Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as a part of this Form 10-K:

Reports of Independent Registered Public Accounting Firm			47
Consolidated Balance Sheets			49
Consolidated Statements of Income			50
Consolidated Statements of Cash Flows			51
Consolidated Statements of Stockholders’ Equity			52
Notes to Consolidated Financial Statements			56
Exhibits			71

The schedules required by Form 10-K have been omitted because they were inapplicable, included in the notes to the consolidated financial statements, or otherwise not required under the instructions contained in Regulation S-X.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Ulta Salon, Cosmetics & Fragrance, Inc.

We have audited the accompanying consolidated balance sheets of Ulta Salon, Cosmetics & Fragrance, Inc. (the Company) as of January 31, 2009 and February 2, 2008, and the related consolidated statements of income, cash flows, and stockholders’ equity for each of the three years in the period ended January 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ulta Salon, Cosmetics & Fragrance, Inc. at January 31, 2009 and February 2, 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 31, 2009, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Ulta Salon, Cosmetics & Fragrance, Inc.’s internal control over financial reporting as of January 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 31, 2009, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Chicago, Illinois

March 31, 2009

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

The Board of Directors and Stockholders

Ulta Salon, Cosmetics & Fragrance, Inc.

We have audited Ulta Salon, Cosmetics & Fragrance, Inc.’s internal control over financial reporting as of January 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Ulta Salon, Cosmetics & Fragrance, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Ulta Salon, Cosmetics & Fragrance, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 31, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Ulta Salon, Cosmetics & Fragrance, Inc. as of January 31, 2009 and February 2, 2008, and the related consolidated statements of income, cash flows and stockholders’ equity for each of the three years in the period ended January 31, 2009 and our report dated March 31, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Chicago, Illinois

March 31, 2009

Ulta Salon, Cosmetics & Fragrance, Inc. Consolidated Balance Sheets (In thousands, except per share data)

		**January 31, **				**February 2, **
		2009				2008
Assets
Current assets:
Cash and cash equivalents		$	3,638			$	3,789
Receivables, net			18,268				20,643
Merchandise inventories, net			213,602				176,109
Prepaid expenses and other current assets			24,294				19,184
Prepaid income taxes			8,628				—
Deferred income taxes			8,278				9,219
Total current assets			276,708				228,944
Property and equipment, net			292,224				236,389
Deferred income taxes			—				4,080
Total assets		$	568,932			$	469,413
Liabilities and stockholders’ equity
Current liabilities:
Current portion — notes payable		$	18,000			$	—
Accounts payable			47,811				52,122
Accrued liabilities			51,202				54,719
Accrued income taxes			—				5,064
Total current liabilities			117,013				111,905
Notes payable — less current portion			88,047				74,770
Deferred rent			101,288				71,235
Deferred income taxes			17,616				—
Total liabilities			323,964				257,910
Commitments and contingencies (note 4)
Stockholders’ equity:
Common stock, $.01 par value, 400,000 shares authorized; 58,245 and 57,411 shares issued; 57,740 and 56,906 shares outstanding; at January 31, 2009, and February 2, 2008, respectively			582				574
Treasury stock-common, at cost			(4,179	)			(4,179	)
Additional paid-in capital			293,052				284,951
Accumulated deficit			(43,856	)			(69,124	)
Accumulated other comprehensive loss			(631	)			(719	)
Total stockholders’ equity			244,968				211,503
Total liabilities and stockholders’ equity		$	568,932			$	469,413

See accompanying notes to consolidated financial statements.

Ulta Salon, Cosmetics & Fragrance, Inc. Consolidated Statements of Income (In thousands, except per share data)

		Fiscal Year Ended
		**January 31, **				**February 2, **				**February 3, **
		2009				2008				2007
Net sales		$	1,084,646			$	912,141			$	755,113
Cost of sales			756,712				628,495				519,929
Gross profit			327,934				283,646				235,184
Selling, general and administrative expenses			267,322				225,167				188,000
Pre-opening expenses			14,311				11,758				7,096
Operating income			46,301				46,721				40,088
Interest expense			3,943				4,542				3,314
Income before income taxes			42,358				42,179				36,774
Income tax expense			17,090				16,844				14,231
Net income		$	25,268			$	25,335			$	22,543
Less preferred stock dividends			—				11,219				14,584
Net income available to common stockholders		$	25,268			$	14,116			$	7,959
Net income per common share:
Basic		$	0.44			$	0.69			$	1.38
Diluted		$	0.43			$	0.48			$	0.45
Weighted average common shares outstanding:
Basic			57,425				20,383				5,771
Diluted			58,967				53,293				49,921

See accompanying notes to consolidated financial statements.

Ulta Salon, Cosmetics & Fragrance, Inc. Consolidated Statements of Cash Flows (In thousands)

		Fiscal Year Ended
		**January 31, **				**February 2, **				**February 3, **
		2009				2008				2007
Operating activities
Net income		$	25,268			$	25,335			$	22,543
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			51,445				39,503				29,736
Deferred income taxes			22,583				(3,284	)			(3,080	)
Non-cash stock compensation charges			3,877				2,283				983
Excess tax benefits from stock-based compensation			(1,774	)			(1,575	)			(5,360	)
Loss on disposal of property and equipment			267				195				3,518
Change in operating assets and liabilities:
Receivables			2,375				(2,167	)			(2,719	)
Merchandise inventories			(37,493	)			(46,872	)			(19,863	)
Prepaid expenses and other assets			(5,110	)			(3,594	)			(449	)
Income taxes			(11,918	)			4,373				(421	)
Accounts payable			(4,311	)			9,051				8,636
Accrued liabilities			(59	)			2,790				12,188
Deferred rent			30,053				20,868				9,918
Net cash provided by operating activities			75,203				46,906				55,630
Investing activities
Purchases of property and equipment			(110,863	)			(101,866	)			(62,331	)
Receipt of related party notes receivable			—				4,467				—
Issuance of related party notes receivable			—				—				(2,414	)
Net cash used in investing activities			(110,863	)			(97,399	)			(64,745	)
Financing activities
Proceeds on long-term borrowings			1,217,969				1,094,590				851,468
Payments on long-term borrowings			(1,186,692	)			(1,070,557	)			(846,112	)
Proceeds from issuance of common stock in initial
public offering, net of issuance costs			(59	)			123,608				—
Payment of accumulated dividends in arrears			—				(93,012	)			—
Redemption of Series III preferred stock			—				(4,792	)			—
Purchase of treasury stock			—				(1,950	)			(2,217	)
Excess tax benefits from stock-based compensation			1,774				1,575				5,360
Proceeds from issuance of common stock under stock plans			2,517				1,175				1,422
Net cash provided by financing activities			35,509				50,637				9,921
Net (decrease) increase in cash and cash equivalents			(151	)			144				806
Cash and cash equivalents at beginning of year			3,789				3,645				2,839
Cash and cash equivalents at end of year		$	3,638			$	3,789			$	3,645
Supplemental cash flow information
Cash paid for interest		$	4,764			$	5,429			$	3,798
Cash paid for income taxes		$	6,509			$	16,146			$	17,193
Noncash investing and financing activities:
Change in property and equipment included in accrued liabilities		$	(3,316	)		$	12,141			$	4,010
Unrealized gain (loss) on interest rate swap hedge, net of tax		$	88			$	(738	)		$	68
Issuance of related party notes receivable for exercise of stock options		$	—			$	—			$	(1,680	)

See accompanying notes to consolidated financial statements.

