WeightWatchers 2012 Annual Report Download - page 44

UK Self-Employment Matter
We received an adverse tax ruling in the United Kingdom 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 and remitted such amounts to HMRC. In connection with this ruling, we
recorded a charge of approximately $36.7 million, of which approximately $4.2 million was with respect to fiscal
2009 and approximately $32.5 million was with respect to fiscal years 2001 through 2008, to cost of revenues in
the fourth quarter of fiscal 2009. We subsequently recorded a charge of approximately $4.1 million and
$3.0 million in fiscal 2010 and fiscal 2011, respectively. In December 2012, we reached an agreement with
HMRC to settle the matter in its entirety for approximately $36.8 million. Based upon the settlement amount, we
determined that $14.5 million of the reserved amount represented an over-accrual and as such was reversed to
cost of revenues. As part of the settlement amount, the settlement agreement provided for an amount of interest
to be paid which resulted in a $7.1 million increase to interest expense. The net benefit associated with the
settlement was an increase of $7.4 million to income before income taxes. The reserve for this matter at the end
of the fourth quarter of fiscal 2012 equaled approximately $7.3 million in the aggregate based on the exchange
rates at the end of the fourth quarter of fiscal 2012. In January 2013, $6.8 million was paid to HMRC,
representing the balance due over the approximately $30.0 million paid to HMRC in February 2012, and the
balance of the reserve was used to pay associated costs. See “Item 3. Legal Proceedings—UK Self-Employment
Matter” in Part I of this Annual Report on Form 10-K for further details on this matter.
Restructuring Charges
In fiscal 2009, we recorded $5.5 million of restructuring charges associated with our cost savings initiatives
previously announced in the first quarter of fiscal 2009.
Consolidation/China Joint Venture
In February 2008, Weight Watchers Asia Holdings Ltd., or Weight Watchers Asia, a direct, wholly-owned
subsidiary of the Company, and Danone Dairy Asia, an indirect, wholly-owned subsidiary of Groupe DANONE
S.A., entered into a joint venture agreement to establish a weight management business in the People’s Republic
of China. Pursuant to the terms of the joint venture agreement, Weight Watchers Asia and Danone Dairy Asia
owned 51% and 49%, respectively, of the joint venture entity. Because we had a direct, controlling financial
interest in the China Joint Venture, we consolidated the entity from the first quarter of fiscal 2008.
In April 2011, Weight Watchers Asia entered into a share purchase agreement with Danone Dairy Asia,
pursuant to which Weight Watchers Asia acquired Danone Dairy Asia’s 49% minority equity interest in the
China Joint Venture as of that date for consideration of $1,000. Effective April 27, 2011, the date of the
acquisition of Danone Dairy Asia’s minority equity interest by Weight Watchers Asia, we own 100% of the
China Joint Venture and no longer account for a non-controlling interest in the China Joint Venture. The
noncontrolling interest that had been reflected on our balance sheet was reclassified to retained earnings.
Long-Term Debt
On June 26, 2009, we amended the WWI Credit Facility (defined hereafter) to allow us to make loan
modification offers to all lenders of any tranche of term loans or revolving loans to extend the maturity date of
such loans and/or reduce or eliminate the scheduled amortization. Any such loan modifications would be
effective only with respect to such tranche of term loans or revolving loans and only with respect to those lenders
that accept our offer. Loan modification offers may be accompanied by increased pricing and/or fees payable to
accepting lenders. This amendment also provides for up to an additional $200.0 million of incremental term loan
financing through the creation of a new tranche of term loans, provided that the aggregate principal amount of
such new term loans cannot exceed the amount then outstanding under our existing revolving credit facility. In
addition, the proceeds from such new tranche of term loans must be used solely to repay certain outstanding
revolving loans and to reduce the commitments of certain revolving lenders. In connection with this amendment,
we incurred fees of approximately $4.1 million during fiscal 2009.
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