Solventum 10-Q 2024-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2024

or

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

For the transition period from __________ to __________

Commission file number: 001-41968

SOLVENTUM CORPORATION

(Exact name of registrant as specified in its charter)

Delaware						92-2008841
(State or other jurisdiction of incorporation)						(IRS Employer Identification No.)
3M Center, Building 275-6W 2510 Conway Avenue East, Maplewood, Minnesota						55144
(Address of Principal Executive Offices)						(Zip Code)
(Registrant’s Telephone Number, Including Area Code) (651) 733-1110
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class						Trading Symbol(s)						Name of each exchange on which registered
Common Stock, Par Value $.01 Per Share						SOLV						New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer			☐			Accelerated filer			☐
Non-accelerated filer			☒			Smaller reporting company			☐
						Emerging growth company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class						Outstanding at April 1, 2024
Common Stock, $0.01 par value per share						172,709,505 shares

SOLVENTUM CORPORATION

Form 10-Q for the Quarterly Period Ended March 31, 2024

TABLE OF CONTENTS			PAGE
PART I. Financial Information			3
Item 1. Financial Statements			3
Condensed Combined Statements of Income			3
Condensed Combined Statements of Comprehensive Income			4
Condensed Combined Balance Sheets			5
Condensed Combined Statements of Cash Flows			6
Notes to the Condensed Combined Financial Statements			7
NOTE 1. Significant Accounting Policies			7
NOTE 2. Revenue Recognition			8
NOTE 3. Goodwill and Intangible Assets			9
NOTE 4. Other Current Liabilities			9
NOTE 5. Equity and Comprehensive Income Information			10
NOTE 6. Income Taxes			11
NOTE 7. Long-Term Debt and Short-Term Borrowings			11
NOTE 8. Pension and Postretirement Benefit Plans			13
NOTE 9. Commitments and Contingencies			15
NOTE 10. Earnings Per Share			18
NOTE 11. Related Parties			18
NOTE 12. Business Segments			19
NOTE 13. Subsequent Events			20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Overview			21
Results of Operations			23
Performance by Business Segment			25
Financial Condition and Liquidity			27
Cautionary Note Concerning Factors That May Affect Future Results			30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			32
PART II. Other Information			33
Item 1. Legal Proceedings			33
Item 1A. Risk Factors			33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			60
Item 3. Defaults Upon Senior Securities			60
Item 4. Mine Safety Disclosures			60
Item 5. Other Information			60
Item 6. Exhibits			60

SOLVENTUM CORPORATION

FORM 10-Q

For the Quarterly Period Ended March 31, 2024

PART I. Financial Information

Solventum Corporation

Condensed Combined Statements of Income

(Unaudited)

						Three months ended March 31,
(Millions, except per share data)						2024						2023
Net sales of product						$	1,553					$	1,550
Net sales of software and rentals						463						461
Total net sales						2,016						2,011
Cost of product						725						752
Cost of software and rentals						119						122
Gross profit						1,172						1,137
Selling, general and administrative expenses						596						577
Research and development expenses						195						195
Total operating expenses						1,635						1,646
Operating income						381						365
Interest expense, net						39						—
Other expense (income), net						13						2
Income before income taxes						329						363
Provision for income taxes						92						70
Net income						$	237					$	293
Earnings per share:
Basic earnings per share						$	1.37					$	1.70
Diluted earnings per share						1.37						1.70
Weighted-average number of shares outstanding:
Basic						172.7						172.7
Diluted						172.7						172.7

The accompanying Notes to Condensed Combined Financial Statements are an integral part of these statements.

Solventum Corporation

Condensed Combined Statements of Comprehensive Income

(Unaudited)

						Three months ended March 31,
(Millions)						2024						2023
Net income						$	237					$	293
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment						(86)						68
Defined benefit pension adjustment						—						—
Total other comprehensive income (loss), net of tax						(86)						68
Comprehensive income						$	151					$	361

The accompanying Notes to Condensed Combined Financial Statements are an integral part of these statements.

