Quarterly Report (10-q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended April 4, 2015

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

For the transition period from to .

Commission File Number: 01-14010

Waters Corporation

(Exact name of registrant as specified in its charter)

Delaware

13-3668640

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

34 Maple Street

Milford, Massachusetts 01757

(Address, including zip code, of principal executive offices)

(508) 478-2000

(Registrant’s telephone number, including area code)

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

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.

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

Indicate the number of shares outstanding of the registrant’s common stock as of May 1, 2015: 82,692,719

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 April 4, 2015 and December 31, 2014		1
	Consolidated Statements of Operations (unaudited) for the three months ended April 4, 2015 and March 29, 2014		2
	Consolidated Statements of Comprehensive Income (unaudited) for the three months ended April 4, 2015 and March 29, 2014		3
	Consolidated Statements of Cash Flows (unaudited) for the three months ended April 4, 2015 and March 29, 2014		4
	Condensed Notes to Consolidated Financial Statements (unaudited)		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		24
Item 4.	Controls and Procedures		24

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		25
Item 1A.	Risk Factors		25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		25
Item 6.	Exhibits		26
	Signature		27

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(unaudited)


	April 4, 2015			December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	440,798		$	422,177
Investments		1,668,247			1,633,211
Accounts receivable, less allowances for doubtful accounts and sales returns of $7,002 and $7,179 at April 4, 2015 and December 31, 2014, respectively		394,370			433,616
Inventories		257,530			246,430
Other current assets		115,028			118,302

Total current assets		2,875,973			2,853,736
Property, plant and equipment, net		316,814			321,583
Intangible assets, net		213,108			232,371
Goodwill		350,021			354,838
Other assets		116,810			115,406

Total assets	$	3,872,726		$	3,877,934


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and debt	$	175,316		$	225,243
Accounts payable		63,954			65,704
Accrued employee compensation		28,950			47,198
Deferred revenue and customer advances		167,343			129,706
Accrued income taxes		19,405			15,143
Accrued warranty		12,871			13,266
Other current liabilities		70,632			85,335

Total current liabilities		538,471			581,595
Long-term liabilities:
Long-term debt		1,310,000			1,240,000
Long-term portion of retirement benefits		84,239			85,230
Long-term income tax liabilities		21,313			20,397
Other long-term liabilities		56,463			56,046

Total long-term liabilities		1,472,015			1,401,673

Total liabilities		2,010,486			1,983,268

Commitments and contingencies (Notes 5, 6 and 9)

Stockholders’ equity:
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none issued at April 4, 2015 and December 31, 2014		—			—
Common stock, par value $0.01 per share, 400,000 shares authorized, 157,030 and 156,716 shares issued, 82,701 and 83,147 shares outstanding at April 4, 2015 and December 31, 2014, respectively		1,570			1,567
Additional paid-in capital		1,414,700			1,392,494
Retained earnings		4,490,574			4,394,513
Treasury stock, at cost, 74,329 and 73,569 shares at April 4, 2015 and December 31, 2014, respectively		(3,906,228	)		(3,815,203	)
Accumulated other comprehensive loss		(138,376	)		(78,705	)

Total stockholders’ equity		1,862,240			1,894,666

Total liabilities and stockholders’ equity	$	3,872,726		$	3,877,934

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

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(unaudited)


	Three Months Ended
	April 4, 2015			March 29, 2014

Product sales	$	302,873		$	284,795
Service sales		157,531			145,713

Total net sales		460,404			430,508

Cost of product sales		121,953			122,475
Cost of service sales		67,293			65,244

Total cost of sales		189,246			187,719

Gross profit		271,158			242,789

Selling and administrative expenses		119,751			126,635

Research and development expenses		28,951			24,746

Purchased intangibles amortization		2,474			2,647

Operating income		119,982			88,761

Interest expense		(8,975	)		(7,489	)

Interest income		2,340			1,458

Income from operations before income taxes		113,347			82,730

Provision for income taxes		17,286			12,428

Net income	$	96,061		$	70,302


Net income per basic common share	$	1.16		$	0.83

Weighted-average number of basic common shares		83,025			84,977

Net income per diluted common share	$	1.15		$	0.82

Weighted-average number of diluted common shares and equivalents		83,752			85,873

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

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN THOUSANDS)

(unaudited)


	Three Months Ended
	April 4, 2015			March 29, 2014

Net income	$	96,061		$	70,302

Other comprehensive (loss) income:

Foreign currency translation		(64,348	)		26,717

Unrealized gains on investments before income taxes		2,767			142
Income tax (expense) benefit		(116	)		2

Unrealized gains on investments, net of tax		2,651			144

Retirement liability adjustment before reclassifications		2,136			(931	)
Amounts reclassified to selling and administrative expenses		921			516

Retirement liability adjustment before income taxes		3,057			(415	)
Income tax (expense) benefit		(1,031	)		132

Retirement liability adjustment, net of tax		2,026			(283	)

Other comprehensive (loss) income		(59,671	)		26,578

Comprehensive income	$	36,390		$	96,880

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

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(unaudited)


	Three Months Ended
	April 4, 2015			March 29, 2014
Cash flows from operating activities:
Net income	$	96,061		$	70,302
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for doubtful accounts on accounts receivable		159			1,059
Provisions on inventory		1,368			1,139
Stock-based compensation		8,455			8,129
Deferred income taxes		2,828			(2,218	)
Depreciation		11,445			8,819
Amortization of intangibles		11,104			11,523
Change in operating assets and liabilities, net of acquisitions:
Decrease in accounts receivable		24,802			30,147
Increase in inventories		(21,369	)		(24,163	)
Increase in other current assets		(1,776	)		(8,008	)
Increase in other assets		(4,891	)		(7,169	)
Decrease in accounts payable and other current liabilities		(25,518	)		(11,491	)
Increase in deferred revenue and customer advances		42,555			34,356
Increase in other liabilities		9,367			3,330

Net cash provided by operating activities		154,590			115,755
Cash flows from investing activities:
Additions to property, plant, equipment and software capitalization		(21,410	)		(21,395	)
Business acquisitions, net of cash acquired		—			(3,615	)
Purchases of investments		(794,422	)		(607,028	)
Maturities of investments		759,386			512,089

Net cash used in investing activities		(56,446	)		(119,949	)
Cash flows from financing activities:
Proceeds from debt issuances		120,073			10,053
Payments on debt		(100,000	)		(1,295	)
Proceeds from stock plans		11,269			35,322
Purchases of treasury shares		(91,025	)		(92,572	)
Excess tax benefit related to stock option plans		2,757			8,507
Payments of derivative contracts		(3,348	)		(314	)

Net cash used in financing activities		(60,274	)		(40,299	)
Effect of exchange rate changes on cash and cash equivalents		(19,249	)		(921	)

Increase (decrease) in cash and cash equivalents		18,621			(45,414	)
Cash and cash equivalents at beginning of period		422,177			440,796

Cash and cash equivalents at end of period	$	440,798		$	395,382

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

WATERS CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1	Basis of Presentation and Summary of Significant Accounting Policies

Waters Corporation (“Waters^®” or the “Company”) is an analytical instrument manufacturer that primarily designs, manufactures, sells and services, through its Waters Division, high performance liquid chromatography (“HPLC”), ultra performance liquid chromatography (“UPLC^®” and together with HPLC, referred to as “LC”) and mass spectrometry (“MS”) technology systems and support products, including chromatography columns, other consumable products and comprehensive post-warranty service plans. These systems are complementary products that are frequently employed together (“LC-MS”) and sold as integrated instrument systems using a common software platform. 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”), nutritional safety analysis and environmental testing. LC-MS instruments combine a liquid phase sample introduction and separation system with mass spectrometric compound identification and quantification. Through its TA Division (“TA^®”), the Company primarily designs, manufactures, sells and services thermal analysis, rheometry and calorimetry instruments, which are used in predicting the suitability and stability of fine chemicals, pharmaceuticals, water, polymers and viscous liquids for various industrial, consumer goods and healthcare products, as well as for life science research. The Company is also a developer and supplier of software-based products that interface with the Company’s instruments, as well as other suppliers’ 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 have more or less than thirteen complete weeks. The Company’s first fiscal quarters for 2015 and 2014 ended on April 4, 2015 and March 29, 2014, respectively.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to the Quarterly Report on 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, 2014, as filed with the U.S. Securities and Exchange Commission on February 27, 2015.

Cash, Cash Equivalents and Investments

Cash equivalents represent highly liquid investments, with original maturities of 90 days or less, while investments with longer maturities are classified as investments. The Company maintains cash balances in various operating accounts in excess of federally insured limits, and in foreign subsidiary accounts in currencies other than U.S. dollars. As of April 4, 2015 and December 31, 2014, $2,067 million out of $2,109 million and $1,971 million out of $2,055 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries and may be subject to material tax effects on distribution to U.S. legal entities.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

Fair Value Measurements

In accordance with the accounting standards for fair value measurements and disclosures, certain of the Company’s assets and liabilities are measured at fair value on a recurring basis as of April 4, 2015 and December 31, 2014. Fair values determined by Level 1 inputs utilize observable data, such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points for which there is little or no market data, which require the reporting entity to develop its own assumptions.

