APPLIED BIOSYSTEMS REPORTS 2ND QTR FISCAL 2004 EPS OF 25 CENTS.

Applied Biosystems Group (NYSE:ABI), Foster City, Calif., an Applera Corporation business, has reported that earnings per share were $0.25 for the second quarter of fiscal 2004, compared to $0.14 in the prior year quarter. Included in these amounts were the following per share items: gains totaling $0.02 during the second quarter of fiscal 2004 from the sale of investments and a reduction in severance costs previously recorded during the second quarter of fiscal 2003; and charges totaling $0.11 for asset write-offs, severance costs, and office closures during the second quarter of fiscal 2003. All per share amounts refer to per share of Applera Corporation Applied Biosystems Group Common Stock.

Net income in the second quarter of fiscal 2004 was $52.4 million, compared to $29.2 million, including charges of $23.4 million for the items discussed above, in the prior year quarter. The effective tax rate for the second quarter of fiscal 2004 was 28 percent versus 26 percent in the prior year quarter. The net effect of foreign currency on net income during the second quarter of fiscal 2004 was a benefit of approximately $2 million, or $0.01 per share. Operating income in the second quarter of fiscal 2004 was $63.3 million, compared to $33.9 million, including charges of $33.8 million noted above, in the prior year quarter.

Net revenues for the Group for the second quarter of fiscal 2004 were a record $458.4 million, 3 percent above prior year quarter revenues of $444.7 million. The net effect of foreign currency increased net revenues in the second quarter of fiscal 2004 by approximately $12 million, or 3 percent. Fiscal 2003 second quarter revenues included $6.7 million for a genetic analysis technology license.

During the second quarter of fiscal 2004, revenues from instrument sales increased 4 percent to $235.1 million from prior year quarter revenues of $225.9 million. This increase was due to instrument sales growth in each of Applied Biosystems' three major product categories (DNA Sequencing, SDS and Other Applied Genomics, and Mass Spectrometry), which more than offset the decrease in instrument sales primarily in the Other Product Lines product category.

Revenues from sales of consumables in the second quarter of fiscal 2004 were $149.4 million, 4 percent above prior year quarter revenues of $144.0 million. This increase was due to growth in sales of SDS and Other Applied Genomics consumables, and, to a lesser degree, growth in sales of DNA Sequencing consumables, which more than offset the declines in consumables sales in the other three product categories. Revenues from other sources, including service and support, royalties, licenses, and contract research, declined one percent to $73.9 million from $74.8 million in the prior year quarter, primarily due to a decline in technology license fees, partially offset by an increase in service and support revenues.

Gross margin in the second quarter of fiscal 2004 was 51.5 percent, compared to 49.2 percent in the prior year quarter. Special charges reduced gross margin in the second quarter of fiscal 2003 by $9.5 million, or 2.2 percentage points.

Selling, general, and administrative expenditures in the second quarter of fiscal 2004 increased 11 percent to $112.6 million from $101.5 million in the prior year quarter. This increase resulted from a number of factors, including increased legal fees, increased insurance and pension costs, and increased spending on the development of and enhancements to the Applied Biosystems myScience(SM) virtual research community and e-commerce website (collectively known as the Applied Biosystems Portal). Research, development, and engineering expenditures in the second quarter of fiscal 2004 were $60.7 million, 3 percent above prior year quarter expenditures of $59.2 million. This increase primarily reflects increased support for new product introductions, partially offset by the completion of funding for the Applera Genomics Initiative and the associated reduction in personnel announced in December 2002.

Operating margin in the second quarter of fiscal 2004 was 13.8 percent, compared with 7.6 percent in the same period a year ago. Special charges reduced operating margin in the second quarter of fiscal 2003 by 7.6 percentage points.

