Alberto-Culver Company (ACV)

LIQUIDITY AND CAPITAL RESOURCES

Cash Provided by Operating Activities – Net cash provided by operating activities was $43.9 million and $89.9 million for the first half of fiscal years 2009 and 2008, respectively. Cash flows from operating activities decreased in 2009 due to a significant increase in the amount of cash used for overall working capital in the first half of fiscal year 2009 compared to the same period in fiscal year 2008. Significant changes include higher accounts receivable balances compared to the same period last year, primarily related to TRESemmé sales in Spain, and lower accounts payable as discussed in the “Financial Condition” section of MD&A. Additionally, in November 2008 the company paid a tax obligation in Sweden related to foreign currency gains on U.S. dollar investments held there, which resulted in a cash outflow of $14.1 million.

Cash Provided (Used) by Investing Activities – Net cash used by investing activities was $118.2 million for the first half of fiscal year 2009 compared to net cash provided by investing activities of $151.5 million for the comparable period in the prior year. Net cash used by investing activities in the first half of fiscal year 2009 included $83.6 million of payments related to the purchase of the Noxzema business. Capital expenditures were $34.0 million in the first half of fiscal year 2009 compared to $28.9 million in the same period of the prior year. In the first half of fiscal year 2008, the company had net sales of investments of $178.3 million.

Cash Provided (Used) by Financing Activities – Net cash used by financing activities was $17.0 million for the first half of fiscal year 2009 compared to net cash provided by financing activities was $32.5 million for the comparable period in the prior year. The company paid cash dividends of $13.7 million in the first half of fiscal year 2009 compared to $11.9 million in the prior year period. Proceeds from the exercise of employee stock options were $1.3 million in the first half of fiscal year 2009 compared to $39.7 million in the same period of the prior year. Net cash provided by financing activities was also affected by the excess tax benefit from stock option exercises and changes in the book cash overdraft balance in each period.

Cash dividends paid on common stock were $.14 and $.12 per share in the first half of fiscal years 2009 and 2008, respectively.

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ALBERTO CULVER COMPANY AND SUBSIDIARIES

At March 31, 2009, the company has ARS investments with a total par value of $69.8 million. All of these investments represent interests in pools of student loans and have AAA/Aaa credit ratings. In addition, all of these securities carry an indirect guarantee by the U.S. federal government of at least 97% of the par value through the Federal Family Education Loan Program (FFELP). However, starting in the second quarter of fiscal year 2008, each of the company’s remaining ARS investments has experienced multiple failed auctions. During the first half of fiscal year 2009, the company did not redeem any ARS investments as a result of successful auctions as all auctions for the company’s remaining ARS investments continued to fail during the period. In addition, the company did not recognize any realized gains or losses from the sale of ARS investments in its statement of earnings. The company has recorded these remaining investments on its consolidated balance sheet at an estimated fair value of $64.9 million and recorded an unrealized loss of $4.9 million in accumulated other comprehensive income, reflecting the decline in the estimated fair value. One of the outstanding ARS investments with an estimated $8.5 million fair value is scheduled to mature on September 1, 2009 and is therefore classified as short-term on the March 31, 2009 consolidated balance sheet. The remainder of the investments have been classified as long-term as the company cannot be certain that they will settle within the next twelve months. Other than the one ARS investment which matures September 1, 2009, the company’s remaining ARS investments have scheduled maturities ranging from 2029 to 2042. It is currently management’s intent to hold these investments until the company is able to recover the full par value, either through issuer calls, refinancings or other refunding initiatives, the recovery of the auction market or the emergence of a new secondary market. Management’s assumption used in the current fair value estimates is that this will occur within the next three years.

The company anticipates that its cash and cash equivalents balance of $340.5 million as of March 31, 2009, along with cash flows from operations and available credit, will be sufficient to fund operating requirements in future years. During the remainder of fiscal year 2009, the company expects that cash will continue to be used for capital expenditures, new product development, market expansion, dividend payments, payments related to restructuring plans and, if applicable, acquisitions. The company may also purchase additional shares of its common stock depending on market conditions.

The company did not purchase any shares of its common stock during the first half of fiscal year 2009. At March 31, 2009, the company has authorization remaining to purchase a total of 5,834,218 shares. On November 12, 2006, the Board of Directors authorized the company to purchase up to 5 million shares of common stock. During the third and fourth quarters of fiscal year 2008, the company purchased 4,165,782 common shares in the open market under the authorization for an aggregate purchase price of $109.5 million. On July 24, 2008, the Board of Directors authorized the company to purchase an additional 5 million shares of common stock.

The company has obtained long-term financing as needed to fund acquisitions and other growth opportunities. Funds may be obtained prior to their actual need in order to take advantage of opportunities in the debt markets. The company has a $300 million revolving credit facility which expires November 13, 2011. There were no borrowings outstanding on the revolving credit facility at March 31, 2009 or September 30, 2008. The facility may be drawn in U.S. dollars or certain foreign currencies. Under debt covenants, the company has sufficient flexibility to incur additional borrowings as needed. The current facility includes a covenant that limits the company’s ability to purchase its common stock or pay dividends if the cumulative stock repurchases plus cash dividends exceeds $250 million plus 50% of “consolidated net income” (as defined in the credit agreement) commencing January 1, 2007.

