Item 8. Financial Statements and Supplementary Data

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the framework in Internal Control — Integrated Framework 2013, our management, including our chief executive officer and chief financial officer, concluded that our internal control over financial reporting was effective as of December 31, 2015.

The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Waters Corporation

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows present fairly, in all material respects, the financial position of Waters Corporation and its subsidiaries at December 31, 2015 and December 31, 2014 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it classifies deferred taxes in 2015 and 2014 due to the adoption of Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 26, 2016

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WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		December 31,
		2015				2014
		(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents		$	487,665			$	422,177
Investments			1,911,598				1,633,211
Accounts receivable, net			468,315				433,616
Inventories			263,415				246,430
Other current assets			82,540				81,610
Total current assets			3,213,533				2,817,044
Property, plant and equipment, net			333,355				321,583
Intangible assets, net			218,022				229,822
Goodwill			356,864				354,838
Other assets			146,903				151,403
Total assets		$	4,268,677			$	3,874,690
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and debt		$	175,309			$	225,230
Accounts payable			70,573				65,704
Accrued employee compensation			54,653				47,198
Deferred revenue and customer advances			141,505				129,706
Accrued income taxes			14,894				15,143
Accrued warranty			13,349				13,266
Other current liabilities			93,793				84,239
Total current liabilities			564,076				580,486
Long-term liabilities:
Long-term debt			1,493,027				1,237,463
Long-term portion of retirement benefits			77,063				85,230
Long-term income tax liabilities			14,884				20,397
Other long-term liabilities			60,776				56,448
Total long-term liabilities			1,645,750				1,399,538
Total liabilities			2,209,826				1,980,024
Commitments and contingencies (Notes 8, 9, 10, 11 and 14)
Stockholders’ equity:
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none issued at December 31, 2015 and December 31, 2014			—				—
Common stock, par value $0.01 per share, 400,000 shares authorized, 157,677 and 156,716 shares issued, 81,472 and 83,147 shares outstanding at December 31, 2015 and December 31, 2014, respectively			1,577				1,567
Additional paid-in capital			1,490,342				1,392,494
Retained earnings			4,863,566				4,394,513
Treasury stock, at cost, 76,205 and 73,569 shares at December 31, 2015 and December 31, 2014, respectively			(4,149,908	)			(3,815,203	)
Accumulated other comprehensive loss			(146,726	)			(78,705	)
Total stockholders’ equity			2,058,851				1,894,666
Total liabilities and stockholders’ equity		$	4,268,677			$	3,874,690

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

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WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended December 31,
		2015				2014				2013
		(In thousands, except per share data)
Product sales		$	1,385,256			$	1,346,729			$	1,312,503
Service sales			657,076				642,615				591,715
Total net sales			2,042,332				1,989,344				1,904,218
Cost of product sales			565,630				549,121				526,721
Cost of service sales			277,042				275,792				256,735
Total cost of sales			842,672				824,913				783,456
Gross profit			1,199,660				1,164,431				1,120,762
Selling and administrative expenses			495,747				512,707				492,965
Research and development expenses			118,545				107,726				100,536
Acquired in-process research and development (Note 2)			3,855				15,456				—
Purchased intangibles amortization			10,123				10,634				9,918
Litigation provisions (Note 10)			3,939				—				—
Operating income			567,451				517,908				517,343
Other expense (Note 3)			—				—				(1,575	)
Interest expense			(36,243	)			(34,191	)			(30,050	)
Interest income			10,711				7,023				4,387
Income from operations before income taxes			541,919				490,740				490,105
Provision for income taxes			72,866				59,120				40,102
Net income		$	469,053			$	431,620			$	450,003
Net income per basic common share		$	5.70			$	5.12			$	5.27
Weighted-average number of basic common shares			82,336				84,358				85,426
Net income per diluted common share		$	5.65			$	5.07			$	5.20
Weighted-average number of diluted common shares and equivalents			83,087				85,151				86,546

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

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WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		Year Ended December 31,
		2015				2014				2013
		(In thousands)
Net income		$	469,053			$	431,620			$	450,003
Other comprehensive (loss) income:
Foreign currency translation			(70,481	)			(61,728	)			11,843
Unrealized (losses) gains on investments before reclassifications			(1,825	)			(532	)			134
Amounts reclassified to other expense			—				—				1,575
Unrealized (losses) gains on investments before income taxes			(1,825	)			(532	)			1,709
Income tax benefit (expense)			31				43				(639	)
Unrealized (losses) gains on investments, net of tax			(1,794	)			(489	)			1,070
Retirement liability adjustment before reclassifications			191				(34,797	)			27,888
Amounts reclassified to selling and administrative expenses			4,443				2,886				3,678
Retirement liability adjustment			4,634				(31,911	)			31,566
Income tax (expense) benefit			(380	)			9,544				(12,205	)
Retirement liability adjustment, net of tax			4,254				(22,367	)			19,361
Other comprehensive (loss) income			(68,021	)			(84,584	)			32,274
Comprehensive income		$	401,032			$	347,036			$	482,277

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

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WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31,
		2015				2014				2013
		(In thousands)
Cash flows from operating activities:
Net income		$	469,053			$	431,620			$	450,003
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for doubtful accounts on accounts receivable			1,291				2,037				3,656
Stock-based compensation			33,368				32,998				31,708
Deferred income taxes			6,581				1,583				169
Depreciation			45,287				46,393				38,165
Amortization of intangibles			44,700				47,838				41,530
Building impairment			—				4,718				—
Gain on sale of building			(1,377	)			—				—
In-process research and development and other non-cash charges			4,638				16,481				—
Change in operating assets and liabilities, net of acquisitions:
Increase in accounts receivable			(49,888	)			(29,435	)			(35,233	)
Increase in inventories			(19,967	)			(15,984	)			(11,389	)
(Increase) decrease in other current assets			(18,497	)			(5,784	)			5,033
Increase in other assets			(9,634	)			(14,409	)			(11,467	)
Increase (decrease) in accounts payable and other current liabilities			27,451				(13,687	)			(28,127	)
Increase in deferred revenue and customer advances			16,172				9,566				8,512
Increase (decrease) in other liabilities			11,115				(2,287	)			(7,684	)
Net cash provided by operating activities			560,293				511,648				484,876
Cash flows from investing activities:
Additions to property, plant, equipment and software capitalization			(100,012	)			(91,122	)			(118,450	)
Business acquisitions, net of cash acquired			(23,494	)			(27,008	)			(41,395	)
Payments for intellectual property licenses			(3,000	)			(15,126	)			—
Purchases of investments			(2,010,368	)			(2,196,153	)			(2,972,116	)
Maturities and sales of investments			1,731,981				1,925,816				2,667,232
Proceeds from sale of building			5,154				1,563				—
Net cash used in investing activities			(399,739	)			(402,030	)			(464,729	)
Cash flows from financing activities:
Proceeds from debt issuances			325,219				381,673				1,032,209
Payments on debt			(120,140	)			(239,776	)			(886,644	)
Payments of debt issuance costs			(2,382	)			(1,400	)			(2,039	)
Proceeds from stock plans			52,060				73,849				68,958
Purchases of treasury shares			(334,705	)			(337,444	)			(301,580	)
Excess tax benefit related to stock option plans			12,955				15,703				15,842
(Payments for) proceeds from derivative contracts			(2,601	)			174				8,666
Net cash used in financing activities			(69,594	)			(107,221	)			(64,588	)
Effect of exchange rate changes on cash and cash equivalents			(25,472	)			(21,016	)			4,202
Increase (decrease) in cash and cash equivalents			65,488				(18,619	)			(40,239	)
Cash and cash equivalents at beginning of period			422,177				440,796				481,035
Cash and cash equivalents at end of period		$	487,665			$	422,177			$	440,796
Supplemental cash flow information:
Income taxes paid		$	51,750			$	60,971			$	55,928
Interest paid		$	37,396			$	34,332			$	29,563

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

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WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

		Number of Common Shares				Common Stock				Additional Paid-In Capital				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity
		(In thousands)
Balance December 31, 2012			153,696			$	1,537			$	1,155,504			$	3,512,890			$	(3,176,179	)		$	(26,395	)		$	1,467,357
Net income			—				—				—				450,003				—				—				450,003
Other comprehensive income			—				—				—				—				—				32,274				32,274
Issuance of common stock for employees:
Employee Stock Purchase Plan			58				1				4,816				—				—				—				4,817
Stock options exercised			1,281				13				64,128				—				—				—				64,141
Tax benefit related to stock option plans			—				—				15,842				—				—				—				15,842
Increase in valuation allowance			—				—				(892	)			—				—				—				(892	)
Treasury stock			—				—				—				—				(301,580	)			—				(301,580	)
Stock-based compensation			211				1				31,210				—				—				—				31,211
Balance December 31, 2013			155,246			$	1,552			$	1,270,608			$	3,962,893			$	(3,477,759	)		$	5,879			$	1,763,173
Net income			—				—				—				431,620				—				—				431,620
Other comprehensive loss			—				—				—				—				—				(84,584	)			(84,584	)
Issuance of common stock for employees:
Employee Stock Purchase Plan			54				1				5,027				—				—				—				5,028
Stock options exercised			1,185				12				68,809				—				—				—				68,821
Tax benefit related to stock option plans			—				—				15,703				—				—				—				15,703
Treasury stock			—				—				—				—				(337,444	)			—				(337,444	)
Stock-based compensation			231				2				32,347				—				—				—				32,349
Balance December 31, 2014			156,716			$	1,567			$	1,392,494			$	4,394,513			$	(3,815,203	)		$	(78,705	)		$	1,894,666
Net income			—				—				—				469,053				—				—				469,053
Other comprehensive loss			—				—				—				—				—				(68,021	)			(68,021	)
Issuance of common stock for employees:
Employee Stock Purchase Plan			53				1				5,495				—				—				—				5,496
Stock options exercised			727				7				46,557				—				—				—				46,564
Tax benefit related to stock option plans			—				—				12,955				—				—				—				12,955
Treasury stock			—				—				—				—				(334,705	)			—				(334,705	)
Stock-based compensation			181				2				32,841				—				—				—				32,843
Balance December 31, 2015			157,677			$	1,577			$	1,490,342			$	4,863,566			$	(4,149,908	)		$	(146,726	)		$	2,058,851

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 Description of Business and Organization

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, metals 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.