Ulta Salon, Cosmetics & Fragrance, Inc. Consolidated Statements of Stockholders’ Equity (In thousands, except per share data)

		**Series I **								**Series II **								**Series IV **								**Series V **								**Series V-I **
		**Convertible, Voting, **								**Convertible, Voting, **								**Convertible, Voting, **								**Convertible, Voting, **								**Convertible, Voting, **								**Total **								**Treasury - **
		Preferred Stock								Preferred Stock								Preferred Stock								Preferred Stock								Preferred Stock								Preferred Stock								Preferred Stock
**Par Value **		$.01								$.01								$.01								$.01								$.01
Authorized Shares		17,208								7,634								19,184								22,500								4,600
		**Issued **								**Issued **								**Issued **								**Issued **								**Issued **								**Issued **								**Treasury **
		Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount
Balance — January 28, 2006			16,915			$	39,040				7,634			$	74,455				19,184			$	42,296				21,448			$	50,576				920			$	2,108				66,101			$	208,475				(38	)		$	(12	)
Accretion of preferred dividends			—				4,277				—				—				—				4,575				—				5,503				—				229				—				14,584				—				—
Balance — February 3, 2007			16,915				43,317				7,634				74,455				19,184				46,871				21,448				56,079				920				2,337				66,101				223,059				(38	)			(12	)
Purchase of treasury stock			—				—				—				—				—				—				—				—				—				—				—				—				(360	)			(1,803	)
Accretion of preferred dividends			—				3,107				—				—				—				3,590				—				4,341				—				181				—				11,219				—				—
Payment of accumulated preferred dividends in arrears			—				(30,845	)			—				—				—				(31,311	)			—				(29,663	)			—				(1,193	)			—				(93,012	)			—				—
Conversion of preferred stock to common stock in conjunction with initial public offering			(16,915	)			(15,579	)			(7,634	)			(74,455	)			(19,184	)			(19,150	)			(21,448	)			(30,757	)			(920	)			(1,325	)			(66,101	)			(141,266	)			398				1,815
Balance — February 2, 2008			—			$	—				—			$	—				—			$	—				—			$	—				—			$	—				—			$	—				—			$	—

Ulta Salon, Cosmetics & Fragrance, Inc. Consolidated Statements of Stockholders’ Equity — (Continued) (In thousands)

										**Treasury - **																**Related **								**Accumulated **
		Common Stock								Common Stock								**Additional **				**Deferred **				**Party **								**Other **				**Total **
		**Issued **								**Treasury **								**Paid-In **				**Stock-based **				**Notes **				**Accumulated **				**Comprehensive **				**Stockholders’ **
		Shares				Amount				Shares				Amount				Capital				Compensation				Receivable				Deficit				Income (Loss)				Equity
										Shares				Amount
Balance — January 28, 2006			4,513			$	71				(1	)		$	—			$	6,533			$	(431	)		$	(373	)		$	(91,199	)		$	(49	)		$	123,015
Issuance of stock			2,896				46				—				—				3,056				—				—				—				—				3,102
Purchase of treasury stock			—				—				(241	)			(2,217	)			—				—				—				—				—				(2,217	)
Accretion of preferred dividends			—				—				—				—				—				—				—				(14,584	)			—				—
Issuance of related party notes receivable			—				—				—				—				—				—				(4,094	)			—				—				(4,094	)
Unrealized gain on interest rate swap hedge, net of $44 income tax			—				—				—				—				—				—				—				—				68				68
Net income for the fiscal year ended February 3, 2007			—				—				—				—				—				—				—				22,543				—				22,543
Comprehensive income			—				—				—				—				—				—				—				—				—				22,611
Excess tax benefits from stock-based compensation			—				—				—				—				5,360				—				—				—				—				5,360
Reclassification of deferred compensation on SFAS 123(R) adoption			—				—				—				—				(431	)			431				—				—				—				—
Stock compensation charge			—				—				—				—				690				—				—				—				—				690
Amortization of deferred stock-based compensation			—				—				—				—				293				—				—				—				—				293
Balance — February 3, 2007			7,409			$	117				(242	)		$	(2,217	)		$	15,501			$	—			$	(4,467	)		$	(83,240	)		$	19			$	148,760

Ulta Salon, Cosmetics & Fragrance, Inc. Consolidated Statements of Stockholders’ Equity — (Continued) (In thousands)

										**Treasury - **												**Related **								**Accumulated **
		Common Stock								Common Stock								**Additional **				**Party **								**Other **				**Total **
		**Issued **								**Treasury **								**Paid-In **				**Notes **				**Accumulated **				**Comprehensive **				**Stockholders’ **
		Shares				Amount				Shares				Amount				Capital				Receivable				Deficit				Income (Loss)				Equity
Balance — February 3, 2007			7,409			$	117				(242	)		$	(2,217	)		$	15,501			$	(4,467	)		$	(83,240	)		$	19			$	148,760
Common stock options exercised			559				5				—				—				1,170				—				—				—				1,175
Purchase of treasury stock			—				—				(11	)			(147	)			—				—				—				—				(1,950	)
Accretion of preferred dividends			—				—				—				—				—				—				(11,219	)			—				—
Receipt of related party notes receivable			—				—				—				—				—				4,467				—				—				4,467
Unrealized loss on interest rate swap hedge, net of $478 income tax			—				—				—				—				—				—				—				(738	)			(738	)
Net income for the fiscal year ended February 2, 2008			—				—				—				—				—				—				25,335				—				25,335
Comprehensive income			—				—				—				—				—				—				—				—				24,597
Excess tax benefits from stock-based compensation			—				—				—				—				1,575				—				—				—				1,575
Stock compensation charge			—				—				—				—				2,152				—				—				—				2,152
Amortization of deferred stock-based compensation			—				—				—				—				131				—				—				—				131
Restate par value of common stock			—				(43	)			—				—				43				—				—				—				—
Issuance of common stock in initial public offering, net of issuance costs			7,667				77				—				—				123,531				—				—				—				123,608
Payment of accumulated preferred dividends in arrears			—				—				—				—				—				—				—				—				(93,012	)
Conversion of preferred stock to common stock in conjunction with initial public offering			41,776				418				(252	)			(1,815	)			140,848				—				—				—				—
Balance — February 2, 2008			57,411			$	574				(505	)		$	(4,179	)		$	284,951			$	—			$	(69,124	)		$	(719	)		$	211,503