"Despite an uncertain outlook for government funding of life science research, we continue to expect improved revenue and earnings performance in the second half of this fiscal year compared to the prior year period," said Tony L. White, CEO, Applera Corporation. "This expectation is based on a strong outlook for Sequence Detection Systems (SDS) and mass spectrometry products, as well as the contribution expected from new functional genomics products to be released in the coming months."

Commenting on fiscal 2004 second quarter performance, Michael W. Hunkapiller, Ph.D., president, Applied Biosystems said, "Revenue growth in the quarter was driven by strength in both the SDS and Other Applied Genomics and Mass Spectrometry product categories. Revenues in the SDS and Other Applied Genomics product category increased 22 percent, reflecting the widening use of these products for gene expression and genotyping in both basic biological research and drug discovery and development. During the second quarter, we received positive feedback from customers testing our new functional genomics products, including: the Applied Biosystems Expression Array System, the SNPlex(TM) System for ultra high throughput genotyping, and the VariantSEQr(TM) Resequencing System for discovery of genetic variations and their association with disease."

"In Mass Spectrometry, revenues increased 12 percent, driven primarily by the strength of proteomics systems sales, including sales of the QSTAR XL LC/MS/MS System and the 4700 Proteomics Discovery System with TOF/TOF(TM) Optics," Dr. Hunkapiller added. "During the quarter, the manufacturing capabilities of the Applied Biosystems/MDS Sciex Joint Venture for the 4000 Q TRAP(R) LC/MS/MS System remained constrained, and demand for the system increased. As a result, we finished the quarter with a substantial backlog of orders for the systems. At this point, we anticipate we will be able to fully meet demand for the system by the end of the current quarter."

"The U.S. Congress passed, and the President signed, the spending bill that included the National Institutes of Health (NIH) budget for the Government's 2004 fiscal year only last week. During the second quarter, NIH grantees received annual funding on a monthly basis and at the prior year level. While one of our large-scale genome center customers was able to secure alternative short-term funding, we believe this monthly release of funds at the prior year level negatively impacted our sales of capital equipment during the second quarter. In Europe, difficult economic conditions in certain countries, most notably Germany and France, continued to negatively impact government funding for life science research. We believe this constrained level of government funding negatively impacted our second quarter sales," Dr. Hunkapiller said.

For the first six months of fiscal 2004, the Group reported net revenues of $841.1 million compared to $840.6 million in the same period in the prior year. The net effect of foreign currency increased net revenues in fiscal 2004 by approximately $18 million, or 2 percent.

Revenues from instrument sales declined 2 percent to $407.3 million from $414.9 million reported for the prior year period. This decrease was primarily due to a decline in sales of the Applied Biosystems 3730xl DNA Analyzer to large-scale genome centers, which more than offset the growth in SDS and Other Applied Genomics instrument sales and Mass Spectrometry instrument sales. Revenues from sales of consumables were $289.1 million, 2 percent above the $282.4 million reported for the prior year period. The increase resulted from growth in sales of SDS and Other Applied Genomics consumables, which more than offset declines in consumables sales in each of the other product categories. Revenues from other sources, including service and support, royalties, licenses, and contract research, increased 1 percent to $144.7 million from $143.3 million in the prior year. This increase resulted primarily from higher service and support revenues, which were partially offset by lower technology licensing fees.

Earnings per share from continuing operations in the first six months of fiscal 2004 were $0.41 compared to $0.30 in the same period last year. Included in these amounts were the following per share items: gains totaling $0.03 during the first six months of fiscal 2004 from the sale of investments and the reduction in severance costs previously recorded during the second quarter of fiscal 2003; and charges totaling $0.11 for asset write-offs, severance costs, and office closures recorded during the first six months of fiscal 2003. For the first six months of fiscal 2004, net income per share was also $0.41, compared to $0.22 in the same period last year. Results for the first six months of fiscal 2003 included a net loss of $0.08 per share from discontinued operations. The net effect of foreign currency on fiscal 2004 six-month net income was a benefit of approximately $4 million, or $0.02 per share.