WeightWatchers 2008 Annual Report Download - page 33

beneficial to our shareholders. Provisions of our articles of incorporation and bylaws impose various procedural
and other requirements, which could make it more difficult for shareholders to effect certain corporate actions.
For example, our articles of incorporation authorize our Board of Directors to determine the rights, preferences,
privileges and restrictions of unissued series of preferred stock, without any vote or action by our shareholders.
Thus, our Board of Directors can authorize and issue shares of preferred stock with voting or conversion rights
that could adversely affect the voting or other rights of holders of our common stock. These rights may have the
effect of delaying or deterring a change of control of our company. In addition, a change of control of our
company may be delayed or deterred as a result of our having three classes of directors or as a result of the
shareholders’ rights plan adopted by our Board of Directors. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We are currently headquartered in New York, New York in leased office space. We also have small regional
offices within NACO, typically under short term leases. Each of our foreign country operations generally has
leased office space.
We typically hold our classes in third-party locations (usually meeting rooms in well-located civic or other
community organizations) or space leased in retail centers (usually leased spaces in strip malls under short term
leases with terms generally less than five years). As of the end of fiscal 2008, there were approximately 5,800
North America meeting locations, including approximately 5,000 third-party locations and 800 retail centers. In
the United Kingdom, there were approximately 4,600 meeting locations, with 100% in third-party locations. In
Continental Europe, there were approximately 4,800 meeting locations, with approximately 99% in third-party
locations. In Australia and New Zealand, there were approximately 1,000 meeting locations, with approximately
95% in third-party locations.
Item 3. Legal Proceedings
U.K. VAT Matter
In July 2006, we filed an amended notice of appeal with the U.K. VAT and Duties Tribunal, or VAT
Tribunal, appealing a ruling by Her Majesty’s Revenue and Customs, or HMRC, that from April 1, 2005 Weight
Watchers meeting fees in the United Kingdom should be fully subject to 17.5% standard rated value added tax,
or VAT. For over a decade prior to April 1, 2005, HMRC had determined that Weight Watchers meeting fees in
the United Kingdom were only partially subject to 17.5% VAT. In March 2007, the VAT Tribunal ruled that
Weight Watchers meetings in the United Kingdom should only be partially subject to 17.5% VAT. The VAT
Tribunal’s ruling was appealed by HMRC to the High Court of Justice Chancery Division, or the High Court, in
May 2007, and in January 2008 the High Court denied HMRC’s appeal in part and allowed HMRC’s appeal in
part. In April 2008, we filed an appeal to the Court of Appeal in part against the High Court’s ruling and HMRC
also filed an appeal to the Court of Appeal in part against the High Court’s ruling. In June 2008, the Court of
Appeal issued a ruling that Weight Watchers meeting fees in the United Kingdom were fully subject to 17.5%
VAT, thus reversing in its entirety the VAT Tribunal’s 2007 decision in our favor. In July 2008, we sought
permission from the U.K. House of Lords to appeal the Court of Appeal’s ruling, which permission was denied in
January 2009.
In light of the Court of Appeal’s ruling that Weight Watchers meeting fees in the United Kingdom were
fully subject to 17.5% VAT and in accordance with Statement of Financial Accounting Standards No. 5,
“Accounting for Contingencies” (“SFAS 5”), we recorded a charge of approximately $32.5 million as an offset to
revenue in the second quarter of fiscal 2008 for U.K. VAT liability (including interest) in excess of reserves
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