Ulta 2013 Annual Report Download - page 65

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appreciation rights, performance awards, dividend equivalent rights, stock payments, deferred stock and cash-
based awards to employees, consultants, and directors. Following its adoption, awards are only being made under
the 2011 Plan, and no further awards will be made under any prior plan. As of February 1, 2014, the 2011 Plan
reserves for the issuance upon grant or exercise of awards up to 4,691 shares of the Company’s common stock.
The Company recorded stock compensation expense of $16,003, $13,375 and $11,605 for fiscal 2013, 2012 and
2011, respectively. Cash received from option exercises under all share-based payment arrangements for fiscal
2013, 2012 and 2011 was $21,890, $31,530 and $27,639, respectively. The total income tax benefit recognized in
the income statement for equity compensation arrangements was $4,812, $5,364 and $3,545 for fiscal 2013, 2012
and 2011, respectively. The actual tax benefit realized for the tax deductions from option exercise and restricted
stock vesting of the share-based payment arrangements totaled $18,169, $51,886 and $29,439, respectively, for
fiscal 2013, 2012 and 2011.
Employee stock options
The Company measures share-based compensation cost on the grant date, based on the fair value of the award,
and recognizes the expense on a straight-line method over the requisite service period for awards expected to
vest. The Company estimated the grant date fair value of stock options using a Black-Scholes valuation model
using the following weighted-average assumptions:
Fiscal
2013
Fiscal
2012
Fiscal
2011
Volatility rate .................................................. 49.2% 53.5% 54.0%
Average risk-free interest rate ..................................... 0.9% 1.2% 1.5%
Average expected life (in years) ................................... 4.4 6.3 6.3
Dividend yield ................................................. None None None
During fiscal 2013 the Company made changes to update the valuation assumptions to Company specific
information. These changes are reflected in the table above and had no material impact on the calculation. For
fiscal 2013 the expected volatility was based on the historical volatility of the ULTA Common Shares. The risk
free interest rate was 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 to be
outstanding. For fiscal 2013, the expected life of options granted was derived from historical data on ULTA stock
option exercises. Prior to 2013, we had limited historical data related to exercise behavior since our initial public
offering on October 30, 2007. As a result, the Company elected to use the shortcut approach to determine the
expected life in accordance with the SEC Staff Accounting Bulletin on share-based payments and the expected
volatility was based on the historical volatility of a peer group of publicly-traded companies. Beginning in fiscal
2013, the Company introduced a forfeiture rate. Forfeitures of options are estimated at the grant date based on
historical rates of the Company’s stock option activity and reduce the compensation expense recognized. The
Company does not currently pay a regular dividend. The dividend paid in May 2012 was a one-time special cash
dividend.
The Company granted 302 stock options during fiscal 2013. The compensation cost that has been charged against
income for stock option grants was $10,214, $11,967, and $9,731 for fiscal 2013, 2012, and 2011, respectively.
The weighted-average grant date fair value of options granted in fiscal 2013, 2012 and 2011 was $34.31,
$46.29 and $34.81, respectively. The total fair value of stock options issued that vested during fiscal 2013, 2012
and 2011 was $10,544, $12,089 and $10,451, respectively. At February 1, 2014, there was approximately
$18,074 of unrecognized compensation expense related to unvested stock options. The unrecognized
compensation expense is expected to be recognized over a weighted-average period of approximately two years.
The total intrinsic value of options exercised was $49,404, $138,291 and $86,030 in fiscal 2013, 2012 and 2011,
respectively.
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