WeightWatchers 2008 Annual Report Download - page 34

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previously recorded. Beginning in the third quarter of fiscal 2008, in accordance with SFAS 5, we recorded as an
offset to revenue VAT charges associated with U.K. meeting fees as earned, consistent with the Court of
Appeal’s ruling. These charges were approximately $1.8 million with respect to the third quarter of fiscal 2008
and approximately $1.4 million with respect to the fourth quarter of fiscal 2008.
However, with respect to U.K. VAT owed for the period prior to July 1, 2005, HMRC has failed to raise a
notice of assessment within the statutory three-year time period. In addition, although HMRC raised notices of
assessment against us with respect to U.K. VAT due for the period July 1, 2005 to September 30, 2005 and for
the period October 1, 2005 to December 31, 2005, we have asserted that these notices of assessment are invalid
and should not have been raised on the grounds that they had been raised outside the relevant statutory time
limits. HMRC indicated in November 2008 that it agreed with our assertion that the notice of assessment for the
period July 1, 2005 to September 30, 2005 was invalid, and, in February 2009, confirmed that this notice had
been formally withdrawn. As a result of the expiration of the statutory time period with respect to U.K. VAT
owed prior to October 1, 2005, we recorded in the fourth quarter of fiscal 2008 as a benefit to revenue for the
periods prior to October 1, 2005 an amount of approximately $9.2 million as an offset against reserves previously
recorded including in part the charge recorded against revenue in the second quarter of fiscal 2008 for U.K. VAT
liability. In addition, we intend to vigorously challenge as invalid and outside the relevant statutory time limits
any amount of U.K. VAT that HMRC claims to be owed by us for the period October 1, 2005 to December 31,
2005.
U.K. Self-Employment Matter
In July 2007, HMRC issued to us notices of determination and decisions that, for the period April 2001 to
April 2007, our leaders and certain other service providers should have been classified as employees for tax
purposes and, as such, we should have withheld tax from the leaders and certain other service providers pursuant
to the “Pay As You Earn,” or PAYE, and national insurance contributions, or NIC, collection rules and remitted
such amounts to HMRC. HMRC also issued a claim to us in October 2008 in respect of NIC which corresponds
to the prior notices of assessment with respect to PAYE previously raised by HMRC. As of the end of fiscal
2008, the assessment associated with the notices of determination and decisions and the claim in respect of NIC
are approximately $23.4 million. It is our view that the U.K. leaders and other service providers identified by
HMRC in its notices and in its claim are self-employed and no withholding by us was required. In
September 2007, we appealed HMRC’s notices as to these classifications and against any amount of PAYE and
NIC liability claimed to be owed by us and, in July 2008, filed this appeal with the U.K. Special Commissioners.
In February 2009, the U.K. Special Commissioners provided notice that our appeal will be heard in June 2009.
We intend to vigorously pursue our appeal and, although there can be no assurances, we believe, based in part
upon advice of legal counsel, we will ultimately prevail in our appeal. Accordingly, we have not recorded any
reserves with respect to this matter. If such appeal is unsuccessful, it is possible that our cash flows and results of
operations in a particular fiscal quarter may be adversely affected by this matter. However, it is the opinion of
management that the disposition of this matter will not have a material effect on our financial condition or
ongoing results of operations or cash flows.
Other Litigation Matters
Due to the nature of our activities, we are also, at times, subject to pending and threatened legal actions that
arise out of the ordinary course of business. In the opinion of management, based in part upon advice of legal
counsel, the disposition of all such matters is not expected to have a material effect on our results of operations,
financial condition or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our shareholders during the last quarter of the fiscal year ended
January 3, 2009.
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