2 Basis of Presentation and Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles (“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. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, product returns and allowances, bad debts, inventory valuation, goodwill and intangible assets, income taxes, warranty and installation provisions, litigation, retirement plan obligations, stock-based compensation, equity investments and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts may differ from these estimates under different assumptions or conditions.

Risks and Uncertainties

The Company is subject to risks common to companies in the analytical instrument industry, including, but not limited to, global economic and financial market conditions, fluctuations in foreign currency exchange rates, fluctuations in customer demand, development by its competitors of new technological innovations, costs of developing new technologies, levels of debt and debt service requirements, risk of disruption, dependence on key personnel, protection and litigation of proprietary technology, shifts in taxable income between tax jurisdictions and compliance with regulations of the U.S. Food and Drug Administration and similar foreign regulatory authorities and agencies.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries, which are wholly owned. The Company consolidates entities in which it owns or controls fifty percent or more of the voting shares. All material inter-company balances and transactions have been eliminated.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Translation of Foreign Currencies

For most of the Company’s foreign operations, assets and liabilities are translated into U.S. dollars at exchange rates prevailing on the balance sheet date, while revenues and expenses are translated at average exchange rates prevailing during the period. Any resulting translation gains or losses are included in accumulated other comprehensive income in the consolidated balance sheets. The Company’s net sales derived from operations outside the United States were 68%, 70% and 71% in 2015, 2014 and 2013, respectively. Gains and losses from foreign currency transactions are included in net income in the consolidated statements of operations and were not material for the years presented.

Seasonality of Business

The Company typically experiences an increase in sales in the fourth quarter, as a result of purchasing habits for capital goods of customers that tend to exhaust their spending budgets by calendar year end.

Cash, Cash Equivalents and Investments

Cash equivalents represent highly liquid investments, with original maturities of 90 days or less, primarily in bank deposits, U.S. treasury bill money market funds and commercial paper. Investments with longer maturities are classified as investments, and are held primarily in U.S. treasury bills, U.S. dollar-denominated treasury bills and commercial paper, bank deposits and corporate debt securities.

Investments are classified as available-for-sale in accordance with the accounting standards for investments in debt and equity securities. All available-for-sale securities are recorded at fair market value and any unrealized holding gains and losses, to the extent deemed temporary, are included in accumulated other comprehensive income in stockholders’ equity, net of the related tax effects. If any adjustment to fair value reflects a decline in the value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is “other than temporary” and marks the investment to market through a charge to the statement of operations. The Company classifies its investments exclusive of those categorized as cash equivalents.

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 December 31, 2015 and 2014, $2,346 million out of $2,399 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.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the best estimate of the amount of probable credit losses in the existing accounts receivable. The allowance is based on a number of factors, including historical experience and the customer’s credit-worthiness. The allowance for doubtful accounts is reviewed on at least a quarterly basis. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. Account balances are charged against the allowance when the Company determines it is probable that the receivable will not be recovered. The Company does not have any off-balance sheet credit exposure related to its customers. The allowance for sales returns is the best estimate of the amount of future product returns related to current period revenue and is based on historical experience.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following is a summary of the activity of the Company’s allowance for doubtful accounts and sales returns for the years ended December 31, 2015, 2014 and 2013 (in thousands):

		Balance at Beginning of Period				Additions				Deductions				Balance at End of Period
Allowance for Doubtful Accounts and Sales Returns:
2015		$	7,179			$	6,739			$	(6,422	)		$	7,496
2014		$	7,057			$	7,551			$	(7,429	)		$	7,179
2013		$	8,240			$	4,386			$	(5,569	)		$	7,057

Concentration of Credit Risk

The Company sells its products and services to a significant number of large and small customers throughout the world, with net sales to the pharmaceutical industry of approximately 54% in 2015, 53% in 2014 and 52% in 2013. None of the Company’s individual customers accounted for more than 2% of annual Company sales in 2015, 2014 or 2013. The Company performs continuing credit evaluations of its customers and generally does not require collateral, but in certain circumstances may require letters of credit or deposits. Historically, the Company has not experienced significant bad debt losses.

Inventory

The Company values all of its inventories at the lower of cost or market on a first-in, first-out basis (“FIFO”).

Income Taxes

Deferred income taxes are recognized for temporary differences between the financial statement and income tax basis of assets and liabilities using tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is provided to offset any net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Appropriate long-term liabilities have also been recorded to recognize uncertain tax return reporting positions.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Expenditures for maintenance and repairs are charged to expense, while the costs of significant improvements are capitalized. Depreciation is provided using the straight-line method over the following estimated useful lives: buildings — fifteen to thirty years; building improvements — five to ten years; leasehold improvements — the shorter of the economic useful life or life of lease; and production and other equipment — three to ten years. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are eliminated from the consolidated balance sheets and related gains or losses are reflected in the consolidated statements of operations.

Asset Impairments

The Company reviews its long-lived assets for impairment in accordance with the accounting standards for property, plant and equipment. Whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable, the Company evaluates the fair value of the asset, relying on a number of factors, including, but not limited to, operating results, business plans, economic projections and anticipated future cash flows. Any change in the carrying amount of an asset as a result of the Company’s evaluation is recorded in the consolidated statements of operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Business Combinations and Asset Acquisitions

The Company accounts for business acquisitions under the accounting standards for business combinations. The results of each acquisition are included in the Company’s consolidated results as of the acquisition date and the purchase price of an acquisition is allocated to tangible and intangible assets and assumed liabilities based on their estimated fair values. Any excess of the fair value consideration transferred over the estimated fair values of the net assets acquired is recognized as goodwill. Acquired in-process research and development (“IPR&D”) included in a business combination is capitalized as an indefinite-lived intangible asset. Development costs incurred after the acquisition are expensed as incurred and acquired IPR&D is tested for impairment annually until completion of the acquired programs. Upon commercialization, this indefinite-lived intangible asset is then accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life, subject to periodic impairment reviews. If the research and development project is abandoned, the indefinite-lived asset is charged to expense. Legal costs, due diligence costs, business valuation costs and all other business acquisition costs are expensed when incurred.

The Company also acquires intellectual property through licensing arrangements. These arrangements often require upfront payments and may include additional milestone or royalty payments, contingent upon certain future events. IPR&D acquired in an asset acquisition (as opposed to a business combination) is expensed immediately unless there is an alternative future use. Subsequent payments made for the achievement of milestones are evaluated to determine whether they have an alternative future use or should be expensed. Payments made to third parties subsequent to commercialization are capitalized and amortized over the remaining useful life of the related asset, and are classified as intangible assets.

Goodwill and Other Intangible Assets

The Company tests for goodwill impairment using a fair-value approach at the reporting unit level annually, or earlier, if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Additionally, the Company performs an annual goodwill impairment assessment for its reporting units as of January 1 each year. The goodwill and other intangible assets accounting standards define a reporting unit as an operating segment, or one level below an operating segment, if discrete financial information is prepared and reviewed by management. For goodwill impairment review purposes, the Company has two reporting units, Waters Division and TA Division. Goodwill is allocated to the reporting units at the time of acquisition. Under the impairment test, if a reporting unit’s carrying amount exceeds its estimated fair value, goodwill impairment is recognized to the extent that the carrying amount of goodwill exceeds the implied fair value of the goodwill. The fair value of reporting units was estimated using a discounted cash flows technique, which includes certain management assumptions, such as estimated future cash flows, estimated growth rates and discount rates.

The Company’s intangible assets include purchased technology; capitalized software development costs; costs associated with acquiring Company patents, trademarks and intellectual properties, such as licenses; debt issuance costs and acquired IPR&D. Purchased intangibles are recorded at their fair market values as of the acquisition date and amortized over their estimated useful lives, ranging from one to fifteen years. Other intangibles are amortized over a period ranging from one to ten years. Debt issuance costs are amortized over the life of the related debt. Acquired IPR&D is amortized from the date of completion of the acquired program over its estimated useful life. IPR&D and indefinite-lived intangibles are tested annually for impairment.

Software Development Costs

The Company capitalizes internal and external software development costs for products offered for sale in accordance with the accounting standards for the costs of software to be sold, leased, or otherwise marketed.

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Capitalized costs are amortized to cost of sales over the period of economic benefit, which approximates a straight-line basis over the estimated useful lives of the related software products, generally three to ten years. The Company capitalized $35 million and $33 million of direct expenses that were related to the development of software in 2015 and 2014, respectively. Net capitalized software included in intangible assets totaled $132 million and $138 million at December 31, 2015 and 2014, respectively. See Note 7, “Goodwill and Other Intangibles”.

The Company capitalizes internal software development costs for internal use in accordance with the accounting standards for goodwill and other intangible assets. Capitalized internal software development costs are amortized over the period of economic benefit, which approximates a straight-line basis over ten years. Net capitalized internal software included in property, plant and equipment totaled $3 million at both December 31, 2015 and 2014.

Other Investments

The Company accounts for its investments that represent less than twenty percent ownership, and for which the Company does not have significant influence, using the accounting standards for investments in debt and equity securities. Investments for which the Company does not have the ability to exercise significant influence, and for which there is not a readily determinable market value, are accounted for under the cost method of accounting. The Company periodically evaluates the carrying value of its investments accounted for under the cost method of accounting and carries them at the lower of cost or estimated net realizable value. For investments in which the Company owns or controls between twenty and forty-nine percent of the voting shares, or over which it exerts significant influence over operating and financial policies, the equity method of accounting is used. The Company’s share of net income or losses of equity investments is included in the consolidated statements of operations and was not material in any period presented. All long-term investments at December 31, 2015 and 2014 are included in other assets and amounted to $2 million in both years.

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 December 31, 2015 and 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.

