What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-05-10 · 183 added, 109 removed, 224 unchanged (57% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Company's unaudited condensed combined financial statements and corresponding notes elsewhere in this Quarterly Report on Form 10-Q.

The following discussion and analysis provides information management believes to be relevant to understanding the financial condition and results of operations of Solventum Corporation (“Solventum,” or the “Company”) for the three months ended March 31, 2024 and 2023.

For a full understanding of our financial condition and results of operations, the below discussion should be read alongside the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Registration Statement on Form 10 as filed with the Securities and Exchange Commission ("SEC") on March 11, 2024, which became effective on March 13, 2024 (the "Information Statement").

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Company's unaudited condensed consolidated and combined financial statements and corresponding notes elsewhere in this Quarterly Report on Form 10-Q.

The following discussion and analysis provides information management believes to be relevant to understanding the financial condition and results of operations of Solventum Corporation ( " Solventum, " or the " Company " ) for the six months ended June 30, 2024 and 2023.

For a full understanding of our financial condition and results of operations, the below discussion should be read alongside the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Registration Statement on Form 10 as filed with the Securities and Exchange Commission (the "SEC") on March 11, 2024, which became effective on March 13, 2024 (the "Information Statement").

This discussion contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances.

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Certain columns and rows within tables may not add up due to the use of rounded numbers.

Unless the context otherwise requires, references to "Solventum" and the "Company" refer to (i) 3M's Health Care Business prior to the Spin-Off as a carve-out business of 3M with related condensed consolidated financial statements and (ii) Solventum Corporation and its subsidiaries following the Spin-Off with related condensed combined financial statements.

Unless the context otherwise requires, references to "Solventum" and the "Company" refer to (i) 3M's Health Care Business prior to the Spin-Off as a carve-out business of 3M with related condensed combined financial statements and (ii) Solventum Corporation and its subsidiaries following the Spin-Off with related condensed consolidated financial statements.

Transition to Standalone Company

Solventum utilized allocations and carve-out methodologies through the date of the Spin-Off to prepare historical audited combined financial statements and unaudited condensed combined financial statements.

The unaudited condensed combined financial statements herein for periods prior to the Spin-Off may not be indicative of the Company's future performance, do not necessarily include the actual expenses that would have been incurred by Solventum, and may not reflect our results of operations, financial position, and cash flows had we been a separate, standalone company during the historical periods presented.

In particular, Solventum currently benefits from 3M’s long operating history, reputation and well-known brand.

Following the separation, Solventum will operate under its own brand, and accordingly may be negatively impacted due to the loss of benefits conferred by 3M’s brand recognition and reputation.

Solventum utilized allocations and carve-out methodologies through the date of the Spin-Off to prepare historical combined financial statements and condensed combined financial statements.

The condensed combined financial statements herein for periods prior to the Spin-Off may not be indicative of the Company's future performance, do not necessarily include the actual expenses that would have been incurred by Solventum, and may not reflect our results of operations, financial position, and cash flows had we been a separate, standalone company during the historical periods presented.

In particular, Solventum benefited from 3M’s long operating history, reputation and well-known brand.

Following the separation, Solventum is operating under its own brand, and accordingly may be negatively impacted due to the loss of benefits conferred by 3M’s brand recognition and reputation.

In addition, the debt obligations incurred by Solventum in connection with the separation will adversely affect its profitability and could affect its ability to use its cash flow for investing in the business, strategic transactions, including mergers and acquisitions, and returning capital.

See Note 1, “Organization and Basis of Presentation” to the unaudited condensed combined financial statements and Item II, Part 1A "Risk Factors" for additional information.

See Note 1, " Organization and Basis of Presentation " to the condensed consolidated and combined financial statements and Item II, Part 1A "Risk Factors" for additional information.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of Solventum’s financial statements with a narrative from the perspective of management.

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Our 70+ year history of discovering and innovating advanced solutions has helped us solve our customers’ toughest challenges and become a trusted partner.

We serve customers in over 90 countries with a global team of approximately 22,000 employees and an established global manufacturing network.

In each of the last three years, we have generated over $8 billion of revenue and $1.7 billion of operating income.

We believe Solventum will deliver growth at attractive margins with the mission of enabling better, smarter, safer healthcare to improve lives.

Operating Segments and Sales Change Information

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References are made to organic sales change, which is defined as the change in net sales, absent the separate impacts on sales from foreign currency translation and acquisitions, net of divestitures.

