Good morning. Welcome to the Waters Corporation Third Quarter Financial Results Conference Call. All participants will be able to listen-only until the question-and-answer session of the conference. The conference is being recorded; if you have any objections you may disconnect at this time. I would now like to introduce your host, Mr. Douglas Berthiaume, Chairman, President and Chief Executive Officer of Waters Corporation. Sir, you may begin.

Thank you. And good morning and welcome to the Waters Corporation third quarter financial results conference call. With me on today's call as usual, is John Ornell, Waters' Chief Financial Officer. And as is our normal practice, I will start with an overview of the quarter's highlights and then John will follow with details on our financial results and provide you with an outlook for the fourth quarter and for the full year 2007. But before we get going, I'd like John to cover the cautionary language. John?

During the course of this conference call, we will make various forward-looking statements regarding future events or future financial performance of the Company. In particular, we will provide guidance regarding possible future income statement results of the Company; this time for Q4, 2007. We caution you that all such statements are only predictions and that actual events, results may differ materially. For a detailed discussion of some of the risks and contingencies that could cause our actual performance to differ significantly from our present expectations, see our 10-K Annual Report for the fiscal year ended December 31, 2006, in Part I under the caption Business Risk Factors. We further caution you that the Company does not obligate or commit itself by providing this guidance to update predictions. We do not plan to update predictions regarding possible future income statement results, except during our regularly scheduled quarterly earnings release conference calls and webcasts. The next earnings release call and webcast is currently planned for January 2008. During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure is attached in the Company's earnings release issued this morning. In our discussions of the results of operations, we may refer to pro forma results, which exclude the impact of restructuring, purchased intangible amortization and retirement plan transition charges.

Thank you, John. Well, the third quarter results largely indicate a continuation of positive trends that we saw through the first half 2007. And among these trends are improved spending for our global accounts, the expansion of our businesses in Asia and generally healthy industrial demand. In addition, our global business with government and university entities continued to do very well. In all, from a product line, customer segment and geographical point of view, there were no significant surprises with all these segments reporting solid results. So I turn first to our larger accounts. I would describe their spending as improved but not totally robust. Our overall pharmaceutical demand was strong in the quarter, driven again by generic CRO and specialty pharmaceutical customers. Among the large ethical houses we saw the majority improving considerably over last year's sales levels. However, uncertainties in a couple of large firms weighed down on the Group as a whole this quarter. As we come into the fourth quarter, we are more optimistic that year-end spending specifically on our two technology systems will result in a sales pick up for this large customer segment. Geographically, our largest market, the United States continued to perform well with strong double-digit growth. Contributing to the U.S. performance was accelerated demand from pharmaceutical and university customers. Outside the Unites States, the only really major market where we saw some softness in demand was in Japan. We think this weakness appeared related to a general economic condition and we are confident that our competitive position in Japan remains strong and that our sales there are likely to pick up as general spending conditions improve. If you look at our businesses in Asia outside of Japan; China and India are continuing to drive our growth with each of those territory showing…

Okay thank you, Doug and good morning every one. We are pleased to report another strong quarter of financial performance with third quarter results delivering 17% growth in sales and 24% growth in non-GAAP earnings per diluted share. Earnings per share was $0.62 this quarter compared to earnings of $0.50 last year. On a GAAP basis, our results this quarter include $12.2 million charge related to the U.S. transition from a defined benefit pension plan to a 401(k) plan as described in our 8-K filing last month. After tax, this charge amounts to $0.08 per fully diluted share. Our GAAP earnings were $0.52 this quarter compared to $0.49 last year. A reconciliation of our GAAP to non-GAAP earnings is included in the press release issued this morning. Sales grew 17% this quarter with currency providing 3 percentage points of growth and acquisitions providing about 2 points. Examining corporate sales regionally before foreign exchange effects, our sales results were positive in our major geographies, with continued strength in Asia where we saw a 12% increase this quarter versus a difficult base of comparison. Sales within Europe were also up 12%, and in the U.S. sales continued to be very strong and grew by 18%. Sales to most of our large pharmaceutical accounts continue to be a positive momentum and global sales to smaller pharma and biotech customers remain robust. Turning to the product front, the Waters Division had another strong quarter with instrument systems growth of 12%. Our service business grew by 7% and chemistry had 19% growth, which was aided by acquisitions. Without acquisitions, our chemistry business grew by 10%. And our TA instruments division had another strong quarter, with sales up 37% versus prior year resulting from strong new product sales as well as the favorable base of comparison.…

Thank you, John. I think operator, at this point we can open up for Q&A. Question And Answer

Thank you. At this time we are ready for the question-and-answer session. [Operator Instructions]. Our first question, Quintin Lai, Robert W. Baird; your line is open.