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The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2015 (in thousands):

		Total at December 31, 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		$	627,156			$	—			$	627,156			$	—
Foreign government securities			15,199				—				15,199				—
Corporate debt securities			1,324,318				—				1,324,318				—
Time deposits			74,947				—				74,947				—
Equity securities			147				—				147				—
Other cash equivalents			27,000				—				27,000				—
Waters 401(k) Restoration Plan assets			35,823				—				35,823				—
Foreign currency exchange contract agreements			616				—				616				—
Total		$	2,105,206			$	—			$	2,105,206			$	—
Liabilities:
Contingent consideration		$	4,215			$	—			$	—			$	4,215
Foreign currency exchange contract agreements			402				—				402				—
Total		$	4,617			$	—			$	402			$	4,215

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 contract agreements			123				—				123				—
Total		$	1,763,320			$	—			$	1,763,320			$	—
Liabilities:
Contingent consideration		$	3,612			$	—			$	—			$	3,612
Foreign currency exchange contract agreements			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

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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 December 31, 2015 and 2014.

Fair Value of Contingent Consideration

The fair value of the Company’s liability for contingent consideration related to the acquisition of Medimass Research, Development and Service Kft. (see Note 6) 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 estimated future results 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 approximately $4 million at both December 31, 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 $450 million and $550 million at December 31, 2015 and 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 $454 million and $558 million at December 31, 2015 and 2014, respectively, using Level 2 inputs.

Derivative Transactions

The Company operates on a global basis and is exposed to the risk that its earnings, cash flows and stockholders’ equity could be adversely impacted by fluctuations in currency exchange rates. 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 December 31, 2015, 2014 and 2013, the Company held foreign exchange contracts with notional amounts totaling $116 million, $110 million and $104 million, respectively.

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

		December 31, 2015				December 31, 2014
Other current assets		$	616			$	123
Other current liabilities		$	402			$	651

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

		Year Ended December 31,
		2015				2014				2013
Realized (losses) gains on closed contracts		$	(2,601	)		$	174			$	8,666
Unrealized gains (losses) on open contracts			742				(1,369	)			361
Cumulative net pre-tax (losses) gains		$	(1,859	)		$	(1,195	)		$	9,027

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 2015, 2014 and 2013, the Company repurchased 2.6 million, 3.1 million and 3.1 million shares of the Company’s outstanding common stock at a cost of $327 million, $329 million and $295 million, respectively, under the May 2014 authorization and other previously announced programs. As of December 31, 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 $441 million authorized for future repurchases under the May 2014 plan. In addition, the Company repurchased $7 million, $8 million and $6 million of common stock related to the vesting of restricted stock units during the years ended December 31, 2015, 2014 and 2013, 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.

Revenue Recognition

Sales of products and services are generally recorded based on product shipment and performance of service, respectively. The Company’s deferred revenue on the consolidated balance sheets consists of the obligation on instrument service contracts and customer payments received in advance, prior to shipment of the instrument. Revenue is recognized when all of the following revenue recognition criteria are met: persuasive evidence of an arrangement exists; delivery or performance has occurred; the vendor’s fee is fixed or determinable; collectibility is reasonably assured and, if applicable, upon acceptance when acceptance criteria with contractual cash holdback are specified. Shipping and handling costs are included in cost of sales, net of amounts invoiced to the customer per the order.

Product shipments, including those for demonstration or evaluation, and service contracts are not recorded as revenue until a valid purchase order or master agreement is received, specifying fixed terms and prices. The Company generally recognizes product revenue when legal title has transferred and risk of loss passes to the customer. The Company generally structures its sales arrangements as shipping point or international equivalent and, accordingly, recognizes revenue upon shipment. In some cases, destination-based shipping terms are included in sales arrangements, in which cases revenue is generally recognized when the products arrive at the customer site.

The Company’s method of revenue recognition for certain products requiring installation is accounted for in accordance with multiple-element revenue recognition accounting standards. With respect to the installation obligations, the larger of the contractual cash holdback or the best estimate of selling price of the installation service is deferred when the product is shipped and revenue is recognized as a multiple-element arrangement when installation is complete. The Company determines the best estimate of selling price of installation based upon a number of factors, including hourly service billing rates and estimated installation hours.

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Instrument service contracts are typically billed at the beginning of the maintenance period. The amount of the service contract is amortized ratably to revenue over the instrument maintenance period. There are no deferred costs associated with the service contract, as the cost of the service is recorded when the service is performed. No revenue is recognized until all revenue recognition criteria have been met.

Sales of standalone software are accounted for in accordance with the accounting standards for software revenue recognition. The Company’s software arrangements typically include software licenses and maintenance contracts. Software license revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, collection is probable, and there are no significant post-delivery obligations remaining. The revenue associated with the software maintenance contract is recognized ratably over the maintenance term. Unspecified rights to software upgrades are typically sold as part of the maintenance contract on a when-and-if-available basis. The Company uses the residual method to allocate software revenue when a transaction includes multiple elements and vendor specific objective evidence of fair value of undelivered elements exists. Under the residual method, the fair value of the undelivered element (maintenance) is deferred and the remaining portion of the arrangement fee is allocated to the delivered element (software license) and recognized as revenue.

Returns and customer credits are infrequent and are recorded as a reduction to sales. Rights of return are not included in sales arrangements. Revenue associated with products that contain specific customer acceptance criteria is not recognized before the customer acceptance criteria are satisfied. Discounts from list prices are recorded as a reduction to sales.

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.

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The following is a summary of the activity of the Company’s accrued warranty liability for the years ended December 31, 2015, 2014 and 2013 (in thousands):

		Balance at Beginning of Period				Accruals for Warranties				Settlements Made				Balance at End of Period
Accrued warranty liability:
2015		$	13,266			$	8,390			$	(8,307	)		$	13,349
2014		$	12,962			$	8,148			$	(7,844	)		$	13,266
2013		$	12,353			$	8,466			$	(7,857	)		$	12,962

Advertising Costs

All advertising costs are expensed as incurred and are included in selling and administrative expenses in the consolidated statements of operations. Advertising expenses for 2015, 2014 and 2013 were $11 million, $12 million and $11 million, respectively.

Research and Development Expenses

Research and development expenses are comprised of costs incurred in performing research and development activities, including salaries and benefits, facilities costs, overhead costs, contract services and other outside costs. Research and development expenses are expensed as incurred. During 2015 and 2014, the Company incurred $4 million and $15 million charges, respectively, for acquired in-process research and development related to the licensing of certain intellectual property relating to mass spectrometry technologies yet to be commercialized and for which there was no future alternative use as of the acquisition date. These licensing arrangements are significantly related to new, biologically-focused applications, as well as other applications, and require the Company to make additional future payments of up to $12 million if certain milestones are achieved, as well as royalties on future net sales.

Stock-Based Compensation

The Company has two stock-based compensation plans, which are described in Note 12, “Stock-Based Compensation”.

Earnings Per Share

In accordance with the earnings per share accounting standards, the Company presents two earnings per share (“EPS”) amounts. Income per basic common share is based on income available to common shareholders and the weighted-average number of common shares outstanding during the periods presented. Income per diluted common share includes additional dilution from potential common stock, such as stock issuable pursuant to the exercise of stock options outstanding.

Retirement Plans

The Company sponsors various retirement plans, which are described in Note 14, “Retirement Plans”.

Comprehensive Income

The Company accounts for comprehensive income in accordance with the accounting standards for comprehensive income, which establish the accounting rules for reporting and displaying comprehensive income. These standards require that all components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements.

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Recently Adopted Accounting Standards

In April 2015 and August 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 elected to retrospectively adopt this guidance as of December 31, 2015 and the prior period presentation of debt issuance costs has been updated to conform with the current period presentation, see Note 8 for details of amounts reclassified.

In November 2015, accounting guidance was issued which simplifies the presentation of deferred income taxes. The guidance requires that all deferred tax assets and deferred tax liabilities, including any valuation allowances, be classified as long-term in the consolidated balance sheet. This guidance is effective for annual and interim reporting periods beginning after December 15, 2016 and early adoption is permitted. The Company elected to retrospectively adopt this guidance as of December 31, 2015 and the prior period presentation of deferred tax assets and deferred tax liabilities have been updated to conform with the current period presentation, see Note 9 for details of amounts reclassified.

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 was originally effective for annual and interim reporting periods beginning after December 15, 2016; however, the Financial Accounting Standards Board has amended the standard in August 2015 to delay the effective period by one year. Adoption prior to December 15, 2016 is not permitted. The Company is currently evaluating its adoption method and the potential impact that the adoption of this standard will have on the Company’s financial position, results of operations and cash flows.

In the third quarter of 2015, accounting guidance was issued which clarifies the measurement of inventory. The new guidance requires inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is effective for annual and interim periods beginning after December 15, 2016. 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 and cash flows.

In January 2016, accounting guidance was issued which primarily affects the classification and measurement of certain financial instruments, principally equity investments and certain financial liabilities. Under the new guidance, there will no longer be an available-for-sale classification for equity securities with readily determinable fair values. Changes to the fair value of equity investments will be recognized through earnings. Equity investments carried at cost should be adjusted for changes in observable prices, as applicable, and qualitatively assessed for impairment annually. Changes to the fair value of financial liabilities under the fair value option due to instrument specific credit risk will be recognized separately in other comprehensive income. The new guidance also requires financial assets and financial liabilities to be presented separately and grouped by measurement category in the notes to the financial statements. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption of certain provisions of this guidance 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 and cash flows.

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3 Marketable Securities

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

		December 31, 2015
		Amortized Cost				Unrealized Gain				Unrealized Loss				Fair Value
U.S. Treasury securities		$	628,358			$	16			$	(1,218	)		$	627,156
Foreign government securities			15,216				—				(17	)			15,199
Corporate debt securities			1,325,398				159				(1,239	)			1,324,318
Time deposits			74,947				—				—				74,947
Equity securities			77				70				—				147
Total		$	2,043,996			$	245			$	(2,474	)		$	2,041,767
Amounts included in:
Cash equivalents		$	130,169			$	—			$	—			$	130,169
Investments			1,913,827				245				(2,474	)			1,911,598
Total		$	2,043,996			$	245			$	(2,474	)		$	2,041,767

		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

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

		December 31, 2015				December 31, 2014
Due in one year or less		$	1,137,825			$	872,872
Due after one year through three years			828,848				763,003
Total		$	1,966,673			$	1,635,875

In the year ended December 31, 2013, the Company recorded a $2 million charge for an other-than-temporary impairment to an investment. Realized gains and losses on sales of investments were not material in 2015, 2014 and 2013.