Solventum Corporation

Condensed Combined Balance Sheets

(Unaudited)

						March 31,						December 31,
(Millions)						2024						2023
Assets
Current assets
Cash and cash equivalents						$	996					$	194
Receivables — net of allowances of $86 and $82						1,220						1,313
Inventories
Finished goods						490						453
Work in process						171						171
Raw materials and supplies						240						233
Total inventories						901						857
Other current assets						242						155
Total current assets						3,359						2,519
Property, plant and equipment — net						1,491						1,457
Goodwill						6,468						6,535
Intangible assets — net						2,810						2,902
Other assets						583						530
Total assets						$	14,711					$	13,943
Liabilities
Current liabilities
Accounts payable						$	587					$	477
Unearned revenue						566						574
Other current liabilities						701						677
Total current liabilities						1,854						1

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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"). This discussion contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Risk Factors.” Actual results may differ materially from these expectations. See “Cautionary Note Regarding Forward-Looking Statements.”

All amounts discussed are in millions of U.S. dollars, unless otherwise indicated. 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.

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. 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.

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. Solventum’s MD&A is presented in the following sections:

• Overview

• Results of Operations

• Performance by Business Segment

• Financial Condition and Liquidity

Overview

Our Business

Solventum is a leading global healthcare company developing, manufacturing, and commercializing a broad portfolio of solutions that leverages deep material science, data science, and digital capabilities to address critical customer and patient needs. We constantly seek to enable the improvement of standards of care and move healthcare forward with innovation powered by insights, clinical intelligence, technology, and manufacturing expertise. 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

Solventum manages its operations in four business segments: MedSurg, Dental Solutions, Health Information Systems, and Purification and Filtration.

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

Sales and operating income by business segment:

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

Sales by Business Segment

						Three months ended March 31,
						2024						2023						Sales Change 2024 vs 2023
(Dollars in millions)						Net Sales						Net Sales						Total Sales Change						Translation						Acquisition/Divestiture						Organic Sales
Segment Sales
MedSurg						$	1,119					$	1,123					(0.4)		%				(0.5)		%				—		%				0.1		%
Dental Solutions						335						341						(1.8)						(0.4)						(1.8)						0.4
Health Information Systems						317						316						0.3						—						—						0.3
Purification and Filtration						245						231						6.1						(0.6)						—						6.7
Corporate and Unallocated						—						—						—						—						—						—
Total Company						$	2,016					$	2,011					0.2%						(0.4)		%				(0.3)%						0.9		%

Operating Income by Business Segment

						Three months ended March 31,
(Dollars in millions)						2024						2023						2024 vs 2023 change
Segment Operating Income
MedSurg						$	221					$	253					(12.6)		%
Dental Solutions						110						111						(0.9)
Health Information Systems						101						94						7.4
Purification and Filtration						39						36						8.3
Corporate and Unallocated						(90)						(129)						30.2
Total Company						$	381					$	365					4.4		%

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
						United States						International						Worldwide
Net sales (millions)						$	1,116					$	900					$	2,016
% of worldwide sales						55.4		%				44.6		%				100.0		%
Components of net sales change:
Total sales change						1.2		%				(0.9)		%				0.2		%
Translation						—						(0.9)						(0.4)
Divestitures						—						(0.7)						(0.3)
Organic sales						1.2		%				0.7		%				0.9		%

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.

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. 3M also used financial hedges to mitigate currency risk.

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.

Financial condition

Refer to the section entitled “—Financial Condition and Liquidity” below for a discussion of items impacting cash flows.

Results of Operations

Net Sales

Refer to the preceding “—Overview” section and the “—Performance by Business Segment” section later in MD&A for discussion of sales change.

Operating Expenses

						Three months ended March 31,
(Percent of corresponding net sales)						2024						2023						Change
Cost of product						46.7		%				48.5		%				(1.8)		%
Cost of software and rentals						25.7						26.5						(0.8)

Costs of Product

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 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
Selling, general and administrative (SG&A)						29.6		%				28.7		%				0.9		%
Research and development (R&D)						9.7						9.7						—
Operating Income						18.9						18.2						0.7

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.

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.

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

						Three months ended March 31,
(Dollars in millions)						2024						2023
Interest expense, net						$	39					$	—
Other expense (income), net						13						2

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. 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.

Provision (benefit) for Income Taxes:

						Three months ended March 31,
(Percent of pre-tax income/loss)						2024						2023
Effective tax rate						28.0		%				19.3		%

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.

