidating financial information, the “Eliminations” column represents the elimination of intersegment activity.

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Condensed Consolidating Statement of Operations for the Three Months Ended September 30, 2006

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

Products	$	388,596		$	2,486		$	—		$	391,082
Services		58,140									58,140
Other		28,444			7,743						36,187

Net revenues from external customers		475,180			10,229			—			485,409
Intersegment revenues		1,093						(1,093	)

Total Net Revenues		476,273			10,229			(1,093	)		485,409

Products		193,376			3,644			(361	)		196,659
Services		24,669						(71	)		24,598
Other		2,670			157			—			2,827

Cost of Sales		220,715			3,801			(432	)		224,084

Gross Margin		255,558			6,428			(661	)		261,325
Selling, general and administrative		123,545			5,647			13,193			142,385
Corporate allocated expenses		11,605			1,594			(13,199	)
Research, development and engineering		45,115			13,221			(434	)		57,902
Amortization of purchased intangible assets		2,737									2,737
Employee-related charges, asset impairments and other					3,500						3,500
Asset dispositions and legal settlements		9,087									9,087
Acquired research and development		114,251									114,251

Operating Loss		(50,782	)		(17,534	)		(221	)		(68,537	)
Gain on investments, net		209									209
Interest income, net		2,630			6,583						9,213
Other income (expense), net		1,314			103						1,417

Loss before Income Taxes		(46,629	)		(10,848	)		(221	)		(57,698	)
Provision (benefit) for income taxes		12,093			(3,797	)		18			8,314

Net Loss	$	(58,722	)	$	(7,051	)	$	(239	)	$	(66,012	)

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Condensed Consolidating Statement of Financial Position at September 30, 2006

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

Assets
Current assets
Cash and cash equivalents	$	262,682	$	20,330	$	—		$	283,012
Short-term investments		21,456		546,080					567,536
Accounts receivable, net		334,820		6,459		(824	)		340,455
Inventories, net		135,343		8,372		(233	)		143,482
Prepaid expenses and other current assets		143,742		32,176		(1,940	)		173,978

Total current assets		898,043		613,417		(2,997	)		1,508,463
Property, plant and equipment, net		386,208		8,814		(303	)		394,719
Goodwill and intangible assets, net		313,609		5,387					318,996
Other long-term assets		540,221		134,714		(79	)		674,856

Total Assets	$	2,138,081	$	762,332	$	(3,379	)	$	2,897,034

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	162,738	$	3,446	$	(2,084	)	$	164,100
Accrued salaries and wages		47,185		4,000					51,185
Current deferred tax liability		17,587							17,587
Accrued taxes on income		24,301		13,736					38,037
Other accrued expenses		232,106		13,393		(939	)		244,560

Total current liabilities		483,917		34,575		(3,023	)		515,469
Other long-term liabilities		198,677		5,355		(282	)		203,750

Total Liabilities		682,594		39,930		(3,305	)		719,219

Total Stockholders’ Equity		1,455,487		722,402		(74	)		2,177,815

Total Liabilities and Stockholders’ Equity	$	2,138,081	$	762,332	$	(3,379	)	$	2,897,034

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Condensed Consolidating Statement of Cash Flows for the Three Months Ended September 30, 2006

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

Operating Activities of Continuing Operations
Net loss	$	(58,722	)	$	(7,051	)	$	(239	)	$	(66,012	)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization		19,376			1,781			(78	)		21,079
Employee-related charges and other					3,500						3,500
Share-based compensation programs		3,728			775						4,503
Sale of assets and legal settlements, net		(209	)								(209	)
Deferred income taxes		(7,409	)		4,631			(892	)		(3,670	)
Acquired research and development		114,251									114,251
Nonreimbursable utilization of intergroup tax benefits		8,563			(8,563	)
Changes in operating assets and liabilities:
Accounts receivable		38,249			3,167			94			41,510
Inventories		(5,234	)		(138	)		233			(5,139	)
Prepaid expenses and other assets		(11,304	)		(1,574	)		(3,403	)		(16,281	)
Accounts payable and other liabilities		(78,319	)		(10,793	)		4,245			(84,867	)

Net Cash Provided (Used) by Operating Activities of Continuing Operations		22,970			(14,265	)		(40	)		8,665

Investing Activities of Continuing Operations
Additions to property, plant and equipment, net		(14,507	)		(444	)		40			(14,911	)
Proceeds from maturities of available-for-sale investments					40,870						40,870
Proceeds from sales of available-for-sale investments		2,422			113,378						115,800
Purchases of available-for-sale investments		(23,878	)		(188,707	)					(212,585	)
Acquisitions and investments		(121,403	)								(121,403	)
Proceeds from the sale of assets, net		322									322

Net Cash Used by Investing Activities of Continuing Operations		(157,044	)		(34,903	)		40			(191,907	)

Financing Activities
Dividends		(7,647	)								(7,647	)
Proceeds from stock issued for stock plans and other		25,148			9,228						34,376

Net Cash Provided by Financing Activities		17,501			9,228			—			26,729

Effect of Exchange Rate Changes on Cash		5,334									5,334

Net Change in Cash and Cash Equivalents		(111,239	)		(39,940	)		—			(151,179	)
Cash and Cash Equivalents Beginning of Period		373,921			60,270						434,191

Cash and Cash Equivalents End of Period	$	262,682		$	20,330		$	—		$	283,012

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Condensed Consolidating Statement of Operations for the Three Months Ended September 30, 2005

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

Products	$	335,808		$	2,721		$	—		$	338,529
Services		51,443			824						52,267
Other		26,724			4,708						31,432

Net revenues from external customers		413,975			8,253			—			422,228
Intersegment revenues		1,490			956			(2,446	)

Total Net Revenues		415,465			9,209			(2,446	)		422,228

Products		167,082			2,772			(1,647	)		168,207
Services		23,477			664			(152	)		23,989
Other		2,719			915						3,634

Cost of sales		193,278			4,351			(1,799	)		195,830

Gross Margin		222,187			4,858			(647	)		226,398
Selling, general and administrative		112,212			7,939			11,714			131,865
Corporate allocated expenses		9,771			1,943			(11,714	)
Research, development and engineering		40,838			29,552			(693	)		69,697
Amortization of purchased intangible assets		314			725						1,039
Employee-related charges, asset impairments and other		871									871
Asset dispositions and legal settlements		22,834			675						23,509

Operating Income (Loss)		35,347			(35,976	)		46			(583	)
Gain on investments, net					4,503						4,503
Interest income, net		4,422			5,248						9,670
Other income (expense), net		1,665			42						1,707

Income (Loss) before Income Taxes		41,434			(26,183	)		46			15,297
Benefit for income taxes		(1,690	)		(9,435	)		1,243			(9,882	)

Net Income (Loss)	$	43,124		$	(16,748	)	$	(1,197	)	$	25,179

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APPLERA CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

continued

Condensed Consolidating Statement of Financial Position at June 30, 2006

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

Assets
Current assets
Cash and cash equivalents	$	373,921	$	60,270	$	—		$	434,191
Short-term investments				509,252					509,252
Accounts receivable, net		373,613		9,626		(730	)		382,509
Inventories, net		129,417		8,234					137,651
Prepaid expenses and other current assets		135,711		32,966		(5,315	)		163,362

Total current assets		1,012,662		620,348		(6,045	)		1,626,965
Property, plant and equipment, net		387,170		9,607		(341	)		396,436
Goodwill and intangible assets, net		316,269		5,828					322,097
Other long-term assets		529,671		137,895		(89	)		667,477

Total Assets	$	2,245,772	$	773,678	$	(6,475	)	$	3,012,975

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	200,591	$	6,497	$	(5,397	)	$	201,691
Accrued salaries and wages		89,883		9,055					98,938
Current deferred tax liability		17,560							17,560
Accrued taxes on income		38,157		12,787					50,944
Other accrued expenses		227,001		13,089		(933	)		239,157

Total current liabilities		573,192		41,428		(6,330	)		608,290
Other long-term liabilities		194,844		5,817		(310	)		200,351

Total Liabilities		768,036		47,245		(6,640	)		808,641

Total Stockholders ’ Equity		1,477,736		726,433		165			2,204,334

Total Liabilities and Stockholders ’ Equity	$	2,245,772	$	773,678	$	(6,475	)	$	3,012,975

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APPLERA CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

continued

Condensed Consolidating Statement of Cash Flows for the Three Months Ended September 30, 2005

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

Operating Activities of Continuing Operations
Net income (loss)	$	43,124		$	(16,748	)	$	(1,197	)	$	25,179
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation and amortization		16,703			4,385			(110	)		20,978
Asset impairments		1,090									1,090
Employee-related charges and other		(219	)								(219	)
Share-based compensation programs		1,332			319						1,651
Sale of assets and legal settlements, net		23,726			(3,820	)					19,906
Deferred income taxes		(4,053	)		2,030			1,103			(920	)
Nonreimbursable utilization of intergroup tax benefits		8,458			(8,458	)
Changes in operating assets and liabilities:
Accounts receivable		52,519			(1,153	)		1,049			52,415
Inventories		(12,588	)		(482	)					(13,070	)
Prepaid expenses and other assets		5,961			(1,890	)		(276	)		3,795
Accounts payable and other liabilities		(85,523	)		(18,112	)		(651	)		(104,286	)

Net Cash Provided (Used) by Operating Activities of Continuing Operations		50,530			(43,929	)		(82	)		6,519

Net Cash Used by Operating Activities of Discontinued Operations		(50	)								(50	)

Investing Activities of Continuing Operations
Additions to property, plant and equipment, net		(12,808	)		(1,670	)		151			(14,327	)
Proceeds from maturities of available-for-sale investments					55,278						55,278
Proceeds from sales of available-for-sale investments		10,548			92,812						103,360
Purchases of available-for-sale investments		(52,431	)		(91,823	)					(144,254	)
Proceeds from the sale of assets, net					4,572			(69	)		4,503

Net Cash Provided (Used) by Investing Activities of Continuing Operations		(54,691	)		59,169			82			4,560

Financing Activities
Net cash funding from groups		(4,510	)		4,510
Purchases of common stock for treasury		(201,236	)								(201,236	)
Proceeds from stock issued for stock plans and other		31,800			4,489						36,289

Net Cash Provided (Used) by Financing Activities		(173,946	)		8,999			—			(164,947	)

Effect of Exchange Rate Changes on Cash		(2,272	)								(2,272	)

Net Change in Cash and Cash Equivalents		(180,429	)		24,239			—			(156,190	)
Cash and Cash Equivalents Beginning of Period		756,236			23,165						779,401

Cash and Cash Equivalents End of Period	$	575,807		$	47,404		$	—		$	623,211

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

APPLERA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

The purpose of the following management’s discussion and analysis is to provide an overview of the business of Applera Corporation to help facilitate an understanding of significant factors influencing our historical operating results, financial condition, and cash flows and also to convey our expectations of the potential impact of known trends, events, or uncertainties that may impact our future results. You should read this discussion in conjunction with our consolidated financial statements and related notes included in this report and in our 2006 Annual Report to Stockholders. Historical results and percentage relationships are not necessarily indicative of operating results for future periods. When used in this management discussion, the terms “Applera,” “Company,” “we,” “us,” or “our” mean Applera Corporation and its subsidiaries.

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

Overview

We conduct business through two business segments: the Applied Biosystems group and the Celera Genomics group.

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

The Celera Genomics group is primarily a molecular diagnostics business that is using proprietary genomics and proteomics discovery platforms to identify and validate novel diagnostic markers, and is developing diagnostic products based on these markers as well as other known markers. The Celera Genomics group maintains a strategic alliance with Abbott Laboratories for the development and commercialization of molecular, or nucleic acid-based, diagnostic products, and it is also developing new diagnostic products outside of this alliance. Through its genomics and proteomics research efforts, the Celera Genomics group is also discovering and validating therapeutic targets, and it is seeking strategic partnerships to develop therapeutic products based on these discovered targets.

Through December 31, 2005, we operated a diagnostic business known as Celera Diagnostics. This business was a 50/50 joint venture between the Applied Biosystems group and the Celera Genomics group. Effective January 1, 2006, the Celera Genomics group acquired the Applied Biosystems group’s 50 percent interest in the Celera Diagnostics joint venture such that it now owns 100 percent of Celera Diagnostics. As a result of this restructuring and the manner by which our management now operates and assesses our businesses, Celera Diagnostics is no longer a separate segment within Applera and we have restated prior period consolidating financial information to reflect this change. Since its formation in fiscal 2001, Celera Diagnostics has been focused on the discovery, development, and commercialization of diagnostic products. As part of the Celera Genomics group, the diagnostics business continues to focus on these areas.

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.

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APPLERA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS continued

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

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

More information about the risks relating to our capital structure, particularly our two classes of capital stock, is contained in our Annual Report on Form 10-K for fiscal 2006 filed with the Securities and Exchange Commission.

Our fiscal year ends on June 30. The financial information for both segments is presented in Note 12 to our condensed consolidated financial statements, Segment and Consolidating Information. Management’s discussion and analysis addresses the consolidated financial results followed by the discussions of our two segments.

Business Developments:

Applied Biosystems Group

•

In October 2006, we announced that Catherine M. Burzik resigned her position as Senior Vice President of Applera and President of the Applied Biosystems group to become Chief Executive Officer of a public medical device company and that Tony L. White, Chairman, President, and Chief Executive Officer of Applera, became interim president of the Applied Biosystems group.

•	In September 2006, the Applied Biosystems group announced that it entered into a settlement agreement with Promega Corporation, resolving outstanding legal disputes between the two companies.

•

In August 2006, the Applied Biosystems group announced that it had been awarded a $24.5 million contract from the U.S. Department of Defense to accelerate the development of a Real-Time PCR based prototype instrument system. The system is being developed to simultaneously analyze multiple pathogen targets in a single test intended to improve the way infectious diseases are identified for epidemiological and biosecurity purposes.

Celera Genomics Group

•

In October 2006, Specialty Laboratories announced the commercial launch of its Hepatitis C Virus (“HCV”) Liver Fibrosis GenotypR™ test, the first genomic clinical test to predict progression to liver fibrosis and cirrhosis in HCV patients. This test is based on the Celera Genomics group’s cirrhosis marker discoveries, which were licensed to Specialty in June 2006. The HCV Liver Fibrosis GenotypR test is the first of its kind to identify a patient’s genomic signature and uses seven single nucleotide polymorphisms to rate the relative risk of progression to liver fibrosis and cirrhosis.

•

In September 2006, the Celera Genomics group published data that identified the FCAR genetic polymorphism associated with increased risk for myocardial infarction. The research study confirmed prior research findings of a genetic basis for individuals at elevated risk for heart attack who derive better than average protective benefits of statin treatment. This paper will appear in the December 2006 edition of Arteriosclerosis, Thrombosis and Vascular Biology , and is currently available on the publication’s website.

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APPLERA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS continued

•

In September 2006, a jury in Madison, Wisconsin found that the sale of HCV genotyping analyte specific reagents (“ASRs”) products by Abbott Laboratories, our alliance partner, willfully infringed a U.S. patent owned by Innogenetics N.V. These products are manufactured by the Celera Genomics group and are sold through its alliance with Abbott. The U.S. District Court for the Western District of Wisconsin found Abbott liable for $7 million in damages. Innogenetics did not name the Celera Genomics group as a party in this lawsuit. However, as these products are part of its alliance with Abbott, the Celera Genomics group shares equally in the costs of, and any financial implications relating to, this litigation. Please see events impacting comparability for more information.

•

In August 2006, the National Institutes of Health (“NIH”) awarded the Celera Genomics group approximately $900,000 to develop and commercialize an in vitro diagnostic test for the highly pathogenic influenza A/H5 virus (Asian lineage, H5N1). The Celera Genomics group plans to develop a test based on the Influenza A/H5 Virus Primer and Probe Set and protocols used in the test by U.S. Health and Human Services’ Centers for Disease Control and Prevention that was recently cleared by the U.S. Food and Drug Administration.

Critical Accounting Estimates

There were no material changes to our critical accounting estimates during the first three months of fiscal 2007. For further information on our critical accounting estimates, refer to the discussion contained in the management’s discussion and analysis section of our 2006 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.

Income/(charge) (Dollar amounts in millions)	Three months ended September 30,

		2006			2005

Asset impairments	$	—		$	(1.1	)
Other		(3.5	)
Reduction of expected costs					0.2

Total employee-related charges, asset impairments and other	$	(3.5	)	$	(0.9	)

Other events impacting comparability:
Asset dispositions and legal settlements	$	(9.1	)	$	(23.5	)
Acquired research and development		(114.3	)
Investment gains					4.5
Tax items		8.8			13.5

Acquisition

In July 2006, we acquired Agencourt Personal Genomics (“APG”) for approximately $121 million in cash, including transaction costs. At the time of the purchase, APG was a privately-held developer of next-generation genetic analysis technology. APG’s proprietary technology was based on stepwise ligation, a novel and very high throughput approach to DNA analysis. We allocated this transaction to the Applied Biosystems group.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” we accounted for this transaction as a purchase of assets as defined by Emerging Issues Task Force (“EITF”) Abstracts Issue 98-3, “Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business” rather than a business combination. The key considerations impacting our accounting determination were that APG was primarily focused on research and development activities, had not commenced principal operations, and did not have products, customers or revenues. For further information on the purchase of APG, see Note 3 to our condensed consolidated financial statements.

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APPLERA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS continued

Acquired Research and Development

In the first quarter of fiscal 2007, the Applied Biosystems group recorded a $114.3 million charge to write-off the value of acquired in-process research and development (“IPR&D”) in connection with the acquisition of APG. As of the acquisition date, the technological feasibility of the acquired project had not been established, and it was determined that the acquired project had no future alternative use. The project being developed, which consists of both an instrument and reagents, is intended for very high throughput genetic analysis applications, including DNA sequencing and expression profiling.

The APG project will require additional research and development efforts by the Applied Biosystems group before any eventual product can be marketed, if ever. At the date of acquisition, the project was in the development stage and approximately 30% complete. The remaining efforts for the instrument are currently focused on developing and converting the prototype instrument to a manufactured instrument that can be shipped internationally. We expect the overall throughput of the instrument to be increased tenfold from the prototype instrument before the commercial launch. The remaining efforts for the reagents are currently focused on developing reagents that can be manufactured at scale and produce results that can be reproduced in customer laboratories. The nature and timing of these remaining efforts are dependent on successful internal testing of both the instrument and reagents. The following table briefly describes the APG project.

(Dollar amounts in millions)	At Acquisition Date and September 30, 2006

Project		Fair Value		Estimated Costs to Complete	Approximate Percentage Completed

Instruments	$	66.6	$	10.0	35	%
Reagents		47.7		6.0	25	%

Total	$	114.3	$	16.0

The initial instrument and reagents are expected to begin generating revenue in fiscal 2008. Enhanced platforms are expected to begin generating revenues in fiscal 2010 and fiscal 2013.

At the time of the filing of this report, we do not anticipate any delays in our development timeline; however, unanticipated difficulties or delays in developing and bringing this project to market could harm the Applied Biosystems group’s future operating results. At the time of the acquisition, we believed there was a reasonable chance of realizing the economic return expected from the acquired in-process technology. However, as there is risk associated with the realization of benefits related to commercialization of an in-process project due to, among other things, rapidly changing customer needs, the complexity of the technology, growing competitive pressures, and potentially conflicting intellectual property rights of third parties, there can be no assurance that any project will meet commercial success. Failure to successfully commercialize an in-process project would result in the loss of the expected economic return inherent in the fair value allocation.

