##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended May 3, 2008
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number: 001-33764
 ULTA SALON, COSMETICS & FRAGRANCE, INC.
  Delaware
    
    36-3685240(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1000 Remington Blvd., Suite 120
    
    60440Bolingbrook, Illinois
    
    (Zip code)(Address of principal executive offices)
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



ULTA SALON, COSMETICS & FRAGRANCE, INC.
TABLE OF CONTENTS
 Part I   Financial InformationItem 1. Consolidated Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Income
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Consolidated Statements of Stockholders Equity
    
    
    8Notes to Consolidated Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    22Part II   Other Information
    
    
    22Item 1. Legal Proceedings
    
    
    22Item 1A. Risk Factors
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3. Defaults Upon Senior Securities
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    
    22Item 5. Other Information
    
    
    23Item 6. Exhibits
    
    
    26SIGNATURES
    
    
    27
  2




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##### Table of Contents



Part I   Financial Information
 
 Item 1. Consolidated Financial Statements
 Ulta Salon, Cosmetics & Fragrance, Inc.
 
 Consolidated Balance Sheets
 May 3,
    
    February 2,
    
    May 5(In thousands)
    
    2008
    
    2008
    
    2007(unaudited)
    
    
    
    
    
    (unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    3,975
    
    
    $
    3,789
    
    
    $
    3,161Receivables, net
    
    
    19,533
    
    
    
    20,643
    
    
    
    17,137Merchandise inventories, net
    
    
    212,564
    
    
    
    176,109
    
    
    
    152,867Prepaid expenses and other current assets
    
    
    22,435
    
    
    
    19,184
    
    
    
    19,041Deferred income taxes
    
    
    9,129
    
    
    
    9,219
    
    
    
    5,694Total current assets
    
    
    267,636
    
    
    
    228,944
    
    
    
    197,900Property and equipment, net
    
    
    255,123
    
    
    
    236,389
    
    
    
    174,916Deferred income taxes
    
    
    4,080
    
    
    
    4,080
    
    
    
    4,728Other assets
    
    
    
    
    
    
    
    
    
    
    308Total assets
    
    $
    526,839
    
    
    $
    469,413
    
    
    $
    377,852Liabilities and stockholders equityCurrent liabilities:Current portion  notes payable
    
    $
    18,143
    
    
    $
    
    
    
    $
    28,053Accounts payable
    
    
    66,508
    
    
    
    52,122
    
    
    
    50,922Accrued liabilities
    
    
    49,618
    
    
    
    54,719
    
    
    
    33,055Accrued income taxes
    
    
    6,872
    
    
    
    5,064
    
    
    
    Total current liabilities
    
    
    141,141
    
    
    
    111,905
    
    
    
    112,030Notes payable  less current portion
    
    
    86,391
    
    
    
    74,770
    
    
    
    55,038Deferred rent
    
    
    80,411
    
    
    
    71,235
    
    
    
    52,633Total liabilities
    
    
    307,943
    
    
    
    257,910
    
    
    
    219,701Commitments and contingenciesSeries III redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    4,792
 See accompanying notes to consolidated financial statements.
 3




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##### Table of Contents



Ulta Salon, Cosmetics & Fragrance, Inc.
Consolidated Balance Sheets (continued)
 May 3,
    
    February 2,
    
    May 5(In thousands, except per share data)
    
    2008
    
    2008
    
    2007(unaudited)
    
    
    
    
    
    (unaudited)Stockholders equity:Preferred stock
    
    $
    
    
    
    $
    
    
    
    $
    226,803Treasury stock-preferred, at cost
    
    
    
    
    
    
    
    
    
    
    (1,815
    )Common stock, $.01 par value, 400,000 shares
authorized; 57,780, 57,411 and 7,645 shares
issued; 57,275, 56,906 and 7,400 shares
outstanding; at May 3, 2008 (unaudited) and
February 3, 2008 and May 5, 2007 (unaudited),
respectively
    
    
    578
    
    
    
    574
    
    
    
    121Treasury stock-common, at cost
    
    
    (4,179
    )
    
    
    (4,179
    )
    
    
    (2,244
    )Additional paid-in capital
    
    
    287,922
    
    
    
    284,951
    
    
    
    16,333Related party notes receivable
    
    
    
    
    
    
    
    
    
    
    (4,094
    )Accumulated deficit
    
    
    (64,849
    )
    
    
    (69,124
    )
    
    
    (81,665
    )Accumulated other comprehensive loss
    
    
    (576
    )
    
    
    (719
    )
    
    
    (80
    )Total stockholders equity
    
    
    218,896
    
    
    
    211,503
    
    
    
    153,359Total liabilities and stockholders equity
    
    $
    526,839
    
    
    $
    469,413
    
    
    $
    377,852
 See accompanying notes to consolidated financial statements.
 4




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##### Table of Contents



Ulta Salon, Cosmetics & Fragrance, Inc.
 
