Note 22
Restructuring and related expenses

White Collar Productivity program

From September 2015 to December 2017, the Company executed a restructuring program to make the Company leaner, faster and more customer-focused. The program involved the rapid expansion and use of regional shared service centers as well as a streamlining of global operations and head office functions, with business units moving closer to their respective key markets. The program involved 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.

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, 2018:

($ in millions)

Employee
severance costs

Contract settlement,
loss order
and other costs

Total

Liability at January 1, 2015

Expenses

300

3

303

Cash payments

(27)

(27)

Liability at December 31, 2015

273

3

276

Expenses

182

3

185

Cash payments

(91)

(2)

(93)

Change in estimates

(85)

(1)

(86)

Exchange rate differences

(17)

(1)

(18)

Liability at December 31, 2016

262

2

264

Expenses

28

3

31

Cash payments

(92)

(4)

(96)

Change in estimates

(118)

(118)

Exchange rate differences

21

21

Liability at December 31, 2017

101

1

102

Cash payments

(55)

(55)

Change in estimates and exchange rate differences

(13)

(13)

Liability at December 31, 2018

33

1

34

The change in estimates during 2017 of $118 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 $53 million and in “Selling, general and administrative expenses” of $55 million.

The change in estimates during 2016 of $86 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 $38 million and in “Selling, general and administrative expenses” of $35 million.

The following table outlines the net costs incurred in 2017 and 2016 and the cumulative net costs incurred up to December 31, 2017:

 

Net costs incurred in

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

($ in millions)

2017(1)

2016(1)

(1)

Amounts in the table above have been recast to reflect the reorganization of the Company’s operating segments in 2018 as outlined in Note 23.

Electrification Products

(17)

15

72

Industrial Automation

(23)

34

106

Robotics and Motion

(14)

26

56

Corporate and Other

(32)

32

91

Total

(86)

107

325

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

($ in millions)

2017

2016

Cumulative costs incurred up to December 31, 2017

Employee severance costs

(90)

97

307

Estimated contract settlement, loss order and other costs

3

2

8

Inventory and long-lived asset impairments

1

8

10

Total

(86)

107

325

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

Total cost of sales

(47)

57

Selling, general and administrative expenses

(35)

35

Non-order related research and development expenses

(5)

1

Other income (expense), net

1

14

Total

(86)

107

OS program

In December 2018, the Company announced a two-year restructuring program with the objective to simplify its business model and structure through the implementation of a new organizational structure driven by its businesses. The program includes the planned elimination of the country and regional structures within the current matrix organization, including the elimination of the three regional Executive Committee roles. The operating businesses will each be responsible for both their customer-facing activities and business support functions, while the remaining Group-level corporate activities will primarily focus on Group strategy, portfolio and performance management, capital allocation and core technologies. The program is expected to be performed over two years and incur restructuring expenses of $350 million.

The following table outlines the costs incurred in 2018, 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 2018

Cumulative costs incurred up to December 31, 2018

Total expected costs

Electrification Products

32

32

40

Industrial Automation

21

21

60

Robotics and Motion

1

1

50

Corporate and Other

11

11

200

Total

65

65

350

In 2018, restructuring expenses recorded for this program relate to employee severance costs and are included in the following line items in the Consolidated Income Statements:

($ in millions)

2018

Total cost of sales

35

Selling, general and administrative expenses

23

Non-order related research and development expenses

3

Other income (expense), net

4

Total

65

At December 31, 2018, liabilities associated with the program amount to $65 million and are primarily included in “Other provisions”.

Other restructuring-related activities

In 2018, 2017 and 2016, the Company executed various other restructuring-related activities and incurred charges of $116 million, $181 million and $133 million, respectively.

($ in millions)

2018

2017

2016

Employee severance costs

74

130

66

Estimated contract settlement, loss order and other costs

29

32

32

Inventory and long-lived asset impairments

13

19

35

Total

116

181

133

Expenses associated with these activities are recorded in the following line items in the Consolidated Income Statements:

($ in millions)

2018

2017

2016

Total cost of sales

24

119

69

Selling, general and administrative expenses

52

10

4

Non-order related research and development expenses

2

5

Other income (expense), net

38

52

55

Total

116

181

133

At December 31, 2018 and 2017, $245 million and $246 million, respectively, was recorded for other restructuring-related liabilities and is primarily included in “Other provisions”.