Employee-Related Charges, Asset Impairments and Other

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

Applied Biosystems group

Fiscal 2006

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APPLERA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS continued

2006, the Applied Biosystems group completed the sale and recognized a $0.9 million pre-tax favorable adjustment to the charges previously recorded based on the actual sales price per the agreement.

Other

(Dollar amounts in millions)	Remaining cash payments		Expected payment dates

Fiscal 2003 employee-related charge	$	0.4	Fiscal 2007
Fiscal 2005 employee-related charge		0.1	Fiscal 2007
Fiscal 2005 excess lease space and other charges		1.4	Fiscal 2007 – Fiscal 2011

	$	1.9

Celera Genomics group

Fiscal 2007

During the first quarter of fiscal 2007, the Celera Genomics group recorded a pre-tax charge of $3.5 million for its estimated share of a damage award in continuing litigation between Abbott Laboratories, our alliance partner, and Innogenetics N.V. In September 2006, a jury found that the sale of HCV genotyping ASRs products by Abbott willfully infringed a U.S. patent owned by Innogenetics. These products are manufactured by the Celera Genomics group and are sold through its alliance with Abbott. The U.S. District Court for the Western District of Wisconsin found Abbott liable for $7 million in damages. The Court set a schedule to address Innogenetics’ request for an injunction and enhanced damages, and this is ongoing. Abbott has informed the Celera Genomics group that it has brought post-trial motions and intends to appeal this judgment as both Abbott and the Celera Genomics group believe that Innogenetics’ patent is invalid and that the alliance’s HCV genotyping ASRs do not infringe Innogenetics’ patent. Innogenetics did not name the Celera Genomics group as a party in this lawsuit. However, as these products are part of its alliance with Abbott, the Celera Genomics group shares equally in the costs of, and any financial implications relating to, this litigation.

Fiscal 2006

(Dollar amounts in millions)	Employee- Related Charges		Asset Impairments		Excess Lease Space		Other Disposal Costs		Total

Third quarter	$	10.7	$	8.0	$	0.8	$	1.4	$	20.9
Fourth quarter		2.1		1.8		0.4		1.2		5.5

Total charges		12.8		9.8		1.2		2.6		26.4

Cash payments		7.9				0.2		2.4		10.5
Non-cash activity				9.3				0.2		9.5

Balance at June 30, 2006		4.9		0.5		1.0				6.4

Cash payments		4.1				0.5				4.6

Balance at September 30, 2006	$	0.8	$	0.5	$	0.5	$	—	$	1.8

The employee-related charges were severance costs primarily for staff reductions in small molecule drug discovery and development. The asset impairment charges primarily related to a write-down of the carrying amount of an owned facility to its current estimated market value less estimated selling costs, as well as write-offs of leasehold improvements and equipment. All of the affected employees have been notified and substantially all were terminated by July 31, 2006. Cash expenditures were funded by available cash. We believe these actions will enable the Celera Genomics group to focus on its molecular diagnostics and proteomics activities, reduce cash consumption, and accelerate its move toward

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APPLERA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued

profitability, in part due to lower R&D expenses. The remaining cash expenditures related to these charges are expected to be disbursed by the end of fiscal 2007.

Other

Other Events Impacting Comparability

Asset dispositions and legal settlements

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

Investments

Tax items

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APPLERA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued

Discussion of Applera Corporation’s Consolidated Operations

	Three Months Ended September 30

(Dollar amounts in millions)	2006			2005			% Increase/ (Decrease)

Net revenues	$	485.4		$	422.2		15.0	%
Cost of sales		224.1			195.8		14.5	%

Gross margin		261.3			226.4		15.4	%
SG&A expenses		142.3			131.9		7.9	%
R&D		57.9			69.7		(16.9	%)
Amortization of purchased intangible assets		2.7			1.0		170.0	%
Employee-related charges, asset impairments and other		3.5			0.9		288.9	%
Asset dispositions and legal settlements		9.1			23.5		(61.3	%)
Acquired research and development		114.3

Operating loss		(68.5	)		(0.6	)
Gain on investments, net		0.2			4.5		(95.6	%)
Interest income, net		9.2			9.7		(5.2	%)
Other income (expense), net		1.4			1.7		(17.6	%)

Income (loss) before income taxes		(57.7	)		15.3		(477.1	%)
Provision (benefit) for income taxes		8.3			(9.9	)	(183.8	%)

Net income (loss)	$	(66.0	)	$	25.2		(361.9	%)

Percentage of net revenues:
Gross margin		53.8	%		53.6	%
SG&A expenses		29.3	%		31.2	%
R&D		11.9	%		16.5	%
Operating loss		(14.1	%)		(0.1	%)
Effective income tax (benefit) rate		14	%		(65	%)

The following table summarizes the impact of the previously described events impacting comparability included in the financial results for fiscal 2007 and 2006:

	Three Months Ended September 30,

(Dollar amounts in millions)	2006			2005

Charge included in income (loss) before income taxes	$	(126.8	)	$	(19.9	)
Benefit for income taxes		(12.7	)		(18.5	)

We reported a net loss in the first quarter of fiscal 2007 compared to net income in the first quarter of fiscal 2006. This decrease primarily resulted from the previously described events impacting comparability and higher SG&A expenses. Partially offsetting this decrease were higher net revenues and lower R&D expenses. The net effect of foreign currency on our net loss in the first quarter of fiscal 2007 was a benefit of approximately $3 million. Read our discussion of segments for information on their financial results.

Net revenues, which include the favorable effects of foreign currency, increased in the first quarter of fiscal 2007 compared with the prior year quarter. Revenues for the first quarter of fiscal 2007 included a favorable impact of approximately 4% related to the acquisition of the Research Products Division of Ambion, Inc., which was effective March 1, 2006. The effect of foreign currency increased net revenues in the first quarter of fiscal 2007 by approximately 1% as compared to the prior year quarter.

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APPLERA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued

•

Net revenues increased at the Applied Biosystems group, driven by strength in the Real-Time PCR/Applied Genomics product category, primarily due to higher sales of consumables products, and in the Mass Spectrometry product category, led by sales of API triple quadrupole, or quad, Q TRAP ^® , and MALDI TOF/TOF systems.

•	Net revenues increased at the Celera Genomics group, primarily as a result of a higher equalization payment and increased diagnostic-related licensing revenues.

The higher gross margin percentage for the first quarter of fiscal 2007 as compared to the prior year quarter was due primarily to the favorable effects of foreign currency, revised estimates related to a third party profit sharing arrangement, improvements made in the oligo manufacturing process, improved service margins, all at the Applied Biosystems group, and higher revenues at the Celera Genomics group, partially offset by increased royalty expenses as a result of recent settlement agreements at the Applied Biosystems group. The improvement in service margins at the Applied Biosystems group was primarily driven by efficiencies and growth in the volume of service contracts, as well as increased pricing on selected billable parts and service contracts.

SG&A expenses for the first quarter of fiscal 2007 increased compared to the prior year quarter due primarily to increased employee-related costs of approximately $9 million, operating and integration costs related to our acquired businesses of approximately $8 million, and strategic investments of approximately $2 million to support growth in Europe and China, all at the Applied Biosystems group. This increase was partially offset by lower legal expenses of approximately $9 million at the Applied Biosystems group, including a reversal of a $5 million accrual related to settled litigation.

R&D expenses decreased for the first quarter of fiscal 2007 compared to the prior year quarter primarily as a result of the decision to exit small molecule drug discovery and development and the discontinuation of the Online/Information Business at the Celera Genomics group, partially offset by costs related to our acquired businesses and for the U.S. Department of Defense contract awarded to the Applied Biosystems group in August 2006.

Interest income, net decreased during the first quarter of fiscal 2007 compared to the prior year quarter primarily due to lower average cash and cash equivalents and short-term investments, partially offset by higher average interest rates. The lower cash and cash equivalents and short-term investments were primarily the result of share repurchase activity during fiscal 2006, the acquisition of Ambion in March 2006, and the acquisition of APG in July 2006.

The effective tax rate in the first quarter of fiscal 2007 was an expense compared to a benefit in the first quarter of fiscal 2006. This change was primarily due to the previously described events impacting comparability, and in particular, the charge for acquired IPR&D in the first quarter of fiscal 2007 which does not generate a tax benefit and the resolution of transfer pricing matters in Japan at the Applied Biosystems group in the first quarter of fiscal 2006.

Applera Corporation

Discussion of Condensed Consolidated Financial Resources and Liquidity

We had cash and cash equivalents and short-term investments of $850.5 million at September 30, 2006, and $943.4 million at June 30, 2006. We maintain a $200 million unsecured revolving credit agreement with four banks that matures on April 15, 2010, under which there were no borrowings outstanding at September 30, 2006. Cash provided by operating activities has been our primary source of funds over the last fiscal year.

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

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APPLERA CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued

In July 2005, we announced that our board of directors authorized the repurchase of up to 10% of the outstanding shares of Applera-Applied Biosystems stock. In addition, in January 2006, we announced that our board of directors authorized the repurchase of up to an additional 5 million shares of Applera-Applied Biosystems stock. We completed both of these repurchase authorizations in fiscal 2006. These authorizations supplemented the board’s existing authorization to repurchase shares of Applera-Applied Biosystems stock and Applera-Celera stock from time to time to replenish shares issued under our various employee stock benefit plans. This authorization has no set dollar or time limits and delegates to management discretion to purchase shares at times and prices it deems appropriate through open market purchases, privately negotiated transactions, tender offers, exchange offers, or otherwise.

(Dollar amounts in millions)	September 30, 2006		June 30, 200 6

Cash and cash equivalents	$	283.0	$	434.2
Short-term investments		567.5		509.2

Total cash and cash equivalents and short-term investments	$	850.5	$	943.4
Working capital		993.0		1,018.7

Cash and cash equivalents decreased from June 30, 2006, as cash expenditures for the acquisition of APG, the purchase of capital and other assets, net of sales and maturities, and the payment of dividends, exceeded cash generated from operating activities and proceeds from stock issuances.

Net cash flows from continuing operations for the first quarter ended September 30 were as follows:

(Dollar amounts in millions)	2006			2005

Net cash from operating activities	$	8.7		$	6.5
Net cash from investing activities		(191.9	)		4.6
Net cash from financing activities		26.7			(164.9	)
Effect of exchange rate changes on cash		5.3			(2.3	)

Operating activities:

The slight increase in net cash provided from operating activities for the first three months of fiscal 2007 compared to the first three months of fiscal 2006 resulted primarily from higher income-related cash flows and a lower decrease in accounts payable and other liabilities, partially offset by a higher use of cash in prepaid expenses and other assets and a lower decrease in accounts receivable. The lower decrease in accounts payable and other liabilities was primarily due to lower employee-related costs at the Celera Genomics group due to the decisions to exit small molecule drug discovery and development and discontinue the Online/Information business. The lower decrease in accounts receivable resulted from lower beginning of period trade receivables balances at the Applied Biosystems group, partially offset by the collection of receivables in the first quarter of fiscal 2007 related to the sale of some of the small molecule drug discovery and development programs. The Applied Biosystems group’s days sales outstanding was 55 days at September 30, 2006, compared to 54 days at June 30, 2006 and 60 days at September 30, 2005. This decrease resulted primarily from strong collections activity. The higher use of cash in prepaid expenses and other assets primarily resulted from the timing of the receipts of dividends and distributions and non-trade receivables related to joint venture activities.

Investing activities:

The first three months of fiscal 2007 included higher purchases, net of sales and maturities, of available for sale investments. In July 2006, we acquired APG for approximately $121 million, including transaction costs, as described in Note 3 to our condensed consolidated financial statements. The first quarter of fiscal 2006 included proceeds received from the sale of a non-strategic investment.

Financing activities:

The first three months of fiscal 2007 included one dividend payment on Applera-Applied Biosystems stock. Dividends were declared but not paid in the first quarter of fiscal 2006. During the first three months of fiscal 2006, we repurchased 9.3 million shares of Applera-Applied Biosystems stock for $201.2 million.

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OPERATIONS continued

Contractual Obligations

Our significant contractual obligations at September 30, 2006, and the anticipated payments under these obligations were as follows:

Payments by Period

(Dollar amounts in millions)

Total

2007 ^(a)

2008 - 2009

2010 – 2011

Thereafter

Minimum operating lease payments ^(b)

132.3

27.6

54.3

28.5

21.9

Purchase obligations ^(c)

157.4

68.4

67.1

21.9

Other long-term liabilities ^(d)

37.4

2.8

2.1

1.4

31.1

Total

327.1

98.8

123.5

51.8

53.0

^(a)	Represents cash obligations for the remainder of fiscal 2007.

^(b) Refer to Note 10 to our consolidated financial statements in our 2006 Annual Report to Stockholders for further information.

^(c) Purchase obligations are entered into with various vendors in the normal course of business, and include commitments related to capital expenditures, R&D arrangements and collaborations, license agreements, and other services.

^(d) We have excluded deferred revenues as they have no impact on our future liquidity. We have also excluded deferred tax liabilities and obligations connected with our pension and postretirement plans and other foreign employee-related plans as they are not contractually fixed as to timing and amount. See Note 10 to our condensed consolidated financial statements contained in this report and Note 5 to our consolidated financial statements in our 2006 Annual Report to Stockholders for more information on these plans.

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Discussion of Segments’ Operations, Financial Resources and Liquidity

Applied Biosystems Group

	Three Months Ended September 30,

(Dollar amounts in millions)	2006			2005			% Increase/ (Decrease)

Net revenues	$	476.3		$	415.5		14.6	%
Cost of sales		220.7			193.3		14.2	%

Gross margin		255.6			222.2		15.0	%
SG&A expenses		135.1			122.0		10.7	%
R&D		45.1			40.9		10.3	%
Amortization of purchased intangible assets		2.7			0.3		800.0	%
Employee-related charges, asset impairments and other					0.9		(100.0	%)
Asset dispositions and legal settlements		9.1			22.8		(60.1	%)
Acquired research and development		114.3

Operating income (loss)		(50.7	)		35.3		(243.6	%)
Gain on investments, net		0.2
Interest income, net		2.6			4.4		(40.9	%)
Other income (expense), net		1.3			1.7		(23.5	%)

Income (loss) before income taxes		(46.6	)		41.4		(212.6	%)
Provision (benefit) for income taxes		12.1			(1.7	)	(811.8	%)

Net income (loss)	$	(58.7	)	$	43.1		(236.2	%)

Percentage of net revenues:
Gross margin		53.7	%		53.5	%
SG&A expenses		28.4	%		29.4	%
R&D		9.5	%		9.8	%
Operating income (loss)		(10.6	%)		8.5	%
Effective income tax (benefit) rate		26	%		(4	%)

The following table summarizes the impact of the previously described events impacting comparability included in the financial results for fiscal 2007 and 2006:

	Three Months Ended September 30,

(Dollar amounts in millions)	2006			2005

Charge included in income (loss) before income taxes	$	(123.3	)	$	(23.7	)
Benefit for income taxes		(11.7	)		(20.6	)

We reported a net loss in the first quarter of fiscal 2007 compared to net income in the first quarter of fiscal 2006. This decrease primarily resulted from the previously described events impacting comparability and higher operating expenses, partially offset by higher net revenues. The net effect of foreign currency on our net loss in the first quarter of fiscal 2007 was a benefit of approximately $3 million.

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OPERATIONS continued

Revenues – overall summary

The following table sets forth the Applied Biosystems group’s revenues by product categories for the three months ended September 30:

	Three Months Ended September 30,

(Dollar amounts in millions)	2006		2005		% Increase/ (Decrease)

DNA Sequencing	$	131.5	$	124.9	5%
% of total revenues		28%		30%
Real-Time PCR/Applied Genomics		158.1		121.7	30%
% of total revenues		33%		29%
Mass Spectrometry		116.0		97.3	19%
% of total revenues		24%		24%
Core PCR & DNA Synthesis		46.2		47.4	(3%	)
% of total revenues		10%		11%
Other Product Lines		24.5		24.2	1%
% of total revenues		5%		6%

Total	$	476.3	$	415.5	15%

Net revenues, which include the favorable effects of foreign currency, increased in the first quarter of fiscal 2007 compared with the prior year quarter. Revenues for the first quarter of fiscal 2007 included a favorable impact of approximately 4% related to the Ambion acquisition, which was effective March 1, 2006. The effect of foreign currency increased net revenues in the first quarter of fiscal 2007 by approximately 1% as compared to the first quarter of fiscal 2006.

•

Revenues in the Real-Time PCR/Applied Genomics product category increased primarily due to higher sales of consumables products, in part due to the acquisition of Ambion. Sales of PCR reagents, human identification products used in forensics, and TaqMan ^® Gene Expression Assays products used in academic, clinical research and agricultural biotechnology settings, also contributed significantly to the product category growth. Additionally, instrument revenues increased due to higher sales of low throughput real-time PCR instruments.

•	Mass Spectrometry revenue growth was led by sales of API triple quad, Q TRAP ^® , and MALDI TOF/TOF systems, as well as increased service revenue.

Revenue by sources

The following table sets forth the Applied Biosystems group’s revenues by sources for the three months ended September 30:

	Three Months Ended September 30,

(Dollar amounts in millions)	2006		2005		% Increase/ (Decrease)

Instruments	$	196.8	$	171.0	15.1	%
Consumables		192.7		166.1	16.0	%
Other sources		86.8		78.4	10.7	%

Total	$	476.3	$	415.5	14.6	%

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Instruments

For the first quarter of fiscal 2007, instrument revenues increased from the prior year quarter primarily due to higher sales in both the Mass Spectrometry and Real-Time PCR/Applied Genomics product categories. Contributing to the increased sales in the Mass Spectrometry category were the API triple quad, Q TRAP, and MALDI TOF/TOF systems. The Real-Time PCR/Applied Genomics category increased primarily as a result of higher sales of low throughput real-time PCR instruments for core research and applied market applications.

Consumables

The increase in consumables sales in the first quarter of fiscal 2007 primarily reflected the strength of Real-Time PCR/Applied Genomics consumables sales. These sales increased primarily as a result of the acquisition of Ambion, higher sales of PCR reagents, human identification products used in forensics, and TaqMan Gene Expression Assays products.

Other sources

Revenues from other sources, which included service and support, royalties, licenses, and contract research, increased for the first quarter of fiscal 2007 primarily due to higher service and support and contract research revenues.

Revenues by geographic area

The following table sets forth the Applied Biosystems group’s revenues by geographic area for the three months ended September 30:

	Three Months Ended September 30,

(Dollar amounts in millions)	2006		2005		% Increase/ (Decrease)

United States	$	218.7	$	199.7	9.5	%
Europe		149.3		128.6	16.1	%
Asia Pacific		86.6		72.7	19.1	%
Latin America and other markets		21.7		14.5	49.7	%

Total	$	476.3	$	415.5	14.6	%

The effect of foreign currency increased revenues by approximately 3% in Europe and decreased revenues by approximately 1% in Asia Pacific during the first quarter of fiscal 2007 as compared to the prior year quarter. Excluding the effects of foreign currency, revenues increased by approximately 13% in Europe primarily as a result of sales of API triple quad systems, Ambion products, genetic analyzers, TaqMan Gene Expression Assays products, and human identification products used in forensics. Sales in the U.S. increased primarily due to sales of Ambion products, Real Time PCR instruments and consumables, MALDI TOF/TOF systems, TaqMan Gene Expression Assays products, Q TRAP systems, and human identification products. This growth was partially offset by lower sales of API triple quad systems and DNA Sequencing consumables. During the first quarter of fiscal 2007, revenues in Japan, which are included in total revenues for Asia Pacific, increased approximately 9% as compared to the prior year quarter due primarily to higher sales of API triple quad systems, Ambion products, Q TRAP systems, and DNA Sequencing consumables, which were partially offset by unfavorable foreign currency effects of approximately 2% and lower sales of MALDI TOF/TOF systems and high throughput genetic analyzers. Revenues in other Asia Pacific countries increased by approximately 34% as compared to the prior year quarter. This increase was primarily due to sales of low throughput Real Time PCR instruments, API triple quad systems, Q TRAP systems, and both high throughput and low to medium throughput genetic analyzers.

Gross margin, as a percentage of net revenues, increased for the first quarter of fiscal 2007 over the prior year quarter due primarily to the favorable effects of foreign currency, revised estimates related to a third party profit sharing arrangement, improvements made in the oligo manufacturing process, and improved service margins, partially offset by increased royalty expenses as a result of recent settlement agreements. The improvement in service margins was primarily driven by efficiencies and growth in the volume of service contracts, as well as increased pricing on selected billable parts and service contracts.

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OPERATIONS continued

SG&A expenses for the first quarter of fiscal 2007 increased compared to the prior year quarter due primarily to higher employee-related costs, including sales commissions, of approximately $9 million, operating and integration costs related to our acquired businesses of approximately $8 million, and strategic investments of approximately $2 million to support growth in Europe and China. This increase was partially offset by lower legal expenses of approximately $9 million, including a reversal of a $5 million accrual related to settled litigation.

R&D expenses increased in the first quarter of fiscal 2007 from the prior year quarter primarily as a result of costs related to our acquired businesses and for the U.S. Department of Defense contract awarded to the Applied Biosystems group in August 2006.

Interest income, net decreased during the first quarter of fiscal 2007 as compared to the prior year quarter due to lower average cash and cash equivalents and short-term investments, partially offset by higher average interest rates. The lower cash and cash equivalents and short-term investments were primarily as a result of share repurchase activity during fiscal 2006, the acquisition of Ambion in March 2006, and the acquisition of APG in July 2006.

The effective tax rate in the first quarter of fiscal 2007 was an expense compared to a benefit in the first quarter of fiscal 2006. This change was primarily due to the previously described events impacting comparability and, in particular, the charge for acquired IPR&D in the first quarter of fiscal 2007 which does not generate a tax benefit and the resolution of transfer pricing matters in Japan in the first quarter of fiscal 2006.

Applied Biosystems Group

Discussion of Financial Resources and Liquidity

The Applied Biosystems group had cash and cash equivalents and short-term investments of $284.1 million at September 30, 2006, and $373.9 million at June 30, 2006. We maintain a $200 million unsecured revolving credit agreement with four banks that matures on April 15, 2010, under which there were no borrowings outstanding at September 30, 2006. Cash provided by operating activities has been our primary source of funds over the last fiscal year.

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

In July 2005, we announced that our board of directors authorized the repurchase of up to 10% of the outstanding shares of Applera-Applied Biosystems stock. In addition, in January 2006, we announced that our board of directors authorized the repurchase of up to 5 million shares of Applera-Applied Biosystems stock. We completed both of these supplemental repurchase authorizations in fiscal 2006. These authorizations supplement the board’s existing authorization to replenish shares of Applera-Applied Biosystems stock issued under our employee stock benefit plans. This authorization has no set dollar or time limits and delegates to our management discretion to purchase shares at times and prices it deems appropriate through open market purchases, privately negotiated transactions, tender offers, exchange offers, or otherwise.

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

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OPERATIONS continued

(Dollar amounts in millions)	September 30, 2006		June 30, 2006

Cash and cash equivalents	$	262.7	$	373.9
Short-term investments		21.4

Total cash and cash equivalents and short-term investments	$	284.1	$	373.9
Working capital		414.1		439.5

Cash and cash equivalents decreased from June 30, 2006, as cash expenditures for the acquisition of APG, the purchase of capital and other assets, net of sales, and the payment of dividends, exceeded cash generated from operating activities and proceeds from stock issuances. Net cash flows of continuing operations for the three months ended September 30 were as follows:

(Dollar amounts in millions)	2006			2005

Net cash from operating activities	$	23.0		$	50.5
Net cash from investing activities		(157.0	)		(54.7	)
Net cash from financing activities		17.5			(173.9	)
Effect of exchange rate changes on cash		5.3			(2.3	)

Operating activities:

Net cash from operating activities of continuing operations for the first quarter of fiscal 2007 was $27.5 million lower than in the first quarter of fiscal 2006. This decrease resulted primarily from a higher use of cash due primarily to a higher use of cash in prepaid expenses and other assets and a lower decrease in accounts receivable in the first quarter of fiscal 2007. The higher use of cash in prepaid expenses and other assets primarily resulted from the timing of the receipts of dividends and distributions and a non-trade receivable related to joint venture activities. The lower decrease in accounts receivables resulted from lower beginning of period trade receivables balances. The Applied Biosystems group’s days sales outstanding was 55 days at September 30, 2006, compared to 54 days at June 30, 2006 and 60 days at September 30, 2005. This decrease resulted primarily from strong collections activity. Inventory on hand was 2.9 months at September 30, 2006, compared to 2.4 months at June 30, 2006.

Investing activities:

The first three months of fiscal 2007 included higher purchases, net of sales, of available for sale investments. In July 2006, we acquired APG for approximately $121 million, including transaction costs, as described in Note 3 to our condensed consolidated financial statements.

Financing activities:

The first quarter of fiscal 2007 included one dividend payment on Applera-Applied Biosystems stock. Dividends were declared but not paid in the first quarter of fiscal 2006. During the first three months of fiscal 2006, we repurchased 9.3 million shares of Applera-Applied Biosystems stock for $201.2 million. In the first quarter of fiscal 2007, we received lower proceeds from stock issued for stock plans than in the first quarter of fiscal 2006. In the first quarter of fiscal 2006, the Applied Biosystems group paid $4.5 million to the Celera Genomics group for the funding of the Celera Diagnostics’ capital expenditures and working capital requirements.

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OPERATIONS continued

Celera Genomics Group

	Three Months Ended September 30,

(Dollar amounts in millions)	2006			2005			% Increase/ (Decrease)

Net revenues	$	10.2		$	9.2		10.9%
Cost of sales		3.8			4.4		(13.6%	)

Gross margin		6.4			4.8		33.3%
R&D		13.2			29.5		(55.3%	)
SG&A expenses		7.2			9.9		(27.3%	)
Amortization of purchased intangible assets					0.7		(100.0%	)
Employee-related charges, asset impairments and other		3.5
Asset dispositions and legal settlements					0.7		(100.0%	)

Operating loss		(17.5	)		(36.0	)	(51.4%	)
Gain on investments, net					4.5		(100.0%	)
Interest income, net		6.5			5.3		22.6%
Other income (expense), net		0.1

Loss before income taxes		(10.9	)		(26.2	)	(58.4%	)
Benefit for income taxes		3.8			9.5		(60.0%	)

Net loss	$	(7.1	)	$	(16.7	)	(57.5%	)

Effective income tax benefit rate		35 %			36%

The following table summarizes the impact of the previously described events impacting comparability included in the financial results for fiscal 2007 and 2006:

	Three Months Ended September 30,

(Dollar amounts in millions)	2006			2005

Income (charge) included in income before income taxes	$	(3.5	)	$	3.8
Provision (benefit) for income taxes		(1.2	)		1.4

Effective January 1, 2006, the Celera Genomics group acquired the Applied Biosystems group’s 50 percent interest in the Celera Diagnostics joint venture such that it now owns 100 percent of Celera Diagnostics. Prior to that date, the Celera Genomics group accounted for its interest in the Celera Diagnostics joint venture under the equity method of accounting and included 100 percent of the losses of Celera Diagnostics in its statement of operations as “Loss from joint venture”. Additionally, the Celera Genomics group recorded 100 percent of net losses at Celera Diagnostics. The Celera Genomics group’s historical results have been restated for comparative purposes to reflect this transaction. However, the acquisition did not affect the Celera Genomics group’s net loss for the prior period presented.

The lower net loss in the first quarter of fiscal 2007 compared to the prior year quarter primarily resulted from lower R&D and SG&A expenses, partially offset by the previously described events impacting comparability.

Reported revenues for the Celera Genomics group are comprised of product sales, equalization payments, and license and collaborative revenues. Product sales consist primarily of shipments to our partner, Abbott Laboratories, at cost. Revenue from items that are outside of the alliance with Abbott are also reported in this category. Equalization payments result from an equal sharing of alliance profits and losses between the alliance partners and vary each period depending on the relative income and expense contribution of each partner.

Reported revenues increased in the first quarter of fiscal 2007 compared to the prior year quarter primarily due to a higher equalization payment and increased diagnostic-related licensing revenues. The first quarter of fiscal 2006 included $2.1 million of revenues from the discontinued Online/Information and Paracel businesses.

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OPERATIONS continued

The increase in gross margin in the first quarter of fiscal 2007 was primarily attributable to a higher equalization payment and increased licensing and collaborative revenues, both of which had no associated cost of sales.

Both R&D and SG&A expenses decreased in the first quarter of fiscal 2007 compared to the prior year quarter primarily due to the decision to exit small molecule drug discovery and development and the discontinuation of the Online/Information Business.

Interest income, net increased during the first quarter of fiscal 2007 as compared to the prior year quarter primarily due to higher average interest rates, partially offset by lower average cash and cash equivalents and short-term investments.

The decrease in the effective income tax benefit rate for the first quarter of fiscal 2007 compared to the prior year quarter was primarily attributable to the expiration of R&D tax credits in the U.S.

Supplemental information

	Three Months Ended September 30,

(Dollar amounts in millions)	2006		2005

Equalization revenue, net	$	4.6	$	3.2
End-user revenues		25.8		17.8

End-user revenues included products sold through the alliance with Abbott and revenues from our unpartnered new genetic tests. Increased sales of Human Immunodeficiency Virus (“HIV”) and HCV RealTi m e™ viral load assays used on the m 2000™ system, cystic fibrosis ASRs, and the ViroSeq ^® HIV-1 Genotyping System all contributed to the year-over-year growth. The first quarter of fiscal 2006 included $1.7 million in end-user revenues from a low resolution human leukocyte antigen (“HLA”) product line that was removed from the alliance in December 2005.

Celera Genomics Group

Discussion of Financial Resources and Liquidity

The Celera Genomics group had cash and cash equivalents and short-term investments of $566.4 million at September 30, 2006, and $569.5 million at June 30, 2006. We maintain a $200 million unsecured revolving credit agreement with four banks that matures on April 15, 2010, under which there were no borrowings outstanding at September 30, 2006.

We believe that existing funds and existing sources of debt financing are more than adequate to satisfy the Celera Genomics group’s normal operating cash flow needs and planned capital expenditures for the next twelve months and for the foreseeable future.

Our board of directors has authorized the repurchase of shares of Applera-Celera stock from time to time to replenish shares issued under our employee stock benefit plans. This authorization has no set dollar or time limits and delegates to our management discretion to purchase shares at times and prices it deems appropriate through open market purchases, privately negotiated transactions, tender offers, exchange offers, or otherwise.

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

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OPERATIONS continued

(Dollar amounts in millions)	September 30, 2006		June 30, 2006

Cash and cash equivalents	$	20.3	$	60.3
Short-term investments		546.1		509.2

Total cash and cash equivalents and short-term investments	$	566.4	$	569.5
Working capital		578.8		578.9

Cash and cash equivalents decreased from June 30, 2006, as the amount expended on operations, the purchase of capital assets, and the purchases of available for sale investments, net of sales and maturities, exceeded proceeds from stock issuances. Net cash flows for the three months ended September 30 were as follows:

(Dollar amounts in millions)	2006			2005

Net cash from operating activities	$	(14.3	)	$	(43.9	)
Net cash from investing activities		(34.9	)		59.2
Net cash from financing activities		9.2			9.0

Operating activities:

Net cash used by operating activities for the first three months of fiscal 2007 was $29.6 million lower than the first three months of fiscal 2006. The lower use of cash resulted primarily from lower net cash operating losses and lower working capital requirements in fiscal 2007. In the first quarter of fiscal 2007 compared to the first quarter of fiscal 2006, working capital benefited primarily from a lower decrease in accounts payable and other liabilities and higher proceeds from accounts receivable in fiscal 2007. The lower decrease in accounts payable and other liabilities was due in part to lower employee-related costs due to the decisions to exit small molecule drug discovery and development and discontinue the Online/Information business. The higher proceeds in accounts receivable was primarily due to the collection of receivables in the first quarter of fiscal 2007 related to the sale of some of the small molecule drug discovery and development programs.

Investing activities:

Net cash from investing activities for the first three months of fiscal 2007 decreased compared to the first three months of fiscal 2006 due primarily to higher purchases of available for sale investments in the first quarter of fiscal 2007 and proceeds received on the sale of a non-strategic investment in fiscal 2006.

Financing activities:

In the first quarter of fiscal 2007, we received higher proceeds from stock issued for stock plans. In the first quarter of fiscal 2006, the Celera Genomics group received $4.5 million from the Applied Biosystems group related to the funding of the Celera Diagnostics’ capital expenditures and working capital requirements.

Market Risks

Our foreign currency risk management strategy uses derivative instruments to hedge various foreign currency forecasted revenues and intercompany transactions and to offset the impact of changes in currency rates on various foreign currency-denominated assets and liabilities. The principal objective of this strategy is to minimize the risks and/or costs associated with our global financing and operating activities. We use forward, option, and range forward contracts to manage our foreign currency exposures. At September 30, 2006, we recorded in our condensed consolidated financial statements a net asset of $2.1 million related to these forward and option contracts, compared with a net liability of $0.2 million at June 30, 2006. This increase was primarily attributed to the fluctuations in currency rates. We do not use derivative financial instruments for trading or speculative purposes, nor are we a party to leveraged derivatives.

We performed a sensitivity analysis as of September 30, 2006. Assuming a hypothetical 10% adverse change in currency rates relative to the U.S. dollar as of September 30, 2006, we calculated a hypothetical after-tax loss of $20.2 million, as compared to a hypothetical after-tax loss of $12.3 million at June 30, 2006. Our analysis included the change in the value of the derivative financial instruments, along with the impact of translation on foreign currency-denominated assets and

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS continued

liabilities. However, our analysis excluded the impact of translation of foreign currency forecasted revenues and intercompany transactions. If currency rates actually change in a manner similar to the assumed change in the foregoing calculation, the hypothetical calculated loss would be more than offset by the recognition of higher U.S. dollar equivalent foreign revenues. Actual gains and losses in the future could, however, differ materially from this analysis, based on changes in the timing and amount of currency rate movements and actual exposures and hedges.

For further information on our market risks, refer to the discussion contained in the management’s discussion and analysis section of our 2006 Annual Report to Stockholders (which discussion is incorporated in this quarterly report by reference).

Recently Issued Accounting Pronouncements

See Note 1 to our condensed consolidated financial statements for a description of the effect of recently issued accounting pronouncements.

Outlook

The outlook below for the Applied Biosystems group contains non-GAAP financial measures, both historical and forward-looking, and including earnings per share and operating margin adjusted to exclude some costs, expenses, gains and losses and other specified items. These measures are not in accordance with, or an alternative for, generally accepted accounting principles, or GAAP, and may be different from non-GAAP financial measures used by other companies. Among the items included in GAAP earnings but excluded for purposes of determining adjusted earnings or other non-GAAP financial measures that we present are: gains or losses from sales of operating assets and investments; restructuring charges, including severance charges; charges and recoveries relating to significant legal proceedings; asset impairment charges; write-offs of acquired in-process research and development; and amortization of acquired intangibles. In addition, for non-GAAP financial measures, we have also excluded the allocation of interperiod taxes and intercompany sales. We believe the presentation of non-GAAP financial measures provides useful information to management and investors regarding various financial and business trends relating to our financial condition and results of operations, and that when GAAP financial measures are viewed in conjunction with non-GAAP financial measures, investors are provided with a more meaningful understanding of our ongoing operating performance. In addition, these non-GAAP financial measures are among the primary indicators we use as a basis for evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting future periods. Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for GAAP financial measures. To the extent this report contains historical non-GAAP financial measures, we have also provided corresponding GAAP financial measures for comparative purposes. However, in the case of forward-looking non-GAAP financial measures, we have not provided corresponding forward-looking GAAP financial measures because these measures are not accessible to us. We cannot predict the occurrence, timing, or amount of all non-GAAP items that we exclude from our non-GAAP financial measures but which could potentially be significant to the calculation of our GAAP financial measures for future fiscal periods.

Applied Biosystems Group

The Applied Biosystems group believes that its fiscal year 2007 outlook and financial performance will be affected by, among other things: the introduction and adoption of new products; the level of commercial investments in life science R&D; the level of government funding for life science research; the outcome of pending litigation matters; competitive product introductions and pricing; and the continued integration of Ambion-related products.

Subject to the inherent uncertainty associated with these factors, the Applied Biosystems group has the following expectations for fiscal 2007.

•	The Applied Biosystems group expects mid to high single digit revenue growth for fiscal 2007. This outlook includes the full fiscal year impact from the March 2006 acquisition of Ambion and the impact of currency.

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The Applied Biosystems group anticipates revenue growth in the Real-Time PCR/Applied Genomics and Mass Spectrometry product categories and revenue declines in the Core PCR and DNA Sequencing and Other Product Lines. Revenues in the DNA Sequencing product category are expected to approximately equal those in fiscal 2006.

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Quarterly year-over-year revenue changes may be different from our annual expectations due to a variety of factors, including the timing of customer orders and disbursements of government funding.

•	The Applied Biosystems group expects the effective tax rate to be approximately 31%.

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The Applied Biosystems group expects non-GAAP EPS to increase at a rate slightly below the annual revenue growth rate. Excluding the impact of the Agencourt acquisition, the incremental impact of stock based compensation, and the increase in the effective tax rate, the Applied Biosystems group believes that non-GAAP EPS would increase at a low double digit rate over the fiscal 2006 level. The total impact of these three items on fiscal 2007 non-GAAP EPS is expected to be approximately $0.12.

•	The total pre-tax impact of SFAS No. 123R (accounting for stock based compensation) in fiscal 2007 is expected to be approximately $15 million, with an EPS impact of approximately $0.05.

The Applied Biosystems group anticipates that year-over-year revenue growth rates will be higher in the first three quarters of the fiscal year than in the fourth quarter primarily due to the acquisition of Ambion in March 2006. The Applied Biosystems group also expects that the third quarter year-over-year non-GAAP EPS growth rate will be negatively impacted due to income from licensing fees and royalties associated with a litigation settlement in the third quarter of fiscal 2006.

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

Celera Genomics Group

The Celera Genomics group anticipates that its fiscal 2007 financial performance will be affected by, among other things, continued growth in demand for current and new diagnostic products and potential revenue from technology licenses and collaborations. Subject to the inherent uncertainty associated with these factors, the Celera Genomics group has the following expectations regarding its financial performance for fiscal 2007:

•	Total reported revenues are anticipated to be $40 to $45 million, including revenues from licensing and collaborations, which are anticipated to be $8 to $12 million.

