SPINOFF: Alberto-Culver [ACV] and Sally Beauty Holdings [SBH]

Issue:

Alberto-Culver Company [ACV] has spun off Sally Beauty Holdings [SBH] in a series of complicated transactions.This is not a typical spinoff!

Cause:

On November 16, 2006, Alberto-Culver Company [ACV] split into two separate publicly-traded companies: new Alberto-Culver [ACV] and Sally Beauty Holdings, Inc. [SBH]. As a part of the transaction, shareholders received one share of new Alberto-Culver stock, which will be trading under the old symbol of ACV, and one share of Sally Beauty Holdings [SBH]. SBH shareholders also received a $25 per share special cash dividend

The reorganization is further complicated by the fact that it is very probable that a portion of the $25 dividend will be designated as a return of capital, rather than a taxable dividend. It is even possible that a portion of the dividend will be treated as capital gain. The exact amounts for taxable dividends, return of capital, and capital gain will not be known until after December 31, 2007. That's right!!! The correct treatment of the $25 dividend will not be known until 2008.

The above uncertainty about the amount of the special dividend that will be taxable not only affects the amount of 2006 taxable income to be reported by clubs owning this stock, it also will affect the computation of basis to be allocated to the two surviving companies - Alberto-Culver and Sally Beauty Holdings. It may be that the company will provide an estimate that shareholders can use for determining the 2006 income, but this not be an exact figure. It appears certain that clubs holding this stock will have to file amended returns for the calendar year 2006, and maybe for the calendar year 2007. This is unfortunate, but, at present, there seems to be no way around it.

Resolution:

Enter the special $25 dividend as an ordinary dividend for SBH.

No entry is necessary to reflect the change from the old Alberto-Culver Company to the new Alberto-Culver Company.

Enter a spinoff transaction to reflect the shares of Sally Beauty Holdings received by the shareholders of ACV. You can read how to enter a spinoff at http://www.iclub.com/support/kb/default.asp?page=normal_spinoff.

Here's the information you need for the spinoff: