Mike Roman: Yeah. Andrew, just talking about the change. So this was part of the restructuring. Actually, it was part of the model change that we’ve been making, really focusing on leading through our businesses globally and prioritizing where they — the most important parts of their business and looking at what’s the best model to put in place and so geographic prioritization was the way we termed it. And so we focused on some of the smaller countries that we operate in. We talked about approximately 30. We’ve launched this in 27 countries at this point. It’s really a model to move to an export model. And we do have to, it’s much more than kind of the way we’ve talked about on the headlines. You have to set up a successful model.
You have to set up a model to support distributors. You’re changing from the traditional 3M model in those countries to an export driven model. So it’s important that we not only have capabilities in region, but globally to support that kind of model in those countries. It’s also important that we have a strong governance everywhere we operate around the world. So we continue to focus on, advancing our governance model as we make those changes. So it is a much more dimensions to the change. We’ve off to a good start and successful with that. We call it a revenue impact this year, because we’re switching to an export model and so we are driving a different price model with our distributors, but that is going to continue to drive, I think as it succeeds, will drive very good performance for us on a go forward basis.
Monish Patolawala: It also helps us to add on to Mike’s, your comments on pros, benefits. You take a lot of structure out from those countries that also has benefited us on the margin line. It also helps us focus our portfolio. Like what are we going to sell, and therefore, skew rationalization that once you get through this, you will have a different inventory profile that support those smaller countries. So they’re still very important countries for us in no way are we walking away. It’s just a different way of approaching them.
Andrew Obin: Thank you very much.
Mike Roman: Thanks.
Operator: We’ll go next now to Joe Ritchie of Goldman Sachs.
Joe Ritchie: Hey, guys. Good morning.
Mike Roman: Hi, Joe.
Joe Ritchie: I know I might echo all the best of luck. Congratulations.
Mike Roman: Thanks, Joe.
Joe Ritchie: I’m going to start just to start with a quick just clarification. So just apologies on this, but like Slide 15, where you get the operating income number of $1.2 billion. So if I just kind of back out the performance this quarter, it assumes Health Care stranded costs of roughly $100 million to $150 million going to the segment. I just want to make sure I have that right. And then also on that slide on the restructuring charges, Monish, going back to your comments from earlier, so the way to think about it is $100 million-ish the first quarter ex the Health Care number. That’s the apple-to-apple comparison to the restructuring charges of $250 million to $300 million for the year.
Monish Patolawala: So try me again on the first piece of a question, Joe. I didn’t follow exactly, but I’ll answer your second one. So the $250 million to the $300 million is embedded in here and that’s on a continuing ops basis. So that does not include Health Care.
Joe Ritchie: Okay. All right. Great. Yeah. So just on the operating income quickly, I think, you guys have roughly $1.7 billion this quarter. I think we had like roughly, call it, $350 million or so in Health Care profit. So you back that out. That’s above the $1.2 billion number. So it’s just basically trying to understand how much…
Monish Patolawala: Okay.
Joe Ritchie: … Health Care stranded costs go into the other segment.
Monish Patolawala: Yeah. So I think that there are two pieces to this. One is the dis-synergies of Health Care, which on an annualized basis right now, we think it’s $150 million to $175 million. And then the second piece of this is, as I’ve mentioned, there’s $250 million of costs that we hold on behalf of Solventum for which you get reimbursed in April 1st onward. So you eat Q1 with no reimbursement, basically. So if you look at our Other segment, Joe, you will see our Other category, you will see a loss of $65 million in there in Q1 and that’s basically we don’t get reimbursed for that in Q1.
Joe Ritchie: Got it. Okay. No. I think I’ve got it and can follow up.
Monish Patolawala: Yeah. Bruce can follow up offline with you.
Joe Ritchie: Yeah. Yeah. And then just another quick follow up on the Electronics business and so, I know the stat you kind of gave on demand and inventory normalization. Is it possible to kind of parse out the inventory benefit that you’re seeing? I’m just curious, like how much of that 15% came from just inventories normalizing, just because, like, maybe I’m just not close to it anymore. But I’m just curious, like what other products are really kind of driving end-market demand for Electronics at this point?