The company is in compliance with the covenants and other requirements of its revolving credit agreement. Additionally, the revolving credit agreement does not include credit rating triggers or subjective clauses that would accelerate maturity dates.

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ALBERTO CULVER COMPANY AND SUBSIDIARIES

LIQUIDITY AND CAPITAL RESOURCES

Cash Provided (Used) by Operating Activities – Net cash used by operating activities was $16.6 million for the first quarter of fiscal year 2009 compared to net cash provided by operating activities of $29.7 million for the comparable period in the prior year. The change in cash flows from operating activities is due primarily to an increase in the amount used for overall working capital in the first quarter of fiscal year 2009 compared to the same quarter in fiscal year 2008. Significant changes include higher accounts receivable balances, primarily related to TRESemmé sales in Spain, the build-up of inventory as discussed in the “Financial Condition” section of MD&A and higher incentive payments in the first quarter of fiscal year 2009 compared to the same period last year. Additionally, in November 2008 the company paid a tax obligation in Sweden related to foreign currency gains on U.S. dollar investments held there, which resulted in a cash outflow of $14.1 million.

Cash Used by Investing Activities – Net cash used by investing activities was $98.8 million and $15.4 million for the first quarter of fiscal years 2009 and 2008, respectively. Net cash used by investing activities in the first quarter of fiscal year 2009 included $83.6 million of payments related to the purchase of the Noxzema business. Capital expenditures were $14.6 million in the first quarter of fiscal year 2009 compared to $12.0 million in the same period of the prior year. In the first quarter of fiscal year 2008, the company had net purchases of investments of $3.4 million.

Cash Provided by Financing Activities – Net cash provided by financing activities was $4.6 million and $10.5 million for the first quarter of fiscal years 2009 and 2008, respectively. The company paid cash dividends of $6.4 million in the first quarter of fiscal year 2009 compared to $5.4 million in the prior year period. Proceeds from the exercise of employee stock options were $472,000 in the fiscal year 2009 quarter compared to $7.8 million in the same period of the prior year. Net cash provided by financing activities was also affected by the excess tax benefit from stock option exercises and changes in the book cash overdraft balance in each period.

Cash dividends paid on common stock were $.065 and $.055 per share in the first quarter of fiscal years 2009 and 2008, respectively.

At December 31, 2008, the company has ARS investments with a total par value of $69.8 million. All of these investments represent interests in pools of student loans and have AAA/Aaa credit ratings. In addition, all of these securities carry an indirect guarantee by the U.S. federal government of at least 97% of the par value through the Federal Family Education Loan Program (FFELP). However, starting in the second quarter of fiscal year 2008, each of the company’s remaining ARS investments has experienced multiple failed auctions. The company has recorded these investments on its consolidated balance sheet at an estimated fair value of $65.1 million and recorded an unrealized loss of $4.7 million in accumulated other comprehensive income, reflecting the decline in the estimated fair value. One of the outstanding ARS investments with an estimated $8.4 million fair value is scheduled to mature on September 1, 2009 and is therefore classified as short-term on the December 31, 2008 consolidated balance sheet. The remainder of the investments have been classified as long-term as the company cannot be certain that they will settle within the next twelve months.

The company anticipates that its cash and cash equivalent balance of $325.9 million as of December 31, 2008, along with cash flows from operations and available credit, will be sufficient to fund operating requirements in future years. During the remainder of fiscal year 2009, the company expects that cash will continue to be used for capital expenditures, new product development, market expansion, dividend payments, payments related to restructuring plans and, if applicable, acquisitions. The company may also purchase additional shares of its common stock depending on market conditions.

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ALBERTO CULVER COMPANY AND SUBSIDIARIES

The company did not purchase any shares of its common stock during the first quarter of fiscal year 2009. At December 31, 2008, the company has authorization remaining to purchase a total of 5,834,218 shares. On November 12, 2006, the Board of Directors authorized the company to purchase up to 5 million shares of common stock. During the third and fourth quarters of fiscal year 2008, the company purchased 4,165,782 common shares in the open market under the authorization for an aggregate purchase price of $109.5 million. On July 24, 2008, the Board of Directors authorized the company to purchase an additional 5 million shares of common stock.

The company has obtained long-term financing as needed to fund acquisitions and other growth opportunities. Funds may be obtained prior to their actual need in order to take advantage of opportunities in the debt markets. The company has a $300 million revolving credit facility which expires November 13, 2011. There were no borrowings outstanding on the revolving credit facility at December 31, 2008 or September 30, 2008. The facility may be drawn in U.S. dollars or certain foreign currencies. Under debt covenants, the company has sufficient flexibility to incur additional borrowings as needed. The current facility includes a covenant that limits the company’s ability to purchase its common stock or pay dividends if the cumulative stock repurchases plus cash dividends exceeds $250 million plus 50% of “consolidated net income” (as defined in the credit agreement) commencing January 1, 2007.

