Note 22
Restructuring and related expenses

White Collar Productivity program

In September 2015, the Company announced a two-year program aimed at making the Company leaner, faster and more customer-focused. Productivity improvements include the rapid expansion and use of regional shared service centers as well as the streamlining of global operations and head office functions, with business units moving closer to their respective key markets. During this program, the Company implemented and executed various restructuring initiatives across all operating segments and regions. As of December 31, 2017, the Company had incurred substantially all costs related to the White Collar Productivity program.

The following table outlines the cumulative costs incurred and the total amount of costs under the program per operating segment:

 

Costs incurred in

Cumulative costs incurred up to December 31, 2017(1)

($ in millions)

2017

2016(1)

2015(1)

(1)

Total costs have been recast to reflect the reorganization of the Company’s operating segments as outlined in Note 23.

Electrification Products

(17)

15

74

72

Robotics and Motion

(14)

26

44

56

Industrial Automation

(22)

36

96

110

Power Grids

(38)

33

70

65

Corporate and Other

(34)

30

86

82

Total

(125)

140

370

385

The Company recorded the following expenses, net of changes in estimates, under this program:

 

Costs incurred in

Cumulative costs incurred up to December 31, 2017

($ in millions)

2017

2016

2015

Employee severance costs

(129)

130

364

365

Estimated contract settlement, loss order and other costs

3

2

5

10

Inventory and long-lived asset impairments

1

8

1

10

Total

(125)

140

370

385

Expenses, net of changes in estimates, associated with this program are recorded in the following line items in the Consolidated Income Statements:

($ in millions)

2017

2016

2015

Total cost of sales

(79)

92

122

Selling, general and administrative expenses

(42)

38

187

Non-order related research and development expenses

(6)

(5)

38

Other income (expense), net

2

15

23

Total

(125)

140

370

Liabilities associated with the White Collar Productivity program are primarily included in “Other provisions”. The following table shows the activity from the beginning of the program to December 31, 2017, by expense type:

($ in millions)

Employee severance costs

Contract settlement, loss order and other costs

Total

Liability at January 1, 2015

Expenses

364

5

369

Cash payments

(34)

(1)

(35)

Liability at December 31, 2015

330

4

334

Expenses

232

3

235

Cash payments

(106)

(3)

(109)

Change in estimates

(102)

(1)

(103)

Exchange rate differences

(23)

(23)

Liability at December 31, 2016

331

3

334

Expenses

35

3

38

Cash payments

(110)

(5)

(115)

Change in estimates

(164)

(164)

Exchange rate differences

28

28

Liability at December 31, 2017

120

1

121

The change in estimates during 2016 of $103 million is due to significantly higher than expected rates of attrition and internal redeployment and a lower than expected severance cost per employee for the employee groups affected by the first phase of restructuring initiated in 2015. The reduction in the liability was recorded in income from operations, primarily as reductions in “Total cost of sales” of $49 million and in “Selling, general and administrative expenses” of $38 million.

The change in estimates during 2017 of $164 million is mainly due to higher than expected rates of attrition and internal redeployment. The reduction in the liability was recorded in income from operations, primarily as reductions in “Total cost of sales” of $90 million and in “Selling, general and administrative expenses” of $63 million.

Other restructuring-related activities

In 2017, 2016 and 2015, the Company executed various other restructuring-related activities and incurred charges of $249 million, $171 million and $256 million, respectively.

($ in millions)

2017

2016

2015

Employee severance costs

184

90

207

Estimated contract settlement, loss order and other costs

40

40

27

Inventory and long-lived asset impairments

25

41

22

Total

249

171

256

In 2017, 2016 and 2015, $166 million, $90 million and $162 million, respectively, of these expenses were recorded in “Total cost of sales” and $68 million, $71 million and $57 million, respectively, were recorded in “Other income (expense), net”.

At December 31, 2017 and 2016, the balance of other restructuring-related liabilities is primarily included in “Other provisions”.

Change in estimates

In addition to the change in estimate of $164 million and $103 million, in 2017 and 2016, respectively, relating to the White Collar Productivity program, a further $58 million and $46 million was recorded in 2017 and 2016, respectively, as a change in estimate to reduce liabilities associated with the Company’s other restructuring-related activities mainly due to changes in the planned scope of these activities. These were recorded in income from operations, primarily as reductions in “Total cost of sales”. The combined total change in estimates during 2017 and 2016 of $222 million and $149 million, respectively, resulted in an increase in earnings per share (basic and diluted) of $0.08 in 2017 and $0.05 in 2016.