Ulta 2011 Annual Report Download - page 22

If we are unable to protect our intellectual property rights, our brand and reputation could be harmed, which
could have a material adverse effect on our business, financial condition, profitability and cash flows.
We regard our trademarks, trade dress, copyrights, trade secrets, know-how and similar intellectual property as
critical to our success. Our principal intellectual property rights include registered and common law trademarks
on our name, “Ulta,” and other marks incorporating that name, copyrights in our website content, rights to our
domain name www.ulta.com and trade secrets and know-how with respect to our Ulta branded product
formulations, product sourcing, sales and marketing and other aspects of our business. As such, we rely on
trademark and copyright law, trade secret protection and confidentiality agreements with certain of our
employees, consultants, suppliers and others to protect our proprietary rights. If we are unable to protect or
preserve the value of our trademarks, copyrights, trade secrets or other proprietary rights for any reason, or if
other parties infringe on our intellectual property rights, our brand and reputation could be impaired and we could
lose customers.
If our manufacturers are unable to produce products manufactured uniquely for Ulta, including Ulta branded
products and gift-with-purchase and other promotional products, consistent with applicable regulatory
requirements, we could suffer lost sales and be required to take costly corrective action, which could have a
material adverse effect on our business, financial condition, profitability and cash flows.
We do not own or operate any manufacturing facilities and therefore depend upon independent third-party
vendors for the manufacture of all products manufactured uniquely for Ulta, including Ulta branded products and
gift-with-purchase and other promotional products. Our third-party manufacturers of Ulta products may not
maintain adequate controls with respect to product specifications and quality and may not continue to produce
products that are consistent with applicable regulatory requirements. If we or our third-party manufacturers fail to
comply with applicable regulatory requirements, we could be required to take costly corrective action. In
addition, sanctions under various laws may include seizure of products, injunctions against future shipment of
products, restitution and disgorgement of profits, operating restrictions and criminal prosecution. The FDA does
not have a pre-market approval system for cosmetics, and we believe we are permitted to market our cosmetics
and have them manufactured without submitting safety or efficacy data to the FDA. However, cosmetic products
may become subject to more extensive regulation in the future. These events could interrupt the marketing and
sale of our Ulta products, severely damage our brand reputation and image in the marketplace, increase the cost
of our products, cause us to fail to meet customer expectations or cause us to be unable to deliver merchandise in
sufficient quantities or of sufficient quality to our stores, any of which could result in lost sales, which could have
a material adverse effect on our business, financial condition, profitability and cash flows.
We, as well as our vendors, are subject to laws and regulations that could require us to modify our current
business practices and incur increased costs, which could have a material adverse effect on our business,
financial condition, profitability and cash flows.
In our U.S. markets, numerous laws and regulations at the federal, state and local levels can affect our business.
Legal requirements are frequently changed and subject to interpretation, and we are unable to predict the ultimate
cost of compliance with these requirements or their effect on our operations. If we fail to comply with any
present or future laws or regulations, we could be subject to future liabilities, a prohibition on the operation of
our stores or a prohibition on the sale of our Ulta branded products. In particular, failure to adequately comply
with the following legal requirements could have a material adverse effect on our business, financial conditions,
profitability and cash flows.
‰In March 2010, comprehensive healthcare reform legislation under the Patient Protection and Affordable
Care Act and the Health Care Education and Affordability Reconciliation Act (collectively, the “Acts”) was
passed and signed into law. This healthcare reform legislation significantly expands healthcare coverage to
many uninsured individuals and to those already insured. Due to the breadth and complexity of the
healthcare reform legislation and the staggered implementation and uncertain timing of the regulations and
lack of interpretive guidance, it is difficult to predict the overall impact of the healthcare reform legislation
on our business over the coming years. Possible adverse effects include increased costs, exposure to
expanded liability and requirements for us to revise the ways in which we conduct business. Additionally,
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