Item 15. Exhibits and Financial Statement Schedules

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

Report of Independent Registered Public Accounting Firm			47
Balance Sheets			49
Statements of Income			50
Statements of Cash Flows			51
Statements of Stockholders’ Equity			52
Notes to Financial Statements			55
Exhibits			70

The schedules required by Form 10-K have been omitted because they were inapplicable, included in the notes to the 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 balance sheets of Ulta Salon, Cosmetics & Fragrance, Inc. (the Company) as of January 30, 2010 and January 31, 2009, and the related statements of income, cash flows, and stockholders’ equity for each of the three years in the period ended January 30, 2010. 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 financial position of Ulta Salon, Cosmetics & Fragrance, Inc. at January 30, 2010 and January 31, 2009, and the results of its operations and its cash flows for each of the three years in the period ended January 30, 2010, 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 30, 2010, 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, 2010, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Chicago, Illinois

March 31, 2010

Report of Independent Registered Public Accounting Firm

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 30, 2010, 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 30, 2010, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets of Ulta Salon, Cosmetics & Fragrance, Inc. as of January 30, 2010 and January 31, 2009, and the related statements of income, cash flows and stockholders’ equity for each of the three years in the period ended January 30, 2010 and our report dated March 31, 2010 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Chicago, Illinois

March 31, 2010

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

		**January 30, **				**January 31, **
		2010				2009
Assets
Current assets:
Cash and cash equivalents		$	4,017			$	3,638
Receivables, net			13,477				18,268
Merchandise inventories, net			206,948				213,602
Prepaid expenses and other current assets			30,272				24,294
Prepaid income taxes			—				8,628
Deferred income taxes			8,060				8,278
Total current assets			262,774				276,708
Property and equipment, net			290,861				292,224
Total assets		$	553,635			$	568,932
Liabilities and stockholders’ equity
Current liabilities:
Current portion — notes payable		$	—			$	18,000
Accounts payable			56,387				47,811
Accrued liabilities			59,189				51,202
Accrued income taxes			10,781				—
Total current liabilities			126,357				117,013
Notes payable — less current portion			—				88,047
Deferred rent			113,718				101,288
Deferred income taxes			20,952				17,616
Total liabilities			261,027				323,964
Commitments and contingencies (note 4)
Stockholders’ equity:
Common stock, $.01 par value, 400,000 shares authorized; 58,674 and 58,245 shares issued; 58,169 and 57,740 shares outstanding; at January 30, 2010, and January 31, 2009, respectively			586				582
Treasury stock-common, at cost			(4,179	)			(4,179	)
Additional paid-in capital			300,701				293,052
Accumulated deficit			(4,500	)			(43,856	)
Accumulated other comprehensive loss			—				(631	)
Total stockholders’ equity			292,608				244,968
Total liabilities and stockholders’ equity		$	553,635			$	568,932

See accompanying notes to financial statements.

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

		Fiscal Year Ended
		**January 30, **				**January 31, **				**February 2, **
		2010				2009				2008
Net sales		$	1,222,771			$	1,084,646			$	912,141
Cost of sales			849,722				756,712				628,495
Gross profit			373,049				327,934				283,646
Selling, general and administrative expenses			298,893				267,322				225,167
Pre-opening expenses			6,003				14,311				11,758
Operating income			68,153				46,301				46,721
Interest expense			2,202				3,943				4,542
Income before income taxes			65,951				42,358				42,179
Income tax expense			26,595				17,090				16,844
Net income		$	39,356			$	25,268			$	25,335
Less preferred stock dividends			—				—				11,219
Net income available to common stockholders		$	39,356			$	25,268			$	14,116
Net income per common share:
Basic		$	0.68			$	0.44			$	0.69
Diluted		$	0.66			$	0.43			$	0.48
Weighted average common shares outstanding:
Basic			57,915				57,425				20,383
Diluted			59,237				58,967				53,293

See accompanying notes to financial statements.