The company is in compliance with the covenants and other requirements of its revolving credit agreement. Additionally, the revolving credit agreement does not include credit rating triggers or subjective clauses that would accelerate maturity dates.

LIQUIDITY AND CAPITAL RESOURCES

Cash Provided by Operating Activities – Net cash provided by operating activities was $118.6 million and $49.2 million for the first nine months of fiscal years 2008 and 2007, respectively. Cash flows from operating activities increased in 2008 due to significantly higher cash flows resulting from increased earnings, as well as a significant improvement in cash generated from overall working capital. In addition, operating cash flows in the first nine months of fiscal year 2007 were negatively impacted by deferred taxes.

Cash Provided (Used) by Investing Activities – Net cash provided by investing activities for the first nine months of fiscal year 2008 was $149.5 million compared to net cash used by investing activities of $147.3 million for the first nine months of fiscal year 2007. In the first nine months of fiscal year 2008, the company generated cash of $185.8 million from net sales of investments as the company liquidated a significant portion of its ARS investments and transferred the cash to institutional money market funds and other cash equivalents. In the first nine months of fiscal year 2007, the company had net purchases of investments of $150.4 million. Capital expenditures were $47.1 million in the first nine months of fiscal year 2008 compared to $24.7 million in the same period of the prior year. Proceeds from disposals of assets in the first nine months of fiscal year 2008 includes $10.6 million related to the sales of the company’s manufacturing facilities in Toronto, Canada and Dallas, Texas. In the first nine months of fiscal year 2007, proceeds from disposal of assets includes $27.4 million related to the sales of the corporate airplane and the company’s 1/8^th interest in a fractional-ownership NetJets airplane.

Cash Provided (Used) by Financing Activities – Net cash used by financing activities for the first nine months of fiscal year 2008 was $188.6 million compared to net cash provided by financing activities of $61.6 million for the first nine months of fiscal year 2007. The company repaid its $120 million of debentures in June 2008 because all the holders exercised their one-time put option. In addition, the company purchased shares of its common stock for an aggregate purchase price of $98.5 million during the third quarter of fiscal year 2008. The company paid cash dividends of $18.5 million and $10.7 million in the first nine months of fiscal years 2008 and 2007, respectively. Proceeds from the exercise of employee stock options were $44.5 million in fiscal year 2008, compared to $68.3 million in the same period of the prior year. Net cash provided (used) by financing activities was also affected by the excess tax benefit from stock option exercises and changes in the book cash overdraft balance in each period.

Cash dividends paid on common stock were $.185 and $.11 per share in the first nine months of fiscal years 2008 and 2007, respectively. In connection with the Separation, during the first quarter of fiscal year 2007 the company’s shareholders received a $25.00 per share special cash dividend for each share of common stock owned as of November 16, 2006. This special cash dividend in 2007 is included in net cash used by financing activities of discontinued operations.

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ALBERTO-CULVER COMPANY AND SUBSIDIARIES

At June 30, 2008, the company has ARS investments with a total par value of $69.8 million. All of these investments represent interests in pools of student loans and have AAA/Aaa credit ratings. In addition, all of these securities carry an indirect guarantee by the U.S. federal government of at least 97% of the par value through the Federal Family Education Loan Program (FFELP). However, during the second and third quarters of fiscal year 2008, each of the company’s remaining ARS investments has experienced multiple failed auctions. Given the company’s inability to estimate when its ARS will settle, the investments have been classified as long-term consistent with the terms of the underlying securities. During the third quarter of fiscal year 2008, one security was called by the issuer and the company received the full par value of $7.5 million. The company anticipates that its cash and cash equivalent balance of $155.1 million as of June 30, 2008, along with cash flows from operations and available credit, will be sufficient to fund operating requirements in future years. In addition, in connection with the closing of the Cederroth transaction, the company received approximately $25 million in cash in July 2008 related to the settlement of intercompany loans and other conditions of the closing and the $243.8 million initial purchase price on July 31, 2008. During the remainder of fiscal year 2008, the company expects that cash will continue to be used for capital expenditures, new product development, market expansion, dividend payments, payments related to the restructuring plans and, if applicable, acquisitions. The company may also continue to purchase shares of its common stock depending on market conditions and subject to certain restrictions related to the New Alberto-Culver share distribution in connection with the Separation.

On November 12, 2006, the board of directors authorized the company to purchase up to 5 million shares of common stock. During the third quarter of fiscal year 2008, the company purchased 3,761,961 shares in the open market under this authorization for an aggregate purchase price of $98.5 million. On July 24, 2008, the Board of Directors authorized the company to purchase an additional 5 million shares of common stock.

The company has obtained long-term financing as needed to fund acquisitions and other growth opportunities. Funds also may be obtained prior to their actual need in order to take advantage of opportunities in the debt markets. The company has a $300 million revolving credit facility which expires November 13, 2011. There were no borrowings outstanding on the revolving credit facility at June 30, 2008 or September 30, 2007. The facility may be drawn in U.S. dollars or certain foreign currencies. Under debt covenants, the company has sufficient flexibility to incur additional borrowings as needed. The current facility includes a covenant that limits the company’s ability to purchase its common stock or pay dividends if the cumulative stock repurchases plus cash dividends exceeds $250 million plus 50% of “consolidated net income” (as defined in the credit agreement) commencing January 1, 2007.