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. We manage our operations in four business segments. The reportable segments are MedSurg, Dental Solutions, Health Information Systems, and Purification and Filtration. Our Chief Operating Decision Maker evaluates segment operating performance using net sales and business segment operating income.

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. 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.

Operating Business Segments

Information related to the Company’s segments is presented in the tables that follow with additional context in the corresponding narrative below the tables.

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,
						2024						2023
Sales (millions)						$	1,119					$	1,123
Sales change analysis:
Organic sales						0.1		%				2.5		%
Translation						(0.5)						(2.9)
Total sales change						(0.4)		%				(0.4		%)
Business segment operating income (millions)						$	221					$	253
Percent change						(12.6)		%				(4.5)		%
Percent of sales						19.7		%				22.5 %

First quarter 2024 results

Sales in MedSurg were down 0.4 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 growth declined, led by advanced wound dressings and sterilization assurance product categories.

• Foreign currency translation negatively impacted sales by (0.5%).

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,
						2024						2023
Sales (millions)						$	335					$	341
Sales change analysis:
Organic sales						0.4		%				1.4		%
Divestitures						(1.8)						—
Translation						(0.4)						(3.4)
Total sales change						(1.8)		%				(2.0)%
Business segment operating income (millions)						$	110					$	111
Percent change						(0.9)		%				(10.5)		%
Percent of sales						32.8		%				32.6		%

First quarter 2024 results:

Sales in Dental Solutions were down 1.8 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%).

• Foreign currency translation negatively impacted sales by (0.4%).

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,
						2024						2023
Sales (millions)						$	317					$	316
Sales change analysis:
Organic sales						0.3		%				8.2		%
Divestitures						—						—
Translation						—						(0.4)
Total sales change						0.3		%				7.8		%
Business segment operating income (millions)						$	101					$	94
Percent change						7.4		%				32.4		%
Percent of sales						31.9		%				29.7		%

First quarter 2024 results:

Sales in Health Information Systems were up 0.3 percent.

• Positive growth was driven by our 3MTM 360 EncompassTM solution.

• 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,
						2024						2023
Sales (millions)						$	245					$	231
Sales change analysis:
Organic sales						6.7		%				(7.6)		%
Divestitures						—						—
Translation						(0.6)						(3.6)
Total sales change						6.1		%				(11.2)		%
Business segment operating income (millions)						$	39					$	36
Percent change						8.3		%				(41.9)		%
Percent of sales						15.9		%				15.6		%

First quarter 2024 results:

Sales in Purification and Filtration were up 6.1 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.

• Foreign currency translation negatively impacted growth by (0.6%).

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.

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. 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

On February 16, 2024, the Company entered into a five-year $2.0 billion unsecured revolving credit facility expiring in 2029, an 18-month senior unsecured term loan facility of $500 million and a three-year senior unsecured term loan facility of $1.0 billion (together the “Facilities”). In March 2024, the Company withdrew $1.48 billion under the Facilities. The funds from the facilities were transferred to 3M as partial consideration for the Spin-Off.

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.

Commercial Paper

On March 4, 2024, the Company entered into a commercial paper program that allows Solventum up to $2.0 billion aggregate principal amount of short-term notes to finance short-term liabilities. Any such issuance will mature within 364 days from date of issue. There was no commercial paper outstanding as of March 31, 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. 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.

Cash Flows

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. 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,
(Millions)						2024						2023
Cash Flows from Operating Activities
Net income						$	237					$	293
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization						139						145
Postretirement benefit plan expense						9						10
Stock-based compensation expense						4						18
Deferred income taxes						(25)						(34)
Changes in assets and liabilities
Accounts receivable						78						32
Inventories						(52)						(6)
Accounts payable						115						26
All other operating activities						(63)						25
Net cash provided by operating activities						$	442					$	509

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.

Cash Flows from Investing Activities:

						Three months ended March 31,
(Millions)						2024						2023
Cash Flows from Investing Activities
Purchases of property, plant and equipment						$	(102)					$	(65)
Net cash used in investing activities						$	(102)					$	(65)

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.

