Corporate (stock) spinoffs - adjusted cost basis

gwa000

Note: i'm taking over my dad's quicken duties due to age so i am new at using quicken.

have read all of the posts concerning the Pfizer stock spinoff to Viatris but am still a little confused on how to handle this.

i've used the website

https://costbasistools.com/spinoff/calculator.php

to calculate the adjusted cost basis for his Pfizer stock as well as the new cost basis for the Viatris stock. the calculation was done for his total shares recognizing the fact that i need to do it separately for each of the lots he bought.

i'm running version R32.10 and from what i understand there use to be a Corporate Securities Spinoff action that is no longer in the software.

one other thing that might make this easier is that he does NOT reinvest any Pfizer dividends, they are simply deposited in a money market account.

so my question is what is the correct action to adjust the cost basis for the Pfizer stock as well as add the cost basis for the Viatris stock.

is "Removed - Shares Removed from Account" and "Added - Shares Added to Account" the correct actions to use? i didn't think Sold(x) and Bought(x) were appropriate since he did not really sell or buy any stocks. plus, i thought that doing this would mess up any reports (not sure which ones, if any, since i am new at this) that could be generated.

i saw in one of the posts that someone suggested "RtrnCap - Return of Capital" (or maybe it was "RtrnCapX - Return of Capital & Transfer" but i have no idea if this is appropriate or what this action is really used for.

so... how should i adjust the cost basis for the Pfizer stock as well as add the Viatris stock.

thanks!!

Tom Young

"'that suggests a Pfizer cost north of $200 per share.'

does your calculation take into account that the spinoff ratio was .124079 and not one-to-one. if you multiply your back-of-the-envelope calculation of $200 x .124079 you get $24.82 which is close to my $26.33 / share."

My mental math completely failed me here because I forgot to factor in the spin off ratio.  I think your numbers look good in the overall.  Of course you understand that if you're entering the 300 shares as 3 different lots, because that's the real situation, each lot will have unique number of shares and "per share" cost numbers. 

q_lurker

gwa000 said:

...

BTW, how did you bold the word "misallocation" in your reply? i do not see any formatting tools.

WYSIWYG formatting capability becomes available as your status (participation) in the forum increases. 

Tom Young

"i'm running version R32.10 and from what i understand there use to be a Corporate Securities Spinoff action that is no longer in the software."

I'm a couple of updates behind and that "Corporate Securities Spin-off" is still there in my version.  In the Transaction List for the Account click the "Enter Transactions" button in the upper left hand corner and you'll find it.  I wouldn't use it though as I don't believe that a bug in that action - a misallocation of the Return of Capital entries based on number of shares instead of cost basis - has been fixed.  

If you do want to do the spin-off manually then a Remove action for Pfizer would eliminate all Pfizer lots.  Then for each old lot of Pfizer you'd do two Add actions, one for Pfizer at its reduced basis and one for Viatris.  The basis of the two "new" lots should match the basis of the old Pfizer lot and both lots would have the original date of acquisition.  The date for the Remove and Add actions would be the date of the spin-off.

gwa000

"The basis of the two "new" lots should match the basis of the old Pfizer lot and both lots would have the original date of acquisition.  The date for the Remove and Add actions would be the date of the spin-off."

tom, thanks for your reply.

was confused at first since you referred to "original date of acquisition" and "date of the spinoff" until i saw for the "Shares Added" transaction that there are two dates that can be filled in which correspond to the dates you mentioned.

as far as entering the data for the "new" shares of Pfizer and Viatris, i assume the method is slightly different then when you buy shares. it looks like when buying shares you enter the number of shares and price/share and Quicken calculates the cost.

however, i'm assuming i want to enter the number of shares and the adjusted cost basis and Quicken will calculate the price/share. for the Viatris data and using the cost basis calculator from the web site in my original post Quicken computes the price/share at $11.64.

however, from stock prices on yahoo finance i see that the opening price on 11/16/2020 (the data of the spinoff) is $15.64 so i'm confused about the difference in price/share. i would have thought it would be close.

and... to confuse me even more on yahoo finance they list stock prices for Viatris going back to 4/13/2020. i was under the impression that Pfizer spun off part of their business to form Viatris.

bottom line is that i assume that the sum of all of the cost basis' for all of the "new" Pfizer and Viatris lots added should equal the cost basis of the original Pfizer lots. and if that occurs then i have removed/added the lots correctly.

thanks!!

BTW, how did you bold the word "misallocation" in your reply? i do not see any formatting tools.

Tom Young

"as far as entering the data for the "new" shares of Pfizer and Viatris, i assume the method is slightly different then when you buy shares. it looks like when buying shares you enter the number of shares and price/share and Quicken calculates the cost."

Actually you can enter the price per share and Quicken will calculate the total cost, or you can enter the total cost and Quicken will calculate the price per share. 

"however, i'm assuming i want to enter the number of shares and the adjusted cost basis and Quicken will calculate the price/share."

