WeightWatchers 2009 Annual Report Download - page 36

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VAT Tribunal against the U.K. VAT assessments issued for the periods October 1, 2005 to December 31,
2005, January 1, 2006 to March 31, 2006, April 1, 2006 to June 30, 2006 and July 1, 2006 to September 30, 2006
in March 2009, April 2009, July 2009 and October 2009, respectively.
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.
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. First Tier
Tribunal (Tax Chamber), or First Tier Tribunal. Our appeal was heard by the First Tier Tribunal in June 2009 and
October 2009. In February 2010, the First Tier Tribunal issued a ruling that our U.K. leaders should have been
classified as employees for U.K. tax purposes and, as such, we should have withheld tax from our leaders
pursuant to the PAYE and NIC collection rules for the period from April 2001 to April 2007 with respect to
services performed by the leaders for us.
In light of this adverse ruling and in accordance with accounting guidance for contingencies, we recorded in
the fourth quarter of fiscal 2009 a charge in the amount of approximately $36.7 million for the period from April
2001 through the end of fiscal 2009, inclusive of estimated accrued interest. Although we intend to seek an
appeal of this adverse ruling, in accordance with accounting guidance for contingencies, we will record a reserve
each quarter beginning in the first quarter of fiscal 2010 for U.K. withholding taxes with respect to our U.K.
leaders consistent with the First Tier Tribunal’s ruling.
Sabatino v. Weight Watchers North America, Inc.
In September 2009, a lawsuit was filed in the Superior Court of California by one of our former leaders
alleging violations of certain California wage and hour laws on behalf of herself, and, if approved by the Court,
other leaders and those employees who have performed the location coordinator function in California since
September 17, 2005. In this matter, the plaintiff is seeking unpaid wages and certain other damages. In October
2009, we answered the complaint and removed the case to the U.S. District Court for the Northern District of
California. Although we disagree with the allegations that we have violated California wage and hour laws and
we believe we have valid defenses with respect to this matter, litigation is inherently unpredictable. At this time,
it is not possible to determine the outcome of, or estimate the liability related to, this action and we have not
made any provision for losses in connection with it.
Hanson-Kelly & Jackson v. Weight Watchers North America, Inc. and Weight Watchers International, Inc.
In January 2010, a lawsuit was filed in the U.S. District Court for the Middle District of North Carolina by
two leaders alleging violations of certain federal and North Carolina wage and hour laws on behalf of
themselves, and, if approved by the Court, other leaders and receptionists in North Carolina since January 25,
2007. In this matter, the plaintiffs are seeking unpaid wages and certain other damages. Although we disagree
with the allegations that we have violated federal and North Carolina wage and hour laws and we believe we
have valid defenses with respect to this matter, litigation is inherently unpredictable. At this time, it is not
possible to determine the outcome of, or estimate the liability related to, this action and we have not made any
provision for losses in connection with it.
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