Annual Report 2015
Annual Report 2015
2015 was a fundamentally important year
for the future of our enterprise.
Our team delivered strong results in a
tough external environment, while at the
same time taking significant actions to
position us for long-term success.
Strong Financial Performance
In 2015 our team executed well, controlled the controllable and
posted efficient growth across our businesses. Companywide, organic
local-currency sales growth was 1.3 percent, with positive growth across
all geographic areas and in four of our five business groups.
Earnings rose to $7.58 per share, a 1.2 percent increase year over year.
During the year we completed a corporate restructuring that resulted in a
pre-tax charge of $114 million, and will deliver savings of $130 million in 2016.
Excluding this charge, we posted earnings per share of $7.72, up 3 percent
Net sales were $30 billion, down 5 percent versus 2014. This includes the
impact of the stronger U.S. dollar, which reduced sales by nearly 7 percent.
Premium margins remain a hallmark of our company, and we are able to
deliver such margins even in low-growth economic conditions. Excluding
restructuring, we expanded margins nearly a full percentage point to
23.3 percent, with all five business groups above 21 percent.
Our relentless focus on operational excellence also led to strong
performances related to cash flow and return on invested capital, which are
two of our company’s core metrics.
In 2015 we delivered a 22.5 percent return on invested capital, coming on
top of a 22 percent return in 2014. At the same time, free cash flow
conversion was a robust 103 percent, which is our second consecutive year
above 100 percent.
Our cash flow strength is important because it enables us to consistently
deploy capital in a way that creates the greatest value for our customers
Inge G. Thulin
Chairman of the Board,
President and Chief Executive Officer
With respect to capital deployment, our first priority is to invest in the business. To that end, in 2015 we invested more
than $3 billion in research and development (R&D) and cap-ex, which drive organic growth. Over the last five years, in
fact, we’ve invested $16 billion in R&D and cap-ex.
Investments in our business also include acquisitions, which complement organic growth. In 2015 we invested nearly
$4 billion in acquisitions.
After investing in the business, we have a long record of returning cash to our shareholders. And last year we returned
nearly $8 billion to shareholders through dividends and share repurchases.
3M has paid dividends uninterrupted for 99 years, and 2015 marked our 57th consecutive year of dividend increases.
Building for Long-Term Success
In addition to delivering strong financial results, our team made significant progress in positioning us for success in both
2016 and well into the future.
At 3M, we run our enterprise with one eye on the microscope and the other eye on the telescope. The microscope
view is to ensure we are delivering results day to day, quarter to quarter, and year to year. The telescope view is about
strengthening our company for the future.
This means we must be nimble in responding to short-term challenges, while at the same time be steadfast in our
commitment to investing for long-term success.
In 2015 we took action on both fronts.
On the microscope view, for example, we completed the corporate restructuring mentioned earlier, which was focused on
structural overhead and slower-growing markets, with emphasis on the U.S., Latin America and the Europe/Middle East/
Africa region. This action will help us to navigate the current economic challenges in 2016, with projected pre-tax savings
of $130 million.
On the telescope view, we made significant progress on our three key levers: Portfolio Management, Investing in
Innovation and Business Transformation. These levers are critical enablers to 3M’s success in a future that will be even
more competitive and dynamic.
Portfolio management is an ongoing process, and is all about strengthening and focusing our portfolio of businesses.
This includes prioritizing the allocation of capital across our portfolio. It also includes combining businesses within 3M,
along with acquisitions and divestitures.
Last year we consolidated two of our Health Care businesses – dental and orthodontics – into a single oral care
solutions business. Now, through a seamless partnership, we can offer our customers a full suite of oral care innovations.
Since 2012, in fact, we have realigned from six business groups to five, and from 40 businesses to 26. These actions
result in a portfolio of businesses that are more relevant to our customers, have greater scale, are more productive, and
can move with even more speed.
In 2015 we also strengthened our portfolio through acquisitions. In particular, our Capital Safety acquisition bolsters
our already-strong position in the fast-growing personal safety business, and the acquisition of Polypore’s Separations
Media business strengthens our filtration technology platform.
At the same time, we divested three businesses that no longer aligned with our strategic objectives, including the library
Investing in Innovation
Cash dividends paid per share
The backbone is a global ERP system that we are implementing on a regional
basis. Right now we are focused on executing our deployment plan in Europe, and
in 2015 we had a number of successful roll-outs, including in the Nordic countries.
Earnings per share-diluted
Technology conversion will remain a key economic driver into the future, and
these investments are strengthening our competitive edge.
Business Transformation – our third lever – starts and ends with our customers.
It entails transforming our business processes so we can serve customers with
greater speed and efficiency around the world.
That is why we continue to invest in R&D, even when the external environment
becomes more challenging. In 2015 we invested $1.8 billion in R&D – or 5.8
percent of sales – while expanding our scientific capabilities globally. We opened
six customer technical centers around the world, and are opening a new, state-ofthe-art research laboratory in the United States this year.
