Summary
The Sherwin-Williams Company (SHW) filed an 8-K on June 28, 2019, disclosing a significant financial impact stemming from its investments in federal renewable energy tax credit funds with DC Solar Solutions, Inc. and its affiliates. Initially made between 2011 and 2017, these investments were designed to generate returns through federal income tax credits related to renewable energy equipment. The company became aware of issues in December 2018 when federal authorities began investigating DC Solar, leading to asset seizure and subsequent Chapter 11 bankruptcy filing by DC Solar in February 2019, later converted to Chapter 7 liquidation. Sherwin-Williams has now determined that it is "more likely than not" that the expected tax benefits from these investments are no longer realizable. Consequently, the company will recognize a non-cash charge of approximately $77 million in the second quarter of 2019. This charge will be entirely reflected as income tax expense, accounting for the full loss of the investment and related expected tax benefits. While material, the company had initially assessed that a loss was not reasonably possible in Q1 2019.
Key Highlights
- 1Sherwin-Williams to recognize a charge of approximately $77 million in Q2 2019.
- 2The charge is related to prior investments in federal renewable energy tax credit funds with DC Solar Solutions, Inc.
- 3The company expects to lose all tax benefits associated with these investments.
- 4The charge will be recorded entirely as income tax expense.
- 5DC Solar Solutions, Inc. has filed for Chapter 11 bankruptcy protection, converted to Chapter 7 liquidation.
- 6Federal authorities were investigating DC Solar for alleged fraudulent activities.
- 7The company's initial assessment in Q1 2019 did not indicate a material loss was reasonably possible.