The company previously had $120 million of 6.375% debentures with a June 15, 2028 due date. The debentures were subject to repayment, in whole or in part, on June 15, 2008 at the options of the holders. All of the holders exercised their right to sell the debentures back to the company at par. Accordingly, the company repaid the entire outstanding balance in June 2008.

The company is in compliance with the covenants and other requirements of its revolving credit agreement. Additionally, the revolving credit agreement does not include credit rating triggers or subjective clauses that would accelerate maturity dates.

LIQUIDITY AND CAPITAL RESOURCES

Cash Provided by Operating Activities – Net cash provided by operating activities was $99.4 million and $26.9 million for the first half of fiscal years 2008 and 2007, respectively. Cash flows from operating activities increased in 2008 due to significantly higher cash flows resulting from increased earnings, as well as a significant improvement in cash generated from overall working capital. In addition, operating cash flows in the first half of fiscal year 2007 were negatively impacted by deferred taxes.

Cash Provided (Used) by Investing Activities – Net cash provided by investing activities for the first half of fiscal year 2008 was $151.5 million compared to net cash used by investing activities of $109.4 million for the first half of fiscal year 2007. In the first half of fiscal year 2008, the company generated cash of $178.3 million from net sales of investments as the company liquidated approximately 70% of its ARS investments and transferred the cash to institutional money market funds and other cash equivalents. In the first half of fiscal year 2007, the company had net purchases of investments of $118.8 million. Capital expenditures were $30.2 million in the first six months of fiscal year 2008 compared to $18.5 million in the same period of the prior year. Proceeds from disposals of assets in the first half of fiscal year 2008 includes $3.1 million related to the sale of the company’s manufacturing facility in Dallas, Texas. In the first half of fiscal year 2007, proceeds from disposal of assets includes $27.4 million related to the sales of the corporate airplane and the company’s 1/8^th interest in a fractional-ownership NetJets airplane.

Cash Provided by Financing Activities – Net cash provided by financing activities was $32.6 million and $56.3 million for the first half of fiscal years 2008 and 2007, respectively. Proceeds from the exercise of employee stock options were $39.7 million in fiscal year 2008, compared to $60.6 million in the same period of the prior year. The company paid cash dividends of $11.9 million and $5.3 million in the first six months of fiscal years 2008 and 2007, respectively. Net cash provided by financing activities was also affected by changes in the book cash overdraft balance in each period.

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ALBERTO-CULVER COMPANY AND SUBSIDIARIES

Cash dividends paid on common stock were $.12 and $.055 per share in the first half of fiscal years 2008 and 2007, respectively. In connection with the Separation, during the first quarter of fiscal year 2007 the company’s shareholders received a $25.00 per share special cash dividend for each share of common stock owned as of November 16, 2006. This special cash dividend in 2007 is included in net cash used by financing activities of discontinued operations.

At March 31, 2008, the company has ARS investments with a total par value of $77.3 million. All of these investments represent interests in pools of student loans and have AAA/Aaa credit ratings. In addition, all of these securities carry an indirect guarantee by the U.S. federal government of at least 97% of the par value through the Federal Family Education Loan Program (FFELP). However, during the quarter ended March 31, 2008, each of the company’s remaining ARS investments experienced multiple failed auctions. Given the company’s inability to estimate when its ARS will settle, the investments have been reclassified to long-term consistent with the terms of the underlying securities. The company anticipates that its cash and cash equivalent balance of $378.9 million as of March 31, 2008, along with cash flows from operations and available credit, will be sufficient to fund the possible put of the $120 million debentures, as discussed below, and operating requirements in future years. During the remainder of fiscal year 2008, the company expects that cash will continue to be used for capital expenditures, new product development, market expansion, dividend payments, payments related to the restructuring and, if applicable, acquisitions. The company may also purchase shares of its common stock depending on market conditions and subject to certain restrictions related to the New Alberto-Culver share distribution in connection with the Separation.

On November 12, 2006, the board of directors authorized the company to purchase up to 5 million shares of common stock. This new authorization replaced the previous authorization to purchase Old Alberto-Culver common stock. No shares have been purchased under the authorization as of March 31, 2008. On April 30, 2008, the company began making open market purchases of its common stock under this authorization.

The company has obtained long-term financing as needed to fund acquisitions and other growth opportunities. Funds also may be obtained prior to their actual need in order to take advantage of opportunities in the debt markets. The company has a $300 million revolving credit facility which expires November 13, 2011. There were no borrowings outstanding on the revolving credit facility at March 31, 2008 or September 30, 2007. The facility may be drawn in U.S. dollars or certain foreign currencies. Under debt covenants, the company has sufficient flexibility to incur additional borrowings as needed. The current facility includes a covenant that limits the company’s ability to purchase its common stock or pay dividends if the cumulative stock repurchases plus cash dividends exceeds $250 million plus 50% of “consolidated net income” (as defined in the credit agreement) commencing January 1, 2007.