 Consolidated Statements of Income
 (unaudited)
 Three months endedMay 3,
    
    May 5,(In thousands, except per share data)
    
    2008
    
    2007Net sales
    
    $
    239,298
    
    
    $
    194,113Cost of sales
    
    
    165,377
    
    
    
    134,600Gross profit
    
    
    73,921
    
    
    
    59,513Selling, general and administrative expenses
    
    
    62,065
    
    
    
    47,982Pre-opening expenses
    
    
    3,772
    
    
    
    1,656Operating income
    
    
    8,084
    
    
    
    9,875Interest expense
    
    
    915
    
    
    
    996Income before income taxes
    
    
    7,169
    
    
    
    8,879Income tax expense
    
    
    2,894
    
    
    
    3,560Net income
    
    $
    4,275
    
    
    $
    5,319Less preferred stock dividends
    
    
    
    
    
    
    3,743Net income available to common stockholders
    
    $
    4,275
    
    
    $
    1,576Net income per common share:Basic
    
    $
    0.08
    
    
    $
    0.22Diluted
    
    $
    0.07
    
    
    $
    0.10Weighted average common shares outstanding:Basic
    
    
    56,956
    
    
    
    7,185Diluted
    
    
    58,980
    
    
    
    50,972
 See accompanying notes to consolidated financial statements.
 5




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Ulta Salon, Cosmetics & Fragrance, Inc.
 
 Consolidated Statements of Cash Flows
 (unaudited)
 Three months endedMay 3,
    
    May 5,(Dollars in thousands)
    
    2008
    
    2007Operating activitiesNet income
    
    $
    4,275
    
    
    $
    5,319Adjustments to reconcile net income to net cash
used in operating activities:Depreciation and amortization
    
    
    12,018
    
    
    
    9,840Deferred income taxes
    
    
    
    
    
    
    (822
    )Non-cash stock compensation charges
    
    
    591
    
    
    
    289Excess tax benefits from stock-based compensation
    
    
    (1,083
    )
    
    
    Loss on disposal of property and equipment
    
    
    127
    
    
    
    135Change in operating assets and liabilities:Receivables
    
    
    1,110
    
    
    
    1,338Merchandise inventories
    
    
    (36,455
    )
    
    
    (23,630
    )Prepaid expenses and other assets
    
    
    (3,251
    )
    
    
    (3,758
    )Accounts payable
    
    
    14,386
    
    
    
    7,851Accrued liabilities
    
    
    (2,311
    )
    
    
    (12,999
    )Deferred rent
    
    
    9,176
    
    
    
    2,266Net cash used in operating activities
    
    
    (1,417
    )
    
    
    (14,171
    )Investing activitiesPurchases of property and equipment, net
    
    
    (30,545
    )
    
    
    (17,757
    )Receipt of related party notes receivable
    
    
    
    
    
    
    373Net cash used in investing activities
    
    
    (30,545
    )
    
    
    (17,384
    )Financing activitiesProceeds on long-term borrowings
    
    
    289,238
    
    
    
    239,123Payments on long-term borrowings
    
    
    (259,474
    )
    
    
    (206,769
    )Initial public offering issuance costs
    
    
    (59
    )
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    (1,830
    )Excess tax benefits from stock-based compensation
    
    
    1,083
    
    
    
    Proceeds from issuance of common stock under
stock plans
    
    
    1,360
    
    
    
    547Net cash provided by financing activities
    
    
    32,148
    
    
    
    31,071Net increase (decrease) in cash and cash equivalents
    
    
    186
    
    
    
    (484
    )Cash and cash equivalents at beginning of period
    
    
    3,789
    
    
    
    3,645Cash and cash equivalents at end of period
    
    $
    3,975
    
    
    $
    3,161
 See accompanying notes to consolidated financial statements.
 6




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Ulta Salon, Cosmetics & Fragrance, Inc.
Consolidated Statements of Cash Flows (continued)
(unaudited)
 Three months endedMay 3,
    