Mike Roman: Yeah. Joe, what we talked about in the in the results for TVG in the first quarter and Electronics, these are spec in wins on some of the mobile platforms. And so the inventory, it’s getting ready for the demand, really the demand that they’re seeing into the second quarter. And at this point, it’s really that’s the step up and there’s a portion of it that’s inventory kind of filling into the value chain of those OEMs. But it’s — the bigger part of it is the spec-in for us anyway. The bigger part of it is the wins in the spec-in side of it.
Joe Ritchie: It might get smartphone demand.
Mike Roman: It’s mobile devices, largely phones. Yeah. Yeah. Largely phones.
Joe Ritchie: Okay. Okay. Great. All right. Thank you very much.
Operator: We’ll go next now to Steve Tusa of JPMorgan.
Steve Tusa: Hey. Good morning.
Monish Patolawala: Hi, Steve.
Mike Roman: Good morning, Steve.
Steve Tusa: Mike, congrats again, and thanks for all the help over the years.
Mike Roman: Yeah. Thank you.
Steve Tusa: Thanks for the effort.
Mike Roman: Thanks.
Steve Tusa: Just to be clear, you said 40% of adjusted free cash flow. Can you just help us with what the construct of that is? What is adjusted free cash flow?
Monish Patolawala: You’re referring to the dividends, Steve, I presume.
Steve Tusa: Yeah. Just the construct. I don’t need a number for cash. Just how do you define that…
Monish Patolawala: Yeah. So…
Steve Tusa: …adjusted free cash?
Monish Patolawala: If you look at all our material that we have submitted, you will see historically what we have broken out is from our GAAP results. There are certain items that we have been adjusting to get to adjusted results, which is litigation expenses. Number one. Number two is PFAS, because we’ve been exiting. We’ve been showing PFAS as an exit. And number three was all the cost incurred to spin out Solventum or the Health Care business. So it’s the same construct there. And as always, Steve, if we decide to change something, we’ll keep you posted on changes to adjustments. But those are the big ones and if you see our press release statements or schedules, you will see that split by category in there.
Mike Roman: Yeah. Steve, it’s all right. All detailed in our press release attachments.
Steve Tusa: Right. So whatever you so whatever you’re paying out in cash for these liabilities out of that, that is adjusted out of free cash. So, for example, the $4.3 billion or whatever in this year will be adjusted out and then you take whatever we want to assume for free cash flow and then take 40% of that?
Monish Patolawala: Correct.
Mike Roman: Correct.
Steve Tusa: Okay. Thanks for the clarification. Appreciate it.
Mike Roman: Yeah.
Operator: We’ll go next now to Jeff Sprague of Vertical Research Partners.
Jeff Sprague: Thank you. Good morning, everyone.
Monish Patolawala: Hi, Jeff.
Mike Roman: Good morning, Joe.
Monish Patolawala: Jeff.
Jeff Sprague: Good morning. Thanks for clarifying that on the dividend. That was a key question. Also, I just wonder to any degree has Bill Brown been involved in the kind of the formulation of the updated guidance here, whether explicitly or tacitly, and I know he’s formally starting tomorrow, but just any color on that would be interesting and helpful?
Mike Roman: Sure. Jeff, Bill’s, as you would expect, getting ready to step into the role has been engaged with myself and senior management and the Board since the announcement. But he’s really — his part is being informed and getting ready to start, as you said, tomorrow. He’s not part of the decisions on what we’ve laid out here in the earnings call today. So he’s — he starts tomorrow. Bill starts tomorrow and I look forward to working with him as he does.
Jeff Sprague: Right. And then just thinking about, again, the cash flows as it relates to the liability outflow that we’re looking at here. What guidance, if any, could you provide on what you’re thinking on insurance recoveries and if you’re successful in those claims, when those might start flowing as potential offsets to the liability schedule?
