
PART I. Financial Information This section presents the company's unaudited financial statements, management's analysis of performance, and disclosures on market risk and internal controls Financial Statements The company's financial statements show modest sales growth, stable net income, and a significant decrease in operating cash flow for the first half of 2025 Condensed Consolidated Statements of Income (Unaudited) | (Millions, except per share data) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total net sales | $2,161 | $2,081 | $4,231 | $4,097 | | Gross profit | $1,175 | $1,137 | $2,289 | $2,309 | | Operating income | $214 | $244 | $367 | $625 | | Net income | $90 | $89 | $227 | $326 | | Diluted earnings per share | $0.51 | $0.51 | $1.30 | $1.88 | Condensed Consolidated Balance Sheet Highlights (Unaudited) | (Millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $3,208 | $3,249 | | Total assets | $15,074 | $14,457 | | Total current liabilities | $2,620 | $2,703 | | Long-term debt | $7,815 | $7,810 | | Total liabilities | $11,429 | $11,498 | | Total equity | $3,645 | $2,959 | Condensed Consolidated Statements of Cash Flows (Unaudited) | (Millions) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $198 | $797 | | Net cash used in investing activities | ($224) | ($160) | | Net cash (used in) provided by financing activities | ($249) | $66 | | Net (decrease) in cash and cash equivalents | ($268) | $703 | NOTE 1. Significant Accounting Policies This note details the company's recent spin-off from 3M, its four business segments, and the planned divestiture of the Purification and Filtration business - On April 1, 2024, 3M completed the spin-off of Solventum Corporation, which is now an independent public company listed on the NYSE under the symbol 'SOLV'20 - The company is organized into four operating business segments: MedSurg, Dental Solutions, Health Information Systems, and Purification and Filtration21 - On February 25, 2025, the Company agreed to sell its Purification and Filtration business to Thermo Fisher Scientific Inc for approximately $4.0 billion, after amending the agreement on June 25, 2025, to exclude the drinking water filtration business22 NOTE 3. Acquisitions and Divestitures This note confirms no recent acquisitions and classifies the Purification and Filtration business assets and liabilities as held for sale - The company had no acquisitions during the first six months of 2025 or 202431 - The sale of the Purification and Filtration business is expected to close by the end of 2025, with its assets and liabilities classified as held for sale on the June 30, 2025 balance sheet3233 Assets and Liabilities Held for Sale (June 30, 2025) | (Millions) | Amount | | :--- | :--- | | Current assets held for sale | $168 | | Non-current assets held for sale | $2,060 | | Current liabilities held for sale | $54 | | Non-current liabilities held for sale | $38 | NOTE 9. Long-Term Debt and Short-Term Borrowings This note outlines the company's debt structure, recent prepayments, and available credit facilities Debt Summary | (Millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total long-term debt | $7,815 | $8,010 | | Current portion of long-term debt | $0 | $200 | | Long-term debt (excluding current portion) | $7,815 | $7,810 | - In March and June 2025, the company prepaid the entire $200 million outstanding under its eighteen-month senior unsecured term loan credit facility54 - As of June 30, 2025, there were no amounts outstanding under the $2.0 billion 5-year Revolving Credit Facility or the commercial paper program5455 NOTE 12. Commitments and Contingencies This note describes the company's legal proceedings, including indemnification agreements with 3M and current litigation accruals - The company is involved in numerous legal proceedings related to product liability, intellectual property, and commercial matters82 - Solventum has agreed to indemnify 3M for uninsured liabilities related to over 8,100 lawsuits concerning the Bair Hugger patient warming system and will manage the litigation89 - Accrued litigation costs were $21 million as of June 30, 2025, down from $25 million at December 31, 2024, with $12 million in legal charges recognized in the first six months of 202585 NOTE 13. Restructuring This note details the 'Solventum Way' restructuring program, its financial impact, and associated liabilities - The company initiated the 'Solventum Way' restructuring program in Q4 2024 to create a more flexible and decentralized structure, with actions expected to be substantially complete by the end of 202599 - Accrued liabilities for restructuring were $26 million as of June 30, 2025101 Restructuring Charges | (Millions) | Three months ended June 30, 2025 | Six months ended June 30, 2025 | | :--- | :--- | :--- | | Total operating income impact | $8 | $26 | NOTE 16. Related Parties This note summarizes the ongoing commercial relationship and financial transactions with former parent company 3M following the spin-off - Following the spin-off, Solventum entered into several agreements with 3M, including transition and master supply agreements, to govern their ongoing relationship112 Transactions with 3M (Post Spin-Off) | (Millions) | Three months ended June 30, 2025 | Six months ended June 30, 2025 | | :--- | :--- | :--- | | Net sales of product to 3M | $22 | $42 | | Cost of product from 3M | $158 | $314 | | SG&A expenses | $59 | $126 | NOTE 17. Business Segments This note provides a breakdown of net sales and operating income for the company's four business segments - Corporate and Unallocated costs, which include amortization, restructuring, and spin-off related expenses, increased significantly to $536 million for the first six months of 2025 from $283 million in the prior year period117121 Net Sales by Business Segment (Six Months Ended June 30) | (Millions) | 2025 | 2024 | | :--- | :--- | :--- | | MedSurg | $2,375 | $2,281 | | Dental Solutions | $667 | $666 | | Health Information Systems | $667 | $645 | | Purification and Filtration | $494 | $483 | | Total Company | $4,231 | $4,097 | Operating Income by Business Segment (Six Months Ended June 30) | (Millions) | 2025 | 2024 | | :--- | :--- | :--- | | MedSurg | $416 | $435 | | Dental Solutions | $175 | $203 | | Health Information Systems | $229 | $212 | | Purification and Filtration | $83 | $58 | | Total business segment operating income | $904 | $908 | Management's Discussion and Analysis of Financial Condition and Results of Operations Sales grew across all segments, but operating income and cash flow declined due to separation costs from 3M and higher standalone expenses Overview The company's sales grew organically in Q2 and YTD, and it plans to use proceeds from the $4.0 billion sale of its Purification and Filtration business for debt reduction - The company plans to sell its Purification and Filtration business to Thermo Fisher Scientific Inc for approximately $4.0 billion, with the transaction expected to close by the end of 2025 and net proceeds used primarily for debt reduction128 Total Company Sales Growth (Q2 2025 vs Q2 2024) | Metric | Percentage | | :--- | :--- | | Reported Growth | 3.9% | | Currency Impact | 1.1% | | Constant Currency | 2.8% | | Organic Growth | 2.8% | Total Company Sales Growth (Six Months 2025 vs 2024) | Metric | Percentage | | :--- | :--- | | Reported Growth | 3.3% | | Currency Impact | (0.2)% | | Constant Currency | 3.5% | | Organic Growth | 3.5% | Results of Operations Operating results were impacted by increased cost of product from 3M and higher SG&A expenses related to the company's separation and new IT system deployment - Cost of product as a percentage of product sales increased for both Q2 and the first six months of 2025, driven by higher costs on inventory sourced from 3M under master supply and transition agreements146147 - SG&A as a percentage of total net sales increased to 35.7% in Q2 2025 and 36.4% YTD, driven by costs to separate from 3M, including IT system deployment, and higher compensation151152153 - Other expense (income), net decreased significantly in 2025 compared to 2024, primarily due to charges in the prior year associated with the liquidation of foreign operations as part of the separation from 3M156 Performance by Business Segment This section analyzes the sales growth and operating income performance for the MedSurg, Dental, Health Information, and Purification segments - MedSurg: Q2 sales grew 4.8% (3.9% organic), driven by strong volumes in Infection Prevention and Surgical Solutions, while YTD sales grew 4.1% (4.9% organic), though operating income margin decreased due to higher tariffs and standalone operating costs162163164 - Dental Solutions: Q2 sales grew 2.3% (0.7% organic) due to new restorative products, offset by declines in traditional orthodontics, with YTD sales flat and mixed operating margin results166167168 - Health Information Systems: Sales grew 3.4% in Q2 and 3.5% YTD, driven by adoption of the Solventumâ„¢360 Encompass solution, with operating income margin increasing in both periods due to price growth and product mix169171172 - Purification and Filtration: Sales grew 5.4% in Q2 and 2.2% YTD, driven by bioprocessing and industrial filtration, with operating income margin increasing significantly due to volume growth and the cessation of depreciation on assets held for sale173174178 Financial Condition and Liquidity The company's cash position decreased due to a sharp decline in operating cash flow, increased capital spending, and debt repayment - As of June 30, 2025, the company had $492 million in cash and cash equivalents, a decrease from $762 million at the end of 2024182 - Operating cash flow for the first six months of 2025 was $198 million, a sharp decline from $797 million in the same period of 2024, primarily due to higher interest payments, standalone company tax payments, and higher incentive compensation payments184185 - Investing activities used $224 million in the first six months of 2025, up from $160 million in 2024, driven by capital spending related to manufacturing separation from 3M186 - Financing activities used $249 million, mainly for the repayment of $200 million in debt187 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign currency exchange rate and commodity price risks, which are managed through operational strategies and negotiated contracts - The company faces foreign currency exchange rate risk from transactions with international customers and intercompany dealings, as well as from the translation of foreign earnings into U.S. dollars195 - Commodity price risks are managed through negotiated supply contracts and price protection agreements, with no material commodity hedging activity196 Controls and Procedures Management concluded that disclosure controls were effective, even with changes to financial processes resulting from a new SAP ERP system implementation - Based on an evaluation as of the end of the quarter, the CEO and CFO concluded that the company's disclosure controls and procedures are effective197 - During Q2 2025, the company completed the initial phase of a new SAP ERP system implementation, which impacted internal controls over financial reporting, but believes appropriate controls were maintained during the transition198 PART II. Other Information This section provides updates on legal proceedings, risk factors, and lists all exhibits filed with the report Legal Proceedings Details regarding legal matters are incorporated by reference from Note 12 in the financial statements - Information regarding legal proceedings is detailed in Note 12 of the financial statements200 Risk Factors No material changes have occurred to the risk factors previously disclosed in the 2024 Annual Report on Form 10-K - No material changes to the risk factors disclosed in the 2024 Annual Report on Form 10-K have occurred200 Exhibits This section lists the exhibits filed with the Form 10-Q, including key transaction agreements, governance documents, and required certifications - Key exhibits filed include the Amended and Restated Transaction Agreement for the sale of the Purification and Filtration business, debt indentures, and CEO/CFO certifications209