United Technologies (UTX) Spin Off and Merger?

Ted Gallagher

On 4/3/20 UTX spun off Carrier (1:1) and Otis (1 Otis per 2 UTX) and merged with Raytheon (1:1). Fractional shares of Carrier and Otis were sold.

How do I handle these transactions and properly account for cost basis in Quicken?

Thank you,

markus1957

Use a Remove shares for UTC.  Then use Add shares for the new securities issued. Each lot of UTC will need an Add shares for 3 new securities.  Assign the cost basis provided by your broker and use the purchase date for the original UTC lot.

Ted Gallagher

Sorry I should have mentioned; broker does not have cost basis. I have it in quicken.

Scott M

That does not sound like an attractive way to handle that transaction. Remove shares and add shares for three securities for every lot? If you reinvest dividends you can have a lot of lots. Is there a better way?

Burt

The way I did it was to add up the April 3rd closing prices of RTX $49.93 and CARR $16.92 and 1/2 of OTIS $47.32/2 = $20.73 and figure %'s of CARR & OTIS to total. Apply this % to original cost of UTX and then go to purchase date and set up return of capital for cost of each and add shares of Carr & Otis at that cost.. Sounds complicated and it is, but that how Quicken handles spinoffs.

markus1957

That's odd, I thought all brokers were required and track and report cost basis to the IRS on a 1099 for covered securities which both UTX and RTN were.  They may not have calculated it yet but they will.  You can estimate it by using closing prices and allocate but this one would be particularly complicated by the spin offs immediately prior to the merger.

I'll share % allocations based on cost basis provided by my FI.

RTN to RTX shares are easy Remove shares then Add shares with same cost basis. I assigned cash in lieu of fractional shares as Return of Capital to RTN dated the day before Remove Shares to keep Quicken happy (avoid negative cost basis in portfolio report)

UTX to RTX Remove/Add shares with UTX cost basis allocated 17.137% to Carrier, 25.694% to Otis and 57.169% to UTX/RTX.  Again fractional shares received for Otis were assigned to UTX as ROC dated the day before UTX Remove shares.

I'll keep monitoring FI for any changes to cost basis calculations.  There is a valid argument for how/where to assign fractional cash if you use closing prices to try to allocate cost basis; I chose my method to keep it simple in Quicken.  The sum of cost basis provided by my FI for the new entities represented 99.971% of the cost basis value I was carrying for UTX in Quicken so it's good for estimating purposes.  The 1099 values will ultimately be what the IRS sees.

Ted Gallagher

Regarding brokerage reporting of cost basis, I believe that requirement started in 2011. I have held UTX much longer than that.

Instead of Remove/Add shares, would Spin Off be better? https://www.quicken.com/support/recording-corporate-spin-new-securities

And I still have not seen anything definitive on what the cost basis for each is. I computed in a similar manner to you based on friday closing price but I came up with different percentages: 18.7% for Carrier, 25.9% for Otis and 55.4% for RTX. So I sent an email to RTX inventor relations asking how to compute the cost basis. They replied and said they will post it on their website in a few days. https://investors.rtx.com/ So we will see.

Cost basis is probably secondary at least for me since my brokerage won't report it but still would like to do this the best way in quicken. Add/Remove does not seem the correct way.

Thank you,

markus1957

Take a look at the in-product Help file and you can transition from what seems correct to how Quicken actually handles a spin-off.

Ted Gallagher

I ended up going with Corporate Securities Spin-offs using the percentages I came up with and then Corporate Name Change to get from UTX to RTN. Also had to separately change the ticker symbol. Everything seems to be right but I made sure to do a file backup before starting this.

Ted Gallagher

> @Ted Gallagher said:
> I ended up going with Corporate Securities Spin-offs using the percentages I came up with and then Corporate Name Change to get from UTX to RTN. Also had to separately change the ticker symbol. Everything seems to be right but I made sure to do a file backup before starting this.

RTX, not RTN.

tvicki

There is more about this in the question:
How to treat UTX and RTX shares

amoslatham

Here is how I handled the UTC spinoff of RTX, Carrier and Otis. First, go to the Raytheon/Investors website and get a copy of IRS Form 8937 in which there is a detailed example of how to apportion the basis of UTC to its survivors. The prices can be plugged into the Quicken spinoff routine. The problem is that Q only handles the spin off of a single company. I created a intermediary I called FAKE to which I spun off from UTC in a 1:1 ratio the combined FMV values of Carrier and Otis at a price got by dividing this FMV into the number of shares of FAKE ( which is the same as UTC because of the 1:1 ratio). Next, spin off Otis from FAKE in a 1:.5 ratio and using the prices in the 8937 for Carrier and Otis. Now change FAKE's name to Carrier and UTC's name to RTX. FAKE can now be hidden and it should be: dropping $23.66 per share in one day.

pvsk77

Thanks a lot amoslatham for the information on the IRS form 8937 in Raytheon website. It was well hidden! I spent a couple of hours today and have figured how to do this , it is an improvement to amoslatham's process above as it does not require creating a FAKE company. I also want to explain the logic behind what happened in the real world and how it translates into Quicken speak.

Essentially what happened was a double spinoff and a name change.
1. First OTIS+CARR was spunoff from UTX. UTX was renamed RTX.
2. Second OTIS was spunoff from the CARR+OTIS entity.

If you look at the form 8937 (go to line 16 in page 5), you can see that 55.17% of the value belongs to UTX(RTX) and 44.83% of the value belongs to the combined entity of CARR+ OTIS.

STEP1 IN QUICKEN Execute the first Spinoff

1. Security Name : United technologies
2. New Company Carrier Global Corp
3. New shares issued 1 per old share
4. Cost per Old share 55.17 (UTX/RTX retains 55.17% of the value)
5.Cost per New share 44.83 (The combined entity of CARR+OTIS retains 44.83% of value)

STEP 2: Rename United Technologies to Raytheon Technologies (RTX)

STEP 3: Execute second Spinoff

1. Security Name : Carrier Global Corp
2. New Company : OTIS Worldwide Corp
3. New shares issued 0.5 per old share
4. Cost per old share: 41.69
5. Cost per new share: 116.61

Let me explain the math behind the cost basis in the second spin off. If you look at the line 16 calculation in page 5 of the form, you see 18.69% of the TOTAL value goes to CARR and 26.14% of the TOTAL value goes to OTIS. However if you want to calculate the distribution between CARR and OTIS the percentage CARR gets is 18.69/(18.69+26.14) and what OTIS gets is 26.14/(18.69+26.14), which corresponds to 41.69% to CARR and 58.31% to OTIS. However as we are getting only 0.5 shares of OTIS we need to double 58.3 to 116.61 to get the right price.

Hope this helps. I spent a couple of hours to figure this out, you can save your time

I am also attaching the form directly here for quick referral

Mac

The nightmare comes as this investment is in a ROTH IRA and has been reinvesting dividends (zero basis) for over 5 years . This completely fused all remaining brain matter!?! ~ I think Scott M. has the only way possible under this circumstance (TY!)!

q_lurker

I've posted my thoughts on this event here:
https://community.quicken.com/discussion/7875091/my-approach-to-utx-otis-carr-rtn-rtx/p1?new=1

Dean2

Thanks to all for this - my situation was easy because I only owned Raytheon RTN, and now own only RTX. I made the necessary entries and all was good until last week. Now, when I download new transactions into the account, Quicken reports that I have xxx RTN shares online (i.e. at my brokerage) and no shares of RTN in Quicken. In addition xxx RTX shares in Quicken and no RTX shares online. I checked my brokerage statement and the name of this stock is listed as RTX, as it should be. Somehow the symbol is getting switched in the download process. Is this a Quicken issue or a brokerage issue?

dgoodrich

pvsk77's procedure is straight forward and easy to use. Thank you for working out the numbers to insert. The one point I would add is dealing with the cash received for fractional shares. Several contributors have suggested treating this as a return of capital. This is wrong. If you start with an odd number of UTX shares you will receive an even number of Otis shares plus $22.82. If you follow the procedure above you will get (e.g.) 151.5 shares of Otis. You should then enter a sell transaction for the 0.5 shares for proceeds of $22.82. Quicken will then allocate a portion of the Otis basis to the 0.5 share sold and leave the correct basis for the Otis shares received.

jane1

Thank you pvsk77. That saved me from going nuts.

Bur Davis

Thanks to all of you for the various approaches and info. I've been accounting for spin-offs in Quicken for years but (just lucky?) have never run into a multiple simultaneous spin-off situation. Echoing @jane1, your input has saved my sanity.

Do Quicken folks ever read these posts? (Is there a way to @-tag Quicken support or engineering the way we can tag fellow users?)

There's clearly an embedded feature request here, for Quicken to handle multiple simultaneous spin-offs.

tvicki

@ Bur Davis Check out q_lurker's post at
https://community.quicken.com/discussion/7875091/my-approach-to-utx-otis-carr-rtn-rtx/p1?new=1

If my link doesn't work (I tried to copy her link above to here) just go up 4 people above you and you will see her link.