SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 29, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Waters Corporation

Delaware		13-3668640
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

34 Maple Street
Milford, Massachusetts 01757
(Address, including zip code, of principal executive offices)

Registrant’s telephone number, including area code: (508) 478-2000

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ     Accelerated filer o
Non-accelerated filer (Do not check if a smaller reporting company) o     Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o  No þ

     Indicate the number of shares outstanding of the registrant’s common stock as of April 25, 2008: 100,103,601

 

 

WATERS CORPORATION AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

INDEX

				Page
PART I		FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated Balance Sheets (unaudited) as of March 29, 2008 and December 31, 2007			3
		Consolidated Statements of Operations (unaudited) for the three months ended March 29, 2008 and March 31, 2007			4
		Consolidated Statements of Cash Flows (unaudited) for the three months ended March 29, 2008 and March 31, 2007			5
		Condensed Notes to Consolidated Financial Statements (unaudited)			6
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			21
Item 4.		Controls and Procedures			21
PART II		OTHER INFORMATION
Item 1.		Legal Proceedings			21
Item 1A.		Risk Factors			21
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			24
Item 3.		Defaults Upon Senior Securities			24
Item 4.		Submission of Matters to a Vote of Security Holders			24
Item 5.		Other Information			24
Item 6.		Exhibits			24
		Signature			25
EX-10.59 Term Credit Agreement, dated March 25, 2008
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO
EX-32.2 Section 906 Certification of CFO

WATERS CORPORATION AND SUBSIDIARIES

		March 29, 2008				December 31, 2007
ASSETS
Current assets:
Cash and cash equivalents		$	700,560			$	597,333
Short-term investments			57,968				95,681
Accounts receivable, less allowances for doubtful accounts and sales returns of $9,672 and $9,634 at March 29, 2008 and December 31, 2007, respectively			317,009				317,792
Inventories			196,831				175,888
Other current assets			49,330				50,368
Total current assets			1,321,698				1,237,062
Property, plant and equipment, net			163,872				160,856
Intangible assets, net			144,040				141,759
Goodwill			274,309				272,626
Other assets			70,429				68,752
Total assets		$	1,974,348			$	1,881,055
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and debt		$	279,301			$	384,176
Accounts payable			57,959				47,451
Accrued employee compensation			37,828				58,771
Deferred revenue and customer advances			107,678				87,348
Accrued income taxes			8,884				994
Accrued warranty			13,226				13,119
Other current liabilities			58,804				66,575
Total current liabilities			563,680				658,434
Long-term liabilities:
Long-term debt			650,000				500,000
Long-term portion of retirement benefits			53,592				52,353
Long-term income tax liability			71,408				70,079
Other long-term liabilities			18,703				14,113
Total long-term liabilities			793,703				636,545
Total liabilities			1,357,383				1,294,979
Commitments and contingencies (Notes 4, 5 and 9)
Stockholders’ equity:
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none issued at March 29, 2008 and December 31, 2007			-				-
Common stock, par value $0.01 per share, 400,000 shares authorized, 147,497 and 147,061 shares issued, 100,080 and 100,975 shares outstanding at March 29, 2008 and December 31, 2007, respectively			1,475				1,471
Additional paid-in capital			717,477				691,746
Retained earnings			1,659,399				1,590,924
Treasury stock, at cost, 47,417 and 46,086 shares at March 29, 2008 and December 31, 2007, respectively			(1,841,055)				(1,764,297)
Accumulated other comprehensive income			79,669				66,232
Total stockholders’ equity			616,965				586,076
Total liabilities and stockholders’ equity		$	1,974,348			$	1,881,055

The accompanying notes are an integral part of the interim consolidated financial statements.

WATERS CORPORATION AND SUBSIDIARIES

	Three Months Ended
		March 29, 2008				March 31, 2007
Product sales		$	270,465			$	242,063
Service sales			101,247				88,714
Total net sales			371,712				330,777
Cost of product sales			106,340				98,911
Cost of service sales			49,111				44,321
Total cost of sales			155,451				143,232
Gross profit			216,261				187,545
Selling and administrative expenses			105,837				93,907
Research and development expenses			19,786				18,722
Purchased intangibles amortization			2,272				2,125
Operating income			88,366				72,791
Interest expense			(11,157)				(13,188)
Interest income			6,913				6,353
Income from operations before income taxes			84,122				65,956
Provision for income taxes			15,647				10,019
Net income		$	68,475			$	55,937
Net income per basic common share		$	0.68			$	0.55
Weighted-average number of basic common shares			100,401				101,416
Net income per diluted common share		$	0.67			$	0.54
Weighted-average number of diluted common shares and equivalents			101,983				103,198

The accompanying notes are an integral part of the interim consolidated financial statements.

WATERS CORPORATION AND SUBSIDIARIES

		Three Months Ended
		March 29, 2008				March 31, 2007
Cash flows from operating activities:			68,475				55,937
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for doubtful accounts on accounts receivable			260				61
Provisions on inventory			3,018				2,117
Stock-based compensation			7,453				6,938
Deferred income taxes			(2,325)				651
Depreciation			7,114				6,570
Amortization of intangibles			6,633				6,335
Change in operating assets and liabilities, net of acquisitions:
Decrease (increase) in accounts receivable			18,225				(3,215)
Increase in inventories			(18,585)				(10,544)
Decrease (increase) in other current assets			2,059				(636)
Increase in other assets			(708)				(3,509)
Decrease in accounts payable and other current liabilities			(17,060)				(2,572)
Increase in deferred revenue and customer advances			15,402				19,109
Increase in other liabilities			5,967				5,445
Net cash provided by operating activities			95,928				82,687
Cash flows from investing activities:
Additions to property, plant, equipment and software capitalization			(14,302)				(12,816)
Purchase of short-term investments			(19,738)				(119,321)
Maturity of short-term investments			57,451				-
Cash received from escrow related to business acquisition			-				724
Net cash provided by (used in) investing activities			23,411				(131,413)
Cash flows from financing activities:
Proceeds from debt issuances			287,014				934,648
Payments on debt			(241,889)				(966,605)
Payments of debt issuance costs			(466)				(1,081)
Proceeds from stock plans			12,545				25,080
Purchase of treasury shares			(76,758)				(81,517)
Excess tax benefit related to stock option plans			5,883				7,867
Payments of debt swaps and other derivative contracts			(2,662)				(99)
Net cash used in financing activities			(16,333)				(81,707)
Effect of exchange rate changes on cash and cash equivalents			221				632
Increase (decrease) in cash and cash equivalents			103,227				(129,801)
Cash and cash equivalents at beginning of period			597,333				514,166
Cash and cash equivalents at end of period		$	700,560			$	384,365

The accompanying notes are an integral part of the interim consolidated financial statements.