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

		Fiscal Year Ended
		**January 30, **				**January 31, **				**February 2, **
		2010				2009				2008
Operating activities
Net income		$	39,356			$	25,268			$	25,335
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			62,166				51,445				39,503
Deferred income taxes			3,143				22,583				(3,284	)
Non-cash stock compensation charges			5,949				3,877				2,283
Excess tax benefits from stock-based compensation			(476	)			(1,774	)			(1,575	)
(Gain) loss on disposal of property and equipment			(51	)			267				195
Change in operating assets and liabilities:
Receivables			4,791				2,375				(2,167	)
Merchandise inventories			6,654				(37,493	)			(46,872	)
Prepaid expenses and other assets			(5,978	)			(5,110	)			(3,594	)
Income taxes			19,885				(11,918	)			4,373
Accounts payable			8,576				(4,311	)			9,051
Accrued liabilities			16,382				(59	)			2,790
Deferred rent			12,430				30,053				20,868
Net cash provided by operating activities			172,827				75,203				46,906
Investing activities
Purchases of property and equipment			(68,105	)			(110,863	)			(101,866	)
Receipt of related party notes receivable			—				—				4,467
Net cash used in investing activities			(68,105	)			(110,863	)			(97,399	)
Financing activities
Proceeds on long-term borrowings			1,161,673				1,217,969				1,094,590
Payments on long-term borrowings			(1,267,720	)			(1,186,692	)			(1,070,557	)
Proceeds from issuance of common stock under stock plans			1,228				2,517				1,175
Excess tax benefits from stock-based compensation			476				1,774				1,575
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	)
Net cash (used in) provided by financing activities			(104,343	)			35,509				50,637
Net increase (decrease) in cash and cash equivalents			379				(151	)			144
Cash and cash equivalents at beginning of year			3,638				3,789				3,645
Cash and cash equivalents at end of year		$	4,017			$	3,638			$	3,789
Supplemental cash flow information
Cash paid for interest		$	2,440			$	4,764			$	5,429
Cash paid for income taxes (net of refunds)		$	3,706			$	6,509			$	16,146
Noncash investing and financing activities:
Change in property and equipment included in accrued liabilities		$	(7,353	)		$	(3,316	)		$	12,141
Unrealized gain (loss) on interest rate swap hedge, net of tax		$	631			$	88			$	(738	)

See accompanying notes to financial statements.

Ulta Salon, Cosmetics & Fragrance, Inc. 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 — 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. 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. 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				Income (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
Common stock options exercised			429				4				—				—				1,224				—				—				1,228
Unrealized gain on interest rate swap hedge, net of $411 income tax			—				—				—				—				—				—				631				631
Net income for the fiscal year ended January 30, 2010			—				—				—				—				—				39,356				—				39,356
Comprehensive income			—				—				—				—				—				—				—				39,987
Excess tax benefits from stock-based compensation			—				—				—				—				476				—				—				476
Stock compensation charge			—				—				—				—				5,949				—				—				5,949
Balance — January 30, 2010			58,674			$	586				(505	)		$	(4,179	)		$	300,701			$	(4,500	)		$	—			$	292,608

See accompanying notes to financial statements.

Ulta Salon, Cosmetics & Fragrance, Inc. Notes to Financial Statements (In thousands, except per share data)

1.	Business and basis of presentation

Ulta Salon, Cosmetics & Fragrance, Inc. (Company or Ulta) 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 30, 2010, the Company operated 346 stores in 38 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 30, 2010 (fiscal 2009), January 31, 2009 (fiscal 2008) and February 2, 2008 (fiscal 2007) were 52 week years.

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 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. Cash equivalents include third-party credit card receivables because such amounts generally convert to cash within one to three days with little or no default risk.

