LETTER    to  shareholders
1998 was another extremely successful year for Waters. First and foremost, it marked the consolidation of Micromass Limited, acquired in late 1997, and its full range of mass spectrometry technologies with Waters. We had anticipated favorable synergies from the combination, but the ultimate impact far exceeded original expectations. Over 200 LC-MS systems, incorporating the Waters Alliance LC System and Micromassmass spectrometers, were sold by the traditional Waters sales force, significantly exceeding budget. At the same time the Micromass organization, now focused on their remaining portfolio of high value research systems, also exceeded sales budgets for every major product line.

Micromass’ revolutionary Q-Tofsystem continued to be the instrument of choice in fast growing proteomic laboratories while sales of the QuattroLC triple quadrupole instrument grew by over 20%, principally in pharmaceutical drug metabolism applications. As the year progressed, bench-top time-of-flight instruments also showed very strong growth, particularly in life science applications.Douglas Bertiaume

Our core HPLC and thermal analysis business also performed exceptionally well in 1998, growing at double-digit rates.

This combined strength in our business operations was reflected in the Company’s financial performance. Sales grew to $619 million, up 33% from 1997. Earnings per share, excluding nonrecurring items, grew by 43% to $2.78 per share. Operations generated over $110 million of cash in 1998, and debt was reduced by $90 million. At current rates of cash generation and if there were no alternative uses of cash, the Company could be net debt-free in little more than two years.

With this strong business performance, we have sustained a high and productive level of investment in the development of strategic products and technologies aimed at assuring our future growth. In 1999, we will introduce several new systems that, in the premarketing stage, already have stimulated significant customer interest. The first, our Alliance HT System, extends the Alliance brand into high throughput sample processing applications, principally in drug discovery and early-stage drug development. Engineered for LC-MS at very high throughput rates, this new automated system is designed to reduce the sample-to-sample cycle time during the analysis and purification of newly synthesized compounds. Our new CapLC System will open up avenues of research to scientists working with very small biological samples by dramatically improving sensitivity and maximizing the information derived from each sample.In addition, Micromass will also introduce several new technologies in 1999 including a very promising inlet design for the LCT time-of-flight instrument. Called MUX™ technology, this design promises to deliver a four-fold productivity improvement in high throughput laboratories. A new Quattro Ultima triple quadrupole will bring industry leading performance to important drug metabolism applications.

We also anticipate the launch of a major new line of chromatography columns during 1999. These will be based on a proprietary platform technology for creating particles based on silica-polymer hybridization, yielding new levels of chromatographic performance.

A constant flow of new products which answers the critical analytical needs of our customers and improves the productivity of their operations is the key to continuing our successful performance. Clearly, 1999 promises to be a year of exceptional new product introductions.

Although I find our 1999 new product line-up exciting, we have already seen in the first days of January particularly strong interest from scientists for our existing product platforms. In January 1999, we received the single largest order in our history. The Japan National Police Agency placed an order for over $8 million of Alliance LC-MS Systems for their country-wide forensic laboratories.

Nihon Waters is to be congratulated for winning this large order against strong local and international competition and for setting the stage to achieve substantial growth in the difficult Japanese economy. Sales growth in Japan in 1999 can only add to the momentum we continue to see in other areas of the world. Finally, I would like to express my thanks to our customers and employees who together, once again, have helped Waters to produce record results and industry leading performance.




Douglas A. Berthiaume
Chairman, President, and Chief Executive Officer