Good morning. Welcome to the Waters Corporation's Third Quarter Financial Results Conference Call. All participants will be able to listen-only until the question-and-answer session of the conference. This conference is being recorded. If anyone has any objections, please disconnect at this time. I would like to introduce your host for today's call, Mr. Douglas Berthiaume, Chairman, President and Chief Executive Officer of Waters Corporation. Sir, you may begin.

Thank you. Good morning and welcome to this Waters Corporation's third quarter financial results conference call. With me on today's call as usual is John Ornell, the company's Chief Financial Officer and Gene Cassis, the Vice President of Investor Relations. And as is our normal practice, I'll start with an overview of the quarter's highlights, and then John will follow with details on our financial results and provide you with our outlook for the full year. But before we get going, I would 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 at this time for Q4 2008. We caution you that all such statements are only predictions and that actual events or 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, 2007 in Part-1 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 2009. 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 to our company's earnings release issued this morning. In our discussion of the results of operations we may refer to pro forma results which exclude the impact of items, such as those outlined in our schedule entitled, reconciliation of net income per diluted share included in this morning's press release

Thank you, John. Well, the fundamental trends that we saw in the first half of 2008 pretty much continued through the third quarter. These trends included flattish spending by pharma customers, strong growth from acquired markets and continued strong demand from customers in developing countries. In the third quarter we continued to leverage a solid sales performance to generate truly superior earnings growth and free cash flow. Recurring revenues, including our chromatography consumables and instruments services businesses, performed well in the quarter. The large existing base of HPLC and UPLC instrument users depend on us to provide high quality chromatography columns and sample prep [ph] cartridges to perform in many cases regulated testing. In addition, our large installed base of instruments systems requires highly trained service engineers for regular maintenance, upgrades and systems repair. For the last few quarters our recurring revenues have consistently accounted for nearly half of our total sales and have typically seen year-over-year growth rates in the neighborhood of 10%. This growth rate has been significantly independent of instrument systems sales growth in any quarter. So I'll spend a little more time than usual speaking about our chemistry and services business because they represent a real advantage to our business model. At Waters we've endured economic cycles over our decades of operations and through these prior ups and downs I'm pleased to tell you that our chemistry and service growth has been well insulated. In short, I'm confident that looking into 2009 and beyond, our recurring sales will most likely provide an attractive foundation of topline growth for the corporation and importantly a foundation that generates high operating margins and particularly strong cash flow. We turn to our Instrument Systems businesses and looking first at the Waters division, newer technology products including ACQUITY UPLC and Synapt…

Thank you, Doug and good morning. Third quarter results delivered 10% sales growth and 27% growth in non-GAAP earnings per diluted share. Earnings was $0.79 this quarter compared to earnings of $0.62 last year. On a GAAP basis, our earnings was $0.71 this quarter, compared to $0.52 last year. A reconciliation of our GAAP to non-GAAP earnings is included in our press release issued this morning. Before I discuss Q3 results in detail, I would like to describe a legal entity review process that culminated in early October just after the close of the third quarter. To better align our legal entity structure with our current business objectives, we reorganized certain of our foreign operations resulting in the transfer of ownership of certain foreign assets into our U.S. business. The majority of this reorganization meets the requirements of tax free liquidation under U.S. tax law and allows us to bring $572 million of offshore cash into the U.S. for domestic use. There is small portion of the transaction that could be subjected to U.S. tax and we've fully provided for that exposure in our third quarter as part of $5.1 million tax provision. Subsequently, we have utilized about $490 million of domestic cash to prepay $150 million term loan facility and to pay down $340 million debt outstanding under our revolving credit facility. These actions substantially reduced our exposure to interest rate risk in the currently volatile capital and money markets. We currently have full borrowing availability under our committed $600 million revolving credit bank agreements and sufficient cash on hand to fund our capital needs for the foreseeable future. Also included in our income statements this quarter was a small restructuring charge resulting from minor regional realignments of manufacturing resources. Turning now to our operational performance for the third…

Okay, thank you John. I think we can open it up for Q&A now, operator. Question And Answer

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Quintin Lai of Robert Baird. Quintin Lai - Robert W. Baird & Co., Inc.: Hi, good morning.