The company has $120 million of 6.375% debentures outstanding due June 15, 2028. The company has the option to redeem the debentures at any time, in whole or in part, at a price equal to 100% of the principal amount plus accrued interest and, if applicable, a make-whole premium. In addition, the debentures are subject to repayment, in whole or in part, on June 15, 2008 at the options of the holders. In accordance with SFAS No. 78, “Classification of Obligations That Are Callable by the Creditor – an amendment of ARB No. 43, Chapter 3A,” the $120 million has been classified as a current liability on the company’s March 31, 2008 consolidated balance sheet. The holders have a one-month period ending May 16, 2008 to give the company notice if they want to demand repayment. If the holders do not demand repayment of the debentures on June 15, 2008, the $120 million will be reclassified back to long-term debt on the company’s June 30, 2008 consolidated balance sheet.

The company is in compliance with the covenants and other requirements of its revolving credit agreement and 6.375% debentures. Additionally, the revolving credit agreement and the 6.375% debentures do not include credit rating triggers or subjective clauses that would accelerate maturity dates.

LIQUIDITY AND CAPITAL RESOURCES

Cash Provided by Operating Activities – Net cash provided by operating activities was $37.7 million and $14.2 million for the first three months of fiscal year 2008 and 2007, respectively. Cash flows from operating activities increased in 2008 due to significantly higher cash flows related to increased sales and earnings. This improvement was partially offset by an increase in amounts paid for overall working capital.

Cash Used by Investing Activities – Net cash used by investing activities was $15.9 million and $24.6 million for the first three months of fiscal year 2008 and 2007, respectively. Capital expenditures were $12.7 million in the first three months of fiscal year 2008, which included $7.2 million related to the company’s new manufacturing facility in Jonesboro, Arkansas, compared to $9.7 million in the same period of the prior year. Net cash used by investing activities also included net purchases of short-term investments of $3.4 million and $16.4 million in the first quarter of fiscal year 2008 and 2007, respectively.

Cash Provided by Financing Activities – Net cash provided by financing activities was $10.7 million and $22.2 million for the first three months of fiscal year 2008 and 2007, respectively. Proceeds from the exercise of employee stock options were $7.8 million in fiscal year 2008, compared to $25.0 million in the first quarter last year. The company paid cash dividends of $5.4 million in the first quarter of fiscal year 2008. Net cash used by financing activities was also affected by changes in the book cash overdraft balance in each period.

Cash dividends paid on common stock were $.055 per share in the first quarter of fiscal year 2008. In connection with the Separation, during the first quarter of fiscal year 2007 the company’s shareholders received a $25.00 per share special cash dividend for each share of common stock owned as of November 16, 2006.

The company anticipates that its existing cash and investment balances, along with cash flows from operations and available credit, will be sufficient to fund the possible put of the $120 million debentures, as discussed below, and operating requirements in future years. During the remainder of fiscal year 2008, the company expects that cash will continue to be used for capital expenditures, new product development, market expansion, dividend payments, payments related to the restructuring and, if applicable, acquisitions. The company may also purchase shares of its common stock depending on market conditions and subject to certain restrictions related to the New Alberto-Culver share distribution in connection with the Separation.

On November 12, 2006, the board of directors authorized the company to purchase up to 5 million shares of common stock. This new authorization replaced the previous authorization to purchase Old Alberto-Culver common stock. No shares have been purchased under the authorization as of December 31, 2007.

The company has obtained long-term financing as needed to fund acquisitions and other growth opportunities. Funds also may be obtained prior to their actual need in order to take advantage of opportunities in the debt markets. The company has a $300 million revolving credit facility which expires November 13, 2011. There were no borrowings outstanding on the revolving credit facility at December 31, 2007 or September 30, 2007. The facility may be drawn in U.S. dollars or certain foreign currencies. Under debt covenants, the company has sufficient flexibility to incur additional borrowings as needed. The current facility includes a covenant that limits the company’s ability to purchase its common stock or pay dividends if the cumulative stock repurchases plus cash dividends exceeds $250 million plus 50% of “consolidated net income” (as defined in the credit agreement) commencing January 1, 2007.

The company’s $120 million of 6.375% debentures are due June 15, 2028. The company has the option to redeem the debentures at any time, in whole or in part, at a price equal to 100% of the principal amount plus accrued interest and, if applicable, a make-whole premium. In addition, the debentures are subject to repayment, in whole or in part, on June 15, 2008 at the option of the holders. In accordance with SFAS No. 78, “Classification of Obligations That Are Callable by the Creditor – an amendment of ARB No. 43, Chapter 3A,” the $120 million has been classified as a current liability on the company’s December 31, 2007 consolidated balance sheet. If the holders do not demand repayment of the debentures on June 15, 2008, the $120 million will be reclassified back to long-term debt on the company’s June 30, 2008 consolidated balance sheet.

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ALBERTO-CULVER COMPANY AND SUBSIDIARIES

The company is in compliance with the covenants and other requirements of its revolving credit agreement and 6.375% debentures. Additionally, the revolving credit agreement and the 6.375% debentures do not include credit rating triggers or subjective clauses that would accelerate maturity dates.