WATERS CORPORATION AND SUBSIDIARIES

1 Basis of Presentation and Significant Accounting Policies

Waters Corporation (“Waters” or the “Company”), an analytical instrument manufacturer, designs, manufactures, sells and services, through its Waters Division, high performance liquid chromatography (“HPLC”), ultra performance liquid chromatography^® (“UPLC” and together with HPLC, herein referred to as “LC”) and mass spectrometry (“MS”) instrument systems and support products, including chromatography columns, other consumable products and comprehensive post-warranty service plans. These systems are complementary products that can be integrated together and used along with other analytical instruments. LC is a standard technique and is utilized in a broad range of industries to detect, identify, monitor and measure the chemical, physical and biological composition of materials, and to purify a full range of compounds. MS instruments are used in drug discovery and development, including clinical trial testing, the analysis of proteins in disease processes (known as “proteomics”) and environmental testing. LC is often combined with MS to create LC-MS instruments that include a liquid phase sample introduction and separation system with mass spectrometric compound identification and quantification. Through its TA Division (“TA”), the Company designs, manufactures, sells and services thermal analysis, rheometry and calorimetry instruments which are used in predicting the suitability of polymers and viscous liquids for various industrial, consumer goods and healthcare products. The Company is also a developer and supplier of software-based products that interface with the Company’s instruments and are typically purchased by customers as part of the instrument system.

     The Company’s interim fiscal quarter typically ends on the thirteenth Saturday of each quarter. Since the Company’s fiscal year end is December 31, the first and fourth fiscal quarters may not consist of thirteen complete weeks. The Company’s first fiscal quarters for 2008 and 2007 ended on March 29, 2008 and March 31, 2007, respectively.

     The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles (“GAAP”) in the United States of America. The consolidated financial statements include the accounts of the Company and its subsidiaries, most of which are wholly owned. All material inter-company balances and transactions have been eliminated.

     The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities at the dates of the financial statements. Actual amounts may differ from these estimates under different assumptions or conditions.

     It is management’s opinion that the accompanying interim consolidated financial statements reflect all adjustments (which are normal and recurring) that are necessary for a fair statement of the results for the interim periods. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission (“SEC”) on February 29, 2008.

Reclassifications
Certain amounts from the prior year have been reclassified in the accompanying financial statements in order to be consistent with the current year’s classifications.

Short-term Investments
Short-term investments primarily represent highly liquid investments, with original maturities generally greater than 90 days, in commercial paper rated A1 or A1+ by Standard & Poor’s and P1 by Moody’s Investors Service; bank deposits; repurchase agreements; U.S. Government Agency Debt and AAA rated money market funds which are convertible to a known amount of cash and carry an insignificant risk of change in market value. The cost of the short-term investments approximately fair value.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Fair Value Measurements
Fair values of cash, accounts receivable, accounts payable and debt approximate cost.

     Effective January 1, 2008, the Company adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements”. This standard addresses how companies should measure fair value when they are required to use a fair-value measure for recognition or disclosure purposes under GAAP. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations or cash flows. Relative to SFAS No. 157, the FASB issued FASB Position (“FSP”) Nos. 157-1 and 157-2. FSP No. 157-1 amends SFAS No. 157 to exclude SFAS No. 13, “Accounting for Leases”, and its related interpretive accounting pronouncements that address leasing transactions, while FSP No. 157-2 delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except for those that are recognized or disclosed at fair value in the financial statements on a recurring basis. As is permitted by FSP No. 157-2, the Company has elected to defer implementation of this standard as it relates to the Company’s non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in the financial statements on a non-recurring basis until January 1, 2009. The Company is in the process of evaluating whether the adoption of FSP No. 157-2 will have a material effect on its financial position, results of operations or cash flows.

     SFAS No. 157 establishes a three-level value hierarchy for disclosure of fair-value measurements. The valuation hierarchy is based on the transparency of the inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 — Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 — Unobservable inputs (e.g. a reporting entity’s own data).

     In accordance with methodology prescribed by SFAS No. 157, the Company has measured and disclosed the fair value of the following financial instrument assets and liabilities as of March 29, 2008 (in thousands):

						Quoted Prices
						in Active				Significant
						Market for				Other				Significant
		Total				Identical				Observable				Unobservable
		March 29,				Assets				Inputs				Inputs
		2008				(Level 1)				(Level 2)				(Level 3)
Assets:
Cash equivalents		$	522,857			$	-			$	522,857			$	-
Short-term investments			57,968				-				57,968				-
Waters Retirement Restoration Plan assets			18,298				-				18,298				-
Foreign currency exchange contract agreements			827				-				827				-
Total		$	599,950			$	-			$	599,950			$	-
Liabilities:
Interest rate swap agreements			3,514				-				3,514				-
Total		$	3,514			$	-			$	3,514			$	-

     The fair values of the Company’s cash equivalents, short-term investments, plan assets and derivative instruments are determined through market, observable and corroborated sources.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Stockholders’ Equity
In February 2007, the Company’s Board of Directors authorized the Company to repurchase up to $500.0 million of its outstanding common stock over a two-year period. During the three months ended March 29, 2008 and March 31, 2007, the Company repurchased 1.3 million and 0.9 million shares at a cost of $74.8 million and $47.0 million, respectively, under this program. As of March 29, 2008, the Company repurchased an aggregate of 4.1 million shares for an aggregate of $240.9 million under this program.

     In October 2005, the Company’s Board of Directors authorized the Company to repurchase up to $500.0 million of its outstanding common stock over a two-year period. During the three months ended March 31, 2007, the Company repurchased 0.6 million shares at a cost of $34.5 million under this program. As of March 31, 2007, the Company repurchased an aggregate of 11.9 million shares of its common stock under the October 2005 program for an aggregate of $499.8 million, effectively completing this program.

Hedge Transactions

Cash Flow Hedges
The Company uses interest rate swap agreements to hedge the risk to earnings associated with fluctuations in interest rates related to outstanding U.S. dollar floating rate debt. In August 2007, the Company entered into two floating-to-fixed-rate interest rate swaps, each with a notional amount of $50.0 million and maturity dates of April 2009 and October 2009, to hedge floating rate debt related to the term loan facility of its outstanding debt.

Other
The Company enters into forward foreign exchange contracts, principally to hedge the impact of currency fluctuations on certain inter-company balances. Principal hedged currencies include the Euro, Japanese Yen and British Pound. The periods of these forward contracts typically range from one to three months and have varying notional amounts which are intended to be consistent with changes in inter-company balances. Gains and losses on these forward contracts are recorded in selling and administrative expenses in the consolidated statements of operations. At March 29, 2008 and December 31, 2007, the Company held forward foreign exchange contracts with notional amounts totaling approximately $110.3 million and $101.4 million, respectively.

Product Warranty Costs
The Company accrues estimated product warranty costs at the time of sale which are included in cost of sales in the consolidated statements of operations. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component supplies, the Company’s warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. The amount of the accrued warranty liability is based on historical information, such as past experience, product failure rates, number of units repaired and estimated costs of material and labor. The liability is reviewed for reasonableness at least quarterly.

     The following is a summary of the activity of the Company’s accrued warranty liability for the three months ended March 29, 2008 and March 31, 2007 (in thousands):

		Balance at				Accruals for				Settlements				Balance at
		Beginning of Period				Warranties				Made				End of Period
Accrued warranty liability:
March 29, 2008		$	13,119			$	3,219			$	(3,112	)		$	13,226
March 31, 2007		$	12,619			$	2,680			$	(2,777	)		$	12,522

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

2 Inventories

Inventories are classified as follows (in thousands):

		March 29, 2008				December 31, 2007
Raw materials		$	59,192			$	51,426
Work in progress			18,694				16,970
Finished goods			118,945				107,492
Total inventories		$	196,831			$	175,888

3 Goodwill and Other Intangibles

The carrying amount of goodwill was $274.3 million and $272.6 million at March 29, 2008 and December 31, 2007, respectively. Currency translation adjustments increased goodwill approximately $1.7 million.