Good morning, congratulations on a nice quarter.

Thank you Quintin.

Thank you.

Diving into your large accounts and your outlook for the fourth quarter, what gives you that optimism for the sales pick up especially from, I guess, those two accounts that were a little sluggish. Was it a summer seasonal thing or are you running some kind of backlog number that you are kind of going into Q4 with?

Sure. Couple of reasons... there are couple of reasons why we are reasonably optimistic about what we are looking for in the fourth quarter. The magic of quarterly performance Quintin is that the third quarter of '06 for those couple of large accounts were disproportionately large in the base. So, in the fourth quarter you don't have such a big hurdle to come over with those accounts. And secondarily, if you look at the procurement pattern this year versus what they tell us is coming in the fourth quarter and specific programs that we are working with them on, we have a reasonably higher level of expectation that those quotes are going to result in real orders in the fourth quarter. Now, we're short of absolutely guaranteeing that but, we feel pretty good about our ability to make a forecast in that matter.

And then with respect to just the overall trends that you are seeing, it looks like that all your product lines are showing really good growth. Can you parse out what you think that the underlying market dynamics are and whether you are growing in line with that or do you have any dynamics of market share gains in special like in mass spec?

I think it's a very good question and I guess, the short answer is, we think we are gaining share and specifically in a couple of areas. It seems little doubt that the result of our ACQUITY UPLC strategy and technology introduction has gained overall market share, I mean its still to the point where we don't think that there is really good meaningful competition for that product and that's what our customers continue to tell us. And I think if you look at an another big segment of our marketplace, which is the mass spectrometry product lines, I don't think that there is any doubt in overall Synapt and our overall high-end mass spectrometry is gaining market share today and I think that the market is growing as fast as we are. If you look at areas like Asia, well, I think we are very much holding our own and doing very well. I think the overall markets in China and India are growing pretty fast, so wouldn't surprise me that others in the market are growing fast also. But you roll all that together, it seems to me that its high to add up everybody's numbers as you know in this market and absolutely on a quarter-by-quarter, get market share. But I don't have a lot of doubt that overall the net result of those dynamics is that we are a little further ahead than [Technical difficulty]

Great, thank you very much.

Ross Muken of Deutsche Bank; your line is open.

Thank you. So could you just talk a bit about the sustainability that you mentioned relative to some of the emerging markets and so talk about the mix there? Is it the same sort of customers that are ordering in China and India that were ordering 6 or 12 months ago? Have we seen sort of a broadening out of demand across industry segments, both being pharma and industrial?

Sure, I think if you look at the current areas of the world that are growing the most quickly and I shouldn't hasten to say that one of our fastest growing areas in the world right now is United States. So it's interesting that we see so much strength in the U.S. and I do think that that's sustainable in the U.S. over the next 12 months. But if you look at the very fast growing areas of China, India, Eastern Europe and particularly also the Middle East, places like Turkey, Saudi Arabia, Israel, as the dynamics that are going that is specifically of India and China, we don't see any real near term likelihood that this business stops growing at the rates that we are experiencing. As I said, we have... we spent a lot of time with the senior management group at Waters on India and China in particular recently. We see that it is possible that those areas might accelerate rather than decelerate. The amount of projects that are being laid out in front of us in terms of the need for instrumentation and if you look at India, you're talking particularly about the pharmaceutical industry, weighted towards generic drugs. And these are programs that are on the drawing board and are already under construction, so its not things its pie in the sky. If you look at China, it's a little bit different case. In China, our business is not heavily weighted towards generic drugs or pharmaceutical in total. It's a... it's a much different mix of environmental, food safety, governmental laboratories and pharmaceutical and once again, if you look at the projects just going on in the broadly described food safety and environmental areas in China, those projects look very hard to cancel or to slow down, so I'd say our near end optimism I think is very well grounded in these areas that are growing the fastest, not saying that you can't have a hiccup here or there, but I'd say that we're pretty confident that the underlying factors are pretty sustainable.