Good morning.

Good morning. Quintin Lai - Robert W. Baird & Co., Inc.: Good morning. Thank you again for all the commentary on the fourth quarter and kind of the longer term outlook. What gives you that confidence on the specialty [ph] markets and the regulatory areas? Do you think that the regulations as they stand now... such as like in the case I noticed last week you launched some products in melamine... for testing foods for melamine. Do you see that the macro-economic environment really doesn't change that and if anything, the need to test food and water and all continue to be greater than ever?

Yes, Quintin I think in those emerging applications there, I think food safety and food analyses in particular. I don't think the economic climate has much of an impact on that. We have seen of course, Melamine is a very current example where we have seen substantial order activity both in the third quarter and continuing into the fourth quarter. And both in places directly affected by China, as well receiving regions like particularly the EU. It turns out that these new products find their way into many, many as intermediates into many, many manufactured food products. So there's a great deal of interest in extensive testing in that application. So we don't see that tailing off early. The other economic areas or the areas, I mean one of it the good news/bad news thing about our business is that the pharma customer base has been under pressure. The pharma base doesn't react to the financial crisis around us to any large extent because these accounts have very strong free cash flows and they're really worried about the same things they've been worried about for a number of years, which is the patent situation and replacing their product flow. So I think we've been dealing with their struggle there for a long time and we'll continue to. We see that in our run rate and we're not really saying. And we're not seeing their plans or our approach there to be much different then its been for a while now. Quintin Lai - Robert W. Baird & Co., Inc.: And then in the basic R&D area, one of things that we've thought of just in general is that most of those scientist, they are charged with pushing the edge of research and the leading edge of technology. So I'm encouraged to see that Synapt and UPLC continue to be adopted, specially in that area. Is that how you can continue to show growth in that area in a tough environment by simply just continuing the new product development and if you stay on that leading edge, you feel like that you can still continue the growth?

Well we definitely feel like we have to continue to push the new products, both in terms of it's sensitive, reliability and importantly its productivity. One of the areas that we've made inroads into but we think still has plenty of opportunities for us is in a product line like UPLC. The productivity potential for a number of customers is extraordinary. Because of course you can run analyses so much faster under UPLC than under traditional HPLC. And so rather than buying an instrument at 10% less, the customer can buy an instrument that cost him a little bit more actually but may improve his productivity by a factor of two or three. And we're really beginning to see that have an impact in a number of our high volumes applications, both in research and in QC. So I think it is absolutely a lot of evidence that customers are perfectly willing to invest in something that gives him a strong pay back. And I think that's what you are seeing in our results. Quintin Lai - Robert W. Baird & Co., Inc.: Last question and I will jump back into the queue. The R&D, John, you said there was a timing issue so then should we expect kind of a jump back up in Q4?

Yes, I'd say if you look at R&D, it's about a mid-single digit growth rate as you look at it more on a year-to-date basis and we would guess that it would be above that for the full year as well. So there was a little bit of lumpiness with prototypes, sale for unit [ph] that need to get built and expensed if you look through current year and prior year basis. So it's more... just an aberration of the quarter than it is I expect that we are really doing anything to cut that expense scenario. Quintin Lai - Robert W. Baird & Co., Inc.: Okay, thank you.

You're welcome.

You are welcome.

Our next question comes from Doug Schenkel from Cowen & Company. Your line is open, sir. Doug Schenkel - Cowen & Company: Thank you. Good morning guys. Thanks for taking my questions.

Good morning. Doug Schenkel - Cowen & Company: You've typically placed a lot of instruments at the end of quarters. And I think this is a little bit more pronounced in Q1 and Q4 than it is in Q2 and Q3. But with that as the premise of my question, did the timing of the deterioration in the broader markets lead to any delay in instrument bookings in the second half of September?