Acquisition and divestiture sales change impacts, if any, are measured separately for the first twelve months post-transaction.

Other, as comprised in the tables below, include acquisition and divestiture-related activities.

Acquisitions include non-health care related supply agreements that conveyed from 3M to the Company at Spin-Off and sales from new supply agreements with 3M that commenced at Spin-Off.

Divestiture impacts include lost sales from the sale of the Company's dental anesthetics business that was sold in August 2023 as well as lost sales of certain health care businesses retained by 3M India in connection with the Spin-Off.

Solventum believes this information is useful to investors and management in understanding ongoing operations and in analysis of ongoing operating trends.

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The following tables contain sales and operating results by business segment for all periods presented.

The Company's use of the term "NM" reflects results considered not material due to not having material activity in comparable prior years.

Refer to the section entitled " —Performance by Business Segment " below for discussion of sales change and operating performance.

Refer to Note 12 to the unaudited condensed combined financial statements for additional information on business segments.

Refer to Note 15 to the condensed consolidated and combined financial statements for additional information on business segments.

Sales by Business Segment

Three months ended March 31,

Three months ended June 30,

2024 2023 Sales Change 2024 vs 2023

(Dollars in millions) Net Sales Net Sales Total Sales Change Translation Acquisition/Divestiture Organic Sales

(Dollars in millions) Net Sales Net Sales Total Sales Change Translation Other Organic Sales

Segment Sales

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Purification and Filtration 238 248 (3.6) (1.6) (1.2) (0.9)

Corporate and Unallocated — — — — — —

Corporate and Unallocated 22 — NM NM NM NM

Total Company $ 2,081 $ 2,076 0.2 % (1.1) % —% 1.3 %

Six months ended June 30,

2024 2023 Sales Change 2024 vs 2023

(Dollars in millions) Net Sales Net Sales Total Sales Change Translation Other Organic Sales

Segment Sales

MedSurg $ 2,281 $ 2,284 (0.1) % (0.8) % (0.3) % 1.0 %

Dental Solutions 666 692 (3.8) (0.9) (2.1) (0.8)

Health Information Systems 645 632 2.0 — — 2.0

Purification and Filtration 483 479 0.9 (1.1) (0.6) 2.6

Corporate and Unallocated 22 — NM NM NM NM

Total Company $ 4,097 $ 4,087 0.2 % (0.7) % (0.1) % 1.1 %

Operating Income by Business Segment

Three months ended March 31,

Three months ended June 30,

(Dollars in millions) 2024 2023 2024 vs 2023 change

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Total Company $ 244 $ 417 (41.5) %

Six months ended June 30,

(Dollars in millions) 2024 2023 2024 vs 2023 change

Segment Operating Income

MedSurg $ 435 $ 522 (16.7) %

Dental Solutions 200 235 (14.9)

Health Information Systems 212 190 11.6

Purification and Filtration 58 86 (32.6)

Corporate and Unallocated (280) (251) 11.6

Total Company $ 625 $ 782 (20.1) %

Sales by geographic area:

Percent change information compares the three months ended March 31, 2024 with the same period for the prior year, unless otherwise indicated.

Three months ended March 31, 2024

Percent change information compares the three and six months ended June 30, 2024 with the same period for the prior year, unless otherwise indicated.

Three months ended June 30, 2024

United States International Worldwide

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Translation — (2.4) (1.1)

Divestitures — (0.7) (0.3)

Other 0.3 (0.3) —

Organic sales 4.5 % (2.7) % 1.3 %

Six months ended June 30, 2024

United States International Worldwide

Net sales (millions) $ 2,315 $ 1,782 $ 4,097

% of worldwide sales 56.5 % 43.5 % 100.0 %

Components of net sales change:

Total sales change 3.0 % (3.2) % 0.2 %

Translation — (1.6) (0.7)

Other 0.1 (0.5) (0.1)

Organic sales 2.9 % (1.1) % 1.1 %

Additional information beyond what is included in the preceding table is as follows:

• In the United States, organic sales growth was led by MedSurg.

• In International, total sales growth declined while organic sales growth increased.

Organic growth was led by Purification and Filtration, partially offset by declines in MedSurg.

Second quarter 2024 results

• In the United States both total sales and organic sales increased.

Organic growth was led by MedSurg and Health Information Systems.

• In International, both total sales and organic sales decreased.

Foreign currency translation negatively impacted total growth.

