Ulta 2014 Annual Report Download - page 67

incentive to employees, directors, and consultants to promote the success of the Company’s business. Incentive
compensation was awarded under the Amended and Restated Restricted Stock Option Plan until April 2002 and
under the 2002 Equity Incentive Plan through July 2007, at which time the 2007 Incentive Award Plan was
adopted. All of the plans generally provided for the grant of incentive stock options, nonqualified stock options,
restricted stock, restricted stock units, stock appreciation rights, and other types of awards to employees,
consultants and directors. Unless provided otherwise by the administrator of the plan, options vested over four
years at the rate of 25% per year from the date of grant and most must be exercised within ten years. Options
were granted with the exercise price equal to the fair value of the underlying stock on the date of grant.
2011 Incentive award plan
In June 2011, the Company adopted the 2011 Incentive Award Plan (the 2011 Plan). The 2011 Plan provides for
the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock
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 January 31, 2015, the 2011 Plan
reserves for the issuance upon grant or exercise of awards up to 4,409 shares of the Company’s common stock.
The Company recorded stock compensation expense of $14,923, $16,003 and $13,375 for fiscal 2014, 2013 and
2012, respectively. Cash received from option exercises under all share-based payment arrangements for fiscal
2014, 2013 and 2012 was $10,639, $21,890 and $31,530, respectively. The total income tax benefit recognized in
the income statement for equity compensation arrangements was $3,526, $4,812 and $5,364 for fiscal 2014, 2013
and 2012, respectively. The actual tax benefit realized for the tax deductions from option exercise and restricted
stock vesting of the share-based payment arrangements totaled $6,892, $18,169 and $51,886, respectively, for
fiscal 2014, 2013 and 2012.
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
2014
Fiscal
2013
Fiscal
2012
Volatility rate .................................................. 40.7% 49.2% 53.5%
Average risk-free interest rate ..................................... 1.4% 0.9% 1.2%
Average expected life (in years) ................................... 3.8 4.4 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 2014 and 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 2014 and 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.
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