I'd say... first of all, the third quarter actually does... has a little bit more pronounced end of the quarter tilt to it, because you got the classic July and August vacations that tend to slowdown business activity early in the third quarter and then it builds up in September. That's of course pronounced in Europe when August is a very, very popular vacation month in Europe. So you do see a lot of activity tilted towards September in Europe. As we said, we did well in Europe. So the economic indicators coming into Europe were pretty good. We saw very good activity in the non-profit areas in Europe, government university accounts. But I don't that there's anything to be particularly read into that. I think to be fair we could have had even a little bit better quarter. I'd say that most of that's tilted towards the U.S. where we're working a lot of interesting opportunities, business that we don't think we lost but we think that the financial chaos going on did kind of at least make some customers wait a little bit. So while we hit our numbers and may be did a little bit better, I think the actual demand side of the equation, if you didn't have the overlay of the financial markets, might have been a little bit better. Doug Schenkel - Cowen & Company: Okay that's helpful and then I guess another dynamic is the launch of the well [ph] in the quarter. To dam it all, I am trying to take the best way to describe this but I would think that may surely slow the placement of legacy instruments and you may not be placing as many instruments as customers evaluate a new launch. Is there something that played out in the quarter and if so, how do we think about that heading into Q4?

Doug, I think that's a fairly insightful question actually. First of all, overall our mass spec product line did very well in the quarter. But the product lines that involve [ph]... if you just look at the actual placements, we are somewhat weaker than the other piece was the triple quad product line. And we do think that's related to this legacy products kind of coming out of our portfolio with new products coming in. Many customers have to revalidate on the technology. They want samples rerun. So we definitely think that there is some piece of that as we change over the product line. Doug Schenkel - Cowen & Company: You think you are turning the corner on that dynamic heading in Q4 or are you still for may be in less in the quartile percentage [ph]?

I think we're well into it. As I said our demonstration labs have been running overtime for last three months. So we are pretty sure that we are making a dent in it Doug Schenkel - Cowen & Company: Okay, changing gears and just I'll just ask one or two more and I'll get back in the queue, but something that were hearing more and more about is really the current status of the NIH budgets, essentially frozen with last year based on, recent congressional actions, I guess inaction, depending on how you look at it. How much exposure as a percentage of sales do you believe you have to NIH funding and have you any signs that the current in limbo status of the NIH budget is affecting or will affect either instrumental recurring revenues stream?

Historically the NIH budget hasn't has had much of the direct affect on us. I mean something less than 1% of our sales directly related to the NIH budget. Now of course the NIH has a multiplier effect and some business that you can't attract directly to NIH, but unlike some of our competitors who deal very significantly with directly with NIH labs our business doesn't tend to be significant in that area. So when you seeing IH budgets go up by 7% or 8% or when they are flat to a little bit down it doesn't have a much of a discernible affect on our overall sales. Doug Schenkel - Cowen & Company: Okay. And last question, last I checked, Japan accounted for about 10% of sales. You said Japan was improving in the quarter. Keeping in mind last year that in Q4, I believe Japan's sales were down double digits in that year, as a whole now when we guiding for, I should say guidance of 6% constant currency growth heading into Q4. I guess I'm just trying to get at, is there a specific geography? I guess products presumably within in the U.S where you're expecting some challenges in the Q4 year-over-year?

Yes, I'd say that the U.S was our challenge in the third quarter, and I would say with all of our geographies we're still keeping our eye most closely on the U.S. We think Japan, both for underlying economic reasons as well as for having anniversaried some very tough quarters that we're pretty confident that we will continue to see growth in Japan. Doug Schenkel - Cowen & Company: Okay. Thanks a lot for taking my questions.

You're welcome.

Our next question comes from Tycho Peterson from JP Morgan. Your line is open.

Hi, thanks for taking the call. Hi John, in your comments you mentioned cost reduction a few times. Can you just give us a sense as to given the economic backdrop here, whether you guys have kind of accelerated some of your initiatives to cut cost out of manufacturing, obviously beyond the move to Singapore, just on the raw material side?

Yes, fortunately at least for us, in the short term here we haven't had dramatic price... cost inflation amongst some of the manufacturing side of our house at least at this stage. In spite of that though, we recently moved a couple of more HPLC detectors to Singapore. We took a small action to rebalance the work force recently on that front as well. And we continue to cost reduce specifically the ACQUITY product, those plans are in place and on track for the year. And obviously we've been holding back on replacing headcount and putting some temporary resources in place where we can, wherever we need to at least in the short term have the labor available. So I'd say, we've have done a number of different things, both on the manufacturing front and on the support and SG&A side to continue to cost reduce this business and if you look at the your organic growth in SG&A, R&D and even on the manufacturing side, it's been less than the growth in organic sales this year.