Ulta Salon, Cosmetics & Fragrance, Inc. Consolidated Statements of Stockholders’ Equity — (Continued) (In thousands)

										**Treasury - **																**Accumulated **
		Common Stock								Common Stock								**Additional **								**Other **				**Total **
		**Issued **								**Treasury **								**Paid-In **				**Accumulated **				**Comprehensive **				**Stockholders’ **
		Shares				Amount				Shares				Amount				Capital				Deficit				Loss				Equity
Balance — February 2, 2008			57,411			$	574				(505	)		$	(4,179	)		$	284,951			$	(69,124	)		$	(719	)		$	211,503
Common stock options exercised			834				8				—				—				2,509				—				—				2,517
Unrealized gain on interest rate swap hedge, net of $54 income tax			—				—				—				—				—				—				88				88
Net income for the fiscal year ended January 31, 2009			—				—				—				—				—				25,268				—				25,268
Comprehensive income			—				—				—				—				—				—				—				25,356
Excess tax benefits from stock-based compensation			—				—				—				—				1,774				—				—				1,774
Stock compensation charge			—				—				—				—				3,877				—				—				3,877
Initial public offering issuance costs			—				—				—				—				(59	)			—				—				(59	)
Balance — January 31, 2009			58,245			$	582				(505	)		$	(4,179	)		$	293,052			$	(43,856	)		$	(631	)		$	244,968

See accompanying notes to consolidated financial statements.

Ulta Salon, Cosmetics & Fragrance, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

1.	Business and basis of presentation

The accompanying consolidated financial statements of Ulta Salon, Cosmetics & Fragrance, Inc. (the Company) include Ulta Salon, Cosmetics & Fragrance, Inc. and its wholly owned subsidiary, Ulta Internet Holdings, Inc. (Internet). All intercompany balances and transactions have been eliminated. The operations of Internet were merged into the Company during 2006, resulting in its dissolution as a separate legal entity on November 30, 2006.

The Company was incorporated in the state of Delaware on January 9, 1990, to operate specialty retail stores selling cosmetics, fragrance, haircare and skincare products, and related accessories and services. The stores also feature full-service salons. As of January 31, 2009, the Company operated 311 stores in 36 states.

All amounts are stated in thousands, with the exception of per share amounts and number of stores.

Reverse stock split

On September 17, 2007, the Company’s board of directors approved a resolution to effect a reverse stock split of the Company’s common stock pursuant to which each share of common stock was to be converted into 0.632 of one share of common stock. The reverse stock split became effective on October 22, 2007. Any fractional shares resulting from the reverse stock split were rounded to the nearest whole share. Common share and per share amounts for all periods presented and the conversion ratio of preferred to common shares have been adjusted for the 0.632 for 1 reverse stock split.

Initial public offering

On October 30, 2007, the Company completed an initial public offering in which the Company sold 7,667 shares of common stock resulting in net proceeds of $123,549 after deducting underwriting discounts and commissions and offering expenses. Selling stockholders sold approximately 2,154 additional shares of common stock. The Company did not receive any proceeds from the sale of shares by the selling stockholders. The Company used the net proceeds from the offering to pay $93,012 of accumulated dividends in arrears on the Company’s preferred stock, which satisfied all amounts due with respect to accumulated dividends, $4,792 to redeem the Company’s Series III preferred stock, and $25,745 to reduce the Company’s borrowings under its third amended and restated loan and security agreement and for general corporate purposes. Also in connection with the offering, the Company converted preferred shares into 41,524 common shares and restated the par value of its common stock to $0.01 per share.

2.	Summary of significant accounting policies

Fiscal year

The Company’s fiscal year is the 52 or 53 weeks ending on the Saturday closest to January 31. The Company’s fiscal years ended January 31, 2009 (fiscal 2008), February 2, 2008 (fiscal 2007) and February 3, 2007 (fiscal 2006) were 52, 52 and 53 week years, respectively.

Reclassifications

Certain reclassifications have been made to the fiscal 2007 and 2006 operating activities in the consolidated statements of cash flows to separately present income taxes to conform to the fiscal 2008 presentation.

Use of estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets

Ulta Salon, Cosmetics & Fragrance, Inc. Notes to Consolidated Financial Statements — (Continued)

and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the accounting period. Actual results could differ from those estimates.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and highly liquid investments with maturities of three months or less from the date of purchase.

Receivables

Receivables consist principally of amounts receivable from vendors related to allowances earned but not yet received. These receivables are computed based on provisions of the vendor agreements in place and the Company’s completed performance. The Company’s vendors are primarily U.S.-based producers of consumer products. The Company does not require collateral on its receivables and does not accrue interest. Credit risk with respect to receivables is limited due to the diversity of vendors comprising the Company’s vendor base. The Company performs ongoing credit evaluations of its vendors and evaluates the collectibility of its receivables based on the length of time the receivable is past due and historical experience. The allowance for receivables totaled $296 and $309 as of January 31, 2009 and February 2, 2008, respectively.

Merchandise inventories

Merchandise inventories are stated at the lower of cost or market. Cost is determined using the weighted-average cost method and includes costs incurred to purchase and distribute goods. Inventory cost also includes vendor allowances related to co-op advertising, markdowns, and volume discounts. The Company maintains reserves for lower of cost or market and shrinkage.

Fair value of financial instruments

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximates their estimated fair values due to the short maturities of these instruments. The estimated fair value of the Company’s variable rate debt approximates its carrying value since the rate of interest on the variable rate debt is revised frequently based upon the current prime rate or the Eurodollar rate.

Derivative financial instruments

The Company’s derivative financial instrument is designated and qualifies as a cash flow hedge. Accordingly, the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income (loss) and reclassified into interest expense in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss, the ineffective portion, on the derivative instrument, if other than inconsequential, is recognized in interest expense during the period of change. Derivatives are recorded in the consolidated balance sheets at fair value.

Property and equipment

The Company’s property and equipment are stated at cost net of accumulated depreciation and amortization. Maintenance and repairs are charged to operating expense as incurred. The Company’s assets are depreciated or amortized using the straight-line method, over the shorter of their estimated useful lives or the expected lease term as follows:

Equipment and fixtures			3 to 10 years
Leasehold improvements			10 years
Electronic equipment and software			3 to 5 years

Ulta Salon, Cosmetics & Fragrance, Inc. Notes to Consolidated Financial Statements — (Continued)

The Company capitalizes costs incurred during the application development stage in developing or obtaining internal use software. These costs are amortized over the estimated useful life of the software.

The Company capitalizes interest related to construction projects and depreciates that amount over the lives of the related assets.