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at April 4, 2015 (in thousands):


	Total at April 4, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. Treasury securities	$	641,693	$	—	$	641,693	$	—
Foreign government securities		24,994		—		24,994		—
Corporate debt securities		1,067,736		—		1,067,736		—
Time deposits		64,265		—		64,265		—
Equity securities		147		—		147		—
Other cash equivalents		29,000		—		29,000		—
Waters 401(k) Restoration Plan assets		35,678		—		35,678		—
Foreign currency exchange contracts		445		—		445		—

Total	$	1,863,958	$	—	$	1,863,958	$	—


Liabilities:
Contingent consideration	$	3,780	$	—	$	—	$	3,780
Foreign currency exchange contracts		631		—		631		—

Total	$	4,411	$	—	$	631	$	3,780

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2014 (in thousands):


	Total at December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. Treasury securities	$	626,772	$	—	$	626,772	$	—
Foreign government securities		24,998		—		24,998		—
Corporate debt securities		984,105		—		984,105		—
Time deposits		64,240		—		64,240		—
Equity securities		147		—		147		—
Other cash equivalents		29,000		—		29,000		—
Waters 401(k) Restoration Plan assets		33,935		—		33,935		—
Foreign currency exchange contracts		123		—		123		—

Total	$	1,763,320	$	—	$	1,763,320	$	—


Liabilities:
Contingent consideration	$	3,612	$	—	$	—	$	3,612
Foreign currency exchange contracts		651		—		651		—

Total	$	4,263	$	—	$	651	$	3,612

The fair values of the Company’s cash equivalents, investments, 401(k) restoration plan assets and foreign currency exchange contracts are determined through market and observable sources and have been classified as Level 2. These assets and liabilities have been initially valued at the transaction price and subsequently valued, typically utilizing third-party pricing services. The pricing services use many inputs to determine value, including reportable trades, benchmark yields, credit spreads, broker/dealer quotes, current spot rates and other industry and economic events. The Company validates the prices provided by third-party pricing services by reviewing their pricing methods and obtaining market values from other pricing sources. After completing these validation procedures, the Company did not adjust or override any fair value measurements provided by third-party pricing services as of April 4, 2015 and December 31, 2014.

Fair Value of Contingent Consideration

The fair value of the Company’s liability for contingent consideration related to the July 2014 acquisition of Medimass Research, Development and Service Kft. is determined using a probability-weighted discounted cash flow model, which uses significant unobservable inputs, and has been classified as Level 3. Subsequent changes in the fair value of the contingent consideration liability are recorded in the results of operations. The fair value of the contingent consideration liability associated with future earnout payments is based on several factors, including the development of future products, estimated sales of those products and a discount rate reflective of the Company’s creditworthiness. A change in any of these unobservable inputs can significantly change the fair value of the contingent consideration. Although there is no contractual limit, the fair value of future contingent consideration payments was estimated to be $4 million at both April 4, 2015 and December 31, 2014, based on the Company’s best estimate, as the earnout is based on future sales of certain products through 2034. There have been no changes in significant assumptions since December 31, 2014 and the change in fair value since then is primarily due to change in time value of money.

Fair Value of Other Financial Instruments

The Company’s cash, accounts receivable, accounts payable and variable interest rate debt are recorded at cost, which approximates fair value. The carrying value of the Company’s fixed interest rate debt was $500 million and $600 million at April 4, 2015 and December 31, 2014, respectively. The fair value of the Company’s fixed interest rate debt was estimated using discounted cash flow models, based on estimated current rates offered for similar debt under current market conditions for the Company. The fair value of the Company’s fixed interest rate debt was estimated to be $515 million and $608 million at April 4, 2015 and December 31, 2014, respectively, using Level 2 inputs.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

Derivative Transactions

The Company enters into foreign currency exchange contracts to manage exposures to changes in foreign currency exchange rates on certain inter-company balances and short-term assets and liabilities. Principal hedged currencies include the Euro, Japanese yen, British pound and Brazilian real. At April 4, 2015 and December 31, 2014, the Company held forward foreign exchange contracts with notional amounts totaling $109 million and $110 million, respectively.

The Company’s foreign currency exchange contracts included in the consolidated balance sheets are classified as follows (in thousands):


	April 4, 2015		December 31, 2014
Other current assets	$	445	$	123
Other current liabilities	$	631	$	651

The following is a summary of the activity in cost of sales in the statements of operations related to the forward foreign exchange contracts (in thousands):


	Three Months Ended
	April 4, 2015			March 29, 2014
Realized losses on closed contracts	$	(3,348	)	$	(314	)
Unrealized gains (losses) on open contracts		342			(881	)

Cumulative net pre-tax losses	$	(3,006	)	$	(1,195	)

Stockholders’ Equity

In May 2014, the Company’s Board of Directors authorized the Company to repurchase up to $750 million of its outstanding common stock over a three-year period and authorized the extension of the May 2012 program until May 2015. During the three months ended April 4, 2015 and March 29, 2014, the Company repurchased 0.7 million and 0.8 million shares of the Company’s outstanding common stock at a cost of $85 million and $86 million, respectively, under the May 2012 and May 2014 authorizations. As of April 4, 2015, the Company repurchased an aggregate of 7.6 million shares at a cost of $750 million under the May 2012 repurchase program, which is now completed. The Company has a total of $684 million authorized for future repurchases under the May 2014 plan. In addition, the Company repurchased $6 million and $7 million of common stock related to the vesting of restricted stock units during the three months ended April 4, 2015 and March 29, 2014, respectively. The Company believes that it has the financial flexibility to fund these share repurchases given current cash levels and debt borrowing capacity, as well as to invest in research, technology and business acquisitions to further grow the Company’s sales and profits.

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 suppliers, 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.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

The following is a summary of the activity of the Company’s accrued warranty liability for the three months ended April 4, 2015 and March 29, 2014 (in thousands):


	Balance at Beginning of Period		Accruals for Warranties		Settlements Made			Balance at End of Period
Accrued warranty liability:
April 4, 2015	$	13,266	$	1,762	$	(2,157	)	$	12,871
March 29, 2014	$	12,962	$	1,752	$	(1,919	)	$	12,795

Subsequent Events

The Company did not have any material subsequent events, except for the amendment of the Company’s credit agreement discussed in Note 5, “Debt”.

2	Marketable Securities

The Company’s marketable securities within cash equivalents and investments included in the consolidated balance sheets are detailed as follows (in thousands):


	April 4, 2015
	Amortized Cost		Unrealized Gain		Unrealized Loss			Fair Value
U.S. Treasury securities	$	640,441	$	1,270	$	(18	)	$	641,693
Foreign government securities		24,994		—		—			24,994
Corporate debt securities		1,066,695		1,171		(130	)		1,067,736
Time deposits		64,265		—		—			64,265
Equity securities		77		70		—			147

Total	$	1,796,472	$	2,511	$	(148	)	$	1,798,835


Amounts included in:
Cash equivalents	$	130,588	$	—	$	—		$	130,588
Investments		1,665,884		2,511		(148	)		1,668,247

Total	$	1,796,472	$	2,511	$	(148	)	$	1,798,835


	December 31, 2014
	Amortized Cost		Unrealized Gain		Unrealized Loss			Fair Value
U.S. Treasury securities	$	626,683	$	246	$	(157	)	$	626,772
Foreign government securities		24,998		—		—			24,998
Corporate debt securities		984,668		125		(688	)		984,105
Time deposits		64,240		—		—			64,240
Equity securities		77		70		—			147

Total	$	1,700,666	$	441	$	(845	)	$	1,700,262


Amounts included in:
Cash equivalents	$	67,051	$	—	$	—		$	67,051
Investments		1,633,615		441		(845	)		1,633,211

Total	$	1,700,666	$	441	$	(845	)	$	1,700,262

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

The estimated fair value of marketable debt securities by maturity date is as follows (in thousands):


	April 4, 2015		December 31, 2014
Due in one year or less	$	897,303	$	872,872
Due after one year through three years		837,120		763,003

Total	$	1,734,423	$	1,635,875

3	Inventories

Inventories are classified as follows (in thousands):


	April 4, 2015		December 31, 2014
Raw materials	$	85,943	$	84,952
Work in progress		19,513		16,749
Finished goods		152,074		144,729

Total inventories	$	257,530	$	246,430

4	Goodwill and Other Intangibles

The carrying amount of goodwill was $350 million and $355 million at April 4, 2015 and December 31, 2014, respectively. During the three months ended April 4, 2015, the effect of foreign currency translation decreased goodwill by $5 million.

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


	April 4, 2015						December 31, 2014
	Gross Carrying Amount		Accumulated Amortization		Weighted- Average Amortization Period		Gross Carrying Amount		Accumulated Amortization		Weighted- Average Amortization Period
Capitalized software		308,213		183,036		7 years		334,280		196,477		7 years
Purchased intangibles	$	158,050	$	111,965		11 years	$	163,855	$	112,279		11 years
Trademarks and IPR&D		13,857		—		—		14,095		—		—
Licenses		5,390		3,620		6 years		5,371		3,634		6 years
Patents and other intangibles		55,897		29,678		8 years		56,513		29,353		8 years


Total	$	541,407	$	328,299		8 years	$	574,114	$	341,743		8 years

During the three months ended April 4, 2015, the effect of foreign currency translation decreased the gross carrying value of intangible assets and accumulated amortization for intangible assets by $42 million and $24 million, respectively. Amortization expense for intangible assets was $11 million and $12 million for the three months ended April 4, 2015 and March 29, 2014, respectively. Amortization expense for intangible assets is estimated to be approximately $44 million per year for each of the next five years.