    May 5,(Dollars in thousands)
    
    2008
    
    2007Supplemental cash flow informationCash paid for interest
    
    $
    1,006
    
    
    $
    574Cash paid for income taxes
    
    $
    3
    
    
    $
    7,121Noncash investing and financing activities:Purchases of property and equipment included in
accrued liabilities
    
    $
    334
    
    
    $
    5,054Unrealized (gain) loss on interest rate swap hedge,
net of tax
    
    $
    (143
    )
    
    $
    99
 See accompanying notes to consolidated financial statements.
 7




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Ulta Salon, Cosmetics & Fragrance, Inc.
 
 Consolidated Statements of Stockholders Equity
 (unaudited)
 Treasury -
    
    
    
    
    
    
    
    
    
    AccumulatedCommon Stock
    
    Common Stock
    
    Additional
    
    
    
    
    
    Other
    
    TotalIssued
    
    
    
    
    
    Treasury
    
    
    
    
    
    Paid-In
    
    Accumulated
    
    Comprehensive
    
    Stockholders(In thousands, except per share data)
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Deficit
    
    Loss
    
    EquityBalance  February 2, 2008
    
    
    57,411
    
    
    $
    574
    
    
    
    (505
    )
    
    $
    (4,179
    )
    
    $
    284,951
    
    
    $
    (69,124
    )
    
    $
    (719
    )
    
    
    $ 211,503Common stock options exercised
    
    
    369
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    1,356
    
    
    
    
    
    
    
    
    
    
    
    1,360Unrealized gain on interest rate swap
hedge, net of $90 income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143
    
    
    
    143Net income for the three months ended
May 3, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,275
    
    
    
    
    
    
    
    4,275Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,418Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,083
    
    
    
    
    
    
    
    
    
    
    
    1,083Stock compensation charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    591
    
    
    
    
    
    
    
    
    
    
    
    591Initial public offering issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    
    
    
    
    
    
    
    
    (59
    )Balance  May 3, 2008
    
    
    57,780
    
    
    $
    578
    
    
    
    (505
    )
    
    $
    (4,179
    )
    
    $
    287,922
    
    
    $
    (64,849
    )
    
    $
    (576
    )
    
    
    $ 218,896
 See accompanying notes to consolidated financial statements.
 8




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##### Table of Contents



Ulta Salon, Cosmetics & Fragrance, Inc.
 
 Notes to Consolidated Financial Statements
 (unaudited)
 1. Business and basis of presentation
    Number ofState
    
    storesAlabama
    
    
    4Arizona
    
    
    20California
    
    
    28Colorado
    
    
    9Delaware
    
    
    1Florida
    
    
    17Georgia
    
    
    15Illinois
    
    
    30Indiana
    
    
    5Iowa
    
    
    2Kansas
    
    
    1Kentucky
    
    
    2Louisiana
    
    
    1Maryland
    
    
    5Massachusetts
    
    
    3Michigan
    
    
    5Minnesota
    
    
    6Nebraska
    
    
    1Nevada
    
    
    6New Jersey
    
    
    9New York
    
    
    8North Carolina
    
    
    10Ohio
    
    
    3Oklahoma
    
    
    5Oregon
    
    
    3Pennsylvania
    
    
    13South Carolina
    
    
    4Tennessee
    
    
    2Texas
    
    
    34Virginia
    
    
    7Washington
    
    
    4Wisconsin
    
    
    2Total
    
    
    265
    Reverse stock split
  9




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##### Table of Contents



Initial public offering
  2. Summary of significant accounting policies
  Fiscal quarter
  Share-based compensation
 Share-Based Payment
 Share-Based Payment Simplified Method for Plain
Vanilla Share Options,
  Three months endedMay 3, 2008
    
    
    May 5, 2007Volatility rate
    
    
    38% - 41 %
    
    
    45 %Risk-free interest rate
    
    
    2.00% - 2.70 %
    
    
    4.54 %Average expected life (years)
    
    
    5.00
    
    
6.25Dividend yield
    
    
    None
    
    
    None
  10




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##### Table of Contents



Income taxes
 Accounting for Uncertainty in Income Taxes,
 Comprehensive income
  Three months endedMay 3,
    
    
    May 5,2008
    
    
    2007Net income
    
    $
    4,275
    
    
    $
    5,319Unrealized (loss) gain on interest
rate swap hedge, net of income
tax
    
    
    143
    
    
    
    (99
    )Comprehensive income
    
    $
    4,418
    
    
    $
    5,220
 Recent accounting pronouncements
 Disclosures about Derivative Instruments and Hedging
Activities  an amendment of SFAS No. 133.
 3. Commitments and contingencies
 Leases 
 Securities litigation  Mirsky v. ULTA
 11




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##### Table of Contents



General litigation 
 4. Notes payable
     5. Financial instruments
    Fair Value Measurements,
 
    
    Level 1  observable inputs such as quoted prices for identical instruments in active
markets.
    