The Company periodically evaluates whether changes have occurred that would require revision of the remaining useful life of equipment and leasehold improvements or render them not recoverable. If such circumstances arise, the Company uses an estimate of the undiscounted sum of expected future operating cash flows during their holding period to determine whether the long-lived assets are impaired. If the aggregate undiscounted cash flows are less than the carrying amount of the assets, the resulting impairment charges to be recorded are calculated based on the excess of the carrying value of the assets over the fair value of such assets, with the fair value determined based on an estimate of discounted future cash flows.

Customer loyalty program

The Company maintains several customer loyalty programs. The Company’s national program provides reward point certificates for free beauty products. Customers earn purchased-based reward points and redeem the related reward certificate during specific promotional periods during the year. The Company is also piloting a loyalty program in several markets in which customers earn purchased-based points on an annual basis which can be redeemed at any time. The Company accrues the anticipated redemptions related to these programs at the time of the initial purchase based on historical experience. The accrued liability related to both of the loyalty programs at January 31, 2009 and February 2, 2008 was $3,309 and $3,293, respectively. The cost of these programs, which was $9,002, $8,167 and $6,660 in fiscal 2008, 2007 and 2006, respectively, is included in cost of sales in the consolidated statements of income.

Deferred rent

Many of the Company’s operating leases contain predetermined fixed increases of the minimum rental rate during the lease. For these leases, the Company recognizes the related rental expense on a straight-line basis over the expected lease term, including cancelable option periods where failure to exercise such options would result in an economic penalty, and records the difference between the amounts charged to expense and the rent paid as deferred rent. The lease term commences on the earlier of the date when the Company becomes legally obligated for rent payments or the date the Company takes possession of the leased space.

As part of many lease agreements, the Company receives construction allowances from landlords for tenant improvements. These leasehold improvements made by the Company are capitalized and amortized over the shorter of their estimated useful lives or the lease term. The construction allowances are recorded as deferred rent and amortized on a straight-line basis over the lease term as a reduction of rent expense.

Revenue recognition

Net sales include merchandise sales and salon service revenue. Revenue from merchandise sales at stores is recognized at the time of sale, net of estimated returns. E-commerce sales are recorded upon the shipment of merchandise. Salon revenue is recognized when services are rendered. Revenues from gift cards are deferred and recognized when redeemed. Company coupons and other incentives are recorded as a reduction of net sales. State sales taxes are presented on a net basis as the Company considers itself a pass-through conduit for collecting and remitting state sales tax.

Vendor allowances

The Company receives allowances from vendors in the normal course of business including advertising and markdown allowances, purchase volume discounts and rebates, and reimbursement for defective merchandise,

Ulta Salon, Cosmetics & Fragrance, Inc. Notes to Consolidated Financial Statements — (Continued)

and certain selling and display expenses. Substantially all vendor allowances are recorded as a reduction of the vendor’s product cost and are recognized in cost of sales as the product is sold.

Advertising

Advertising expense consists principally of paper, print, and distribution costs related to the Company’s advertising circulars. The Company expenses the production and distribution costs related to its advertising circulars in the period the related promotional event occurs. As of January 31, 2009 and February 2, 2008, all advertising costs had been expensed. Total advertising costs, exclusive of incentives from vendors and start-up advertising expense, amounted to $70,804, $56,107 and $43,383 for fiscal 2008, 2007 and 2006, respectively.

Pre-opening expenses

Non-capital expenditures incurred prior to the grand opening of a new 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; 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.

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.

Share-based compensation

Effective January 29, 2006, the Company adopted the fair value recognition and measurement provisions of Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment. Pursuant to SFAS No. 123(R), share-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the requisite service period for awards expected to vest. As a non-public entity that previously used the minimum value method for pro forma disclosure purposes under SFAS No. 123, the Company was required to adopt the prospective method of accounting under SFAS No. 123(R). Under this transitional method, the Company records compensation expense in the consolidated statements of income for all awards granted after the adoption date and to awards modified, repurchased or cancelled after the adoption date using the fair value provisions of SFAS No. 123(R).

The Company recorded stock compensation expense of $3,877, $2,283 and $3,472 for fiscal 2008, 2007 and 2006, respectively (see Note 9, “Share-based awards”).

Ulta Salon, Cosmetics & Fragrance, Inc. Notes to Consolidated Financial Statements — (Continued)

Self-insurance

The Company is self-insured for certain losses related to employee health and workers’ compensation although stop loss coverage with third-party insurers is maintained to limit the Company’s liability exposure. Liabilities associated with these losses are estimated in part by considering historical claims experience, industry factors, severity factors, and actuarial assumptions. Should a different amount of liabilities develop compared to what was estimated, reserves may need to be adjusted accordingly in future periods.

Net income per common share

Basic net income per common share is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share includes dilutive common stock equivalents, using the treasury stock method, and in fiscal 2007 and 2006 assumes that the convertible preferred shares outstanding were converted, with related preferred stock dividend requirements and outstanding common shares adjusted accordingly, except when the effect would be anti-dilutive.

Recent accounting pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 for financial assets and liabilities and recurring non-financial assets and liabilities. The FASB has provided a one year deferral for all non-financial and non-recurring assets and liabilities. The Company will adopt SFAS No. 157 for non-financial assets and non-financial liabilities in the first quarter of fiscal 2009 and does not expect the adoption to have a material effect on its consolidated financial position or results of operations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of SFAS No. 133. SFAS No. 161 is intended to help investors better understand how derivative instruments and hedging activities affect an entity’s financial position, financial performance and cash flows through enhanced disclosure requirements. The enhanced disclosures primarily surround disclosing the objectives and strategies for using derivative instruments by their underlying risk as well as a tabular format of the fair values of the derivative instruments and their gains and losses. SFAS No. 161 is effective for quarterly interim periods beginning after November 15, 2008, and fiscal years that include those quarterly interim periods. The Company will adopt SFAS No. 161 in the first quarter of fiscal 2009 and does not expect the adoption to have a material effect on its consolidated financial position or results of operations as it is disclosure-only in nature.

Ulta Salon, Cosmetics & Fragrance, Inc. Notes to Consolidated Financial Statements — (Continued)

3.	Property and equipment

Property and equipment consist of the following:

		**January 31, **				**February 2, **
		2009				2008
Equipment and fixtures		$	173,994			$	136,039
Leasehold improvements			199,007				149,022
Electronic equipment and software			78,541				61,761
Construction-in-progress			18,081				30,316
			469,623				377,138
Less accumulated depreciation and amortization			(177,399	)			(140,749	)
Property and equipment, net		$	292,224			$	236,389

For the fiscal years 2008, 2007 and 2006, the Company capitalized interest of $799, $771 and $399, respectively.