•	Reported R&D expenses are anticipated to be $55 to $65 million, and SG&A expenses are anticipated to be $30 to $35 million.

•	Net loss from operations is anticipated to be $28 to $35 million.

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The Celera Genomics group expects to consume approximately $35 to $45 million in cash and short-term investments to fund operations, anticipated growth in placements of the m 2000 system, and cash costs related to the fiscal 2006 restructuring. This does not include any proceeds that might be received from the sale of the Celera Genomics group’s small molecule facilities in South San Francisco, CA.

•	Total end-user revenues recognized through the Celera Genomics group’s alliance with Abbott and total revenue from unpartnered new genetic tests are anticipated to be $105 to $115 million.

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

Forward-Looking Statements and Risk Factors

Some statements contained in, or incorporated by reference in, this report, including the Outlook section, are forward-looking and are subject to a variety of risks and uncertainties. Similarly, the press releases we issue and other public statements we make from time to time may contain language that is forward-looking. These forward-looking statements

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may be identified by the use of forward-looking words or phrases such as “forecast,” “believe,” “expect,” “intend,” “anticipate,” “should,” “plan,” “estimate,” and “potential,” among others. The forward-looking statements contained in this report are based on our current expectations, and those made at other times will be based on our expectations when the statements are made. We cannot guarantee that any forward-looking statements will be realized.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. 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 Applied Biosystems group and Celera Genomics group businesses include, but are not limited to, those described below under the headings “Risks Relating to the Applied Biosystems Group” and “Risks Relating to the Celera Genomics Group.” We note that our businesses could be affected by other factors that we have not disclosed because we think they are immaterial. Also, there may be additional risks and uncertainties that could affect our businesses but which are not currently known to us.

Owners of Applera-Applied Biosystems stock and Applera-Celera stock are also 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 Item 1A of Part I of our 2006 Annual Report on Form 10-K under the heading “Risks Factors – Risks Relating to a Capital Structure with Two Separate Classes of Common Stock.”

Risks Relating to the Applied Biosystems Group

Rapidly changing technology in life sciences could make the Applied Biosystems group’s product line obsolete unless it continues to develop and manufacture new and improved products and services, and pursue new market opportunities. A significant portion of the net revenues for the Applied Biosystems group each year is derived from products and services that did not exist in the prior year. We sell our products in several industries that are characterized by rapid and significant technological changes, frequent new product and service introductions and enhancements, and evolving industry standards. The Applied Biosystems group’s future success depends on its ability to continually improve its current products and services, develop and introduce, on a timely and cost-effective basis, new products and services that address the evolving needs of its customers, and pursue new market opportunities that develop as a result of technological and scientific advances in life sciences. These new market opportunities may be outside the scope of the Applied Biosystems group’s proven expertise or in areas which have unproven market demand, and the utility and value of new products and services developed by the Applied Biosystems group may not be accepted in the markets served by the new products. This includes, for example, new products under development for the clinical diagnostics market, which are described in the immediately following paragraph. The inability to gain market acceptance of new products and services could harm the Applied Biosystems group’s future operating results. The Applied Biosystems 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 Applied Biosystems group commences production of these complex products. Unanticipated difficulties or delays in replacing existing products and services with new products and services or in manufacturing improved or new products in sufficient quantities to meet customer demand could diminish future demand for the Applied Biosystems group’s products and services and its future operating results.

The Applied Biosystems group may not successfully develop instruments for use in the clinical diagnostics market, and even if it does develop these products they may not receive needed regulatory clearances or approvals and the Applied Biosystems group may not be able to manufacture these products in accordance with regulatory requirements. The Applied Biosystems group intends to commit significant resources to the development of instruments for use in the clinical diagnostics market. Although the Applied Biosystems group has experience in developing and commercializing instrumentation for the life science research market, the Applied Biosystems group has only limited prior experience with products of any type for use in the regulated clinical diagnostics market. This is an emerging business area for the Applied Biosystems group, and the Applied Biosystems group may not have or be able to obtain the necessary expertise

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to successfully develop instruments for use in this market. In addition, in the U.S. and other countries, instruments cannot be marketed for clinical diagnostics use until they first receive regulatory clearance or approval. The regulatory review and clearance or approval process can be time consuming and require substantial expense and may not be successful. Even if the Applied Biosystems group obtains regulatory clearance or approval for an instrument for use in the clinical diagnostics market, the manufacture, sale, and distribution of that product may be subject to ongoing regulatory requirements. The inability to comply with these requirements could cause the Applied Biosystems group to suspend the manufacture or sale of these products and delay or prevent the Applied Biosystems group from generating revenues from the sale of these products.

The Applied Biosystems group relies on other companies for the manufacture of some of its products and also for the supply of some components of the products it manufactures on its own. Although the Applied Biosystems group has contracts with most of these manufacturers and suppliers, their operations could be disrupted. These disruptions could be caused by conditions unrelated to the business or operations of the Applied Biosystems group, including the bankruptcy of the manufacturer or supplier. Although the Applied Biosystems group has its own manufacturing facilities, and generally believes it might be able to manufacture some of the products and components currently sourced from other companies, it also believes that it could take considerable time and resources to establish the capability to do so. Accordingly, if these other 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 harmed. For example, Delphi Medical Systems Texas Corporation, a supplier of some instruments, parts, and components to the Applied Biosystems group under a manufacturing and supply contract, filed a petition in the United States Bankruptcy Court on October 8, 2005, seeking relief under the provisions of Chapter 11 of the federal Bankruptcy Code. Since the filing of the bankruptcy petition, Delphi has continued to supply instruments, parts, and components to the Applied Biosystems group under the contract, but Delphi recently informed the Applied Biosystems group that it does not intend to continue performing under the contract after approximately May 2007. The Applied Biosystems group intends to use its own existing manufacturing facilities to replace the supply of some critical items that it has been purchasing from Delphi, and it is evaluating the use of new suppliers for other critical items and is seeking to mitigate potential supply issues by increasing inventory of some critical items. However, it is uncertain whether the Applied Biosystems group will be able to transition the manufacture of these items to its own facilities, or hire new suppliers on acceptable terms, and whether it will be able to do so as quickly as needed. Also, the Applied Biosystems group does not expect to replace the supply of all items purchased from Delphi and accordingly some of its older, low demand products will be discontinued earlier than originally planned.

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

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

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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 Applied Biosystems group’s current legal actions, particularly the cases described below, could harm our business and financial condition.

The Applied Biosystems group’s products are based on complex, rapidly developing technologies. These products could be developed without knowledge of previously filed patent applications that mature into patents that cover some aspect of these technologies. In addition, because patent litigation is complex and the outcome inherently uncertain, the Applied Biosystems group’s belief that its products do not infringe valid and enforceable patents owned by others could be successfully challenged. 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 others, and they 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 those technologies into the Applied Biosystems group’s products. Due to these factors, there remains a constant risk of intellectual property litigation and other legal actions, which could include antitrust claims, affecting the Applied Biosystems 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. These actions currently include the legal proceedings described in the following paragraph, some of which, if determined adversely, could harm our business and financial condition. 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 may not be able to obtain these licenses or other rights on commercially reasonable terms, or at all. In some situations settlement of claims may require an agreement to cease allegedly infringing activities.

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:

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

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

•

In response to patent infringement claims made by us against Stratagene Corporation, Stratagene has filed counterclaims seeking declaratory judgment that our U.S. Patent No. 6,814,934 in the field of real-time PCR is invalid and not infringed.

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In response to a claim that we, MDS, Inc., and our Applied Biosystems/MDS Sciex Instruments joint venture with MDS filed against Thermo Electron Corporation, Thermo Electron has filed a counterclaim seeking a declaratory judgment that our U.S. Patent No. 4,963,736 is invalid. After the filing of this action against Thermo Electron, its subsidiary Thermo Finnigan LLC filed a lawsuit against us alleging that we are infringing one of its patents as a result of, for example, the Applied Biosystems group’s commercialization of the ABI PRISM ^® 3700 Genetic Analyzer. Thermo Finnigan subsequently filed a second lawsuit against us, MDS, and the Applied Biosystems/MDS Sciex Instruments joint venture alleging that we and the other defendants have infringed one of Thermo Finnigan’s patents as a result of, for example, our commercialization of the API 5000™ LC/MS/MS system.

These cases are described in further detail in Part I, Item 3, of our 2006 Annual Report on Form 10-K under the heading “Legal Proceedings – Commercial Litigation,” 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. These matters might not be resolved favorably. If they are not resolved favorably, we could be enjoined from selling the products or services in question or other products or

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services as a result and monetary or other damages could be assessed against us. These outcomes could harm the business or financial condition of our company, the Applied Biosystems group, or the Celera Genomics group.

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

Since the Applied Biosystems group’s business is dependent on foreign sales, fluctuating currencies will make revenues and operating results more volatile. Approximately 55% of the Applied Biosystems group’s net revenues for our 2006 fiscal year were derived from sales to customers outside of the U.S. The majority of these sales were based on the relevant customer’s local currency. A significant portion of the related costs for the Applied Biosystems group are based on the U.S. dollar. As a result, the Applied Biosystems group’s reported and anticipated operating results and cash flows are subject to fluctuations due to material changes in foreign currency exchange rates that are beyond the Applied Biosystems group’s control.

The future growth of the Applied Biosystems group depends in part on its ability to acquire complementary technologies through acquisitions, investments, or other strategic relationships or alliances, which may absorb significant resources, may be unsuccessful, and could dilute holders of Applera-Applied Biosystems stock. Acquisitions, investments and other strategic relationships and alliances, if pursued, may involve significant cash expenditures, debt incurrence, and expenses that could have a material effect on the Applied Biosystems group’s financial condition and operating results. If these types of transactions are pursued, it may be difficult for the Applied Biosystems group to complete these transactions quickly and to integrate these acquired operations efficiently into its current business operations. Potential technological advances resulting from the integration of technologies may not be achieved as successfully or rapidly as anticipated, if at all. Any acquisitions, investments or other strategic relationships and alliances by the Applied Biosystems group may ultimately harm its business and financial condition. In addition, future acquisitions may not be as successful as originally anticipated and may result in impairment charges. We have incurred these charges in recent years in relation to acquisitions. For example, we incurred charges for impairment of goodwill, intangibles and other assets and other charges in the amounts of $25.9 million during our 2002 fiscal year and $4.5 million during our 2005 fiscal year in relation to the Celera Genomics group’s acquisition of Paracel, Inc. Similarly, we incurred charges for the impairment of patents and acquired technology in the amount of $14.9 million during our 2004 fiscal year in relation to the Applied Biosystems group’s acquisition of Boston Probes, Inc. Additionally, during our 2006 fiscal year we incurred charges, including for severance and benefit costs and asset impairments, relating to the Celera Genomics group’s acquisition of Axys Pharmaceuticals, Inc. These charges were included within a charge of $26.4 million related to the Celera Genomics group’s decision to partner or sell its small molecule drug discovery and development programs and the integration of Celera Diagnostics into the Celera Genomics group. In addition, acquisitions and other transactions may involve the issuance of a substantial amount of Applera-Applied Biosystems stock without the approval of the holders of Applera-Applied Biosystems stock. Any issuances of this nature could be dilutive to holders of Applera-Applied Biosystems stock.

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

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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 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 other companies could harm the Applied Biosystems group.

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

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

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

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

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

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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.

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Risks 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 $863 million as of September 30, 2006. These cumulative losses are expected to increase as the Celera Genomics group continues to make investments in new technology and diagnostic product discovery and development, and therapeutic target discovery. As an early stage business, the Celera Genomics group faces significant challenges in expanding its business operations. As a result, the Celera Genomics group may not be able to achieve profitable operations when expected, if at all.

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

The Celera Genomics group’s diagnostic product business is dependent on entering into other collaborations, alliances, and similar arrangements with other companies. The Celera Genomics group’s strategy for the discovery, development, clinical testing, manufacturing and/or commercialization of most of its diagnostic product candidates includes entering into these types of arrangements with other companies, in addition to its strategic alliance with Abbott Laboratories. Although the Celera Genomics group has expended, and continues to expend, time and money on internal research and development programs, it may be unsuccessful in creating diagnostic product candidates that would enable it to form additional collaborations and alliances and, if applicable, receive milestone and/or royalty payments from collaborators. Other companies may not be interested in entering into these relationships with Celera Genomics, or may not be interested in doing so on terms that we consider acceptable.

The Celera Genomics group lacks the capability to develop or commercialize therapeutic products . Although the Celera Genomics group continues to conduct therapeutic target discovery research, it lacks the personnel or other resources necessary to develop any potential therapeutic products for those targets, to conduct clinical trials, or to manufacture, market or sell therapeutic products As a result, for the foreseeable future the Celera Genomics group expects that it will be able to develop, or participate in the development of, therapeutic products for targets that it discovers and validates only by collaborating with other companies or by licensing validated targets to other companies. The Celera Genomics group may be unsuccessful in discovering and validating therapeutic targets to enable it to form these collaborations or enter into these licenses and, if applicable, receive license, milestone and/or royalty payments from collaborators or licensees. Other companies may not be interested in entering into these relationships with the Celera Genomics group, or may not be interested in doing so on terms that we consider acceptable.

The Celera Genomics group’s diagnostics business, and its commercialization of discovered therapeutic targets, could be harmed if collaborators or licensees fail to perform under their agreements with the Celera Genomics group or if they terminate those agreements. Each of the Celera Genomics group’s existing collaboration, license, and similar agreements with other companies for the development and commercialization of products 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 and licensees are generally not within the Celera Genomics group’s control. The Celera Genomics group expects that collaboration, license, and similar agreements entered into in the future, if any, will have similar terms and limitations. Furthermore, even if these agreements contain commitments regarding these activities, the Celera Genomics group’s collaborators or licensees may not perform their obligations as expected. If collaborators or licensees terminate their agreements or otherwise fail to conduct their collaborative or licensed activities in a timely manner or at all, the development or commercialization of diagnostic or therapeutic products may be delayed or prevented. If the Celera Genomics group assumes responsibilities for continuing diagnostic programs on its own after termination of a collaboration, license, or similar agreement, the Celera Genomics

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group may be required to devote additional resources to product development and commercialization or the Celera Genomics group may need to cancel some development programs. If a collaboration, license, or other agreement for a therapeutic program is terminated, the Celera Genomics group would not be able to assume responsibility for the continued development of that program because it lacks the resources for therapeutic product development, and the only way it could continue that program would be to find another collaborator or licensee.

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

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

Our diagnostic product candidates may never result in a commercialized product. Most of the Celera Genomics group’s diagnostic product candidates are in various stages of research and development and the ability to commercialize those product candidates, including through collaborators or licensees, is highly uncertain. Development of existing product candidates will require significant additional research and development efforts by the Celera Genomics group or its collaborators or licensees before they can be marketed. For potential diagnostic products, these efforts include extensive clinical testing to confirm the products are safe and effective and may require lengthy regulatory review and clearance or approval by the U.S. Food and Drug Administration and comparable agencies in other countries. Furthermore, even if these products are found to be safe and effective and receive necessary regulatory clearances or approvals, they may never be developed into commercial products due to considerations such as: inability to obtain needed licenses to intellectual property owned by others; market and competitive conditions; and manufacturing difficulties or cost considerations.

If the Celera Genomics group or its collaborators or licensees fail to satisfy regulatory requirements for any diagnostic product candidate, the Celera Genomics group or its collaborators or licensees may be unable to complete the development and commercialization of that product. The Celera Genomics group is currently developing its internal capability to move potential diagnostic products through clinical testing, manufacturing, and the approval processes of the U.S. Food and Drug Administration, and comparable agencies in other countries. In the U.S., either the Celera Genomics group or its collaborators or licensees must show through pre-clinical studies and clinical trials that each of the Celera Genomics group’s or its collaborators’ or licensees’ diagnostic 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 an in vitro diagnostic product with clinical claims. Outside of the U.S., the regulatory requirements for commercialization vary from country to country. If the Celera Genomics group or its collaborators or licensees fail to adequately show the safety and effectiveness of a diagnostic product candidate, regulatory clearance or approval could be delayed or denied. The results from pre-clinical studies may be different from the results that are obtained in clinical trials, and the Celera Genomics

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group or its collaborators or licensees may not be able to show sufficient safety and effectiveness in their 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.

The U.S. Food and Drug Administration has issued a draft interpretation of the regulations governing the sale of Analyte Specific Reagent products which could prevent or delay our or our collaborators’ or licensees’ sales of these products and harm our business. In September 2006, the U.S. Food and Drug Administration, or FDA, published “Draft Guidance for Industry and FDA Staff: Commercially Distributed Analyte Specific Reagents (ASRs): Frequently Asked Questions” clarifying the FDA’s interpretation of the regulations governing the sale of Analyte Specific Reagent, or ASR, products. ASRs are a class of products that do not require regulatory clearance or approval. The draft guidance document contains an interpretation of the ASR regulations that is a departure from what we believe to be the existing FDA practice and policy regarding products that can be characterized as ASRs. If this draft guidance document becomes the final guidance document, and if the FDA begins enforcing this interpretation of the ASR regulations, the Celera Genomics group’s current ASR products may not meet the regulatory definition of an ASR. If this were to occur, the Celera Genomics group or its alliance partner Abbott Laboratories might have to stop selling these ASR products until the products receive, if possible, the applicable FDA approval or clearance. Furthermore, the enforcement of this new interpretation might prevent the Celera Genomics group or its collaborators or licensees from developing any new products that would qualify as ASRs.

Even if the Celera Genomics group or its collaborators or licensees obtain regulatory clearance or approval for a particular diagnostic product, that product will remain subject to ongoing regulatory requirements, and our inability to meet these requirements could prevent or require us to suspend commercialization of a product. The manufacture of our and our collaborators’ and licensees’ diagnostic products is subject to the U.S. Food and Drug Administration’s Quality System Regulation. The occurrence of manufacturing problems for any product, including the inability to comply with this regulation, could result in withdrawal of regulatory clearance or approval for that product, and could also force us or our collaborators or licensees to suspend manufacturing of, reformulate, conduct additional testing for, and/or change the labeling for, that product. This could delay or prevent the Celera Genomics group from generating revenues from the sale of any affected diagnostic product.

Clinical trials of diagnostic product candidates may not be successful . Potential clinical trials may not begin on time, may not be completed on schedule, or at all, or may not be sufficient for registration of the products or result in products that can receive necessary clearances or approvals. Numerous unforeseen events during, or as a result of, clinical testing could delay or prevent commercialization of the Celera Genomics group’s or its collaborators’ or licensees’ diagnostic product candidates. Diagnostic product candidates that appear to be promising at early stages of development or early clinical trials may later be found to be unsafe, ineffective, or to have limited medical value.

