Solventum Corp

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

Costs of Product

Costs of product includes manufacturing, engineering and freight costs.

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 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.

Selling, General and Administrative

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 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

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 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:

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.