4.	Commitments and contingencies

Leases — The Company leases retail stores, distribution and office facilities, and certain equipment. Original non-cancelable lease terms range from three to ten years, and store leases generally contain renewal options for additional years. A number of the Company’s store leases provide for contingent rentals based upon sales. Contingent rent amounts were insignificant in fiscal 2008, 2007 and 2006. Total rent expense under operating leases was $66,640, $51,977 and $41,135 for fiscal 2008, 2007 and 2006, respectively.

Future minimum lease payments under operating leases as of January 31, 2009, are as follows:

		**Operating **
Fiscal year		Leases
2009		$	82,296
2010			81,868
2011			77,202
2012			73,323
2013			70,228
2014 and thereafter			242,669
Total minimum lease payments		$	627,586

Included in the operating lease schedule above is $74,148 and $13,580 of minimum lease payments for stores that will open in fiscal 2009 and 2010, respectively.

Securities litigation — In December 2007 and January 2008, three putative securities class action lawsuits were filed against the Company and certain of its current and then-current executive officers in the United States District Court for the Northern District of Illinois. Each suit alleges that the prospectus and registration statement filed pursuant to the Company’s initial public offering contained materially false and misleading statements and failed to disclose material facts. Each suit claims violations of Sections 11, 12(a)(2) and/or 15 of the Securities Act of 1933, and the two later filed suits added claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as the associated Rule 10b-5. In February 2008, two of the plaintiffs filed competing motions to consolidate the actions and appoint lead plaintiffs and lead plaintiffs’ counsel. On March 18, 2008, after one of the plaintiffs withdrew his motion, the suits were consolidated and plaintiffs in the Mirsky v. ULTA action were appointed lead plaintiffs. Lead plaintiffs filed their amended complaint on May 19, 2008. The amended complaint alleges no new violations of the securities laws not asserted in the

Ulta Salon, Cosmetics & Fragrance, Inc. Notes to Consolidated Financial Statements — (Continued)

prior complaints. It adds no new defendants and drops one of the then-current officers as a defendant. On July 21, 2008, Defendants filed a motion to dismiss the Amended Complaint. On September 24, 2008, Lead Plaintiffs filed their opposition to the motion to dismiss, and on October 24, 2008, Defendants filed their reply memorandum in support of their motion to dismiss. On March 19, 2009, Defendants’ motion to dismiss was denied.

Although the Company intends to defend itself vigorously in this lawsuit, an adverse resolution may have a material adverse effect on the Company’s financial position and results of operations in the period in which the lawsuit is resolved. The Company is not presently able to reasonably estimate potential losses, if any, related to the lawsuit.

General litigation — The Company is also involved in various legal proceedings that are incidental to the conduct of its business, including, but not limited to, employment related claims. In the opinion of management, the amount of any liability with respect to these proceedings, either individually or in the aggregate, will not be material.

5.	Accrued liabilities

Accrued liabilities consist of the following:

		**January 31, **				**February 2, **
		2009				2008
Accrued vendor liabilities (including accrued property and equipment costs)		$	13,265			$	17,222
Accrued customer liabilities			12,908				11,910
Accrued payroll, bonus, and employee benefits			7,914				12,537
Accrued taxes, other			7,152				5,675
Other accrued liabilities			9,963				7,375
Accrued liabilities		$	51,202			$	54,719

6.	Income taxes

The provision for income taxes consists of the following:

		**Fiscal **				**Fiscal **				**Fiscal **
		2008				2007				2006
Current:
Federal		$	2,383			$	18,150			$	15,165
State			1,935				2,369				2,102
Total current			4,318				20,519				17,267
Deferred:
Federal			11,725				(3,102	)			(2,228	)
State			1,047				(573	)			(808	)
Total deferred			12,772				(3,675	)			(3,036	)
Provision for income taxes		$	17,090			$	16,844			$	14,231

Ulta Salon, Cosmetics & Fragrance, Inc. Notes to Consolidated Financial Statements — (Continued)

A reconciliation of the federal statutory rate to the Company’s effective tax rate is as follows:

		**Fiscal **				**Fiscal **				**Fiscal **
		2008				2007				2006
Federal statutory rate			35.0	%			35.0	%			35.0	%
State effective rate, net of federal tax benefit			3.4	%			4.3	%			3.4	%
Other			1.9	%			0.6	%			0.3	%
Effective tax rate			40.3	%			39.9	%			38.7	%

Significant components of the Company’s deferred tax assets and liabilities are as follows:

		**January 31, **				**February 2, **
		2009				2008
Deferred tax assets:
Reserves not currently deductible		$	10,491			$	11,655
Employee benefits			2,576				2,315
Net operating loss carryforwards			989				963
Accrued liabilities			2,799				1,038
Property and equipment			—				671
Inventory valuation			—				243
Total deferred tax assets			16,855				16,885
Deferred tax liabilities:
Property and equipment			15,771				—
Deferred rent obligation			5,815				3,586
Prepaid expenses			4,483				—
Inventory valuation			124				—
Total deferred tax liabilities			26,193				3,586
Net deferred tax (liability) asset		$	(9,338	)		$	13,299

At January 31, 2009, the Company had net operating loss carryforwards (NOLs) for federal and state income tax purposes of approximately $1,760 and $5,166, respectively, which expire between 2009 and 2014. Based on Internal Revenue Code Section 382 relating to changes in ownership of the Company, utilization of the federal NOLs is subject to an annual limitation of $440 for federal NOLs created prior to April 1, 1997.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on February 4, 2007. The adoption had no effect on the Company’s consolidated financial position or results of operations. The Company’s liability for unrecognized tax benefits is insignificant. The Company’s policy is to recognize income tax-related interest and penalties as part of income tax expense. Income tax-related interest and penalties recorded in the consolidated financial statements were insignificant for fiscal 2008, 2007 and 2006. The Company conducts business only in the United States. Accordingly, the tax years that remain open to examination by U.S. federal, state, and local tax jurisdictions are generally the three prior years, or fiscal 2007, 2006 and 2005.

7.	Notes payable

The Company’s credit facility is with LaSalle Bank National Association as the administrative agent, Wachovia Capital Finance Corporation as collateral agent, and JP Morgan Chase Bank as documentation agent. This facility provides maximum credit of $200,000 through May 31, 2011. The credit facility agreement contains a restrictive financial covenant requiring the Company to maintain tangible net worth of not less than

Ulta Salon, Cosmetics & Fragrance, Inc. Notes to Consolidated Financial Statements — (Continued)

$80,000. On January 31, 2009, the Company’s tangible net worth was approximately $245,000. Substantially all of the Company’s assets are pledged as collateral for outstanding borrowings under the facility. Outstanding borrowings bear interest at the prime rate or the Eurodollar rate plus 1.00% up to $100,000 and 1.25% thereafter. The advance rates on owned inventory are 80% (85% from September 1 to January 31).