    Level 2  inputs other than quoted prices in active markets that are observable either
directly or indirectly through corroboration with observable market data.
 12




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##### Table of Contents




    
    Level 3  unobservable inputs in which there is little or no market data, which would
require the Company to develop its own assumptions.
  Fair value measurements usingLevel 1
    
    
    Level 2
    
    
    Level 3Interest rate swap liability
    
    $
    
    
    
    $
    952
    
    
    $
    
 6. Net income per common share
  Three months endedMay 3,
    
    
    May 5,2008
    
    
    2007Numerator for diluted net income per share  net
income
    
    $
    4,275
    
    
    $
    5,319Less preferred stock dividends
    
    
    
    
    
    
    3,743Numerator for basic net income per share
    
    $
    4,275
    
    
    $
    1,576Denominator
for basic net income per share 
weighted-average common shares
    
    
    56,956
    
    
    
    7,185Dilutive effect of stock options and non-vested stock
    
    
    2,024
    
    
    
    2,195Dilutive effect of convertible preferred stock
    
    
    
    
    
    
    41,592Denominator for diluted net income per share
    
    
    58,980
    
    
    
    50,972Net income per common share:Basic
    
    $
    0.08
    
    
    $
    0.22Diluted
    
    $
    0.07
    
    
    $
    0.10
  
 13




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with our consolidated financial statements and related notes included
elsewhere in this quarterly report. This discussion contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 and the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to,
among other things, future events and financial performance. You can identify these forward-looking
statements by the use of forward-looking words such as outlook, believes, expects, plans,
estimates, or other comparable words. Any forward-looking statements contained in this Form 10-Q
are based upon our historical performance and on current plans, estimates and expectations. The
inclusion of this forward-looking information should not be regarded as a representation by us or
any other person that the future plans, estimates or expectations contemplated by us will be
achieved. Such forward-looking statements are subject to various risks and uncertainties, which
include, without limitation: the impact of weakness in the economy; changes in the overall level
of consumer spending; changes in the wholesale cost of our products; the possibility that we may be
unable to compete effectively in our highly competitive markets; the possibility that our continued
opening of new stores could strain our resources and have a material adverse effect on our business
and financial performance; the possibility that new store openings may be impacted by developer or
co-tenant issues; the possibility that the capacity of our distribution and order fulfillment
infrastructure may not be adequate to support our recent growth and expected future growth plans;
the possibility of material disruptions to our information systems; weather conditions that could
negatively impact sales and other risk factors detailed in our public filings with the Securities
and Exchange Commission (the SEC), including risk factors contained in our Annual Report on Form
10-K for the year ended February 2, 2008. We assume no obligation to update any forward-looking
statements as a result of new information, future events or developments. References in the
following discussion to we, us, our, the Company, Ulta and similar references mean Ulta
Salon, Cosmetics & Fragrance, Inc. unless otherwise expressly stated or the context otherwise
requires.
 Overview
       14




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Basis of presentation
 
 
    
    the introduction of new products or brands;
    
    the location of new stores in existing store markets;
    
    competition;
    
    our ability to respond on a timely basis to changes in consumer preferences;
    
    the effectiveness of our various marketing activities; and
    
    the number of new stores opened and the impact on the average age of all of our
comparable stores.
  