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

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 collectability of its receivables based on the length of time the receivable is past due and historical experience. The allowance for receivables totaled $489 and $296 as of January 30, 2010 and January 31, 2009, 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 at January 31, 2009 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 had an interest rate swap that expired on January 31, 2010. This derivative financial instrument was designated and qualified as a cash flow hedge. Accordingly, the effective portion of the gain or loss on the derivative instrument was 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, was recognized in interest expense during the period of change. This derivative was recorded in the January 31, 2009 balance sheet 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

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 also 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

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

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 two customer loyalty programs. The Company’s national program provides reward point certificates for free beauty products. Customers earn purchase-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 purchase-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 30, 2010 and January 31, 2009 was $3,784 and $3,309, respectively. The cost of these programs, which was $10,015, $9,002 and $8,167 in fiscal 2009, 2008 and 2007, respectively, is included in cost of sales in the 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, 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. Total advertising costs, exclusive of incentives from vendors and start-up advertising expense, amounted to $76,811, $70,804 and $56,107 for fiscal 2009,

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

2008 and 2007, respectively. Prepaid advertising costs included in prepaid expenses and other current assets were $4,000 and $3,289 as of January 30, 2010 and January 31, 2009, 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; customer loyalty program expense; 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.

Income tax benefits related to uncertain tax positions are recognized only when it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. Penalties and interest related to unrecognized tax positions are recorded in income tax expense. Although the Company believes that its estimates are reasonable, actual results could differ from these estimates.

Share-based compensation

The Company accounts for share-based compensation in accordance with the Accounting Standards Codificationtm (ASC) rules for stock compensation. Share-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized on a straight-line method over the requisite service period for awards expected to vest. The Company recorded stock compensation expense of $5,949, $3,877 and $2,283 for fiscal 2009, 2008 and 2007, respectively (see Note 10, “Share-based awards”).

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,

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

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 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 June 2009, the Financial Accounting Standards Board (FASB) issued the ASC as the single source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with GAAP. The ASC also recognizes rules and interpretive releases of the Securities and Exchange Commission (SEC) under federal securities laws as authoritative GAAP for SEC registrants. The ASC is effective for financial statements issued for fiscal years and interim periods ending after September 15, 2009. The Company adopted the ASC in the third quarter of 2009 and it did not have any impact on its financial position or results of operations.

3.	Property and equipment

Property and equipment consist of the following:

		**January 30, **				**January 31, **
		2010				2009
Equipment and fixtures		$	195,431			$	173,994
Leasehold improvements			219,317				199,007
Electronic equipment and software			89,491				78,541
Construction-in-progress			12,268				18,081
			516,507				469,623
Less accumulated depreciation and amortization			(225,646	)			(177,399	)
Property and equipment, net		$	290,861			$	292,224

For the fiscal years 2009, 2008 and 2007, the Company capitalized interest of $242, $799 and $771, 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 2009, 2008 and 2007. Total rent expense under operating

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

leases was $73,228, 66,640 and $51,977 for fiscal 2009, 2008 and 2007, respectively. Future minimum lease payments under operating leases as of January 30, 2010, are as follows:

		**Operating **
Fiscal year		Leases
2010		$	89,712
2011			86,278
2012			83,019
2013			79,996
2014			74,222
2015 and thereafter			211,400
Total minimum lease payments		$	624,627

Included in the operating lease schedule above is $29,992 of minimum lease payments for stores that will open in fiscal 2010.

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 alleged 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 claimed 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 alleged no new violations of the securities laws not asserted in the prior complaints. It added no new defendants and dropped 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.

On May 29, 2009, the Company and its primary insurance carrier engaged in a mediation with counsel representing the putative class. Although defendants continue to deny plaintiffs’ allegations, in the interest of putting this matter behind it, the Company and its insurer reached a settlement with plaintiffs. On August 7, 2009, the Court entered an order preliminarily approving the settlement, approving the form and manner of notice to putative class members, and setting a final hearing to determine whether to approve the settlement. On November 16, 2009, the Court held a final hearing and, no class members having objected to the settlement or having requested exclusion from the settlement class, the Court entered a final order dismissing all three consolidated cases with prejudice. The time for appeal expired on December 16, 2009 without any appeal or other challenge to the judgment being made. All amounts paid under the settlement have been paid out of proceeds of the Company’s directors and officers liability insurance coverage.