Organic growth decline was led by MedSurg and Dental Solutions.

First six months 2024 results

• In the United States both total sales and organic sales increased.

Organic growth was led by MedSurg and Health Information Systems.

• In International, both total sales and organic sales decreased.

Foreign currency translation negatively impacted total growth.

Organic growth decline was led by MedSurg, partially offset by growth in Purification and Filtration.

Managing currency risks

Solventum indirectly participated in 3M’s centrally managed hedging program, which utilizes a number of tools to manage currency risk including natural hedges such as pricing, productivity, hard currency, hard currency-indexed billings, and localizing source of supply.

Prior to April 1, 2024, Solventum indirectly participated in 3M’s centrally managed hedging program, which utilizes a number of tools to manage currency risk including natural hedges such as pricing, productivity, hard currency, hard currency-indexed billings, and localizing source of supply.

3M also used financial hedges to mitigate currency risk.

Starting in the second quarter of 2024, Solventum established its own hedging program.

Refer to Note 10 for additional details.

The stronger U.S.

dollar had a negative impact on sales of less than 1 percent in the first three months of 2024 compared to the first three months of 2023.

Net of 3M’s hedging strategy, foreign currency negatively impacted earnings for the first three months of 2024 compared to the same period last year.

dollar had a negative impact on sales of 1 percent for the second quarter 2024 compared to the same period last year.

The stronger U.S.

dollar had a negative impact on sales of 1 percent in the first six months of 2024 compared to the first six months of 2023.

Net of the Company's hedging strategy, foreign currency negatively impacted earnings for the second quarter and first six months of 2024 compared to the same periods last year.

Financial condition

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Operating Expenses

Three months ended March 31,

(Percent of corresponding net sales) 2024 2023 Change

Three months ended June 30, Six months ended June 30,

(Percent of corresponding net sales) 2024 2023 Change 2024 2023 Change

Cost of product 51.3 % 47.4 % 3.9 % 49.0 % 48.0 % 1.0 %

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Costs of product includes manufacturing, engineering and freight costs.

Costs of product, measured as a percent of sales of product, decreased in the first three months of 2024 when compared to the first three months of 2023.

Benefits from both price and logistics costs, partially offset by higher material and labor inflation, drove a decrease of 1.9%.

Costs of product, measured as a percent of sales of product, increased in the second quarter of 2024 when compared to the second quarter of 2023.

The increase was driven by increased costs in international and unfavorable mix within MedSurg that was driven by backorder recovery in our lower margin OEM business, as well as higher costs from transition manufacturing, procurement and distribution support provided by 3M.

Costs of product, measured as a percent of sales of product, increased in the first six months of 2024 when compared to the first six months of 2023.

The increase was driven by higher costs from transition manufacturing, procurement and distribution support provided by 3M.

These increases were partially offset by sales price benefit.

Costs of Software and Rentals

Costs of software and rentals includes compensation-related costs associated with installation, training and maintenance for our software products, and depreciation, maintenance and refurbishment cost and freight costs related to our hardware rental units.

Costs of software and rentals, measured as a percent of sales of software and rentals, decreased in the first three months of 2024 as compared to the first three months of 2023 due to product mix from higher software sales.

Three months ended March 31,

(Percent of total net sales) 2024 2023 Change

Costs of software and rentals, measured as a percent of sales of software and rentals, decreased in both the second quarter and first six months of 2024 as compared to the same periods last year due to product mix from higher software sales.

Three months ended June 30, Six months ended June 30,

(Percent of total net sales) 2024 2023 Change 2024 2023 Change

Selling, general and administrative (SG&A) 33.7 % 27.9 % 5.8 % 31.7 % 28.3 % 3.4 %

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Selling, General and Administrative

SG&A, measured as a percent of total net sales, increased in the first three months of 2024 when compared to the first three months of 2023.

This increase was driven by increased spending on standalone costs in preparation of the Spin-Off.

SG&A, measured as a percent of total net sales, increased in both the second quarter and first six months of 2024 when compared to the same periods last year.

The increase in both periods was driven by higher compensation, including equity- based awards, and higher costs associated with both initial standup and ongoing operations to support a standalone Company.

Research and Development

R&D, measured as a percent of total net sales, was flat in the first three months of 2024 when compared to the first three months of 2023 as the Company maintained consistent investment in research and development initiatives.

R&D, measured as a percent of total net sales, was flat in both the second quarter and the first six months of 2024 when compared to the same periods last year as the Company maintained consistent investment in research and development initiatives.

Interest Expense, Net and Other Expense (Income), Net

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

(Dollars in millions) 2024 2023 2024 2023

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Other expense (income), net 34 4 $ 47 $ 6

Interest expense, net includes interest paid on debt and interest income from cash and marketable securities.

Interest expense, net increased in the first three months of 2024 as compared to the first three months of 2023 due to interest incurred on the February 2024 issuance of senior notes and March draw on the senior term loan credit facilities.

Refer to Note 7 to the unaudited condensed combined financial statements for more information.

Interest expense, net includes interest accrued on debt and interest income from cash and marketable securities.

Interest expense, net increased in both the second quarter and first six months of 2024 as compared to the same periods last year due to interest incurred on the February 2024 issuance of senior notes and March draw on the senior term loan credit facilities.

Refer to Note 8 to the financial statements for more information.

This increase was partially offset by interest earned from cash balances and marketable securities held during the period.

Other expense (income), net primarily includes the non-service component of periodic pension cost, investment gains and losses, and currency-related impacts from foreign currency translation.

Other expense (income), net increased in the first three months of 2024 as compared to the first three months of 2023 resulting from charges associated with the substantial liquidation of foreign operations completed as part of our separation from 3M.

Other expense (income), net includes the non-service component of periodic pension cost, investment gains and losses, and currency-related impacts from foreign currency translation.

Other expense (income), net increased in both the second quarter and the first six months of 2024 as compared to the same periods last year resulting from charges associated with the substantial liquidation of foreign operations completed as part of our separation from 3M.

Provision (benefit) for Income Taxes:

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

(Percent of pre-tax income/loss) 2024 2023 2024 2023

Effective tax rate 7.3 % 22.3 % 23.3 % 20.9 %

The increase in our effective tax rate is primarily due to the tax impact of legal entity restructuring in connection with the Spin-Off in 2024.

Refer to Note 6 for further discussion of income taxes.

The effective tax rates for the three months ended June 30, 2024 and 2023 were 7.3% and 22.3%, respectively.

The effective tax rates for the six months ended June 30, 2024 and 2023 were 23.3% and 20.9% , respectively.

Refer to Note 7 to the financial statements for further discussion of income taxes.

Performance by Business Segment

Item 1, Business Segments, provides an overview of Solventum's business segments.

In addition, disclosures relating to Solventum’s segments are provided in Note 12 to the unaudited condensed combined financial statements.

Note 14 to the audited combined financial statements within the Company's Information Statement dated March 11, 2024, provides an overview of Solventum's business segments.

In addition, disclosures relating to Solventum’s segments are provided in Note 15 to financial statements.

We manage our operations in four business segments.

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Corporate and Unallocated

In addition to the four business segments, the Company assigns certain costs to “Corporate and Unallocated,” which is presented separately in Note 12 to the unaudited condensed combined financial statements.

Corporate and Unallocated includes amortization of acquired intangible assets, restructuring related charges, benefits or costs related to capitalized manufacturing variances and other net costs that the Company chose not to allocate directly to its business segments.

In addition to the four business segments, the Company assigns certain costs to " Corporate and Unallocated, " which is presented separately in Note 15 to the condensed consolidated and combined financial statements.

Corporate and Unallocated includes amortization of acquired intangible assets, restructuring and related charges, benefits or costs related to capitalized manufacturing variances, Spin-Off and separation related costs and other net costs that the Company chose not to allocate directly to its business segments.

Spin-Off and separation related costs include any costs incurred as part of our separation from 3M and costs to setup operations as a standalone Company, including system implementations, manufacturing relocation, legal entity separation, certain equity awards granted as part of the Spin-Off, profit mark-ups on transition service arrangements with 3M and other one-time costs.

Corporate and Unallocated also includes sales and cost of sales related to product supplied to 3M and other supply agreements related to legacy 3M non-health care business that were assumed by the Company at Spin-Off.

Because Corporate and Unallocated includes a variety of miscellaneous items, it is subject to fluctuation on a quarterly and annual basis.

Corporate and Unallocated net operating loss decreased in the first three months of 2024 when compared to the first three months of 2023 as the Company had fewer costs that were not allocable or otherwise assignable to the operating segments.

Corporate and Unallocated net operating loss increased in both the second quarter and the first six months of 2024 when compared to the same period last year as the Company had higher Spin-Off and separation related costs.

Operating Business Segments

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Refer to the section entitled "Business" in Solventum's Information Statement for discussion of products that are included in each business segment.

MedSurg (55.5 percent of combined sales for the three months ended March 31, 2024)

Three months ended March 31,

MedSurg (55.8 percent and 55.7 percent of consolidated sales for the three and six months ended June 30, 2024)

Three months ended June 30, Six months ended June 30,

2024 2023 2024 2023

Sales (millions) $ 1,162 $ 1,161 $ 2,281 $ 2,284

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Organic sales 1.8 % 0.3 % 1.0 % 1.5 %

(0.5) — (0.3) — %

Translation (1.1) (1.0) (0.8) (2.0 %)

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Business segment operating income (millions)

$ 214 $ 269 $ 435 $ 522

Percent change (20.4) % (3.9) % (16.7) % (4.3 %)

Percent of sales 18.4 % 23.2 % 19.1 % 22.8 %

First quarter 2024 results

Second quarter 2024 results

Sales in MedSurg were up 0.1 percent:

• Organic sales growth was driven by both volume and price, including a benefit from OEM backorder reduction.

• Volume growth benefited from single-use negative pressure wound therapy and I.V.

site management solutions.

• Other includes lost sales from certain health care businesses in India retained by 3M in connection with the Spin-Off.

• Foreign currency translation negatively impacted sales by (1.1%).

Business segment operating income margin decreased when compared to the same period last year.

The decrease was driven by a mix penalty due to OEM backorder reduction and higher costs to standup and operate our standalone structure after Spin-Off.

First six months 2024 results

Sales in MedSurg were down (0.1) percent:

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The favorable impact of prior year price actions is expected to decline as we progress in 2024.

• Volume growth declined, led by advanced wound dressings and sterilization assurance product categories.

• Organic growth was led by single-use negative pressure wound therapy, partially offset by declines in sterilization assurance and advanced wound dressings.

• Other includes certain health care businesses retained by 3M India in connection with the Spin-Off.

• Foreign currency translation negatively impacted sales by (0.8%).

Business segment operating income margin decreased when compared to the same period last year.

The decrease was driven by higher planned investments associated with building our standalone operating structure in advance of the Spin-Off.

Dental Solutions (16.6 percent of combined sales for the three months ended March 31, 2024)

Three months ended March 31,

The decrease was driven by higher costs to standup and operate our standalone structure after Spin-Off.

Dental Solutions (15.9 percent and 16.3 percent of consolidated sales for the three and six months ended June 30, 2024)

Three months ended June 30, Six months ended June 30,

2024 2023 2024 2023

Sales (millions) $ 331 $ 351 $ 666 $ 692

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Organic sales (2.0) % 1.1 % (0.8) % 1.3 %

Divestitures (1.8) —

(2.4) — (2.1) —

Translation (1.5) (0.8) (0.9) (2.1)

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Percent of sales 27.2 % 35.3 % 30.0 % 34.0 %

First quarter 2024 results:

Second quarter 2024 results:

Sales in Dental Solutions were down (5.8) percent.

• Positive price growth was driven by the impact from actions initiated during the prior year in response to higher material and labor input costs.

The favorable impact of prior year price actions is expected to decline as we progress in 2024.

• Volume decline was primarily driven by traditional orthodontics.

• Prior year divestiture of the dental local anesthetics business negatively impacted sales by (1.8%).

• Volume declines were partially offset by modest price growth.

Lower volumes were primarily driven by traditional orthodontics.

• Other includes lost sales from the Company's dental anesthetics business that was sold in August 2023 as well as certain health care businesses retained by 3M India in connection with the Spin-Off.

• Foreign currency translation negatively impacted sales by (1.5%).

Business segment operating income margin increased slightly when compared to the same period last year as the benefits from both higher price and lower manufacturing inflation were partially offset by planned investments associated with building our standalone operating structure in advance of the Spin-Off.

Health Information Systems (15.7 percent of combined sales for the three months ended March 31, 2024)

Three months ended March 31,

Business segment operating income margin decreased when compared to the same period last year as a result of higher costs to standup and operate our standalone structure after Spin-Off, partially offset by the benefit from higher price.

First six months 2024 results:

Sales in Dental Solutions were down (3.8) percent.

• Volume declines were partially offset by positive price growth.

The favorable impact of prior year price actions decreased during the period and the impact of such price actions are expected to continue to moderate through the remainder of 2024.