And just quickly as a follow up, I think your comment you made regarding the U.S. was pretty interesting. It's sort of the flip flop of what you would have expected given the weak dollar and every thing that we hear about sort of U.S. industrial demand and across many industries being a bit slower now than it was two quarters ago. Can you just give a little bit of granularity on sort of what's the key components of that, especially with the comments around sort of a mixed bag from pharma. Should we just assume then that it's European pharma that's weak or what is really sort of behind that extremely strong and impressive U.S. growth?

Yes I think again it's a good question. The... I believe that our U.S. performance to what's driving it is more Waters-centric than market centric, it's not a necessarily a broad-based dynamic. I think it's the investments in this whole evolution that I talked about of Waters as a system supplier with advanced technology that focuses on solutions. We, to some I'm sure that sounds like marketing slogan, it's real. We have spent an enormous amount of time, we always have but it seems like in the past year or so even more talking to the senior managers of our key customers and this... and I think ACQUITY UPLC had a lot to do with it where the ability of that technology to make a significant difference in a lot of the work flows of our customers has really been driven home. And we've talked about the fact that this is getting penetration, that it's changing the way customers think and feel and I think you are seeing that and you are seeing across big pharma in the U.S. and you're seeing it across CROs and smaller specialty pharmaceuticals. Also seeing penetration of this in our mass spec technology, particularly in the U.S. into the university marketplace, where a lot of advanced research is going on and they are looking for that improved sensitivity and improved efficiency of those technologies to drive their cutting edge research. So, I think that's what's going in the U.S. market and you would expect kind of that to the early adopter marketplace. It's not that we are not seeing that in areas of Europe, but I am secured saying we are seeing the front edge, the front part of that wave in the U.S.

Great. Thank you very much.

Derik deBruin of UBS; your line is open.

Thank you. Good morning.

Good morning, Derik.

Hey. When you talk about the 12% growth in the fourth quarter for the top line, is that all in or just the organic number?

That's all in. That would represent probably a couple of points of foreign exchange and may be about a point of acquisition impact.

Okay, great. When... you talked about some new products in 2008, any color you want to give us?

I was afraid I was going to get that question, Derik. I think what I am comfortable about saying is we are really feeling good about what's on our plate in the mass spectrometry area. You saw us introduce last year the TQD and this is the year one down of Synapt and you are seeing the rewards of that come through in our mass spec area. We clearly feel like we've got good strong momentum in that area, clearly takes advantage of the ACQUITY UPLC as the front part of that system and we are driving that through our R&D programs right now and I'd say that's what I am most comfortable about saying. Watch for ASMS and even at PITTCON next year to see some significant mass spectrometry come into the play.

Great, although I don't know if I am ready to start thinking about PITTCON yet. So when you... can you give us a little bit of color in terms of how big an impact are you seeing from some of the issues on food and consumer product safety? In particularly, I am curious is this been more companies that are buying stuff because they are worried about protecting the brand or is it... is it being government regulations driven right now?

I would say its an interesting mix of the applications that we are seeing across the world in food safety. A lot of our current business in Asia is I would say regulatory-driven and that's largely driven by European regs, as those producers in Asia have to meet the vigorous European requirements for food imports. We are also seeing a fair amount of food and beverage business that is probably not so much safety related as it is QC and competitive information related, so that's under that broad heading of food and agricultural and that's quite sustainable and unrelated to any safety concerns. I'd say the most current attention on the safety... on the food safety issues is increased visibility in the United States. I wouldn't say that we have seen the big bowls of actual investment in that area, I think that's probably the biggest area of opportunity in the next couple of years because that will focus probably on an increased regulation on requirements for imported food. But I wouldn't say that we're actually seeing that in our order rate, I would say most of our business is coming out of the QA/QC, a part of the food and beverage business, as well as established laboratories there are just meeting increased demands largely in the Asia theater.

Okay. And I guess one final question, as you start to accumulate cash, it doesn't sound like you are going to be particular aggressive in your buyback strategies. I guess you pay down debt or is there the potential for a larger M&A move on the horizon?