Again, you can do it either way - cost per share or total cost.  (Although you may have to create the Add action through the Enter Transaction button to use total cost; I think it only works using cost per share if you enter directly in the transaction list. )

"for the Viatris data and using the cost basis calculator from the web site in my original post Quicken computes the price/share at $11.64.

however, from stock prices on yahoo finance i see that the opening price on 11/16/2020 (the data of the spinoff) is $15.64 so i'm confused about the difference in price/share. i would have thought it would be close."

No.  Remember you're entering cost information with these Add actions and that cost information might have originated many years ago.  But having said that, that cost per share of $11.64 does seem awfully high.  The Viatris shares were only allocated a little over 5% of the original Pfizer cost and that suggests a Pfizer cost north of $200 per share.  I think you have something wrong here.

"and... to confuse me even more on yahoo finance they list stock prices for Viatris going back to 4/13/2020. i was under the impression that Pfizer spun off part of their business to form Viatris."

The spin off occurred in November 2020.  I have no idea what Yahoo finance is doing.

"bottom line is that i assume that the sum of all of the cost basis' for all of the "new" Pfizer and Viatris lots added should equal the cost basis of the original Pfizer lots. and if that occurs then i have removed/added the lots correctly."

Two things have to be correct: 1) Total basis immediately after the spin off is the same as total basis immediately before the spin off and 2) the allocation of basis between Pfizer and Viatris is defensible.  Anything near 95%/5% is undoubtedly OK.

gwa000

"But having said that, that cost per share of $11.64 does seem awfully high. The Viatris shares were only allocated a little over 5% of the original Pfizer cost and that suggests a Pfizer cost north of $200 per share. I think you have something wrong here."

the amount my dad has invested in Pfizer was 300 shares for a cost of $8331.00. since he has never reinvested the dividends it is my understanding that his cost basis is $8331.00, not taking into account the ~$20 transaction fee per lot (3 lots).

for simplicity i am looking at this as all 3 lots combined, recognizing the fact that when i enter it into Quicken i have to add the "new" Pfizer and Viatris as 3 lots.

using the cost basis web site i mentioned in the original post shows that the Pfizer cost basis is $7897.79 and the Viatris cost basis is $433.21. he receive 37.2237 shares of Viatris based on the spinoff ratio of .124079.

multiplying 300 shares by .124079 equals 37.2237 shares. he received 37 shares based on his statement and the .2237 share amount was a cash payout of $3.88 based on the web site and that also matches his statement. the web site also lists the cost basis of this fractional share payout as $2.60.

computing the allocation i come up with:
Pfizer: 7897.79 / 8331.00 = 94.80%
Viatris: 433.21 / 8331.00 = 5.20%

so this matches the 95% / 5% cost allocation that you mentioned as well as the official Pfizer statement.

the cost basis for the 37 whole shares (based on the web site) was $430.61.

now, here is the part i'm not totally sure of but i think (???) is correct.

Pfizer: $7897.79 / 300 shares = $26.33 /share
Viatris: $430.61 / 37 shares = $11.64 /share

adding $7897.79 + $430.61 + $2.60 (fractional share cost basis) does equal $8331.00

so i'm assuming that these are the numbers i would plug into Quicken for the new cost basis. my impression is that the $3.88 will just be an addition into his money market fund where it automatically went (which i will add into that account). because we need to discount the $3.88 / $2.60 fractional share payout i only want to add in the Pfizer ($7897.79) and Viatris ($430.61) amounts so the "new" cost basis will be $8328.40.

are these correct assumptions?

"that suggests a Pfizer cost north of $200 per share."

does your calculation take into account that the spinoff ratio was .124079 and not one-to-one. if you multiply your back-of-the-envelope calculation of $200 x .124079 you get $24.82 which is close to my $26.33 / share.

"The spin off occurred in November 2020. I have no idea what Yahoo finance is doing."

i agree, Morningstar shows Viatris starting on either 11/12/20 or 11/17/20 depending on the date range you pick. inconsistencies like this drive me nuts!!

tom, again, thanks for your insight in how to handle this spinoff situation.

Tom Young

"'that suggests a Pfizer cost north of $200 per share.'

does your calculation take into account that the spinoff ratio was .124079 and not one-to-one. if you multiply your back-of-the-envelope calculation of $200 x .124079 you get $24.82 which is close to my $26.33 / share."

My mental math completely failed me here because I forgot to factor in the spin off ratio.  I think your numbers look good in the overall.  Of course you understand that if you're entering the 300 shares as 3 different lots, because that's the real situation, each lot will have unique number of shares and "per share" cost numbers. 

gwa000

"... each lot will have unique number of shares and "per share" cost numbers. "

tom,

yes, i realize this. the 300 shares were bought a 3 100 lot increments but i do realize that i have to treat each lot separately as far as the cost basis, price / share, etc.

thanks for your help. i think i have a handle on the issue now and am getting more comfortable with the software.

thanks again!!

q_lurker

gwa000 said:

...

BTW, how did you bold the word "misallocation" in your reply? i do not see any formatting tools.

WYSIWYG formatting capability becomes available as your status (participation) in the forum increases.