     The Company’s intangible assets included in the consolidated balance sheets are detailed as follows (in thousands):

		March 29, 2008												December 31, 2007
										Weighted-												Weighted-
										Average												Average
		Gross Carrying				Accumulated				Amortization				Gross Carrying				Accumulated				Amortization
		Amount				Amortization				Period				Amount				Amortization				Period
Purchased intangibles		$	113,194			$	46,443			10 years				$	111,207			$	43,180			10 years
Capitalized software			139,624				77,832			4 years					133,215				74,298			4 years
Licenses			10,604				7,268			9 years					10,522				7,011			9 years
Patents and other intangibles			20,628				8,467			8 years					19,182				7,878			8 years
Total		$	284,050			$	140,010			7 years				$	274,126			$	132,367			7 years

     The gross carrying value of intangible assets increased by approximately $2.1 million in the three months ended March 29, 2008 due to the effect of foreign currency translation.

     For the three months ended March 29, 2008 and March 31, 2007, amortization expense for intangible assets was $6.6 million and $6.3 million, respectively. Amortization expense for intangible assets is estimated to be approximately $26.2 million for each of the next five years. Accumulated amortization for intangible assets increased approximately $0.8 million in the three months ended March 29, 2008 due to the effect of foreign currency translation.

4 Debt

In March 2008, the Company entered into a new credit agreement (the “2008 Credit Agreement”) that provides for a $150 million term loan facility. In January 2007, the Company entered into a credit agreement (the “2007 Credit Agreement”) that provides for a $500 million term loan facility and $600 million in revolving facilities, which include both a letter of credit and a swingline subfacility. Both credit agreements mature on January 11, 2012 and require no scheduled prepayments before that date.

     The interest rates applicable to the 2008 and 2007 Credit Agreements are, at the Company’s option, equal to either the base rate (which is the higher of the prime rate or the federal funds rate plus 1/2%) or the applicable 1, 2, 3, 6, 9 or 12 month LIBOR rate, in each case plus an interest rate margin based upon the Company’s leverage ratio, which can range between 33 basis points and 137.5 basis points for LIBOR rate loans and range between zero basis points and 37.5 basis points for base rate loans. The 2008 and 2007 Credit Agreements require that the Company comply with an interest coverage ratio test of not less than 3.50:1 and a leverage ratio test of not more than 3.25:1 for any period of four consecutive fiscal quarters, respectively. In addition, the 2008 and 2007 Credit Agreements include negative covenants that are customary for investment grade credit facilities. The 2008 and 2007 Credit

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Agreements also contain certain customary representations and warranties, affirmative covenants and events of default.

     As of March 29, 2008 and December 31, 2007, the Company had a total of $900.0 million and $865.0 million borrowed under the 2008 and 2007 Credit Agreements and a total amount available to borrow of $348.5 million and $233.2 million, respectively, after outstanding letters of credit. At March 29, 2008, $650.0 million of the total debt was classified as long-term debt and $250.0 million classified as short-term debt in the consolidated balance sheet. At December 31, 2007, $500.0 million of the total debt was classified as long-term debt and $365.0 million classified as short-term debt in the consolidated balance sheet. The weighted-average interest rates applicable to these borrowings were 4.30% and 5.67% at March 29, 2008 and December 31, 2007, respectively.

     The Company, and its foreign subsidiaries, also had available short-term lines of credit, totaling $101.8 million and $98.5 million at March 29, 2008 and December 31, 2007, respectively. At March 29, 2008 and December 31, 2007, the related short-term borrowings were $29.3 million at a weighted-average interest rate of 4.37% and $19.2 million at a weighted average interest rate of 3.30%, respectively.

5 Income Taxes

The Company accounts for its uncertain tax return reporting positions in accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN48”). FIN 48 requires financial statement reporting of the expected future tax consequences of uncertain tax return reporting positions on the presumption that all relevant tax authorities possess full knowledge of those tax reporting positions, as well as all of the pertinent facts and circumstances, but it prohibits any discounting of any of the related tax effects for the time value of money.

     The following is a summary of the activity of the Company’s unrecognized tax benefits for the three months ended March 29, 2008 (in thousands):

Balance as of December 31, 2007		$	68,463
Additions for tax positions of the current year			1,031
Balance as of March 29, 2008		$	69,494

     The Company’s effective tax rates for the three months ended March 29, 2008 and March 31, 2007 were 18.6% and 15.2%, respectively. The increase in the effective tax rate for the three months ended March 29, 2008 over that of the three months ended March 31, 2007 is primarily attributable to proportionately greater growth in net income in jurisdictions with comparatively high effective tax rates.

6 Stock-Based Compensation

The Company maintains various shareholder approved stock-based compensation plans which allow for the issuance of incentive or non-qualified stock options, stock appreciation rights (“SARs”), restricted stock or other types of awards (e.g. restricted stock units).

     The Company accounts for stock-based compensation costs in accordance with SFAS No. 123(R), “Share-Based Payment”, and SEC Staff Accounting Bulletin (“SAB”) No. 107, “Share-Based Payment”. These standards require that all share-based payments to employees be recognized in the statements of operations based on their fair values. The stock-based compensation expense recognized in the consolidated statements of operations is based on awards that ultimately are expected to vest; therefore, the amount of expense has been reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience. If actual results differ significantly from these estimates, stock-based compensation expense and the Company’s results of operations could be materially impacted. In addition, if the Company employs different assumptions in the application of SFAS No. 123(R), the compensation expense that the Company records in the future periods may differ significantly from what the Company has recorded in the current period.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

     The consolidated statements of operations for the three months ended March 29, 2008 and March 31, 2007 include the following stock-based compensation expense related to stock option awards, restricted stock, restricted stock unit awards and the employee stock purchase plan (in thousands):

		March 29,				March 31,
		2008				2007
Cost of sales		$	907			$	915
Selling and administrative			5,539				5,023
Research and development			1,007				1,000
Total stock-based compensation		$	7,453			$	6,938

Stock Options
In determining the fair value of the stock options, the Company makes a variety of assumptions and estimates, including volatility measures, expected yields and expected stock option lives. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model. The Company uses implied volatility on its publicly traded options as the basis for its estimate of expected volatility. The Company believes that implied volatility is the most appropriate indicator of expected volatility because it is generally reflective of historical volatility and expectations of how future volatility will differ from historical volatility. The expected life assumption for grants is based on historical experience for the population of non-qualified stock optionees. The risk-free interest rate is the yield currently available on U.S. Treasury zero-coupon issues with a remaining term approximating the expected term used as the input to the Black-Scholes model. The relevant data used to determine the value of the stock options granted during the three months ended March 29, 2008 and March 31, 2007 are as follows:

Options Issued and Significant Assumptions Used to Estimate Option Fair Values		March 29,				March 31,
		2008				2007
Options issued in thousands			28				47
Risk-free interest rate			3.8	%			4.5	%
Expected life in years			6.0				6.0
Expected volatility			.291				.280
Expected dividends			—				—

