WeightWatchers 2011 Annual Report Download - page 39

Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We are currently headquartered in New York, New York in leased office space with our US back-office and
customer support operations located in leased office spaces elsewhere in the United States. Each of our foreign
country operations generally also has leased office space to support its operations. Our WWI segment typically
holds its meetings in third-party locations (usually meeting rooms in well-located civic or other community
centers) or space leased in retail centers.
Our website, including our subscription products, is hosted on hardware and software co-located at a third-
party facility in New York. We also maintain a disaster recovery site with hardware and software co-located at a
third-party facility in Arizona.
Item 3. Legal Proceedings
UK Self-Employment Matter
In July 2007, Her Majesty’s Revenue and Customs, or 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 in the
United Kingdom 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 to the UK First Tier Tribunal (Tax Chamber) (formerly known as the UK
VAT and Duties Tribunal), or the First Tier Tribunal, HMRC’s notices as to these classifications and against any
amount of PAYE and NIC liability claimed to be owed by us. In February 2010, the First Tier Tribunal issued a
ruling that our UK leaders should have been classified as employees for UK 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. We appealed the First Tier
Tribunal’s adverse ruling to the UK Upper Tribunal (Tax and Chancery Chamber), or the Upper Tribunal, and in
October 2011, the Upper Tribunal issued a ruling dismissing our appeal. We are currently seeking permission
from the UK Court of Appeal to appeal the Upper Tribunal’s ruling.
In December 2011, HMRC’s claim in respect of NIC was amended to increase the claimed amount for the
period April 2002 to April 2007 and include the interest accrued thereon through December 2011. In addition, in
February 2012, HMRC asserted a claim in respect of PAYE for the period April 2007 to April 2011 similar to
what it had claimed for the period April 2001 to April 2007. We plan to appeal this PAYE claim to the First Tier
Tribunal.
In light of the First Tier Tribunal’s adverse ruling and in accordance with accounting guidance for
contingencies, we recorded 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. On a quarterly basis, beginning in the first quarter
of fiscal 2010 and through the second quarter of fiscal 2011, we recorded a reserve for UK withholding taxes
with respect to our UK leaders consistent with this ruling. The reserve at the end of the second quarter of fiscal
2011 equaled approximately $43.7 million in the aggregate based on the exchange rates at the end of fiscal 2011.
As of the beginning of the third quarter of fiscal 2011, we employ our UK leaders and therefore have ceased
recording any further reserves for this matter. In addition, we do not currently expect additional reserves will be
required in connection with the December 2011 amended NIC claim and the February 2012 PAYE claim by
HMRC, as reserves had previously been made for these amounts.
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