Cash Flows from Financing Activities:

						Three months ended March 31,
(Millions)						2024						2023
Cash Flows from Financing Activities
Net transfers to 3M						$	(7,851)					$	(460)
Proceeds from long-term debt, net of issuance costs						8,303						—
Other — net						10						(2)
Net cash provided by (used in) financing activities						$	462					$	(462)

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.

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.

• 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. In limited circumstances, in the normal course of business, the Company enters into unconditional purchase obligations with various vendors that may take the form of, for example, take or pay contracts in which the Company guarantees payment to ensure availability of certain materials or services or to ensure ongoing efforts on capital projects. The Company expects to receive underlying materials or services for these purchase obligations. To the extent the limited amount of these purchase obligations fluctuates, it largely trends with normal-course changes in regular operating activities. Additionally, contractual capital commitments represent a small part of the Company’s expected capital spending.

Cautionary Note Concerning Factors That May Affect Future Results

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2, contains or incorporates by reference statements that relate to future events and expectations and, as such, constitute forward-looking statements that involve risk and uncertainties. Forward-looking statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements that reflect Solventum’s expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts relating to discussions of future operations and financial performance (including volume growth, pricing, sales and earnings per share growth and cash flows) and statements regarding Solventum’s strategy for growth, future product development, regulatory clearances and approvals, competitive position and expenditures. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict. Although Solventum believes that the expectations reflected in any forward-looking statements it makes are based on reasonable assumptions, it can give no assurance that these expectations will be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. Such risks and uncertainties include, but are not limited to:

• The effects of, and changes in, worldwide economic, political, regulatory, international, trade and geopolitical conditions, natural disasters, war, and other events beyond Solventum’s control.

• Unexpected events, such as those related to the COVID-19 public health crisis.

• Operational execution risks.

• Damage to our reputation or our brands.

• Risks from acquisitions, strategic alliances, divestitures and other strategic events.

• Solventum’s business dealings involving third-party partners in various markets.

• Solventum’s ability to access the capital and credit markets and changes in Solventum’s credit ratings.

• Exposure to interest rate and currency risks.

• The highly competitive environment in which Solventum operates and consolidation in the healthcare industry.

• Reduction in customers’ research budgets or government funding.

• The timing and market acceptance of Solventum’s new product and service offerings.

• Ongoing working relationships with certain key healthcare professionals.

• Changes in reimbursement practices of governments or private payers or other cost containment measures.

• Solventum’s ability to obtain components or raw materials supplied by third parties and other manufacturing and related supply chain difficulties, interruptions, and disruptive factors.

• Legal and regulatory proceedings and legal compliance risks (including third-party risks) with regards to antitrust, Foreign Corrupt Practices Act (FCPA) and other anti-bribery laws, environmental laws, anti-kickback and false claims laws, privacy laws, tax laws, and other laws and regulations in the United States and other countries in which Solventum operates.

• Potential liabilities related to a broad group of perfluoroalkyl and polyfluoroalkyl substances, collectively known as "PFAS."

• Risks related to the highly regulated environment in which Solventum operates.

• Risks associated with product liability claims.

• Climate change and measures to address climate change.

• Security breaches and other disruptions to information technology infrastructure.

• Solventum’s failure to obtain, maintain, protect, or effectively enforce its intellectual property rights.

• Pension and postretirement obligation liabilities.

• Any events that adversely affect the sale or profitability of one of Solventum’s key products or the revenue delivered from sales to its key customers.

• Any failure by 3M to perform any of its obligations under the various separation agreements in connection with the separation and distribution.

• The expected benefits and timing of the separation and the risk that conditions to the separation will not be satisfied and/or that the separation will not be completed within the expected time frame, on the expected terms or at all.

• A determination by the IRS or other tax authorities that the distribution or certain related transactions should be treated as taxable transactions.

• Expected financing transactions undertaken in connection with the separation and risks associated with additional indebtedness.

• The risk that incremental costs of operating on a standalone basis (including the loss of synergies), costs of restructuring transactions and other costs incurred in connection with the separation will exceed Solventum’s estimates.

• The impact of the separation on its businesses and the risk that the separation may be more difficult, time-consuming or costly than expected, including the impact on its resources, systems, procedures and controls, diversion of management’s attention and the impact on relationships with customers, suppliers, employees and other business counterparties.