Weighted-average Exercise Price and Fair Values of Options on the Date of Grant		March 29,				March 31,
		2008				2007
Exercise price		$	76.75			$	48.88
Fair value		$	28.25			$	18.19

     The following table summarizes stock option activity for the plans (in thousands, except per share data):

										Weighted Average
		Number of Shares				Price per Share				Exercise Price
Outstanding at December 31, 2007			7,097			$19.50 to $80.97				$	43.93
Granted			28				$76.75			$	76.75
Exercised			(305	)		$	19.69 to $72.06			$	38.54
Canceled			(10	)		$	32.12 to $76.06			$	46.32
Outstanding at March 29, 2008			6,810			$19.50 to $80.97				$	44.30

Restricted Stock
During the three months ended March 29, 2008, the Company granted eight thousand shares of restricted stock. The fair value of these awards on the grant date was $76.75. The restrictions on these shares lapse at the end of a three-year period.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Restricted Stock Units
The following table summarizes the unvested restricted stock unit award activity for the three months ended March 29, 2008 (in thousands, except for per share amounts):

		March 29, 2008
						Weighted-
		Shares				Average Price
Unvested at December 31, 2007			489			$	48.44
Granted			241			$	60.37
Vested			(115	)		$	47.07
Forfeited			(2	)		$	41.48
Unvested at March 29, 2008			613			$	53.41

     Restricted stock units are generally issued annually in February and vest in equal annual installments over a five year period.

7 Earnings Per Share

Basic and diluted earnings per share (“EPS”) calculations are detailed as follows (in thousands, except per share data):

		Three Months Ended March 29, 2008
		Weighted-Average
		Net Income				Shares				Per Share
		(Numerator)				(Denominator)				Amount
Net income per basic common share		$	68,475				100,401				$	0.68
Effect of dilutive stock option, restricted stock and restricted stock unit securities:
Outstanding							1,549
Exercised and cancellations							33
Net income per diluted common share		$	68,475				101,983				$	0.67

		Three Months Ended March 31, 2007
		Weighted-Average
		Net Income				Shares				Per Share
		(Numerator)				(Denominator)				Amount
Net income per basic common share		$	55,937				101,416				$	0.55
Effect of dilutive stock option, restricted stock and restricted stock unit securities:
Outstanding							1,667
Exercised and cancellations							115
Net income per diluted common share		$	55,937				103,198				$	0.54

     For the three months ended March 29, 2008 and March 31, 2007, the Company had 1.3 million and 1.1 million stock option securities that were antidilutive, respectively, due to having higher exercise prices than the average price during the period. These securities were not included in the computation of diluted EPS. The effect of dilutive securities was calculated using the treasury stock method.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

8 Comprehensive Income

Comprehensive income is detailed as follows (in thousands):

		Three Months Ended
		March 29,				March 31,
		2008				2007
Net income		$	68,475			$	55,937
Foreign currency translation			15,061				3,123
Net depreciation and realized losses on derivative instruments			(2,525	)			(1,831	)
Income tax benefit			884				641
Net depreciation and realized losses on derivative instruments, net of tax			(1,641	)			(1,190	)
Net foreign currency adjustments			13,420				1,933
Unrealized gains on investments before income taxes			26				157
Income tax expense			(9	)			(55	)
Unrealized gains on investments, net of tax			17				102
Other comprehensive income			13,437				2,035
Comprehensive income		$	81,912			$	57,972

9 Retirement Plans

The Company sponsors various retirement plans. In September 2007, the Company’s Board of Directors approved various amendments to freeze the pay credit accrual under the Waters Retirement Plan and the Waters Retirement Restoration Plan (the “U.S. Pension Plans”) effective December 31, 2007. In accordance with SFAS No. 88, “Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”, the Company recorded a curtailment gain of $0.5 million in the third quarter of 2007. In addition, the Company re-measured the U.S. Pension Plans’ liabilities in September 2007 and the Company reduced the projected benefit obligation liability by $6.7 million with a corresponding adjustment, net of tax, to accumulated other comprehensive income as a result of the curtailment reducing the accrual for future service. The Company’s Board of Directors also approved a $12.6 million payment that was contributed to the Waters Employee Investment Plan, a 401(k) defined contribution plan for U.S. employees, in the first quarter of 2008. In addition, effective January 1, 2008, the Company’s Board of Directors increased the employer matching contribution in the Waters Employee Investment Plan to 100% for contributions up to 6% of eligible pay, an increase of 3%, and eliminated the one-year service requirement to be eligible for matching contributions. For the three months ended March 29, 2008 and March 31, 2007, the Company’s matching contribution into the Waters Employee Investment Plan amounted to $2.9 million and $1.2 million, respectively.

     The summary of the components of net periodic pension costs for the plans for the three months ended March 29, 2008 and March 31, 2007 is as follows (in thousands):

		March 29, 2008												March 31, 2007
						U.S.												U.S.
		U.S.				Retirement				Non-U.S.				U.S.				Retirement				Non-U.S.
		Pension				Healthcare				Pension				Pension				Healthcare				Pension
		Plans				Plan				Plans				Plans				Plan				Plans
Service cost		$	31			$	53			$	374			$	1,941			$	64			$	290
Interest cost			1,481				83				227				1,301				69				196
Expected return on plan assets			(1,528	)			(39	)			(114	)			(1,333	)			(30	)			(97	)
Net amortization:
Prior service costs			38				(14	)			—				(22	)			(14	)			—
Net actuarial loss			33				—				(7	)			202				—				5
Net periodic pension cost		$	55			$	83			$	480			$	2,089			$	89			$	394

     For the three months ended March 29, 2008 and March 31, 2007, the Company made no contributions to the defined benefit plans. During fiscal year 2008, the Company expects to contribute approximately $3.5 million to $7.0 million to the defined benefit plans.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

10 Business Segment Information

The Company’s business activities, for which discrete financial information is available, are regularly reviewed and evaluated by the chief operating decision makers. As a result of this evaluation, the Company determined that it has two operating segments: Waters Division and TA Division.

     Waters Division is in the business of designing, manufacturing, distributing and servicing LC and MS instruments, columns and other chemistry consumables that can be integrated and used along with other analytical instruments. TA Division is in the business of designing, manufacturing, distributing and servicing thermal analysis, rheometry and calorimetry instruments. The Company’s two divisions are its operating segments and each has similar economic characteristics; product processes; products and services; types and classes of customers; methods of distribution and regulatory environments. Because of these similarities, the two segments have been aggregated into one reporting segment for financial statement purposes. Please refer to the consolidated financial statements for financial information regarding the one reportable segment of the Company.

     Net sales for the Company’s products and services are as follows for the three months ended March 29, 2008 and March 31, 2007 (in thousands):

		Three Months Ended
		March 29, 2008				March 31, 2007
Product net sales
Waters instrument systems		$	181,351			$	162,309
Chemistry			59,264				54,215
TA instrument systems			29,850				25,539
Total product net sales			270,465				242,063
Service net sales
Waters service			94,033				82,472
TA service			7,214				6,242
Total service net sales			101,247				88,714
Total net sales		$	371,712			$	330,777

11 Recent Accounting Standards Changes and Developments

The FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115”, which is effective for fiscal years beginning after November 15, 2007. This standard permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The Company did not elect to re-measure any of its existing financial assets or liabilities under the provisions of this standard.

