WeightWatchers 2010 Annual Report Download - page 103

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIE
S
NO
TE
S
T
OCO
N
SO
LIDATED FINAN
C
IAL
S
TATEMENT
S
(
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
)
I
n September 2007, the Company appealed HMRC’s notices as to these classifications and against any
amount of PAYE and NIC liability claimed to be owed by the Company and the Company’s appeal was heard b
y
the First Tier Tribunal in June 2009 and October 2009. In February 2010, the First Tier Tribunal issued a rulin
g
that the Company’s UK leaders should have been classified as employees for UK tax purposes and, as such, the
Company should have withheld tax from its leaders pursuant to the PAYE and NIC collection rules for the period
f
rom April 2001 to April 2007 with respect to services performed by the leaders for the Company. The Compan
y
is appealing this adverse ruling and a hearing before the UK Upper Tribunal (Tax and Chancery Chamber) i
s
scheduled for fall 2011.
I
n light of this adverse ruling and in accordance with accounting guidance for contingencies, the Compan
y
r
ecorded in the fourth quarter of fiscal 2009 a reserve for the period from April 2001 through the end of fiscal
2009, inclusive of estimated accrued interest. As it did beginning in the first quarter of fiscal 2010, the Company
has recorded, and also intends to continue to record, a reserve for UK withholding taxes with respect to its UK
leaders consistent with this ruling on a quarterly basis. Accordingly, the aggregate reserve for the period from
April 2001 through the end of the fourth quarter of fiscal 2010 is approximately
$
40,782.
S
abatino v. Weight Watchers North America, Inc.
I
n September 2009, a lawsuit was filed in the Superior Court of California by one of the Company’s forme
r
leaders alleging violations of certain California wage and hour laws on behalf of herself, and, if approved by th
e
court, other leaders and those employees who have performed the location coordinator function in Californi
a
since September 17, 200
5
. In this matter, the plaintiff is seeking unpaid wages and certain other damages. I
n
October 2009, the Company answered the complaint and removed the case to the U.S. District Court for the
Northern District of California (the “Federal Court”). In July 2010, the plaintiff filed an amended complain
t
adding two additional named plaintiffs for this matter. In October 2010, the parties engaged in mediation and
r
eached an agreement in principle to settle this matter in its entirety and, accordingly, the Company has recorde
d
a reserve with res
p
ect to this matter of
$
6,500. The settlement is de
p
endent u
p
on final a
pp
roval of the Federal
Court. The parties submitted the proposed settlement to the Federal Court in December 2010. In January 2011,
the parties received the Federal Court’s preliminary approval of the settlement. A hearing seeking final approval
o
f the Federal Court of the settlement is scheduled for spring 2011
.
Hanson-Kelly & Jackson v. Weight Watchers North America, Inc. and Weight Watchers International, Inc.
I
n January 2010, a lawsuit was filed in the U.S. District Court for the Middle District of North Carolina b
y
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 2
5,
2007. In this matter, the plaintiffs are seeking unpaid wages and certain other damages. In April 2010, the
Company filed a Motion to Dismiss the claim for unpaid wages under the North Carolina wage and hour laws.
T
he court has not ruled yet on this Motion. Although the Company disagrees with the allegations that it has
violated federal and North Carolina wage and hour laws and the Company believes it has valid defenses wit
h
r
espect to this matter, litigation is inherently unpredictable. At this time, it is not possible to determine th
e
o
utcome of, or estimate the liability related to, this action and the Company has not made any provision for
losses in connection with it
.
Other Litigation Matter
s
Due to the nature of its activities, the Company is 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
F-
23