• Other is primarily driven by lost sales from the Company's dental anesthetics business that was sold in August 2023.

• Foreign currency translation negatively impacted sales by (0.9%)

Health Information Systems (15.8 percent and 15.7 percent of consolidated sales for the three and six months ended June 30, 2024)

Three months ended June 30, Six months ended June 30,

2024 2023 2024 2023

Sales (millions) $ 328 $ 316 $ 645 $ 632

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Organic sales 3.6 % 3.4 % 2.0 % 5.8 %

Divestitures — —

Translation (0.1) (0.1) — (0.2)

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Percent of sales 33.8 % 30.4 % 32.9 % 30.1 %

First quarter 2024 results:

Second quarter 2024 results:

Sales in Health Information Systems were up 3.5 percent.

• Positive growth was driven by our 3M TM 360 Encompass TM solution.

• Positive growth was driven by continued adoption of our 3M TM 360 Encompass TM and performance management solutions.

• Clinician productivity solutions declined primarily impacted by changing market conditions.

Business segment operating income margin increased when compared to the same period last year driven by both price and a product mix benefit due to higher software sales and lower professional services.

First six months 2024 results:

Sales in Health Information Systems were up 2.0 percent.

• Positive growth was driven by continued adoption of our 3M TM 360 Encompass TM and performance management solutions.

• Clinician productivity solutions declined primarily impacted by changing market conditions.

Business segment operating income margin increased when compared to the same period last year driven by a product mix benefit due to higher software sales and lower professional services.

Purification and Filtration (12.2 percent of combined sales for the three months ended March 31, 2024)

Three months ended March 31,

Purification and Filtration (11.4 percent and 11.8 percent of consolidated sales for the three and six months ended June 30, 2024)

Three months ended June 30, Six months ended June 30,

2024 2023 2024 2023

Sales (millions) $ 238 $ 248 $ 483 $ 479

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Organic sales (0.9) % (4.7) % 2.6 % (6.1) %

Divestitures — —

(1.2) — (0.6) —

Translation (1.6) (0.6) (1.1) (2.1)

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Percent of sales 8.0 % 20.2 % 12.0 % 17.9 %

First quarter 2024 results:

Second quarter 2024 results:

Sales in Purification and Filtration were down (3.6) percent:

• Primarily driven by drinking water filtration end markets, partially offset by higher volume growth in bioprocessing filtration.

• Other includes certain business in India retained by 3M in connection with the Spin-Off.

• Foreign currency translation negatively impacted growth by (1.6%).

Business segment operating income margin decreased due to a negative impact from higher costs in international, sales mix and costs to standup and operate our standalone structure after Spin-Off.

First six months 2024 results:

Sales in Purification and Filtration were up 0.9 percent:

• Primarily driven by higher volume growth in both our bioprocessing filtration and membrane OEM product categories.

Bioprocessing filtration benefited from the timing of customer orders in the first quarter of 2024.

This growth was partially offset by a decline in our separation filtration products.

This growth was partially offset by a decline in our separation filtration and drinking water filtration products.

• Other includes certain health care businesses retained by 3M India in connection with the Spin-Off.

• Foreign currency translation negatively impacted growth by (1.1%).

Business segment operating income margin increased slightly as incremental gross profit driven by higher sales was partially offset by higher planned operating cost associated with building our standalone operating structure in advance of the Spin-Off.

Business segment operating income margin decreased due to the negative impact from higher costs in international, sales mix and costs to standup and operate our standalone structure after Spin-Off.

Financial Condition and Liquidity

The strength and stability of Solventum’s operating model and strong free cash flow capability provides financial flexibility and enables the Company to invest through business cycles.

Historically, Solventum has generated positive operating cash flows and a majority of such cash flows were transferred to 3M Company as part of 3M’s cash pooling arrangements, the effect of which is presented as net parent investment in our unaudited condensed combined financial statements.

Upon completion of the Spin-Off, we have ceased participation in 3M's cash pooling arrangement and our cash and cash equivalents are held and used solely for our own operations.

Our capital structure, long-term commitments and sources of liquidity will change significantly from historical practices.

Historically, Solventum generated positive operating cash flows and a majority of such cash flows were transferred to 3M Company as part of 3M’s cash pooling arrangements, the effect of which is presented as Net parent investment in our condensed combined financial statements.

Upon completion of the Spin-Off, Solventum has ceased participation in 3M's cash pooling arrangement and our cash and cash equivalents are held and used solely for our own operations.