    
    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;
    
    store occupancy costs including rent, depreciation and amortization, real estate taxes,
utilities, repairs and maintenance, insurance, licenses, and cleaning expenses;
    
    salon payroll and benefits; and
    
    shrink and inventory valuation reserves.
 15




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##### Table of Contents




    
    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 related to option grants which will result in increases
in expense as we implemented a structured stock option compensation program in 2007;
    
    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.
     16




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Results of operations
   Three months ended
    
    Three months endedMay 3,
    
    May 5,
    
    May 3,
    
    May 5,2008
    
    2007
    
    2008
    
    2007(Dollars in thousands)
    
    (Percentage of net sales)Net sales
    
    $
    239,298
    
    
    $
    194,113
    
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    165,377
    
    
    
    134,600
    
    
    
    69.1
    %
    
    
    69.3
    %Gross profit
    
    
    73,921
    
    
    
    59,513
    
    
    
    30.9
    %
    
    
    30.7
    %Selling, general and
administrative expenses
    
    
    62,065
    
    
    
    47,982
    
    
    
    25.9
    %
    
    
    24.7
    %Pre-opening expenses
    
    
    3,772
    
    
    
    1,656
    
    
    
    1.6
    %
    
    
    0.9
    %Operating income
    
    
    8,084
    
    
    
    9,875
    
    
    
    3.4
    %
    
    
    5.1
    %Interest expense
    
    
    915
    
    
    
    996
    
    
    
    0.4
    %
    
    
    0.5
    %Income before income taxes
    
    
    7,169
    
    
    
    8,879
    
    
    
    3.0
    %
    
    
    4.6
    %Income tax expense
    
    
    2,894
    
    
    
    3,560
    
    
    
    1.2
    %
    
    
    1.8
    %Net income
    
    $
    4,275
    
    
    $
    5,319
    
    
    
    1.8
    %
    
    
    2.7
    %Other operating data:Number stores end of period
    
    
    265
    
    
    
    203Comparable store sales increase
    
    
    3.9
    %
    
    
    9.2
    %
 Comparison of three months ended May 3, 2008 to three months ended May 5, 2007
 Net sales
  Gross profit
   17




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Selling, general and administrative expenses
  Pre-opening expenses
  Interest expense
  Income tax expense
  Net income
  Liquidity and capital resources
     18




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Credit facility
    Operating activities
  Three months endedMay 3,
    
    May 5,(Dollars in thousands)
    
    2008
    
    2007Net income
    
    $
    4,275
    
    
    $
    5,319Items not affecting cash:Depreciation and amoritzation
    
    
    12,018
    
    
    
    9,840Deferred income taxes
    
    
    
    
    
    
    (822
    )Non-cash stock compensation charges
    
    
    591
    
    
    
    289Excess tax benefits from stock-based compensation
    
    
    (1,083
    )
    
    
    Loss on disposal of property and equipment
    
    
    127
    
    
    
    135Changes in working capital items
    
    
    (17,345
    )
    
    
    (28,932
    )Net cash used in operating activities
    
    $
    (1,417
    )
    
    $
    (14,171
    )
  19




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##### Table of Contents



Investing activities
  Three months endedMay 3,
    
    May 5,(Dollars in thousands)
    
    2008
    
    2007Purchases of property and equipment, net
    
    $
    (30,545
    )
    
    $
    (17,757
    )Receipt of related party notes receivable
    
    
    
    
    
    
    373Net cash used in investing activities
    
    $
    (30,545
    )
    
    $
    (17,384
    )
  Financing activities
  Three months endedMay 3,
    
    May 5,(Dollars in thousands)
    
    2008
    
    2007Proceeds on long-term borrowings
    
    $
    289,238
    
    
    $
    239,123Payments on long-term borrowings
    
    
    (259,474
    )
    
    
    (206,769
    )Initial public offering issuance costs
    
    
    (59
    )
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    (1,830
    )Excess tax benefits from stock-based compensation
    
    
    1,083
    
    
    
    Proceeds from issuance of common stock under
stock plans
    
    
    1,360
    
    
    
    547Net cash provided by financing activities
    
    $
    32,148
    
    
    $
    31,071
  Contractual obligations
  Off-balance sheet arrangements
  20




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##### Table of Contents



Critical accounting policies and estimates
  Share-based compensation
 Share-Based Payment
 Share-Based Payment Simplified Method for
Plain Vanilla Share Options,
  Recent accounting pronouncements
 Disclosures about Derivative Instruments and Hedging
Activities  an amendment of SFAS No. 133.
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Interest rate sensitivity
  21




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control
 
 Part II   Other Information
 
 Item 1. Legal Proceedings
 Securities litigation  Mirsky v. ULTA
  General litigation 
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  22




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##### Table of Contents



Item 5. Other Information
  
    
    Ms. Kirby will remain as the President and Chief Executive Officer, and will retain
her duties as such. However, at such time as the Board may determine in the future,
Ms. Kirby will assist the Board in establishing and implementing a successorship
strategy in which she will transition her President and Chief Executive Officer duties
to a successor chosen by the Board.
    