I would say... we never say there is not a potential for a larger M&A, we... but our fundamental strategy is to continue to add to our portfolio with things that are digestible and that add to our overall strategic product portfolio. We are not looking for a major defining acquisition frankly, we think this business can continue to grow at good double-digit rates and produce share holder returns that are amongst the best in industry. We continue to think that our stock is a good buy, we are continuing to buy. We will evaluate that as the stock approaches triple-digits, but I would say right now we are... we think what we've been doing continues to have a high degree of attractiveness for us.

Right. Thank you.

Jon Groberg of Merrill Lynch; your line is open.

Good morning. Congratulations on a great quarter.

Thank you, Jon.

Just a few fairly quick questions. I mean, last quarter you mentioned that UPLC demand would approach that of HPLC, I think was your word. I just wonder where we were with that and maybe get some context what percent of LCs sold this quarter with UPLC versus HPLC.

Well Jon, we are not currently providing that kind of competitive information, but what I'm comfortable... I think the line that I've used in the past is that UPLC was growing north of 25% and less than a 100%. I'll be wiling to say now narrowing that range a bit growing more than 30%, less than a 100%. It's continuing to do very, very well. It's not showing any signs of coming of, it's very fast growth trajectory. And interestingly enough, HPLC while not growing anywhere near that rate, continues to grow. So, there is no question that if we're right, those curves are going to cross at some point in the next couple of years but...

But we're not there yet.

Not there yet.

Okay

And that's just despite very fast growth in UPLC.

And just a follow-up on that. As it grows as quickly, you've mentioned before a very high attach rates primarily because these are being used in R&D. And are they still mainly going into R&D and sort of the attach rate for the new columns still kind of 90%ish or is that coming off some, as they move into different applications?

No, the consumables rate on the new systems is very high with per system. You are seeing that in the ACUITY column growth that is very close to 100% annually. So we are very happy about how the customers are responding to the consumables with the UPLC technology.

Okay. And then...

Does that answer your question?

Yes, yes. And then on the financials, a quick question. Gross margins came in line with what we were expecting, you obviously got very good leverage out of SG&A into growth and R&D. I am just wondering about the sustainability of the SG&A and R&D kind of levels or trajectories relative to the revenue growth that you are seeing. I mean is this the type of leverage that you expect kind of as we go out into '08 or do you see a need to may be as you're looking back over the years and the level that you are reaching always in the third quarter of SG&A as a percentage of sales are getting low? And just maybe you can mention qualitatively if you think you are going to need to invest more in SG&A and R&D as we look out into '08?

Yes I think, if we look at our traditional model, we generally look at ourselves as being about a 10% top line company, top line growth company. Certainly, we are beyond that this year and we have invested in SG&A at a higher rate than we would historically to support that growth. But as we look to next year, we would... at this stage, we are expecting double-digit top line growth again. And I would submit that early on we should still be able to create a couple of points gap between the growth in SG&A and growth in sales for the next year, right in the middle of the budget process, but I would feel comfortable saying that that type of a GAAP ought to be created as we look at the needs for investment in SG&A going forward. I think on the R&D front however, you are looking at a year this year, even our investing in headcount that isn't obvious as you look at the financial results and R&D is growing somewhat anemically this year, but its really due to a phase of comparison where last year there were significant investments made like in three large mass spec problems that were going through the pipeline. So I would say that you are looking at a kind of a point off the line this year and rather small growth in R&D and our expectation going forward would be to grow R&D about equal to sales as we look at some of the projects that were on tap for 2008.

Okay, great. And, then last two quick questions. One, just if you can give any update, I know the Flextronics Solectron merger was completed in the beginning of October and that was one thing you were kind of waiting just to see how that shook out before you made your plans grow more to Singapore. I was wondering if you could comment on that. And then the second quick one on buy backs, Derik alluded to, any particular reason given the cash that you generated, I think you bought back around 70 million last quarter and about 20 million or so this quarter, just any reason for that decline?

There's no reason, no principle reason for the decline. It doesn't signal any fundamental change in our buy back.

And, I think on that front we have talked about may be a couple hundred million dollars this year of buyback and reserving may be a 100 millionish for M&A. We front end loaded that given where the stock price was let's say, for a full year basis we're principally on target for December for what we said we are going to do.