Collaborators or licensees may never successfully develop and commercialize therapeutic product candidates. The development and commercialization of therapeutic products by collaborators or licensees is highly uncertain and subject to a number of significant risks. Therapeutic product candidates that appear to be promising at early stages of development may later be found to be unsafe, ineffective, or to have limited medical value. These product candidates must undergo expensive and time consuming clinical trials to determine whether they are safe and effective, and then they are subject to a lengthy regulatory review for approval by the U.S. Food and Drug Administration and comparable agencies in other countries. Furthermore, even if these products are found to be safe and effective and receive regulatory approvals, they may never be developed into commercial products due to considerations such as: inability to obtain needed licenses to intellectual property owned by others; market and competitive conditions; and manufacturing difficulties or cost considerations. Accordingly, the Celera Genomics group may not receive any license, milestone, royalty, or other payments or any other benefit from collaboration, license, or similar agreements for the development of therapeutic products based on targets identified and validated by the Celera Genomics group.

The Celera Genomics group lacks sales capability in the clinical diagnostics market. The Celera Genomics group currently lacks a sales organization for its diagnostic products. Accordingly, its ability to successfully sell these products depends on its ability to develop a sales organization, work with Abbott Laboratories under the existing strategic alliance agreement that is described above, work with another distributor, or pursue a combination of these alternatives. In

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jurisdictions where the Celera Genomics group uses others as distributors for its diagnostic products, its success in marketing these products depends to a great extent on the efforts of the distributors.

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

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

The Celera Genomics group’s diagnostic product manufacturing operations are located in a facility in Alameda, California. The Celera Genomics group expects to operate its diagnostic product manufacturing out of this facility for the foreseeable future, and it lacks alternative production plans in place or alternative facilities available should its existing manufacturing facility cease to function. Accordingly, the Celera Genomics group’s diagnostic product business could be harmed by unexpected interruptions in manufacturing caused by events such as labor problems, equipment failures, or other factors, and the resulting inability to meet customer orders or clinical trial usage needs on a timely basis.

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

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

The Celera Genomics group’s collaborations with outside experts may be subject to restriction and change . The Celera Genomics group collaborates with scientific and clinical experts at academic and other institutions that provide assistance and guidance to the Celera Genomics group’s research and development efforts. These advisors and collaborators are not employees of the Celera Genomics group and may have other commitments that limit their availability to the Celera Genomics group. Although they generally agree not to do competing work, if a conflict of interest arises between their

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work for the Celera Genomics group and their work for another company or institution, the Celera Genomics group may lose the services of these experts. In addition, although the Celera Genomics group’s advisors and collaborators sign agreements not to disclose the Celera Genomics group’s confidential information, it is possible that valuable proprietary knowledge may become publicly known or otherwise available to other parties, including the Celera Genomics group’s competitors, through them.

The diagnostics industry is intensely competitive and evolving. There is intense competition among healthcare, diagnostic, and biotechnology companies attempting to discover candidates for potential new diagnostic products. The Celera Genomics group is aware of competitors who are engaged in research and development projects that address the diseases that the Celera Genomics group is targeting. These companies may:

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develop new diagnostic products in advance of the Celera Genomics group or its collaborators or licensees;

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develop products that are more effective diagnostic products, or more cost-effective, than those developed by the Celera Genomics group or its collaborators or licensees;

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obtain regulatory clearances or approvals of their diagnostic products more rapidly than the Celera Genomics group or its collaborators or licensees; or

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obtain patent protection or other intellectual property rights that would limit the ability of the Celera Genomics group or its collaborators or licensees to develop and commercialize diagnostic products, or that would limit the ability of customers to use those products.

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

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

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

Even if genetic testing is accepted as a method to manage healthcare, the Celera Genomics group’s diagnostic products may not be accepted in the clinical diagnostics market. If genetic testing becomes widely accepted in the clinical diagnostics market, the Celera Genomics group cannot predict the extent to which doctors and clinicians may be willing

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to use the Celera Genomics group’s diagnostic products in providing patient care. Doctors and clinicians may prefer competing technologies and products that can be used for the same purposes as the Celera Genomics group’s products.

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

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

Introduction of new diagnostic and therapeutic products may expose the Celera Genomics group to product liability claims. New products developed by the Celera Genomics group or its collaborators or licensees could expose the Celera Genomics group to potential product liability risks that are inherent in the testing, manufacturing, marketing, and sale of human diagnostic and therapeutic products. In addition, clinicians, patients, third-party payors, and others may at times seek damages based on testing or analysis errors caused by a technician’s misreading of results, mishandling of the patient samples, or similar claims. Product liability claims or product recalls, regardless of the ultimate outcome, could require the Celera Genomics group to spend significant time and money in litigation and to pay significant damages. Although the Celera Genomics group expects to seek and maintain product liability insurance to cover claims relating to the testing and use of diagnostic and therapeutic products, it may not be able to obtain the insurance on commercially reasonable terms, if at all, or it may not be able to obtain coverage in an amount that will be adequate to cover losses from any particular claim. Also, although the Celera Genomics group expects that it will be involved in the commercialization of therapeutic products only through other companies who develop and market those products under collaboration, license, or similar agreements, the Celera Genomics group could be indirectly exposed to product liability claims under applicable laws or regulations or due to the terms and conditions of those agreements.

The Celera Genomics group’s operations involve the use, manufacture, sale, and distribution of hazardous materials, and the mishandling of these hazardous materials could result in substantial liabilities and harm to the Celera Genomics group . The Celera Genomics group’s diagnostic and therapeutic research and development activities, and diagnostic manufacturing activities, involve the controlled use of potentially hazardous materials, including biological materials, chemicals, and various radioactive compounds. Also, some of the Celera Genomics group’s diagnostic products, including products sold through its strategic alliance with Abbott Laboratories, are hazardous materials or include hazardous materials. The Celera Genomics group cannot completely eliminate the risk of accidental or other contamination or injury from these materials, and the Celera Genomics group could be held liable for resulting damages, which could be substantial. Under some laws and regulations, a party can be subject to “strict liability” for damages caused by some hazardous materials, which means that a party can be liable without regard to fault or negligence. Furthermore, the Celera Genomics group could be held indirectly responsible for contamination or injury arising from the conduct of Abbott Laboratories in manufacturing, selling, or distributing alliance diagnostic products. The Celera Genomics group could be held similarly responsible for the actions of its other collaborators or licensees. In addition, the Celera Genomics group is subject to federal, state, local, and foreign laws, regulations, and permits governing the use,

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storage, handling, and disposal of hazardous materials and specified waste products, as well as the shipment and labeling of materials and products containing hazardous materials. If the Celera Genomics group fails to comply with any of these laws, regulations, or permits, or if the Celera Genomics group is held indirectly responsible for conduct of Abbott Laboratories or other collaborators or licensees found to be non-compliant, we could be subject to substantial fine or penalty, payment of remediation costs, loss of permits, and/or other adverse governmental action. Any of these events could harm the Celera Genomics group’s business and financial condition.

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

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

The Celera Genomics group’s competitive position depends on maintaining its intellectual property protection. The Celera Genomics group’s ability to compete and to achieve and maintain profitability depends, in part, on its ability to protect its proprietary discoveries and technologies through obtaining and enforcing patent rights, obtaining copyright protection, maintaining its trade secrets, and operating without infringing the intellectual property rights of others. The Celera Genomics group’s ability to obtain patent protection for the inventions it makes, including those relating to novel methods of diagnosing and/or treating diseases, is uncertain. The patentability of these and other types of biotechnology inventions involves complex factual, scientific, and legal questions. As a result, it is difficult to predict whether patents will issue or the breadth of claims that will be allowed in biotechnology 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 to obtain a patent in the biotechnology field, making patent protection more difficult to obtain. Also, future changes in policies or laws, or interpretations of these policies or laws, relevant to the patenting of biotechnology inventions could harm our patent position in the U.S. or other countries. Opposition to the protection of these inventions in the U.S. or other countries could result in stricter standards for obtaining or enforcing biotechnology patent rights.

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

The Celera Genomics group also relies on trade secret protection for its confidential and proprietary information and procedures, including procedures related to sequencing genes and to searching and identifying important regions of genetic information. The Celera Genomics group protects its trade secrets through recognized practices, including access control, confidentiality and non-use agreements with employees, consultants, collaborators and customers, and other

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security measures. These confidentiality and non-use agreements may be breached, however, and the Celera Genomics group may not have adequate remedies for a breach. In addition, the Celera Genomics group’s trade secrets may otherwise become known or be independently developed by competitors. Accordingly, it is uncertain whether the Celera Genomics group’s reliance on trade secret protection will be adequate to safeguard its confidential and proprietary information and procedures.

Disputes may arise in the future with regard to the ownership of rights to any invention developed with collaborators. These and other possible disagreements with collaborators could lead to delays in the achievement of milestones or receipt of royalty payments or in research, development and commercialization of the Celera Genomics group’s or its collaborators’ diagnostic 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 harm its business, financial condition, and operating results.

The Celera Genomics group may infringe the intellectual property rights of others, may become involved in expensive intellectual property legal proceedings, and may need to obtain licenses to intellectual property from others. There has been substantial litigation and other legal proceedings regarding patents and other intellectual property rights in the biotechnology, pharmaceutical, and diagnostics industries. The intellectual property rights of biotechnology companies, including the Celera Genomics group, are generally uncertain and involve complex factual, scientific, and legal questions. The Celera Genomics group’s success in diagnostic product development and therapeutic target discovery 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. Also, contractual disputes related to existing license rights to patents owned by others may affect the Celera Genomics group’s ability to develop, manufacture, and sell its products.

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

If infringement claims against the Celera Genomics group are resolved unfavorably to the Celera Genomics group, the Celera Genomics group may be enjoined from manufacturing or selling its products or services without a license from a third party, and the Celera Genomics group may not be able to obtain a license on commercially acceptable terms, or at all. Also, the Celera Genomics group could become subject to significant liabilities to others if these claims are resolved unfavorably to the Celera Genomics group. Similarly, our business could be harmed and we could be subject to liabilities because of lawsuits brought by others against Abbott Laboratories, with whom we have a strategic alliance. For example, Abbott has been sued by a company making patent infringement claims due to Abbott’s sale of hepatitis C virus genotyping analyte specific reagents, or ASRs, manufactured by the Celera Genomics group for Abbott. We have agreed to share the cost of this litigation and any resulting monetary damages, and the case could result in an injunction that prevents us from manufacturing and Abbott from selling this product. In September 2006, a jury ruled against Abbott and found that it willfully infringed the other company’s patent. The court awarded the other company $7 million in damages, but proceedings are pending to determine whether the damage award will be enhanced and whether an injunction will be issued that would prohibit the manufacture and sale of the hepatitis C virus genotyping ASRs.

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

The Celera Genomics group may pursue acquisitions, investments, or other strategic relationships or alliances, which may consume significant resources, may be unsuccessful, and could dilute the holders of Applera-Celera stock.

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Acquisitions, investments and other strategic relationships and alliances, if pursued, may involve significant cash expenditures, debt incurrence, additional operating losses, and expenses that could have a material effect on the Celera Genomics group’s financial condition and operating results. Acquisitions involve numerous other risks, including:

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diversion of management from daily operations;

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difficulties integrating acquired technologies and personnel into the Celera Genomics group’s business;

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inability to obtain required financing on favorable terms;

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

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

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

If these types of transactions are pursued, it may be difficult for the Celera Genomics group to complete these transactions quickly and to integrate these acquired operations efficiently into its current business operations. Any acquisitions, investments or other strategic relationships and alliances by the Celera Genomics group may ultimately harm its business and financial condition. In addition, future acquisitions may not be as successful as originally anticipated and may result in impairment charges. We have incurred these charges in recent years in relation to acquisitions. For example, we incurred charges for impairment of goodwill, intangibles and other assets and other charges in the amounts of $25.9 million during our 2002 fiscal year and $4.5 million during our 2005 fiscal year in relation to the Celera Genomics group’s acquisition of Paracel, Inc. Similarly, we incurred charges for the impairment of patents and acquired technology in the amount of $14.9 million during our 2004 fiscal year in relation to the Applied Biosystems group’s acquisition of Boston Probes, Inc. Additionally, during our 2006 fiscal year we incurred charges, including for severance and benefit costs and asset impairments, relating to the Celera Genomics group’s acquisition of Axys Pharmaceuticals, Inc. These charges were included within a charge of $26.4 million related to the Celera Genomics group’s decision to partner or sell its small molecule drug discovery and development programs and the integration of Celera Diagnostics into the Celera Genomics group.

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

Earthquakes could disrupt operations in California. The Celera Genomics group has headquarters, research and development, manufacturing, and administrative facilities in Alameda, California. Alameda 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 harmed if a major earthquake occurs.

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

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

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

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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.

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

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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 risks section of the management’s discussion and analysis included on page 42 of this report. Additional information can also be found in the market risk section of the management’s discussion and analysis included on page 36 of our 2006 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 2007 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 2007 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 2006 Annual Report on Form 10-K. Set forth below is an update to those disclosures, including specifically a description of the settlement of a previously disclosed case involving Promega Corporation. Also set forth below is a description of the settlement of a case involving Beckman Coulter, Inc., which was previously disclosed in our 2006 10-K. For additional information about our legal proceedings, refer to Note 11 to our Unaudited Condensed Consolidated Financial Statements in Part I of this report.

We believe that we have meritorious defenses against the claims currently asserted against us, including the ongoing claims described in our 2006 10-K as updated by the disclosures in this report, and we intend to defend them vigorously. However, the outcome of legal actions is inherently uncertain, and we cannot be sure that we will prevail in our defense of claims currently asserted against us. An adverse determination in the cases we are currently defending, particularly the claims against us described in Item 3 of our 2006 10-K under the heading “Commercial Litigation,” as updated by the disclosures in this report, could have a material adverse effect on us, the Applied Biosystems group, or the Celera Genomics group.

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 alleged that we were 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 were 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 was 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 was seeking monetary damages, costs and expenses, injunctive relief, and other relief as the court deemed 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 were seeking dismissal of Beckman Coulter’s complaint, costs and expenses, declaratory and injunctive relief, and other relief as the court deemed proper.

On July 3, 2006, we joined with Beckman Coulter in announcing that we entered into definitive agreement to resolve all outstanding legal disputes between us, including the claims described above and claims in a separate action brought by us against Beckman Coulter in California state court in which we alleged Beckman Coulter had breached a license agreement. The terms of the definitive agreement, which was executed on June 30, 2006, are consistent with a preliminary settlement agreement that we announced with Beckman Coulter on April 26, 2006. As part of the settlement, we and Beckman Coulter granted royalty-bearing licenses to each other. Beckman Coulter granted us licenses to its patents on replaceable gels for capillary electrophoresis instruments and DNA sequencers and to its patent on a heated lid for thermal cyclers; and we granted Beckman Coulter licenses for diagnostics and research instruments under our patents on nucleic acid sequencing and for diagnostics instruments under our patents on real-time PCR thermal cycling. Additionally, the Applied Biosystems group made a $35 million payment to Beckman Coulter in June 2006 for release of any and all claims of infringement relating to DNA sequencer and thermal cycler products. Beckman Coulter also agreed to pay $20 million to the Celera Genomics group for the

diagnostic rights licensed to it. This amount is payable in equal installments over 10 quarters commencing with the first quarter of our 2007 fiscal year. As a result of the settlement agreement, our California state court claims against Beckman Coulter were dismissed on July 10, 2006, and the U.S. federal court claims and counterclaims were dismissed on July 12, 2006, and all of these legal proceedings with Beckman Coulter have terminated.

Item 1A.

Risk Factors.

Overview

Some statements contained in, or incorporated by reference in, this report, including the Outlook section of Management’s Discussion and Analysis of Financial Condition and Results of Operation contained in Item 2 of Part I of this report, are forward-looking and are subject to a variety of risks and uncertainties. Similarly, the press releases we issue and other public statements we make from time to time may contain language that is forward-looking. These forward-looking statements may be identified by the use of forward-looking words or phrases such as “forecast,” “believe,” “expect,” “intend,” “anticipate,” “should,” “plan,” “estimate,” and “potential,” among others. The forward-looking statements contained in this report are based on our current expectations, and those made at other times will be based on our expectations when the statements are made. We cannot guarantee that any forward-looking statements will be realized.

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

The risks and uncertainties that may affect the operations, performance, development, and results of our Applied Biosystems group and Celera Genomics group businesses include, but are not limited to, those described in Management’s Discussion and Analysis of Financial Condition and Results of Operation under the heading “Forward Looking Statements and Risk Factors” in Item 2 of Part I of this report. That description amends and restates the risk factors associated with our Applied Biosystems group and Celera Genomics group businesses that were previously disclosed in Item 1A of Part I of our 2006 Annual Report on Form 10-K. Set forth below is a description of changes we have made to those risk factors since they were disclosed in our 2006 10-K that may be material. 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 Item 1A of Part I of our 2006 Annual Report on Form 10-K under the heading “Risk factors - Risks Relating to a Capital Structure with Two Separate Classes of Common Stock.” There have not been any material changes to these risk factors since they were disclosed in our 2006 10-K. We note that there may be additional risks and uncertainties that could affect us or our businesses that are not currently known to us or that we currently think are immaterial.

Changes to Applied Biosystems group risk factors

Following is the restated text of individual Applied Biosystems group risk factors that may have changed materially from their previous disclosure in our 2006 10-K.

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performing under the contract after approximately May 2007. The Applied Biosystems group intends to use its own existing manufacturing facilities to replace the supply of some critical items that it has been purchasing from Delphi, and it is evaluating the use of new suppliers for other critical items and is seeking to mitigate potential supply issues by increasing inventory of some critical items. However, it is uncertain whether the Applied Biosystems group will be able to transition the manufacture of these items to its own facilities, or hire new suppliers on acceptable terms, and whether it will be able to do so as quickly as needed. Also, the Applied Biosystems group does not expect to replace the supply of all items purchased from Delphi and accordingly some of its older, low demand products will be discontinued earlier than originally planned.

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

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:

•

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defendants have infringed one of Thermo Finnigan’s patents as a result of, for example, our commercialization of the API 5000™ LC/MS/MS system.

Changes to Celera Genomics group risk factors

Following is the restated text of an individual Celera Genomics group risk factor that may have changed materially from its previous disclosure in our 2006 10-K.

Following is the text of a new risk factor relating to the Celera Genomics group business:

this draft guidance document becomes the final guidance document, and if the FDA begins enforcing this interpretation of the ASR regulations, the Celera Genomics group’s current ASR products may not meet the regulatory definition of an ASR. If this were to occur, the Celera Genomics group or its alliance partner Abbott Laboratories might have to stop selling these ASR products until the products receive, if possible, the applicable FDA approval or clearance. Furthermore, the enforcement of this new interpretation might prevent the Celera Genomics group or its collaborators or licensees from developing any new products that would qualify as ASRs.

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Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

This table provides information regarding our purchases of shares of Applera-Applied Biosystems stock during the first quarter of fiscal 2007.

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2)

July 1-July 31, 2006	—		—	—	—
August 1-August 31, 2006	74,062	$	31.485	—	—
September 1- September 30, 2006	2,904	$	31.08	—	—

Total	76,966	$	31.4697	—	—

______________

(1)

Consists of (a) 73,293 shares tendered by employees in August 2006 to cover taxes relating to the vesting of restricted stock and restricted stock units, (b) 2,904 shares tendered by an employee in September 2006 to cover taxes relating to the vesting of restricted stock, and (c) 769 shares tendered by a director in August 2006 to cover the exercise price for stock options .

(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 our management discretion to purchase shares at times and prices it deems appropriate through open market or negotiated purchases. Accordingly, the amounts in this column do not reflect this authorization. No shares were purchased under this authorization during the first quarter of our 2007 fiscal year.

