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My approach to UTX - OTIS - CARR RTN - RTX

q_lurkerq_lurker SuperUser ✭✭✭✭✭
So the new modus operandi on this site seems to be - start your own post rather than add on to an existing one on the same topic.  Fine.  I'll do so rather than add on to 

Real world -- in sequence
United Technologies (UTX) spun off Carrier (CARR) and Otis (OTIS), then merged as equals with Raytheon (RTN), then renamed the new combination Raytheon Technologies (RTX). This series seems to have confused a number of users, so I thought I might share my approach.  I doing so I further note that there are a lot of flexibility in Quicken and it need not be a one size fits all solution.  What I have done fits me.  YMMV.

I should note here that I was a current shareholder of Raytheon and a former shareholder of United Technologies at the time of this spinoff-merger sequence.
 
I'll further note that for this purpose, I am relying on the Form 8937 published by RTX applicable to the two spinoffs.   (ref: https://investors.rtx.com/shareowner-services/merger-related-resources)  In that document, RTX puts forth fair market values of RTX, CARR and OTIS as $49.93, $16.92, and $47.32 per share, respectively based on the closing values on 4/3/2020, immediately after the spinoffs took place.  You or your broker may choose different values and thus achieve slightly different ending values. 

One more note, I am using the Quicken Windows subscription version, current release.

Point 1:  UTX spins off two other companies - CARR and OTIS.  Quicken provides a macro-transction (aka wizard) for corporate spinoffs, but it addresses directly only one company being spunoff.  But it turns out, because of the fixes implemented to the spinoff action in recent years, with proper use the spinoff macro-transaction can be applied for multiple spinoffs.  That is what I would do and did in a test file.

I first spunoff OTIS from UTX.  The shareholder received 0.5 shares of OTIS with a FMV of 47.32/share for every share of UTX held.  The corresponding value of remaining part of UTX would have been 49.93 (UTX value) plus 16.92 (CARR value) or $66.85. Parameters for the first spinoff -- 
Enter Transactions Corporate Spinoff 
Transaction date = 4/3/2020
Security Name = United Technologies (however you had it named)
New Company  = Otis (however you choose to name it)
New Shares Issued = 0.5
Cost per Old Share = $66.85
Cost per New Share = $47.32

I then spun off CARR
Enter Transactions Corporate Spinoff
Transaction date = 4/3/2020
Security Name = United Technologies (however you had it named)
New Company  = Carrier (however you choose to name it)
New Shares Issued = 1.0
Cost per Old Share = $49.93
Cost per New Share = $16.92

The first series allocated 26.14% of the original UTX basis to the new OTIS holding with the balance of the basis staying with UTX.  The second series split the remaining basis between the CARR and UTX matching the basis allocation presented in the Form 8937 -- 55.17% to UTX, 18.69% to CARR, and 26.14% to OTIS.  Executing those two spinoffs consecutively on the same date did not create any issues in Quicken as far as I could tell.  The program properly managed the changes from the first spinoff when applying the second spinoff.  

Those two series create a sequence with respect to UTX of REMOVE SHARES, ADD SHARES, REMOVE SHARES, and ADD SHARES.  As the two intermediate are actually extraneous in the end, I chose to delete those sets.  The final set of transactions in my file were 
REMOVE SHARE of UTX
ADD SHARES of OTIS (one per lot of the original UTX holding)
ADD SHARES of CARRIER (one per lot of the original UTX holding)
ADD SHARES of UTX (one per lot of the original UTX holding)

Perhaps you or your broker chose different fair market values for determining the cost basis allocation.  You can certainly do as I did above with your established fair market values, or you can simply use the Form 8937 values and then edit each final ADD SHARES transaction to reflect the applicable cost basis for that lot of that company as determined by your broker.  That is one of the positive benefits to Quicken's new algorithm for spinoffs (an algorithm I strongly encouraged them to adopt).  

With two "Corporate Spinoff" macro-transactions you have now achieved the necessary spinoffs of Carrier and Otis.