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4 Inventories

Inventories are classified as follows (in thousands):

		December 31,
		2015				2014
Raw materials		$	88,625			$	84,952
Work in progress			20,901				16,749
Finished goods			153,889				144,729
Total inventories		$	263,415			$	246,430

5 Property, Plant and Equipment

Property, plant and equipment consist of the following (in thousands):

		December 31,
		2015				2014
Land and land improvements		$	38,735			$	39,688
Buildings and leasehold improvements			265,300				256,603
Production and other equipment			380,016				367,716
Construction in progress			20,477				20,606
Total property, plant and equipment			704,528				684,613
Less: accumulated depreciation and amortization			(371,173	)			(363,030	)
Property, plant and equipment, net		$	333,355			$	321,583

During 2014, the Company recorded a $5 million impairment charge related to a write-down in the fair value of a building in the U.K., which was designated as held for sale. The carrying value of the building was $4 million and was included in other current assets in the consolidated balance sheet at December 31, 2014. During 2015, the Company sold the building for $5 million in cash, which resulted in a gain on the sale of $1 million. During 2015, 2014 and 2013, the Company retired and disposed of approximately $29 million, $10 million and $19 million of property, plant and equipment, respectively, most of which was fully depreciated and no longer in use. Gains on disposal were $1 million during the year ended December 31, 2014 and were immaterial for 2015 and 2013.

6 Acquisitions

In November 2015, the Company acquired all of the outstanding stock of MPE Orbur Group Limited and its sole operating subsidiary, Midland Precision Equipment Company, Ltd. (“MPE”), a manufacturer of MS instrumentation components, for $12 million, net of cash acquired. MPE is a highly skilled manufacturer and former Waters supplier that produces critical components that support the Company’s MS instrument systems. MPE was acquired to bring this key supplier in house to reduce manufacturing costs in the future and to reduce risk to our supply chain. The Company allocated less than $1 million of the purchase price to an intangible asset comprised of a customer relationship, which will be amortized over two years. The remaining purchase price of $6 million was accounted for as goodwill, which is not deductible for tax purposes.

In the fourth quarter of 2015, the Company acquired certain assets of its Malaysian sales and service distributor for $2 million in cash. The Company has allocated $2 million of the purchase price to intangible assets comprised of customer relationships, which is being amortized over 10 years.

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In May 2015, the Company acquired the net assets of the ElectroForce® business of the Bose Corporation (“ElectroForce”), a manufacturer of testing systems, for $9 million in cash. ElectroForce’s core business is the manufacturing of dynamic mechanical testing systems used to characterize medical devices, biologic and engineered materials. The ElectroForce test instruments are based on unique motor designs that are quiet, energy-efficient, scalable and deliver precise performance over a wide range of force and frequency. ElectroForce was acquired to expand the TA Division’s product offering into new markets, while leveraging the technology, infrastructure and customer bases of the combined organizations. The Company has allocated $4 million of the purchase price to intangible assets comprised of technology, customer relationships and trade name. The Company is amortizing the technology and customer relationships over ten years and five years, respectively. The remaining purchase price of $1 million was accounted for as goodwill, which is deductible for tax purposes.

The fair values of the assets and liabilities acquired were determined using various income-approach valuation techniques, which use Level 3 inputs. The following table presents the fair values as of the respective acquisition dates, as determined by the Company, of 100% of the assets and liabilities owned and recorded in connection with the acquisitions of MPE, the Malaysian sales and service distributor and ElectroForce (in thousands):

Cash		$	1,154
Accounts receivable and current other assets			3,045
Inventory			7,007
Property, plant and equipment			3,985
Intangible assets			5,920
Goodwill			7,498
Total assets acquired			28,609
Accrued expenses and other liabilities			3,961
Net assets acquired		$	24,648

In July 2014, the Company acquired the net assets of Medimass Research, Development and Service Kft. (“Medimass”), a developer of mass spectrometry-related technologies with the potential to be used for a variety of applications, for $23 million in cash. In addition, the Company potentially has to pay additional contingent consideration, which had an estimated fair value of $3 million as of the closing date. The net assets acquired consist primarily of the Rapid Evaporative Ionization Mass Spectrometry (“REIMS”) technology, including patent applications, software, databases and REIMS expertise. REIMS is an ambient pressure surface ionization technique that, when used with mass spectrometry, can characterize the molecular topography of complex surfaces, such as cell membranes. The contingent consideration payments are calculated based on a royalty due on future sales of products containing the REIMS technology. The fair value of the contingent consideration recognized was estimated using a probability-weighted discounted cash flow model, using Level 3 inputs.

In January 2014, the Company acquired all of the outstanding stock of ULSP B.V. (“ULSP”), a manufacturer of instrumentation components that enable ultra low temperature generation, for $4 million in cash. ULSP’s core business is the manufacturing and servicing of high quality low temperature coolers for thermal analysis and rheology applications, and these products are important accessories for many TA core instrument offerings. ULSP was acquired to bring the manufacturing of these devices in house and to expand the Company’s product offering.

In December 2013, the Company acquired the net assets of LaserComp Inc. (“LaserComp”), a manufacturer of thermal conductivity measurement instruments, for $12 million in cash. LaserComp was acquired to expand TA’s thermal analysis instrument product offering and to leverage the Company’s distribution channels.

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In December 2013, the Company acquired all of the outstanding capital stock of Expert Systems Solutions S.r.l. (“ESS”), a manufacturer of advanced thermal analysis instruments, for $3 million in cash. ESS was acquired to expand TA’s thermal analysis instrument product offering and to leverage the Company’s distribution channels.

In August 2013, the Company acquired all of the outstanding capital stock of Nonlinear Dynamics Ltd. (“Nonlinear Dynamics”), a developer of proteomics and metabolomics software, for $23 million in cash. Waters and Nonlinear Dynamics collaborated on the development of the Company’s TransOmics™ Informatics, a scalable solution for proteomics, metabolomics, and lipidomics analysis, which was introduced in 2012. In 2014, the Company introduced Progenesis® QI and Progenesis® QI for Proteomics.

In July 2013, the Company acquired all of the outstanding capital stock of Scarabaeus Mess-und Prodktionstechnik GmbH (“Scarabaeus”), a manufacturer of rheometers for the rubber and elastomer markets, for $4 million in cash. Scarabaeus was acquired to expand TA’s rheology analysis instrument product offering and to leverage the Company’s distribution channels.

The principal factor that resulted in recognition of goodwill in these acquisitions is that the purchase price was based, in part, on cash flow projections assuming the integration of any acquired technology, distribution channels and products with the Company’s products, which is of considerably greater value than utilizing each of the acquired companies’ technology, customer access or products on a standalone basis. The goodwill also includes value assigned to assembled workforce, which cannot be recognized as an intangible asset. Specifically, the goodwill acquired with MPE, Medimass and Nonlinear Dynamics consists of the values assigned to the respective workforces and the future incremental sales synergies anticipated.

In each acquisition, the sellers provided the Company with customary representations, warranties and indemnification, which would be settled in the future if and when a breach of the contractual representation or warranty condition occurs. The pro forma effect of the ongoing operations for Waters, MPE, the Malaysian sales and service distributor, ElectroForce, Medimass, ULSP, LaserComp, ESS, Nonlinear Dynamics and Scarabaeus, either individually or in the aggregate, as though these acquisitions had occurred at the beginning of the periods covered by this report was immaterial.

7 Goodwill and Other Intangibles

The carrying amount of goodwill was $357 million and $355 million at December 31, 2015 and 2014, respectively. During the year ended December 31, 2015, the Company’s acquisitions increased goodwill by $7 million (see Note 6) and 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):

		December 31, 2015												December 31, 2014
		Gross Carrying Amount				Accumulated Amortization				Weighted- Average Amortization Period				Gross Carrying Amount				Accumulated Amortization				Weighted- Average Amortization Period
Capitalized software		$	335,949			$	204,267				7 years			$	334,280			$	196,477				7 years
Purchased intangibles			163,500				119,505				11 years				163,855				112,279				11 years
Trademarks and IPR&D			14,364				—				—				14,095				—				—
Licenses			5,396				4,046				6 years				5,371				3,634				6 years
Patents and other intangibles			58,519				31,888				8 years				51,407				26,796				8 years
Total		$	577,728			$	359,706				8 years			$	569,008			$	339,186				8 years

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During the year ended December 31, 2015, the Company acquired $6 million of purchased intangibles as a result of the acquisitions of MPE, the Malaysian sales and service distributor and ElectroForce (see Note 6). In addition, the gross carrying value of intangible assets and accumulated amortization for intangible assets decreased by $41 million and $24 million, respectively, in the year ended December 31, 2015 due to the effects of foreign currency translation. Amortization expense for intangible assets was $45 million, $48 million and $42 million for the years ended December 31, 2015, 2014 and 2013, respectively. Amortization expense for intangible assets is estimated to be $45 million per year for each of the next five years.

8 Debt

In June 2013, the Company entered into a credit agreement that provides for a $1.1 billion revolving facility and a $300 million term loan facility. In April 2015, Waters entered into an amendment to this agreement (the “Amended 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 interest rates applicable to the Amended 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 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 80 basis points and 117.5 basis points for adjusted LIBO rate loans. The facility fee on the Amended Credit Agreement ranges between 7.5 basis points and 20 basis points. The Amended 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 Amended Credit Agreement includes negative covenants, affirmative covenants, representations and warranties and events of default that are customary for investment grade credit facilities.