    Her base salary for 2008 is $770,000, which will be reviewed annually by the
Compensation Committee and may be increased, but not decreased, unless in connection
with a decrease applicable to all or substantially all officers.
    
    Her target bonus for each year will be not less than 100% of base salary, but with
a maximum bonus of 200% base salary. Actual bonus earned will be based on achievement
of performance targets established by the Compensation Committee.
    
    As described in the 8 K/A filed on May 13, 2008, Ms. Kirby received a grant of an
option to purchase 625,000 shares with an exercise price equal to $14.06 per share
(the 2008 Options). The 2008 Options will vest and become exercisable in three
installments on the date Ulta releases its earnings in 2009, 2010 and 2011 for each
fiscal year as follows:
 
    
    250,000  fiscal year 2008-2009 earnings release date in 2009
    
    250,000  fiscal year 2009-2010 earnings release in 2010
    
    125,000  fiscal year 2010-2011 earnings release in 2011
  23




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##### Table of Contents




    
    On the first day that executives are allowed to trade in Ultas common stock in
2009 following the fiscal year 2008-2009 earnings release, she will be granted options
to purchase 200,000 shares at an exercise price equal to the fair market value of
Ultas common stock on such date (the 2009 Options). Such options will vest and
become exercisable in two equal installments in 2010 and 2011 on the date Ulta
releases its earnings for fiscal years 2009-2010 and 2010-2011. If Ms. Kirbys
employment is terminated without cause or she terminates her employment for good
reason then the 2009 Options will vest in full. If such termination occurs prior to
the scheduled grant date for the 2009 Options, then the 2009 Options will be granted
on the date immediately prior to her termination date, and will be fully vested and
exercisable at such time. The 2009 Options will have an exercise period of three
years from their date of grant, unless her employment is terminated for cause, in
which case the 2009 options will automatically expire and will no longer be
exercisable.
    
    On the first day that executives are allowed to trade in Ultas common stock in
2010 following the fiscal year 2009-2010 earnings release, Ms. Kirby will be granted
options to purchase 200,000 shares, at an exercise price equal the fair market value
of Ultas common stock on such date (the 2010 Options). The 2010 Options will vest
and become exercisable 100% in 2011 on the date Ulta releases its earnings for fiscal
year 2010-2011. If Ms. Kirbys employment is terminated without cause or she
terminates her employment for good reason then the 2010 Options will vest in full. If
such termination occurs prior to the scheduled grant date for the 2010 Options, then
the 2010 Options will be granted on the date immediately prior to her termination
date, and will be fully vested and exercisable at such time. The 2010 Options will
have an exercise period of three years from their date of grant, unless her employment
is terminated for cause, in which case the 2010 options will automatically expire and
will no longer be exercisable.
    
    Ms. Kirby will be able to exercise her options at anytime during their term whether
or not vested. If she exercises unvested options, the shares acquired will be
restricted, in that they will not be transferable and will be subject to forfeiture
upon the same terms as the options.
    
    Ms. Kirby will be eligible to receive one years salary payable in installments and
a pro rata bonus paid in a lump sum based on Ultas actual performance for the year in
which her employment terminates due to death or disability.
    
    In the event Ms. Kirbys employment is terminated without cause or she terminates
for good reason, she will be entitled to the following as severance:
 
    
    Two times her base salary in effect at the time of termination
payable in 12 installments
    
    Pro rata bonus based on Ultas performance for the year of
termination payable in a lump sum
    
    Continued health benefits under COBRA for a period of 18 months
at the same cost applicable to active employees
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##### Table of Contents




    
    If such termination is within 12 months following a change in
control, then she will fully vest in all options.
 
    
    All payments to be made and benefits to be received upon termination of employment
by reason of disability, without cause or for good reason, including the accelerated
vesting of the options and grant of the 2009 and 2010 options, are subject to
continued compliance with the terms of the noncompete described below and execution of
a general release of claims.
    
    For purposes of the employment agreement, Ulta may terminate her employment for
cause based on her :
 
    
    continued willful failure substantially to perform her duties,
following written notice;
    
    willful engagement in gross misconduct that is materially injurious
to Ulta;
    
    willful, fraudulent or dishonest action that is materially
detrimental to the business or reputation of Ulta;
    
    willful and material breach of the noncompete policy or any policy
of Ulta relating to discrimination, harassment or trading in Ultas
securities, after she has been given written notice detailing the
specific event constituting such breach and a period of thirty (30)
days following receipt of such notice to cure such event (if
susceptible to cure); or
    
    conviction of, or plea of guilty or nolo contendere to a
felony.
  
