UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 16, 2007 (MAY 1, 2007)
SOLUTIA INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
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(STATE OF INCORPORATION)
001-13255 43-1781797
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(COMMISSION (IRS EMPLOYER
FILE NUMBER) IDENTIFICATION NO.)
575 MARYVILLE CENTRE DRIVE, P.O. BOX 66760, ST. LOUIS, MISSOURI 63166-6760
--------------------------------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(314) 674-1000
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of
the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 7.01. REGULATION FD DISCLOSURE
On December 17, 2003, Solutia, Inc. ("Solutia") and its fourteen U.S.
subsidiaries (collectively, the "Debtors") filed voluntary petitions for
relief under Chapter 11 of title 11 of the United States Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the Southern District of New
York (the "Bankruptcy Court"). The Debtors' chapter 11 cases were consolidated
for the purpose of joint administration and were assigned the lead case number
03-17949 (PCB).
On July 7, 2007, the Debtors filed with the Bankruptcy Court: (a) the
Debtors' Second Amended Joint Plan of Reorganization pursuant to Chapter 11 of
the Bankruptcy Code (the "Plan") and (b) the Debtors' Second Amended
Disclosure Statement pursuant to Section 1125 of the Bankruptcy Code ( the
"Disclosure Statement"). Copies of the Plan and Disclosure Statement, as filed
with the Bankruptcy Court, are furnished as Exhibits 99.1 and 99.2 hereto,
respectively.
Bankruptcy law does not permit solicitation of acceptances of the
Plan until the Bankruptcy Court approves the Disclosure Statement.
Accordingly, this announcement is not intended to be, nor should it be
construed as, a solicitation for a vote on the Plan. The Plan will become
effective only if it receives the requisite stakeholder approval and is
confirmed by the Bankruptcy Court.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro Forma Financial Information
The following pro forma financial information is
filed in this report pursuant to Instruction (2) to
Item 9.01(b)(2):
Pro Forma Condensed Combined Statement of Financial
Position as of March 31, 2007
Pro Forma Condensed Combined Statement of
Operations For the Year Ended December 31, 2006
Pro Forma Condensed Combined Statement of
Operations For the Three Months Ended March 31,
2007
(d) Exhibits
Exhibit Number Description
- -------------- -----------
99.1 Debtors' Second Amended Joint Plan or
Reorganization Pursuant to Chapter 11 of the
Bankruptcy Code, including Retiree Settlement
Agreement filed as Exhibit B to the Plan
99.2 Debtors' Second Amended Disclosure Statement
Pursuant to Section 1125 of the Bankruptcy Code
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
SOLUTIA INC.
-----------------------------------------
(Registrant)
/s/ Rosemary L. Klein
---------------------------
Senior Vice President, General Counsel
and Secretary
DATE: July 16, 2007
SOLUTIA INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(DOLLARS IN MILLIONS)
On May 1, 2007, Solutia Inc. ("Solutia") purchased Akzo Nobel's stake in
Flexsys Holding BV ("Flexsys"), a 50/50 rubber chemicals joint venture between
Akzo Nobel and Solutia (the "Flexsys Acquisition") for $213, subject to debt
assumption and various purchase price adjustments. Contemporaneous with the
closing of the Flexsys Acquisition, Flexsys purchased Akzo Nobel's Crystex
manufacturing operations ("Crystex Purchase") in Japan for $25 and refinanced
its existing $200 term and revolving credit facility to $225. The Flexsys
Acquisition was financed by $150 of funding under the Solutia amended DIP
credit facility and additional funding through Flexsys. The acquisition price
after debt assumption and certain purchase price adjustments was $115. Akzo
Nobel and certain of its affiliates will continue providing services to
Flexsys at certain sites shared by Flexsys and Akzo Nobel pursuant to services
agreements entered into in connection with the Flexsys Acquisition.
The unaudited pro forma condensed combined financial information reflects the
combination of the historical condensed consolidated statement of financial
position and statement of operations for Solutia and Flexsys, adjusted for
certain effects of the Flexsys Acquisition, the related financings, and the
Crystex Purchase.
The unaudited pro forma condensed combined statement of financial position
gives effect to the transactions as if they had occurred on March 31, 2007.
The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 2006 and three months ended March 31, 2007 give effect
to the transactions as if they had occurred on January 1, 2006.