At December 31, 2015, $125 million of the outstanding portion of the revolving facility was 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 $745 million of the outstanding portion of the revolving facility was 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 December 31, 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On December 31, 2015, the Company adopted new accounting guidance related to the presentation of debt issuance costs. The accounting guidance requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, but allows debt issuance costs related to line-of-credit arrangements to remain as an asset, regardless of whether or not there are any outstanding borrowings on the line-of-credit arrangement. The Company applied the adoption of these standards retrospectively and reclassified $2 million and $3 million of unamortized debt issuance costs from intangible assets to short-term and long-term debt as of December 31, 2015 and 2014, respectively. The Company elected to continue to present unamortized debt issuance costs related to the revolving line of credit as intangible assets. Other than this reclassification, the adoption of these standards did not have an impact on the Company’s consolidated financial statements.

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

		December 31,
		2015				2014
Foreign subsidiary lines of credit		$	322			$	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				—
Credit agreements			125,000				125,000
Unamortized debt issuance costs			(13	)			(13	)
Total notes payable and debt			175,309				225,230
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
Credit agreements			1,045,000				740,000
Unamortized debt issuance costs			(1,973	)			(2,537	)
Total long-term debt			1,493,027				1,237,463
Total debt		$	1,668,336			$	1,462,693

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

As of December 31, 2015 and 2014, the Company had a total amount available to borrow under existing credit agreements of $428 million and $533 million, respectively, after outstanding letters of credit. The weighted-average interest rates applicable to the senior unsecured notes and credit agreement borrowings collectively were 2.11% and 2.31% at December 31, 2015 and 2014, respectively. As of December 31, 2015, the Company was in compliance with all debt covenants.

The Company and its foreign subsidiaries also had available short-term lines of credit totaling $97 million and $88 million at December 31, 2015 and 2014, respectively, for the purpose of short-term borrowing and issuance of commercial guarantees. The weighted-average interest rates applicable to these short-term borrowings were 1.24% and 1.48% at December 31, 2015 and 2014, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9 Income Taxes

Income tax data for the years ended December 31, 2015, 2014 and 2013 is as follows (in thousands):

		Year Ended December 31,
		2015				2014				2013
The components of income from operations before income taxes are as follows:
Domestic		$	66,716			$	70,136			$	116,067
Foreign			475,203				420,604				374,038
Total		$	541,919			$	490,740			$	490,105

		Year Ended December 31,
		2015				2014				2013
The current and deferred components of the provision for income taxes on operations are as follows:
Current		$	66,285			$	57,537			$	39,933
Deferred			6,581				1,583				169
Total		$	72,866			$	59,120			$	40,102
The jurisdictional components of the provision for income taxes on operations are as follows:
Federal		$	20,882			$	23,071			$	(702	)
State			3,389				3,791				5,142
Foreign			48,595				32,258				35,662
Total		$	72,866			$	59,120			$	40,102
The differences between income taxes computed at the United States statutory rate and the provision for income taxes are summarized as follows:
Federal tax computed at U.S. statutory income tax rate		$	189,672			$	171,759			$	171,537
Settlement of tax audits			(3,258	)			—				(30,552	)
State income tax, net of federal income tax benefit			2,601				2,464				3,342
Net effect of foreign operations			(112,426	)			(109,240	)			(96,461	)
Other, net			(3,723	)			(5,863	)			(7,764	)
Provision for income taxes		$	72,866			$	59,120			$	40,102

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 December 31, 2015. In 2015, the Company entered into a new agreement with Singapore tax authorities that extended a 0% contractual tax rate through March 2021. The contractual tax rate is dependent upon the achievement of certain contractual milestones, which the Company expects to meet. The current statutory tax rate in Singapore is 17%.

The Company’s effective tax rates for the years ended December 31, 2015, 2014 and 2013 were 13.4%, 12.0% and 8.2%, respectively. The increase in the effective tax rate in 2015 as compared to 2014 can be attributed to differences in the proportionate amounts of pre-tax income recognized in jurisdictions with different effective tax rates. In addition, the income tax provision for 2015 included a $3 million tax benefit related to the completion of tax audit examinations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The increase in the effective tax rate in 2014 as compared to 2013 can be attributed to the fact that the income tax provision for 2013 included a $31 million net tax benefit related to the completion of tax audit examinations. In addition, the research and development tax credit (“R&D Tax Credit”) was retroactively extended in January 2013 for the 2012 and 2013 tax years. The entire $3 million benefit related to the 2012 tax year was recorded in the first quarter of 2013, and the 2013 benefit was included in the 2013 annual effective tax rate. The net income tax benefits related to the completed tax audit examinations and the 2012 R&D Tax Credit decreased the Company’s effective tax rate by 6.9 percentage points in the year ended December 31, 2013. The remaining differences between the effective tax rates for 2014 and 2013 were primarily attributable to differences in the proportionate amounts of pre-tax income recognized in jurisdictions with different effective tax rates.

The tax effects of temporary differences and carryforwards which give rise to deferred tax assets and deferred tax liabilities are summarized as follows (in thousands):

		December 31,
		2015				2014
Deferred tax assets:
Net operating losses and credits		$	83,428			$	102,810
Depreciation			8,223				11,979
Stock-based compensation			18,160				18,702
Deferred compensation			28,907				34,301
Revaluation of equity investments			5,396				5,819
Inventory			4,470				4,104
Accrued liabilities and reserves			10,129				9,368
Other			15,871				18,097
Total deferred tax assets			174,584				205,180
Valuation allowance			(68,595	)			(82,550	)
Deferred tax assets, net of valuation allowance			105,989				122,630
Deferred tax liabilities:
Capitalized software			(15,336	)			(16,253	)
Amortization			(5,799	)			(8,765	)
Indefinite-lived intangibles			(18,924	)			(18,094	)
Total deferred tax liabilities			(40,059	)			(43,112	)
Net deferred tax assets		$	65,930			$	79,518

On December 31, 2015, the Company adopted new accounting guidance related to the presentation of deferred tax assets and deferred tax liabilities. The accounting guidance requires that all deferred tax assets and deferred tax liabilities, including any valuation allowances, be classified as long-term in the consolidated balance sheet. The Company elected to apply the adoption of this standard retrospectively and reclassified $36 million of current net deferred tax assets to long-term net deferred tax assets as of December 31, 2014.

As of December 31, 2015, the Company has provided a deferred tax valuation allowance of $69 million, of which $64 million relates to certain foreign net operating losses. The Company’s net deferred tax assets associated with net operating losses and tax credit carryforwards are approximately $20 million as of December 31, 2015, which represent the future tax benefit of foreign net operating loss carryforwards that do not expire under current law.

The income tax benefits associated with non-qualified stock option compensation expense recognized for tax purposes and credited to additional paid-in capital were $13 million, $16 million and $16 million for the years ended December 31, 2015, 2014 and 2013, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At December 31, 2015, there were unremitted earnings of foreign subsidiaries of approximately $3 billion. The Company has not provided for U.S. income taxes or foreign withholding taxes on these earnings as it is the Company’s current intention to permanently reinvest these earnings outside the U.S. Because of the complexity of U.S. and foreign tax rules applicable to the distribution of earnings from foreign subsidiaries to U.S. legal entities, the determination of the unrecognized deferred tax liability on these earnings is not practicable. Events that could trigger a tax might include U.S. acquisitions or other investments funded by cash distributions or loans from a foreign subsidiary.

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 tax 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 years ended December 31, 2015, 2014 and 2013 (in thousands):

		2015				2014				2013
Balance at the beginning of the period		$	19,596			$	24,716			$	64,390
Changes resulting from completion of tax examinations			(2,405	)			—				(35,279	)
Other changes in uncertain tax benefits			(2,741	)			(5,120	)			(4,395	)
Balance at the end of the period		$	14,450			$	19,596			$	24,716

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, 2011. However, carryforward attributes that were generated in years beginning on or before January 1, 2012 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.

During the year ended December 31, 2013, the Company concluded tax audit disputes with tax authorities in the U.S. and Japan that were related to matters for which the Company had previously recorded uncertain tax benefits of approximately $35 million. The resolution of these tax disputes also entailed net global assessments against the Company of approximately $4 million. Accordingly, the Company recorded a $35 million reduction in the measurement of its unrecognized tax benefits and a $4 million increase in its current tax liabilities in the year ended December 31, 2013, which reduced the provision for income taxes and increased net income for the year ended December 31, 2013 by $31 million.

During the year ended December 31, 2015, the Company concluded U.S. tax audit disputes that, in part, related to matters for which the Company had recorded net uncertain tax benefits. The resolution of these tax disputes resulted in a $2 million reduction in the measurement of its unrecognized tax benefits and a $2 million decrease in its provision for income taxes for the year ended December 31, 2015.

As of December 31, 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.

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10 Litigation

From time to time, the Company and its subsidiaries are involved in various litigation matters arising in the ordinary course of business. The Company believes it has meritorious arguments in its current litigation matters and believes any outcome, either individually or in the aggregate, will not be material to the Company’s financial position, results of operations or cash flows. In 2015, the Company recorded $4 million of litigation settlement provisions and related costs. The accrued patent litigation expense is in other current liabilities in the consolidated balance sheets at December 31, 2015.

11 Other Commitments and Contingencies

Lease agreements, expiring at various dates through 2026, cover buildings, office equipment and automobiles. Rental expense was $27 million for the year ended December 31, 2015, and $30 million for each of the years ended December 31, 2014 and 2013. Future minimum rents payable as of December 31, 2015 under non-cancelable leases with initial terms exceeding one year are as follows (in thousands):

2016		$	21,173
2017			15,437
2018			9,135
2019			6,292
2020 and thereafter			15,122

The Company licenses certain technology and software from third parties. Future minimum license fees payable under existing license agreements as of December 31, 2015 are immaterial for the years ended December 31, 2016 and thereafter. The Company enters into licensing arrangements with third parties that require future milestone or royalty payments contingent upon future events. Upon the achievement of certain milestones in existing agreements, the Company could make additional future payments of up to $12 million, as well as royalties on future net sales.