     In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”, which replaces SFAS No. 141. This revised standard requires assets, liabilities and non-controlling interests acquired to be measured at fair value and requires that costs incurred to effect the acquisition be recognized separately from the business combination. In addition, this statement expands the scope to include all transactions and other events in which one entity obtains control over one or more businesses. This statement is effective for all business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is in the process of evaluating whether the adoption of this standard will have a material effect on its financial position, results of operations or cash flows.

     In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51”. This statement establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for fiscal years beginning on or after December 15, 2008. The Company is in the process of evaluating whether the adoption of this standard will have a material effect on its financial position, results of operations or cash flows.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”. This statement is intended to help investors better understand how derivative instruments and hedging activities affect an entity’s financial position, financial performance and cash flows through enhanced disclosure requirements. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is in the process of evaluating whether the adoption of this standard will have a material effect on its financial position, results of operations or cash flows.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business and Financial Overview

The Company’s sales were $371.7 million and $330.8 million for the three months ended March 29, 2008 (the “2008 Quarter”) and March 31, 2007 (the “2007 Quarter”), respectively. Sales grew 12% in the 2008 Quarter over the 2007 Quarter. Overall, the sales growth achieved in the 2008 Quarter was impacted by the increase in demand for the Company’s products and the effect of foreign currency translation which benefited the 2008 Quarter sales growth rate by 6%.

     Net income per diluted share was $0.67 and $0.54 in the 2008 Quarter and 2007 Quarter, respectively. Net income per diluted share grew at a rate of 24% in the 2008 Quarter over the 2007 Quarter.

     U.S. sales increased 9%, European sales increased 9%, Asian sales (including Japan) increased 18% and sales to the rest of the world increased 20% during the 2008 Quarter. The effect of foreign currency translation benefited sales growth rates by 12% in Europe, 7% in Asia and 12% in the rest of the world.

     In the 2008 Quarter, global sales to pharmaceutical customers grew 10%, as these customers continued to increase capital spending on the Company’s products. Global sales to government and academic customers were up 6% in the 2008 Quarter and were negatively impacted by lower environmental sales in Japan. Global sales to industrial and food safety customers grew 18% in the 2008 Quarter. Sales growth for the TA Division (“TA”) grew 17% for the 2008 Quarter as compared to the 2007 Quarter. TA’s sales growth can be primarily attributed to new product introductions, the effect of foreign currency translation which benefited sales by 5% and, to a lesser extent, the August 2007 acquisition of Calorimetry Sciences Corporation (“CSC”).

     The Waters Division sales grew 12% in the 2008 Quarter. The Waters Division’s products and services consist of high performance liquid chromatography (“HPLC”), ultra performance liquid chromatography® (“UPLC” and together with HPLC, herein referred to as “LC”), mass spectrometry (“MS”) and chemistry consumable products and related services. The Waters Division sales growth was strongly influenced by ACQUITY UPLC® sales, shipments of new Synapt^TM HDMS^TM systems and recurring sales growth from the service and chemistry consumables businesses.

     Operating income was $88.4 million and $72.8 million in the 2008 Quarter and 2007 Quarter, respectively. The $15.6 million net increase in operating income is primarily a result of the benefit from the increase in sales volume, lower manufacturing costs and the effect of favorable foreign currency exchange.

     Net cash provided by operating activities was $95.9 million and $82.7 million in the 2008 Quarter and 2007 Quarter, respectively. The $13.2 million increase is primarily a result of higher net income and the timing of cash collections from customers partially offset by the $12.6 million one-time transition pension benefit payment into the Waters Employee Investment Plan (a 401(k) defined contribution plan for U.S. employees) associated with the September 2007 amendment to freeze the pay credit accrual under the Waters Retirement Plan and the Waters Retirement Restoration Plan (defined contribution plans for U.S. employees). Within cash flows used in investing activities, capital expenditures related to property, plant, equipment and software capitalization were $14.3 million and $12.8 million in the 2008 Quarter and 2007 Quarter, respectively. Within cash flows used in financing activities, the Company entered into a new $150 million term loan credit agreement facility (the “2008 Credit Agreement”) in March 2008. The 2008 Credit Agreement matures on January 11, 2012 and requires no scheduled prepayments before that date. The Company used the proceeds of the term loan to repay amounts outstanding under the revolving tranche of the Company’s existing credit agreement. The Company also repurchased $74.8 million and $81.5 million of the Company’s outstanding common stock in the 2008 Quarter and 2007 Quarter, respectively. In addition, the Company received $12.5 million and $25.1 million of proceeds from stock plans in the 2008 Quarter and 2007 Quarter, respectively.

Results of Operations

Net Sales
Net sales for the 2008 Quarter and the 2007 Quarter were $371.7 million and $330.8 million, respectively, an increase of 12%. Foreign currency translation benefited the 2008 Quarter sales growth rate by 6%. Product sales

were $270.5 million and $242.1 million for the 2008 Quarter and the 2007 Quarter, respectively, an increase of 12%. The increase in product sales was primarily due to the overall positive growth in Waters and TA instrument systems and chemistry consumables. Service sales were $101.2 million and $88.7 million in the 2008 Quarter and the 2007 Quarter, respectively, an increase of 14%. The increase in service sales was primarily attributable to increased sales of service plans to a higher installed base of customers.

Waters Division Net Sales
The Waters Division net sales grew 12% in the 2008 Quarter. The effect of foreign currency translation benefited the Waters Division sales growth by 6%. Chemistry consumables sales grew 9% in the 2008 Quarter. This growth was driven by increased column sales of ACQUITY UPLC proprietary column technology and sales of HPLC columns. Waters Division service sales grew 14% in the 2008 Quarter due primarily to increased sales of service plans to the higher installed base of customers. Waters instrument system sales (LC and MS) grew 12% in the 2008 Quarter. The increase in instrument systems sales during the 2008 Quarter is primarily attributable to higher sales of ACQUITY UPLC systems and Synapt mass spectrometry system sales. Waters Division sales by product mix were essentially unchanged in the 2008 Quarter with instrument systems, chemistry and service representing approximately 54%, 18% and 28%, respectively. Geographically, Waters Division sales in the U.S., Europe and Asia strengthened approximately 8%, 9% and 18%, respectively, in the 2008 Quarter. Sales to the rest of the world increased 21% in the 2008 Quarter and were driven primarily by increased sales in Latin America and Canada. The effects of foreign currency translation increased sales growth by 12%, 7% and 13% in Europe, Asia and the rest of the world, respectively, in the 2008 Quarter. U.S. and Asia sales growth in the 2008 Quarter was primarily due to higher demand from the Company’s pharmaceutical and industrial customers. Asia’s sales growth was primarily driven by increased sales in India and China and mitigated by a weakness in Japan sales.