The unaudited pro forma adjustments are based upon currently available
information and certain assumptions that we believe to be reasonable under the
circumstances. The acquisition will be accounted for, and the pro forma
condensed combined financial information has been prepared, using the purchase
method of accounting. The pro forma adjustments reflect our preliminary
estimates of the purchase price allocation and are subject to revision as more
detailed analysis is completed and the fair value of Flexsys' assets and
liabilities is finalized.
These pro forma results should not be construed to be indicative of future
results that actually would have occurred had the transactions occurred at the
dates presented. In addition, we have not assumed any cost savings or
synergies that might occur related to these transactions.
PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION
AS OF MARCH 31, 2007
(DOLLARS IN MILLIONS)
(UNAUDITED)
TRANSACTIONS ADJUSTMENTS
HISTORICAL HISTORICAL CONTEMPORANEOUS FOR THE PRO FORMA
SOLUTIA {a} FLEXSYS {b} WITH THE ACQUISITION {c} ACQUISITION CONSOLIDATED
---------- ---------- -------------------- ----------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 168 $ 11 $ 98 {d} $(115) {i} $ 162
Trade receivables, net 337 111 - - 448
Miscellaneous receivables 100 35 - (2) {j} 133
Inventories 314 101 1 {e} 3 {k} 419
Restricted cash for acquisition 150 - (150) {f} - -
Prepaid expenses and other assets 42 6 6 {e} (1) {p} 53
----------- ---------- -------------------- ------------ -------------
TOTAL CURRENT ASSETS 1,111 264 (45) (115) 1,215
PROPERTY, PLANT AND EQUIPMENT, NET 801 240 18 {e} 14 {l} 1,073
INVESTMENTS IN AFFILIATES 198 - - (197) {m} 1
GOODWILL 89 94 3 {e} (92) {n} 94
IDENTIFIED INTANGIBLE ASSETS, NET 31 8 - 19 {o} 58
OTHER ASSETS 100 12 17 {e}{g} (11) {p}{q} 118
----------- ---------- -------------------- ------------ -------------
TOTAL ASSETS $ 2,330 $618 $ (7) $(382) $ 2,559
=========== ========== ==================== ============ =============
CURRENT LIABILITIES:
Accounts payable $243 $ 46 $ 2 {e} $ - $291
Accrued liabilities 216 62 - (2) {j} 276
Short-term debt 975 22 - - 997
Current maturities of long-term debt - 73 (73) {h} - -
----------- ---------- -------------------- ------------ -------------
TOTAL CURRENT LIABILITIES 1,434 203 (71) (2) 1,564
LONG-TERM DEBT 213 - 73 {h} - 308
OTHER LIABILITIES 289 29 (9) {e}{g} 6 {p} 315
LIABILITIES SUBJECT TO COMPROMISE 1,807 - - - 1,807
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock 1 391 - (391) {r} 1
Additional contributed capital 56 24 - (24) {r} 56
Treasury stock, at cost (251) - - - (251)
Net deficiency of assets at spinoff (113) - - - (113)
Accumulated other comprehensive
loss (65) (50) - 50 {r} (65)
Retained earnings (Accumulated deficit) (1,041) 21 - (21) {r} (1,041)
----------- ---------- -------------------- ------------ -------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (1,413) 386 - (386) (1,413)
----------- ---------- -------------------- ------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ 2,330 $618 $ (7) $(382) $ 2,559
=========== ========== ==================== ============ =============
See notes to unaudited pro forma condensed combined statement of financial position
<FN>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL
POSITION
(dollars in millions)
{a} - Represents the historical condensed consolidated statement of financial
position of the Company as of March 31, 2007 included in the Company's Form
10-Q filed on May 7, 2007.
{b} - Represents the unaudited combined balance sheet of Flexsys as of March
31, 2007.
{c} - Contemporaneous with the Flexsys Acquisition, Flexsys refinanced its
existing term and revolving credit facility, completed the purchase of the
Crystex manufacturing operations in Japan from Akzo Nobel ("Crystex
Purchase"), extinguished the liability and pre-funded the United Kingdom
Defined Benefit Pension Plan. Furthermore, the Company increased its DIP
credit facility agreement to facilitate the Flexsys Acquisition. The pro forma
adjustments give effect to these transactions as if they were consummated on
March 31, 2007.
{d} - Represents net cash provided from the financing transactions, as reduced
by the use of cash to fund the Crystex Purchase and United Kingdom Defined
Benefit Pension Plan, and to extinguish certain Flexsys debt.
Amounts paid:
Extinguishment of existing Flexsys term and revolving credit
facility $73
Crystex Purchase 25
Extinguishment of United Kingdom Defined Benefit Pension Plan
Liability (see Note {g}) 11
Pre-fund payment of United Kingdom Defined Benefit Pension
Plan (see Note {g}) 16
----
Total amounts paid $125
----
Sources of Cash:
Solutia DIP credit facility (see Note {f}) $150
Flexsys term loan and revolving credit facility refinancing 73
----
Total sources of cash $223
----
Net cash provided $98
====
{e} - Reflects the Crystex Purchase, recorded at estimated fair values
in accordance with purchase accounting and the resulting goodwill,
detailed as follows:
Purchase price $25
Assets purchased:
Inventories $1
Prepaid expenses and other assets 6
Property, plant and equipment 18
Other assets 1
----
26
Liabilities assumed:
Accounts payable 2
Other liabilities 2
----
4
----
Fair value of net assets acquired $22
----
Goodwill acquired $3
====
{f} - Solutia amended its DIP credit facility in January 2007 to facilitate
the Flexsys Acquisition, which among other things, increased the size of the
DIP credit facility. The DIP amendment restricted $150 of the increased
facility for the Flexsys Acquisition and, therefore, at March 31, 2007, the
$150 was classified as restricted cash. To facilitate the Flexsys Acquisition,
Solutia released the restricted cash.
{g} - As required by the purchase agreement, Solutia funded $27 to the United
Kingdom Defined Benefit Pension Plan. Flexsys' liability for the pension plan
was $11 at March 31, 2007. Therefore, $11 represents an extinguishment of the
liability and $16 represents a pre-funding payment of the United Kingdom
Defined Benefit Pension Plan.
{h} - Represents the Flexsys term and revolving credit facility refinancing as
is further discussed in notes {c} and {d}.
{i} - Represents the cash purchase price paid to Akzo Nobel.
{j} - Represents the elimination of intercompany receivables/payables.
{k} - Represents an increase to reflect a fair value step-up in basis in
accordance with purchase accounting requirements.
{l} - Represents an increase of $59 to reflect a fair value step-up in basis
in accordance with purchase accounting requirements, partially offset by a
decrease of approximately $45 associated with the allocation of negative
goodwill. The net decrease in property, plant and equipment, net and the
respective economic useful lives is as follows:
Net Fair Value
Adjustment Useful Life
-------------- -----------
Land $1 N/A
Land improvements - 21
Buildings and building improvements 2 21
Manufacturing equipment 9 8
Other equipment - 2
Construction in process 2 N/A
-----
Total $14
=====
{m} - Represents the elimination of Solutia's equity investment in Flexsys at
March 31, 2007.
{n} - Represents the write-off of goodwill recorded on Flexsys' balance sheet
of $97 after the Crystex Purchase, partially offset by the reclassification of
goodwill recorded on Solutia's statement of position of $5 related to the
formation of the Flexsys joint venture and previously recorded in Investments
in Affiliates.
{o} - Represents an increase of approximately $27 to reflect a fair value
step-up in basis in accordance with purchase accounting requirements,
partially offset by a decrease of $8 associated with the allocation of
negative goodwill. The net increase in Identifiable Intangible Assets and
respective estimated useful lives is as follows:
Net Fair Value
Adjustment Useful Life
-------------- -----------
Technology $22 25
Trademarks & tradenames 3 25
Patents 2 10
-----
Total $27
=====
{p} - Represents the deferred tax effect related to the purchase accounting
and negative goodwill adjustments further discussed in notes {k}, {l} and {o}.
{q} - Of the other assets amount, $6 represents deferred charges related to
the Flexsys acquisition which were included in the purchase price allocation.
{r} - Represents the elimination of Flexsys' historical equity balances.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2006
(DOLLARS IN MILLIONS)
(UNAUDITED)
ADJUSTMENTS
HISTORICAL HISTORICAL FOR THE PRO FORMA
SOLUTIA {a} FLEXSYS {b} ACQUISITION CONSOLIDATED
-------------- -------------- ---------------- -----------------
NET SALES $ 2,905 $ 606 $ - $ 3,511
Cost of goods sold 2,524 456 (9) {c} 2,971
-------------- -------------- ---------------- -----------------
GROSS PROFIT 381 150 9 540
Total marketing, administrative and technological
expenses 278 58 (1) {c} 335
Amortization of intangible assets 1 - 1 {d} 2
-------------- -------------- ---------------- -----------------
OPERATING INCOME 102 92 9 203
Equity earnings from affiliates 38 - (37) {e} 1
Interest expense (104) (3) (13) {f} (120)
Other income (loss), net 14 (3) - 11
Loss on debt modification (8) - - (8)
Reorganization items, net (71) - - (71)
-------------- -------------- ---------------- -----------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAX EXPENSE (29) 86 (41) 16
Income tax expense 18 20 5 {g} 43
-------------- -------------- ---------------- -----------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (47) 66 (46) (27)
============== ============== ================ =================
LOSS PER BASIC AND DILUTED SHARE ($0.45) ($0.26)
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 104.5 104.5
See notes to the unaudited pro forma condensed combined statement of operations
<FN>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(Dollars in millions)
{a} - Represents the historical consolidated statement of operations of the
Company for the year ended December 31, 2006 included in the Company's 2006
Form 10-K filed on March 6, 2007.
{b} - Represents the historical combined statement of operations of Flexsys
for the year ended December 31, 2006, derived from audited combined financial
statements filed with Solutia's 2006 Form 10-K/A filed on March 28, 2007 as
Exhibit 99.2 Combined Financial Statements of Flexsys Group
{c} - To reduce depreciation expense to reflect lower asset values and updated
estimated useful lives. The reduction of the depreciation expense on
depreciable assets is calculated as follows:
Depreciation Depreciation Depreciation
Fair Value Useful Life Post-Acquisition Pre-Acquisition Adjustment
----------- ------------- ------------------ ----------------- --------------
Land $14 N/A
Land improvements 2 21 - - -
Buildings and building improvements 35 21 2 2 -
Manufacturing equipment 177 8 22 32 (10)
Other equipment 3 2 2 2 -
Construction in process 41 N/A
----------- ---------------- ----------------- -------------
Total $272 $26 $36 ($10)
=========== ================ ================= =============
<FN>
Reduction in depreciation is allocated between cost of goods sold and
marketing, administrative, and technological expenses based on Flexsys'
historical classification.
{d} - To record amortization expense on identified intangible asset values as
a result of the acquisition and is calculated as follows:
Amortization
Fair Value Useful Life Post-Acquisition
------------- -------------- ----------------
Technology $22 25 $1
Trademarks & tradenames 3 25 -
Patents 2 10 -
------------- ----------------
Total $27 $1
============= ================
<FN>
{e} - Represents adjustment to eliminate equity income recognized by Solutia
related to Flexsys during 2006.
{f} - The table below sets forth adjustments to interest expense resulting
from the extinguishment of debt and issuance of new debt:
Interest expense on pro forma borrowings:
Flexsys term loan and revolver (1) $3
Solutia amendment of DIP credit facility (2) 13
----------------
Total interest expense on pro forma borrowings 16
Less: historical Flexsys interest expense (3)
----------------
Total adjustment to interest expense $13
================
<FN>
(1) Represents interest expense on the $73 refinancing of Flexsys' debt. The
debt has a variable interest rate and was calculated using an average interest
rate of 4.88%.
(2) Represents interest expense on the $150 increase in the DIP credit
facility to facilitate the Flexsys Acquisition. The debt has a variable
interest rate and was calculated using an average interest rate of 8.77%.
{g} - Represents the adjustment to income tax resulting from the pro forma
adjustments in notes {c} - {f}. The adjustment is calculated as follows:
Adjustments on Flexsys pro forma transactions
Depreciation expense 10
Amortization of intangible assets (1)
Interest on term loan and revolver (3)
Historical interest expense 3
-----------------
9
Flexsys statutory tax rate 35%
-----------------
Adjustment to income tax from Flexsys pro forma adjustments 3
Adjustment on Solutia pro forma transactions (1)
Equity loss from Flexsys joint venture (2) 7
Solutia UK Ltd. statutory tax rate 30%
-----------------
Adjustment to income tax from Solutia pro forma adjustments 2
-----------------
Total adjustment to income tax from pro forma adjustments 5
=================
<FN>
(1) At December 31, 2006, the Company had substantial federal and state net
operating losses available to offset taxable income. Because the U.S. legal
entities owned by the Company are operating under Chapter 11 of the US
Bankruptcy Code, a valuation allowance has been recorded to reduce the
deferred tax asset to zero. Since the pro forma adjustments that relate to
Solutia affect these legal entities' operations, the tax effect of these
adjustments is zero.
