WeightWatchers 2009 Annual Report Download - page 35

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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).
Item 3. Legal Proceedings
U.K. VAT Matter
In June 2008, the U.K. Court of Appeal issued a ruling that that from April 1, 2005 Weight Watchers
meeting fees in the United Kingdom were fully subject to 17.5% standard rated value added tax, or VAT, thus
reversing in its entirety an earlier 2007 decision of the U.K. VAT and Duties Tribunal, or the VAT Tribunal, in
our favor. For over a decade prior to April 1, 2005, Her Majesty’s Revenue and Customs, or HMRC, had
determined that Weight Watchers meeting fees in the United Kingdom were only partially subject to 17.5%
VAT. In light of the Court of Appeal’s ruling and in accordance with accounting guidance for contingencies, 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 previously recorded. Beginning in the third quarter
of fiscal 2008, in accordance with accounting guidance for contingencies, we have recorded as an offset to
revenue VAT charges associated with U.K. meeting fees as earned, consistent with the Court of Appeal’s ruling.
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 periods July 1, 2005 to September 30, 2005 and
October 1, 2005 to December 31, 2005, we have asserted that these notices of assessment are invalid 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 March 2009, June 2009 and September 2009, HMRC raised notices of assessment against us in respect of
U.K. VAT due for the periods January 1, 2006 to March 31, 2006, April 1, 2006 to June 30, 2006, and July 1,
2006 to September 30, 2006, respectively, which we similarly believe were raised outside the relevant statutory
time limits. We intend to vigorously challenge any amount of U.K. VAT that HMRC claims to be owed by us for
any period between October 1, 2005 and September 30, 2006. Accordingly, we filed notices of appeal with the
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