WeightWatchers 2011 Annual Report Download - page 36

alleviate, problems caused by unauthorized users. These expenditures, however, may not prove to be a timely
remedy against unauthorized users who are able to penetrate our information security. In addition to purposeful
security breaches, the inadvertent transmission of computer viruses could adversely affect our computer systems
and, in turn, harm our business.
A significant number of states require that customers be notified if a security breach results in the disclosure
of their personal financial account or other information. Additional states and governmental entities are
considering such “notice” laws. In addition, other public disclosure laws may require that material security
breaches be reported. If we experience a security breach and such notice or public disclosure is required in the
future, our reputation and our business may be harmed.
In the ordinary course of our business, we collect and utilize proprietary and customer information and data.
Privacy concerns among prospective and existing customers regarding our use of such information or data
collected on our websites or through our services and products, such as weight management information,
financial data, email addresses and home addresses, could keep them from using our websites or purchasing our
services or products. We currently face certain legal obligations regarding the manner in which we treat such
information and data. Businesses have been criticized by privacy groups and governmental bodies for their use
and handling of such information and data. Industry-wide events or events with respect to our websites, including
misappropriation of third-party information, security breaches or changes in industry standards or regulations, or
increased enforcement of existing or new laws, could have an adverse effect on our business.
Disputes with our franchise operators could divert management’s attention from their ordinary
responsibilities.
In the past, we have had disputes with our franchisees regarding operations and other contractual issues. For
example, we have had disputes with some of our franchisees regarding the interpretation of franchisee rights as
they relate to the Internet and mail-order products. Any future disputes could divert the attention of management
from their ordinary responsibilities.
Our businesses are subject to legislative and regulatory restrictions.
A number of laws and regulations govern our advertising, services, products, operations and relations with
consumers, licensees, franchisees, employees and other service providers in the countries in which we operate.
Certain federal, state and foreign agencies, such as the FTC, regulate and enforce such laws relating to
advertising, disclosures to consumers, privacy, consumer pricing and billing arrangements, and other consumer
protection matters. A determination by a federal, state or foreign agency, or a court in connection with a
governmental enforcement action or private litigation, that any of our practices do not meet existing or new laws
or regulations could result in liability, adverse publicity, and restrictions of our business operations. For example,
during the mid-1990s, the FTC filed complaints against a number of commercial weight management providers
alleging violations of federal law in connection with the use of advertisements that featured testimonials, claims
for program success and program costs. In 1997, we entered into a consent order with the FTC settling all
contested issues raised in the complaint filed against us. The consent order requires us to comply with certain
procedures and disclosures in connection with our advertisements of products and services.
Since we operate our meetings business both in the United States and internationally, we are subject to
many distinct employment, labor, benefits and tax laws in each country in which we operate, including
regulations affecting our employment practices and our relations with our employees and service providers. If we
are required to comply with new laws or regulations or new interpretations of existing laws and regulations, are
unable to comply with these laws, regulations or interpretations, or are subject to litigation with respect to these
laws, regulations or interpretations, our business and results of operations could be adversely affected. For
example, in 2009 we received an adverse tax ruling in the United Kingdom that our leaders should have been
classified as employees instead of self-employed for UK tax purposes and, as such, we should have withheld tax
from our leaders.
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