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Subject Author Date
Corporate spin off in Q2006 gbottolfsen 04-03-2007
Posted by Ira Smilovitz on April 3, 2007, 7:26 pm
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[portion snipped]

>
> But that is as far as we can go until we get two more bits of information:
> the Fair Market Values of Altria and Kraft immediately AFTER the spin-off.
> Quicken asks for the "Cost" of the old and new shares, but that is not
> correct. When we know the FMVs of the shares, Quicken can then calculate
> the new bases (cost) of the old and new shares, based on the ratio of
> those values, applied to your adjusted basis in Altria. Quicken will
> adjust the basis for all the lots of Altria that you owned, and will
> record the basis of matching lots of Kraft, and will show the acquisition
> dates for each lot as of the dates you acquired the matching lots of
> Altria. (This will have the unfortunate effect of showing that you owned
> Kraft shares before 3/30/07, which is wrong, of course; we haven't figured
> out a good way to fix this, and neither has Intuit, apparently.)
> [remainder snipped]

The "unfortunate" effect is not unfortunate, but necessary. In a tax free
spinoff, your holding period for the spinoff shares is the same as your
holding period for the (ex-)parent company. It's as if the two companies
were always independent.

Ira Smilovitz



Posted by R. C. White on April 3, 2007, 9:55 pm
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 Hi, Ira.

> The "unfortunate" effect is not unfortunate, but necessary.

Maybe we need a different adjective. I agree that it is necessary, but the
effect might produce some misleading reports, unfortunately. ;^}

What I was trying to say is that, if the investor had bought Altria on
1/1/06, and now, post-spinoff, produces a financial statement for 12/31/06 -
or any other date between 1/1/06 and 3/30/07 - it will show that he owned
BOTH Altria and Kraft shares at that date, which is not correct.

Since I haven't had this situation, I'm not sure what market values would be
shown. Since Kraft didn't exist then, its value presumably would be zero.
And since Altria did exist, it should be properly priced at that day's
quote. So, perhaps no damage is done, except for showing the ethereal Kraft
shares. But I have seen others complain in this newsgroup about this
problem so I thought I should mention it.

I probably should explain a comment that I made in my first post. I said,
"But the spin-off did not happen in 2006." That was because I overlooked
the "Q" in "Q2006" in the Subject line. <blush> No harm, no foul, I
suppose, but it might have made a reader wonder.

RC
--
R. C. White, CPA
San Marcos, TX
(Retired. No longer licensed to practice public accounting.)
rc@grandecom.net
Microsoft Windows MVP
(Currently running Vista Ultimate x64)

>
> [portion snipped]
>
>>
>> But that is as far as we can go until we get two more bits of
>> information: the Fair Market Values of Altria and Kraft immediately AFTER
>> the spin-off. Quicken asks for the "Cost" of the old and new shares, but
>> that is not correct. When we know the FMVs of the shares, Quicken can
>> then calculate the new bases (cost) of the old and new shares, based on
>> the ratio of those values, applied to your adjusted basis in Altria.
>> Quicken will adjust the basis for all the lots of Altria that you owned,
>> and will record the basis of matching lots of Kraft, and will show the
>> acquisition dates for each lot as of the dates you acquired the matching
>> lots of Altria. (This will have the unfortunate effect of showing that
>> you owned Kraft shares before 3/30/07, which is wrong, of course; we
>> haven't figured out a good way to fix this, and neither has Intuit,
>> apparently.) [remainder snipped]
>
> The "unfortunate" effect is not unfortunate, but necessary. In a tax free
> spinoff, your holding period for the spinoff shares is the same as your
> holding period for the (ex-)parent company. It's as if the two companies
> were always independent.
>
> Ira Smilovitz


Posted by John Pollard on April 4, 2007, 9:29 am
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R. C. White wrote:
> Hi, Ira.
>
>> The "unfortunate" effect is not unfortunate, but
>> necessary.

> Maybe we need a different adjective. I agree that it is
> necessary, but the effect might produce some misleading
> reports, unfortunately. ;^}
> What I was trying to say is that, if the investor had
> bought Altria on 1/1/06, and now, post-spinoff, produces
> a financial statement for 12/31/06 - or any other date
> between 1/1/06 and 3/30/07 - it will show that he owned
> BOTH Altria and Kraft shares at that date, which is not
> correct.

Actually, I don't think the "effect" is "necessary". The effect
is the result of using Buy transactions to "acquire" the lots of
the spun off company. Quicken Buy transactions always make the
"acquisition date" equal to the "transaction date" ... creating
the "effect".

If "Add Shares" transactions are substituted for the Buy
transactions, the transaction date can be the date of the spin
off, while the acquisition date can be specified separately, as
the date the lot of the company doing the spinoff was acquired.
This gets correct acquisition dates for cost basis while
avoiding making it seem as if you owned the spunoff company
before it existed.

(Changing the Buys to Shares Added also requires modifying the
Return of Capital transactions to "transfer" the cash back into
the Quicken account where the spinoff is recorded, so as to no
leave cash in the account.)

--
John Pollard
First initial underscore Last name at mchsi dot com
Please reply to newsgroup



Posted by aamato1 on April 4, 2007, 6:47 pm
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RC,

You explained that well. And I beleive you are current in all your
statement. I understand how to compute this on paper but i'm having
troubling inputing this into Quicken.

Can you please tell me what I'm doing wrong??? I'm entering the
following information:

New shares issued = 0.692024 per old share

Cost per old share = 65.90 post spinoff

Cost per new share = 31.66 post spinoff

It seems like I am getting the correct new shares number for Kraft.
The problem is the new cost basis of both securities. Altria is coming
up with 77 (which is was my cost basis pre-spin off before
commissions) and Kraft is coming up with 27.95. At the end of the
transaction shouldn't Altria be 65.90 and Kraft be 31.66?
What am I missing?

Altria post an example on how to compute the values.
http://www.altria.com/investors/02_20_02_example.asp

Thanks for any help.
AA

> Hi, GB.
>
> Step 1, of course, is to understand what happened in the real world. News
> reports usually tell us, but often leave out some important details. The
> best place to get the information is usually from the parent company.
> Nowadays, we can just go to their website and click on something like
> Investor Relations.
>
> In this case, the parent is NOT Philip Morris, but PM's parent, Altria. A
> little searching found:
> Kraft Spin-Off Investor
Informationhttp://www.altria.com/investors/02_20_00_spinoffinvinfo.asp
>
> The link there took me to the page we really want:
> Kraft Spin-Off Investor
Informationhttp://kraft.com/investors/kraft_spin_off.html
>
> But the spin-off did not happen in 2006. To quote:: "The distribution of
> Kraft's outstanding shares owned by Altria was made on March 30, 2007, to
> Altria shareholders of record as of 5:00 p.m. Eastern Time on March 16,
> 2007." Then the Kraft page refers us back to the Altria page for details,
> where we see, "Altria will distribute 0.692024 of a share of Kraft for every
> share of Altria common stock outstanding as of the Record Date,..."
>
> Step 2 is to record what actually happened in Step 1.
>
> In Quicken 2007, click Enter Transaction and choose Corporate Securities
> Spin-Off. The transaction date is 3/30/07. Security name is Altria Group,
> Inc.. The new company is Kraft, Inc. New shares issued is 0.692024 (of
> Kraft) per old share (of Altria). And leave blank the "taxable spinoff"
> box; Altria says it qualifies as tax-free. You may want to make some
> notations in the Memo box.
>
> But that is as far as we can go until we get two more bits of information:
> the Fair Market Values of Altria and Kraft immediately AFTER the spin-off.
> Quicken asks for the "Cost" of the old and new shares, but that is not
> correct. When we know the FMVs of the shares, Quicken can then calculate
> the new bases (cost) of the old and new shares, based on the ratio of those
> values, applied to your adjusted basis in Altria. Quicken will adjust the
> basis for all the lots of Altria that you owned, and will record the basis
> of matching lots of Kraft, and will show the acquisition dates for each lot
> as of the dates you acquired the matching lots of Altria. (This will have
> the unfortunate effect of showing that you owned Kraft shares before
> 3/30/07, which is wrong, of course; we haven't figured out a good way to fix
> this, and neither has Intuit, apparently.)
>
> The actual spin-off date was just a couple of days ago. Within a very few
> days, Altria should determine and publish their opinion as to the FMVs of
> Altria and Kraft for shareholders to use in the calculation. (FMV is a
> matter of opinion and you are free to argue for different numbers, but it
> rarely is worth the trouble.)
>
> You probably will be entitled to a fractional share of Kraft and will
> receive cash in lieu of that fraction. Immediately after recording the
> spin-off, you should record the sale of this fraction for the amount of the
> check you will receive. Use the per-share basis that Quicken has just
> calculated and your Altria acquisition date; Quicken should handle this for
> you automatically.
>
> For further information, watch the Altria and Kraft web pages.
>
> I've been retired for over a dozen years and tax rules change daily, GB. Be
> sure to check with your own CPA to be sure that my understanding is still
> correct.
>
> RC
> --
> R. C. White, CPA
> San Marcos, TX
> (Retired. No longer licensed to practice public accounting.)
> r...@grandecom.net
> Microsoft Windows MVP
> (Currently running Vista Ultimate x64)
>
>
>
>
>
> > Hello
>
> > Why do Quicken software "Engineers" make a simple thing, so damm
> > hard????
>
> > I am trying to do a corporate spin off of Kraft from Philip Morris [MO],
> > the spin off option in the drop down menu under action for a new
> > transaction [Q2006] does not work correctly [the number of shares and
> > price are not correct]
>
> > Maybe I am entering the wrong information? What numbers are they asking
> > for in the boxes under the "spin off" action?
>
> > What I ended up doing is creating a "buy shares" option under action,
> > this makes the numbers come out correct.
>
> > Thanks everyone
> > GB- Hide quoted text -
>
> - Show quoted text -



Posted by MedRxman on April 4, 2007, 7:39 pm
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> RC,
>
=========================================
> New shares issued = 0.692024 per old share OK