The weighted-average interest rate on the outstanding borrowings as of January 31, 2009 and February 2, 2008, was 1.52% and 4.81%, respectively. At January 31, 2009, the Company had $106,047 of outstanding borrowings under the facility. The Company has classified $88,047 as long-term as this is the minimum amount that the Company believes will remain outstanding for an uninterrupted period over the next year. The Company had approximately $86,764 and $73,140 (excluding the accordion option which was exercised on August 15, 2008) of availability as of January 31, 2009 and February 2, 2008, respectively.

The Company has an ongoing letter of credit that renews annually in October, the balance of which was $326 as of January 31, 2009 and February 2, 2008.

8.	Financial instruments

The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is interest rate risk. Interest rate swaps are entered into to manage interest rate risk associated with the Company’s variable-rate borrowings.

On January 31, 2007, the Company entered into an interest rate swap agreement with a notional amount of $25,000 that qualified as a cash flow hedge to obtain a fixed interest rate on variable rate debt and reduce certain exposures to interest rate fluctuations. The swap results in fixed rate payments at an interest rate of 5.11% for a term of three years.

As of January 31, 2009 and February 2, 2008, the interest rate swap had a negative fair value of $1,042 and $1,184, respectively, and is included in accrued liabilities. The change in market value during fiscal 2008 and 2007 related to the effective portion of the cash flow hedge was recorded as an unrecognized gain or loss in the accumulated other comprehensive loss section of stockholders’ equity in the consolidated balance sheets. Amounts related to any ineffectiveness, which are insignificant, are recorded as interest expense.

Interest rate differentials paid or received under this agreement are recognized as adjustments to interest expense. The Company does not hold or issue interest rate swap agreements for trading purposes. In the event that a counter-party fails to meet the terms of the interest rate swap agreement, the Company’s exposure is limited to the interest rate differential. The Company manages the credit risk of counterparties by dealing only with institutions that the Company considers financially sound. The Company considers the risk of non-performance to be remote.

On February 3, 2008, the Company adopted SFAS No. 157, Fair Value Measurements, for financial assets and liabilities. The adoption had no impact on the Company’s consolidated financial statements. SFAS No. 157 established a three-tier hierarchy for fair value measurements, which prioritizes the inputs used in measuring fair value as follows:

a. Level 1 — observable inputs such as quoted prices for identical instruments in active markets.

b. Level 2 — inputs other than quoted prices in active markets that are observable either directly or indirectly through corroboration with observable market data.

c. Level 3 — unobservable inputs in which there is little or no market data, which would require the Company to develop its own assumptions.

The Company’s interest rate swap is required to be measured at fair value on a recurring basis. The fair value of the interest rate swap is determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Therefore, the Company has categorized the

Ulta Salon, Cosmetics & Fragrance, Inc. Notes to Consolidated Financial Statements — (Continued)

interest rate swap as Level 2. The following table presents the Company’s financial liabilities as of January 31, 2009 measured at fair value on a recurring basis:

		Fair Value Measurement Using
		Level 1				Level 2				Level 3
Interest rate swap liability		$	—			$	1,042			$	—

9.	Share-based awards

Amended and Restated Restricted Stock Option Plan

The Company has an Amended and Restated Restricted Stock Option Plan (the Amended Plan), principally to compensate and provide an incentive to key employees and members of the board of directors, under which it may grant options to purchase common stock. Options generally are granted with the exercise price equal to the fair value of the underlying stock on the date of grant. Options vest over four years at the rate of 25% per year from the date of issuance and must be exercised within the earlier to occur of 14 years from the date of grant or the maximum period allowed by applicable state law.

2002 Equity Incentive Plan

In April 2002, the Company adopted the 2002 Equity Incentive Plan (the 2002 Plan) to attract and retain the best available personnel for positions of substantial authority and to provide additional incentive to employees, directors, and consultants to promote the success of the Company’s business. Options granted on or after April 26, 2002 and before October 2007, were granted pursuant to the 2002 Plan. The 2002 Plan incorporates several important features that are typically found in agreements adopted by companies that report their results to the public. First, the maximum term of an option was reduced from 14 to ten years in order to comply with various state laws. Second, the 2002 Plan provided more flexibility in the vesting period of options offered to grantees. Third, the 2002 Plan allowed for the offering of incentive stock options to employees in addition to nonqualified stock options. Unless provided otherwise by the administrator of the 2002 Plan, options vest over four years at the rate of 25% per year from the date of grant. Options are granted with the exercise price equal to the fair value of the underlying stock on the date of grant.

2007 Incentive Award Plan

In July 2007, the Company adopted the 2007 Incentive Award Plan (the 2007 Plan). The 2007 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, and other types of awards to employees, consultants, and directors. Following its adoption, awards are only being made under the 2007 Plan, and no further awards are made under the Amended Plan or the 2002 Plan. The 2007 Plan reserves for issuance upon grant or exercise of awards up to 4,108 shares of the Company’s common stock plus 598 shares which were not issued under the prior plans.

The Company estimated the grant date fair value of stock options using a Black-Scholes valuation model using the following weighted-average assumptions:

		**Fiscal **		**Fiscal **		**Fiscal **
		2008		2007		2006
Volatility rate		48.7%		37.0%		45.0%
Average risk-free interest rate		2.3%		4.7%		4.8%
Average expected life (in years)		5.2		5.0		5.5
Dividend yield		None		None		None

The expected volatility is based on the historical volatility of a peer group of publicly-traded companies. The risk free interest rate is 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

Ulta Salon, Cosmetics & Fragrance, Inc. Notes to Consolidated Financial Statements — (Continued)

to be outstanding. The Company has elected to use the shortcut approach in accordance with Staff Accounting Bulletin (SAB) No. 107, Share-Based Payment, and SAB No. 110, Simplified Method for Plain Vanilla Share Options, to develop the expected life. Any dividend the Company might declare in the future would be subject to the applicable provisions of its credit agreement, which currently restricts the Company’s ability to pay cash dividends. The Company recognizes compensation cost related to the stock options on a straight-line method over the requisite service period.

The Company granted 1,856 stock options during fiscal 2008. The weighted-average grant date fair value of options granted in fiscal 2008, 2007 and 2006 was $5.46, $5.64 and $2.67, respectively. At January 31, 2009, there was approximately $12,451 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 since the Company’s initial public offering on October 25, 2007 was $8,267 and $2,631 in fiscal 2008 and 2007, respectively.

