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Reference example for HP-Related Stock Basis Workbook 

"One share walk-through" explanation of the HP Alumni Association's "HP-Related Stock Basis Workbook" -- available from
http://www.hpalumni.org/stock  (Current version 10, 2/9/18)  

Questions or comments to: info@hpalumni.org 

Given the original basis in a share of HWP (later known as HPQ), or HPE, what is the basis in each of the various fission products over the years?

The first tab, spreadsheet A starts with the IPO in 1957, and shows the cost basis for the employee purchase plan(s) and service awards, forward through 2017.
Jump to April, 2000, after 7 of the 8 HWP stock splits, row [222].

1. Participants that spring purchased one or more shares with an original valuation (and cost basis) of $135.00 per share. (Remember the dot com bubble?)

We consider one share purchased, and its basis shown in cell [B.222].

2. On 6/2/2000, each HP share was divided into "post-spinoff" HP, and 0.3814 of a share of Agilent. The original basis was split 78/22% to new-HP and Agilent.
Now you have 1 share new HP, ea. $105.30/sh basis [J.222] 0.3814 share of Agilent, $77.87/sh basis [K.222]

3. On 9/27/2000, there was a 2-for-1 split of (new) HP. That doubles your HP share count, halves their basis, and has no effect on Agilent.
2 shares HP, ea. $52.65/sh basis [M.222]
0.3814 share of Agilent, $77.87/sh basis [K.222]

4. On 10/31/2006, Agilent spun off Verigy.
94.22% of the basis in old Agilent stayed with new Agilent, and 5.78% went to Verigy.
Each Agilent share produced 0.122435 share of Verigy. No effect on HP.
2 shares HP, ea. $52.65/sh basis [M.222]
0.3184 share Agilent, $73.37/sh basis [N.222]
0.0467 share Verigy, $36.76/sh basis [O.222]

(On the "Data" sheet, it's noted that on July 4, 2011, Verigy shareholders received $15 per share in cash from Advantest (Japan.)
For Verigy shares in this lot, that was a $21.76/sh capital LOSS.)

At each step, if you still have all the pieces, the TOTAL basis is $135.00, allocated over the varying quantities and types of stock.

The MFGP spinoff has a twist for US taxpayers: as a foreign company, the spinoff is a taxable event.
If your basis is less than the 9/1/2017 FMV price, the difference is a gain that is "realized," reportable, and taxable (even though you did not sell the shares).

A loss is NOT reportable however. The high basis of the 4/2000 HWP share that started this example results in the MFGP fractional share being "underwater,"
so the basis is calculated the usual way, and carried forward until you sell the shares (or the next spinoff).

Note the new basis for all lots that DID have a gain on "opening day":
the MFGP basis is stepped up to the $29.34 FMV.

Here in 2018, that one starting share and its offspring (if the Verigy hadn't been liquidated) would be:
2.0000 sh HPQ x $25.74
0.3814 sh Agilent x 73.37
0.0467 sh Verigy x 36.76
2.0000 sh HPE x 16.28
0.1718 sh DXC x 80.67
0.2746 sh MFGP ADR x 33.60

Modulo the rounding (here -- the spreadsheet preserves all the digits), those sum to 135.00.

--end of example--

Sheet B provides for "enter your own basis" for HPQ shares and sheet C similarly for HPE shares.

There are additional complications not tackled by this one example -- including HP's option-based Share Ownership Plan (starting in 2000)
and the associated tax reporting requirements.

--Tom von Alten

Original: March 29, 2014
Updated February 5, 2018

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