Debt

In June 2013, the Company entered into a credit agreement (the “2013 Credit Agreement”) that provides for a $1.1 billion revolving facility and a $300 million term loan facility. The revolving facility and term loan facility both mature on June 25, 2018 and require no scheduled prepayments before that date.

The interest rates applicable to the 2013 Credit Agreement are, at the Company’s option, equal to either the alternate base rate calculated daily (which is a rate per annum equal to the greatest of (a) the prime rate in effect on such day, (b) the federal funds effective rate in effect on such day plus 1/2% per annum, or (c) the adjusted LIBO rate on such day (or if such day is not a business day, the immediately preceding business day) for a deposit in U.S. dollars with a

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

maturity of one month plus 1% per annum) or the applicable 1, 2, 3 or 6 month adjusted LIBO rate, in each case, plus an interest rate margin based upon the Company’s leverage ratio, which can range between 0 to 12.5 basis points for alternate base rate loans and between 75 basis points and 112.5 basis points for adjusted LIBO rate loans. The facility fee on the 2013 Credit Agreement ranges between 12.5 basis points and 25 basis points. The 2013 Credit Agreement requires that the Company comply with an interest coverage ratio test of not less than 3.50:1 as of the end of any fiscal quarter for any period of four consecutive fiscal quarters and a leverage ratio test of not more than 3.50:1 as of the end of any fiscal quarter. In addition, the 2013 Credit Agreement includes negative covenants, affirmative covenants, representations and warranties and events of default that are customary for investment grade credit facilities.

As of April 4, 2015, $125 million of the outstanding portion of the revolving facility were classified as short-term liabilities in the consolidated balance sheet due to the fact that the Company expects to repay this portion of the borrowing under the revolving line of credit within the next twelve months. The remaining $560 million of the outstanding portion of the revolving facility were classified as long-term liabilities in the consolidated balance sheet, as this portion is not expected to be repaid within the next twelve months.

As of April 4, 2015 and December 31, 2014, the Company had a total of $500 million and $600 million of outstanding senior unsecured notes, respectively. Interest on the fixed rate senior unsecured notes is payable semi-annually each year. Interest on the floating rate senior unsecured notes is payable quarterly. The Company may prepay all or some of the senior unsecured notes at any time in an amount not less than 10% of the aggregate principal amount outstanding, plus the applicable make-whole amount or prepayment premium for Series H senior unsecured notes. In the event of a change in control of the Company (as defined in the note purchase agreement), the Company may be required to prepay the senior unsecured notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest. These senior unsecured notes require that the Company comply with an interest coverage ratio test of not less than 3.50:1 for any period of four consecutive fiscal quarters and a leverage ratio test of not more than 3.50:1 as of the end of any fiscal quarter. In addition, these senior unsecured notes include customary negative covenants, affirmative covenants, representations and warranties and events of default.

The Company had the following outstanding debt at April 4, 2015 and December 31, 2014 (in thousands):


	April 4, 2015		December 31, 2014
Foreign subsidiary lines of credit	$	316	$	243
Senior unsecured notes - Series A - 3.75%, due February 2015		—		100,000
Senior unsecured notes - Series C - 2.50%, due March 2016		50,000		—
2013 Credit Agreement		125,000		125,000

Total notes payable and debt		175,316		225,243


Senior unsecured notes - Series B - 5.00%, due February 2020		100,000		100,000
Senior unsecured notes - Series C - 2.50%, due March 2016		—		50,000
Senior unsecured notes - Series D - 3.22%, due March 2018		100,000		100,000
Senior unsecured notes - Series E - 3.97%, due March 2021		50,000		50,000
Senior unsecured notes - Series F - 3.40%, due June 2021		100,000		100,000
Senior unsecured notes - Series G - 3.92%, due June 2024		50,000		50,000
Senior unsecured notes - Series H - floating rate*, due June 2024		50,000		50,000
2013 Credit Agreement		860,000		740,000

Total long-term debt		1,310,000		1,240,000



Total debt	$	1,485,316	$	1,465,243

*	Series H senior unsecured notes bear interest at 3 month LIBOR for that floating rate interest period plus 1.25%.

As of April 4, 2015 and December 31, 2014, the Company had a total amount available to borrow of $413 million and $533 million, respectively, after outstanding letters of credit, under the 2013 Credit Agreement. The weighted-average interest rates applicable to the senior unsecured notes and 2013 Credit Agreement borrowings collectively were 2.09% and 2.31% at April 4, 2015 and December 31, 2014, respectively. As of April 4, 2015, the Company was in compliance with all debt covenants.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

The Company and its foreign subsidiaries also had available short-term lines of credit totaling $87 million and $88 million at April 4, 2015 and December 31, 2014, respectively, for the purpose of short-term borrowing and issuance of commercial guarantees. At April 4, 2015 and December 31, 2014, the weighted-average interest rates applicable to these short-term borrowings were 1.12% and 1.48%, respectively.

On April 23, 2015, Waters entered into an amendment to the 2013 Credit Agreement. The amended credit agreement provides for an increase of the revolving commitments from $1.1 billion to $1.3 billion and extends the maturity of the original credit agreement from June 25, 2018 until April 23, 2020. The Company plans to use future proceeds from the revolving facility for general corporate purposes.

6	Income Taxes

The Company’s effective tax rate was 15.3% and 15.0% for the three months ended April 4, 2015 and March 29, 2014, respectively. The Company accounts for its uncertain tax return reporting positions in accordance with the accounting standards for income taxes, which require financial statement reporting of the expected future tax consequences of uncertain tax reporting positions on the presumption that all concerned tax authorities possess full knowledge of those reporting positions, as well as all of the pertinent facts and circumstances, but prohibit any discounting of unrecognized tax benefits associated with those reporting positions 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 April 4, 2015 and March 29, 2014 (in thousands):


	April 4, 2015		March 29, 2014
Balance at the beginning of the period	$	19,596	$	24,716
Net changes in uncertain tax benefits		933		(812	)

Balance at the end of the period	$	20,529	$	23,904

With limited exceptions, the Company is no longer subject to tax audit examinations in significant jurisdictions for the years ended on or before December 31, 2007. However, carryforward attributes that were generated in years beginning on or before January 1, 2010 may still be adjusted upon examination by tax authorities if the attributes are utilized. The Company continuously monitors the lapsing of statutes of limitations on potential tax assessments for related changes in the measurement of unrecognized tax benefits, related net interest and penalties, and deferred tax assets and liabilities. As of April 4, 2015, the Company expects to record additional reductions in the measurement of its unrecognized tax benefits and related net interest and penalties of approximately $5 million within the next twelve months due to the lapsing of statutes of limitations on potential tax assessments. The Company does not expect to record any other material reductions in the measurement of its unrecognized tax benefits within the next twelve months.

7	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, restricted stock or other types of awards (e.g. restricted stock units).

The Company accounts for stock-based compensation costs in accordance with the accounting standards for stock-based compensation, which require that all share-based payments to employees be recognized in the statements of operations based on their fair values. The Company recognizes the expense using the straight-line attribution method. 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. The stock-based compensation accounting standards require 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 these standards, 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 (unaudited) – (Continued)

The consolidated statements of operations for the three months ended April 4, 2015 and March 29, 2014 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):


	Three Months Ended
	April 4, 2015		March 29, 2014
Cost of sales	$	674	$	756
Selling and administrative expenses		6,634		6,435
Research and development expenses		1,147		938

Total stock-based compensation	$	8,455	$	8,129

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 April 4, 2015 and March 29, 2014 are as follows:


Options Issued and Significant Assumptions Used to Estimate Option Fair Values	April 4, 2015			March 29, 2014
Options issued in thousands		32			32
Risk-free interest rate		1.6	%		1.9	%
Expected life in years		4			4
Expected volatility		0.267			0.245
Expected dividends		—			—

Weighted-Average Exercise Price and Fair Value of Options on the Date of Grant	April 4, 2015			March 29, 2014
Exercise price	$	113.88		$	99.22
Fair value	$	26.94		$	22.38

The following table summarizes stock option activity for the plans for the three months ended April 4, 2015 (in thousands, except per share data):


	Number of Shares			Price per Share	Weighted-Average Exercise Price
Outstanding at December 31, 2014		3,280		$37.84 to $113.36	$	82.85
Granted		32		$113.88	$	113.88
Exercised		(135	)	$37.84 to $98.21	$	75.50
Canceled		(72	)	$79.05 to $87.06	$	83.25

Outstanding at April 4, 2015		3,105		$38.09 to $113.88	$	83.48

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

Restricted Stock

During the three months ended April 4, 2015, the Company granted ten thousand shares of restricted stock. The fair value of these awards on the grant date was $113.88 per share.

Restricted Stock Units

The following table summarizes the unvested restricted stock unit award activity for the three months ended April 4, 2015 (in thousands, except for per share amounts):


	Shares			Weighted-Average Price
Unvested at December 31, 2014		533		$	94.38
Granted		129		$	118.75
Vested		(143	)	$	85.34
Forfeited		(2	)	$	92.09

Unvested at April 4, 2015		517		$	102.97

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

8	Earnings Per Share

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


	Three Months Ended April 4, 2015
	Net Income (Numerator)		Weighted- Average Shares (Denominator)		Per Share Amount
Net income per basic common share	$	96,061		83,025	$	1.16
Effect of dilutive stock option, restricted stock and restricted stock unit securities				727

Net income per diluted common share	$	96,061		83,752	$	1.15


	Three Months Ended March 29, 2014
	Net Income (Numerator)		Weighted- Average Shares (Denominator)		Per Share Amount
Net income per basic common share	$	70,302		84,977	$	0.83
Effect of dilutive stock option, restricted stock and restricted stock unit securities				896

Net income per diluted common share	$	70,302		85,873	$	0.82

For both the three months ended April 4, 2015 and March 29, 2014, the Company had 0.6 million stock options that were antidilutive due to having higher exercise prices than the Company’s average stock 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 (unaudited) – (Continued)

9	Retirement Plans

The Company sponsors various retirement plans. The summary of the components of net periodic pension costs for the plans for the three months ended April 4, 2015 and March 29, 2014 is as follows (in thousands):


	Three Months Ended
	April 4, 2015									March 29, 2014
	U.S. Pension Plans			U.S. Retiree Healthcare Plan			Non-U.S. Pension Plans			U.S. Pension Plans			U.S. Retiree Healthcare Plan			Non-U.S. Pension Plans
Service cost	$	—		$	262		$	1,337		$	—		$	199		$	1,212
Interest cost		1,513			118			402			1,595			118			592
Expected return on plan assets		(2,318	)		(122	)		(410	)		(2,308	)		(107	)		(392	)
Net amortization:
Prior service cost (credit)		—			—			14			—			(13	)		(47	)
Net actuarial loss (gain)		679			—			273			485			(4	)		97

Net periodic pension (benefit) cost	$	(126	)	$	258		$	1,616		$	(228	)	$	193		$	1,462

During fiscal year 2015, the Company expects to contribute a total of approximately $4 million to $11 million to the Company’s defined benefit plans.

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 maker. As a result of this evaluation, the Company determined that it has two operating segments: Waters Division and TA Division.

Waters Division is primarily 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 primarily 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.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)

Net sales for the Company’s products and services are as follows for the three months ended April 4, 2015 and March 29, 2014 (in thousands):


	Three Months Ended
	April 4, 2015		March 29, 2014
Product net sales:
Waters instrument systems	$	188,504	$	176,364
Chemistry		78,183		75,203
TA instrument systems		36,186		33,228

Total product sales		302,873		284,795


Service net sales:
Waters service		142,981		132,042
TA service		14,550		13,671

Total service sales		157,531		145,713


Total net sales	$	460,404	$	430,508

11	Recent Accounting Standard Changes and Developments

Recently Issued Accounting Standards

In May 2014, amended accounting guidance was issued regarding the recognition of revenue from contracts with customers. The objective of this guidance is to significantly enhance comparability and clarify principles of revenue recognition practices across entities, industries, jurisdictions and capital markets. This guidance is effective for annual and interim reporting periods beginning after December 15, 2016; however, there is currently a proposal to delay the effective period by one year. Adoption prior to December 15, 2016 is not permitted. The Company is currently evaluating the potential impact that the adoption of this standard will have on the Company’s financial position, results of operations or cash flows.

In April 2015, accounting guidance was issued which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability. This guidance is effective for annual and interim reporting periods beginning after December 15, 2015 and early adoption is permitted. The Company is currently evaluating the potential impact that the adoption of this standard will have on the Company’s 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 has two operating segments: the Waters Division and the TA Division (“TA^®”). The Waters Division’s products and services primarily consist of high performance liquid chromatography (“HPLC”), ultra performance liquid chromatography (“UPLC^®” and together with HPLC, referred to as “LC”), mass spectrometry (“MS”) and chemistry consumable products and related services. TA products and services primarily consist of thermal analysis, rheometry and calorimetry instrument systems and service sales. The Company’s products are used by life science (including pharmaceutical), biochemical, industrial, nutritional safety, environmental, academic and governmental customers. These customers use the Company’s products to detect, identify, monitor and measure the chemical, physical and biological composition of materials and to predict the suitability and stability of fine chemicals, pharmaceuticals, water, polymers and viscous liquids in various industrial, consumer goods and healthcare products.

The Company’s operating results for the three months ended April 4, 2015 and March 29, 2014 are as follows (in thousands):


	Three Months Ended
	April 4, 2015			March 29, 2014			*% Change*

Product sales	$	302,873		$	284,795			6	%
Service sales		157,531			145,713			8	%

Total net sales		460,404			430,508			7	%
Total cost of sales		189,246			187,719			1	%

Gross profit		271,158			242,789			12	%
Gross profit as a % of sales		58.9	%		56.4	%

Selling and administrative expenses		119,751			126,635			(5	%)
Research and development expenses		28,951			24,746			17	%
Purchased intangibles amortization		2,474			2,647			(7	%)

Operating income		119,982			88,761			35	%
Operating income as a % of sales		26.1	%		20.6	%

Interest expense, net		(6,635	)		(6,031	)		10	%

Income from operations before income taxes		113,347			82,730			37	%
Provision for income taxes		17,286			12,428			39	%

Net income	$	96,061		$	70,302			37	%


Net income per diluted common share	$	1.15		$	0.82			40	%

Sales in the first quarter of 2015 grew 7% despite the significant negative effect of foreign currency translation, which reduced sales growth by 8%. The 2015 sales growth benefited from strong demand from the Company’s life science, industrial chemical, nutritional safety and environmental customers, especially in the U.S., China and India. The 2015 sales growth also benefited by an estimated 4% from additional calendar days in the first quarter of 2015 as compared with the first quarter of 2014, as well as the relatively weak sales growth in the first quarter of 2014. The negative impact from foreign currency translation resulted primarily from the weakening of the Euro and Japanese yen against the U.S. dollar, which reduced Europe’s and Japan’s sales by 16% and 14%, respectively. Acquisitions had a minimal impact on sales for the quarter.

In the first quarter of 2015, both instrument system sales and recurring revenues (combined chemistry consumable and service sales) increased 7%, with foreign currency translation negatively impacting both by 8%. Sales to life science customers increased 9% for the quarter, with double-digit sales growth in all regions, except Europe and Japan, where the effects of foreign currency translation decreased sales 17% and 15%, respectively. Combined sales to industrial chemical, nutritional safety and environmental customers increased 5% for the quarter and combined global sales to governmental and academic customers decreased 3% for the quarter, with the effect of foreign currency translation negatively impacting sales to these customers by 6% and 7%, respectively.

The increase in gross profit for the quarter was primarily a result of sales mix and leverage achieved on higher sales volumes, and the favorable effects of foreign currency translation on operating costs of the Company’s European manufacturing and distribution facilities. Based on current foreign currency exchange rates and forecasts, the Company estimates that the full year impact of foreign currency translation will negatively impact sales by approximately 6% and have a negative impact on gross profit.

Selling and administrative expenses decreased 5% for the quarter from the favorable effect of foreign currency translation and the impact of the $6 million of severance costs incurred in the first quarter of 2014 related to a reduction in workforce. The increase in research and development expenses in the quarter was primarily a result of additional headcount, merit compensation and costs associated with new product launches and the development of new product initiatives.

Net income per diluted share for the quarter benefited from an increase in sales and fewer shares outstanding due to additional share repurchases. Foreign currency translation decreased net income per diluted share by approximately $0.08 in 2015 as compared to 2014.

Net cash provided by operating activities for the quarter was $155 million and $116 million in 2015 and 2014, respectively. The $39 million increase was primarily a result of higher sales volumes and the timing of payments to vendors and collection of receivables from customers, as well as the additional days in the first quarter of 2015. Within cash flows used in investing activities, capital expenditures related to property, plant, equipment and software capitalization were $21 million for both 2015 and 2014.

Within cash flows used in financing activities, the Company received $11 million and $35 million of proceeds from stock plans in 2015 and 2014, respectively. Fluctuations in these amounts were primarily attributable to changes in the Company’s stock price and the expiration of stock option grants. In May 2014, the Company’s Board of Directors authorized the Company to repurchase up to $750 million of its outstanding common stock over a three-year period and authorized the extension of the May 2012 program until May 2015. The Company repurchased $85 million and $86 million of the Company’s outstanding common stock in 2015 and 2014, respectively, under the May 2012 and May 2014 authorizations.

On April 23, 2015, Waters entered into an amendment to the credit agreement dated June 2013 (the “2013 Credit Agreement”). The amended credit agreement provides for an increase of the revolving commitments from $1.1 billion to $1.3 billion and extends the maturity of the original credit agreement from June 25, 2018 until April 23, 2020. The Company plans to use future proceeds from the revolving facility for general corporate purposes.

Results of Operations

Sales by Geography

Geographic sales information is presented below for the three months ended April 4, 2015 and March 29, 2014 (in thousands):


	Three Months Ended
	April 4, 2015		March 29, 2014		*% change*
Net Sales:
United States	$	146,375	$	122,179		20	%
Europe		124,401		132,928		(6	%)
Asia:
China		62,174		53,179		17	%
Japan		39,191		45,607		(14	%)
Asia Other		57,058		47,482		20	%

Total Asia		158,423		146,268		8	%
Other		31,205		29,133		7	%

Total net sales	$	460,404	$	430,508		7	%

The increase in sales in the U.S. for the quarter was broad-based across all product lines and customer classes. The 6% decrease in Europe’s sales for the quarter was primarily a result of the negative impact of foreign currency translation, which decreased sales in Europe by 16%. China’s sales growth for the quarter was driven by life science customers across all product lines. Japan’s sales were negatively impacted by foreign currency translation, which decreased sales by 14% for the quarter. The increase in sales in the quarter in the rest of Asia was broad-based across all products and driven primarily by an increase in India’s sales. The sales increase in the quarter for the rest of the world was driven by sales of instrument systems to life science customers.

Waters Division Net Sales

Net sales for the Waters Division’s products and services are as follows for the three months ended April 4, 2015 and March 29, 2014 (in thousands):


	Three Months Ended
	April 4, 2015		% of Total			March 29, 2014		% of Total			*% change*
Waters instrument systems	$	188,504		46	%	$	176,364		46	%		7	%
Chemistry		78,183		19	%		75,203		20	%		4	%

Total Waters Division product sales		266,687		65	%		251,567		66	%		6	%
Waters service		142,981		35	%		132,042		34	%		8	%

Total Waters Division net sales	$	409,668		100	%	$	383,609		100	%		7	%

Waters instrument system sales (LC and LC-MS) increased in the quarter, primarily due to stronger demand for instrument systems from life science, industrial chemical, nutritional safety and environmental customers. The 7% increase in recurring revenues for the quarter primarily resulted from a combination of a higher utilization rate of installed instrument systems and a higher base of installed instruments. The effect of foreign currency translation decreased sales for the Waters Division by 8% and recent acquisitions had a minimal impact on sales.

Waters Division sales increased 21% in the U.S. for the quarter and decreased 5% in Europe, with foreign currency translation decreasing sales in Europe by 18%. Total Asia sales increased 7% for the quarter, with sales in China increasing 16%. Japan sales decreased 14%, primarily due to the effects of foreign currency, while sales in the rest of Asia increased 17% as a result of double-digit sales growth in India. Waters Division sales in the rest of the world increased 5% for the quarter.

TA Division Net Sales

Net sales for the TA Division’s products and services are as follows for the three months ended April 4, 2015 and March 29, 2014 (in thousands):


	Three Months Ended
	April 4, 2015		% of Total			March 29, 2014		% of Total			*% change*
TA instrument systems	$	36,186		71	%	$	33,228		71	%		9	%
TA service		14,550		29	%		13,671		29	%		6	%

Total TA Division net sales	$	50,736		100	%	$	46,899		100	%		8	%

TA instrument system sales benefited in the quarter from stronger demand for TA’s core thermal analysis instruments. TA service sales increased in the quarter due to sales of service plans and billings to a higher installed base of customers. The effect of foreign currency translation decreased both instrument system and service sales for TA by 6%. For the quarter, TA’s sales increased 14% in the U.S. and decreased 17% in Europe, primarily due to the negative effects of foreign currency translation. TA’s total sales in Asia increased 22%, with 29% growth in China and a decreased of 12% in Japan, with the effect of foreign currency decreasing sales by 15% in Japan.

Gross Profit

Gross profit increased 12% for the quarter, primarily as a result of benefits from sales mix, leverage achieved on higher sales volumes and the favorable effect of foreign currency translation on operating costs of the Company’s European manufacturing and distribution facilities. Gross profit as a percentage of sales for the quarter was also impacted by the factors discussed above.

Gross profit as a percentage of sales is affected by many factors, including, but not limited to, foreign currency translation, product mix, price, product costs of instrument systems and amortization of software platforms. The Company expects that the impact of foreign currency translation will negatively affect gross profit for the remainder of 2015, based on current exchange rates.

Selling and Administrative Expenses

Selling and administrative expenses decreased 5% for the quarter from the favorable effect of foreign currency translation and the impact of the $6 million of severance costs incurred in the first quarter of 2014 related to a reduction in workforce. As a percentage of net sales, selling and administrative expenses were 26.0% and 29.4% for the 2015 and 2014 quarters, respectively.

Research and Development Expenses

Research and development expenses increased 17% for the quarter, primarily as a result of merit compensation increases and additional headcount and costs associated with new product launches and the development of new product initiatives.

Interest Expense, Net

The increase in interest expense for the three months ended April 4, 2015 was primarily attributable to an increase in average borrowings.

Provision for Income Taxes

The four principal jurisdictions in which the Company manufactures are the U.S., Ireland, the United Kingdom and Singapore, where the marginal effective tax rates were approximately 37.5%, 12.5%, 20.25% and 0%, respectively, as of April 4, 2015. The Company has a contractual tax rate in Singapore of 0% through March 2016, based upon achievement of contractual milestones that the Company expects to continue to meet, and the Company is currently attempting to negotiate an extension of this agreement. The current statutory tax rate in Singapore is 17%. The Company’s effective tax rate is influenced by many significant factors, including, but not limited to, the wide range of income tax rates in jurisdictions in which the Company operates; sales volumes and profit levels in each tax jurisdiction; changes in tax laws, tax rates and policies; the outcome of various ongoing tax audit examinations; and the impact of foreign currency transactions and translation. As a result of variability in these factors, the Company’s effective tax rates in the future may not be similar to the effective tax rates for the current or prior year. The Company’s effective tax rate for the quarter was 15.3% and 15.0% for 2015 and 2014, respectively.

Liquidity and Capital Resources

Condensed Consolidated Statements of Cash Flows (in thousands):


	Three Months Ended
	April 4, 2015			March 29, 2014
Net income	$	96,061		$	70,302
Depreciation and amortization		22,549			20,342
Stock-based compensation		8,455			8,129
Deferred income taxes		2,828			(2,218	)
Change in accounts receivable		24,802			30,147
Change in inventories		(21,369	)		(24,163	)
Change in accounts payable and other current liabilities		(25,518	)		(11,491	)
Change in deferred revenue and customer advances		42,555			34,356
Other changes		4,227			(9,649	)

Net cash provided by operating activities		154,590			115,755
Net cash used in investing activities		(56,446	)		(119,949	)
Net cash used in financing activities		(60,274	)		(40,299	)
Effect of exchange rate changes on cash and cash equivalents		(19,249	)		(921	)

Increase (decrease) in cash and cash equivalents	$	18,621		$	(45,414	)

Cash Flow from Operating Activities

Net cash provided by operating activities was $155 million and $116 million in the three months ended April 4, 2015 and March 29, 2014, respectively. The changes within net cash provided by operating activities in 2015 as compared to 2014 include the following significant changes in the sources and uses of net cash provided by operating activities, aside from the increase in net income:

•

The change in accounts receivable in 2015 compared to 2014 was primarily attributable to timing of shipments and payments made by customers. Days-sales-outstanding (“DSO”) decreased to 78 days at April 4, 2015 from 85 days at March 29, 2014, with the effects of foreign currency lowering DSO by an estimated 4 days.

•

The change in inventory in both 2015 and 2014 is primarily attributable to the additional inventory ramp up for new product launches.

•

The 2015 and 2014 change in accounts payable and other current liabilities was a result of timing of payments to vendors.

•

Net cash provided from deferred revenue and customer advances in both 2015 and 2014 was a result of the higher installed base of customers renewing annual service contracts.

•

Other changes were attributable to variation in the timing of various provisions, expenditures, prepaid income taxes and accruals in other current assets, other assets and other liabilities.

Cash Used in Investing Activities

Year-to-date, net cash used in investing activities totaled $56 million and $120 million in 2015 and 2014, respectively. Additions to fixed assets and capitalized software were $21 million in both 2015 and 2014. During 2015 and 2014, the Company purchased $794 million and $607 million of investments, while $759 million and $512 million of investments matured, respectively. Business acquisitions, net of cash acquired, were $4 million in 2014. There were no business acquisitions in 2015.

Cash Used in Financing Activities

During 2015 and 2014, the Company’s total debt borrowings increased by $20 million and $9 million, respectively. As of April 4, 2015, the Company had a total of $1,485 million in outstanding debt, which consisted of $500 million in outstanding senior unsecured notes, $300 million borrowed under the term loan facility under the 2013 Credit Agreement and $685 million borrowed under the revolving credit facility under the 2013 Credit Agreement. At April 4, 2015, $125 million of the outstanding portion of the revolving facility were classified as short-term

liabilities in the consolidated balance sheet due to the fact that the Company expects to repay this portion of the borrowing under the revolving line of credit within the next twelve months. The remaining $560 million of the outstanding portion of the revolving facility were classified as long-term liabilities in the consolidated balance sheet, as this portion is not expected to be repaid within the next twelve months. As of April 4, 2015, the Company had a total amount available to borrow under the 2013 Credit Agreement of $413 million after outstanding letters of credit.

In May 2014, the Company’s Board of Directors authorized the Company to repurchase up to $750 million of its outstanding common stock over a three-year period and authorized the extension of the May 2012 program until May 2015. During 2015 and 2014, the Company repurchased 0.7 million and 0.8 million shares of the Company’s outstanding common stock at a cost of $85 million and $86 million, respectively, under the May 2012 and May 2014 authorizations. As of April 4, 2015, the Company repurchased an aggregate of 7.6 million shares at a cost of $750 million under the May 2012 repurchase program, which is now completed. As of April 4, 2015, the Company had a total of $684 million authorized for future repurchases under the May 2014 plan. In addition, the Company repurchased $6 million and $7 million of common stock related to the vesting of restricted stock units during 2015 and 2014, respectively.