The Company enters into standard indemnification agreements in its ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with patent, copyright or other intellectual property infringement claims by any third party with respect to its current products, as well as claims relating to property damage or personal injury resulting from the performance of services by the Company or its subcontractors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. Historically, the Company’s costs to defend lawsuits or settle claims relating to such indemnity agreements have been minimal and management accordingly believes the estimated fair value of these agreements is immaterial.

12 Stock-Based Compensation

In May 2012, the Company’s shareholders approved the Company’s 2012 Equity Incentive Plan (“2012 Plan”). As of December 31, 2015, the 2012 Plan has 3.4 million shares available for grant in the form of incentive or non-qualified stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units or other types of awards. The Company issues new shares of common stock upon exercise of stock options or restricted stock unit conversion. Under the 2012 Plan, the exercise price for stock options may not be less than the fair market value of the underlying stock at the date of grant. The 2012 Plan is scheduled to terminate on May 9, 2022. Options generally will expire no later than ten years after the date on which they are granted and will become exercisable as directed by the Compensation Committee of the Board of Directors and generally vest in equal annual installments over a five-year period. A SAR may be granted alone or in conjunction with an option or other award. Shares of restricted stock and restricted stock units may be issued under the 2012 Plan for such

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

consideration as is determined by the Compensation Committee of the Board of Directors. As of December 31, 2015, the Company had stock options, restricted stock and restricted stock unit awards outstanding.

In May 2009, the Company’s shareholders approved the 2009 Employee Stock Purchase Plan under which eligible employees may contribute up to 15% of their earnings toward the quarterly purchase of the Company’s common stock. The plan makes available 0.9 million shares of the Company’s common stock, which includes the remaining shares available under the 1996 Employee Stock Purchase Plan. As of December 31, 2015, 1.3 million shares have been issued under both the 2009 and 1996 Employee Stock Purchase Plans. Each plan period lasts three months beginning on January 1, April 1, July 1 and October 1 of each year. The purchase price for each share of stock is the lesser of 90% of the market price on the first day of the plan period or 100% of the market price on the last day of the plan period. Stock-based compensation expense related to this plan was $1 million for each of the years ended December 31, 2015, 2014 and 2013, respectively.

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 grant date 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.

The consolidated statements of operations for the years ended December 31, 2015, 2014 and 2013 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):

		2015				2014				2013
Cost of sales		$	2,590			$	2,732			$	2,523
Selling and administrative expenses			26,431				26,128				25,252
Research and development expenses			4,347				4,138				3,933
Total stock-based compensation		$	33,368			$	32,998			$	31,708

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 option exercises. The risk-free interest rate is the yield currently available on U.S. Treasury zero-coupon issues with a

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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 2015, 2014 and 2013 are as follows:

Options Issued and Significant Assumptions Used to Estimate Option Fair Values		2015				2014				2013
Options issued in thousands			673				569				428
Risk-free interest rate			1.8	%			1.6	%			1.7	%
Expected life in years			6				6				5
Expected volatility			0.257				0.266				0.248
Expected dividends			—				—				—
Weighted-Average Exercise Price and Fair Value of Options on the Date of Grant		2015				2014				2013
Exercise price		$	127.63			$	112.56			$	97.74
Fair value		$	35.84			$	32.61			$	27.37

The following table summarizes stock option activity for the plans for the year ended December 31, 2015 (in thousands, except per share data):

		Number of Shares				Exercise Price per Share				Weighted-Average Exercise Price
Outstanding at December 31, 2014			3,280			$	37.84 to $113.36			$	82.85
Granted			673			$	113.88 to $134.37			$	127.63
Exercised			(727	)		$	37.84 to $ 98.21			$	64.05
Canceled			(72	)		$	79.05 to $ 87.06			$	83.25
Outstanding at December 31, 2015			3,154			$	38.09 to $134.37			$	96.73

The following table details the options outstanding at December 31, 2015 by range of exercise prices (in thousands, except per share data):

Exercise Price Range		Number of Shares Outstanding				Weighted- Average Exercise Price				Remaining Contractual Life of Options Outstanding				Number of Shares Exercisable				Weighted- Average Exercise Price
$38.09 to $79.99			1,059			$	72.78				4.7				932			$	71.97
$80.00 to $113.36			1,423			$	99.93				8.0				553			$	95.44
$113.37 to $134.37			672			$	127.70				10.0				—			$	—
Total			3,154			$	96.73				7.3				1,485			$	80.71

During 2015, 2014 and 2013, the total intrinsic value of the stock options exercised (i.e., the difference between the market price at exercise and the price paid by the employee to exercise the options) was $48 million, $63 million and $64 million, respectively. The total cash received from the exercise of these stock options was $47 million, $69 million and $64 million for the years ended December 31, 2015, 2014 and 2013, respectively.

The aggregate intrinsic value of the outstanding stock options at December 31, 2015 was $119 million. Options exercisable at December 31, 2015, 2014 and 2013 were 1.5 million, 1.7 million and 2.2 million, respectively. The weighted-average exercise prices of options exercisable at December 31, 2015, 2014 and 2013 were $80.71, $70.03 and $60.88, respectively. The weighted-average remaining contractual life of the exercisable outstanding stock options at December 31, 2015 was 5.7 years.

At December 31, 2015, the Company had 3.1 million stock options which are vested and expected to vest. The intrinsic value, weighted-average price and remaining contractual life of the vested and expected to vest stock options were $119 million, $96.50 and 7.3 years, respectively, at December 31, 2015.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2015, 2014 and 2013, there were $50 million, $43 million and $40 million of total unrecognized compensation costs related to unvested stock option awards that are expected to vest. These costs are expected to be recognized over a weighted-average period of 3.9 years.

Restricted Stock

During the years ended December 31, 2015, 2014 and 2013, the Company granted 10 thousand, 12 thousand and 12 thousand shares of restricted stock, respectively. The weighted-average fair value per share on the grant date of the restricted stock granted in 2015, 2014 and 2013 was $113.88, $99.22 and $88.71, respectively. The Company has recorded $1 million, $2 million and $2 million of compensation expense in each of the years ended December 31, 2015, 2014 and 2013, respectively, related to the restricted stock grants. As of December 31, 2015, the Company had 10 thousand unvested shares of restricted stock outstanding, which have been fully expensed.

Restricted Stock Units

The following table summarizes the unvested restricted stock unit award activity for the year ended December 31, 2015 (in thousands, except for per share amounts):

		Shares				Weighted-Average Price
Unvested at December 31, 2014			533			$	94.38
Granted			150			$	119.46
Vested			(172	)		$	87.44
Forfeited			(14	)		$	101.17
Unvested at December 31, 2015			497			$	104.16

Restricted stock units are generally granted annually in February and vest in equal annual installments over a five-year period. The amount of compensation costs recognized for the years ended December 31, 2015, 2014 and 2013 on the restricted stock units expected to vest were $16 million, $16 million and $12 million, respectively. As of December 31, 2015, there were $38 million of total unrecognized compensation costs related to the restricted stock unit awards that are expected to vest. These costs are expected to be recognized over a weighted-average period of 3.1 years.

13 Earnings Per Share

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

		Year Ended December 31, 2015
		Net Income				Weighted-Average Shares				Per Share
		(Numerator)				(Denominator)				Amount
Net income per basic common share		$	469,053				82,336			$	5.70
Effect of dilutive stock option, restricted stock and restricted stock unit securities			—				751				(0.05	)
Net income per diluted common share		$	469,053				83,087			$	5.65

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		Year Ended December 31, 2014
		Net Income				Weighted-Average Shares				Per Share
		(Numerator)				(Denominator)				Amount
Net income per basic common share		$	431,620				84,358			$	5.12
Effect of dilutive stock option, restricted stock and restricted stock unit securities			—				793				(0.05	)
Net income per diluted common share		$	431,620				85,151			$	5.07
		Year Ended December 31, 2013
		Net Income				Weighted-Average Shares				Per Share
		(Numerator)				(Denominator)				Amount
Net income per basic common share		$	450,003				85,426			$	5.27
Effect of dilutive stock option, restricted stock and restricted stock unit securities			—				1,120				(0.07	)
Net income per diluted common share		$	450,003				86,546			$	5.20

For the years ended December 31, 2015, 2014 and 2013, the Company had 1.2 million, 1.0 million and 1.1 million stock options that were antidilutive, respectively, 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.

14 Retirement Plans

U.S. employees are eligible to participate in the Waters Employee Investment Plan, a 401(k) defined contribution plan, immediately upon hire. Employees may contribute up to 60% of eligible pay on a pre-tax or post-tax basis and the Company makes matching contributions of 100% for contributions up to 6% of eligible pay. Employees are 100% vested in employee and Company matching contributions. For the years ended December 31, 2015, 2014 and 2013, the Company’s matching contributions amounted to $14 million, $13 million and $13 million, respectively.

The Company maintains two defined benefit plans in the U.S. for which the pay credit accruals have been frozen, the Waters Retirement Plan and the Waters Retirement Restoration Plan (collectively, the “U.S. Pension Plans”). The Company also sponsors other employee benefit plans in the U.S., including a retiree healthcare plan, which provides reimbursement for medical expenses and is contributory. There are various employee benefit plans outside the United States (both defined benefit and defined contribution plans). Certain non-U.S. defined benefit plans (“Non-U.S. Pension Plans”) are included in the disclosures below, which are required under the accounting standards for retirement benefits. The Company made one-time contributions totaling $21 million to certain of these Non-U.S. Pension Plans during 2014.

The Company contributed $11 million, $11 million and $12 million in the years ended December 31, 2015, 2014 and 2013, respectively, to the non-U.S. plans (primarily defined contribution plans) which are currently outside of the scope of the required disclosures. The eligibility and vesting of non-U.S. plans are generally consistent with local laws and regulations.

The net periodic pension cost is made up of several components that reflect different aspects of the Company’s financial arrangements as well as the cost of benefits earned by employees. These components are determined using the projected unit credit actuarial cost method and are based on certain actuarial assumptions. The Company’s accounting policy is to reflect in the projected benefit obligation all benefit changes to which the Company is committed as of the current valuation date; use a market-related value of assets to determine pension expense; amortize increases in prior service costs on a straight-line basis over the expected future service of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

active participants as of the date such costs are first recognized; and amortize cumulative actuarial gains and losses in excess of 10% of the larger of the market-related value of plan assets and the projected benefit obligation over the expected future service of active participants.

Summary data for the U.S. Pension Plans, U.S. retiree healthcare plan and Non-U.S. Pension Plans are presented in the following tables, using the measurement dates of December 31, 2015 and 2014, respectively.

The reconciliation of the projected benefit obligations at December 31, 2015 and 2014 is as follows (in thousands):

		2015												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
Projected benefit obligation, January 1		$	155,693			$	13,512			$	82,006			$	134,593			$	11,020			$	69,116
Service cost			—				577				5,087				—				791				4,579
Employee contributions			—				864				573				—				832				592
Interest cost			6,128				470				1,503				6,417				463				2,195
Actuarial (gains) losses			(3,266	)			(1,552	)			(3,956	)			18,270				1,253				17,967
Benefits paid			(3,552	)			(908	)			(2,503	)			(3,587	)			(847	)			(1,195	)
Plan amendments			—				—				(645	)			—				—				796
Plan settlements			—				—				(577	)			—				—				(2,766	)
Currency impact			—				—				(5,811	)			—				—				(9,278	)
Projected benefit obligation, December 31		$	155,003			$	12,963			$	75,677			$	155,693			$	13,512			$	82,006

The accumulated benefit obligations at December 31, 2015 and 2014 are as follows (in thousands):

		2015												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
Accumulated benefit obligation		$	155,003				*	*		$	63,883			$	155,693				*	*		$	69,664

**	Not applicable.

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The reconciliation of the fair value of the plan assets at December 31, 2015 and 2014 is as follows (in thousands):

		2015												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
Fair value of plan assets, January 1		$	135,887			$	7,526			$	59,568			$	128,516			$	6,616			$	40,820
Actual return on plan assets			(486	)			71				611				7,366				533				4,170
Company contributions			4,279				448				7,082				3,592				392				24,216
Employee contributions			—				864				573				—				832				592
Plan settlements			—				—				(577	)			—				—				(2,766	)
Benefits paid			(3,552	)			(908	)			(2,503	)			(3,587	)			(847	)			(1,195	)
Currency impact			—				—				(4,313	)			—				—				(6,269	)
Fair value of plan assets, December 31		$	136,128			$	8,001			$	60,441			$	135,887			$	7,526			$	59,568

The summary of the funded status of the plans at December 31, 2015 and 2014 is as follows (in thousands):

		2015												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
Projected benefit obligation		$	(155,003	)		$	(12,963	)		$	(75,677	)		$	(155,693	)		$	(13,512	)		$	(82,006	)
Fair value of plan assets			136,128				8,001				60,441				135,887				7,526				59,568
Projected benefit obligation in excess of fair value of plan assets		$	(18,875	)		$	(4,962	)		$	(15,236	)		$	(19,806	)		$	(5,986	)		$	(22,438	)

The summary of the amounts recognized in the consolidated balance sheets for the plans at December 31, 2015 and 2014 is as follows (in thousands):

		2015												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
Long-term assets		$	—			$	—			$	1,402			$	—			$	—			$	838
Current liabilities			(1,324	)			(447	)			—				(193	)			(351	)			—
Long-term liabilities			(17,551	)			(4,515	)			(16,638	)			(19,613	)			(5,635	)			(23,276	)
Net amount recognized at December 31		$	(18,875	)		$	(4,962	)		$	(15,236	)		$	(19,806	)		$	(5,986	)		$	(22,438	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The summary of the components of net periodic pension costs for the plans for the years ended December 31, 2015, 2014 and 2013 is as follows (in thousands):

		2015												2014												2013
		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				U.S. Pension Plans				U.S. Retiree Healthcare Plan				Non-U.S. Pension Plans
Service cost		$	—			$	577			$	5,087			$	—			$	791			$	4,579			$	—			$	915			$	4,467
Interest cost			6,128				470				1,503				6,417				463				2,195				5,505				333				1,966
Expected return on plan assets			(9,145	)			(497	)			(1,542	)			(9,060	)			(435	)			(1,520	)			(8,034	)			(355	)			(901	)
Settlement loss			—				—				95				—				—				557				—				—				—
Net amortization:
Prior service cost (credit)			—				—				39				—				(51	)			(176	)			—				(54	)			(216	)
Net actuarial loss (gain)			3,278				—				1,031				2,216				(35	)			375				3,432				—				516
Net periodic pension cost (benefit)		$	261			$	550			$	6,213			$	(427	)		$	733			$	6,010			$	903			$	839			$	5,832

The summary of the changes in amounts recognized in other comprehensive (loss) income for the years ended December 31, 2015, 2014 and 2013 is as follows (in thousands):

		2015												2014												2013
		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				U.S. Pension Plans				U.S. Retiree Healthcare Plan				Non-U.S. Pension Plans
Prior service cost		$	—			$	—			$	645			$	—			$	—			$	(796	)		$	—			$	—			$	(232	)
Net (loss) gain arising during the year			(6,365	)			1,126				3,025				(19,965	)			(1,155	)			(15,168	)			25,048				1,629				1,940
Amortization:
Prior service cost (credit)			—				—				39				—				(51	)			(176	)			—				(54	)			(216	)
Net loss (gain)			3,278				—				1,126				2,216				(35	)			932				3,432				—				516
Currency impact			—				—				1,760				—				—				2,287				—				—				(497	)
Total recognized in other comprehensive (loss) income		$	(3,087	)		$	1,126			$	6,595			$	(17,749	)		$	(1,241	)		$	(12,921	)		$	28,480			$	1,575			$	1,511

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The summary of the amounts included in accumulated other comprehensive (loss) income in stockholders’ equity for the plans at December 31, 2015 and 2014 is as follows (in thousands):

		2015												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
Net actuarial (loss) gain		$	(48,835	)		$	1,170			$	(17,478	)		$	(45,749	)		$	44			$	(23,327	)
Prior service credit			—				—				1,465				—				—				719
Total		$	(48,835	)		$	1,170			$	(16,013	)		$	(45,749	)		$	44			$	(22,608	)

The summary of the amounts included in accumulated other comprehensive (loss) income expected to be included in next year’s net periodic benefit cost for the plans at December 31, 2015 is as follows (in thousands):

		2015
		U.S. Pension Plans				U.S. Retiree Healthcare Plan				Non-U.S. Pension Plans
Net actuarial loss		$	(2,669	)		$	—			$	(748	)
Prior service credit			—				—				174
Total		$	(2,669	)		$	—			$	(574	)

The plans’ investment asset mix is as follows at December 31, 2015 and 2014:

		2015												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
Equity securities			76	%			61	%			6	%			75	%			68	%			4	%
Debt securities			23	%			32	%			19	%			24	%			30	%			12	%
Cash and cash equivalents			1	%			7	%			8	%			1	%			2	%			19	%
Insurance contracts and other			0	%			0	%			67	%			0	%			0	%			65	%
Total			100	%			100	%			100	%			100	%			100	%			100	%

The plans’ investment policies include the following asset allocation guidelines:

		U.S. Pension and U.S. Retiree								Non-U.S. Pension Plans Policy Target
		Healthcare Plans
		Policy Target				Range
Equity securities			60	%			40% - 80%				5	%
Debt securities			25	%			20% - 60%				20	%
Cash and cash equivalents			5	%			0% - 20%				10	%
Insurance contracts and other			10	%			0% - 20%				65	%

The asset allocation policy for the U.S. Pension Plans and U.S. retiree healthcare plan was developed in consideration of the following long-term investment objectives: achieving a return on assets consistent with the investment policy, achieving portfolio returns which exceed the average return for similarly invested funds and maximizing portfolio returns with at least a return of 2.5% above the one-year constant maturity Treasury bond yield over reasonable measurement periods and based on reasonable market cycles.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Within the equity portfolio of the U.S. retirement plans, investments are diversified among market capitalization and investment strategy. The Company targets a 20% allocation of its U.S. retirement plans’ equity portfolio to be invested in financial markets outside of the United States. The Company does not invest in its own stock within the U.S. retirement plans’ assets.

The fair value of the Company’s retirement plan assets are as follows at December 31, 2015 (in thousands):

		Total at December 31, 2015				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
U.S. Pension Plans:
Mutual funds(a)		$	124,961			$	124,961			$	—			$	—
Common stocks(b)			3,138				3,138				—				—
Cash equivalents(c)			634				—				634				—
Hedge funds(d)			7,395				—				—				7,395
Total U.S. Pension Plans			136,128				128,099				634				7,395
U.S. Retiree Healthcare Plan:
Mutual funds(e)			7,476				7,476				—				—
Cash equivalents(c)			525				—				525				—
Total U.S. Retiree Healthcare Plan			8,001				7,476				525				—
Non-U.S. Pension Plans:
Cash equivalents(f)			5,061				5,061				—				—
Mutual funds(g)			14,809				14,809				—				—
Bank and insurance investment contracts(h)			40,571				—				—				40,571
Total Non-U.S. Pension Plans			60,441				19,870				—				40,571
Total fair value of retirement plan assets		$	204,570			$	155,445			$	1,159			$	47,966

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair value of the Company’s retirement plan assets are as follows 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)
U.S. Pension Plans:
Mutual funds(i)		$	124,405			$	124,405			$	—			$	—
Common stocks(b)			3,438				3,438				—				—
Cash equivalents(c)			710				—				710				—
Hedge funds(d)			7,334				—				—				7,334
Total U.S. Pension Plans			135,887				127,843				710				7,334
U.S. Retiree Healthcare Plan:
Mutual funds(j)			7,371				7,371				—				—
Cash equivalents(c)			155				—				155				—
Total U.S. Retiree Healthcare Plan			7,526				7,371				155				—
Non-U.S. Pension Plans:
Cash equivalents(f)			11,367				11,367				—				—
Mutual funds(k)			9,258				9,258				—				—
Bank and insurance investment contracts(h)			38,943				—				—				38,943
Total Non-U.S. Pension Plans			59,568				20,625				—				38,943
Total fair value of retirement plan assets		$	202,981			$	155,839			$	865			$	46,277

(a)	The mutual fund balance in the U.S. Pension Plans are invested in the following categories: 42% in the common stock of large-cap U.S. companies, 33% in the common stock of international growth companies, and 25% in fixed income bonds issued by U.S. companies and by the U.S. government and its agencies.