General litigation — In July 2009, a putative employment class action lawsuit was filed against the Company and certain unnamed defendants in State Court in California. The suit alleges that Ulta misclassified its store General Managers and Salon Managers as exempt from the Fair Labor Standards Act and California Labor Code. The suit seeks to recover damages and penalties as a result of this alleged misclassification. On August 27, 2009, the Company filed its answer to the lawsuit, and on August 31, 2009 the Company moved the action to the United States District Court for the Northern District of California. On November 2, 2009, the plaintiffs filed an amended complaint adding another named plaintiff. Although the Company believes that

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

it has meritorious defenses to the claims made in the putative class action and intends to contest the lawsuit vigorously, an adverse resolution could have a material adverse effect on its 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.

The Company is also involved in various legal proceedings that are incidental to the conduct of its business. 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 30, **				**January 31, **
		2010				2009
Accrued vendor liabilities (including accrued property and equipment costs)		$	6,032			$	13,265
Accrued customer liabilities			15,674				12,908
Accrued payroll, bonus, and employee benefits			20,047				7,914
Accrued taxes, other			7,937				7,152
Other accrued liabilities			9,499				9,963
Accrued liabilities		$	59,189			$	51,202

6.	Income taxes

The provision for income taxes consists of the following:

		**Fiscal **				**Fiscal **				**Fiscal **
		2009				2008				2007
Current:
Federal		$	20,296			$	2,383			$	18,150
State			2,744				1,935				2,369
Total current			23,040				4,318				20,519
Deferred:
Federal			3,237				11,725				(3,102	)
State			318				1,047				(573	)
Total deferred			3,555				12,772				(3,675	)
Provision for income taxes		$	26,595			$	17,090			$	16,844

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

		**Fiscal **				**Fiscal **				**Fiscal **
		2009				2008				2007
Federal statutory rate			35.0	%			35.0	%			35.0	%
State effective rate, net of federal tax benefit			3.0	%			4.6	%			4.4	%
Other			2.3	%			0.7	%			0.5	%
Effective tax rate			40.3	%			40.3	%			39.9	%

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

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

		**January 30, **				**January 31, **
		2010				2009
Deferred tax assets:
Reserves not currently deductible		$	9,905			$	10,534
Employee benefits			3,721				2,121
Net operating loss carryforwards			462				989
Accrued liabilities			2,579				1,818
Inventory valuation			287				—
Total deferred tax assets			16,954				15,462
Deferred tax liabilities:
Property and equipment			15,973				14,804
Deferred rent obligation			8,926				5,815
Prepaid expenses			4,947				4,026
Inventory valuation			—				155
Total deferred tax liabilities			29,846				24,800
Net deferred tax liability		$	(12,892	)		$	(9,338	)

At January 30, 2010, the Company had net operating loss carryforwards (NOLs) for federal income tax purposes of approximately $1,320, which expires between 2010 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 accounts for uncertainty in income taxes in accordance with the ASC rules for income taxes. The reserve for uncertain tax positions was $5,359 at January 30, 2010. The balance is the Company’s best estimate of the potential liability for uncertain tax positions. The increase in the liability for income taxes associated with uncertain tax positions relates to uncertainty with respect to certain domestic tax positions identified during fiscal 2009. A reconciliation of the Company’s unrecognized tax benefits, excluding interest and penalties, is as follows:

Increases attributable to tax positions taken during prior periods		$	—
Increases attributable to tax positions taken during the current period			5,110
Balance at January 30, 2010		$	5,110

Included in the balance of unrecognized tax benefits as of January 30, 2010 is $1,067 of tax benefits that, if recognized, would affect the effective tax rate. The Company anticipates that the amount of unrecognized tax benefits may change in the next twelve months. However, it does not expect the change to have a significant impact on its financial statements. The Company’s liability for unrecognized tax benefits was insignificant for fiscal 2008 and 2007. The Company’s fiscal 2009 provision for income taxes includes $190 of income tax-related interest and penalties related to uncertain tax positions. Income tax-related interest and penalties were insignificant for fiscal 2008 and 2007.

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 2008, 2007 and 2006.

