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. In the course of this program, the Company is implementing and executing various restructuring initiatives across all operating segments and regions.

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

 

Costs incurred in

Cumulative costs incurred up to December 31, 2016

Total expected costs(1)

($ in millions)

2016

2015

(1)

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

Electrification Products

14

73

87

89

Discrete Automation and Motion

27

45

72

74

Process Automation

36

96

132

134

Power Grids

33

70

103

105

Corporate and Other

30

86

116

118

Total

140

370

510

520

Total expected program costs were originally estimated to be $852 million. During 2016, the total expected program costs were reduced by $332 million. This was primarily due to the realization of significantly higher than originally expected attrition and internal redeployment rates. The reductions were made across all operating segments as well as for corporate functions.

Of the total expected costs of $520 million the majority is related to employee severance costs.

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

($ in millions)

2016

2015

Cumulative costs incurred up to December 31, 2016

Employee severance costs

130

364

494

Estimated contract settlement, loss order and other costs

2

5

7

Inventory and long-lived asset impairments

8

1

9

Total

140

370

510

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

($ in millions)

2016

2015

Total cost of sales

92

122

Selling, general and administrative expenses

38

187

Non-order related research and development expenses

(5)

38

Other income (expense), net

15

23

Total

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, 2016, 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

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 Cost of sales of $49 million and in Selling, general and administrative expenses of $38 million.

Other restructuring-related activities

In 2016, 2015 and 2014, the Company executed various other restructuring-related activities and incurred charges of $171 million, $256 million and $235 million, respectively, which were primarily recorded in “Total cost of sales”.

($ in millions)

2016

2015

2014

Employee severance costs

90

207

177

Estimated contract settlement, loss order and other costs

40

27

31

Inventory and long-lived asset impairments

41

22

27

Total

171

256

235

At December 31, 2016 and 2015, the balance of other restructuring-related liabilities is primarily included in “Other provisions”.

Change in estimates

In addition to the change in estimate of $103 million relating to the White Collar Productivity program, a further $46 million was recorded 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. This was recorded in income from operations, primarily as reductions in Cost of sales. The combined total change in estimates during 2016 of $149 million resulted in an increase in earnings per share (basic and diluted) of $0.05 for 2016.