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October 11, 1994
To the Shareholders of Harris Corporation: Since the HCSC shares are received free of tax, the IRS requires you to apportion the cost basis of your Harris stock to the HCSC stock and Harris stock in proportion to their relative fair market values (FMV). The fair market values are determined by taking an arithmetical mean of the high and low trading values of both stocks on October 10, 1994 (the first day of open market trading for HCSC). Your overall bases in the shares of stock of the two Companies as a result of the spinoff will in the aggregate equal your former basis in the Harris stock. Based on this determination of the shares' relative fair market values, your cost basis for Harris stock, as a result of the distribution should be reduced to 99.082% of its former amount, and the remaining 0.918% of your old basis becomes the cost basis for your HCSC stock. The foregoing may be illustrated as follows: Suppose you bought 110 shares of Harris stock for $3,300 on January 2, 1990. You would have received 5 shares of HCSC stock (1 share for every 20 Harris shares you owned) plus a cash payment in lieu of the .5 fractional share of HCSC. Based on actual October 10, 1994 trading values, the FMV of each share of Harris and HCSC stock is $47.89 and $8.875 respectively. You would allocate 99.0820.4 of your $3,300 basis or $3,269.71 to the basis of your 110 existing Harris shares ($3,269.71 .... 110 = $29.72 per share rounded) . You would allocate 0.918% of your $3,300 basis or $30.29 to the basis of your 5.5 HCSC shares ($30.29 .... 5.5 =$5.51 per share rounded). Your basis for gain or loss on the one-half ( .5) fractional share of HCSC stock that was sold on your behalf would be $2.76($5.51 X .5). If you acquired Harris stock at different times, a separate computation and basis allocation must be made for each separate block of Harris shares owned. In determining your holding period in the HCSC stock, the law allows you to add on to the period you haveheld the HCSC stock the previous period during which you held the Harris stock with respect to which you received the distribution of HCSC stock. In the preceding example, you would add the period of time beginning January 3, 1990 to the period you actually held HCSC stock. IRS regulations require every taxpayer who receives a distribution of stock of a controlled corporation to make certain information disclosures on his or her federal income tax return for the year in which such distribution is received. To assist you in this regard. enclosed is a form statement containing the required information. Simply complete item 4, sign the form, and attach it to your tax return. The intent of the aforementioned is to communicate in general terms the mechanics of the HCSC dividend distribution. It is not meant as investment or tax advice. You may wish to consult an investment or tax advisor about your specific circumstances. Sincerely, |