TA Division Net Sales
TA’s sales grew 17% in the 2008 Quarter primarily as a result of TA’s new product introductions and the effect of foreign currency translation which benefited the TA sales growth by approximately 5%. Instrument system sales grew 17% in the 2008 Quarter and represented approximately 81% and 80% of sales in the 2008 Quarter and 2007 Quarter, respectively. TA service sales grew 16% in the 2008 Quarter and can be primarily attributed to the higher installed base of customers. Geographically, sales growth for the 2008 Quarter was predominantly in the U.S., Europe and Asia.

Gross Profit
Gross profit for the 2008 Quarter was $216.3 million compared to $187.5 million for the 2007 Quarter, an increase of $28.8 million, or 15%, and is generally consistent with the increase in net sales. Gross profit as a percentage of sales increased to 58.2% in the 2008 Quarter from 56.7% in the 2007 Quarter. This increase is primarily due to lower manufacturing costs, favorable product mix and the comparative benefits of foreign currency translation.

Selling and Administrative Expenses
Selling and administrative expenses for the 2008 Quarter and the 2007 Quarter were $105.8 million and $93.9 million, respectively, an increase of 13%. The $11.9 million increase in total selling and administrative expenses is primarily due to annual merit increases across most divisions, headcount additions to support the increased sales volume and the comparative unfavorable impact of foreign currency translation. As a percentage of net sales, selling and administrative expenses were 28.5% for the 2008 Quarter compared to 28.4% for the 2007 Quarter. Management expects selling and administrative expenses to grow at a slightly lower rate for the remainder of 2008.

Research and Development Expenses
Research and development expenses were $19.8 million and $18.7 million for the 2008 Quarter and 2007 Quarter, respectively, an increase of $1.1 million, or 6%. The increase in research and development expenses is primarily due to annual merit increases, headcount additions and the comparative unfavorable impact of foreign currency translation.

Interest Expense
Interest expense was $11.2 million and $13.2 million for the 2008 Quarter and 2007 Quarter, respectively. The decrease in interest expense in the 2008 Quarter is primarily attributable to a decrease in average borrowing costs during the 2008 Quarter as average debt levels increased $58.0 million compared to the 2007 Quarter.

Interest Income
Interest income was $6.9 million and $6.4 million for the 2008 Quarter and 2007 Quarter, respectively. The increase in interest income is primarily due to higher invested cash and short-term investment balances during the 2008 Quarter.

Provision for Income Taxes
The Company’s effective tax rates for the 2008 Quarter and 2007 Quarter were 18.6% and 15.2%, respectively. The increase in the effective tax rate for the 2008 Quarter over that of the 2007 Quarter is primarily attributable to proportionately greater growth in net income in jurisdictions with comparatively high effective tax rates.

Liquidity and Capital Resources

Condensed Consolidated Statements of Cash Flows (in thousands):

		Three Months Ended
		March 29, 2008				March 31, 2007
Net income		$	68,475			$	55,937
Depreciation and amortization			13,747				12,905
Stock-based compensation			7,453				6,938
Deferred income taxes			(2,325	)			651
Change in accounts receivable			18,225				(3,215	)
Change in inventories			(18,585	)			(10,544	)
Change in accounts payable and other current liabilities			(17,060	)			(2,572	)
Change in deferred revenue and customer advances			15,402				19,109
Other changes			10,596				3,478
Net cash provided by operating activities			95,928				82,687
Net cash provided by (used in) investing activities			23,411				(131,413	)
Net cash used in financing activities			(16,333	)			(81,707	)
Effect of exchange rate changes on cash and cash equivalents			221				632
Increase (decrease) in cash and cash equivalents		$	103,227			$	(129,801	)

Cash Flow from Operating Activities
Net cash provided by operating activities was $95.9 million and $82.7 million in the 2008 Quarter and 2007 Quarter, respectively. The $13.2 million increase in net cash provided from operating activities in the 2008 Quarter compared to the 2007 Quarter is attributed primarily to the following significant changes in the sources and uses of the net cash provided from operating activities, aside from the increase in net income:

	•		The change in accounts receivable in the 2008 Quarter compared to the 2007 Quarter is primarily attributable to the timing of payments made by customers and the higher sales volume in the 2008 Quarter as compared to the 2007 Quarter. The days-sales-outstanding (“DSO”) increased to 78 days at March 29, 2008 from 77 days at March 31, 2007. The effect of foreign currency added 4 days to the March 29, 2008 DSO.
	•		The change in inventories in the 2008 Quarter and the 2007 Quarter is attributable to the increase in sales volume and the normal increase in inventory levels during the first quarter of the fiscal year.
	•		The 2008 Quarter change in accounts payable and other current liabilities compared to the 2007 Quarter is primarily attributed to a $12.6 million one-time transition pension benefit payment into the Waters Employee Investment Plan during the 2008 Quarter associated with the September 2007 amendment to freeze the pay credit accrual under the Waters Retirement Plan and the Waters Retirement Restoration Plan. In addition, other current liabilities decreased as a result of the timing of payments to vendors.

•

Net cash provided from deferred revenue and customer advances in both the 2008 Quarter and 2007 Quarter was a result of the installed base of customers renewing annual service contracts.

Cash Used in Investing Activities
Net cash provided by investing activities totaled $23.4 million in the 2008 Quarter. Net cash used in investing activities totaled $131.4 million in the 2007 Quarter. Additions to fixed assets and capitalized software were $14.3 million in the 2008 Quarter and $12.8 million in the 2007 Quarter. Capital spending and software capitalization additions during the 2008 and 2007 Quarters were consistent with historical capital spending trends. Future capital spending may increase periodically in order to fund facility expansion to accommodate future sales growth. During the 2008 Quarter, the Company purchased $19.7 million of short-term investments while $57.5 million of short-term investments matured. During the 2007 Quarter, the Company purchased $119.3 million of short-term investments and no investments matured. In the 2007 Quarter, the Company received $0.7 million from the former shareholders of Environmental Resources Associates, Inc. in connection with the finalization of the purchase price in accordance with the purchase and sale agreement.

Cash Used in Financing Activities
During the 2008 Quarter and 2007 Quarter, the Company’s net debt borrowings increased by $45.1 million and decreased by $32.0 million, respectively.

     In March 2008, the Company entered into the 2008 Credit Agreement that provides for a $150 million term loan facility. The Company used the proceeds of the term loan to repay amounts outstanding under the revolving tranche of the Company’s existing credit agreement. In January 2007, the Company entered into a credit agreement (the “2007 Credit Agreement”) that provides for a $500 million term loan facility and $600 million in revolving facilities, which include both a letter of credit and a swingline subfacility. Both credit agreements mature on January 11, 2012 and require no scheduled prepayments before that date.

     The interest rates applicable to the 2008 and 2007 Credit Agreements are, at the Company’s option, equal to either the base rate (which is the higher of the prime rate or the federal funds rate plus 1/2%) or the applicable 1, 2, 3, 6, 9 or 12 month LIBOR rate, in each case plus an interest rate margin based upon the Company’s leverage ratio, which can range between 33 basis points and 137.5 basis points for LIBOR rate loans and range between zero basis points and 37.5 basis points for base rate loans. The 2008 Credit Agreement contains provisions which are similar in nature to those in the 2007 Credit Agreement.

     As of March 29, 2008, the Company had a total of $900.0 million borrowed under the 2008 and 2007 Credit Agreements and a total amount available to borrow of $348.5 million after outstanding letters of credit.