As a science company, research and development is our heartbeat, and is
foundational to our success. It allows us to invent and manufacture cutting-edge
products for our customers – which supports organic growth – and helps drive
our premium margins and return on invested capital.
Last year we also announced three Global Service Centers, which will optimize
our delivery of transactional services. They will also serve as a broader platform
for operational efficiencies into the future.
Business Transformation is an important undertaking, with significant long-term
benefits. We expect our actions to deliver $500-700 million in annual operational
savings by 2020, and another $500 million reduction in working capital.
In addition to the progress on our levers, last year we invested in a new brand
platform – 3M Science. Applied to Life.™ – which is enhancing awareness
of how we use science to solve problems for our customers. This will further
enhance our reputation, build greater trust and loyalty, and open up new growth
Also with an eye to the future, we released our new 10-year sustainability
goals, which build on our commitment to protect the planet while growing
our business. Last year, in fact, marked the 40th anniversary of our Pollution
Prevention Pays Program, which has prevented 4 billion pounds of pollution.
When I look upon all we accomplished in 2015, it was a fundamentally important
year for the future of our enterprise. Because of our work, we are a stronger,
more competitive, and more focused company that is positioned to succeed in
2016 and beyond.
As always, I thank our shareholders for your confidence, our customers for their
partnership, and our global team for their dedication to our success.
Inge G. Thulin
Chairman of the Board,
President and Chief Executive Officer
February 11, 2016
Consolidated Statement of Income
3M Company and Subsidiaries
Years ended December 31
Dollars in millions
Cost of sales
Selling, general and administrative expenses
Research, development and related expenses
Total operating expenses
Less: Net income attributable to noncontrolling interest
Income before income taxes
Provision for income taxes
Net income including noncontrolling interest
Interest expense and income
Total interest expense — net
Net income attributable to 3M
Weighted average 3M common shares outstanding — basic
Earnings per share attributable to 3M common shareholders — basic
Weighted average 3M common shares outstanding — diluted
Earnings per share attributable to 3M common shareholders — diluted
Cash dividends paid per 3M common share
Page 51 is intentionally missing from this file.
Consolidated Balance Sheet
3M Company and Subsidiaries
At December 31
(Dollars in millions, except per share amount)
Cash and cash equivalents
Marketable securities — current
Accounts receivable — net of allowances of $91 and $94
Work in process
Raw materials and supplies
Other current assets
Total current assets
Marketable securities — non-current
Property, plant and equipment
Less: Accumulated depreciation
Property, plant and equipment — net
Intangible assets — net
Prepaid pension benefits
Short-term borrowings and current portion of long-term debt
Accrued income taxes
Other current liabilities
Total current liabilities
Pension and postretirement benefits
Commitments and contingencies (Note 14)
3M Company shareholders’ equity:
Common stock, par value $.01 per share
Shares outstanding - 2015: 609,330,124
Shares outstanding - 2014: 635,134,594
Additional paid-in capital
Accumulated other comprehensive income (loss)
Total 3M Company shareholders’ equity
Total liabilities and equity
Cisco Systems, Inc. 2015 Annual Report
Annual Report 2015
Letters to Shareholders
To Our Shareholders,
Fiscal 2015 was a great year for Cisco. As we marked
our thirtieth anniversary year, we witnessed the inflection
point in the next wave of the Internet. This next wave will
have five to ten times the impact of the first. As fifty billion
devices come online and connect over the next few years,
the network and Cisco have never been more relevant or
more strategic. In our view, it is clear that the opportunities
ahead are even brighter than those of our past.
At Cisco, we believe much of our success has come from
our ability to lead market transitions. More than five years
ago, we saw the impact that connecting people, processes,
data, and things would have on organizations and countries.
Today, across the board, our customers’ top priority is to
use technology to drive growth and productivity, manage
risk, and gain competitive advantage. In this digital world,
data, and the insights it provides, is our customers’ most
strategic asset. It is increasingly distributed across every
part of their organization and ecosystem. Their ability to
secure, aggregate, automate, and analyze the data, at
speed, will ultimately define their success. Customers are
adopting entirely new IT architectures and organizational
structures to capture this opportunity, and we believe only
Cisco, and only the network, can deliver the highly secure,
highly distributed, and intelligent infrastructure and solutions
required in today’s dynamic, digital world.
As we reflect on this past year, we are pleased with how
we executed on both our business and financial strategy
and how we are innovating what we build and how we go to
market to lead our customers in their digital transitions.
Revenue for fiscal 2015 increased 4% year over year to a
record $49.2 billion. The rapid adoption of our subscriptionbased and software offerings is driving more predictable,
recurring revenue streams across the business. We
succeeded in driving growth and expanding our margins,
while growing our profits more quickly than revenues and
generating strong cash flows.