Okay.

And, on the Flextronics front, we've had further discussions in terms of our strategic positioning in Asia. I'd say right now we are reasonably secure in planning to pursue and proceed with that overall plan and think that over the next couple of years, you'll see us build up our Asia position, much the way we had intended to do with Solectron.

Okay, thanks guys.

Welcome.

Tycho Peterson of JP Morgan; your line is open.

Good morning.

Good morning Michael.

Good morning

Wondering if you can comment at a little bit may be on pricing trends here, it sounds like a lot of commentary generally has been about growth overseas and then may be in areas such as generics and then obviously in the applied markets like food testing and... how do we think about the pricing dynamics there? You've a very good job refreshing the portfolio, at that kind of high end. But how do we think about what the pricing dynamics are like as your customer base evolves?

I think there has always been a level of price competition in our industry particularly if you look at our chromatography marketplace. There have always been players who choose to compete based on a cheaper system, and some of these surprisingly larger competitors sometimes adopt that strategy. We have never really utilized a low price strategy even to gain share, I think we've been remarkably consistent really certainly for the last 20 years if... in following a differentiation approach to our marketplace. And if you look at our gross margins, and you look at our financial performance, you can see that there is very little in the way of price erosion and I think that's still true and it's a strategy, it's a result of our strategy as opposed to anything else. And I don't see a dynamic evolving that's really challenging that. Our UPLC products, our HPLC products are holding very firmly in the marketplace, yes, this forever some moaning from our field about customers that are giving away their products etcetera, but no level of noise that's any different from what we hear in an average quarter. If you look at the emerging areas of the world, the prices have held consistently and yes, there is competition there, but we hone to our fundamental strategy of bringing a system solution to the customer and it's a remarkably effective strategy regardless of where we go, whether its India, China or New Jersey, its been very effective and in well conditioned, so I don't see its changing.

Okay. And I think in your comments, you do mentioned, you are talking a lot more to senior managers and moving up the value chain within your respective customers. Is this naturally driving a lot more bundling and then second follow up to that is, is there an increased need then to expand the service offering and kind of propound on your broader portfolio?

I don't think so. I mean I think it's... certainly ACUITY UPLC has a lot to do with it. And not say this also, if you at these large accounts, there is a growing appreciation that they need to do things differently and they are under enormous pressure from generics and from regulators. They need to do better in terms of the data needs and tying together all there operations, they need to drive productivity and efficiency. And it's a remarkable thing about it or may be not so remarkable is that in that environment, why a cheaper instrument has remarkably little selling power to them. They are looking for ways of how they can substantially change the way they are doing R&D and when you talk to them about what ACQUITY UPLC or Synapt can do for them, that resonates as opposed to, I'll sell your five cheaper UPLCs. So it's absolutely clear that the level of customer who is taking that into account was looking at changing how they are doing things fundamental in their operations, whether its clinical... clinical trials, the front end of R&D or QA, QC. That degree of discussion on those accounts is noticeably higher today than it was say 5 or 6 years ago and I think that's what's driving things and the recognition that... UPLC, HPLC and mass spectrometry is at the heart of what these companies do. And I'm not talking about GC or spectrophotometers, it's just they have to focus with the heart of their R&D and development activities are and are frankly I think, we offer the breadth in those technologies with consumables, with the instruments, with the data, with the information services that it's hard for others to compete with us. So, it doesn't surprise me that they are turning to us for this and I think you are seeing it in the kind of business that we are driving through these accounts.

Okay. And on ACQUITY, I think it's been about a year and half since you opened it up to competitive systems in terms of integrating it. What's been kind of the net effect looking back there, I mean, have people been putting in ACQUITY on a thermal and ABI system or ...

Yes, unquestionably, our penetration as a UPLC in the mass spectrometry systems is unqualifiedly successful in that area. So, its not just a grudging position, I would say its almost a universal position that ACQUITY UPLC has, if not the leading position what I would quite easily forecast to be the leading position at the front end of competitive mass specs in the not too distant future.

Okay. And then finally just on Synapt, can you give us a sense of where we are in the adoption cycle right now, both maybe in terms of customer base, are we rapidly moving beyond the earlier adopters here and then are there new application areas that are merging that weren't obvious 6 months ago?

