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.

Costs of Sales

Costs of Product

Costs of product includes manufacturing, engineering and logistics costs. The Company operates a global supply chain and sourcing organization, including product sourced under master supply and transition manufacturing agreements with 3M. As a result, the Company is impacted by changes in the global regulatory and economic environment, including tariffs. The evolving regulatory and economic environment may impact our cost or ability to source products. To the extent possible the Company takes actions to offset these costs or identify alternative sources of supply.

Costs of product, measured as a percent of sales of product, increased in 2025 when compared to 2024. The increase was driven by the impact of new tariffs of approximately $55 million, the full year impact from inventory sourced under the master supply and transition manufacturing agreements with 3M, and higher logistics costs, partially offset by benefits from cost savings programs.

Costs of product, measured as a percent of sales of product, increased in 2024 when compared to 2023. The increase was driven by increased costs due to the impact of higher costs on inventory sourced under the master supply and transition manufacturing agreements with 3M and due to the cost of other transition support provided by 3M that have been incurred since Spin-Off.

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 costs and logistics costs related to our hardware rental units.

Costs of software and rentals, measured as a percent of sales of software and rentals, decreased in 2025 as compared to 2024. The decrease was due to the impact of lower external license fees, price and sales mix, primarily driven by higher sales of our revenue cycle management solution.

Costs of software and rentals, measured as a percent of sales of software and rentals, increased in 2024 as compared to 2023. This increase was driven by higher compensation costs.

Operating Expenses

Selling, General and Administrative

SG&A, measured as a percent of total net sales, increased in 2025 when compared to 2024. The increase was driven by costs incurred to separate the Purification and Filtration business, higher compensation, including equity-based awards, and higher costs associated with both initial stand-up and ongoing operations to support a standalone company.

SG&A, measured as a percent of total net sales, increased in 2024 when compared to 2023. The increase was driven by higher compensation, including equity-based awards, and higher costs associated with both initial stand-up and ongoing operations to support a standalone company.

Research and Development

R&D, measured as a percent of total net sales, decreased slightly in 2025 when compared to 2024 primarily due to reimbursement of a portion of our technical development costs from 3M related to our supply chain separation.

R&D, measured as a percent of total net sales, increased slightly in 2024 when compared to 2023 due to initial stand-up costs. The Company continues to prioritize investment initiatives.

Gain on Sale of Business

The gain on sale of business primarily relates to the Company's completed sale of the Purification and Filtration business in the third quarter of 2025, which resulted in a net gain of $1.5 billion for 2025.

Interest Expense, Net, Loss on Debt Extinguishment, Net, and Other Expense (Income), Net

Interest expense, net includes interest accrued on debt obligations, offset by interest income from cash and marketable securities. Interest expense, net decreased in 2025 as compared to 2024 due to lower interest expense as a result of lower debt outstanding. Interest expense, net increased in 2024 as compared to 2023 due to interest incurred on the February 2024 issuance of senior notes and March 2024 draw on the senior term loan credit facilities. Refer to Note 9 to the consolidated financial statements for more information. This increase was partially offset by interest earned from cash and marketable securities held during the period.

Loss on debt extinguishment, net includes charges incurred in the third quarter of 2025 from the differential between carrying value and the amount paid to acquire the tendered Senior Notes and related expenses. Refer to Note 9 to the consolidated financial statements for additional information. These charges were partially offset by the gain from interest rate swaps entered into and subsequently settled in connection with the sale of the Purification and Filtration business. Refer to Note 11 to the consolidated financial statements for additional information.

Other expense (income), net includes the non-service component of periodic pension cost, investment gains and losses, and foreign currency transaction gain (loss). Other expense (income), net decreased in 2025 as compared to 2024 primarily due to charges associated with the substantial liquidation of foreign operations completed as part of our separation from 3M. Other expense (income), net increased in 2024 as compared to 2023 resulting from charges associated with the substantial liquidation of foreign operations completed as part of our separation from 3M in addition to foreign currency impacts and investment losses.

Provision (benefit) for Income Taxes:

The change in the effective tax rate in 2025 when compared to 2024 was primarily driven by impacts associated with the sale of the Purification and Filtration business. Refer to Note 8 to the consolidated financial statements for additional detail on the Company's effective tax rate.