    
    A material reduction in her material duties and responsibilities, or
the assignment of duties materially inconsistent with her position as
previously assigned by the board of directors; provided, however, that
any reduction in duties and responsibilities and the assignment of new
duties in connection with the implementation of the successorship plan
will not be good reason;
    
    An adverse or material change in reporting responsibilities,
including any requirement that she report to anyone other than the
board of directors;
    
    Appointment of a successor chief executive officer or an executive
chairman prior to January 1, 2011;
    
    Except for reductions to all officers salaries, any material
reduction of her base salary or target bonus objective; or
    
    Any material breach by Ulta of its obligations under the agreement.
 
    
    In connection with entering into her employment agreement, Ms. Kirby executed an
Amended and Restated Policy Regarding Noncompetition, Nonsolicitation and Confidential Information
pursuant to which she agrees not to compete with Ulta during employment and for a period of two years thereafter, the first of those years by
providing services to any business located within the United States, Canada or Mexico
or through the Internet, that provide hairdressing, beauty salon and other spa services
and sell perfume, fragrances, cosmetics, salon products, beauty aids and related goods
and services at retail, or that distribute such goods, and during the second year by
providing services to any business located within the United States, Canada or Mexico
or through the Internet that engage solely in the retail distribution of hair styling,
beauty salon, spa services, fragrance, cosmetics, salon products, or beauty
aids/products.
 25




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##### Table of Contents



Item 6. Exhibits
 Exhibitnumber
    
    Description of document3.1
    
    Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Companys
Registration Statement on Form S-1 (file No. 333-144405)
filed with the Securities and Exchange Commission on August
17, 2007).3.2
    
    Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 to the Companys Registration Statement on Form
S-1 (file No. 333-144405) filed with the Securities and
Exchange Commission on August 17, 2007).4.1
    
    Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Companys Registration
Statement on Form S-1 (file No. 333-144405) filed with the
Securities and Exchange Commission on October 11, 2007).4.2
    
    Third Amended and Restated Registration Rights Agreement
between Ulta Salon, Cosmetics & Fragrance, Inc. and the
stockholders party thereto (incorporated by reference to
Exhibit 4.2 to the Companys Registration Statement on Form
S-1 (file No. 333-144405) filed with the Securities and
Exchange Commission on August 17, 2007).4.3
    
    Stockholder Rights Agreement (incorporated by reference to
Exhibit 4.4 to the Companys Registration Statement on Form
S-1 (file No. 333-144405) filed with the Securities and
Exchange Commission on August 17, 2007).10.1
    
    Second Amendment to Lease, dated February 20, 2008, by and between Bolingbrook
Investors, LLC and Ulta Salon, Cosmetics and Fragrance, Inc.10.2*
    
    Second Amendment to Lease, dated
March 17, 2008, by and between Southwest Valley Partners, LLC and Ulta Salon, Cosmetics and Fragrance, Inc.10.3*
    
    Acceptance Letter and Commencement Date Agreement, dated March 24, 2008, by and between Southwest Valley Partners, LLC and Ulta Salon, Cosmetics and Fragrance, Inc.10.4
    
    Employment Agreement, dated as of June 16, 2008, by
and between Ulta Salon, Cosmetics & Fragrance, Inc. and Lyn Kirby.31.1
    
    Certification of the Chief Executive Officer pursuant to
Rules 13a-14(a) and 15d-14(a) of the Securities Exchange
Act of 1934, as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to
Rules 13a-14(a) and 15d-14(a) of the Securities Exchange
Act of 1934, as adopted pursuant to section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
 
 *
    
    Confidential treatment has been requested with respect to certain portions of this Exhibit pursuant to Rule 24b-2
under the Securities Exchange Act. Omitted portions have been filed separately with the
Securities and
Exchange Commission. 26




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##### Table of Contents



SIGNATURES
  ULTA SALON, COSMETICS & FRAGRANCE, INC.By:
    /s/ Lynelle P. KirbyLynelle P. KirbyPresident, Chief Executive Officer and DirectorBy:
    /s/ Gregg R. BodnarGregg R. BodnarChief Financial Officer 27