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Non-Tech : SPIN-OFFS "secret hiding places of stock market profits"
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To: MJ who wrote (1010)8/4/2006 11:08:11 PM
From: Stewart Whitman  Read Replies (1) of 1185
 
sec.gov

Page 38 discusses some of the tax implications.

It sounds to me like the company expects a large part of the dividend will be taxable.

They are paying out $2.3 billion, they have $887 million in retained earnings (page F-63) + I would guess < $50 million in earnings between now and the spin. That part would be taxable as a dividend. The next $1.3 or so billion or so would reduce your basis on sally (or be a capital gain if your basis reached 0). This handling is summarized on page 99.

That's my guess - about 40% taxable as a dividend, 60% is return of capital.

The other big problem is that you have this:

In addition, a substantial amount of the special cash dividend is expected to constitute an “extraordinary dividend” under the Internal Revenue Code. Under special tax rules relating to extraordinary dividends, any loss on the sale or exchange of New Sally common stock (and possibly New Alberto-Culver common stock) held by individuals will, to the extent of the amount treated as an extraordinary dividend, be long-term capital loss (even if it would otherwise be considered short-term under the general rules), and corporate stockholders that have not held their Alberto-Culver common stock for two years prior to the announcement of the special cash dividend may be required to reduce their basis in the shares by the untaxed portion of the special cash dividend.

There's more info on pgs 99-101.
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