Okay and then as we think about the market opportunity for Xevo, I mean obviously sounds like you've had good interest initially from some of the food safety customers. How ultimately [ph] you think that product line is going to be positioned between pharma and then Biotech and then some of the applied markets. And then if you can also comment on how we should be thinking about positioning for the TRIZAIC which I guess you'll introduce only next year too that will be helpful?

Yes, Tycho I think we're going to position Xevo as a work horse, triple quad instrument across a broad range of applications. And I think the initial reaction is very good. Now as you know traditionally we haven't had a large share in pharmaco-kinetic drug metabolism labs and you know may be that's a good thing now because those labs tend to have been slow during pharma's tough times. So we seen initial interest even in those regulated bio analytical labs. So we're hopeful with this new generation. We have something to show those accounts and early signs, albeit very early are encouraging there. So I think clearly we are seeing continued strong interest is in all of the applied areas and I think we will continue to see those kinds of... that kind of interest grow.

Can you comment just briefly on the clinical market as well. I mean maybe on neonatal screening business but also we are hearing lot about Vitamin D and some of these opportunities emerging?

I think Vitamin D testing is a very interesting area. Our systems are currently being used in Vitamin D. Our clinical applications have grown over the last four years, lets say on what's sort of 15% a year. And continue to be good performers this year. I think neonatal has actually been more of flattish area this year. But certainly, one particular application that continues to be strong is therapeutic drug monitoring, particularly for any rejections drugs. Where I think mass spec techniques are now really the analytical method of choice in that application.

Okay, and just a one last on customer base, I mean I appreciate the color you gave on pharma. Can you just commend on the CRO base today and what your level of visibility there is. I mean we are still seeing the capacity expansions happening. But just wondering how comfortable you are with your visibility in the CRO business going forward?

I think world wide CRO business continues to be robust. I think you can have quarterly up or down depending on how strong your base was. But certainly what we see is large pharma continuing to look to outsource more and more of their business and that's directly adding to the large CROs having a good business opportunity in front of them. I think we are also seeing while there is somewhat less traditional CRO customers, including generic accounts, make more use of some of the CROs. So I mean [ph] also look at those guys stock prices, they have been under pressure this year. And so I wouldn't be surprised to see a little bit of breathing room creep in a little bit. But I don't think over the medium term, we are likely to see a move away from CROs. I think we are going to continue to see that be a pretty robust area.

Okay. Thank you very much.

Our next question comes from Jonathan Groberg of Merrill Lynch. Your line is open sir.

Thanks a million for taking the call. Congratulations on a solid quarter. First, John, can I just clarify on the balance sheet again. Exactly you were able to repatriate earnings of $572 million and used $490 million of that to pay down debts and I was just curious exactly where you pay down again, looks like the end of the quarter you had about $377 million in shorter term debt and $650 million in longer term debt?

Yes, the transaction occurred in the beginning of October. So obviously you have to get some input [ph] on the call here what the impact is on the balance sheet versus seeing it live. We hadn't booked the transaction in the third quarter because of the change in the tax impact of it, which forced us to pull the taxes back into the quarter, but not the balance sheet impact of it. But in any case to answer your question, we paid down a $150 million term loan, that there was a four year term loan that went to affect earlier this year and there was no pre-payment penalty. So we just eliminated that term loan at the start of fiscal October. And then we paid down $340 million on our revolving credit agreement. That was what was outstanding against that agreement, the balance against that agreement now is zero. So we have a full $600 million of capability, if you will under that revolving debt agreement.

Okay, and so effectively the $650 million long term is closer to around 500 million then. Is that right?

Yes. We have approximately $500 million debt that exists now.

Okay. And then just kind of following up on a few comments Doug you made in the second quarter and just seeing kind of where we are this quarter. I think you mentioned last quarter that you know Synapse you had expected to have a strong second half, given what you've been hearing and you also had mentioned that in the second quarter that some of your pharma accounts were talking about a better kind of spending in the second half, releasing some delayed investments. And I was curious you gave a lot of color around pharma but just, has that commentary now been dampened on the pharma side and what are you seeing on the Synapt side in terms of the second half.

Synapt was very positive in the third quarter. So as I said our mass spec products did very well. Our triple quads didn't have that strong a quarter because of the transitions that I talked about with Xevo, which means that our high end products did that much better. So Synapt I think, that comment in the second quarter proved to be true in the third quarter and we're optimistic going forward. The pharma is I'd say a mixed bag. I would say where we saw some of that pent-up demands come through was in Europe, where we saw some significant orders break in the large pharma area. In the United States, I'd say we saw some of that happen, but we also saw something that we thought was going to happen not happen. So in that fiscal story it's really not a very homogeneous story in large pharma in the United States. We have half of those of those accounts, who seem to be on track investing in major new products, going very well and another half of those customers who come right up to the edge of saying they are going to expand some projects, expand some opportunities and then tend to back off. So I say that's the current state of things. Overall, I would say it's more of a consistent kind of industry dynamic. Some of the players have changed their momentum but overall say it's still pretty much what we will seeing in the second quarter, Jonathan.

And on the pharma side as you described that I mean is your sense that this is kind of a talk down mandated by capital budgets are actually being shrunk and is there any reason to think they will remain lower next year. Or is this just is the sense that this is... they still have the budgets and there is a discretionary sense of how to use those budgets?

I think it's different strokes for different folks. I think that some of our large pharma accounts are showing great interest in major strategic manufacturing initiatives. They're looking to significantly improve the productivity in a lot of their process. And I think they're serious. I mean they've now here and we've been there for major meetings. I think it's going through that normal process of are we certain we can deliver or are they certain that they've got the labs in place et cetera. In other cases, I think, yes. I think capital is tight. I think, not a lot tighter than it's been. I think we all ought to realize that overall big pharma has been in pretty tight investment conditions for a while now, some get a little bit tighter this quarter, some loosened up a little bit. Overall I'd say the temperature of that water is pretty much what it's been for the last couple of quarters.

Okay, and the last question, John. I think if I was going back and looking at your gross margins in the third quarter and I think this was about the highest that I could find anyway, and I was curious. How much of that was due... you mentioned a few of the different things. How much of that was due to the favorable FX given the fact that the pound weakened considerably earlier than Euro?

Yes, I mean... as we've no doubt that the margins were a little bit more favorable than we had originally anticipated. And we had a strong euro. Euro was up about 8% on average but the pound was only up about 4%. So currency from that perspective was favorably impacted. Additionally in this quarter we had really a full quarter of benefit on cost to sales line as the inventory impacts if you will of currency make their way through the process. There was little impact across the sales where as in the sales line we had drop of at the end that took a couple of points off our topline. So combination of those two probably pushed the currency benefit to may be two-third or so of the overall lift that we saw this quarter. But we also have favorable mix this quarter. We as Doug said our high end mass spec did very well. That had a impact, the incremental chemistry and service sales had an impact on the product cost reductions, little warranty on mass spec. I mean there was a number of operational and currency impacts this quarter that were significant.

Okay, great, thanks a million.

Yes.

Our next question from Isaac Ro of Leerink Swann. Your line is open.

Hi guys, thanks for taking the question. Just first off, are you guys seeing any delays to 2009 budgeting from your customers in pharmaceuticals or elsewhere, given the uncertainty in the economy. And just heading into the fourth quarter, how would see your visibility has changed versus previous years?

I wouldn't say that we are seeing any specific budgeting delays. I mean these organizations are pretty rigorous in their properties and they don't them significantly year-over-year. So I think you are seeing a reliable set of processes. I would say, one of the dynamics that we have seen in the last several years is that they go through their budgeting processes and they all kind culminate around the October, November, early December timeframe. And... but then in terms of releasing the budget, particularly the capital budgets, they can have things in their budgets, but then they don't release them until they see how the first quarter is going or see how the first half is going. So we have seen that traditionally that people will get their budgets but they won't be authorized to spend against those budgets for a period of time. And frankly, I don't think that that's going to be much different. You are going to see companies speak as conservative as they've been in the past and companies that have been spending normally will continue to spend normally. So I think that dynamic something's that happened all the past three or four years anyway and will likely continue.

Great, okay. And then on the food and environmental testing side, can you point to any specifically regulatory changes that you think are mandating greater demand use or use of your products and may be how would you characterize this sort of non-discretionary nature of those markets?

Well, I... you can certainly the melamine as stimulating investment both in Asia and in Europe. So while... it's not like a new regulation came about because of melamine, it was just obvious in those applications that you had to do something. I think certainly the most formally regulated market in terms of food safety is Europe. The EU has very clear regulations and where you do have comparable regulations between Europe and U.S., the Europe tends to be more rigorous than the U.S. I think there is a general move in the U.S. that we sense, although I can't point to exact regulations right now, that is increasing regulations for... particularly for food imports. And that's you'd say very normal because of all the heightened interest in things like melamine and other products coming out of Asia that have had no problems with them, pet food certainly, another obvious one. So I think there is certainly a greater interest in Washington. We're being called with some of our experts to testify in front of congressional committees and even in the background to advice people in Washington about what we do in Asia and what we do in Europe. So I think that's going to result in more specific regulations in the U.S. But you don't see those right at this point.

Okay, great and then in terms of a couple of specific product questions, how do you guys feel about your market share in the NASDAQ side of things. Right now are you seeing any competitors maybe using price as a weapon?

I think we always see certain competitors use price, particularly depending on where they are in their product life cycle, if they're trying to move old products versus new. I think the mass spec customers on the whole do not buy really based on price. They are really looking for technology, productivity, sensitivity and if all of those things are equal and seventh or eight on the list will be price. That has been the way it was, and I think that's the way those customers continue to react. I mean, I continue to say our mass spec product lines did very well... have done very well, recently even in the transition period of triple quads. So if we're not gaining shares then must be that everybody else is doing very, very well.

Okay great. And then last question would be on Xevo and then maybe ACQUITY. Could you remind us was there... how much of a contribution from Xevo in the quarter. It sounds like you guys shipped a couple and then on ACQUITY where do you think you are on the adoption cycle?

Well, I think we have... we are still early in the adoption cycle of ACQUITY. ACQUITY had another very strong quarter for us but we are seeing no lack of opportunities in ACQUITY. And we don't see any strong new competitors entering into the scene at this point. So I'd say we are very encouraged about the continuing opportunities for ACQUITY in both R&D applications and in QA, QC. And I think it's fair to say that we think that Xevo is only in the early phase. The Xevo and Triple Quad didn't contribute a whole lot to our overall mass spec performance in this past quarter. And we think that only gets better.

And thanks, [indiscernible].

Our next question comes from Derik deBruin of UBS. Your line is open.

Hi. Good morning,

Good morning, Derik.

So what was the M&A impact on the quarter and also what's your [indiscernible] with M&A on the full year.

M&A for TA instruments has provided about 4% gross, so would have worked their growth, 10 [ph] I guess without that.

Less then a half of point for the corporation.

For the Corporation it didn't rounded even half of that.

Okay, that's what I thought great. It based on how we trying to looking at you're giving a FX headwind going into a 4Q. I guess given the current exchange rates right now, what type of FX headwind would we expecting going in 2009. I am calculating around it's 3% headwind, is that about right?

I say based on... I mean rates were over the place.

Obviously, John yes.

It's been a difficult time I guess to sit here and try to forecast the FX. But that being said, based on year over run of 1.34 or 35 where it is today, that's probably a couple of points of headwind, may be it's the way we need to understand the other basket of currencies, but I would say you are in the ball park.

Okay and I guess looking at the interest rate from looking at the debts you paid down, I mean what interest rate was that. I am just trying to get a sense for interest expense and savings that you are going to go into '09.

Yes, it's fortunate for us that we paid that down really as the interest rate environment was becoming much more expensive. As you know as we came to the tail end of September when the financial crisis hit, there were very wide spreads between LIBOR and the T-Bills. Debt was getting more expensive and interest earned was actually going in the opposite direction. So by being able to pay down the amount of debt that we did, based on where rates are today it basically leads our interest... our net interest cost above where it has been for the first three quarters of the year. Had we not take down that debt, we were seeing maybe a 2 or $3 million increase in costs in the quarter. So it affords us the opportunity to have a comparable Q4 result to what saw in the third quarter.

Okay and it should be lower in 2009 though, just based... on paying it down or does the higher LIBOR rate offset this payment?

I'd say, right now we're still living in the bubble of uncertainty in the financial markets and to the extent that we have some of our obscenity, if you will, to that marketplace and you see the traditional spreads that we've historically enjoyed between LIBOR and interest rates on T-bills and government agencies. Then I would say yes, the run rate should perhaps come down a little bit based on where debt and cash balances are right now. But obviously we have to model the whole capital picture for next year to really answer that question.

But it goes to my next question which is, you're doing about $250 million in share buyback, kind of your target for '08. Do you continue to believe that you'll be able to do that going into 2009?

We'd like to, Derek. We're inclined in the absence of significant acquisition opportunities and that I think we'll continue to do the smallest ones. But we don't see any huge ones on the horizon. Our inclination would be to continue to use their cash to buy back stock. I thought the stock was fine to buy when it was approaching 80's, so you can imagine how I feel now.

Yes and I guess just one final question. I guess when you've managed to do really great cost controls on, particularly on the SG&A line. And I guess... is there still a lot of significant savings as we kind of look forward?

Significant savings, I think, is probably the wrong way to think about it. I think we believe that we can continue to leverage our sales growth with spending on SG&A and kind of our fixed base of manufacturing spending, increase that at a lower rate than we increase our organic sales. And the beauty of it is we do it across a whole range of spending platforms. We do it in the manufacturing area. We do it in SG&A because we can continue to get growth out of our international organizations at a rate faster than we have to increase the infrastructure spending overseas. And we see that quarter after quarter, and we see it pretty reliably. So it doesn't mean that you can grow your topline at 15 and grow your spending at two or three. But getting one, two, sometimes three points of bigger-ish [ph] out of that dynamic is what we aim to do. Some years, we get two or three, some years we get one but we almost always consistently get that leverage out of our operating spending versus organic sales.

Great. Thank you very much.

Our next question comes from Ross Muken from Deutsche bank. Your line is open.

Good morning gentleman.

Good morning.

Somehow my first forty questions I prepared were answered but I think I have at least one or two more that we can discuss today. So in terms of the planning process for Q4 and '09, this is sort of unprecedented market volatility. You've seen a whole host of sort of negatives earnings surprises from large industrial customers and the like. How often you guys are checking economic indicators? Or are you just looking at orders? What sort of the key part of the process for you as you're sort of setting revenue targets next year for the sales force and when you're trying to think about Street related guidance given sort of the degree to which sort of economic shifts are happening here is sort of on a unprecedented levels?

Well as we... we clearly I'll kind of look at the overall indicators but largely, our business isn't largely affected by things like overall GDP or overall inflation or unemployment rates. I mean we have to look very specifically at the individual regions of our business because they're affected by significantly different dynamics. I mean we were largely favorably affected by infrastructure spending in China, for instance. When they build roads and buildings and things like that or invest in the Olympics, that doesn't really affect our business but overall China GDP was exploding. What we look for in China is what they're spending on health, in new laboratory construction, food and food safety and food exports. And we think there they're going to continue to spend. We think they have to spend. We think in order for them to be viable on the international market they have to have a reliable trusted product. And so that's why when something like melanin [ph] hits, we immediately see them turn to us for a significant investment in instruments to upgrade laboratory. Places, like India, where generic drug manufacturers make up the bulk of our business, are subset of an Indian economy. So things may be buffering India left and right, I mean really very directly related to what we do depending on how it affects this relatively small segment, sub-segment of the Indian market, that's related to generic drug manufacturers. So that in this time of the year, I could put a light [ph] on, spend a lot of our time, looking at the assumptions of our individual areas and probing what are the current discussions with the customers in those individual areas there. Have their budgets been booked? What are they being promised? How were they reacted in past crisis? So it's a lot of specific information, I'd say, rather than a lot of macro information that we're tracking. And right now we're in the middle of that. We're no way culminated in it. And yes, we're a little bit concerned about the U.S. But I would say not to an extent that makes us significantly concerned about our current run rate.

And just sort of a follow-up, what do you think the lag time is relative to previous cycles between when we start to hear about general weakness amongst a more sort of economically sensitive customers or those who typically are larger purchasers of the instrument side of your business. What's typically the lag between when we've seen that... sort of in the press or heard rumblings of it and when it sort of started to reflect in your growth and your P&L? And then sort of as a follow-up to that and that will be my final question. Where do you think liquid chromatography ranks in sort of the hierarchy of preference for your core purchasing group? So even if there is on the sort of traditional life science, biopharma piece of the business, any sort of contraction, where do you think it fits in terms of importance relative to sort of other instrument classes, because obviously chromatography is the most sort of prevalent technique in the lab?

Yes, I think it's pretty clearly... HPLC, now more UPLC, is the number one analytical technique in these laboratories. Certainly, not true in some inorganic labs but in all the labs that we are talking about were the most important technology and certainly AMS, as is connected to HPLC is certainly... closely related to that. So I think we have a privileged position. Again, that the economic downturn... half of our worldwide business or more is related to pharmaceutical accounts either large pharma or generics or biotech and what have you. It's much more important what's affecting that class of customers that general economic conditions, and very often what affects those accounts can be anti-cyclical to what's happening to the overall economy. So you look at that half of the business and another cut of the business is what we keep emphasizing, our recurring business because all of these installed instruments have to be kept up. And through good times and bad we've seen the continuing rolling on of our recurring revenues, regardless of the economic conditions that are out there. So I know I am not answering your questions. I can't give you a simple, if a recession hits tomorrow, then a year and a half later, we see our economically sensitive customers turn down. There is no question that all of us in the long run will be somewhat affected by general economic conditions. If inflation gets higher, our customers will get more sensitive to what they have available to spend. I think generally, we are not as economically sensitive as many companies are out there. The piece of our business that is economically sensitive in that context that you're asking, probably less than 30, 25% of our business, I'd say. So that's probably the best I can do with that question.

Thanks. That was actually very helpful and congrats on solid execution in what's a very challenging market.

Thank you. And operator, I think maybe we can take one more and let this kind people get back to their day jobs.

Our last question then comes from Marshall Urist from Morgan Stanley. Your line is open.

Yes, hey guys thanks for sneaking me in at the end here. I had a question on, going [ph] in the re-organization. Is that a one-time benefit or does that change sort of how you generate cash from a geographic perspective within the business? And is there any tax implication of that going forward?

Yes it is a one-time impact if you will. I mean certainly we look re-organizing our business on a frequent date on a common basis going forward based on conditions to change. But this is not something that's going to have an impact on... of the current distribution of the legal entity profits and thus have an impact, for example, on the tax rate or already... where cash is generated from this point forward. So from that perspective you've seen the full impact, if you will, this quarter on the tax line from this specific reorganization.

And as you look at where that stands right now, are there any other potential opportunities like this within the current structure?

Certainly nothing of this magnitude doesn't exist. So we have smaller opportunities that we take advantage of to bring cash back on a regular basis. The IRS has extended the duration of inter-company loans at this stage. We're buying companies like Waters can loan money from overseas subsidiaries for up to 180 day or so period. I understand, so we will look at that. There's some discussion perhaps that those loans might be permanatized in some fashion maybe similar to the AJCA as time goes forward. So we will stay on top of that. But from a specific Water strategy legal entity perspective there's nothing of the magnitude that you just saw that's in the cards in the short term.

Okay, thanks. Then last question, could you just comment specifically on guidance for the fourth quarter on how much sort of typical pharma year-end budget release? Do you anticipate in that number or is it a sort of the same mixed bag, some will have more, some will have less. And then it's the neutral sort of total impact?

I'd say that that's basically our assumption right now that there is kind of not immaterial... blast out of budget money at the end of the year.

Okay, great. Thanks guys.

You're welcome. And thank you all for being with us. These are interesting times as our Chinese friends say. And we look forward to talking to you again after the fourth quarter. Thanks again. .