Non-cash charges relate to HRH buy and change in bonus policy
Global broker Willis is expecting its fourth-quarter results to be hit by up to $705m in non-cash charges.
Willis will write down between $450m and $500m of goodwill in its North America division related to its 2008 acquisition of US broker Hilb, Rogal & Hobbs (HRH).
The company said in an SEC filing: “As previously disclosed, the North American reporting unit has been hampered by the weakened economic climate and its impact on our acquisition of HRH.”
The company said that as of 30 September the goodwill in its North America unit was valued at $1.8bn.
In addition, Willis expects to take a further $205m non-cash charge related to a change in how it accounts for and pays staff bonuses.
In recent years, certain Willis cash retention awards have had a repayment element. Staff had to pay back a proportionate part of the awards Willis paid to them if they left the company before a specified date.
The company would pay the entire award straight away, but would only record the amounts that the employee did not have to pay back yet as an expense. The remainder (the unamortised portion) would be recorded as an asset until the employee had stayed with the company long enough to not have to pay it back.
Willis has now decided to eliminate the repayment element from past cash retention awards. As a result, the broker will have to pay a pre-tax charge of $205m, which represents the unamortised balance of past awards.
In addition, Willis is replacing annual cash retention awards with annual cash bonuses, which will not include a repayment requirement. The company’s fourth quarter results will contain an additional accrual of roughly $250m for these 2012 cash bonuses to be paid in 2013.
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