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

7.	Notes payable

The Company’s credit facility is with Bank of America 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 facility provides maximum borrowings equal to the lesser of $200,000 or a percentage of eligible owned inventory. The advance rates on owned inventory are 80% (85% from September 1 to January 31). The credit facility agreement contains a restrictive financial covenant requiring the Company to maintain tangible net worth of not less than $80,000. On January 30, 2010, the Company’s tangible net worth was approximately $293,000. 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 Company had no outstanding borrowings under the facility as of January 30, 2010. The Company had $106,047 of outstanding borrowings under the facility as of January 31, 2009, with a weighted-average interest rate of 1.52%. The Company had approximately $196,933 and $86,764 of availability as of January 30, 2010 and January 31, 2009, respectively. The Company also had a letter of credit that expired in September 2009; the balance was $326 as of January 31, 2009.

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. The Company accounts for derivative financial instruments in accordance with the ASC rules for derivatives and hedging activities.

On February 1, 2009, the Company adopted the ASC disclosure requirements for derivatives and hedging activities. The adoption had no impact on amounts recognized in the Company’s financial statements. The new rules are 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.

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 resulted in fixed rate payments at an interest rate of 5.11% for a term of three years, ending on January 31, 2010.

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.

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 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. Hedge

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

ineffectiveness was not material in fiscal 2009, 2008 and 2007. The following table summarizes the fair value and presentation within the balance sheets for derivatives designated as hedging instruments:

		Derivative Liabilities
		January 30, 2010								January 31, 2009
		**Balance Sheet **								**Balance Sheet **
		Location				Fair Value				Location				Fair Value
Interest rate swap liability			Accrued liabilities			$	—				Accrued liabilities			$	1,042

The following table presents the impact of derivatives in cash flow hedging relationships and their location within the unaudited statements of income and accumulated other comprehensive loss (AOCL):

		**Amount of Gain Recognized **								**Amount of Gain Reclassfied **								**Amount of Gain Recognized **
		**in AOCL on Derivative **								**from AOCL into Income **								**in Income on Derivative **
		(Effective Portion)								(Effective Portion)								(Ineffective Portion)
		Twelve Months Ended								Twelve Months Ended								Twelve Months Ended
		**January 30, **				**January 31, **				**January 30, **				**January 31, **				**January 30, **				**January 31, **
		2010				2009				2010				2009				2010				2009
Interest rate swap, net of tax		$	631			$	88			$	—			$	—			$	—			$	—

9.	Fair value measurements

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.

On February 3, 2008, the Company adopted the ASC rules for fair value measurements and disclosures. The adoption had no impact on the Company’s financial statements. The new rules 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.

As of January 30, 2010, the Company held certain liabilities that are required to be measured at fair value on a recurring basis. The fair value of the Company’s liabilities associated with its non-qualified deferred compensation plan are based primarily on third-party reported net asset values, which are primarily based on quoted market prices of the underlying assets of the funds and have been categorized as Level 2. The following table presents the Company’s financial liabilities as of January 30, 2010 measured at fair value on a recurring basis:

		Fair Value Measurement Using
		Level 1				Level 2				Level 3
Deferred compensation liabilities		$	—			$	247			$	—

10.	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

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

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 measures share-based compensation cost on the grant date, based on the fair value of the award, and recognizes the expense on a straight-line method over the requisite service period for awards expected to vest. The Company estimated the grant date fair value of stock options using a Black-Scholes valuation model using the following weighted-average assumptions:

		**Fiscal **		**Fiscal **		**Fiscal **
		2009		2008		2007
Volatility rate		60.6%		48.7%		37.0%
Average risk-free interest rate		2.5%		2.3%		4.7%
Average expected life (in years)		5.3		5.2		5.0
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 to be outstanding. We have limited historical data related to exercise behavior since our initial public offering on October 30, 2007. As a result, the Company has elected to use the shortcut approach to determine the expected life in accordance with the SEC Staff Accounting Bulletin on share-based payments. 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.

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

The Company granted 977 stock options during fiscal 2009. The weighted-average grant date fair value of options granted in fiscal 2009, 2008 and 2007 was $6.64, $5.46 and $5.64, respectively. At January 30, 2010, there was approximately $12,738 of unrecognized compensation expense related to unvested stock options. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately two years.