This table provides information regarding our purchases of shares of Applera-Celera stock during the first quarter of fiscal 2007.

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Program (2)

July 1-July 31, 2006	—		—	—	—
August 1-August 31, 2006	8,799	$	13.9191	—	—
September 1-September 30, 2006	—		—	—	—

Total	8,799	$	13.9191	—	—

______________

(1)	Consists of (a) 8,223 shares tendered by employees in August 2006 to cover taxes relating to the vesting of restricted stock units, and (b) 576 shares tendered by a director in August 2006 to cover the exercise price for stock options.

(2)

We previously announced that our Board of Directors has authorized the repurchase of shares of Applera-Celera stock from time to time to replenish shares issued under our various employee stock benefit plans. This authorization has no set dollar or time limits and delegates to Company management discretion to purchase shares at times and prices it deems appropriate through open market or negotiated purchases. Accordingly, the amounts in this column do not reflect this authorization. No shares were purchased under this authorization during the first quarter of our 2007 fiscal year.

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Item 6.

Exhibits.

10.1	Form of Performance Share Award Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan .

10.2	Form of Performance Share Award Agreement for executive officers pursuant to the Applera Corporation/Celera Genomics Group Amended and Restated 1999 Stock Incentive Plan .

10.3	Applera Corporation Supplemental Executive Retirement Plan effective as of December 31, 2005, as amended and restated as of August 28, 2006.

10.4	Amendment dated August 28, 2006, to the Employment Agreement dated as of September 12, 1995, between Applera Corporation and Tony L. White.

10.5	Letter dated August 28, 2006, from Applera Corporation to Dennis L. Winger, supplementing employment letters from Applera Corporation to Dennis L. Winger dated June 24, 1997, and August 21, 2003.

13.1	Annual Report to Stockholders for the fiscal year ended June 30, 2005, to the extent incorporated herein by reference (incorporated by reference to Exhibit 13 to Annual Report on Form 10-K of the Company for the fiscal year ended June 30, 2005 (Commission file number 1-4389)).

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

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

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

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

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SIGNATURES

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

		APPLERA CORPORATION
		By:	/s/ Dennis L. Winger

			Dennis L. Winger Senior Vice President and Chief Financial Officer
		By:	/s/ Ugo D. DeBlasi

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

Dated: November 6, 2006

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EXHIBIT INDEX

Exhibit Number

10.1		Form of Performance Share Award Agreement for executive officers pursuant to the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan .

10.2		Form of Performance Share Award Agreement for executive officers pursuant to the Applera Corporation/Celera Genomics Group Amended and Restated 1999 Stock Incentive Plan .

10.3		Applera Corporation Supplemental Executive Retirement Plan effective as of December 31, 2005, as amended and restated as of August 28, 2006.

10.4		Amendment dated August 28, 2006, to the Employment Agreement dated as of September 12, 1995, between Applera Corporation and Tony L. White.

10.5		Letter dated August 28, 2006, from Applera Corporation to Dennis L. Winger, supplementing employment letters from Applera Corporation to Dennis L. Winger dated June 24, 1997, and August 21, 2003.

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.

Exhibit 10.1

APPLERA CORPORATION/APPLIED BIOSYSTEMS GROUP

AMENDED AND RESTATED 1999 STOCK INCENTIVE PLAN

FORM OF PERFORMANCE SHARE AWARD AGREEMENT

PERFORMANCE SHARE AWARD AGREEMENT dated as of [Grant Date], by and between Applera Corporation, a Delaware corporation (the “Company”), and [Name], a regular salaried employee of the Company or one of its subsidiaries (“you”).

1. Grant of Performance Shares. The Company hereby grants to you a Performance Share Award (the “Award”) for [Total Number of Shares] shares (the “Performance Shares”) of its Applied Biosystems Group Common Stock, par value $.01 per share (the “Applied Biosystems Stock”), under the terms of the Applera Corporation/Applied Biosystems Group Amended and Restated 1999 Stock Incentive Plan (the “Plan”).

2. Vesting; Performance Goals. The Performance Shares will vest in the manner provided in Exhibit I to this Agreement based on the attainment of the performance goals relating to operating cash flow established by the Management Resources Committee of the Board of Directors (the “Committee”) pursuant to such Exhibit and the terms of the Plan (the “Performance Goals”).

3. Requirement of Continued Employment. Except as may otherwise be determined by Committee under the terms of the Plan, no Performance Shares will be delivered to you unless you have been at all times from the date of grant to and including the date of vesting an employee of the Company or one of its subsidiaries.

4. Termination of Employment. If your employment with the Company or a subsidiary is terminated by you or the Company for any reason prior to the attainment of all or any portion of the Performance Goals, the Performance Shares which have not vested will be forfeited and will revert back to the Company without payment to you of any consideration.

5. Delivery of Performance Shares. Certificates representing the Performance Shares will be registered in your name but remain in the physical custody of the Company until the Committee determines that the Performance Goals have been attained. In the event that all or a portion of the Performance Shares are forfeited for any reason, those shares will revert back to the Company without payment to you of any consideration.

6. Payment of Dividends; Voting Rights. Prior to the vesting of the Performance Shares, you will have the right to vote and to receive dividends, if any, on all of the unvested shares of Applied Biosystems Stock covered by the Award.

7. Non-Transferability. Prior to the time that shares of Applied Biosystems Stock issued pursuant to the Award vest and are delivered to you, none of such shares may be sold, assigned, bequeathed, transferred, pledged, hypothecated, or otherwise disposed of in any way.

8. Change of Control. Subject to the terms of the Plan, all Performance Shares will be deemed vested upon the occurrence of any of the events set forth in Section 11 of the Plan.

9. No Right to Continued Employment. Neither the Award nor this Agreement confers upon you any right to continue to be an employee of the Company or any of its subsidiaries or interferes in any way with the right of the Company or any of its subsidiaries to terminate your employment at any time. The Award will terminate upon the termination of your employment for any reason. The Award will not be reinstated if you are subsequently reinstated as an employee of the Company or any subsidiary.

10. No Right to Future Benefits. The Plan and the benefits offered under the Plan are provided by the Company on an entirely discretionary basis, and the Plan creates no vested rights in participants. Neither the Award nor this Agreement confers upon you any benefit other than as specifically set forth in this Agreement and the Plan. You understand and agree that the benefits offered under the Award and the Plan are not part of your salary and that receipt of the Award does not entitle you to any future benefits under the Plan or any other plan or program of the Company.

11. Compliance with Law. No shares of Applied Biosystems Stock will be delivered to you upon the vesting of the Performance Shares unless counsel for the Company is satisfied that such delivery will be in compliance with all applicable laws.

12. Entire Agreement . This Agreement and the Plan contain the entire agreement between you and the Company regarding the Award and supersede all prior arrangements or understandings with respect thereto.

13. Terms of Plan Govern. This Agreement and the terms of the Award will be governed by the terms of the Plan which is hereby incorporated by reference in this Agreement. In the event of any ambiguity in this Agreement or any inconsistency between the terms of this Agreement and the terms of the Plan, the terms of the Plan will govern. By your signature below, you acknowledge receipt of the Plan Summary and agree to be bound by all of the terms of the Plan.

14. Amendments. The Award or the Plan may, subject to certain exceptions, be amended by the Committee at any time in any manner. However, no amendment of the Award or the Plan will adversely affect in any material manner any of your rights under the Award without your consent.

15. Governing Law. This Agreement will be governed by and construed in accordance with the internal laws of the State of Delaware.

-2-

IN WITNESS WHEREOF, this Agreement has been duly executed by the undersigned as of the day and year first written above.

		APPLERA CORPORATION
		By:

Accepted and Agreed:


[Name]

-3-

Exhibit I to

Performance Share Award Agreement

FY 2007 Performance Share Award Program

Program Period. The program period encompasses fiscal years 2007 through 2009. The target operating cash flow for fiscal year 2007 was approved by the Committee on August 17, 2006. The target for each subsequent fiscal year will be established by the Committee no later than 90 days after the end of the applicable fiscal year.

Determination of Achievement of Performance Goals. The Committee will, in its sole discretion, determine whether the performance goals have been attained following the completion of each fiscal year of the program.

Vesting. The shares will vest in accordance with the following schedule based on actual operating cash flow and the target for the applicable fiscal year:

Performance		Vesting

90% or less of Target:		No vesting.

Above 90% to 110% of Target:	Mr. White	Mr. Winger

	For each 1%, will vest as to 2,247 shares of Applied Biosystems stock and 963 shares of Celera Genomics stock (in each case rounded up to the nearest whole share).	For each 1%, will vest as to 561.75 shares of Applied Biosystems stock and 240.75 shares of Celera Genomics stock (in each case rounded up to the nearest whole share).

Above 110% of Target:

No additional vesting.

The maximum number of shares of Applied Biosystems stock that can vest in any fiscal year under the program is 44,940 for Mr. White and 11,235 for Mr. Winger. The maximum number of shares of Celera Genomics stock that can vest in any fiscal year under the program is 19,260 for Mr. White and 4,815 for Mr. Winger.

Exhibit 10.2

APPLERA CORPORATION/CELERA GENOMICS GROUP

AMENDED AND RESTATED 1999 STOCK INCENTIVE PLAN

FORM OF PERFORMANCE SHARE AWARD AGREEMENT

PERFORMANCE SHARE AWARD AGREEMENT dated as of [Grant Date], by and between Applera Corporation, a Delaware corporation (the “Company”), and [Name], a regular salaried employee of the Company or one of its subsidiaries (“you”).

1. Grant of Performance Shares. The Company hereby grants to you a Performance Share Award (the “Award”) for [Total Number of Shares] shares (the “Performance Shares”) of its Celera Genomics Group Common Stock, par value $.01 per share (the “Celera Genomics Stock”), under the terms of the Applera Corporation/Celera Genomics Group Amended and Restated 1999 Stock Incentive Plan (the “Plan”).

7. Non-Transferability. Prior to the time that shares of Celera Genomics Stock issued pursuant to the Award vest and are delivered to you, none of such shares may be sold, assigned, bequeathed, transferred, pledged, hypothecated, or otherwise disposed of in any way.

8. Change of Control. Subject to the terms of the Plan, all Performance Shares will be deemed vested upon the occurrence of any of the events set forth in Section 11 of the Plan.

11. Compliance with Law. No shares of Celera Genomics Stock will be delivered to you upon the vesting of the Performance Shares unless counsel for the Company is satisfied that such delivery will be in compliance with all applicable laws.

15. Governing Law. This Agreement will be governed by and construed in accordance with the internal laws of the State of Delaware.

-2-

IN WITNESS WHEREOF, this Agreement has been duly executed by the undersigned as of the day and year first written above.

		APPLERA CORPORATION

		By:


Accepted and Agreed:



[Name]

-3-

Exhibit I to

Performance Share Award Agreement

FY 2007 Performance Share Award Program

Vesting. The shares will vest in accordance with the following schedule based on actual operating cash flow and the target for the applicable fiscal year:

Performance	Vesting


90% or less of Target:	No vesting.

Above 90% to 110% of Target:	Mr. White For each 1%, will vest as to 2,247 shares of Applied Biosystems stock and 963 shares of Celera Genomics stock (in each case rounded up to the nearest whole share).	Mr. Winger For each 1%, will vest as to 561.75 shares of Applied Biosystems stock and 240.75 shares of Celera Genomics stock (in each case rounded up to the nearest whole share).
Above 110% of Target:	No additional vesting.

Exhibit 10.3

APPLERA CORPORATION

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

Effective as of December 31, 2005

(Amended and Restated as of August 28, 2006)

TABLE OF CONTENTS


ARTICLE 1. INTRODUCTION		1
1.1	Establishment of Plan	1
1.2	Purpose of the Plan	1

ARTICLE 2. DEFINITIONS		2
2.1	Definitions	2
2.2	Number and Gender	5

ARTICLE 3. PARTICIPATION AND SERVICE		6
3.1	General	6
3.2	Commencement of Participation	6
3.3	Duration; Rehire	6
3.4	Benefit Service	6
3.5	Vesting Service	6

ARTICLE 4. AMOUNT OF BENEFITS		7
4.1	Accrued Benefit	7
4.2	Rehired Individuals	8
4.3	Vesting	8
4.4	Forfeiture	9
4.5	Benefit Adjustment for Specified Employees	9

ARTICLE 5. PAYMENT OF BENEFITS; DISABILITY AND DEATH BENEFITS		10
5.1	Automatic Form of Benefit Payment	10
5.2	Optional Forms of Payment	10
5.3	Automatic Time of Benefit Payment	11
5.4	Optional Time of Benefit Payment	11
5.5	Manner and Time of Elections	11
5.6	Rules Applicable to Change in Elections	12
5.7	Disability Benefit	13
5.8	Death Benefits	13
5.9	Beneficiary Designation	14
5.10	Erroneous Payments	15
5.11	Rehire	15

ARTICLE 6. SOURCE OF PAYMENTS		16
6.1	Company Obligations and Source of Payments	16
6.2	“Rabbi” Trust	16

ARTICLE 7. ADMINISTRATION		17
7.1	Committee	17
7.2	Procedures for Requesting Benefit Payments; Claims Procedures	18

ARTICLE 8. AMENDMENT AND TERMINATION		19
8.1	Amendment of the Plan	19
8.2	Termination of the Plan	19

ARTICLE 9. MISCELLANEOUS PROVISIONS		20
9.1	Employment Rights	20
9.2	No Examination or Accounting	20
9.3	Records Conclusive	20
9.4	Severability	20
9.5	Counterparts	20
9.6	Taxes	20
9.7	Binding Effect	21
9.8	Assignment	21
9.9	Incapacity	21
9.10	Unsecured Creditor	22
9.11	Notice	22
9.12	Benefits Not Salary	22
9.13	Captions	22
9.14	Governing Law	22
9.15	Addresses	22

ARTICLE 1. INTRODUCTION

1.1

Establishment of Plan

Applera Corporation (the “Company”) established the Applera Corporation Supplemental Executive Retirement Plan (the “Plan”), effective as of December 31, 2005. The Plan is amended and restated effective as of August 28, 2006.

1.2

Purpose of the Plan

The purpose of this Plan is to provide supplemental nonqualified retirement benefits for a select group of senior management or highly compensated employees of the Company. Payments under the Plan will be made from the general assets of the Company or from the assets of a Trust, if any, established as part of the Plan. It is intended that the Plan remain at all times an unfunded deferred compensation plan for purposes of Title I of ERISA and that the Trust, if any, will constitute a grantor trust under Sections 671 through 679 of the Code. Until paid, any and all assets of any vehicle used for payment of benefits under this Plan will remain owned by the Company, subject to the claims of its general creditors in the event of the Company’s insolvency.

The Plan and Trust are intended to comply with all applicable requirements of Section 409A of the Code as well with any regulations and other guidance issued thereunder. Notwithstanding any other provisions in the Plan to the contrary, this Plan shall be interpreted for all purposes and operated to the extent necessary to comply with these requirements.

ARTICLE 2. DEFINITIONS

2.1

Definitions

Whenever used in this Plan, the following words and phrases will have the meanings set forth below unless a different meaning is expressly provided or plainly required by the context:

(a) “Accrued Benefit” means the amount payable to a Participant as a single life annuity at his Normal Retirement Date pursuant to Section 4.1 of the Plan.

(b) “Actuarial Equivalent” means a benefit having the same value as the benefit for which it is substituted. For purposes of determining the Actuarial Equivalent of any benefit as provided for under this Plan, except the Lump Sum Option, the Deferred Lump Sum Option described in Section 5.2, and for Section 5.8 determinations respectively, the following factors will apply: Interest: 6%; and Mortality: 1994 GAM 50/50 Mortality Table. For purposes of the Lump Sum Option, the Deferred Lump Sum Option, and Section 5.8 determinations, the following factors will apply: Interest: FAS87 discount rate utilized by the Company for fiscal year ending June 30, 2006 and Mortality: 1994 GAM 50/50 Mortality Table.

(c) “Beneficiary” means the individual or trust designated by a Participant on a form provided by the Committee to receive any death benefit payable pursuant to Sections 5.2 and/or 5.8. If no Beneficiary is properly designated at the time of the Participant’s death, or if no person so designated will survive the Participant, the Beneficiary will be the surviving spouse, or if there is no surviving spouse, the Participant’s heirs, successors or assigns.

(d) “Benefit Service” means the service described in Section 3.4.

(e) “Board” means the Board of Directors of the Company.

(f) “Cause” means termination of employment upon:

(1) the willful and continued failure by the Participant to perform substantially his duties with the Company (other than any such failure resulting from the Participant’s incapacity due to physical or mental illness) after a demand for a substantial performance is delivered to the Participant by the Board which specifically identifies the manner in which the Board believes that the Participant has not substantially performed his duties; or

(2) the willful engaging by the Participant in illegal conduct which is materially and demonstrably injurious to the Company.

(g) “Change in Control” shall mean a change in control as defined in the Company’s standard change in control Employment Agreement.

(h) “Code” means the Internal Revenue Code of 1986, as amended from time to time.

(i) “Committee” means the Committee appointed by the Board in accordance with Section 7.1 of this Plan.

(j) “Company” means Applera Corporation and any successor thereto that agrees to assume the duties and obligations of the Company hereunder. It also means any subsidiary which had adopted the Plan subject to the approval of the Board.

(k) “Compensation” means the regular base wage or salary, including commission, paid to a Participant by the Company and any amount which is contributed by the Company pursuant to a salary reduction agreement and which is not includable in the gross income of the Participant under Sections 125, 132(f) and 401(k) of the Code or is contributed by the Company pursuant to a salary reduction agreement and which is not includable in the gross income of the Participant because it is made to a deferred compensation plan sponsored by the Company. Bonus, Incentive Compensation Plan payments, payment for overtime or other special payment shall not be considered as Compensation. During a period of approved leave, it shall be assumed that the compensation of a Participant is equal to the basic wage or salary in effect at the time such approved leave began.

(l) “Disability” means the Participant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan of the Company. To the extent permitted by Code Section 409A and the regulations thereunder, a Participant will be deemed disabled if (i) determined to be totally disabled by the Social Security Administration, or (ii) determined to be disabled in accordance with a disability insurance program if such insurance program applies the definition of disability in the preceding sentence.

(m) “Early Retirement Date” means the first day of any month on and after a Participant reaches age 55, or completes five (5) or more years of Vesting Service, if later.

(n) “Final Average Compensation” means the highest annualized average Compensation of a Participant during any sixty (60) consecutive calendar months preceding the determination date. If a Participant has not been employed for a period of at least sixty (60) consecutive calendar months, Final Average Compensation will be determined taking into account Compensation for a period of up to sixty (60) of the most recent calendar months of a Participant’s employment.

(o) “Final Average Qualified Compensation” means the highest average Qualified Compensation of a Participant during any five (5) consecutive Plan Years preceding the determination date. If a Participant has not been employed for a period of at least five (5) consecutive Plan Years, Final Average Qualified Compensation will be determined taking into account Qualified Compensation for a period of up to five (5) of the most recent Plan Years of a Participant’s employment.

(p) “Late Retirement Date” means the first day of the month following the termination of employment of a Participant who continues to work past his Normal Retirement Age.

(q) “Normal Retirement Age” is age 65, or the age at which the Participant completes five (5) years of Vesting Service, if later.

(r) “Normal Retirement Date” is the first day of the month on or after the Participant’s Normal Retirement Age.