     In February 2007, the Company’s Board of Directors authorized the Company to repurchase up to $500.0 million of its outstanding common stock over a two-year period. During the three months ended March 29, 2008, the Company repurchased 1.3 million shares at a cost of $74.8 million under this program, leaving $259.1 million authorized for future repurchases. During the three months ended March 31, 2007, the Company repurchased 1.5 million shares at a cost of $81.5 million under the February 2007 program and a previously announced program.

     The Company received $12.5 million and $25.1 million of proceeds from the exercise of stock options and the purchase of shares pursuant to employee stock purchase plan in the 2008 Quarter and 2007 Quarter, respectively.

     The Company believes that the cash and cash equivalents balance of $700.6 million and the short-term investments balance of $58.0 million at the end of the 2008 Quarter and expected cash flow from operating activities, together with borrowing capacity from committed credit facilities, will be sufficient to fund working capital, capital spending requirements, authorized share repurchase amounts, potential acquisitions and any adverse final determination of ongoing litigation for at least the next twelve months. Management believes, as of the date of this report, that its financial position, along with expected future cash flows from earnings based on historical trends and the ability to raise funds from external sources, will be sufficient to meet future operating and investing needs for the foreseeable future.

Contractual Obligations and Commercial Commitments:

A summary of the Company’s contractual obligations and commercial commitments is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. The Company reviewed its contractual obligations and commercial commitments as of March 29, 2008 and determined that there were no material changes from the ones set forth in the Form 10-K, with the exception of the changes related to the 2008 Credit Agreement and the use of the proceeds to pay down existing borrowings under the revolving facility of the 2007 Credit Agreement. The maturity date of the new credit agreement is January 11, 2012. See Note 4, Debt, in the Condensed Notes to Consolidated Financial Statements for additional information.

     From time to time, the Company and its subsidiaries are involved in various litigation matters arising in the ordinary course of business. The Company believes it has meritorious arguments in its current litigation matters and any outcome, either individually or in the aggregate, will not be material to the Company’s financial position or results of operations.

     During fiscal year 2008, the Company expects to contribute approximately $3.5 million to $7.0 million to the Company’s defined benefit pension plans. No payments were made in the 2008 Quarter.

     The Company is not aware of any undisclosed risks and uncertainties, including, but not limited to, product technical obsolescence, regulatory compliance, protection of intellectual property rights, changes in pharmaceutical industry spending, competitive advantages, current and pending litigation, and changes in foreign exchanges rates, that are reasonably likely to occur and could materially and negatively affect the Company’s existing cash balance or its ability to borrow funds from its credit facility. The Company also believes there are no provisions in its credit facilities, its real estate leases or supplier and collaborative agreements that would accelerate payments, require additional collateral or impair its ability to continue to enter into critical transactions. The Company has not paid any dividends and does not plan to pay any dividends in the foreseeable future.

Critical Accounting Policies and Estimates

In the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, the Company’s most critical accounting policies and estimates upon which its financial status depends were identified as those relating to revenue recognition; loss provisions on accounts receivable and inventory; valuation of long-lived assets, intangible assets and goodwill; warranty; income taxes; pension and other postretirement benefit obligations; litigation and stock-based compensation. The Company reviewed its policies and determined that those policies remain the Company’s most critical accounting policies for the 2008 Quarter. The Company did not make any changes in those policies during the 2008 Quarter.

New Accounting Pronouncements

Refer to Note 11, Recent Accounting Standards Changes and Developments, in the Condensed Notes to Consolidated Financial Statements.

Special Note Regarding Forward-Looking Statements

Certain of the statements in this quarterly report on Form 10-Q, including the information incorporated by reference herein, may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to future results and events, including statements regarding, among other items, (i) the impact of the Company’s new products; (ii) the Company’s growth strategies, including its intention to make acquisitions and introduce new products; (iii) anticipated trends in the Company’s business and (iv) the Company’s ability to continue to control costs and maintain quality. Many of these statements appear, in particular, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this quarterly report. You can identify these forward-looking statements by the use of the words “believes”, “anticipates”, “plans”, “expects”, “may”, “will”, “would”, “intends”, “estimates”, “projects”, and similar expressions, whether in the negative or affirmative. These statements are subject to various risks and uncertainties, many of which are outside the control of the Company, including, and without limitation, the impact of changes in accounting principles and practices or tax rates; the ability to successfully integrate acquired businesses; fluctuations in capital expenditures by

the Company’s customers, in particular, large pharmaceutical companies; regulatory and/or administrative obstacles to the timely completion of purchase order documentation; introduction of competing products by other companies and loss of market share; pressures on prices from competitors and/or customers; regulatory obstacles to new product introductions; lack of acceptance of new products; other changes in the demands of the Company’s healthcare and pharmaceutical company customers; changes in distribution of the Company’s products; risks associated with lawsuits and other legal actions, particularly involving claims for infringement of patents and other intellectual property rights; and foreign exchange rate fluctuations potentially adversely affecting translation of the Company’s future non-U.S. operating results. Such factors and others are discussed in Part II, Item 1A of this quarterly report and under the heading “Risk Factors” under Part I, Item 1A of the Company’s Form 10-K for the year ended December 31, 2007. The forward-looking statements included in this quarterly report represent the Company’s estimates or views as of the date of this quarterly report and should not be relied upon as representing the Company’s estimates or views as of any date subsequent to the date of this quarterly report. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements, whether because of these factors or for other reasons. The Company does not assume any obligation to update any forward-looking statements.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in the Company’s market risk during the three months ended March 29, 2008. For additional information regarding the Company’s market risk, refer to Item 7a of Part II of the Company’s Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission (“SEC”) on February 29, 2008.

Item 4:  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s chief executive officer and chief financial officer (principal executive and principal financial officer), with the participation of management, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of March 29, 2008 and (1) designed to ensure that information required to be disclosed by the Company, including its consolidated subsidiaries, in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, to allow timely decisions regarding the required disclosure and (2) designed to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Controls Over Financial Reporting

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended March 29, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II:  Other Information

Item 1:  Legal Proceedings

There have been no material changes in the Company’s legal proceedings during the three months ended March 29, 2008 as described in Item 3 of Part I of the Company’s Form 10-K for the year ended December 31, 2007, as filed with the SEC on February 29, 2008.

Item 1A:  Risk Factors

Please read “Risk factors” under Part I, Item 1A in the Company’s Annual Report on Form 10-K for the fiscal year end December 31, 2007, some of which are updated below. These risks are not the only ones facing the Company.

Please also see “Special Note Regarding Forward Looking Statements” on page 20. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and its operating results.

Competition and the Analytical Instrument Market
The analytical instrument market and, in particular, the portion related to the Company’s HPLC, UPLC, MS, LC-MS, thermal analysis, rheometry and calorimetry product lines, is highly competitive and subject to rapid changes in technology. The Company encounters competition from several international instrument manufacturers and other companies in both domestic and foreign markets. Some competitors have instrument businesses that are generally more diversified than the Company’s business but are typically less focused on the Company’s chosen markets. There can be no assurances that the Company’s competitors will not introduce more effective and less costly products than those of the Company or that the Company will be able to increase its sales and profitability from new product introductions. There can be no assurances that the Company’s sales and marketing forces will compete successfully against its competitors in the future.

