Ulta 2008 Annual Report Download - page 71

interest rate swap as Level 2. The following table presents the Company’s financial liabilities as of January 31,
2009 measured at fair value on a recurring basis:
Level 1 Level 2 Level 3
Fair Value Measurement Using
Interest rate swap liability................................... $— $1,042 $—
9. Share-based awards
Amended and Restated Restricted Stock Option Plan
The Company has an Amended and Restated Restricted Stock Option Plan (the Amended Plan), principally to
compensate and provide an incentive to key employees and members of the board of directors, under which it
may grant options to purchase common stock. Options generally are granted with the exercise price equal to
the fair value of the underlying stock on the date of grant. Options vest over four years at the rate of 25% per
year from the date of issuance and must be exercised within the earlier to occur of 14 years from the date of
grant or the maximum period allowed by applicable state law.
2002 Equity Incentive Plan
In April 2002, the Company adopted the 2002 Equity Incentive Plan (the 2002 Plan) to attract and retain the
best available personnel for positions of substantial authority and to provide additional incentive to employees,
directors, and consultants to promote the success of the Company’s business. Options granted on or after
April 26, 2002 and before October 2007, were granted pursuant to the 2002 Plan. The 2002 Plan incorporates
several important features that are typically found in agreements adopted by companies that report their results
to the public. First, the maximum term of an option was reduced from 14 to ten years in order to comply with
various state laws. Second, the 2002 Plan provided more flexibility in the vesting period of options offered to
grantees. Third, the 2002 Plan allowed for the offering of incentive stock options to employees in addition to
nonqualified stock options. Unless provided otherwise by the administrator of the 2002 Plan, options vest over
four years at the rate of 25% per year from the date of grant. Options are granted with the exercise price
equal to the fair value of the underlying stock on the date of grant.
2007 Incentive Award Plan
In July 2007, the Company adopted the 2007 Incentive Award Plan (the 2007 Plan). The 2007 Plan provides
for the grant of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units,
stock appreciation rights, and other types of awards to employees, consultants, and directors. Following its
adoption, awards are only being made under the 2007 Plan, and no further awards are made under the
Amended Plan or the 2002 Plan. The 2007 Plan reserves for issuance upon grant or exercise of awards up to
4,108 shares of the Company’s common stock plus 598 shares which were not issued under the prior plans.
The Company estimated the grant date fair value of stock options using a Black-Scholes valuation model
using the following weighted-average assumptions:
Fiscal
2008
Fiscal
2007
Fiscal
2006
Volatility rate ............................................ 48.7% 37.0% 45.0%
Average risk-free interest rate ................................ 2.3% 4.7% 4.8%
Average expected life (in years) . . . ........................... 5.2 5.0 5.5
Dividend yield ........................................... None None None
The expected volatility is based on the historical volatility of a peer group of publicly-traded companies. The
risk free interest rate is based on the United States Treasury yield curve in effect on the date of grant for the
respective expected life of the option. The expected life represents the time the options granted are expected
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Ulta Salon, Cosmetics & Fragrance, Inc.
Notes to Consolidated Financial Statements — (Continued)