(s) “Participant” means an employee who becomes a Participant as provided in Article 3 and who has an Accrued Benefit under the Plan.

(t) “Plan” means the Applera Corporation Supplemental Executive Retirement Plan, as established by this document and as amended from time to time.

(u) “Plan Year” means the Company’s fiscal year, which is the twelve (12) month period beginning each July 1 ^st and ending the following June 30 ^th .

(v) “Qualified Compensation” means any payment accrued for a current Plan Year which is paid in a subsequent Plan Year pursuant to the Company’s Incentive Compensation Plan. Qualified Compensation shall include any amount of incentive compensation which is contributed by the Company pursuant to a salary reduction agreement and which is not includable in the gross income of the Participant because it is made to a deferred compensation plan sponsored by the Company. Such contribution to a deferred compensation plan shall be treated as Qualified Compensation for the Plan Year in which the payment was accrued. Any payment accrued as of the last day of the Plan Year and actually received by a Participant in a subsequent Plan Year will count as Qualified Compensation if the Participant either retires on the last day of the Plan Year or in certain circumstances terminates employment during the Plan Year to which the payments relate.

(w) “Separation from Service” means the date on which a Participant terminates employment with the Company for any reason. Whether a Participant has terminated employment shall be determined based on the facts and circumstances in accordance with the rules set forth in Section 409A of the Code and the regulations thereunder, including any special rules for individuals on leave of absence.

(x) “Specified Employee” generally means an individual who met the criteria to be a key employee (within the meaning of Section 416 of the Code) of the Company at any time during the applicable look-back year. If an individual’s Separation from Service occurs on or after April 1 of a calendar year, the applicable look-back year is the preceding calendar year. If an individual’s Separation from Service occurs between January 1 and March 31, inclusive, the applicable look-back year is the second calendar year preceding the calendar year in which the Separation from Service occurs. An individual’s status as a Specified Employee shall be determined in a manner consistent

with Code Section 409A and the regulations thereunder, including any special rules for spinoffs and mergers.

(y) “Trust” means a “rabbi” grantor trust under Sections 671 through 679 of the Code which may be established pursuant to this Plan.

(z) “Trust Agreement” means any agreement entered into between the Company and the Trustee, that establishes the Trust, if any, to form a part of this Plan and to receive, hold, invest and dispose of the Trust Fund.

(aa) “Trust Fund” means the assets of every kind and description held under any Trust Agreement forming a part of this Plan.

(bb) “Trustee” means any person or entity appointed to act as trustee under the Trust, if any.

(cc) “Vesting Service” means the service described in Section 3.5.

2.2

Number and Gender

Except when otherwise indicated by the context, any use of any term in the singular or plural will also include the opposite. As used in the Plan, the masculine gender will be deemed to refer to the feminine whenever appropriate.

ARTICLE 3. PARTICIPATION AND SERVICE

3.1

General

Participation in the Plan is limited solely to a select group of senior management or highly compensated employees who have been approved by the Board to be covered under the Plan. The initial group of individuals eligible for the Plan are identified in Appendix A. No other individuals will be eligible to participate in the Plan without written approval of Board.

3.2

Commencement of Participation

An individual will become a Participant in the Plan as of the date the individual is approved to be covered under the Plan under Section 3.1.

3.3

Duration; Rehire

(a) Participant. An individual who becomes a Participant will continue to be a Participant eligible to accrue benefits until the individual terminates employment with the Company or, if earlier, until the Board determines that the individual is no longer eligible to be covered under the Plan. If an individual ceases to be a Participant eligible to accrue benefits, he shall nevertheless remain a Participant for other purposes under the Plan with respect to any Accrued Benefit previously earned but not yet paid.

(b) Rehire. A former Participant who resumes employment with the Company will once again become a Participant on the later of the date he resumes service for the Company or the date the Board approves the individual to be covered again under the Plan.

3.4

Benefit Service

Benefit Service will include the Participant’s aggregate periods of employment with the Company in a position that the Board has determined is eligible for benefit credit under the Plan (determined in periods of whole months), including periods before the Effective Date of this Plan. The Board has determined that employment in a position on the Company’s Executive Committee will be credited as Benefit Service, including periods before the adoption of the Plan.

3.5

Vesting Service

Vesting Service will include a Participant’s aggregate periods of employment with the Company whether or not in a position that the Board has designated as covered under the Plan (determined in periods of whole months), including periods before the effective date of this Plan.

ARTICLE 4. AMOUNT OF BENEFITS

4.1

Accrued Benefit

(a) In General. A Participant’s Accrued Benefit is the monthly benefit payable as a single life annuity commencing at his Normal Retirement Date, determined under the Benefit Formula based on his Final Average Compensation, Final Average Qualified Compensation, and Benefit Service as of the date of determination.

(b) Benefit Formula. The Plan’s formula used to determine a Participant’s annual Accrued Benefit is the sum of (1) plus (2), multiplied by (3):

(1)

is equal to fifty percent (50%) of Final Average Compensation;

(2)

is equal to fifty percent (50%) of Final Average Qualified Compensation; and

(3)

is equal to a fraction, where

(A)

the numerator is equal to the lesser of the Participant’s Benefit Service or fifteen (15) years, and

(B)

the denominator is fifteen (15) years.

(c) Offset for Special Contractual Benefits. A Participant’s Accrued Benefit will be offset by the Actuarial Equivalent value of any special contractual benefits provided by the Company (as of the date of this amended Plan the only special contractual benefits are under the deferred compensation agreement dated July 1, 1993, with William B. Sawch and the letter agreement dated August 21, 2003, with Dennis L. Winger). The Committee will reasonably determine any special contractual benefits that should offset Accrued Benefits under the Plan. The Actuarial Equivalent value of any offset will be determined in whatever reasonable manner the Plan’s actuary determines to be appropriate and such determination will be binding.

(d) Continued Employment After Normal Retirement Age. A Participant who continues to work past his Normal Retirement Age will have his Accrued Benefit determined based on his Final Average Compensation, Final Average Qualified Compensation, and Benefit Service at his Late Retirement Date. There will be no actuarial adjustment to reflect payment postponed beyond Normal Retirement Age.

(e) Change in Control. Upon a Participant’s termination of employment in connection with a Change in Control consistent with the Company’s standard Change in Control agreement, the following special provisions apply:

(1) The Participant will be credited with three (3) additional years for all purposes under the Plan.

(2) Final Average Compensation will be calculated on Compensation during the twelve (12) consecutive calendar months preceding the Change in Control, if greater than the amount determined under the definition of Final Average Compensation under Section 2.1(n).

(3) Final Average Qualified Compensation will be calculated on Qualified Compensation during the twelve (12) consecutive calendar months preceding the Change in Control, if greater than the amount determined under the definition of Final Average Qualified Compensation under Section 2.1(o).

4.2

Rehired Individuals

(a) In General. If a former Participant once again becomes a Participant in accordance with the provisions of Section 3.3, then such Participant’s Accrued Benefit will reflect changes in Benefit Service, Final Average Compensation, and Final Average Qualified Compensation as further specified in Sections 2.1(n) and (o) and 3.4.

(b) No Benefit Payments During Reemployment. As specified in Section 5.11, if a rehired individual had begun receiving payments under Article 5, such payments will be suspended immediately upon his reemployment in a position that the Board has designated as covered under the Plan. Notwithstanding the foregoing, benefits will not be suspended if there is a significant risk that this would result in a violation of the rules under Code Section 409A or the regulations thereunder.

(c) Adjustment For Benefit Payments. If a rehired individual had begun receiving payment under Article 5, then such Participant’s Accrued Benefit will be adjusted to reflect the Actuarial Equivalent value of these payments. The Actuarial Equivalent amount of this adjustment will be determined in whatever manner the Plan’s actuary determines to be reasonable and such determination will be binding.

4.3

Vesting

(a) In General. Subject to the forfeiture provisions of Section 4.5, each Participant will be fully vested in his Accrued Benefit upon the completion five (5) years of Vesting Service. Prior to the completion of five (5) years of Vesting Service, a Participant will not have any vested interest in his Accrued Benefit.

(b) Full Vesting Due to Special Events. Notwithstanding the foregoing, a Participant will be fully vested (deemed to have completed five (5) years of Vesting Service) in his Accrued Benefit if any of the following events occur while the Participant is employed by the Company:

(1)

the Participant dies;

(2)

the Participant is determined to have a Disability;

(3)

there is a Change in Control; or

(4)

The Participant’s employment is terminated by the Company without Cause.

4.4

Forfeiture

Notwithstanding any other provision of this Plan to the contrary, each Participant will forfeit his entire Accrued Benefit under the following circumstances:

(a) Termination for Cause. Cause will be determined by the Committee in its reasonable sole discretion using the definition set forth in Section 2.1(f).

(b) Breach of Duty of Loyalty. Each Participant has an ongoing responsibility to fulfill the following duties of loyalty: giving the Company reasonable notice of retirement intent and facilitating transition of responsibilities; providing reasonable assistance to the Company during retirement; and not acting contrary to the Company’s best interests (including adherence to the Company’s non-compete restrictions). Adherence to the Plan’s Duty of Loyalty condition will be determined by the Committee in its sole discretion.

4.5

Benefit Adjustment for Specified Employees

If a Participant’s benefit payment is delayed under Section 5.3 or 5.4 by reason of his status as a Specified Employee, the following adjustments shall be made to the benefit amount:

(a) If the benefit is payable in the form of an annuity or Deferred Lump Sum Option, a balloon payment shall be made on the annuity starting date equal to the missed payments accumulated with interest at the rate used to determine actuarial equivalencies for lump sums.

(b) If the benefit is payable in the Lump Sum Option, the lump sum shall be calculated as of the first day of the month following Separation from Service and increased with interest at the rate used to determine actuarial equivalencies for lump sums until the actual payment date.

ARTICLE 5. PAYMENT OF BENEFITS; DISABILITY AND DEATH BENEFITS

5.1

Automatic Form of Benefit Payment

Unless a Participant elects an optional form of payment set forth in Section 5.2 in the manner and at the time prescribed in Sections 5.5 and 5.6, the automatic form of benefit payment under the Plan will be a single life annuity payable for the life of the Participant.

5.2

Optional Forms of Payment

A Participant may elect in accordance with Section 5.5 to receive his Accrued Benefit in one of the following forms, each of which shall be the Actuarial Equivalent of the automatic form of payment provided in Section 5.1.

(a) A Lump Sum Option which shall be a single payment representing the entire value of the Participant’s Accrued Benefit.

(b) Deferred Lump Sum Option which shall be a reduced monthly annuity payable as of the first day of each month for a specified period of thirty-six (36), sixty (60) or one hundred-twenty (120) months, to be followed by payment of an Actuarial Equivalent lump sum representing the present value of the remaining payments. The amount of the reduced monthly annuity is a monthly annuity under the specified period certain and life form of payment Actuarially Equivalent to the automatic form of payment. Should the Participant die before the end of the specified period, the Beneficiary shall commence receiving the remaining monthly payments during the specified period to be followed by the lump sum payment which would have been paid to the Participant. This optional form of payment shall be treated as a single payment for purposes of the election rules described in Sections 5.5 and 5.6 of the Plan.

(c) Contingent 50% Annuitant Option which is a reduced annuity payable as of the first day of each month to the Participant, for life, with a continuing annuity to the spouse of the Participant if the spouse survives the Participant, in an amount which is fifty percent (50 %) of the monthly annuity payable to the Participant, beginning with the first day of the month following the Participant’s death and continuing for the spouse’s lifetime.

(d) Contingent 100% Annuitant Option which is a reduced annuity payable as of the first day of each month to the Participant, for life, with a continuing annuity to the spouse of the Participant if the spouse survives the Participant, in an amount which is one hundred percent (100 %) of the monthly annuity payable to the Participant, beginning with the first day of the month following the Participant’s death and continuing for the spouse’s lifetime.

5.3

Automatic Time of Benefit Payment

Unless a Participant elects an optional time of benefit payment as set forth in Section 5.4 in the manner and at the time prescribed in Sections 5.5 and 5.6, the automatic time of benefit payment under the Plan will be the later of (i) the Participant’s Normal Retirement Date or (ii) the first day of the month following the Participant’s Separation from Service (or, if a Participant is a Specified Employee, the first day of the month following the sixth month anniversary of the Participant’s Separation from Service). The six-month waiting period for Specified Employees shall apply only to the extent required by Code Section 409A and the regulations thereunder, and shall not apply to benefits payable on account of the Participant’s death.

5.4

Optional Time of Benefit Payment

(a) In General. A Participant who terminates employment before his Normal Retirement Date may elect in accordance with Sections 5.5 and 5.6 to receive payments as of the first day of any month on and after the later of his Early Retirement Date or his Separation from Service.

(b) Reduction For Early Commencement. The Accrued Benefit will be reduced ¼ of 1% for each month by which the benefit commencement date precedes his Normal Retirement Date.

(c) Notwithstanding the foregoing, if a Participant is a Specified Employee, payment will not be made before the six month anniversary of such Participant’s Separation from Service except to the extent permitted by Code Section 409A and the regulations thereunder..

5.5

Manner and Time of Elections

The election of an optional form or time of benefit payment will be made at such time as the Committee prescribes on a form provided by the Committee for such purpose. After the “409A transition period,” a Participant’s initial election under this Section 5.5 must be made before the Participant’s date of hire or, to the extent permitted by Section 409A and the regulations thereunder, within a limited period of time following the Participant’s initial eligibility under the Plan.

For purposes of the preceding paragraph, the 409A transition period is the period prescribed by the Internal Revenue Service (expiring no earlier than December 31, 2006) for making a new payment election with respect to amounts previously deferred without such election being treated as change in the form or timing of payment under Section 409A(a)(4) of the Code or an acceleration of a payment under Section 409A(a)(3) of the Code. At any time before the end of the 409A transition period, Participants shall have an opportunity to make a new payment election with respect to their Accrued Benefit that will be treated as their initial election for Section 409A of the Code purposes; provided, however, that the election shall be made in accordance with such rules as the IRS shall prescribe, including the following: (i) Participants may not make an election in 2006 to start

distributions in 2006 that would otherwise be deferred until a later year; (ii) Participants may not make an election in 2006 to change the form of a distribution starting in 2006 (except for changes between actuarially equivalent life annuities); and (iii) Participants may not make an election in 2006 to defer a distribution that would otherwise begin in 2006.

If no initial election is affirmatively made in the time and manner described above, the Participant will be deemed to have made an election to receive his Accrued Benefit pursuant to the automatic form and time for benefit payment.

Any subsequent changes to a Participant’s initial election (or deemed election) must be made pursuant to the restrictions of Section 5.6 and Code Section 409A and the regulations thereunder, at such time and in such manner as the Committee prescribes.

5.6

Rules Applicable to Change in Elections

After the 409A transition period described in Section 5.5, any change to a Participant’s initial election (or deemed election) as to the form or timing of payment shall be subject to the following restrictions:

(a) Any election to delay a payment by changing its form or timing shall not be effective until at least twelve (12) months after the date the revised election is submitted to the Committee. If a payment is due at Separation from Service and a Participant elects to change its form or timing within the twelve (12) month period ending upon Separation from Service, such revised election shall be null and void, and payment shall be made in accordance with the most recent valid election (or deemed election) in effect for such Participant.

(b) Except in the case of a payment on account of death or Disability, any election to delay a payment by changing its form or timing shall not be effective unless payment is deferred for a period of five (5) years from the date such payment would have been made. If a Participant makes more than one election to delay a payment, each such election shall require an additional five (5) year deferral of payment to the extent required by Section 409A of the Code and the regulations thereunder.

(c) Any election to delay a payment scheduled to be made at a specified time (such as the Early Retirement Date) shall not be valid unless made at least twelve (12) months prior to the date of the first scheduled payment.

(d) A Participant shall not be permitted to accelerate a payment by changing its form or timing, except to the extent permitted by Section 409A of the Code and the regulations thereunder. If a Participant has elected (or is deemed to have elected) to have payments begin at the automatic time of benefit payment described in Section 5.3, he shall not be permitted to subsequently change his election to the optional time of benefit payment described in Section 5.4.

Notwithstanding the restrictions described above, a Participant who has validly elected (affirmatively or by default) a life annuity form of benefit may choose at any time before his commencement date to receive his benefit in any other actuarially equivalent life annuity form of benefit. For this purpose, a life annuity form of benefit means the single life annuity described in Section 5.1, the Contingent 50% Annuitant Option described in Section 5.2(c) or the Contingent 100% Annuitant Option described in Section 5.2(d). Participants choosing to exercise this option shall provide reasonable notice to the Committee before their benefit commencement date.

5.7

Disability Benefit

If a Participant ceases to perform service on account of Disability, his Accrued Benefit will be payable commencing with the month in which the Participant would have attained, if not already having attained, his Early Retirement Date (reduced under Section 5.4 to reflect early commencement) and in the form elected by the Participant under Section 5.5 and 5.6 (reduced under Section 5.2 to reflect any optional form of payment).

5.8

Death Benefits

(a) Upon the Participant’s death after benefit commencement, the only death benefit payable to the Participant’s designated Beneficiary shall be the amount (if any) payable under the form of payment under which the Participant was being paid at the time of his death.

(b) In the case of a Participant who dies before benefit payments have begun, a death benefit will be payable to the Participant’s Beneficiary in accordance with the terms of the Participant’s pre-retirement death benefit election in effect at the time of his death. If the Participant’s death occurs after the Participant’s Early Retirement Date, the death benefit will be payable commencing with the month following the month of the Participant’s death. If the Participant’s death occurs on or before the Participant’s Early Retirement Date, the death benefit will be payable commencing with the month the Participant would have attained his Early Retirement Date had the Participant survived to his Early Retirement Date.

(1) Timing of election. Participants shall have an opportunity to make a preretirement death benefit election at such time as the Committee prescribes. After the “409A transition period” described in Section 5.5, a Participant’s initial preretirement death benefit election shall be made before the Participant’s date of hire or, to the extent permitted by Section 409A and the regulations thereunder, within a limited period of time following the Participant’s initial eligibility under the Plan. At any time before the end of the 409A transition period, Participants shall have an opportunity to make a new preretirement death benefit election that will be treated as their initial preretirement death benefit election for Section 409A of the Code purposes; provided, however, that the election shall be made in accordance with such rules as the IRS shall prescribe. Any change to the

Participant’s initial preretirement death benefit election (or deemed election) shall be subject to the restrictions in Section 5.6.

(2) Form of election. A Participant’s preretirement death benefit election shall be made on a form provided by the Committee for such purpose. Regardless of the Participant’s marital status at the time of the election, the election shall specify the form of payment to be made in the event that the Participant is married at the time of his death, which may be any one of the following options:

(A)

a monthly benefit in the form of a life annuity based on the life expectancy of the Beneficiary that is Actuarial Equivalent to the present value of the Participant’s Accrued Benefit,

(B)

a lump sum payment that is Actuarial Equivalent to the present value of the Participant’s Accrued Benefit.

(C)

a deferred lump sum payment based on the life expectancy of the Beneficiary that is Actuarial Equivalent to the present value of the Participant’s Accrued Benefit.

The election also shall specify the form of payment to be made in the event the Participant is not married at the time of his death, which may be any one of the following options:

(D)

a lump sum payment that is Actuarial Equivalent to the present value of the Participant’s Accrued Benefit,

(E)

a deferred lump sum payment based on the life expectancy of the Beneficiary that is Actuarial Equivalent to the present value of the Participant’s Accrued Benefit.