     Additionally, the analytical instrument market may, from time to time, experience low sales growth. Approximately 52% of the Company’s net sales in 2007 were to worldwide pharmaceutical and biotechnology industries, which may be periodically subject to unfavorable market conditions and consolidations. There has been no material change in this percentage of net sales to these industries in the first three months of 2008. Unfavorable industry conditions could have a material adverse effect on the Company’s results of operations or financial condition.

Risk of Disruption
The Company manufactures LC instruments at facilities in Milford, Massachusetts and Singapore; chemistry separation columns at its facilities in Taunton, Massachusetts and Wexford, Ireland; MS products at its facilities in Manchester, England, Cheshire, England and Wexford, Ireland; thermal analysis products at its facility in New Castle, Delaware; rheometry products at its facilities in New Castle, Delaware and Crawley, England and other instruments and consumables at various other locations as a result of acquisitions in 2006 and 2007. Any prolonged disruption to the operations at any of these facilities, whether due to labor difficulties, destruction of or damage to either facility or other reasons, could have a material adverse effect on the Company’s results of operations or financial condition.

Foreign Operations and Exchange Rates
Approximately 70% and 69% of the Company’s net sales in the first three months of 2008 and 2007, respectively, were outside the United States and were primarily denominated in foreign currencies. In addition, the Company has considerable manufacturing operations in Ireland and the United Kingdom. As a result, a significant portion of the Company’s sales and operations are subject to certain risks, including adverse developments in the foreign political and economic environment; tariffs and other trade barriers; difficulties in staffing and managing foreign operations and potentially adverse tax consequences.

     Additionally, the U.S. dollar value of the Company’s net sales and cost of sales varies with currency exchange rate fluctuations. Significant increases or decreases in the value of the U.S. dollar relative to certain foreign currencies could have a material adverse effect on the Company’s results of operations or financial condition.

Reliance on Key Management
The operation of the Company requires managerial and operational expertise. None of the key management employees has an employment contract with the Company and there can be no assurance that such individuals will remain with the Company. There has been no change in key management employees in the first three months of 2008. If, for any reason, such key personnel do not continue to be active in management, the Company’s results of operations or financial condition could be adversely affected.

Protection of Intellectual Property
The Company vigorously protects its intellectual property rights and seeks patent coverage on all developments that it regards as material and patentable. However, there can be no assurances that any patents held by the Company will not be challenged, invalidated or circumvented or that the rights grated there under will provide competitive advantages to the Company. Conversely, there could be successful claims against the Company by third-party patent holders with respect to certain Company products that may infringe the intellectual property rights of such third

parties. The Company’s patents, including those licensed from others, expire on various dates. There has been no material change in the claims against the Company’s intellectual property rights or patents in the first three months of 2008. If the Company is unable to protect its intellectual property rights, it could have an adverse and material effect on the Company’s results of operations and financial condition.

Reliance on Customer Demand
The demand for the Company’s products is dependent upon the size of the markets for its LC, MS, thermal analysis, rheometry and calorimetry products; the timing and level of capital expenditures of the Company’s customers; changes in government regulations; funding available to academic and government institutions; general economic conditions and the rate of economic growth in the Company’s major markets and competitive considerations. There can be no assurances that the Company’s results of operations or financial condition will not be adversely impacted by a change in any of the factors listed above.

Reliance on Suppliers
Most of the raw materials, components and supplies purchased by the Company are available from a number of different suppliers; however, a number of items are purchased from limited or single sources of supply and disruption of these sources could have a temporary adverse effect on shipments and the financial results of the Company. The Company believes alternative sources could ordinarily be obtained to supply these materials, but a prolonged inability to obtain certain materials or components could have an adverse effect on the Company’s financial condition or results of operations and could result in damage to its relationships with its customers and, accordingly, adversely affect the Company’s business.

Reliance on Outside Manufacturers
Certain components or modules of the Company’s LC and MS instruments are manufactured by long-standing outside contractors. In April 2006, the Company transitioned the manufacturing of the Alliance^® HPLC instrument system to a company in Singapore. Disruptions of service by these outside contractors could have an adverse effect on the supply chain and the financial results of the Company. The Company believes that it could obtain alternative sources for these components or modules, but a prolonged inability to obtain these components or modules could have an adverse effect on the Company’s financial condition or results of operations.

Risk in Unexpected Shifts in Taxable Income between Tax Jurisdictions
The Company is subject to a range of income tax rates, from 0% to in excess of 35%, depending on specific tax jurisdictions around the world. The Company typically generates a substantial portion of its taxable income in the fourth quarter of each fiscal year. Shifts in actual taxable income from previous quarters’ projections due to factors, including, but not limited to, changes in volume and foreign currency translation rates, could have an adverse effect on the Company’s income tax expense and results of operations.

Levels of Debt and Debt Service Requirements
The Company had approximately $929.3 million in debt and $758.5 million in cash, cash equivalents and short-term investments as of March 29, 2008. As of March 29, 2008, the Company also has the ability to borrow an additional $348.5 million from its existing credit facilities. Most of the Company’s debt is in the U.S.. While there is a substantial cash requirement in the U.S. to fund operations and capital expenditures, service debt interest obligations, finance potential acquisitions and continue authorized stock repurchase programs, a majority of the Company’s cash is maintained and generated from foreign operations. The Company’s financial condition and results of operations could be adversely impacted if the Company is unable to maintain a sufficient level of cash flow in the U.S. to address these requirements through cash from U.S. operations, efficient and timely repatriation of cash from overseas and other sources obtained at an acceptable cost.

Item 2:  Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about purchases by the Company during the three months ended March 29, 2008 of equity securities registered by the Company under to the Exchange Act (in thousands, except per share data):

										Total Number
										of Shares				Maximum
		Total								Purchased as Part				Dollar Value of
		Number of				Average				of Publicly				Shares that May Yet
		Shares				Price Paid				Announced				Be Purchased Under
Period		Purchased				per Share				Programs (1)				the Programs
January 1 to 26, 2008			454			$	56.34				454			$	308,368
January 27 to February 23, 2008			845				58.29				845				259,113
February 24 to March 29, 2008			—				—				—				259,113
Total			1,299				57.61				1,299				259,113

(1)		The Company purchased 1.3 million shares of its outstanding common stock in the 2008 Quarter in open market transactions pursuant to a repurchase program that was announced in February 2007 (the “2007 Program”). The 2007 Program authorized the repurchase of up to $500.0 million of common stock in open market transactions over a two-year period.

Item 3:  Defaults Upon Senior Securities

Not Applicable

Item 4:  Submission of Matters to a Vote of Security Holders

Not Applicable

Item 5:  Other Information

Not Applicable

Item 6:  Exhibits

Exhibit
Number		Description of Document
10.59		Term Credit Agreement, dated March 25, 2008 among Waters Corporation, JPMorgan Chase Bank, N.A. and other Lenders party thereto.
31.1		Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		Waters Corporation
		/s/  John Ornell
		John Ornell
		Vice President, Finance and
		Administration and Chief Financial Officer

Date: May 2, 2008