Douglas A. Berthiaume
Chairman and
Chief Executive Officer

• 2001 was clearly a successful year for Waters, but also a challenging one. It began with a first quarter that continued the strong broad-based growth we have seen for the last several years. During the second quarter, however, we saw some weakening of demand in mass spectrometry, just as Waters and others in our industry were launching significant new mass spectrometry products. Also at this time, large pharmaceutical customers were sending mixed signals concerning their capital investment expectations for the remainder of the year. These factors created uncertainty in this key product area during the middle part of the year. Fortunately, during the second half of the year, we saw these factors resolved and this well-positioned product line returned to strong double-digit orders growth.

• Subsequent to reporting our initial results for 2001 back in January, Waters was found by a United States District Court to infringe a patent owned by MDS, Inc. and exclusively licensed to Applera Corporation. We are disappointed with this finding and plan to appeal the judgment, however, we believe it prudent to accrue for potential costs of this litigation in our 2001 results and have taken a pre-tax charge of $75 million to cover potential liabilities should we be unsuccessful in our defense.

• Waters’ core high performance liquid chromatography (HPLC) product line sustained excellent performance throughout 2001. Our bench-top LC/MS system, the ZQ, continued to be the industry pacesetter in applications that range from high throughput screening of combinatorial drug libraries to automated purification of new drug candidates. Data products revenues, particularly from companies with large laboratory networks, were strong in 2001, returning to the traditional growth levels of the late ’90s after one disappointing year in 2000.

• A key feature of our HPLC business is its balance. We are strong in HPLC instrumentation and software, but importantly, we also have very significant revenues and profits from service, support and chemistry consumables. Service and chemistry combined represent almost 40 percent of HPLC revenues. These revenues are growing in concert with instrumentation and produce profits at a rate substantially higher than the corporate average. Our strength and breadth across product lines, and across important customer segments, keeps Waters the clear number one in the HPLC marketplace.

• In recent years, the fastest growth for Waters has come from our Micromass mass spectrometry business. Micromass’ constant product innovation and clear sense of evolving market needs have propelled our mass spectrometry business to the top of the industry. 2001 saw prolific activity with a family of new products derived from the core Q-TOF technology and an important broadening of the triple quadrupole product line with the introduction of the Quattro micro™. 2001 also saw a rash of competitive product introductions. So it is clear that we must continue to invest and innovate to remain atop this fast-growing market. We remain committed to the challenge and confident in our ability to do so.

• TA Instruments, which focuses on thermal analysis, is our smallest product line. It has been affected by cyclical weakness in the Industrial Chemical marketplace for polymer analysis, its most prevalent end market. We believe that this business can return to near double-digit growth rates when the polymer analysis marketplace normalizes. This business is well positioned with a substantially upgraded new product portfolio. It remains solidly profitable and can take advantage of any early indication of market growth.

• Financially, Waters continued to perform well in what was a difficult year for most companies in our industry. Revenues grew by 11 percent before currency effects; earnings per share, before our provision for patent infringement and a non-cash impairment charge, grew by 11 percent; and we delivered record all-in cash flow of over $150 million. We ended the year with cash, net of debt, of $226 million, a testament to our overall performance and a source of financial flexibility for the future. In recognition of the growing complexity of our business, in January 2002, we reorganized by integrating related HPLC functions and formally establishing the Waters Division under the leadership of Art Caputo. We also created the position of President and Chief Operating Officer appointing John Nelson to that office. Our three operating divisions, Waters, Micromass and TA Instruments, will report to John Nelson. John and Art each have over 20 years of Waters experience, have played important roles in Waters’ historical success and are exceptionally well qualified for their new positions.

• Waters success comes from a combination of outstanding customers at the forefront of scientific discovery and outstanding employees who work hard every day to advance our sciences: separation, mass spectrometry and thermal analysis in support of our customers’ ever-evolving needs. I thank them all for their continued support.