A summary of the status of the Company’s stock option activity under the Amended Plan, the 2002 Plan and the 2007 Plan is presented in the following tables:

		Common Stock Options
		Fiscal 2008								Fiscal 2007								Fiscal 2006
						**Weighted- **								**Weighted- **								**Weighted- **
						**Average **								**Average **								**Average **
Options Outstanding		Shares				Exercise Price				Shares				Exercise Price				Shares				Exercise Price
Beginning of year			4,644			$	7.35				4,122			$	3.51				6,139			$	1.61
Granted			1,856				13.39				1,136				18.58				1,330				6.21
Exercised			(834	)			3.02				(559	)			2.11				(2,882	)			1.08
Canceled			(366	)			5.51				(55	)			4.85				(465	)			1.52
End of year			5,300			$	10.27				4,644			$	7.35				4,122			$	3.51
Exercisable at end of year			2,296			$	6.17				2,409			$	4.01				2,050			$	2.34

The Company recognized $25 of stock compensation expense during fiscal 2006 for options granted during fiscal 2001 and 2002 under the Amended Plan. The compensation expense related to these option grants was fully amortized at February 3, 2007. The stock compensation charge represents the difference at the measurement date between the exercise price and the deemed fair value of the Common Stock underlying the options.

Included in the grants for fiscal 2007 and 2006, are 632 and 253 performance-based options, respectively, whose vesting began upon the initial public offering of the Company’s common stock. The fair value of these grants was estimated on the date of the grant using the Black-Scholes valuation model as described above. The Company completed an initial public offering during fiscal 2007 which resulted in compensation expense related to these grants of $576 and $911 in fiscal 2008 and 2007, respectively. No performance-based options were granted during fiscal 2008.

During fiscal 2006, two former officers of the Company exercised vested options for 284 shares of common stock, which were immediately repurchased by the Company for $2,489. Compensation expense was recognized for this amount which represents the excess of the fair value of the common stock over the exercise price of the options.

Restricted Stock Option Plan — Consultants

During fiscal 1999, the Company established a Restricted Stock Option Plan — Consultants (the Consultant Plan) under which the Company may grant options to purchase Common Stock to various consultants who,

Ulta Salon, Cosmetics & Fragrance, Inc. Notes to Consolidated Financial Statements — (Continued)

from time to time, provide critical services to the Company. Options are granted with the exercise price equal to the fair value of the underlying stock on the date of grant. Options vest over varying time periods depending on the arrangement with each consultant and must be exercised within 4 years and 90 days from the date of grant.

A following table presents summary information related to the Company’s common stock option activity under the Consultant Plan, which does not apply to fiscal 2008 and 2007:

		Fiscal 2006
						**Weighted- **
						**Average **
						**Exercise **
Options Outstanding		Shares				Price
Beginning of year			13			$	1.11
Exercised			(13	)			1.11
Canceled			—				—
End of year			—			$	—
Exercisable at end of year			—			$	—

The following table presents information related to options outstanding and options exercisable at January 31, 2009, under the Amended Plan, the 2002 Plan and the 2007 Plan based on ranges of exercise prices:

		Options outstanding												Options exercisable
						**Weighted- **												**Weighted- **
						**Average **												**Average **
						**Remaining **				**Weighted- **								**Remaining **				**Weighted- **
		**Number of **				**Contractual Life **				**Average **				**Number **				**Contractual Life **				**Average **
Options outstanding		Options				(Years)				Exercise Price				of Options				(Years)				Exercise Price
$ 0.02 - 0.17			79				4			$	.17				79				4			$	.17
0.18 - 1.11			290				6				.95				290				6				.95
1.12 - 2.62			834				5				2.48				834				5				2.48
2.63 - 4.12			679				7				3.48				471				7				3.44
4.13 - 9.18			458				8				9.18				180				8				9.18
9.19 - 15.81			2,466				10				13.89				239				9				15.55
15.82 - 25.32			494				9				22.78				203				9				23.77
End of year			5,300				8			$	10.27				2,296				7			$	6.17

The aggregate intrinsic value of outstanding and exercisable options as of January 31, 2009 was $6,252 and $5,785, respectively. The last reported sale price of our common stock on the NASDAQ Global Select Market on January 30, 2009 was $5.83 per share.

Amended and restated restricted stock plan

During 2004, the Company issued 442 restricted common shares with a fair value of $2.62 per share at the date of grant to certain directors pursuant to the Amended Plan. The restricted shares cannot be sold or otherwise transferred during the vesting period, which ranges from three to four years from the issuance date. The Company retains a reacquisition right in the event the director ceases to be a member of the board of directors of the Company under certain conditions. The awards are expensed on a straight-line basis over the vesting period. As of February 2, 2008, there were 2 outstanding non-vested shares, which vested during fiscal 2008.

The compensation expense recorded was $5, $131 and $293 in fiscal 2008, 2007, and 2006, respectively. There was no unrecognized compensation cost related to the restricted shares granted under the plan at January 31, 2009.

Ulta Salon, Cosmetics & Fragrance, Inc. Notes to Consolidated Financial Statements — (Continued)

10.	Net income per common share

The following is a reconciliation of net income and the number of shares of common stock used in the computation of net income per basic and diluted share:

		Fiscal Year Ended
		**January 31, **				**February 2, **				**February 3, **
		2009				2008				2007
Numerator for diluted net income per share — net income		$	25,268			$	25,335			$	22,543
Less preferred stock dividends			—				11,219				14,584
Numerator for basic net income per share		$	25,268			$	14,116			$	7,959
Denominator for basic net income per share — weighted-average common shares			57,425				20,383				5,771
Dilutive effect of stock options and non-vested stock			1,542				2,321				2,398
Dilutive effect of convertible preferred stock			—				30,589				41,752
Denominator for diluted net income per share			58,967				53,293				49,921
Net income per common share:
Basic		$	0.44			$	0.69			$	1.38
Diluted		$	0.43			$	0.48			$	0.45

The denominator for diluted net income per common share for fiscal years 2008, 2007 and 2006 exclude 3,758, 1,136 and 932 employee options, respectively, due to their anti-dilutive effects.

11.	Employee benefit plans

The Company provides a 401(k) retirement plan covering all employees who qualify as to age, length of service, and hours employed. In fiscal 2008, 2007, and 2006, the plan was funded through employee contributions and a Company match of 40% up to 3% of eligible compensation. For fiscal years 2008, 2007 and 2006, the Company match was $437, $408 and $300, respectively.

On January 1, 2009, the Company established a non-qualified deferred compensation plan for highly compensated employees whose contributions are limited under qualified defined contribution plans. Amounts contributed and deferred under the plan are credited or charged with the performance of investment options offered under the plan as elected by the participants. In the event of bankruptcy, the assets of this plan are available to satisfy the claims of general creditors. The liability for compensation deferred under the Company’s plan was insignificant at January 31, 2009, and is included in accrued liabilities. Total expense recorded under this plan was also insignificant during fiscal 2008, and is included in selling, general and administrative expenses. The Company manages the risk of changes in the fair value of the liability for deferred compensation by electing to match its liability under the plan with investment vehicles that offset a substantial portion of its exposure. The cash value of the investment vehicles was insignificant at January 31, 2009, and is included in cash and cash equivalents. Both the asset and the liability are carried at fair value.

