Quicken Financial Wizards: How to Handle Spinoffs

[Freehold Fred]

Financial Wizards, Help:

How are spinoffs and cost basis handled in Quicken?

Cendant (CD) spun-off tax free Wyndham (WYN) 1 share for every five of CD.
Also, spun-off tax free is H (Realogy) 1 share for every four of CD.

Per Quicken instructions: I recorded a corporate spin-off under Record Transaction.


How do I determine the number of shares remaining of CD? I know the price of CD dropped from about 14.83 pre to 2.43 post. Eventually CD will do a reverse split, but what % of my original shares are still CD now?

Quicken recorded the portion of spin-off as return of capital as of the date of purchase???

Quicken shows a full loss for CD and gains for WYN and H???

I am trying to follow the transaction on the Yahoo boards, but there is too much static for me to understand

Fred Kagel, Dir.
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[Terry Hanushek]

Fred

Disclaimer: I have not been following Cendant and do not know any specific details of this spin off transaction.

How do I determine the number of shares remaining of CD? I know the price of CD dropped from about 14.83 pre to 2.43 post. Eventually CD will do a reverse split, but what % of my original shares are still CD now?

It has been my experience that when a company spins off some of its assets as a new company and distributes the stock of the new company to its existing holders that the holding (number of shares) in the original company does not change. In this example, if you held 100 shares of Cendant before the spin-off, you would end up with 100 shares of Cendant, 20 shares of Wyndham and 25 shares of Realogy.

If your shares in Cendant changed because of this transaction (which I doubt) you would have received notification from their transfer agent with instructions on how to exchange your 100 old shares for xx new shares. Further evidence that you still have 100 shares is the anticipation that there will be a reverse split in the future which will effectively reduce the number of shares and increase the value of an individual share (but not change the value of your Cendant holdings).

The market will (and has) set values for each company's stock. The value of Cendant has fallen because there are fewer underlying assets.

Quicken recorded the portion of spin-off as return of capital as of the date of purchase???

Quicken shows a full loss for CD and gains for WYN and H???

Since the transaction has been identified as tax-free, there really should be no return of capital from Cendant. The major thing that shareholders must to do is establish their cost basis (the total cost for acquiring their stock) for the three new stock holdings. The combined cost basis for the three holdings should (must) be the same as the previous cost basis for Cendant. There should be some percentages established for the asset spin-offs - x% of the Cendant assets becomes Wyndham and y% of the Cendant assets becomes Realogy.

Hypothetical example: You own stock in Company A which you purchased for $5000. If 30% of this company's assets are spun off to Company B and 20% of the company's assets are spun off to Company C.

Company B cost basis is $5000 x .30 = $1500

Company C cost basis is $5000 x .20 = $1000

Company A cost basis is $5000 - $1500 - $1000 = $2500

Two things that I observed with the Quicken Corporate Securities Spin Off transaction

(1) There is a place to enter the spin off ratio (new shares for each old share) but no place to enter a reduction in old shares. This supports my observation that the number of shares in the old company is unchanged.

(2) You are asked for the cost of an old share and the cost of a new share. It appears that Quicken uses the cost of old and new shares to reapportion the cost of the original stock between the two new stocks. In effect, it allows the market to establish the split percentage between the old and new stock holdings.

The Cendant deal will require two separate Quicken Corporate Security Spin Off transactions. Since these two transactions do not appear to be independent and Quicken contemplates a single new stock, it may have difficulty calculating the cost basis.



Further disclaimer: I am not a financial adviser but I did stay at a Holiday Inn Express last night.


HTH

Terry

[Freehold Fred]

Terry,

Your :) disclaimers :) nothwithstanding, your reply was more than I expected from a computer forum and greatly appreciated it. I now understand that the original company's shares remain the same, but the assets are decreased. That make sense. Yes, you are correct about:

(1) There is a place to enter the spin off ratio (new shares for each old share) but no place to enter a reduction in old shares. This supports my observation that the number of shares in the old company is unchanged.

I guess I still have to go over exactly what Quicken did to the original purchase as it adjusted its cost basis. I am still not quite clear how the cost basis of the original purchase is adjusted; it seems that Quicken completely ignored any price adjustment and took the original price and the current price (after the spin off) to determine at least an unrealized (loss) in this case.

BINGO! I think you hit the nail on the head. For my first transaction, Quicken indicated a Return of Capital as of original purchase date and then used the same exact amount to purchase the new shares. However, to make matters even more complicated, because I had purchase my original shares on two different occassions, it could not come up with an accurate price on new shares!!! It also used the original purchase date for the 'date of record' of my new purchase and not the date of the spin off.

The Cendant deal will require two separate Quicken Corporate Security Spin Off transactions. Since these two transactions do not appear to be independent and Quicken contemplates a single new stock, it may have difficulty calculating the cost basis.

Fred


Further disclaimer: I am not a financial adviser but I did stay at a Holiday Inn Express last night.


HTH

Terry

[Freehold Fred]

Cendant provided a worksheet to determine cost basis by providing prices on the day of the spin-off and the percentages allocated for spin-offs. So, Terry, you were absolutely correct.

But I had to manually enter these transactions into Quicken. Basically, a non-taxable spinoff enters a Return of Capital on the old shares for the portion being allocated for the new shares on the original date of purchase.

A taxable spinoff enters the same info on date of the spin-off.

Bottom line: Quicken could not handle these multiple spin-offs or else I was not entering the info properly. I even tried to fool Quicken by entering a single spin-off and then manually adjusting it for two lots.

Since this was in my IRA, taxes are a non-issue, but I still wanted to know my cost basis.

Damn, I still can't retire!

[Terry Hanushek]

Fred

I'm glad that my observations were helpful

Bottom line: Quicken could not handle these multiple spin-offs or else I was not entering the info properly. I even tried to fool Quicken by entering a single spin-off and then manually adjusting it for two lots.
I'm not surprised that Quicken had difficulty. The Cendant transaction is quite complicated and very unusual. If Quicken (or any other individual financial software) were capable of handling complex transactions of this nature, it would probably be the size of WinXP with all of the attendant security and reliability concerns. :) Over the years I have had several contracts to modify transfer agent software for similar deals. Usually the modification required in one-time custom code.

I use Quicken to track the mutual funds assets in my company profit sharing plan and find it performs very well. But then, I have never encouintered transactions like this.

Damn, I still can't retire!
From responses at 1:52 AM and 5:58 AM, it doesn't look like you can go to bed either. :D

Terry

[mommalina]

Terry wrote, referring to Fred: From responses at 1:52 AM and 5:58 AM, it doesn't look like you can go to bed either
That's what happens, Terry, if you join us during our Wednesday night Paltalk session and have your wife say hello...... either we or she got Fred too worked up to sleep. :)

Is that why you don't join us in the chatroom, Terry? We promise to go easy on you.

Lina

[Freehold Fred]

:yawn: It's the damn NUMB3RS that kept me up last night. :sleep:



That's what happens, Terry, if you join us during our Wednesday night Paltalk session and have your wife say hello...... either we or she got Fred too worked up to sleep. :)

Is that why you don't join us in the chatroom, Terry? We promise to go easy on you.

Lina