We remain highly focused on creating value through
ongoing expense management and returning capital to you,
our shareholders. For fiscal 2015, our capital returned to
shareholders totaled $8.3 billion, comprising $4.2 billion in
share buybacks and $4.1 billion in dividends. We are firmly
committed to continuing our capital allocation strategy
of returning a minimum of 50% of our free cash flow to
A Winning Differentiated Strategy
Our strong financial performance and our market leadership
in most areas clearly show that our vision and strategy are
working. Our differentiation comes from our ability to deliver
integrated architectures at scale, with speed and with
security. These architectures combine multiple industryleading technologies, services, and software with unique
go-to-market models and partnerships. We bring these
architectures to market in solutions that deliver business
outcomes to our customers. In our view, this architectural
approach allows us to deliver value greater than the sum
of the parts and is enabling us to pull away from the
competition and gain wallet and market share.
We believe that an architectural approach is essential when
it comes to tackling our customers’ top concern: security.
As everything in their world becomes digital, our customers
want a player who can step up to be their trusted partner
across the board. We believe no one is better positioned
than Cisco because, in our view, the only way to protect
enterprises is via the network. Our strategy in security
is to embed threat-centric security everywhere across
the extended network. We are also building a substantial
software subscription business in security, based on our
Sourcefire technology, with software accounting for 42% of
our total security revenue in fiscal 2015.
Collaboration is another business that is demonstrating
our software progress through strong growth in deferred
revenue. Two years since we decided to overhaul our
collaboration portfolio with a new generation of products,
we achieved year-over-year product deferred revenue
growth of over 20% in the fourth quarter, on the strength
of our subscription and software-as-a-service businesses.
We are seeing even stronger momentum from Meraki,
which exited fiscal 2015 with an annualized revenue run
rate of approximately $740 million, based on fourth quarter
performance, as customers adopt new cloud-based
In fiscal 2015, we started to see good early traction with
our new Cisco ONE Software bundles. We are seeing these
offerings drive strategic, multiyear customer relationships
with enterprise license agreements, as well as an increase
in customer infrastructure spend. We are also seeing the
expansion of our total addressable market to encompass
data and analytics.
Cisco Systems, Inc. 1
Annual Report 2015
Letter to Shareholders
Our portfolio of cloud assets, including Sourcefire, Meraki,
WebEx, and Cisco Spark, is enabling us to deliver our
technology in the ways our customers want to buy it in the
future. We intend to take this foundation and replicate it
across our entire portfolio.
in our current business. Our mergers and acquisitions
approach will remain balanced: maintaining discipline in
light of market conditions while making key strategic moves
that cement our competitive differentiation for the future.
At Cisco, we have always made the tough choices to be
positioned for where the market is going and challenged
ourselves to reinvent in order to create long-term value
for shareholders. Over the past year, we have continued to
drive change in our business as we prioritized the elements
of our portfolio—cloud, security, collaboration, automation,
and analytics—that are driving the most value for our
We have made significant changes in our engineering
organization to foster cross-functional development, and we
have continued the integration of our product and services
sales teams into a unified sales force to create a more
solutions-centric approach in our go-to-market and partner
engagements. We are building more agile, small teams that
are working jointly with our customers to develop solutions
to help them achieve their business outcomes.
During the year, we continued to optimize our portfolio
with strategic acquisitions as well as some divestments. To
strengthen our security business, we acquired Neohapsis,
a provider of security consulting services, and, in the fourth
quarter, we announced our intention to acquire OpenDNS, a
cloud-based security company.
We also expanded our cloud offerings by acquiring
Metacloud and Piston Cloud Computing, which will help
us build our OpenStack capabilities. Our strategy with
Intercloud is to deliver integrated, secure, hybrid cloud
solutions to enable our customers to easily consume cloud
services on demand.
In the fourth quarter, we announced an exclusive agreement
to sell the client premises equipment portion of our Service
Provider Video business to Technicolor, as we refocus
our investments and accelerate our momentum in service
provider video toward cloud, security, and software-based
We plan to continue to build, buy, partner, invest, and
co-innovate with our customers in order to seize market
transitions in new markets as well as extend our leadership
2 Cisco Systems, Inc.
For fiscal 2015, revenue was $49.2 billion, an increase
of 4% compared with fiscal 2014, reflecting refreshes
across almost every product area and effective resource
reallocations to growth areas. Product revenue was $37.8
billion, and service revenue was $11.4 billion, both also
increasing 4% year over year. Deferred revenue was $15.2
billion, increasing 7%, due largely to increased software
and subscription offerings, which we expect will continue
to grow in the overall mix. At the end of the year, recurring
revenue accounted for 46% of our product deferred
revenue. Net income was $9.0 billion, up 14% from fiscal
2014, while earnings per share on a fully diluted basis were
$1.75, up 17% year over year.
Our balan ...
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