The Company's capital structure, long-term commitments and sources of liquidity will change significantly from historical practices.

For additional detail regarding changes to our capital structure, see section entitled " Description of Material Indebtedness " below.

Subsequent to the Spin-Off and under the terms of the Separation and Distribution Agreement, the Company anticipates making approximately $400 million of cash payments to complete the separation from 3M.

The Company expects that this payment activity will be substantially complete by June 30, 2024.

Debt and Credit Facilities

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On February 27, 2024, Solventum issued $6.9 billion of senior notes in preparation for the payment of partial consideration to 3M Company in connection with the Spin-Off.

Refer to Note 7 "Long-Term Debt and Short-Term Borrowings" in the unaudited condensed combined financial statements for more information on this issuance and transfer to 3M in connection with the Spin-Off.

Refer to Note 8 for more information.

Commercial Paper

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Any such issuance will mature within 364 days from date of issue.

There was no commercial paper outstanding as of March 31, 2024.

There was no commercial paper outstanding as of June 30, 2024.

Cash, cash equivalents and marketable securities

At March 31, 2024, Solventum had $996 million of cash and cash equivalents, of which approximately $423 million was held by the Company’s foreign subsidiaries and approximately $573 million was held in the United States.

At June 30, 2024, Solventum had $897 million of cash and cash equivalents, of which approximately $378 million was held by the Company’s foreign subsidiaries and approximately $519 million was held in the United States.

These balances are invested in bank instruments and other high-quality fixed income securities.

At December 31, 2023, Solventum had $194 million of cash and cash equivalents, of which approximately $150 million was held by the Company’s foreign subsidiaries and $44 million was held in the United States.

The increase from December 31, 2023 primarily resulted from cash retained after the direct and indirect cash payments to 3M after receiving proceeds from the offering of the notes, as further described in Note 7.

The increase from December 31, 2023 resulted from both cash retained by the Company at Spin-Off and operating cash generated by the Company subsequent to the Spin-Off.

Cash flows from operating, investing and financing activities are provided in the tables that follow.

Individual amounts in the unaudited condensed combined statements of cash flows exclude the effect of exchange rate impacts on cash and cash equivalents, which are presented separately in the cash flows.

Individual amounts in the condensed consolidated and combined statements of cash flows exclude the effect of exchange rate impacts on cash and cash equivalents, which are presented separately in the cash flows.

Thus, the amounts presented in the following operating, investing and financing activities tables reflect changes in balances from period to period adjusted for these effects.

Cash Flows from Operating Activities:

Three months ended March 31,

Six months ended June 30,

(Millions) 2024 2023

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Accounts receivable 70 (30)

Due from related parties

Inventories (57) (5)

Accounts payable 132 30

Due to related parties

All other operating activities 129 10

Net cash provided by operating activities $ 797 $ 875

In the first three months of 2024, cash flows provided by operating activities decreased compared to the first three months of 2023 primarily due to higher inventory and lower net income, partially offset by increases in accounts payable and decreases in accounts receivable.

Both accounts payable and accounts receivable are impacted by the transition of customer and vendor management activities from 3M to the Company.

Inventories were impacted by both timing and transition activities related to certain manufacturing and distribution operations from 3M.

In the first six months of 2024, cash flows provided by operating activities decreased compared to the first six months of 2023 primarily due to lower net income, partially offset by payments from related parties and lower accounts receivable.

The benefit in accounts payable is largely offset by due from related parties as the Company reimburses 3M for certain procurement activities managed through 3M's IT systems.

In addition to this procurement activity, due to related parties also includes cash paid to 3M for operating transactions with Solventum entities prior to the Spin-Off and the net impact of payables and associated payments related to transition agreements with 3M.

Cash Flows from Investing Activities:

Three months ended March 31,

Six months ended June 30,

(Millions) 2024 2023

2 unchanged sentences

Net cash used in investing activities $ (160) $ (136)

Purchases of property, plant and equipment increased in the first three months of 2024 as compared to the first three months of 2023 as the Company continues to invest in growth, productivity and sustainability.

Solventum invests in renewal and maintenance programs, which pertain to cost reduction, cycle time, maintaining and renewing current capacity, eliminating pollution, and compliance.

Costs related to maintenance, ordinary repairs, and certain other items are expensed.

The Company also invests in growth, which adds to capacity, driven by new products, both through expansion of current facilities and new facilities.

Finally, the Company also invests in other initiatives, such as information technology, laboratory facilities, and a continued focus on investments in sustainability.

Purchases of property, plant and equipment increased in the first six months of 2024 as compared to the first six months of 2023.

The increase is primarily driven by the timing of investment spend.

The Company is focused on investments to support growth, renewal and maintenance programs, Environmental Health Services ("EHS") and relocating manufacturing operations currently co-located within 3M facilities.

Cash Flows from Financing Activities:

Three months ended March 31,

Six months ended June 30,

(Millions) 2024 2023

4 unchanged sentences

Net cash provided by (used in) financing activities $ 66 $ (761)

Cash flows from financing activities increased in the first three months of 2024 compared to the same period in 2023 due to proceeds of long-term debt in the quarter, partially offset by higher net transfers to 3M.

Proceeds from debt of $8.3 billion were related to the first quarter issuance of $6.9 billion in senior notes and $1.5 billion in senior term loan credit facilities.

The proceeds from these financing transactions were transferred to 3M in connection with transaction, other than the amounts retained in order to achieve the $600 million retained cash target.

Solventum’s primary short-term liquidity needs are met through cash on hand and commercial paper issuances.

Refer to Note 7 for more detail regarding debt.

Cash flows from financing activities increased in the first six months of 2024 compared to the same period in 2023 due to proceeds of long-term debt, partially offset by net transfers to 3M.

Material Cash Requirement from Known Contractual and Other Obligations:

Solventum’s material cash requirements from known contractual and other obligations primarily relate to the following, for which information on both a short-term and long-term basis is provided in the indicated notes to the unaudited condensed combined financial statements and the audited combined financial statements included in the Information Statement:

• Tax obligations—Refer to Note 9 to the audited combined financial statements and Note 6 to the unaudited condensed combined financial statements.

• Debt—Refer to Note 7 to the unaudited condensed combined financial statements.

• Commitments and contingencies—Refer to Note 11 to the audited combined financial statements and Note 9 to the unaudited condensed combined financial statements.

Solventum’s material cash requirements from known contractual and other obligations primarily relate to the following, for which information on both a short-term and long-term basis is provided in the indicated notes to the condensed consolidated and combined financial statements and the audited consolidated financial statements included in the Information Statement:

• Tax obligations—Refer to Note 9 to the audited consolidated and combined financial statements and Note 7 to the unaudited condensed consolidated and combined financial statements.

• Debt—Refer to Note 8 to the unaudited condensed consolidated and combined financial statements.

• Commitments and contingencies—Refer to Note 11 to the audited consolidated and combined financial statements and Note 11 to the unaudited condensed consolidated and combined financial statements.

• Operating leases—Refer to Note 12 to the audited combined financial statements.

• Separation and Distribution Agreement ("SDA")— Subsequent to the Spin-Off and under the terms of the SDA, the Company anticipates making approximately $400 million of cash payments to complete the Spin-Off.

The Company expects that payment activity under the SDA will be substantially complete by June 30, 2024.

Upon completing all required cash transfers under the SDA we expect to retain approximately $600 million of the Company's reported cash balance as of March 31, 2024.

Solventum purchases the majority of its materials and services as needed, with no unconditional commitments.

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Solventum assumes no obligation to update or revise such statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

Important information as to these factors can be found in this document, including, among others, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings of “Overview,” “Financial Condition and Liquidity” and annually in “Critical Accounting Estimates.” Discussion of these factors is incorporated by reference from Part II, Item 1A, “Risk Factors,” of this document, and should be considered an integral part of Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For additional information concerning factors that may cause actual results to vary materially from those stated in the forward-looking statements, see our reports on Form 8-K filed with the SEC from time to time and the Company's Registration Statement on Form 10, including the amendments thereto, as filed with the SEC.

Important information as to these factors can be found in this document, including, among others, " Management’s Discussion and Analysis of Financial Condition and Results of Operations " under the headings of " Overview, " " Financial Condition and Liquidity " and annually in " Critical Accounting Estimates.

" Discussion of these factors is incorporated by reference from Part II, Item 1A, " Risk Factors, " of this document, and should be considered an integral part of Part I, Item 2, " Management’s Discussion and Analysis of Financial Condition and Results of Operations.

" For additional information concerning factors that may cause actual results to vary materially from those stated in the forward-looking statements, see our reports on Form 8-K filed with the SEC from time to time and the Company's Registration Statement on Form 10, including the amendments thereto, as filed with the SEC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis