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Commitments And Contingencies
9 Months Ended
May. 31, 2015
Commitments And Contingencies [Abstract]  
Commitments And Contingencies

Note 11.  Commitments and Contingencies

 

Purchase Commitments 

 

The Company has ongoing relationships with various suppliers (contract manufacturers) who manufacture the Company’s products.  The contract manufacturers maintain title and control of certain raw materials and components, materials utilized in finished products, and of the finished products themselves until shipment to the Company’s customers or third-party distribution centers in accordance with agreed upon shipment terms.  Although the Company typically does not have definitive minimum purchase obligations included in the contract terms with its contract manufacturers, when such obligations have been included, they have been immaterial. In the ordinary course of business, supply needs are communicated by the Company to its contract manufacturers based on orders and short-term projections, ranging from two to five months. The Company is committed to purchase the products produced by the contract manufacturers based on the projections provided.

 

Upon the termination of contracts with contract manufacturers, the Company obtains certain inventory control rights and is obligated to work with the contract manufacturer to sell through all product held by or manufactured by the contract manufacturer on behalf of the Company during the termination notification period. If any inventory remains at the contract manufacturer at the termination date, the Company is obligated to purchase such inventory which may include raw materials, components and finished goods.  Prior to the fourth quarter of fiscal year 2012, amounts for inventory purchased under termination commitments have been immaterial. As a result of the unanticipated termination of the IQ Products Company contract manufacturing agreement in the fourth quarter of fiscal year 2012, the Company concluded that it was obligated to purchase $1.7 million of finished goods inventory.  As a result, this amount was included in inventory in the Company’s condensed consolidated balance sheet in prior periods beginning with the fourth quarter of fiscal year 2012.  According to the Interim Award of the Arbitration Panel in the Company’s dispute with IQ Products Company as described in the Litigation section below, the Company has no contractual obligation to purchase the finished goods inventory held by IQ Products Company.  Therefore, inventory and the corresponding accrued liability have been reduced by $1.7 million in the Company’s condensed consolidated balance sheet as of May 31, 2015. 

 

In addition to the commitments to purchase products from contract manufacturers described above, the Company may also enter into commitments with other manufacturers to purchase finished goods and components to support innovation initiatives and/or supply chain initiatives. As of May 31, 2015,  no such commitments were outstanding.

 

Litigation

 

The Company is party to various claims, legal actions and complaints, including product liability litigation, arising in the ordinary course of business.

 

On February 25, 2014, a suit was filed against the Company in a Superior Court of California (David Wolf v. WD-40 Company).  Mr. Wolf’s complaint sought class action status and alleged that the Company violated California Penal Code Section 632.7, which prohibits the interception or reception and intentional recording of a cordless or cell phone call without the consent of both parties to the communication.  As reported in the Company’s quarterly report on Form 10-Q filed on April 9, 2015, the plaintiff filed a request for dismissal with prejudice on April 6, 2015.  On April 27, 2015, the Superior Court dismissed the proceeding.

 

On May 31, 2012, a legal action was filed against the Company in a United States District Court, in Texas (IQ Products Company v. WD-40 Company). The complaint alleged that the Company wrongfully terminated a contract manufacturing relationship. IQ Products Company (“IQPC”) also raised alleged safety concerns regarding a long-standing manufacturing specification related to the Company’s products.

 

As reported in the Company’s quarterly report on Form 10-Q filed on April 9, 2015, the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) of the Department of Transportation addressed a letter to IQPC on November 13, 2014 to inform IQPC that it concluded an investigation and found no evidence of non-compliance with existing PHMSA regulations or an imminent public safety hazard posed by WD-40 Company products. Pursuant to a court order the dispute was submitted to arbitration. On May 15, 2015, the arbitrators issued their Interim Award and decision on the merits of the dispute.  The arbitrators rejected all of IQPC’s claims.

 

Indemnifications

 

As permitted under Delaware law, the Company has agreements whereby it indemnifies senior officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company maintains Director and Officer insurance coverage that mitigates the Company’s exposure with respect to such obligations. As a result of the Company’s insurance coverage, management believes that the estimated fair value of these indemnification agreements is minimal. Thus, no liabilities have been recorded for these agreements as of May 31, 2015.

 

From time to time, the Company enters into indemnification agreements with certain contractual parties in the ordinary course of business, including agreements with lenders, lessors, contract manufacturers, marketing distributors, customers and certain vendors. All such indemnification agreements are entered into in the context of the particular agreements and are provided in an attempt to properly allocate risk of loss in connection with the consummation of the underlying contractual arrangements. Although the maximum amount of future payments that the Company could be required to make under these indemnification agreements is unlimited, management believes that the Company maintains adequate levels of insurance coverage to protect the Company with respect to most potential claims arising from such agreements and that such agreements do not otherwise have value separate and apart from the liabilities incurred in the ordinary course of the Company’s business. Thus, no liabilities have been recorded with respect to such indemnification agreements as of May 31, 2015.