The above list of factors is not exhaustive or necessarily in the order of importance. Forward-looking statements are based on certain assumptions and expectations of future events and trends that are subject to risks and uncertainties. Actual future results and trends may differ materially from historical results or those reflected in any such forward-looking statements depending on a variety of factors. 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.

Foreign Currency Exchange Rate Risks:

Solventum faces transactional exchange rate risk from transactions with customers in countries outside the United States and from intercompany transactions between affiliated entities. Foreign currency exchange rates and fluctuations in those rates may cause fluctuations in cash flows related to foreign denominated transactions. The Company is also exposed to the translation of foreign currency earnings to the U.S. dollar.

3M enters into foreign exchange forward and option contracts to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies. While part of 3M, Solventum indirectly benefited from 3M’s hedging activities and was allocated a proportion of the realized gains or losses on these contracts. However, the benefits and costs realized from these contracts may not reflect the benefits and costs Solventum would have incurred as a standalone company for the periods presented.

Concentration of Credit Risk:

Solventum’s sales are not materially dependent on any single customer. For the three months ended March 31, 2024 and March 31, 2023, no one individual customer or group of affiliated customers represented more than 10 percent of the Company's total sales. At March 31, 2024 no customers represented more than 10 percent of the Company's total receivables and at December 31, 2023, one customer accounted for approximately 10 percent of Solventum’s total receivables. Credit risk associated with the Company’s receivables is representative of the geographic, industry, and customer diversity associated with the global businesses.

Commodity Prices Risk:

Solventum manages commodity price risks through negotiated supply contracts and price protection agreements. The Company does not participate in material hedging activity.

a. The Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

b. There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

SOLVENTUM CORPORATION

FORM 10-Q

For the Quarterly Period Ended March 31, 2024

PART II. Other Information

Item 1. Legal Proceedings

Discussion of legal matters is incorporated by reference from Part I, Item 1, Note 9, “Commitments and Contingencies,” of this document, and should be considered an integral part of Part II, Item 1, “Legal Proceedings.”

Provided below is a cautionary discussion of what we believe to be the most important risk factors applicable to the Company. Discussion of these factors is incorporated by reference into and considered an integral part of Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Risks Related to Solventum’s Business

General Economic Risks

Solventum’s results may be impacted by the effects of, and changes in, worldwide economic, political, regulatory, international trade and geopolitical conditions, natural disasters, war and other events beyond its control.

Solventum develops, manufactures, distributes and sells its products globally, and, accordingly, Solventum’s operations and the execution of its business strategies and plans are subject to global competition and economic and geopolitical risks that are beyond its control, such as, among other things, disruptions in financial markets, economic downturns, military conflicts, public health emergencies such as COVID-19, political changes and trends such as protectionism, economic nationalism resulting in government actions impacting international trade agreements, imposing trade restrictions such as tariffs, and retaliatory countermeasures, changes in regulatory regimes that could restrict Solventum’s ability to manufacture and sell its products (including healthcare regulatory regimes), diminished or insufficient protection of intellectual property and government deficit reduction and other austerity measures in locations or industries in which Solventum operates. Further escalation of specific trade tensions, including those between the United States and China, or more broadly of global trade conflict, could adversely impact Solventum’s business and operations around the world. Solventum’s business is also impacted by social, political and labor conditions in locations in which Solventum or its suppliers or customers operate; adverse changes in the availability and cost of capital; monetary policy; interest rates; inflation; recession; commodity prices; currency volatility or exchange control; ability to expatriate earnings; and other laws and regulations in the jurisdictions in which Solventum or its suppliers or customers operate. Both domestic and international markets experienced significant inflationary pressures in 2023, and inflation rates in the United States, as well as in other countries in which Solventum operates, may continue at elevated levels for the near term. Interest rate increases or other government actions taken to reduce inflation could also result in recessionary pressures in many parts of the world. Furthermore, currency exchange rates have been especially volatile in the recent past, and these currency fluctuations have affected, and may continue to affect, the reported value of Solventum’s assets and liabilities, as well as Solventum’s cash flows.