12.	Related-party transactions

During fiscal 1997, 1998, and 2001, certain officers of the Company were issued shares of Series V, IV, and I Preferred Stock, respectively, in exchange for promissory notes. These notes bear interest at a rate of 6.85% per annum and were due and payable at the earlier of 90 days after termination of employment or various dates through November 4, 2007, subject to certain exceptions. These notes were fully repaid in fiscal 2007.

During fiscal 2006, an officer of the Company exercised stock options in exchange for a promissory note for $4,094. The note bears interest at a rate of 5.06% per annum and was due at the earlier of an initial public offering of the Company’s common stock or five years from issuance date. The note was paid in full on June 29, 2007.

Ulta Salon, Cosmetics & Fragrance, Inc. Notes to Consolidated Financial Statements — (Continued)

13.	Valuation and qualifying accounts

		**Balance at **				**Charged to **								**Balance at **
		**Beginning **				**Costs and **								**end **
Description		of Period				Expenses				Deductions				of Period
Fiscal 2008
Allowance for doubtful accounts		$	309			$	209			$	(222	)(a)		$	296
Shrink reserve			1,745				3,785				(3,525	)			2,005
Inventory — lower of cost or market reserve			1,801				1,840				(1,277	)			2,364
Fiscal 2007
Allowance for doubtful accounts			422				298				(411	)(a)			309
Shrink reserve			1,005				3,620				(2,880	)			1,745
Inventory — lower of cost or market reserve			701				1,561				(461	)			1,801
Fiscal 2006
Allowance for doubtful accounts			224				338				(140	)(a)			422
Shrink reserve			722				2,003				(1,720	)			1,005
Inventory — lower of cost or market reserve			758				359				(416	)			701

(a)		Represents writeoff of uncollectible accounts.

Ulta Salon, Cosmetics & Fragrance, Inc. Notes to Consolidated Financial Statements — (Continued)

14.	Selected quarterly financial data (unaudited)

The following tables set forth the Company’s unaudited quarterly results of operations for each of the quarters in fiscal 2008 and fiscal 2007. The Company uses a 13 week fiscal quarter ending on the last Saturday of the quarter.

		Fiscal Quarter
		2008																2007
		First				Second				Third				Fourth				First				Second				Third				Fourth
Net sales		$	239,298			$	249,111			$	254,843			$	341,394			$	194,113			$	200,449			$	208,235			$	309,344
Cost of sales			165,377				175,965				175,368				240,002				134,600				141,417				140,156				212,322
Gross profit			73,921				73,146				79,475				101,392				59,513				59,032				68,079				97,022
Selling, general and administrative expenses			62,065				61,889				65,176				78,192				47,982				51,188				55,609				70,388
Pre-opening expenses			3,772				4,050				4,693				1,796				1,656				2,914				4,494				2,694
Operating income			8,084				7,207				9,606				21,404				9,875				4,930				7,976				23,940
Interest expense			915				1,016				1,124				888				996				1,162				1,307				1,077
Income before income taxes			7,169				6,191				8,482				20,516				8,879				3,768				6,669				22,863
Income tax expense			2,894				2,503				3,465				8,228				3,560				1,562				2,463				9,259
Net income		$	4,275			$	3,688			$	5,017			$	12,288			$	5,319			$	2,206			$	4,206			$	13,604
Net income per common share:
Basic		$	0.08			$	0.06			$	0.09			$	0.21			$	0.22			$	(0.23	)		$	0.06			$	0.24
Diluted		$	0.07			$	0.06			$	0.09			$	0.21			$	0.10			$	(0.23	)		$	0.05			$	0.23

Due to preferred stock dividends prior to the initial public offering, changes in stock prices during the year and timing of issuance of shares, the sum of fiscal 2007 quarterly net income per common share will not equal the fiscal 2007 annual net income per common share.

Exhibits

**Exhibit **
Number				Description of Document
	3	.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	.12(a)		Second Amendment to Lease, dated February 20, 2008, by and between Bolingbrook Investors, LLC and Ulta Salon, Cosmetics and Fragrance, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (file No. 001-33764) filed with the Securities and Exchange Commission on June 17, 2008)
	10	.13(a)*		Second Amendment to Lease, dated March 17, 2008, by and between Southwest Valley Partners, LLC and Ulta Salon, Cosmetics and Fragrance, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (file No. 001-33764) filed with the Securities and Exchange Commission on June 17, 2008)
	10	.14(a)		First Amendment to Third Amended and Restated Loan and Security Agreement, dated as of August 15, 2008 (incorporated by reference to Exhibit 10.15 to the Company’s Current Report on Form 8-K (file No. 001-33764) filed with the Securities and Exchange Commission on August 20, 2008).
	10	.15*		Acceptance Letter and Commencement Date Agreement, dated March 24, 2008, by and between Southwest Valley Partners, LLC and Ulta Salon, Cosmetics and Fragrance, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (file No. 001-33764) filed with the Securities and Exchange Commission on June 17, 2008)
	10	.16		Employment Agreement, dated as of June 16, 2008, by and between Ulta Salon, Cosmetics & Fragrance, Inc. and Lyn Kirby. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (file No. 001-33764) filed with the Securities and Exchange Commission on June 17, 2008)
	10	.16(a)		Amendment to Option Agreement with Grant Date March 24, 2008, by and between Ulta Salon, Cosmetics & Fragrance, Inc. and Lyn Kirby
	10	.17		Ulta Salon, Cosmetics & Fragrance, Inc. Nonqualified Deferred Compensation Plan
	23	.1		Consent of Independent Registered Public Accounting Firm
	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.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago, State of Illinois, on April 2, 2009.

ULTA SALON, COSMETICS & FRAGRANCE, INC.

	By:	/s/ Gregg R. Bodnar

Gregg R. Bodnar

Chief Financial Officer and Assistant Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signatures				Title		Date
/s/ Lynelle P. Kirby Lynelle P. Kirby				President, Chief Executive Officer and Director (Principal Executive Officer)		April 2, 2009
/s/ Gregg R. Bodnar Gregg R. Bodnar				Chief Financial Officer and Assistant Secretary (Principal Financial and Accounting Officer)		April 2, 2009
/s/ Hervé J.F. Defforey Hervé J.F. Defforey				Director		April 2, 2009
/s/ Robert F. DiRomualdo Robert F. DiRomualdo				Director		April 2, 2009
/s/ Dennis K. Eck Dennis K. Eck				Chairman of the Board of Directors		April 2, 2009
/s/ Gerald R. Gallagher Gerald R. Gallagher				Director		April 2, 2009
/s/ Charles Heilbronn Charles Heilbronn				Director		April 2, 2009
/s/ Steven E. Lebow Steven E. Lebow				Director		April 2, 2009
/s/ Charles J. Philippin Charles J. Philippin				Director		April 2, 2009
/s/ Yves Sisteron Yves Sisteron				Director		April 2, 2009