(b)	Represents primarily amounts invested in common stock of technology, healthcare, financial, energy and consumer staples and discretionary U.S. companies.

(c)	Primarily represents money market funds held with various financial institutions.

(d)	Hedge funds invest in both short and long term U.S. common stocks. Management of the hedge funds has the ability to shift investments from value to growth strategies, from large to small capitalization stocks and from a net long position to a net short position.

(e)	The mutual fund balance in the U.S. Retiree Healthcare Plan is invested in the following categories: 48% in the common stock of large-cap U.S. companies, 19% in the common stock of international growth companies and 33% in fixed income bonds of U.S. companies and U.S. government.

(f)	Primarily represents deposit account funds held with various financial institutions.

(g)	The mutual fund balance in the Non-U.S. Pension Plans is primarily invested in the following categories: 60% in international bonds, 23% in the common stock of international companies, 10% in mortgages and real estate, and 7% in various other global investments.

(h)	Amount represents bank and insurance guaranteed investment contracts.

(i)	The mutual fund balance in the U.S. Pension Plans are invested in the following categories: 43% in the common stock of large-cap U.S. companies, 31% in the common stock of international growth companies, and 26% in fixed income bonds issued by U.S. companies and by the U.S. government and its agencies.

(j)	The mutual fund balance in the U.S. Retiree Healthcare Plan is invested in the following categories: 52% in the common stock of large-cap U.S. companies, 20% in the common stock of international growth companies and 28% in fixed income bonds of U.S. companies and U.S. government.

(k)	The mutual fund balance in the Non-U.S. Pension Plans is invested in the following categories: 74% in international bonds and 26% in the common stock of international companies.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the changes in fair value of the Level 3 retirement plan assets for the years ended December 31, 2015 and 2014 (in thousands):

										Insurance
										Guaranteed
						Hedge				Investment
		Total				Funds				Contracts
Fair value of assets, December 31, 2013		$	41,445			$	7,025			$	34,420
Net purchases (sales) and appreciation (depreciation)			4,832				309				4,523
Fair value of assets, December 31, 2014			46,277				7,334				38,943
Net purchases (sales) and appreciation (depreciation)			1,689				61				1,628
Fair value of assets, December 31, 2015		$	47,966			$	7,395			$	40,571

The weighted-average assumptions used to determine the benefit obligation in the consolidated balance sheets at December 31, 2015, 2014 and 2013 are as follows:

		2015								2014								2013
		U.S.				Non-U.S.				U.S.				Non-U.S.				U.S.				Non-U.S.
Discount rate			4.59	%			2.23	%			3.92	%			1.98	%			4.82	%			3.29	%
Increases in compensation levels			**				2.45	%			**				2.58	%			**				2.54	%

**	Not applicable

The weighted-average assumptions used to determine the net periodic pension cost at December 31, 2015, 2014 and 2013 are as follows:

		2015								2014								2013
		U.S.				Non-U.S.				U.S.				Non-U.S.				U.S.				Non-U.S.
Discount rate			3.71	%			1.98	%			4.64	%			3.25	%			3.61	%			3.10	%
Return on plan assets			6.35	%			2.58	%			6.95	%			2.84	%			6.94	%			2.40	%
Increases in compensation levels			**				2.57	%			**				2.58	%			**				2.59	%

**	Not applicable

To develop the expected long-term rate of return on assets assumption, the Company considered historical returns and future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio and historical expenses paid by the plan. A one-quarter percentage point increase in the assumed long-term rate of return on assets would decrease the Company’s net periodic benefit cost for the Waters Retirement Plan by less than $1 million. A one-quarter percentage point increase in the discount rate would decrease the Company’s net periodic benefit cost for the Waters Retirement Plan by less than $1 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During fiscal year 2016, the Company expects to contribute a total of approximately $5 million to $10 million to the Company’s defined benefit plans. Estimated future benefit payments as of December 31, 2015 are as follows (in thousands):

		U.S. Pension and Retiree Healthcare Plans				Non-U.S. Pension Plans				Total
2016		$	8,320			$	1,060			$	9,380
2017			8,985				2,065				11,050
2018			8,423				2,043				10,466
2019			9,340				1,585				10,925
2020			9,596				2,066				11,662
2021 - 2025			55,648				15,739				71,387

15 Business Segment Information

The accounting standards for segment reporting establish standards for reporting information about operating segments in annual financial statements and require selected information for those segments to be presented in interim financial reports of public business enterprises. They also establish standards for related disclosures about products and services, geographic areas and major customers. 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.

Net sales for the Company’s products and services are as follows for the years ended December 31, 2015, 2014 and 2013 (in thousands):

		2015				2014				2013
Product net sales:
Waters instrument systems		$	895,626			$	871,048			$	840,608
Chemistry			317,941				312,890				304,130
TA instrument systems			171,689				162,791				167,765
Total product sales			1,385,256				1,346,729				1,312,503
Service net sales:
Waters service			593,301				579,759				532,323
TA service			63,775				62,856				59,392
Total service sales			657,076				642,615				591,715
Total net sales		$	2,042,332			$	1,989,344			$	1,904,218

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Geographic sales information is presented below for the years ended December 31, 2015, 2014 and 2013 (in thousands):

		2015				2014				2013
Net Sales:
United States		$	656,361			$	596,549			$	557,734
Europe			555,886				607,080				573,786
Asia:
China			278,600				238,892				240,535
Japan			145,184				163,468				170,115
Asia Other			272,179				237,668				216,229
Total Asia			695,963				640,028				626,879
Other			134,122				145,687				145,819
Total net sales		$	2,042,332			$	1,989,344			$	1,904,218

The Other category includes Canada, Latin America and Puerto Rico. Net sales are attributable to geographic areas based on the region of destination. None of the Company’s individual customers accounts for more than 2% of annual Company sales.

Long-lived assets information at December 31, 2015 and 2014 is presented below (in thousands):

		2015				2014
Long-lived assets:
United States		$	192,352			$	181,851
Europe			128,189				126,080
Asia			11,868				12,416
Other			946				1,236
Total long-lived assets		$	333,355			$	321,583

The Other category includes Canada, Latin America and Puerto Rico. Long-lived assets exclude goodwill, other intangible assets and other assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16 Unaudited Quarterly Results

The Company’s unaudited quarterly results are summarized below (in thousands, except per share data):

		First				Second				Third				Fourth
2015		Quarter				Quarter				Quarter				Quarter				Total
Net sales		$	460,404			$	494,740			$	500,578			$	586,610			$	2,042,332
Cost of sales			189,246				208,707				206,804				237,915				842,672
Gross profit			271,158				286,033				293,774				348,695				1,199,660
Selling and administrative expenses			119,751				122,660				124,655				128,681				495,747
Research and development expenses			28,951				30,555				30,703				28,336				118,545
Acquired in-process research and development			—				—				—				3,855				3,855
Purchased intangibles amortization			2,474				2,500				2,573				2,576				10,123
Litigation provisions			—				—				—				3,939				3,939
Operating income			119,982				130,318				135,843				181,308				567,451
Interest expense			(8,975	)			(9,046	)			(9,017	)			(9,205	)			(36,243	)
Interest income			2,340				2,500				2,736				3,135				10,711
Income from operations before income taxes			113,347				123,772				129,562				175,238				541,919
Provision for income tax expense			17,286				18,115				13,281				24,184				72,866
Net income		$	96,061			$	105,657			$	116,281			$	151,054			$	469,053
Net income per basic common share			1.16				1.28				1.42				1.85				5.70
Weighted-average number of basic common shares			83,025				82,564				82,036				81,650				82,336
Net income per diluted common share			1.15				1.27				1.40				1.83				5.65
Weighted-average number of diluted common shares and equivalents			83,752				83,332				82,784				82,382				83,087

		First				Second				Third				Fourth
2014		Quarter				Quarter				Quarter				Quarter				Total
Net sales		$	430,508			$	481,801			$	493,165			$	583,870			$	1,989,344
Cost of sales			187,719				201,853				202,222				233,119				824,913
Gross profit			242,789				279,948				290,943				350,751				1,164,431
Selling and administrative expenses			126,635				131,930				122,226				131,916				512,707
Research and development expenses			24,746				26,977				27,279				28,724				107,726
Acquired in-process research and development			—				—				—				15,456				15,456
Purchased intangibles amortization			2,647				2,646				2,725				2,616				10,634
Operating income			88,761				118,395				138,713				172,039				517,908
Interest expense			(7,489	)			(7,971	)			(9,062	)			(9,669	)			(34,191	)
Interest income			1,458				1,700				1,762				2,103				7,023
Income from operations before income taxes			82,730				112,124				131,413				164,473				490,740
Provision for income tax expense			12,428				15,595				17,916				13,181				59,120
Net income		$	70,302			$	96,529			$	113,497			$	151,292			$	431,620
Net income per basic common share			0.83				1.14				1.36				1.82				5.12
Weighted-average number of basic common shares			84,977				84,462				83,663				83,217				84,358
Net income per diluted common share			0.82				1.13				1.34				1.80				5.07
Weighted-average number of diluted common shares and equivalents			85,873				85,177				84,401				84,015				85,151

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company typically experiences an increase in sales in the fourth quarter, as a result of purchasing habits for capital goods of customers that tend to exhaust their spending budgets by calendar year end. Selling and administrative expenses are typically higher in the second and third quarters over the first quarter in each year as the Company’s annual payroll merit increases take effect. Selling and administrative expenses will vary in the fourth quarter in relation to performance in the quarter and for the year.

In the fourth quarters of 2015 and 2014, the Company recorded $4 million and $15 million charges, respectively, related to acquired in-process research and development (see Note 2). In the fourth quarter of 2015, the company recorded a $4 million provision related to litigation (see Note 10).

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