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Willis expects goodwill impairment charge in fourth quarter

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Willis expects goodwill impairment charge in fourth quarter

Willis Group Holdings P.L.C. expects to take an after-tax goodwill impairment charge of between $450 million and $500 million in the fourth quarter, according to a filing made with the U.S. Securities and Exchange Commission.

“As previously disclosed, the North American reporting unit has been hampered by the weakened economic climate and its impact on our acquisition of HRH,” said Willis in the Wednesday filing, referring to its acquisition of Glen Allen, Va.-based Hilb Rogal & Hobbs Co. in 2008.

“While the goodwill impairment charge will reduce our reported results under U.S. (Generally Accepted Accounting Principles), it will be noncash in nature and will not affect the company's liquidity, cash flows from operating activities and debt covenants, nor will it have any impact on future operations,” said Willis in its filing.

Willis also announced a change its remuneration policy in the filing, a change that will result in a one-time noncash charge of $205 million in the fourth quarter.

Standard & Poor's Corp. issued a bulletin Thursday saying that Willis' actions would not change the London-based brokerage's credit rating.

S&P said Willis' acquisition of HRH for about $2.1 billion increased the brokerage's North American market penetration, but “at the same time, weak economic conditions negatively affected its construction and employee benefits business.”

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S&P said the second “charge relates to the replacement of annual cash retention awards in favor of annual cash bonuses, similar to industry practices per our understanding. We do not expect the level of incentive remuneration to change, only the payout characteristics, which exclude a repayment requirement upon voluntary employee resignation. As a result of this change, remaining unamortized pretax balance of $205 million from remaining cash retention awards is being written off.”

S&P said that, although the combination of these charges will result in GAAP net losses for full-year 2012, “we view these as nonrecurring and we would adjust for these charges while analyzing Willis' operating and financial metrics. Furthermore, these charges have limited impact on our opinion of Willis' ongoing revenue generation and earnings capability, which we believe are adequately captured by our current ratings. Therefore, our view of company's credit profile is unaffected.”

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