If a Participant fails to make an initial preretirement death benefit election, the Participant will be deemed to have elected a preretirement death benefit payable as follows: If the Participant is married and his spouse is his designated Beneficiary, the Participant’s spouse will receive a monthly benefit in the form of a life annuity based on the life expectancy of the spouse that is Actuarial Equivalent to the present value of the Participant’s Accrued Benefit. If the Participant is not married at the time of his death, or is married but has designated a non-spouse Beneficiary, his Beneficiary shall receive a lump sum payment that is Actuarial Equivalent to the present value of the Participant’s Accrued Benefit.

5.9

Beneficiary Designation

A Participant may designate an individual or trust as the Beneficiary to receive any death benefit payable under the Plan. Each Beneficiary designation will be in the form prescribed by the Company, will be effective only when properly filed in writing with the Company before the earlier of the Participant’s death or the time payment commences, and will revoke all prior designations by

the Participant. Subject to a spousal waiver, a Participant may designate a Beneficiary other than his spouse. A Participant may not change his Beneficiary designation once payment has commenced under the Plan.

5.10

Erroneous Payments

In the event that a Participant or a Beneficiary receives a distribution under this Plan in excess of the amount, if any, to which he or she is entitled, by reason of a calculation error or otherwise, the Company may, in its sole discretion, adjust future benefit payments to the Participant or the Beneficiary to the extent necessary to recoup the amount which the Participant or the Beneficiary received which was in excess of the amount to which he or she was entitled under the terms of the Plan. If the Company determines, in its sole discretion, that it is not feasible or desirable to adjust future benefit payments to a Participant or a Beneficiary, the Company may require the Participant or the Beneficiary to repay to the Plan the amount which is in excess of the amount to which the Participant or the Beneficiary is entitled under the terms of the Plan. All amounts received by a Participant or a Beneficiary under the Plan will be deemed to be paid subject to this condition.

5.11

Rehire

In the event that an individual who is currently receiving payments under the Plan is rehired by the Company in a position that the Board has designated as covered under the Plan, then any payments being made under this Article 5 will be suspended immediately. Payment will recommence according to this Article 5 upon the Participant’s subsequent termination of employment, adjusted as provided in Section 4.2. Notwithstanding the foregoing, benefits will not be suspended if there is a significant risk that this would result in a violation of the rules under Code Section 409A or the regulations thereunder.

ARTICLE 6. SOURCE OF PAYMENTS

6.1

Company Obligations and Source of Payments

All benefits payable under the Plan will be paid as they become due and payable by the Company out of its general assets. Nothing contained in this Plan will be deemed to create a trust of any kind for Participants or their Beneficiaries or create a fiduciary relationship between the Company and the Participants or their Beneficiaries. To the extent that any person acquires a right to receive benefits under the Plan, such rights will be no greater than the right of any unsecured general creditors of the Company.

6.2

“Rabbi” Trust

Notwithstanding Section 6.1, to fund the benefits provided under the Plan, the Company may, in its sole discretion, execute a Trust Agreement with a Trustee or Trustees, or enter into one or more contracts with an insurance company or companies, or adopt a combination of both methods of funding. The Company will determine the form and terms of any such Trust Agreement or insurance contract, and may, in its sole discretion, modify such instruments from time to time or remove or replace any Trustee or insurance company. Any such Trust so established will be a “rabbi” grantor trust under Sections 671 through 679 of the Code. To the extent prohibited by Code Section 409A(b) or the regulations thereunder, no assets shall be transferred to an offshore trust or arrangement and no assets shall become restricted to the payment of benefits in connection with a change in the Company’s financial health.

ARTICLE 7. ADMINISTRATION

7.1

Committee

(a) General. The Committee, subject to those powers which the Board has reserved as described in Article 8 below, will have general authority over, and responsibility for, the administration and interpretation of the Plan. The Committee will have full power, authority and discretion to interpret and construe the Plan, to make all determinations considered necessary or advisable for the administration of the Plan and the Trust, if any, the calculation of the amount of benefits payable under the Plan, and to review claims for benefits under the Plan. This discretion shall include, but not be limited to, the power to interpret the Plan to comply in good faith with all applicable requirements of Code Section 409A and the regulations thereunder. The Committee’s interpretations and constructions of the Plan and its decisions or actions thereunder, reasonably taken, will be binding and conclusive on all persons for all purposes.

(b) Composition. The Committee will consist of at least three individuals, each of whom will be appointed by the Board. Any Committee member may resign by delivering his or her written resignation to the Committee no later than fifteen (15) days before the effective date of the resignation. The Board may remove any member of the Committee at any time and for any reason with or without advance written notice. Vacancies in the Committee arising by resignation, death, removal or otherwise will be filled by the Board.

(c) Committee Procedures. The Committee will elect or designate one of its own members as Chair, establish its own procedures and the time and place for its meetings and provide for the keeping of minutes of all meetings. A majority of the members of the Committee will constitute a quorum for the transaction of business by the Committee. Any action of the Committee may be taken upon the affirmative vote of a majority of the members at a meeting or, at the direction of its Chair, without a meeting by mail or telephone, provided that all of the Committee members are informed in writing of the matter to be voted upon. The Committee may establish procedures pursuant to which a Committee member may elect not to participate in a Committee proceeding in which such member has an interest. No Committee member will be entitled to act on or decide any matters relating solely to such Committee member as a Participant or any of his or her rights or benefits under the Plan.

(d) Expenses. All expenses incurred by the Committee in its administration of the Plan will be paid by the Company. The Committee members will not receive any special compensation for serving in such capacity but will be reimbursed for any reasonable expenses actually incurred in connection therewith. No bond or other security is required of the Committee or any member thereof in any jurisdiction.

(e) Liability; Indemnification. No Committee member will be personally liable by reason of any instrument executed by such Committee member, or action taken by the member in his or her

capacity as a Committee member, acting in good faith and exercising reasonable care, nor for any mistake of judgment made in good faith. Committee members may be entitled to indemnification for certain costs, expenses and liabilities to the fullest extent permitted by applicable law and regulations and the charter and bylaws of the Company, and subject to the terms and conditions set forth in such bylaws.

7.2

Procedures for Requesting Benefit Payments; Claims Procedures

To obtain Plan benefits, a Participant or Beneficiary must file a written application with the Company. Procedures for filing a claim in the event that Plan benefits are denied in whole or in part are as follows.

(a) Benefits Claims. A Participant or Beneficiary may file a claim with respect to amounts asserted to be due hereunder by filing a written claim with the Committee specifying the nature of such claim in detail. The Committee will notify the claimant within sixty (60) days as to whether the claim is allowed or denied, unless the claimant receives written notice from the Committee stating that special circumstances require an extension of time for a decision on the claim, in which case the period will be extended by an additional sixty (60) days. Notice of the Committee’s decision will be in writing, sent by mail to the claimant’s last known address and, if the claim is denied, such notice will state the reasons for the denial, refer to the Plan provisions on which the denial is based, describe any additional material or information necessary for the claimant to perfect the claim, and explain the Plan’s claim review procedure.

(b) Review Procedure. A claimant is entitled to request a review of any denial of his claim under paragraph (a) above. The request for review must be submitted to the Committee in writing within sixty (60) days of receipt of the notice of denial. Absent a request for review within this sixty (60) day period, the claim will be extinguished in its entirety. The claimant will be entitled to submit issues and comments in writing, as well as other written documents, to the Committee. The claimant will also be entitled to receive from the Committee, upon request, reasonable access to and copies of all documents, records and other information relating to his claim. The review will be conducted by the Committee, which will render a decision in writing within sixty (60) days of a request for a review, provided that, if the Committee determines that special circumstances require an extension of time, this period will be extended by an additional sixty (60) days. The review will take account of all comments, documents, records and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination under paragraph (a) above. The claimant will receive written notice of the Committee’s review decision, together with specific reasons for the decision and reference to the pertinent provisions of the Plan.

ARTICLE 8. AMENDMENT AND TERMINATION

8.1

Amendment of the Plan

The Company reserves the right to amend the Plan at any time and in any respect whatsoever by action of its Board or by such other means as may be prescribed by the Board. Plan amendments may not decrease or eliminate the Accrued Benefit of any Participant determined as of the time the amendment is adopted, unless the Participant consents in writing. The Company shall have full discretion to change the time or form of benefit payment, even with respect to Participants who have already terminated employment or commenced benefits, to the extent deemed necessary or desirable to comply with Code Section 409A or the regulations thereunder.

8.2

Termination of the Plan

While it is the intent of the Company to maintain the Plan indefinitely, it reserves the right to terminate the Plan in whole or part by action of the Board (or by such other means as may be prescribed by the Board) at any time, subject to the provisions of Section 8.1. Upon plan termination, Participants’ Accrued Benefits shall continue to be administered and paid in accordance with the applicable terms of the Plan, except that the Committee shall have the discretion to accelerate payment of benefits to any Participant (including those who have already terminated employment or commenced benefits) to the extent permitted under Code Section 409A and the regulations thereunder.

ARTICLE 9. MISCELLANEOUS PROVISIONS

9.1

Employment Rights

Nothing contained in this Plan or any modification of the Plan or act done in pursuance of this Plan will be construed as giving any Participant any legal or equitable right with respect to his or her employment against the Company (or any director, officer or employee thereof), unless specifically provided in this Plan or under applicable law, or as giving any person a right to be retained in the employ of the Company. All employees will remain subject to assignment, reassignment, promotion, transfer, layoff, reduction, suspension, and discharge to the same extent as if this Plan had never been established.

9.2

No Examination or Accounting

Neither this Plan nor any action taken under it will be construed as giving any person the right to an accounting or to examine the books or affairs of the Company, the Plan, or the Committee, except to the extent required by law.

9.3

Records Conclusive

The records of the Company and the Committee will be conclusive in respect to all matters involved in the administration of the Plan to the extent permitted by applicable law.

9.4

Severability

In the event any provision of this Plan will be held illegal or invalid for any reason, such illegality or invalidity will not affect the remaining parts of this Plan, and it will be construed and enforced as if such illegal or invalid provision had never been included.

9.5

Counterparts

This Plan may be executed in any number of counterparts, each of which will be deemed to be an original. All the counterparts will constitute one and the same instrument and may be sufficiently evidenced by any one counterpart.

9.6

Taxes

The Company will withhold, or cause to be withheld, from all benefits payable under the Plan all federal, state, local or other taxes required by applicable law to be withheld with respect to such payment. The Company shall make appropriate arrangements to withhold FICA taxes due with respect to vested Accrued Benefits in accordance applicable law, which may require withholding from salary, benefits, or other amounts within the Company’s control before benefits are payable hereunder. To the extent permitted by Code Section 409A and the regulations thereunder, payments under the Plan may be accelerated to pay employment taxes.

It is the intent of the Company that Accrued Benefits shall not be subject to federal or state income tax until distributed from the Plan. However, the Company does not guarantee or warrant that Plan benefits will be excludable from taxable income until distributed and the Participant (or Beneficiary) shall in all cases be liable for any taxes due on Accrued Benefits.

9.7

Binding Effect

The Plan will be binding upon and inure to the benefit of the Company and its successors and assigns and the Participants, their Beneficiaries and estates. The Plan will also be binding upon and inure to the benefit of any successor organization succeeding to substantially all of the assets and business of the Company, but nothing in the Plan will preclude the Company from merging or consolidating into or with, or transferring all or substantially all of its assets to, another organization which assumes the Plan and all obligations of the Company thereunder.

In any agreement or plan which the Company may enter into to effect any merger, consolidation, reorganization, or transfer of assets, the Company agrees that it will make appropriate provision for the preservation of the Participants’ benefits accrued under the Plan prior to such merger, consolidation, reorganization or transfer of assets. Upon such a merger, consolidation, reorganization, or transfer of assets and assumption of the Plan obligations of the Company, the term “Company” will refer to such other organization and the Plan will continue in full force and effect.

9.8

Assignment

No Participant or Beneficiary will have the right to assign, transfer, hypothecate, encumber or anticipate his or her benefits under the Plan, nor will the benefits under this Plan be subject to any legal process to levy upon or attach the benefits for payment of any claim against the Participant or his or her Beneficiary. In the event of any attempted assignment or transfer, the Company will have no further liability hereunder.

9.9

Incapacity

If the Committee is presented with credible evidence that any person to whom any amount is or was payable under the Plan is unable to care for his or her affairs because of illness or accident, or is a minor, or has died, then any payment, or any part thereof, due to such person or his or her estate (unless a prior claim therefor has been made by a duly appointed legal representative), may, if the Committee is so inclined, be paid to such person’s spouse, child, or other relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. In making such a finding the Committee may rely on the advice of experts chosen by the Committee in its sole discretion. Any payment consequent on such finding will be in complete discharge of the liability of the Plan and the Company therefor.

9.10

Unsecured Creditor

To the extent that any person acquires a right to receive payments from the Company under the Plan, such right will be no greater than the right of an unsecured general creditor of the Company.

9.11

Notice

Any election, application, claim, designation, request, notice, instruction or other communication required or permitted to be made by a Participant, Beneficiary, or other person to the Committee will be made in writing and in such form as is prescribed from time to time by the Committee and will be mailed by first-class mail, postage pre-paid or delivered to such location as will be specified by the Committee and will be deemed to have been given and delivered only upon receipt thereof at such location.

9.12

Benefits Not Salary

The benefits payable under the Plan will be independent of, and in addition to, any other benefits provided by the Company and will not be deemed salary or other remuneration by the Company for the purpose of computing benefits to which any Participant or Former Participant may be entitled under any other plan or arrangement of the Company.

9.13

Captions

The captions preceding the sections of the Plan have been inserted solely as a matter of convenience and will not in any manner define or limit the scope or intent of any provisions of the Plan.

9.14

Governing Law

The Plan is intended to constitute an unfunded Plan for a select group of employees and rights thereunder will be construed according to the laws of the State of Delaware, without giving effect to the choice of law principles thereof, and the laws of the United States, as applicable.

9.15

Addresses

Each Participant must file with the Company from time to time in writing his or her post office address and each change of post office address. The communication, statement or notice addressed to a Participant at the last post office address filed with the Company, or if no address is filed with the Company, then at the last post office address as shown on the records of the Company, will be binding on the Participant and his or her Beneficiaries for all purposes of the Plan. The Company will not be required to search for or locate a Participant or his or her Beneficiary.

IN WITNESS WHEREOF, Applera Corporation has caused this restatement to be executed by its duly authorized officers, this 28th day of August, 2006.

		APPLERA CORPORATION
		By:	/s/ Barbara J. Kerr

		Title:	/s/ V.P. Human Resources

APPENDIX A

INDIVIDUALS ELIGIBLE FOR PARTICIPATION

The Management Resources Committee of the Board approved the adoption of the Plan solely for the benefit of the group of individuals listed below. No other individuals will be eligible to participate in the Plan without written approval of Board.

No individual has a right to continue to participate in the Plan in the future without the approval of the Board. Each individual will continue to participate in the Plan at the discretion of the Board.

As of December 31, 2005, the following individuals are eligible to participate in the Plan:

Name	Date Appointed	Agreement (Date)
Catherine M. Burzik	09/02/2003 (DOH)
Barbara J. Kerr	09/05/2000 (DOH)
Kathy Ordoñez	12/01/2000 (DOH)
William B. Sawch	04/09/1993	Def. Comp. Agrmnt. (07/15/1993)
Dennis L. Winger	09/25/1997 (DOH)	Letter Agrmnt. (08/21/2003)

Exhibit 10.4

AMENDMENT

This amendment to the Employment Agreement dated September 12, 1995 (the “Agreement”), between The Perkin-Elmer Corporation (now named Applera Corporation) (the “Company”) and Tony L. White (“Executive”) is made this 28 ^th day of August, 2006.

WHEREAS, Company and Executive mutually desire to modify section 6 (d) of the Agreement.

NOW, THEREFORE, the parties agree as follows:

Section 6 (d) of the Agreement is amended to add the following:

Payment options under this Section 6 (d) of the Agreement shall include the following: a lump sum option which shall be a single payment representing the entire value of Executive’s accrued benefit; a deferred lump sum option which shall be a reduced monthly annuity payable as of the first day of each month for a specified period of thirty-six (36), sixty (60) or one hundred-twenty (120) months, to be followed by payment of an actuarial equivalent lump sum representing the present value of the remaining payments; and should Executive die before the end of the specified period, the beneficiary shall commence receiving the remaining monthly payments during the specified period to be followed by the lump sum payment which would have been paid to Executive. The death benefit payment options will include a lump sum payment or deferred lump sum payment that is actuarially equivalent to the present value of the surviving spouse death benefit. The determination of amounts payable under the lump sum or deferred lump sum or death benefit lump sum options shall be based on the actuarial equivalency definition for lump sums as specified in the Supplemental Executive Retirement Plan.

In all other respects the Agreement is unmodified and remains in full force and effect.

APPLERA CORPORATION		TONY L. WHITE
By:	/s/ Barbara J. Kerr	/s/ Tony L. White

	Barbara J. Kerr
	Vice President, Human Resources

		Acknowledged:
		/s/ William B. Sawch

		William B. Sawch
		Senior Vice President and General Counsel

Exhibit 10.5

Tony L. White
Chairman and President	301 Merritt 7
Chief Executive Officer	Norwalk, CT 06851

August 28, 2006

Mr. Dennis L. Winger

8 Thomas Place

Rowayton, CT 06853

Dear Dennis:

This letter supplements the amendment effective August 21, 2003, to your employment letter dated June 24, 1997, as amended. Payment options under the letter amendment dated August 21, 2003, shall include the following: a lump sum option which shall be a single payment representing the entire value of your accrued benefit; a deferred lump sum option which shall be a reduced monthly annuity payable as of the first day of each month for a specified period of thirty-six (36), sixty (60) or one hundred-twenty (120) months, to be followed by payment of an actuarial equivalent lump sum representing the present value of the remaining payments; and should you die before the end of the specified period, your beneficiary will commence receiving the remaining monthly payments during the specified period to be followed by the lump sum payment which would have been paid to you. The death benefit payment options will include a lump sum payment or deferred lump sum payment that is actuarially equivalent to the present value of the surviving spouse death benefit. The determination of amounts payable under the lump sum or deferred lump sum or death benefit lump sum options shall be based on the actuarial equivalency definition for lump sums as specified in the Supplemental Executive Retirement Plan. In all other respects the employment letter, as amended, remains unchanged.

			Sincerely,
			/s/ Tony L. White

			Tony L. White

EXHIBIT 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

I, Tony L. White, certify that:

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

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

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

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2006


			/s/ Tony L. White

			Chief Executive Officer

EXHIBIT 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

I, Dennis L. Winger, certify that:

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

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

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

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2006

			/s/ Dennis L. Winger

			Chief Financial Officer

EXHIBIT 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

In connection with the Quarterly Report of Applera Corporation (the “Company”) on Form 10-Q for the fiscal quarter ended September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tony L. White, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Tony L. White

Chief Executive Officer

Date: November 6, 2006

EXHIBIT 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

In connection with the Quarterly Report of Applera Corporation (the “Company”) on Form 10-Q for the fiscal quarter ended September 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dennis L. Winger, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Dennis L. Winger

Chief Financial Officer

Date: November 6, 2006