Ulta 2008 Annual Report Download - page 47

Impact of inflation and changing prices
Although we do not believe that inflation has had a material impact on our financial position or results of
operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain
current levels of gross margin and selling, general and administrative expenses as a percentage of net sales if
the selling prices of our products do not increase with these increased costs. In addition, inflation could
materially increase the interest rates on our debt.
Off-balance sheet arrangements
Our off-balance sheet arrangements consist of operating lease obligations and letters of credit. We do not have
any non-cancelable purchase commitments as of January 31, 2009. Our letters of credit outstanding under our
revolving credit facility were $0.3 million as of January 31, 2009.
Contractual obligations
We lease retail stores, warehouses, corporate offices and certain equipment under operating leases with various
expiration dates through fiscal 2019. Our store leases generally have initial lease terms of 10 years and include
renewal options under substantially the same terms and conditions as the original leases. In addition to future
minimum lease payments, most of our lease agreements include escalating rent provisions which we recognize
straight-line over the term of the lease, including any lease renewal periods deemed to be probable. For certain
locations, we receive cash tenant allowances and we report these amounts as deferred rent, which is amortized
on a straight-line basis as a reduction of rent expense over the term of the lease, including any lease renewal
periods deemed to be probable. While a number of our store leases include contingent rentals, contingent rent
amounts are insignificant.
The following table summarizes our contractual arrangements and the timing and effect that such commitments
are expected to have on our liquidity and cash flows in future periods. The table below excludes variable
expenses related to contingent rent, common area maintenance, insurance and real estate taxes. The table
below includes obligations for executed agreements for which we do not yet have the right to control the use
of the property as of January 31, 2009:
Total
Less Than
1 Year
1to3
Years
3to5
Years
After 5
Years
(In thousands)
Operating lease obligations(1) .............. $627,586 $82,296 $159,070 $143,551 $242,669
Revolving credit facility(2) ................ 106,047 — 106,047 — —
Total ................................. $733,633 $82,296 $265,117 $143,551 $242,669
(1) Variable operating lease obligations related to common area maintenance, insurance and real estate taxes
are not included in the table above. Total expense related to common area maintenance, insurance and real
estate taxes for fiscal 2008 was $18.3 million.
(2) The $18.0 million reflected as a current liability on the consolidated balance sheet at January 31, 2009 rep-
resents the maximum portion of the outstanding balance that we intend to repay at any one point during
fiscal 2009. However, we are not contractually obligated to repay any principal on our revolving credit
facility until the term expires in May 2011. Interest payments on the variable rate revolving credit facility
are not included in the table above. Outstanding borrowings bear interest at the prime rate or the Eurodol-
lar rate plus 1.00% up to $100 million and 1.25% thereafter. The interest rate on the outstanding balances
under the facility as of January 31, 2009 was 1.52%.
Critical accounting policies and estimates
Management’s discussion and analysis of financial condition and results of operations is based upon our
consolidated financial statements, which have been prepared in accordance with U.S. generally accepted
accounting principals (GAAP). The preparation of these financial statements required the use of estimates and
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