LIQUIDITY AND CAPITAL RESOURCES

Cash Provided by Operating Activities – Net cash provided by operating activities was $51.1 million and $44.0 million for the first nine months of fiscal year 2007 and 2006, respectively. Cash flows from operating activities increased in 2007 due to a significant reduction in amounts paid for overall working capital. This improvement was partially offset by the payment of $9.7 million to the former President and Chief Executive Officer of the company in connection with the Separation and other cash payments in connection with the company’s restructuring plan, primarily related to severance, as well as the payment of significant income tax obligations in connection with the sale of the corporate airplane.

Cash Used by Investing Activities – Net cash used by investing activities was $152.4 million and $33.0 million for the first nine months of fiscal year 2007 and 2006, respectively. Capital expenditures were $29.4 million in the first nine months of fiscal year 2007, which included $5.9 million related to the company’s new manufacturing facility in Jonesboro, AR, compared to $39.7 million in the same period of the prior year, which included $14.1 million of expenditures related to a new Midwest warehouse. Proceeds from disposals of assets in the first nine months of fiscal year 2007 includes $27.4 million related to the sales of the corporate airplane and the company’s 1/8^th interest in a fractional-ownership NetJets airplane. Net cash used by investing activities also included net purchases of short-term investments of $150.4 million in fiscal year 2007.

Cash Provided (Used) by Financing Activities – Net cash provided by financing activities was $62.1 million in the first nine months of fiscal year 2007, primarily driven by proceeds from the exercise of employee stock options of $68.3 million, partially offset by cash dividends paid of $10.7 million. Net cash used by financing activities was $9.2 million in the first nine months of fiscal year 2006, principally due to cash dividends paid of $33.3 million, partially offset by proceeds from the exercise of employee stock options of $21.6 million. Net cash used by financing activities was also affected by changes in the book cash overdraft balance in each period.

In connection with the Separation, the company’s shareholders received a $25.00 per share special cash dividend for each share of common stock owned as of November 16, 2006. In addition to the special cash dividend, the company paid cash dividends on common stock of $.055 per share and $.11 per share in the third quarter and first nine months of fiscal year 2007, respectively. Cash dividends paid on common stock were $.13 per share and $.36 per share in the third quarter and first nine months of fiscal year 2006, respectively.

The company anticipates that cash flows from operations and available credit will be sufficient to fund operating requirements in future years. During the fourth quarter of fiscal year 2007, the company expects that cash will continue to be used for capital expenditures, new product development, market expansion, dividend payments, payments related to the restructuring and, if applicable, acquisitions. The company may also purchase shares of its common stock depending on market conditions and subject to certain restrictions related to the New Alberto-Culver share distribution in connection with the Separation.

On November 12, 2006, the board of directors authorized the company to purchase up to 5 million shares of common stock. This new authorization replaced the previous authorization to purchase Old Alberto-Culver common stock. No shares have been purchased under the authorization as of June 30, 2007.

The company has obtained long-term financing as needed to fund acquisitions and other growth opportunities. Funds also may be obtained prior to their actual need in order to take advantage of opportunities in the debt markets. The company has a $300 million revolving credit facility which had no borrowings outstanding at June 30, 2007 or September 30, 2006. The facility may be drawn in U.S. dollars or certain foreign currencies. Under debt covenants, the company has sufficient flexibility to incur additional borrowings as needed. On November 13, 2006, the company amended the revolving credit facility to include a waiver for all covenants that may have been violated as a result of the Separation and extended the facility to November 13, 2011. The amended facility includes a new covenant that limits the company’s ability to purchase its common stock or pay dividends if the cumulative stock repurchases plus cash dividends exceeds $250 million plus 50% of “consolidated net income” (as defined in the credit agreement) commencing January 1, 2007.

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ALBERTO-CULVER COMPANY AND SUBSIDIARIES

In anticipation of the closing of the Separation, the company successfully completed a solicitation of consents from the holders of its $120 million of 6.375% debentures and entered into a supplemental indenture dated October 5, 2006. Under the terms of the supplemental indenture, the holders consented to the Separation, waived compliance with covenants that may have been violated as a result of the Separation and agreed that following the consummation of the Separation, neither New Sally nor any of its subsidiaries will have any obligation or liability with respect to the debentures and that none of them will be subject to any covenant or any other term of the indenture. On November 16, 2006, an additional supplemental indenture was executed which added the company as a full and unconditional guarantor of the 6.375% debentures.

The company’s $120 million of 6.375% debentures are due June 15, 2028. The company has the option to redeem the debentures at any time, in whole or in part, at a price equal to 100% of the principal amount plus accrued interest and, if applicable, a make-whole premium. In addition, the debentures are subject to repayment, in whole or in part, on June 15, 2008 at the option of the holders. In accordance with SFAS No. 78, “Classification of Obligations That Are Callable by the Creditor – an amendment of ARB No. 43, Chapter 3A,” the $120 million has been reclassified from long-term debt to a current liability on the company’s June 30, 2007 consolidated balance sheet. If the holders do not demand repayment of the debentures on June 15, 2008, the $120 million will be reclassified back to long-term debt on the company’s June 30, 2008 consolidated balance sheet.