USE THESE PRICES
> Cost per old share = 65.90 post spinoff 87.81 price at close
This is adjusted price
> Cost per new share = 31.66 post spinoff OK price at close
================================================
> It seems like I am getting the correct new shares number for Kraft.
> The problem is the new cost basis of both securities. Altria is coming
> up with 77 (which is was my cost basis pre-spin off before
> commissions) and Kraft is coming up with 27.95. At the end of the
> transaction shouldn't Altria be 65.90 and Kraft be 31.66?
> What am I missing?
>
> Altria post an example on how to compute the values.
> http://www.altria.com/investors/02_20_02_example.asp
>
> Thanks for any help.
> AA
>
>> Hi, GB.
>>
>> Step 1, of course, is to understand what happened in the real world.
>> News
>> reports usually tell us, but often leave out some important details. The
>> best place to get the information is usually from the parent company.
>> Nowadays, we can just go to their website and click on something like
>> Investor Relations.
>>
>> In this case, the parent is NOT Philip Morris, but PM's parent, Altria.
>> A
>> little searching found:
>> Kraft Spin-Off Investor
>> Informationhttp://www.altria.com/investors/02_20_00_spinoffinvinfo.asp
>>
>> The link there took me to the page we really want:
>> Kraft Spin-Off Investor
>> Informationhttp://kraft.com/investors/kraft_spin_off.html
>>
>> But the spin-off did not happen in 2006. To quote:: "The distribution
>> of
>> Kraft's outstanding shares owned by Altria was made on March 30, 2007, to
>> Altria shareholders of record as of 5:00 p.m. Eastern Time on March 16,
>> 2007." Then the Kraft page refers us back to the Altria page for
>> details,
>> where we see, "Altria will distribute 0.692024 of a share of Kraft for
>> every
>> share of Altria common stock outstanding as of the Record Date,..."
>>
>> Step 2 is to record what actually happened in Step 1.
>>
>> In Quicken 2007, click Enter Transaction and choose Corporate Securities
>> Spin-Off. The transaction date is 3/30/07. Security name is Altria
>> Group,
>> Inc.. The new company is Kraft, Inc. New shares issued is 0.692024 (of
>> Kraft) per old share (of Altria). And leave blank the "taxable spinoff"
>> box; Altria says it qualifies as tax-free. You may want to make some
>> notations in the Memo box.
>>
>> But that is as far as we can go until we get two more bits of
>> information:
>> the Fair Market Values of Altria and Kraft immediately AFTER the
>> spin-off.
>> Quicken asks for the "Cost" of the old and new shares, but that is not
>> correct. When we know the FMVs of the shares, Quicken can then calculate
>> the new bases (cost) of the old and new shares, based on the ratio of
>> those
>> values, applied to your adjusted basis in Altria. Quicken will adjust
>> the
>> basis for all the lots of Altria that you owned, and will record the
>> basis
>> of matching lots of Kraft, and will show the acquisition dates for each
>> lot
>> as of the dates you acquired the matching lots of Altria. (This will
>> have
>> the unfortunate effect of showing that you owned Kraft shares before
>> 3/30/07, which is wrong, of course; we haven't figured out a good way to
>> fix
>> this, and neither has Intuit, apparently.)
>>
>> The actual spin-off date was just a couple of days ago. Within a very
>> few
>> days, Altria should determine and publish their opinion as to the FMVs of
>> Altria and Kraft for shareholders to use in the calculation. (FMV is a
>> matter of opinion and you are free to argue for different numbers, but it
>> rarely is worth the trouble.)
>>
>> You probably will be entitled to a fractional share of Kraft and will
>> receive cash in lieu of that fraction. Immediately after recording the
>> spin-off, you should record the sale of this fraction for the amount of
>> the
>> check you will receive. Use the per-share basis that Quicken has just
>> calculated and your Altria acquisition date; Quicken should handle this
>> for
>> you automatically.
>>
>> For further information, watch the Altria and Kraft web pages.
>>
>> I've been retired for over a dozen years and tax rules change daily, GB.
>> Be
>> sure to check with your own CPA to be sure that my understanding is still
>> correct.
>>
>> RC
>> --
>> R. C. White, CPA
>> San Marcos, TX
>> (Retired. No longer licensed to practice public accounting.)
>> r...@grandecom.net
>> Microsoft Windows MVP
>> (Currently running Vista Ultimate x64)
>>
>>
>>
>>
>>
>> > Hello
>>
>> > Why do Quicken software "Engineers" make a simple thing, so damm
>> > hard????
>>
>> > I am trying to do a corporate spin off of Kraft from Philip Morris
>> > [MO],
>> > the spin off option in the drop down menu under action for a new
>> > transaction [Q2006] does not work correctly [the number of shares and
>> > price are not correct]
>>
>> > Maybe I am entering the wrong information? What numbers are they asking
>> > for in the boxes under the "spin off" action?
>>
>> > What I ended up doing is creating a "buy shares" option under action,
>> > this makes the numbers come out correct.
>>
>> > Thanks everyone
>> > GB- Hide quoted text -
>>
>> - Show quoted text -
>
>



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