So seasonally, you see that as an impact. Third is, as I mentioned earlier, we are incurring incremental costs to stand up the Health Care business as we get ready for the spin. The total impact is approximately $0.07 to $0.08 is the total impact of the — it’s the total cost in the quarter. We have a headwind from our pension accounting that we talked about, which is $0.04 of headwind. And then from a tax rate basis, we expect our 1Q tax rate to be in the range of 20% to 21% versus we ended the fourth quarter at 14.9%. So I hope that kind of gives you all the puts and takes to get you to the range that we have of $2 to $2.15.
Stephen Tusa: Yes, that makes sense. And then just one last thing on restructuring. I mean, I don’t — I usually think of restructuring as building once you do a certain number in a quarter, you kind of carry it over annually, you guys are run rating at a pretty high level of benefits in the third and the fourth quarter that ramped pretty hard sequentially from the first half. Is there any like seasonality to these cost saves? Or I’m just curious as to why they’re not maybe carrying over a little more into the first half of ’24, like of a compounding of those benefits, if you will. I can understand the expense numbers are very clear, but it seems like you’re kind of under punching the benefits based on that carryover in ’24, especially in the first half.
Monish Patolawala: I’m not sure I — one would agree with that. But when you look at 1Q of ’23 versus 1Q of ’24. There was no restructuring benefits pretty much in 1Q of ’23, and we had a little bit of cost in ’23. So if you look at 1Q versus 1Q, you actually see margin rates up 250 basis points, excluding the impact of restructuring costs. So you are seeing the benefits, Steve, on a year-over-year basis in 1Q. For the year, as we have previously mentioned, our savings that we are showing you in the $700 million, $900 million, which it always has been, are net of the necessary investments that we are required to provide, which we are going to spend to provide sustained benefits. So again, just to repeat, things like, we changed our method of delivery in certain geographies, 30 countries.
You need a structure that has to get put into place to serve that. You’ve got rooftops. So we have exited the rooftops, you’re starting to see the savings, but we have to spend the money to upgrade the rooftops that we are left because we have to consolidate that space so that people can come and work in that space. And then we’ll continue to invest in things like, customer operations and automate customer operations, which was a part of the whole — there was a reason why we did this. Mike said it, I’ve said it, it’s the way we work and some of the savings you’re seeing come ahead as you’ve made those actions. And now we’re going to put it — we’re going to put in the necessary costs so that we can continue to see those savings. And that’s why I keep saying at the end of 2024, we’ll be largely done with these actions and the benefits will carry on into ’25 and beyond at $700 million to $900 million.
Bruce Jermeland : Yes. Just so it’s clear, Steve, the investments that Monish is highlighting is included.
Monish Patolawala: In the $700 million.
Bruce Jermeland : In the $700 million, $900 million.
Stephen Tusa: Yes. Okay. That all makes sense. So it’s kind of a bit of a timing thing.
Bruce Jermeland: Correct.
Operator: Our next question comes from the line of Jeff Sprague with Vertical Research Partners.
Jeffrey Sprague: Thank you. Good morning, everyone. I just want to come back just to thinking about kind of the separation and just some of the math. Monish, you have taken some pains here to kind of remind us that it’s not as simple as just splitting this in two. So just a couple of questions. I think you had previously said that just kind of stand-alone corporate costs for the Health Care business was about $100 million. I wonder if that’s moving around at all if you could provide any additional color on that? And is there some color you could provide on what you’re expecting on the TSAs think that’s going to have to be an input to what the EBITDA is for Health Care at the time of the spin and the associated dividend that comes off that.
So I know when to get the 4 and 10s to get a little bit closer. You’re going to be more precise on this, but it does seem like you’re directionally warning us to be prepared for some friction here. So I’m wondering if you can give us a little bit more color.
Monish Patolawala: Yes, Jeff, as we said, I think the timing of the spin will definitely determine some of these costs. And I would just say let us work through it. As we get closer to it, Bryan and the team will walk you through as they get closer to getting ready for the spin. And as committed, we are going to have an Investor Day post-spin while we’ll walk you through all the factors that you have to take into account, which is not only post 3M, what does that revenue and margin look like, but also the impact of transition services agreements because they will be transition services agreements for a period of time and then the amount of stranded costs. The good news, Jeff, is that through all the restructuring actions that we have done, to some extent, we have been able to reduce the amount of standard cost that would have been there if we hadn’t taken these actions to reduce some of the cost at the center.
Jeffrey Sprague: And then unrelated, just on Slide 3. Have you definitively decided to use the $1 billion equity option to fund part of Combat Arms?
Monish Patolawala: Have we decided, I’m sorry?
Jeffrey Sprague: Have you decided to go ahead and use the equity option of $1 billion for the Combat Arms?
Monish Patolawala: No, we have not, Jeff. That’s an option we hold, and we will make the appropriate decision once — we see the progress in the number of opt-ins for the Combat Arms litigation.
Bruce Jermeland : Yes, Jeff, the purpose of our statement is, so you guys can think about your outstanding share count that if we do exercise that option to pay in equity that, that will be treated as an excludes item in arriving at adjusted results. So that was only just to highlight, don’t worry about the impact it is at our option. That is yet to be determined, but you don’t have to take that into account relative to your share count on an adjusted basis.
Jeffrey Sprague: But it sounds like you then will be planning to use an adjusted share count if you go down this path, right? So we’re kind of compounding adjustments on top of adjustments, it sounds like.
Bruce Jermeland: There would be a difference in GAAP shares outstanding versus adjusted shares outstanding if we decide to exercise this option to issue equity. Yes, we’ll make it clear in our financial reporting if that were to incur.
Operator: Our last question comes from the line of Deane Dray with RBC Capital Markets.
Deane Dray: Thank you. Just had a couple of questions on some of the outliers in the fourth quarter results. And hopefully, I didn’t miss this — for transportation, electronics, significant upside on the top line. I saw that you have an adjusted flat organic revenue growth. So what were those adjustments that were to the good — and then on the corporate line, and it’s one, two a significant benefit — just give us a sense of what those adjustments were that would have caused that? And maybe you answered that question with Julian, but I just wanted to get those clarified, please.
Mike Roman: Yes, Deane, I think what you’re looking at is the adjustment for PFAS, the exit of PFAS. If you recall, we’re excluding the PFAS related men — the PFAS manufacturing and related business as we report. And that was part — the primary business for that was transportation and electronics. So that’s where you saw that, maybe that adjustment.