The total intrinsic value of options exercised was $4,783, $8,267 and $2,631 in fiscal 2009, 2008 and 2007, respectively. The fiscal 2007 valuation includes options exercised after the Company’s initial public offering on October 30, 2007 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 2009								Fiscal 2008								Fiscal 2007
						**Weighted- **								**Weighted- **								**Weighted- **
						**Average **								**Average **								**Average **
Options Outstanding		Shares				Exercise Price				Shares				Exercise Price				Shares				Exercise Price
Beginning of year			5,300			$	10.27				4,644			$	7.35				4,122			$	3.51
Granted			977				12.44				1,856				13.39				1,136				18.58
Exercised			(429	)			2.86				(834	)			3.02				(559	)			2.11
Canceled			(57	)			10.46				(366	)			5.51				(55	)			4.85
End of year			5,791			$	11.18				5,300			$	10.27				4,644			$	7.35
Exercisable at end of year			2,971			$	8.99				2,296			$	6.17				2,409			$	4.01

Included in the grants for fiscal 2007 are 632 performance-based options, 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 performance based grants of $637, $576 and $911 in fiscal 2009, 2008 and 2007, respectively. No performance-based options were granted during fiscal 2009 and 2008.

The following table presents information related to options outstanding and options exercisable at January 30, 2010, 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			44				3			$	.17				44				3			$	.17
0.18 - 1.11			183				6				1.07				183				6				1.07
1.12 - 2.62			697				4				2.46				697				4				2.46
2.63 - 4.12			552				6				3.44				520				6				3.40
4.13 - 9.18			506				7				8.74				363				7				9.18
9.19 - 15.81			3,252				9				13.61				839				9				14.38
15.82 - 25.32			557				8				22.01				325				8				23.40
End of year			5,791				8			$	11.18				2,971				7			$	8.99

The aggregate intrinsic value of outstanding and exercisable options as of January 30, 2010 was $49,455 and $32,347, respectively. The last reported sale price of our common stock on the NASDAQ Global Select Market on January 29, 2010 was $19.40 per share.

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

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. All outstanding restricted shares became fully vested during fiscal 2008.

The compensation expense recorded was $5 and $131 in fiscal 2008, and 2007, respectively. There was no compensation expense recorded in fiscal 2009 and no unrecognized compensation cost related to the restricted shares granted under the plan at January 30, 2010.

11.	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 30, **				**January 31, **				**February 2, **
		2010				2009				2008
Numerator for diluted net income per share — net income		$	39,356			$	25,268			$	25,335
Less preferred stock dividends			—				—				11,219
Numerator for basic net income per share		$	39,356			$	25,268			$	14,116
Denominator for basic net income per share — weighted-average common shares			57,915				57,425				20,383
Dilutive effect of stock options and non-vested stock			1,322				1,542				2,321
Dilutive effect of convertible preferred stock			—				—				30,590
Denominator for diluted net income per share			59,237				58,967				53,294
Net income per common share:
Basic		$	0.68			$	0.44			$	0.69
Diluted		$	0.66			$	0.43			$	0.48

The denominator for diluted net income per common share for fiscal years 2009, 2008 and 2007 exclude 3,809, 3,101 and 1,136 employee options, respectively, due to their anti-dilutive effects.

12.	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 2009, 2008, and 2007, the plan was funded through employee contributions and a Company match of between 40% and 50% of the first 3% of eligible compensation. For fiscal years 2009, 2008 and 2007, the Company match was $600, $437 and $408, 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 included in accrued liabilities was $247 and $16 as of January 30, 2010 and January 31, 2009, respectively. Total expense recorded under this plan is included in selling, general and administrative expenses and was insignificant during fiscal 2009 and 2008. 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

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

investment vehicles that offset a substantial portion of its exposure. The cash value of the investment vehicles included in prepaid expense and other current assets was $229 and zero as of January 30, 2010 and January 31, 2009, respectively.

13.	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.

14.	Valuation and qualifying accounts

		**Balance at **				**Charged to **								**Balance at **
		**Beginning **				**Costs and **								**End **
Description		of Period				Expenses				Deductions				of Period
Fiscal 2009
Allowance for doubtful accounts		$	296			$	432			$	(239	)(a)		$	489
Shrink reserve			2,005				4,590				(4,726	)			1,869
Inventory — lower of cost or market reserve			2,364				2,481				(831	)			4,014
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

(a)		Represents writeoff of uncollectible accounts

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

15.	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 2009 and fiscal 2008. The Company uses a 13 week fiscal quarter ending on the last Saturday of the quarter.

		Fiscal Quarter
		2009																2008
		First				Second				Third				Fourth				First				Second				Third				Fourth
Net sales		$	268,825			$	273,539			$	284,043			$	396,364			$	239,298			$	249,111			$	254,843			$	341,394
Cost of sales			189,482				195,028				193,498				271,714				165,377				175,965				175,368				240,002
Gross profit			79,343				78,511				90,545				124,650				73,921				73,146				79,475				101,392
Selling, general and administrative expenses			69,194				66,265				73,671				89,763				62,065				61,889				65,176				78,192
Pre-opening expenses			1,195				2,010				2,183				615				3,772				4,050				4,693				1,796
Operating income			8,954				10,236				14,691				34,272				8,084				7,207				9,606				21,404
Interest expense			671				645				441				445				915				1,016				1,124				888
Income before income taxes			8,283				9,591				14,250				33,827				7,169				6,191				8,482				20,516
Income tax expense			3,363				3,841				5,790				13,601				2,894				2,503				3,465				8,228
Net income		$	4,920			$	5,750			$	8,460			$	20,226			$	4,275			$	3,688			$	5,017			$	12,288
Net income per common share:
Basic		$	0.09			$	0.10			$	0.15			$	0.35			$	0.08			$	0.06			$	0.09			$	0.21
Diluted		$	0.08			$	0.10			$	0.14			$	0.34			$	0.07			$	0.06			$	0.09			$	0.21

The sum of the quarterly net income per common share may not equal the annual total due to quarterly changes in the weighted average shares and share equivalents outstanding.

Exhibits

										Incorporated by Reference
**Exhibit **						**Filed **				**Exhibit **				**File **				**Filing **
Number				Description of Document		Herewith		Form		Number				Number				Date
	3	.1		Amended and Restated Certificate of Incorporation				S-1			3.1				333-144405				8/17/2007
	3	.2		Amended and Restated Bylaws				S-1			3.2				333-144405				8/17/2007
	4	.1		Specimen Common Stock Certificate				S-1			4.1				333-144405				10/11/2007
	4	.2		Third Amended and Restated Registration Rights Agreement between Ulta Salon, Cosmetics & Fragrance, Inc. and the stockholders party thereto				S-1			4.2				333-144405				8/17/2007
	4	.3		Stockholder Rights Agreement				S-1			4.4				333-144405				8/17/2007
	10	.1		Ulta Salon, Cosmetics & Fragrance, Inc. Second Amended and Restated Restricted Stock Option Plan				S-1			10.7				333-144405				8/17/2007
	10	.1(a)		Amendment to Ulta Salon, Cosmetics & Fragrance, Inc. Second Amended and Restated Restricted Stock Option Plan				S-1			10.7	(a)			333-144405				8/17/2007
	10	.2		Ulta Salon, Cosmetics & Fragrance, Inc. 2002 Equity Incentive Plan				S-1			10.9				333-144405				8/17/2007
	10	.3		Ulta Salon, Cosmetics & Fragrance, Inc. 2007 Incentive Award Plan				S-1			10.10				333-144405				9/27/2007
	10	.4		Ulta Salon, Cosmetics & Fragrance, Inc. Nonqualified Deferred Compensation Plan				10-K			10.17				001-33764				4/2/2009
	10	.5		Office Lease, dated as of April 17, 2007, between Ulta Salon, Cosmetics & Fragrance, Inc. and Bolingbrook Investors, LLC				S-1			10.13				333-144405				8/17/2007
	10	.5(a)		Amendment to Lease, dated as of November 2007, by and between Bolingbrook Investors, LLC and Ulta Salon, Cosmetics & Fragrance, Inc.		X
	10	.5(b)		Second Amendment to Lease, dated February 20, 2008, by and between Bolingbrook Investors, LLC and Ulta Salon, Cosmetics & Fragrance, Inc.				10-Q			10.1				001-33764				6/17/2008
	10	.5(c)		Third Amendment to Lease, dated as of March 2008, by and between Bolingbrook Investors, LLC and Ulta Salon, Cosmetics & Fragrance, Inc.		X
	10	.6*		Lease, effective as of June 21, 2007, by and between Southwest Valley Partners, LLC and Ulta Salon, Cosmetics & Fragrance, Inc.				S-1			10.15				333-144405				9/27/2007
	10	.6(a)		First Amendment to Lease, dated October 23, 2007, by and between Southwest Valley Partners, LLC and Ulta Salon, Cosmetics and Fragrance, Inc.		X
	10	.6(b)*		Second Amendment to Lease, dated March 17, 2008, by and between Southwest Valley Partners, LLC and Ulta Salon, Cosmetics and Fragrance, Inc.				10-Q			10.2				001-33764				6/17/2008
	10	.7*		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-Q			10.3				001-33764				6/17/2008
	10	.8		Lease Agreement, dated June 22, 1999, between ULTA3 Cosmetics & Salon, Inc. and 1135 Arbor Drive Investors LLC				S-1			10.10				333-144405				8/17/2007

										Incorporated by Reference
**Exhibit **						**Filed **				**Exhibit **				**File **				**Filing **
Number				Description of Document		Herewith		Form		Number				Number				Date
	10	.8(a)		First Amendment to Lease Agreement, dated as of November 1, 2000, between Aetna Life Insurance Company c/o UBS Realty Investors, LLC and Ulta Salon, Cosmetics & Fragrance, Inc.		X
	10	.8(b)		Second Amendment to Office/Showroom/ Warehouse Lease, dated as of April 27, 2009, between 1135 Arbor Drive Investors LLC and Ulta Salon, Cosmetics & Fragrance, Inc.		X
	10	.8(c)		Third Amendment to Lease, dated November 10, 2009, by and between 1135 Arbor Drive Investors LLC and Ulta Salon, Cosmetics and Fragrance, Inc.		X
	10	.9		Third Amendment and Restated Loan and Security Agreement, dated as of June 29, 2007, by and among Ulta Salon, Cosmetics & Fragrance, Inc., LaSalle Bank National Association, Wachovia Capital Finance Corporation (Central) and JPMorgan Chase Bank, N.A.				S-1			10.15				333-144405				8/17/2007
	10	.9(a)		First Amendment to Third Amended and Restated Loan and Security Agreement, dated as of August 15, 2008				8-K			10.15				001-33764				8/20/2008
	10	.10		Employment Agreement, dated as of June 16, 2008, by and between Ulta Salon, Cosmetics & Fragrance, Inc. and Lyn Kirby.				10-Q			10.4				001-33764				6/17/2008
	10	.10(a)		Amendment to Option Agreement with Grant Date March 24, 2008, by and between Ulta Salon, Cosmetics & Fragrance, Inc. and Lyn Kirby				10-K			10.16	(a)			001-33764				4/2/2009
	23	.1		Consent of Independent Registered Public Accounting Firm		X
	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		X
	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		X
	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		X

*		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 March 31, 2010.

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)		March 31, 2010
/s/ Gregg R. Bodnar Gregg R. Bodnar				Chief Financial Officer and Assistant Secretary (Principal Financial and Accounting Officer)		March 31, 2010
/s/ Hervé J.F. Defforey Hervé J.F. Defforey				Director		March 31, 2010
/s/ Robert F. DiRomualdo Robert F. DiRomualdo				Director		March 31, 2010
/s/ Dennis K. Eck Dennis K. Eck				Chairman of the Board of Directors		March 31, 2010
/s/ Charles Heilbronn Charles Heilbronn				Director		March 31, 2010
/s/ Steven E. Lebow Steven E. Lebow				Director		March 31, 2010
/s/ Lorna E. Nagler Lorna E. Nagler				Director		March 31, 2010
/s/ Charles J. Philippin Charles J. Philippin				Director		March 31, 2010
/s/ Yves Sisteron Yves Sisteron				Director		March 31, 2010