I would say the... it's still early in the curve, but the growth rate is very high. I would say the current purchases in these systems are still heavily weighted into the protein structure marketplace. We are seeing a great deal of interest in metabolite ID and other areas, but early on let's say its the high end academic research centers that are very interested in the technology, but I'd say the amount of enthusiasm and quote level that we have out on Synapt are and across these applications is very, very high.

Okay, great. Thank you very much.

John Sullivan of Leerink Swann; your line is open. John L. Sullivan - Leerink Swann & Company: Hey guys, good morning. Just a couple of very quick ones... and congratulations. The... can we just talk about the pharma; the global pharma customer group for one more second? You've had very good success for a few quarters in a row now with this customer group, with success in driving business. Does it change the way you think about the fourth quarter potential for these customers and specifically, these customers' traditional buying pattern where a lot of the business comes through in the fourth quarter? How does the first three quarters' strength change the way if at all, that you look at the fourth quarter potential of these customers?

Well, I'd say, discreetly we think that our opportunity in the fourth quarter is good with large pharma. As I said, that's two things; it's the level of understanding and quote activity and looking at the specific programs that we have going on with the 15 or 20 largest accounts. It's the fact that the only... I mean it's the really largest pharmaceutical account that are the most troubling right now, and we understand that particular account pretty well and we think we understand what's likely to come in the near-term and that's better than what we've seen in the past quarter. In effect that... just the magic of how quarterly business fell last year, the challenge in the fourth quarter for those large accounts is not nearly as high as it was in the quarter that we just passed. So, that's not necessarily a statement about the next two or three years, but in the near-term it doesn't cause us a great deal of concern. John L. Sullivan - Leerink Swann & Company: Great, I appreciate that. And then lastly, you talk about Synapt and a particular application you outlined was high sensitivity impurity profiling. Is that in the manufacturing processing, is it in biopharmaceuticals or in pills as well and is it actually occurring in the manufacturing process or is it occurring in drug development?

Its principally today in existing biopharmaceutical manufacture, John. I'd say is where the great deal of interest is amongst the people who are trying to characterize their biopharmaceuticals and as you know that analytical challenge is pretty significant and I think we now see the Synapt as a tool that better than anything else is in the ability, both the ability to characterize things that they couldn't see before as well as having to do with it to avoid risk. And so that's what we're talking about in terms of impurity identification, and that's essentially with people who are in the market today. John L. Sullivan - Leerink Swann & Company: That's very helpful. Thanks and congrats again.

Thank you.

[Operator Instructions]. Quintin Lai of Robert W. Baird; your line is open. Mr. Quintin Lai, your line is open.

Hi thanks for taking the follow up. With respect to tax rate, you said that there was a true up to get it to 16.2%, but then in the fourth quarter now you're saying 15.9%. So I guess why isn't fourth quarter just a 16.2 and then that kind of going forward John, do you think that 16% is kind of a good rate?

.:

What an excellent question because that's the question that the CEO has asked 3 times in the wrap up of this quarter.

Welcome to the world of FIN 48, unfortunately. When you... within the quarter we had a couple of adjustments associated with estimates of liabilities for the U.S. return in the mass tax return from '06, the combination of which resulted in the fact that we had to true up those estimates all within the third quarter, nothing gets smoothed across the entire year's rate. So those couple of amounts, when you include them in kind of the run rate pro forma of tax rate comes to 16.2% for the full year, but on a run rate basis, when you exclude those couple of items, you're back down to 15.9%, which would be kind of a starting point for looking at what the tax rate might be going forward. So again it's taking that full impact all within the third quarter and not smoothing it across the full year rates.

Quintin, the way I think is easiest way to understand it is it's almost $1 million of tax provision in the third quarter, its kind of a one-time item that unfortunately the tax laws require. The accountants require you to put that through your provision all in the third quarter and then it goes away in the fourth quarter. So, confusing, but that's the way require to do it.

Well, thank you very much for the clarity. I much appreciate it.

You're welcome.

There are no further questions.

Okay. Well, thank you all for participating and we'll all look forward to meeting again after the fourth quarter. Thanks again.

Thank you. That concludes today's call. All lines may disconnect. Once again that concludes today's call, all lines may disconnect.