Ulta 2010 Annual Report Download - page 59

2009 and 2008, respectively. Prepaid advertising costs included in prepaid expenses and other current assets
were $3,804 and $4,000 as of January 29, 2011 and January 30, 2010, respectively.
Pre-opening expenses
Non-capital expenditures incurred prior to the grand opening of a new, remodeled or relocated store are
charged against earnings as incurred.
Cost of sales
Cost of sales includes the cost of merchandise sold including all vendor allowances, which are treated as a
reduction of merchandise costs; warehousing and distribution costs including labor and related benefits,
freight, rent, depreciation and amortization, real estate taxes, utilities, and insurance; shipping and handling
costs; store occupancy costs including rent, depreciation and amortization, real estate taxes, utilities, repairs
and maintenance, insurance, licenses, and cleaning expenses; salon payroll and benefits; customer loyalty
program expense; and shrink and inventory valuation reserves.
Selling, general and administrative expenses
Selling, general and administrative expenses includes payroll, bonus, and benefit costs for retail and corporate
employees; advertising and marketing costs; occupancy costs related to our corporate office facilities; public
company expense including Sarbanes-Oxley compliance expenses; stock-based compensation expense;
depreciation and amortization for all assets except those related to our retail and warehouse operations which
is included in cost of sales; and legal, finance, information systems and other corporate overhead costs.
Income taxes
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of
assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes and
the amounts reported were derived using the enacted tax rates in effect for the year the differences are
expected to reverse.
Income tax benefits related to uncertain tax positions are recognized only when it is more likely than not that
the tax position will be sustained on examination by the taxing authorities. The determination is based on the
technical merits of the position and presumes that each uncertain tax position will be examined by the relevant
taxing authority that has full knowledge of all relevant information. Penalties and interest related to
unrecognized tax positions are recorded in income tax expense. Although the Company believes that its
estimates are reasonable, actual results could differ from these estimates.
Share-based compensation
The Company accounts for share-based compensation in accordance with the Accounting Standards
Codification
TM
(ASC) rules for stock compensation. Share-based compensation cost is measured at grant date,
based on the fair value of the award, and is recognized on a straight-line method over the requisite service
period for awards expected to vest. The Company recorded stock compensation expense of $11,155, $5,949
and $3,877 for fiscal 2010, 2009 and 2008, respectively (see Note 10, “Share-based awards”).
Insurance expense
The Company has insurance programs with third party insurers for employee health, workers compensation
and general liability, among others, to limit the Company’s liability exposure. The insurance programs are
premium based and include retentions, deductibles and stop loss coverage. Current stop loss coverage is $150
for employee health claims, $100 for general liability claims and $250 for workers compensation claims. The
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Ulta Salon, Cosmetics & Fragrance, Inc.
Notes to Financial Statements — (Continued)