(2) Solutia's United Kingdom legal entity recorded a $7 equity loss from
affiliate during 2006 ($37 equity earnings from affiliate on a consolidated
basis). Solutia UK Ltd. is not operating under Chapter 11, therefore, the
reversal of the loss is tax effected using the applicable statutory tax rate
for 2006.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2007
(DOLLARS IN MILLIONS)
(UNAUDITED)
ADJUSTMENTS
HISTORICAL HISTORICAL FOR THE PRO FORMA
SOLUTIA {a} FLEXSYS {b} ACQUISITION CONSOLIDATED
-------------- -------------- ---------------- -----------------
NET SALES $ 727 $ 158 $ - $ 885
Cost of goods sold 621 121 (2) {c} 740
-------------- ------------- --------------- -----------------
GROSS PROFIT 106 37 2 145
Total marketing, adminstrative, and technological
expenses 67 12 - 79
-------------- ------------- --------------- -----------------
OPERATING INCOME 39 25 2 66
Equity earnings from affiliates 9 - (9) {d} -
Interest expense (29) (1) (3) {e} (33)
Other income (loss), net 3 (1) - 2
Loss on debt modification (7) - - (7)
Reorganization items, net (16) - - (16)
-------------- ------------- --------------- -----------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (1) 23 (10) 12
BEFORE INCOME TAX EXPENSE
Income tax expense 7 4 1 {f} 12
-------------- ------------- --------------- -----------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (8) 19 (11) -
============== ============= =============== =================
EARNINGS (LOSS) PER BASIC AND DILUTED SHARE ($0.08) $0.00
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 104.5 104.5
See notes to the unaudited pro forma condensed combined statement of operations
<FN>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(Dollars in millions)
{a} - Represents the historical condensed consolidated statement of financial
position of the Company as of March 31, 2007 included in the Company's Form
10-Q filed on May 7, 2007.
{b} - Represents the unaudited combined balance sheet of Flexsys as of March
31, 2007.
{c} - To reduce depreciation expense to reflect lower asset values and updated
estimated useful lives. The reduction of the depreciation expense on
depreciable assets is calculated as follows:
Depreciation Depreciation Depreciation
Fair Value Useful Life Post-Acquisition Pre-Acquisition Adjustment
-------------- ------------- ------------------ ----------------- ----------------
Land $14 N/A
Land improvements 2 21 - - -
Buildings and building improvements 35 21 - - -
Manufacturing equipment 177 8 6 8 (2)
Other equipment 3 2 1 1 -
Construction in process 41 N/A
-------------- --------------- ----------------- ----------------
Total $272 $7 $9 ($2)
============== =============== ================= ================
<FN>
{d} - Represents adjustment to eliminate equity income recognized by Solutia
related to Flexsys during the three months ended March 31, 2007.
{e} - The table below sets forth adjustments to interest expense resulting
from the extinguishment of debt and issuance of new debt:
Interest expense on pro forma borrowings:
Flexsys term loan and revolver (1) $1
Solutia amendment of DIP credit facility (2) 3
-----------------
Total interest expense on pro forma borrowings 4
Less: historical Flexsys interest expense (1)
-----------------
Total adjustment to interest expense $3
=================
<FN>
(1) Represents interest expense on the $73 refinancing of Flexsys' debt. The
debt has a variable interest rate and was calculated using an average interest
rate of 5.48% for the three months ended March 31, 2007.
(2) Represents interest expense on the $150 increase in the DIP credit
facility to facilitate the Flexsys Acquisition. The debt has a variable
interest rate and was calculated using an average interest rate of 8.56% for
the three months ended March 31, 2007.
{f} - Represents the adjustment to income tax resulting from the pro forma
adjustments in notes {c} - {e}. The adjustment is calculated as follows:
Adjustments on Flexsys pro forma transactions
Depreciation expense 2
Interest on term loan and revolver 1
Historical interest expense (1)
-----------------
2
Flexsys statutory tax rate 35%
-----------------
Adjustment to income tax from Flexsys pro forma adjustments 1
Adjustment on Solutia pro forma transactions (1) -
-----------------
Total adjustment to income tax from pro forma adjustments 1
=================
<FN>
(1) At March 31, 2007, the Company had substantial federal and state net
operating losses available to offset taxable income. Because the U.S. legal
entities owned by the Company are operating under Chapter 11 of the US
Bankruptcy Code, a valuation allowance has been recorded to reduce the
deferred tax asset to zero. Since the pro forma adjustments that relate to
Solutia affect these legal entities' operations, the tax effect of these
adjustments is zero.