Commitments and Contingencies

9 Months Ended

May 31, 2012

Commitments and Contingencies

10. Commitments and Contingencies

a. Legal Proceedings

The Company is party to certain lawsuits in the ordinary course of business. The Company does not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

The Company is involved in a commercial dispute with a former industrial and CleanTech customer regarding product warranty claims as well as the collection of a $10.1 million outstanding account receivable which has been submitted to binding arbitration. The Company has established a full valuation allowance for the outstanding account receivable. No reserve has been established regarding the product warranty dispute as a loss is not considered probable and no reasonably possible range of loss can be determined at the present time. The initial filings in the arbitration have been made and efforts are underway to establish a schedule for the arbitration proceedings. The Company believes that it has a strong position on the issues in dispute and that it will be able to resolve this matter without it having a material adverse effect on the Company’s Condensed Consolidated Financial Statements. There can be no assurance, however, that the Company will ultimately be successful in favorably resolving this dispute and if a sufficiently unfavorable outcome were to occur it could have a material adverse effect on the Company’s Condensed Consolidated Financial Statements.

b. Income Tax Examination

The Internal Revenue Service (“IRS”) completed its field examination of the Company’s tax returns for the fiscal years 2003 through 2005 and issued a Revenue Agent’s Report (“RAR”) on April 30, 2010 proposing adjustments primarily related to the IRS contentions that (1) certain corporate expenses relate to services provided to foreign affiliates and therefore must be charged to those affiliates, and (2) valuable intangible property was transferred to certain foreign affiliates without charge. If the IRS ultimately prevails in its positions, the Company’s income tax payment due for the fiscal years 2003 through 2005 would be approximately an additional $69.3 million before utilization of any tax attributes arising in periods subsequent to fiscal year 2005. Also, the IRS has proposed interest and penalties on the Company with respect to fiscal years 2003 through 2005.

The IRS also completed its field examination for fiscal years 2006 through 2008 and issued a RAR on April 25, 2012. The proposed adjustments primarily related to the carryforward impact of the adjustments proposed by the IRS for fiscal years 2003 through 2005 related to valuable intangible property transferred to certain foreign affiliates without charge in prior years. Due to the utilization of tax attributes, including net operating loss (“NOL”) carryforwards and NOL carrybacks, there is no proposed additional tax payment, interest, or penalties contained in the RAR with respect to fiscal years 2006 through 2008. In addition, the IRS will likely make similar claims in future audits with respect to these types of transactions (at this time, determination of the additional income tax due for these later years is not practicable). The Company also anticipates that the IRS may seek to impose interest and penalties in subsequent years with respect to the same types of issues.

The Company disagrees with the proposed adjustments and is vigorously contesting this matter through applicable IRS and judicial procedures, as appropriate. As the final resolution of the proposed adjustments remains uncertain, the Company continues to provide for the uncertain tax position based on the more likely than not standards. The Company believes that any additional tax liabilities will not have a material effect on the Company’s financial position, results of operations or cash flows. While the resolution of the issues may result in tax liabilities, interest and penalties, which are significantly higher than the amounts provided for this matter, management currently believes that the resolution will not have a material effect on the Company’s financial position or liquidity. Despite this belief, an unfavorable resolution, particularly if the IRS successfully asserts similar claims for later years, could have a material effect on the Company’s results of operations and financial condition (particularly during the quarter in which any adjustment is recorded or any tax is due or paid).