The global economy has been impacted by the conflicts between Russia and Ukraine and in the Middle East and other geopolitical events. The United States and other governments have imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia. 3M suspended operations of its subsidiaries, including those of the Health Care Business, in Russia in March 2022 and, in September 2022, committed to a plan to exit the related net assets in Russia, including those of the Health Care Business, through a sale of 3M’s Russian subsidiaries that was consummated in June 2023. Solventum also has other operations that source certain raw materials from suppliers in Russia and has experienced related supply disruption due to the conflict. These geopolitical tensions could result in, among other things, cyberattacks, further supply chain disruptions impacting downstream customers, higher energy costs, lower consumer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect Solventum’s business and supply chain.

In addition, natural disasters, such as hurricanes, tornadoes, windstorms, earthquakes, wildfires and floods and other extreme weather events (including those caused by climate change) and actions taken by the United States and other governments in response to such events could cause significant economic disruption and political and social instability in the United States and

areas outside of the United States in which Solventum operates. These events could result in decreased demand for Solventum’s products, adversely affect its manufacturing and distribution capabilities, cause physical damage to its facilities as well as those of its suppliers, customers and other business partners, negatively impact the health and well-being of individuals and communities in which Solventum or its suppliers or customers operate or increase the costs for or cause interruptions in the availability of natural resources, sources and supply of energy.

Unexpected events, such as those related to the coronavirus (COVID-19) public health crisis, may increase Solventum’s cost of doing business and disrupt Solventum’s operations.

Due to Solventum’s global operations, Solventum’s business is and will be impacted by unexpected events, including war, acts of terrorism, public health crises (such as the COVID-19 pandemic), civil unrest, natural disasters, and severe weather in the locations in which Solventum or its suppliers or customers operate, and these events have adversely affected, and could in the future adversely affect, Solventum’s operations and financial performance.

For example, the global pandemic associated with COVID-19, including related governmental responses to the pandemic, has significantly increased economic and demand uncertainty and has impacted and will continue to impact Solventum’s operations, including its supply chain and its manufacturing and distribution capabilities. Some of Solventum’s products are particularly sensitive to reductions in elective medical procedures, which have previously been suspended or reduced in markets where Solventum’s products are marketed and sold in response to the COVID-19 pandemic and could in the future be suspended or reduced in the future due to a resurgence of COVID-19 or other epidemic. To the extent individuals and customers are required to continue to de-prioritize, delay or cancel elective procedures, Solventum’s business, cash flows, financial condition and results of operations could be negatively affected. In addition, the COVID-19 pandemic has adversely impacted the continued service and availability of skilled personnel necessary to run Solventum’s operations, including through increased absenteeism in connection with the rise of COVID-19 variants and objections to governmental vaccine mandates or heightened safety protocols. Although Solventum may seek to mitigate these staffing challenges through overtime and enlisting contingent labor, staffing shortages could strain Solventum’s operations and increase its expenses. To the extent Solventum’s management or other personnel are impacted in significant numbers by COVID-19 and are not available to perform their professional duties, Solventum could experience disruptions in its manufacturing operations or disruptions in other activities and other functions. A future resurgence of COVID-19 or other public health crisis may also affect the ability of suppliers and vendors to provide products and services to Solventum. Some of these factors may increase demand for certain Solventum products, while others may decrease demand from certain end markets or make it more difficult for Solventum to serve customers. Solventum may also experience customer requests for potential payment deferrals or other contract modifications, supply chain under-liquidation, delays of deliveries and the achievement of other billing milestones, delays or cancellations of new projects and relat

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Insider Trading Arrangements and Policies

During the quarter ended March 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Solventum's website address is www.solventum.com. Investors and others should note that the Company announces material information to its investors using SEC filings, press releases, its investor relations website, public conference calls and webcasts. The Company uses these channels to communicate with investors, customers and the public about the Company, its products and other issues. The information on, or that may be accessed through, Solventum's website is not incorporated by reference into this Quarterly Report on Form 10-Q and should not be considered a part of this Quarterly Report on Form 10-Q.

2.1						Separation and Distribution Agreement, dated as of March 31, 2024, by and between Solventum Corporation and 3M Company (incorporated by reference from Solventum Corporation's Form 8-K, filed April 4, 2024)*
3.1						Amended and Restated Certificate of Incorporation of Solventum Corporation (incorporated by reference from Solventum Corporation's Form 8-K, filed April 4, 2024)
3.2						Amended and Restated Bylaws of Solventum Corporation (incorporated by reference from Solventum Corporation's Form 8-K, filed April 4, 2024)
10.1						Transition Services Agreement, dated as of March 31, 2024, by and between 3M Company and Solventum Corporation (incorporated by reference from Solventum Corporation's Form 8-K, filed April 4, 2024)*
10.2						Tax Matters Agreement, dated as of March 31, 2024, by and between 3M Company and Solventum Corporation (incorporated by reference from Solventum Corporation's Form 8-K, filed April 4, 2024)*
10.3						Employee Matters Agreement, dated as of March 31, 2024, by and between 3M Company and Solventum Corporation (incorporated by reference from Solventum Corporation's Form 8-K, filed April 4, 2024)*
10.4						Transition Distribution Services Agreement, dated as of March 31, 2024, by and between 3M Company and Solventum Corporation (incorporated by reference from Solventum Corporation's Form 8-K, filed April 4, 2024)*+
10.5						Transition Contract Manufacturing Agreement, dated as of March 31, 2024, by and between 3M Company and Solventum Corporation (3M Company as contract manufacturer) (incorporated by reference from Solventum Corporation's Form 8-K, filed April 4, 2024)*
10.6						Stockholder's and Registration's Rights Agreement, dated as of March 31, 2024, by and between 3M Company and Solventum Corporation (incorporated by reference from Solventum Corporation's Form 8-K, filed April 4, 2024)*
10.7						Intellectual Property Cross License Agreement, dated as of March 31, 2024, by and between 3M Company and Solventum Corporation (incorporated by reference from Solventum Corporation's Form 8-K, filed April 4, 2024)*
10.8						3M Trademark Use Agreement, dated as of March 31, 2024, by and between 3M Company and Solventum Corporation (incorporated by reference from Solventum Corporation's Form 8-K, filed April 4, 2024)*+
10.9						Transitional Trademark Cross License Agreement, dated as of March 31, 2024, by and between 3M Company and Solventum Corporation (incorporated by reference from Solventum Corporation's Form 8-K, filed April 4, 2024)*+

10.10						Master Supply Agreement, dated as of March 31, 2024, by and between 3M Company and Solventum Corporation (incorporated by reference from Solventum Corporation's Form 8-K , filed April 4, 2024)
10.11						Reverse Master Supply Agreement, dated as of March 31, 2024, by and between 3M Company and Solventum Corporation (incorporated by reference from Solventum Corporation's Form 8-K, filed April 4, 2024)*
10.12						Solventum Corporate 2024 Long-Term Incentive Plan, as amended (incorporated by reference from Solventum Corporation's Registration Statement on Form S-8, filed April 1, 2024)
10.13						Solventum Annual Incentive Plan (incorporated by reference from Solventum Corporation's Form 8-K , filed April 4, 2024)
10.14						Solventum Executive Severance Plan (incorporated by reference from Solventum Corporation's Form 8-K , filed April 4, 2024)
10.15						Solventum VIP Excess Plan (incorporated by reference from Solventum Corporation's Registration Statement on Form S-8, filed April 1, 2024)
(31.1)						Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
(31.2)						Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
(32.1)						Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
(32.2)						Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
(101.INS)						Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
(101.SCH)						Inline XBRL Taxonomy Extension Schema Document
(101.CAL)						Inline XBRL Taxonomy Extension Calculation Linkbase Document
(101.DEF)						Inline XBRL Taxonomy Extension Definition Linkbase Document
(101.LAB)						Inline XBRL Taxonomy Extension Label Linkbase Document
(101.PRE)						Inline XBRL Taxonomy Extension Presentation Linkbase Document
(104)						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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+Certain confidential information contained in this document, marked by [***], has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

*Schedules and exhibits omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish a supplemental copy of any omitted schedule to the Securities and Exchange Commission (the “SEC”) upon request.

SIGNATURES

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

SOLVENTUM CORPORATION

(Registrant)

Date: May 10, 2024
			By			/s/ Wayde McMillan
						Wayde McMillan,
			Executive Vice President and Chief Financial Officer (Mr. McMillan is a Principal Financial Officer and has been duly authorized to sign on behalf of the Registrant.)