The Company received $11 million and $35 million of proceeds from the exercise of stock options and the purchase of shares pursuant to the Company’s employee stock purchase plan in 2015 and 2014, respectively.

In April 2015, Waters entered into an amendment to the 2013 Credit Agreement. The amended credit agreement provides for an increase of the revolving commitments from $1.1 billion to $1.3 billion and extends the maturity of the original credit agreement from June 25, 2018 until April 23, 2020. The Company plans to use future proceeds from the revolving facility for general corporate purposes.

The Company had cash, cash equivalents and investments of $2,109 million as of April 4, 2015. The majority of the Company’s cash, cash equivalents and investments are generated from foreign operations, with $2,067 million held by foreign subsidiaries at April 4, 2015. Due to the fact that most of the Company’s cash, cash equivalents and investments are held outside of the U.S., the Company must manage and maintain sufficient levels of cash flow in the U.S. to fund operations and capital expenditures, service debt interest, finance potential U.S. acquisitions and continue the authorized stock repurchase program in the U.S. These U.S. cash requirements are managed by the Company’s cash flow from U.S. operations and the use of the Company’s revolving credit facility.

Management believes, as of the date of this report, that its financial position, particularly in the U.S., along with expected future cash flows from earnings based on historical trends and the ability to raise funds from external sources and the borrowing capacity from existing, committed credit facilities, will be sufficient to service debt and fund working capital and capital spending requirements, authorized share repurchase amounts and potential acquisitions. In addition, there have been no recent significant changes to the Company’s financial position, nor are there any anticipated changes, to warrant a material adjustment related to indefinitely reinvested foreign earnings.

Contractual Obligations, Commercial Commitments, Contingent Liabilities and Dividends

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, 2014, as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 27, 2015. The Company reviewed its contractual obligations and commercial commitments as of April 4, 2015 and determined that there were no material changes from the information set forth in the Annual Report on Form 10-K.

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 that it has meritorious arguments in its current litigation matters and that 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 2015, the Company expects to contribute a total of approximately $4 million to $11 million to the Company’s defined benefit plans.

The Company has not paid any dividends and has no plans, at this time, to pay any dividends in the future.

Critical Accounting Policies and Estimates

In the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on February 27, 2015, 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, business combinations and asset acquisitions, valuation of contingent considerations and stock-based compensation. The Company reviewed its policies and determined that those policies remain the Company’s most critical accounting policies for the three months ended April 4, 2015. The Company did not make any changes in those policies during the three months ended April 4, 2015.

New Accounting Pronouncements

Please 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 any statements regarding, among other items, anticipated trends or growth in the Company’s business, including, but not limited to, the impact of foreign currency translation on financial results; the growth rate of sales and research and development expenses; the impact costs associated with developing new technologies and bringing these new technologies to market; the impact of new product launches and the associated costs, such as the amortization expense related to software platforms; geographic sales mix of business; development of products by acquired businesses and the amount of contingent payments to the sellers of an acquired business; anticipated expenses, including interest expense, capitalized software costs and effective tax rates; the impact and outcome of the Company’s various ongoing tax audit examinations; the achievement of contractual milestones to preserve foreign tax rates; the impact and outcome of litigation matters; the impact of the loss of intellectual property protection; the impact of new accounting standards and pronouncements; the adequacy of the Company’s supply chain and manufacturing capabilities and facilities; the impact of regulatory compliance; the Company’s expected cash flow, borrowing capacity, debt repayment and refinancing; the Company’s ability to fund working capital, capital expenditures, service debt, repay outstanding lines of credit, make authorized share repurchases, fund potential acquisitions and pay any adverse litigation or tax audit liabilities, particularly in the U.S.; future impairment charges; the Company’s contributions to defined benefit plans; the Company’s expectations regarding changes to its financial position; compliance with applicable environmental laws; and the impact of recent acquisitions on sales and earnings.

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 on Form 10-Q. Statements that are not statements of historical fact may be deemed forward-looking statements. You can identify these forward-looking statements by the use of the words “feels”, “believes”, “anticipates”, “plans”, “expects”, “may”, “will”, “would”, “intends”, “suggests”, “appears”, “estimates”, “projects”, “should” 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 risks inherent in succession planning, as the Company’s chief executive officer has announced his intention to retire.

•

Foreign exchange rate fluctuations that could adversely affect translation of the Company’s future sales, financial operating results and the condition of its non-U.S. operations, especially when a currency weakens against the U.S. dollar.

•

Current global economic, sovereign and political conditions and uncertainties, particularly regarding the effect of the Chinese government’s ongoing tightening of restrictions on procurement by government-funded customers; the Company’s ability to access capital and maintain liquidity in volatile market conditions of customers; changes in timing and demand by the Company’s customers and various market sectors, particularly if they should reduce capital expenditures or are unable to obtain funding, as in the cases of governmental, academic and research institutions; the effect of mergers and acquisitions on customer demand; and the Company’s ability to sustain and enhance service.

•

Negative industry trends; changes in the competitive landscape as a result of changes in ownership, mergers and continued consolidation among the Company’s competitors; introduction of competing products by other companies and loss of market share; pressures on prices from customers or resulting from competition; regulatory, economic and competitive obstacles to new product introductions; lack of acceptance of new products; expansion of our business in developing markets; spending by certain end-markets; ability to obtain alternative sources for components and modules; and the possibility that future sales of new products, which trigger contingent purchase payments, may exceed our expectations.

•

Increased regulatory burdens as the Company’s business evolves, especially with respect to the Food and Drug Administration and Environmental Protection Agency, among others, as well as regulatory, environmental and logistical obstacles affecting the distribution of the Company’s products, completion of purchase order documentation by our customers and ability of customers to obtain letters of credit or other financing alternatives.

•

Risks associated with lawsuits, particularly involving claims for infringement of patents and other intellectual property rights.

•

The impact and costs incurred from changes in accounting principles and practices; the impact and costs of changes in statutory or contractual tax rates; shifts in taxable income in jurisdictions with different effective tax rates; and the outcome of and costs associated with ongoing and future tax audit examinations or changes in respective country legislation affecting the Company’s effective rates.

Certain of these and other factors are discussed under the heading “Risk Factors” under Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on February 27, 2015. 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. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this report. 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 April 4, 2015. For information regarding the Company’s market risk, refer to Item 7A of Part II of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on February 27, 2015.

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 April 4, 2015 (1) 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) 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 was identified in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended April 4, 2015 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 April 4, 2015 as described in Item 3 of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on February 27, 2015.

Item 1A:

Risk Factors

Information regarding risk factors of the Company is set forth under the heading “Risk Factors” under Part I, Item 1A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on February 27, 2015. The Company reviewed its risk factors as of April 4, 2015 and determined that there were no material changes from the ones set forth in the Form 10-K. Note, however, the discussion under the subheading “Special Note Regarding Forward-Looking Statements” in Part I, Item 2 of this quarterly report on Form 10-Q. These risks are not the only ones facing the Company. 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 operating results.

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer

The following table provides information about purchases by the Company during the three months ended April 4, 2015 of equity securities registered by the Company under the Exchange Act (in thousands, except per share data):


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) (2)		Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) (2)
January 1 to January 31, 2015		—	$	—		—	$	768,758
February 1 to February 28, 2015		523	$	119.89		495	$	709,467
March 1 to April 4, 2015		235	$	120.52		215	$	683,538

Total		758	$	120.09		710	$	683,538

(1)	In May 2012, the Company’s Board of Directors authorized the repurchase of up to $750 million of its outstanding common stock in open market transactions over a two-year period and, in May 2014, the Board of Directors authorized the extension of that program through May 2015.

(2)	In May 2014, the Company’s Board of Directors authorized the repurchase of up to $750 million of its outstanding common stock in open market transactions over a three-year period.

Item 6:

Exhibits


Exhibit Number		Description of Document

10.1		Change of Control/Severance Agreement, dated as of April 1, 2015, between Waters Corporation and Michael F. Silveira.

10.2		Credit Agreement, dated as of April 23, 2015, among Waters Corporation, JPMorgan Chase Bank, N.A., JP Morgan Europe Limited and other Lenders party thereto.

31.1		Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Chief Financial Officer Certification 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.

101		The following materials from Waters Corporation’s Quarterly Report on Form 10-Q for the quarter ended April 4, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets (unaudited), (ii) the Consolidated Statements of Operations (unaudited), (iii) the Consolidated Statements of Comprehensive Income (unaudited), (iv) the Consolidated Statements of Cash Flows (unaudited), and (v) Condensed Notes to Consolidated Financial Statements (unaudited).

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any filing, except to the extent the Company specifically incorporates it by reference.

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/ EUGENE G. CASSIS

Eugene G. Cassis

Corporate Vice President and

Chief Financial Officer

Date: May 8, 2015

Exhibit 10.1

CHANGE OF CONTROL/SEVERANCE AGREEMENT

This CHANGE OF CONTROL/SEVERANCE AGREEMENT, dated as of April 1, 2015, is made by and between Waters Corporation (together with all subsidiaries or affiliates hereinafter referred to as the “Company”) and Michael F. Silveira (the “Executive”).

WHEREAS, the Executive has been hired as a senior executive of the Company and is expected to make major contributions to the Company; and

WHEREAS, the Company desires continuity of management; and

WHEREAS, the Executive is willing to render services to the Company subject to the conditions set forth in this Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Executive agree as follows:

1 . Termination prior to a Change of Control. If, within nine (9) months prior to a Change of Control (as such term is defined in Section 3(c) below) and subsequent to the commencement of substantive discussions that ultimately result in the Change of Control, but prior to such Change of Control, the Company terminates the Executive’s employment with the Company for a reason other than Cause (as such term is defined in Section 3(d) below), death or Disability (as such term is defined in Section 3(e) below), the Company shall:

(a) Cash Payment. Pay to the Executive a lump sum amount (reduced by any required withholding), within ten (10) business days following the Change of Control, equal to the sum of (i) twenty-four (24) times his/her monthly base salary (at the highest monthly base salary rate in effect for the Executive in the twelve-month period prior to the termination of his/her employment) and (ii) an amount equal to the amount payable pursuant to the immediately preceding clause (i) times the greater of (X) his/her target bonus percentage under the Company’s Management Incentive Plan or any successor plan for the year in which the termination of the Executive’s employment occurs or (Y) his/her bonus percentage theretofore accrued thereunder for that year; and

Executive continued to be employed by the Company and continued to participate in the relevant plan or plans. The Executive and his/her dependents shall be entitled to health insurance continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), from the date of discontinuance specified in the preceding sentence, to the extent such coverage is required to be provided in accordance with applicable law; and

(c) Equity Arrangements. On the Change of Control, and notwithstanding any contrary provisions of the Amended and Restated 1994 Stock Option Plan, the Second Amended and Restated 1996 Long-Term Performance Incentive Plan, the 2003 Equity Incentive Plan or the 2012 Equity Incentive Plan (or any plans that may become the successors to such plans) and any equity incentive agreements entered into between the Company and the Executive pursuant to such plans or otherwise, cause any unexercisable installments of any equity of the Company or any subsidiary or affiliate of the Company held by the Executive pursuant to any such equity incentive agreement on the Executive’s last date of employment with the Company that have not expired to become exercisable, or in the case of any then effective restrictions on the vesting of any equity of the Company or any subsidiary or affiliate of the Company held by the Executive pursuant to any such equity incentive agreement, to cause such restrictions to lapse, as the case may be, on the Change of Control; and

(d) Qualified Plan Arrangements. On the Change of Control, cause any unvested portion of any qualified or non-qualified capital accumulation benefits granted to the Executive under the Waters Investment Plan, Waters Retirement Plan, Waters 401(k) Restoration Plan, the Waters Retirement Restoration Plan, and the Waters Health Care Reimbursement Plan for Retirees (or any plans that may become the successors to such plans) to become immediately vested (subject to applicable law);

provided, however, that any amounts and benefits set forth in this Section 1 shall be reduced by any and all other severance or other amounts or benefits paid or payable to the Executive as a result of the termination of his/her employment.

2. Termination Following a Change of Control.

If, at any time during a period commencing with a Change of Control and ending eighteen (18) months after such Change of Control, the Company terminates the Executive’s employment for a reason other than Cause, death, or Disability or the Executive terminates employment with the Company for “Good Reason” (provided, however, that any such termination by the Executive must occur promptly, and in any event within 90 days, after the occurrence of the event or events constituting “Good Reason”), the Company shall:

(a) Cash Payment. Pay to the Executive a lump sum amount (reduced by any required withholding), within ten (10) business days following the Executive’s last date of employment, equal to the sum of twenty-four (24) times his/her monthly base salary (at the highest monthly base salary rate in effect for such Executive in the twelve (12) month period prior to the termination of his/her employment) and (ii) an amount equal to the amount payable pursuant to the immediately preceding clause (i)

times the greater of (X) his/her target bonus percentage under the Company’s Management Incentive Plan or any successor plan for the year in which the termination of the Executive’s employment occurs or (Y) his/her bonus percentage theretofore accrued thereunder for that year; and

(b) Benefits. Provide the Executive and his/her dependents with the same life, accident, health and dental insurance benefits that the Executive was receiving immediately prior to the termination of his/her employment until the earlier of: (i) the date which is twenty-four (24) months following the date of the Change of Control; or (ii) the date the Executive commences subsequent employment; provided, that if the Executive’s continued participation is not possible under the terms of any one or more of those insurance plans, the Company shall pay to the Executive the amount the Company would have paid in premiums under the relevant plan or plans had the Executive continued to be employed by the Company and continued to participate in the relevant plan or plans. The Executive and his/her dependents shall be entitled to health insurance continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), from the date of discontinuance specified in the preceding sentence, to the extent such coverage is required to be provided in accordance with applicable law; and

(c) Equity Arrangements. Notwithstanding any contrary provisions of the Amended and Restated 1994 Stock Option Plan, the Second Amended and Restated 1996 Long-Term Performance Incentive Plan, the 2003 Equity Incentive Plan or the 2012 Equity Incentive (or any plans that may become the successors to such plans) and any equity incentive agreements entered into between the Company and the Executive pursuant to such plans or otherwise, cause any unexercisable installments of any equity of the Company or any subsidiary or affiliate of the Company held by the Executive pursuant to any such equity incentive agreement on the Executive’s last date of employment with the Company that have not expired to become exercisable, or, in the case of any then effective restrictions on the vesting of any equity of the Company or any subsidiary or affiliate of the Company held by the Executive pursuant to any such equity incentive agreement, to cause such restrictions to lapse, as the case may be, on such last date of employment; and

(d) Qualified Plan Arrangements. Cause any unvested portion of any qualified and non-qualified capital accumulation benefits granted to the Executive under the Waters Investment Plan, Waters Retirement Plan, Waters 401(k) Restoration Plan, the Waters Retirement Restoration Plan, and the Waters Health Care Reimbursement Plan for Retirees (or any plans that may become the successors to such plans) to become immediately vested (subject to applicable law);

provided, however, that any amounts and benefits set forth in this Section 2 shall be reduced by any and all other severance or other amounts or benefits paid or payable to the Executive as a result of the termination of his/her employment.

(e) Definition of Good Reason. For purposes of this Section 2 above, “Good Reason” shall mean the occurrence (without the Executive’s express written consent) of one or more of the following events following a Change of Control, as the case may be:

(i) A material diminution in the Executive’s authority, duties or responsibilities from his/her authority, duties and responsibilities immediately prior to the Change in Control; or

(ii) A material reduction in the Executive’s base compensation (except for salary reductions similarly affecting all senior executives of the Company); or

(iii) A material change in the Executive’s place of business (provided, however, that travel for business purposes consistent with past practices shall not be considered a change in the place of business for the purpose of this clause (iii)); or

(iv) A material breach by the Company of any agreement under which the Executive provides services to the Company, including without limitation thereto Section 3(g) of this Agreement and any plan of incentive compensation;

provided, that the occurrence of any of the events listed in clauses (i) though (iv) shall not mean “Good Reason” (x) unless the Executive shall have given notice of the event to the Company within ninety (90) days after it first existed and the Company shall have failed to remedy the condition within thirty (30) days after the notice, or (y) if the event follows an event or action by the Executive that would constitute Cause (as defined herein) for termination.

3. General.

(a) Release. Notwithstanding any other provision of this Agreement to the contrary, benefits shall be payable under this paragraph only if the Executive enters into a final and binding agreement prepared by the Company whereby the Executive releases the Company and its subsidiaries (and those affiliated with the Company and its subsidiaries) from all claims that the Executive may otherwise have against them, to the extent that the basis for such claims arose on or before the date the release is signed by the Executive; except that such release shall not adversely affect the Executive’s rights to enforce the terms of this Agreement, and shall not adversely affect the Executive’s right to any indemnification or right to reimbursement of expenses by the Company to which the Executive would otherwise be entitled to under, without limitation, any charter document or Company insurance policy, by reason of services he rendered for the Company or any of its subsidiaries as an officer and/or an employee thereof.

(b) Termination for Cause. In the event the Executive’s employment with the Company is terminated by the Company for “Cause”, or the Executive terminates his/her employment with the Company other than during the specific time periods set forth in Section 2 or for any reason other than Good Reason, the Executive shall not be entitled to the severance benefits or other considerations described herein by virtue of this Agreement.

(c) Definition of Change of Control. For purposes of this Agreement, “Change of Control’ shall mean (i) the closing of a merger, consolidation, liquidation or reorganization of the Company into or with another company or other legal person, after which merger, consolidation, liquidation or reorganization the capital stock of

the Company outstanding prior to consummation of the transaction is not converted into or exchanged for or does not represent more than 50% of the aggregate voting power of the surviving or resulting entity; (ii) the direct or indirect acquisition by any person (as the term “person” is used in Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) of more than 50% of the voting capital stock of the Company, in a single or series of related transactions; (iii) the sale, exchange, or transfer of all or substantially all of the Company’s assets (other than a sale, exchange, or transfer to one or more entities where the stockholders of the Company immediately before such sale, exchange or transfer retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the entities to which the assets were transferred).

(d) Definition of Cause. For purposes of this Agreement, “Cause” shall mean: (i) the conviction of the Executive by a court of competent jurisdiction of, or the pleading of guilty or nolo contendere to, any felony or any crime involving moral turpitude; (ii) gross negligence, breach of fiduciary duty or breach of any confidentiality, non-competition or developments agreement in favor of the Company; (iii) the Executive shall have willfully and continually failed to substantially perform the Executive’s duties with the Company after a written demand for substantial performance is delivered by the Company, which demand specifically identifies the manner in which the Company believes that the Executive has not substantially performed the Executive’s duties pursuant to the disciplinary procedures of the Company, and such failure of substantial performance shall have continued for a period of thirty (30) days after such written demand, (iv) the Executive has been chronically absent from work (excluding vacations, illnesses or leaves of absences), (v) the commission by the Executive of an act of fraud, embezzlement or misappropriation against the Company; or (vi) the Executive shall have refused, after explicit notice, to obey any lawful resolution or direction by the Board which is consistent with his/her duties as an officer of the Company.

(e) Definition of Disability. For purposes of this Agreement, “Disability” means an independent medical doctor (selected by the Company’s health or disability insurer) has certified that the Executive has, for six (6) months consecutive or nonconsecutive in any 12 month period been disabled in a manner that seriously interferes with his/her ability to perform his/her responsibilities as an employee of the Company. Any refusal by the Executive to submit to a medical examination for the purpose of certifying disability shall be deemed to constitute conclusive evidence of the Executive’s disability.

(f) Liquidated Damages. The parties hereto expressly agree that the payments by the Company to the Executive in accordance with the terms of this Agreement will be liquidated damages, and that the Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive.

(g) Binding Effect. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the Company and any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or

otherwise) of the Company. The Company shall require any such successor to assume this Agreement expressly and to be bound by the provisions of this Agreement as if such successor were the Company and for purposes of this Agreement, any such successor of the Company shall be deemed to be the “Company” for all purposes.

(h) No Employment Agreement; Effect on Other Agreements. Nothing in this Agreement shall create any obligation on the part of the Company or any other person to continue the employment of the Executive, and nothing herein shall affect the Executive’s obligations under any non-competition, confidentiality, option or similar agreement between the Company and the Executive currently in effect or which may be entered into in the future.

(i) Withholding. All payments required to be made by the Company hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Company may reasonably determine it must withhold pursuant to any applicable law or regulation.

(j) Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled exclusively by single-arbitrator arbitration in Boston, Massachusetts in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect, and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

(k) Governing Law; Miscellaneous. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. This Agreement constitutes the entire Agreement between the Executive and the Company concerning the subject matter hereof and supersedes any prior negotiations, understandings, or agreements concerning the subject matter hereof, whether oral or written, and may be amended or rescinded only upon the written consent of the Company and the Executive. The invalidity or unenforceability of any provision of this Agreement shall not affect the other provisions of this Agreement and this Agreement shall be construed and reformed to the fullest extent possible. The Executive may not assign any of his/her rights or obligations under this Agreement; the rights and obligations of the Company under this Agreement shall inure to the benefit of, and shall be binding upon, the successors and assigns of the Company. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above.


WATERS CORPORATION

By:		/s/ Douglas A. Berthiaume
		Douglas A. Berthiaume
		Chairman, President and Chief Executive Officer

THE EXECUTIVE

By:		/s/ Michael F. Silveira
		Michael F. Silveira

Exhibit 10.2

EXECUTION VERSION

FIRST AMENDMENT dated as of April 23, 2015 (this “Amendment”), to the CREDIT AGREEMENT dated as of June 25, 2013 (as amended to the date hereof, the “Pre-Amendment Credit Agreement”), among WATERS CORPORATION, a Delaware corporation (the “Company”); the LENDERS from time to time party hereto; JPMORGAN CHASE BANK, N.A., as Administrative Agent; and J.P. MORGAN EUROPE LIMITED, as London Agent.

WHEREAS, the Lenders have agreed to extend credit to the Company under the Pre-Amendment Credit Agreement on the terms and subject to the conditions set forth therein; and

WHEREAS, the parties hereto have agreed (i) to extend and increase the commitments and extend the maturity of the Loans and other obligations under the Pre-Amendment Credit Agreement, (ii) to provide for certain reductions in the interest rate margins and fees under the Pre-Amendment Credit Agreement and (iii) to amend certain other provisions of the Pre-Amendment Credit Agreement, all as set forth herein;

NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows:

SECTION 1. Defined Terms. Capitalized terms used but not otherwise defined herein (including in the recitals hereto) have the meanings assigned to them in the Amended Credit Agreement (as defined below).

SECTION 2. Amendment of the Pre-Amendment Credit Agreement. Effective on the Amendment Effective Date, the Pre-Amendment Credit Agreement (including the Schedules and Exhibits thereto) is amended in its entirety in the form attached as Exhibit A hereto (the Pre-Amendment Credit Agreement, as so amended, being referred to as the “Amended Credit Agreement”).

SECTION 3. Reallocation of Outstanding and Accrued Amounts. Term Loans and Revolving Loans outstanding immediately prior to the Amendment Effective Date shall remain outstanding on and after such date until repaid or prepaid in accordance with the terms of the Amended Credit Agreement. If the percentages of such Term Loans and/or Revolving Loans to be held by individual Lenders under the Amended Credit Agreement (based on the applicable Commitments set forth in Schedule 2.01 thereto) shall differ from the percentages of such Loans held by such Lenders immediately prior to the Amendment Effective Date, then the Lenders shall, on the Amendment Effective Date, make and receive such payments in respect of the principal of such outstanding Loans, or make such new Loans, as the Administrative Agent shall determine in order that from and after the Amendment Effective Date the outstanding Term Loans and

Revolving Loans will be held by the Lenders ratably in accordance with the amounts of the Term Loans or Revolving Commitments, as applicable, indicated as being held by them on Schedule 2.01 to the Amended Credit Agreement. Interest and fees accrued prior to the Amendment Effective Date for the accounts of the Lenders (other than any such interest or fees paid by the Company to Departing Lenders as provided in Section 4.01(g) of the Amended Credit Agreement) will be reallocated among the Lenders in a manner determined by the Administrative Agent so as to be held in the same percentages as the Loans or Revolving Commitments to which such interest or fees relate, and the Lenders shall, on the Amendment Effective Date, make and receive such payments in respect of such accrued interest and fees as the Administrative Agent shall determine in order to reflect such reallocation. Solely for purposes of Section 2.16 of the Pre-Amendment Credit Agreement and the Amended Credit Agreement, payments received by Lenders pursuant to this Section in respect of the principal of Loans shall be deemed to be prepayments of the applicable Loans by the Company, and such Lenders shall be entitled to compensation in accordance with the terms of such Section 2.16 for any “breakage” costs sustained. For the avoidance of doubt, interest and fees shall accrue on the Loans, Revolving Commitments and LC Exposures on and after the Amendment Effective Date at the rates provided in the Amended Credit Agreement, and interest and fees accrued prior to the Amendment Effective Date shall be determined by reference to the rates applicable under the Pre-Amendment Credit Agreement.

SECTION 4. Representations and Warranties. To induce the other parties hereto to enter into this Amendment, the Company represents and warrants to such other parties that, on and as of the Amendment Effective Date:

(a) This Amendment has been duly authorized, executed and delivered by the Company and this Amendment and the Amended Credit Agreement constitute the Company’s legal, valid and binding obligations, enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

(b) The representations and warranties set forth in Article III of the Amended Credit Agreement are true and correct on and as of the Amendment Effective Date (i) in the case of any representation and warranty that is qualified by materiality, in all respects and (ii) otherwise, in all material respects, except to the extent they expressly and exclusively relate to an earlier date, in which case such representations and warranties shall be true and correct (x) in the case of any representation and warranty that is qualified by materiality, in all respects and (y) otherwise, in all material respects, as of such earlier date.

(c) On the Amendment Effective Date, after giving effect to this Amendment and the transactions contemplated hereby, no Default or Event of Default has occurred and is continuing.

SECTION 5. Effectiveness. This Amendment shall become effective on the date (the “Amendment Effective Date”) on which the conditions set forth in Section 4.01 of the Amended Credit Agreement shall have been satisfied.

SECTION 6. Effect of Amendment. Except as expressly set forth herein and in the Amended Credit Agreement, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights or remedies of the Lenders or the Administrative Agent under the Pre-Amendment Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Pre-Amendment Credit Agreement or any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect. This Amendment shall constitute a “Loan Document” for all purposes of the Amended Credit Agreement and the other Loan Documents. On and after the Amendment Effective Date, any reference to the Pre-Amendment Credit Agreement contained in the Loan Documents shall mean the Amended Credit Agreement.

SECTION 7. Reaffirmation. The Company and each Subsidiary Guarantor, by its signature below, hereby (a) reaffirms and confirms its guarantees and other obligations under the Subsidiary Guarantee Agreement dated as of June 25, 2013 (the “Subsidiary Guarantee Agreement”), among the Company, each of the subsidiaries of the Company party thereto and JPMorgan Chase Bank, N.A., as administrative agent, and (b) confirms and agrees that the Subsidiary Guarantee Agreement will continue to be applicable to the obligations under the Amended Credit Agreement.

SECTION 8. Costs and Expenses. The Company agrees to reimburse each of the Administrative Agent and J.P. Morgan Securities LLC for its reasonable out-of-pocket expenses in connection with this Amendment and the transactions contemplated hereby, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent and J.P. Morgan Securities LLC.

SECTION 9. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. Delivery of an executed counterpart of a signature page of this Amendment by facsimile or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Amendment.

SECTION 10. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

SECTION 11. Headings. The headings of this Amendment are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.