Point 2:  Raytheon and United Technologies merge as equals.  As a former and not current shareholder of UTX, I chose a non-standard approach here.  I wanted to leave my 10-year old historical transactions with United Technologies in tact as they were originally recorded.  Therefore, I chose to Edit the security details for UTX by 
a) adding a note in the details about the merger into Raytheon Tech in April, 2020, and 
b) changing the ticker from "UTX" to "UTX(old)".  
In making that ticker change, I chose the options of copying the prices from UTX to UTX(old), and deleting the price history associated with UTX.  That way I preserved the price history, but if a future company chooses the UTX ticker some time down the line, my Quicken file will not get entangled by the duplication.  

With that approach taken, I then created a new security for Raytheon Technologies (RTX) and proceeded with a standard Corporate Acquisition whereby RTX acquired RTN using the 2.3348 share ratio.  As the original Raytheon was then a non-existing company, I retickered it in the same manner I had with UTX -- RTN became RTN(old).

The more normal approach would have been to have UTX acquire RTN (Corporate Acquisition) and then rename UTX to Raytheon Tech (Edit Security Details or Corporate Name Change), and then reticker that security to RTX.

Point 3:  By whatever approach you took, you may have fractional shares of RTX or OTIS at that point.  Those fractional shares should be sold for the cash-in-lieu amount you received instead of receiving the actual fractional shares.  

Further note:  If you downloaded transactions from your brokerage, those are likely to not have the correct cost basis information and may be lacking accuracy about individual lots.  I would delete any such transactions.

Be sure to create a backup of your data file before venturing into this perhaps new territory.

At the risk of being accused of spamming this site, I am going to post a link this this discussion in those posts cited above.  I will choose not to respond in those others posts, so if you want my thoughts, post your questions to me here.

Comments

  • tvickitvicki Member ✭✭
    I think there was a little while when the "search" did not work and then people kept starting their own post.

    I've printed your post and will read it more thoroughly over the weekend.
    Thank you!
  • mwblvmwblv Member
    Mr/Ms Lurker. I appreciate you sharing your approach and the Form 8937 link to derive basis. Thank you.
  • wdnklwdnkl Member ✭✭
    Is there any specific order to do these transactions? re: Corporate Securities Spin -of, Corporate name change (UTX to RTX) and Corporate Acquisition (stock for stock)?
  • tvickitvicki Member ✭✭
    @ q_lurker I like your approach and am glad to know that it works. I hadn't thought of how to do 2 spinoffs so I just did Removes and Adds...

    I had 700 shrs United Technologies Corp (UTX) with a Cost Basis of $3,325.00 and thus I received 700 shrs Carrier Global Corp (CARR) and 350 shrs Otis Worldwide Corp (OTIS). My 700 shrs UTX became 700 shrs Raytheon Technologies. I also reference Form 8937 and used the 4/3/2020 close prices of RTX, CARR, and OTIS as $49.93, $16.92, and $47.32 and the 55.17%, 18.69%, and 26.14%.

    Thus
    $3,325.00 X 55.17% = $1,834.40 for RTX Cost Basis
    $3,325.00 X 18.69% = $621.44 for CARR Cost Basis
    $3,32500 X 26.14% = $869.16 for OTIS Cost Basis

    I used Remove-Shares Removed for 700 shares UTX dated 4/3/2020
    and Add-Shares Added 4/3/2020 for 700 shares with $1,834.40 for Total Cost and the Price paid per share will fill itself in and for the date (required for calculating tax) I put in 1/29/1988 (i.e. date acquired). Memo (for both the remove and the add): Change Cost Basis Due To Spinoffs To Carrier Global Corp & Otis Worldwide Corp

    I did a Corporate Name Change to Raytheon Technologies and it had "Old Name" in the memo and I added United Technologies Corp. It showed in the transactions as a Reminder but it doesn't show it on the Security Report for some reason although Reminder is checked off as an Action. I did put "United Technologies Corp (name Change 4/3/20 to Raytheon Technologies Co)" in the memo of the first BUY. Then changed the ticker symbol from UTX to RTX. It asked me something about the price history and I accepted the default as I'm not really concerned with the price history as long as the Cost Basis is correct.

    Next I did an
    Add-Shares Added 4/3/2020 700 shares CARR
    Total Cost $621.44 and the Price paid per share will fill itself in and for the date (required for calculating tax) I put in 1/29/1988 (i.e. date acquired).
    Memo: 4/3/2020(or4/2) Spinoff From United Technologies Corp

    And then
    Add-Shares Added 4/3/2020 350 shared OTIS
    Total Cost $869.16 and the Price paid per share will fill itself in and for the date (required for calculating tax) I put in 1/29/1988 (i.e. date acquired).
    Memo: 4/3/2020(or4/2) Spinoff From United Technologies Corp.

    I think that completes it. Actually entered this in Quicken about a week ago.
  • q_lurkerq_lurker SuperUser ✭✭✭✭✭
    @wdnkl You can choose to enter the two spinoffs in either order, as long as you properly adjust the fair market values, accordingly.  The name change vs Corporate Acquisition should be interchangeable.  That is you could rename United Technologies to Raytheon Tech and then have it acquire Raytheon, or have United Tech acquire Raytheon and then rename to Raytheon tech.  While you may be able to do the spinnoffs after the rename/acquisition, in my mind the spinoffs should be done first.  

    @tvicki Sounds to me like you got everything covered.  Nothing wrong about manual entries.  The spinoff and corporate acquisition actions are more beneficial when there are multiple lots involved, as each lot should be treated individually for the Adds.  
  • wdnklwdnkl Member ✭✭
    Thx q_lurker. I did the two spin-offs first which worked fine. I did not do an "aquisition", but just did a name change United Tech to Raytheon Tech. and the symbol came up as Raytheon-UTX instead of RTX, so I changed the symbol to RTX. Did I do this right? I left out the acquisition of the "corp (RTN)" so I deleted the name change thinking I could go back and redo the UTX-RTN-RTX as you suggest but United Tech is no longer listed as a security bec I did the name change (oops!) and it didn't reverse to bring it back UTX . I do have a backup so I am thinking now to do a restore and redo as you suggest?
  • q_lurkerq_lurker SuperUser ✭✭✭✭✭
    @wdnkl I am a little lost on what you specifically did, so I'll be a little general in this comment.

    The name change function is really simple-minded.  a) you can edit the security details at any time for any security and edit (change) the name of that security any way you want.  This is retroactive to all prior transactions in all accounts.  or b) you can use the Enter Transactions (Corporate Name Change) function and Quicken will do exactly the same thing PLUS it will put a Reminder transaction in your active investment account about that name change.  Other than the Reminder, there is no difference.  In either case, the way to 'undo' the change is to repeat the process.  Deleting the Reminder transaction does not "delete the name change". 

    Changing the ticker is similarly done by editing the security details.  It is also independent of the name change. 

    So if you are taking the path of United Technologies (ticker = UTX) changing over to Raytheon Technologies (ticker = RTX), you have basically two steps to perform - the name change and the ticker change.   

    So yes, you can do a file restore and re-step your way through the process again (that's why we recommend making backups before trying new processes), but you should also be able to re-edit security names and tickers from where your file is now.  Do whichever you are more comfortable with and better understand.
  • wdnklwdnkl Member ✭✭
    I did do a file restore so here I am back at square 1. I followed your Step #1 instructions above for the Corporate spin-offs (1. Otis from United Tech 2. CARR from United Tech) on 4/3.... so all is good so far.

    What I want to know is what to do next? You mentioned in an earlier paragraph: "The more "normal" approach "would" have been to have UTX acquire RTN (Corporate Acquisition) and then rename UTX to Raytheon Tech (Edit Security Details or Corporate Name Change), and then reticker that security to RTX". Do you mean to do both the Aquisition (stock for stock) and name change like in your quote?.... or do I only a name do change at that point? I don't own Raytheon prior to this spin-off like yourself, but only UTX stock.
  • q_lurkerq_lurker SuperUser ✭✭✭✭✭
    "The more "normal" approach "would" have been to have UTX acquire RTN (Corporate Acquisition) 

    If you don't (didn't) own RTN coming in to this event, that step would not apply to you.  If you tried it in Quicken, Quicken would find no RTN shares and nothing would be acquired (removed and added)

    So next:

    rename UTX to Raytheon Tech (Edit Security Details or Corporate Name Change), and then reticker that security to RTX". Do you mean to do both the Aquisition (stock for stock) and name change like in your quote?

    Only the name and ticker change would apply to you.

  • wdnklwdnkl Member ✭✭
    Got it! So after doing the "Corporate Spin-offs" for OTIS & CARR I just proceed to do the name change UTX to RTX. Thank you so much for your expert advice and patience!
This discussion has been closed.