The company is in compliance with the covenants and other requirements of its revolving credit agreement and 6.375% debentures. Additionally, the revolving credit agreement and the 6.375% debentures do not include credit rating triggers or subjective clauses that would accelerate maturity dates.

The company’s primary contractual cash obligations are long-term debt and operating leases. The following table is a summary of contractual cash obligations and commitments outstanding by future payment dates at June 30, 2007:

LIQUIDITY AND CAPITAL RESOURCES

Cash Provided by Operating Activities – Net cash provided by operating activities was $26.9 million and $40.0 million for the first half of fiscal year 2007 and 2006, respectively. Cash flows from operating activities decreased in 2007 due to the payment of $9.7 million to the former President and Chief Executive Officer of the company in connection with the Separation and other cash payments in connection with the company’s restructuring plan, primarily related to severance, as well as the payment of significant income tax obligations in connection with the sale of the corporate airplane.

Cash Used by Investing Activities – Net cash used by investing activities was $109.4 million and $26.7 million for the first half of fiscal year 2007 and 2006, respectively. Capital expenditures were $18.5 million in the first half of fiscal year 2007 compared to $31.0 million in the same period of the prior year, which included $14.0 million of expenditures related to a new Midwest warehouse. Proceeds from disposals of assets in the first half of fiscal year 2007 includes $27.4 million related to the sales of the corporate airplane and the company’s 1/8^th interest in a fractional-ownership NetJets airplane. Net cash used by investing activities also included net purchases of short-term investments of $118.8 million in fiscal year 2007.

Cash Provided (Used) by Financing Activities – Net cash provided by financing activities was $56.3 million in the first half of fiscal year 2007, primarily driven by proceeds from the exercise of employee stock options of $60.6 million, partially offset by cash dividends paid of $5.3 million. Net cash used by financing activities was $6.7 million in the first half of fiscal year 2006, principally due to cash dividends paid of $21.2 million, partially offset by proceeds from the exercise of employee stock options of $17.6 million. Net cash used by financing activities was also affected by changes in the book cash overdraft balance in each period.

In connection with the Separation, the company’s shareholders received a $25.00 per share special cash dividend for each share of common stock owned as of November 16, 2006. In the second quarter of fiscal year 2007, cash dividends paid on common stock were $.055 per share. Cash dividends paid on common stock were $.115 per share and $.23 per share in the second quarter and first half of fiscal year 2006, respectively.

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ALBERTO-CULVER COMPANY AND SUBSIDIARIES

The company anticipates that cash flows from operations and available credit will be sufficient to fund operating requirements in future years. During the remainder of fiscal year 2007, the company expects that cash will continue to be used for acquisitions, capital expenditures, new product development, market expansion, dividend payments and payments related to the restructuring. The company may also purchase shares of its common stock depending on market conditions and subject to certain restrictions related to the New Alberto-Culver share distribution in connection with the Separation.

On November 12, 2006, the board of directors authorized the company to purchase up to 5 million shares of common stock. This new authorization replaced the previous authorization to purchase Old Alberto-Culver common stock. No shares have been purchased under the authorization as of March 31, 2007.

The company has obtained long-term financing as needed to fund acquisitions and other growth opportunities. Funds also may be obtained prior to their actual need in order to take advantage of opportunities in the debt markets. The company has a $300 million revolving credit facility which had no borrowings outstanding at March 31, 2007 or September 30, 2006. The facility may be drawn in U.S. dollars or certain foreign currencies. Under debt covenants, the company has sufficient flexibility to incur additional borrowings as needed. On November 13, 2006, the company amended the revolving credit facility to include a waiver for all covenants that may have been violated as a result of the Separation and extended the facility to November 13, 2011. The amended facility includes a new covenant that limits the company’s ability to purchase its common stock or pay dividends if the cumulative stock repurchases plus cash dividends exceeds $250 million plus 50% of “consolidated net income” (as defined in the credit agreement) commencing January 1, 2007.

In anticipation of the closing of the Separation, the company successfully completed a solicitation of consents from the holders of its $120 million of 6.375% debentures and entered into a supplemental indenture dated October 5, 2006. Under the terms of the supplemental indenture, the holders consented to the Separation, waived compliance with covenants that may have been violated as a result of the Separation and agreed that following the consummation of the Separation, neither New Sally nor any of its subsidiaries will have any obligation or liability with respect to the debentures and that none of them will be subject to any covenant or any other term of the indenture. On November 16, 2006, an additional supplemental indenture was executed which added the company as a full and unconditional guarantor of the 6.375% debentures.

The company’s $120 million of 6.375% debentures are due June 15, 2028. The company has the option to redeem the debentures at any time, in whole or in part, at a price equal to 100% of the principal amount plus accrued interest and, if applicable, a make-whole premium. In addition, the debentures are subject to repayment, in whole or in part, on June 15, 2008 at the option of the holders. In accordance with SFAS No. 78, “Classification of Obligations That Are Callable by the Creditor – an amendment of ARB No. 43, Chapter 3A,” the $120 million will be reclassified from long-term debt to a current liability on the company’s June 30, 2007 consolidated balance sheet. If the holders do not demand repayment of the debentures on June 15, 2008, the $120 million will be reclassified back to long-term debt on the company’s June 30, 2008 consolidated balance sheet.

The company is in compliance with the covenants and other requirements of its revolving credit agreement and 6.375% debentures. Additionally, the revolving credit agreement and the 6.375% debentures do not include credit rating triggers or subjective clauses that would accelerate maturity dates.

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ALBERTO-CULVER COMPANY AND SUBSIDIARIES

The company’s primary contractual cash obligations are long-term debt and operating leases. The following table is a summary of contractual cash obligations and commitments outstanding by future payment dates at March 31, 2007:

LIQUIDITY AND CAPITAL RESOURCES

Cash Provided by Operating Activities – Net cash provided by operating activities was $13.3 million and $13.0 million for the first three months of fiscal years 2007 and 2006, respectively. Cash flows from operating activities improved in 2007 due to the timing of income tax payments and higher sales in the quarter, primarily due to the launch of Nexxus into retail channels, leading to increased collections from customers. These amounts were partially offset by the payment of $9.7 million to the former President and Chief Executive Officer of the company in connection with the Separation and an increase in amounts paid for inventories to support forecasted sales and product launches.

Cash Used by Investing Activities – Net cash used by investing activities was $23.7 million and $5.1 million for the first three months of fiscal years 2007 and 2006, respectively. Capital expenditures were $9.7 million in the first quarter of fiscal year 2007 compared to $21.8 million in the same quarter of the prior year, which included $13.4 million of expenditures related to a new Midwest warehouse. Net cash used by investing activities was also affected by the purchases and sales of short-term investments in each quarter.

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ALBERTO-CULVER COMPANY AND SUBSIDIARIES

Cash Provided (Used) by Financing Activities – Net cash provided by financing activities was $22.2 million in the first quarter of fiscal year 2007, primarily driven by proceeds from the exercise of employee stock options of $25.0 million. Net cash used by financing activities was $3.6 million in the first quarter of fiscal year 2006, principally due to cash dividends paid of $10.6 million, partially offset by proceeds from the exercise of employee stock options of $2.9 million. Net cash used by financing activities was also affected by changes in the book cash overdraft balance in each quarter.

In connection with the Separation, the company’s shareholders received a $25.00 per share special cash dividend for each share of common stock owned as of November 16, 2006. Cash dividends paid on common stock were $.115 per share in the first quarter of fiscal year 2006.

The company anticipates that cash flows from operations and available credit will be sufficient to fund operating requirements in future years. During the remainder of fiscal year 2007, the company expects that cash will continue to be used for acquisitions, capital expenditures, new product development, market expansion, dividend payments and payments related to the restructuring. The company may also purchase shares of its common stock depending on market conditions and subject to certain restrictions related to the New Alberto-Culver share distribution in connection with the Separation. As disclosed in the “Overview” section of MD&A, in January, 2007, the company sold a subsidiary which owned its corporate airplane. The company expects the sale will provide approximately $16.0 million of cash proceeds, net of income taxes arising from the transaction.

On November 12, 2006, the board of directors authorized the company to purchase up to 5 million shares of common stock. This new authorization replaced the previous authorization to purchase Old Alberto-Culver common stock. No shares have been purchased under the authorization as of December 31, 2006.

The company has obtained long-term financing as needed to fund acquisitions and other growth opportunities. Funds also may be obtained prior to their actual need in order to take advantage of opportunities in the debt markets. The company has a $300 million revolving credit facility which had no borrowings outstanding at December 31, 2006 or September 30, 2006. The facility may be drawn in U.S. dollars or certain foreign currencies. Under debt covenants, the company has sufficient flexibility to incur additional borrowings as needed. On November 13, 2006, the company amended the revolving credit facility to include a waiver for all covenants that may have been violated as a result of the Separation and extended the facility to November 13, 2011. The amended facility includes a new covenant that limits the company’s ability to purchase its common stock or pay dividends if the cumulative stock repurchases plus cash dividends exceeds $250 million plus 50% of “consolidated net income” (as defined in the credit agreement) commencing January 1, 2007.

In anticipation of the closing of the Separation, the company successfully completed a solicitation of consents from the holders of its $120 million of 6.375% debentures and entered into a supplemental indenture dated October 5, 2006. Under the terms of the supplemental indenture, the holders consented to the Separation, waived compliance with covenants that may have been violated as a result of the Separation and agreed that following the consummation of the Separation, neither New Sally nor any of its subsidiaries will have any obligation or liability with respect to the debentures and that none of them will be subject to any covenant or any other term of the indenture. On November 16, 2006, an additional supplemental indenture was executed which added the company as a full and unconditional guarantor of the 6.375% debentures.

The company is in compliance with the covenants and other requirements of its revolving credit agreement and 6.375% debentures. Additionally, the revolving credit agreement and the 6.375% debentures do not include credit rating triggers or subjective clauses that would accelerate maturity dates.

24

ALBERTO-CULVER COMPANY AND SUBSIDIARIES

The company’s primary contractual cash obligations are long-term debt and operating leases. The following table is a summary of contractual cash obligations and commitments outstanding by future payment dates at December 31, 2006: