10.    Share-based awards

Equity incentive plans

The Company has had a number of equity incentive plans over the years. The plans were adopted in order 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. Incentive compensation was awarded under the Amended and Restated Restricted Stock Option Plan until April 2002 and under the 2002 Equity Incentive Plan through July 2007, at which time the 2007 Incentive Award Plan was adopted. All of the plans generally provided for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, and other types of awards to employees, consultants and directors. Unless provided otherwise by the administrator of the plan, options vested over four years at the rate of 25% per year from the date of grant and most must be exercised within ten years. Options were granted with the exercise price equal to the fair value of the underlying stock on the date of grant.

2011 Incentive award plan

In June 2011, the Company adopted the 2011 Incentive Award Plan (the 2011 Plan). The 2011 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, performance awards, dividend equivalent rights, stock payments, deferred stock and cash-based awards to employees, consultants, and directors. Following its adoption, awards are only being made under the 2011 Plan, and no further awards will be made under any prior plan. As of January 31, 2015, the 2011 Plan reserves for the issuance upon grant or exercise of awards up to 4,409 shares of the Company’s common stock.

The Company recorded stock compensation expense of $14,923, $16,003 and $13,375 for fiscal 2014, 2013 and 2012, respectively. Cash received from option exercises under all share-based payment arrangements for fiscal 2014, 2013 and 2012 was $10,639, $21,890 and $31,530, respectively. The total income tax benefit recognized in the income statement for equity compensation arrangements was $3,526, $4,812 and $5,364 for fiscal 2014, 2013 and 2012, respectively. The actual tax benefit realized for the tax deductions from option exercise and restricted stock vesting of the share-based payment arrangements totaled $6,892, $18,169 and $51,886, respectively, for fiscal 2014, 2013 and 2012.

Employee stock options

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

During fiscal 2013, the Company made changes to update the valuation assumptions to Company specific information. These changes are reflected in the table above and had no material impact on the calculation. For fiscal 2014 and 2013, the expected volatility was based on the historical volatility of the ULTA Common Shares. The risk free interest rate was based on the United States Treasury yield curve in effect on the date of grant for the respective expected life of the option. The expected life represents the time the options granted are expected to be outstanding. For fiscal 2014 and 2013, the expected life of options granted was derived from historical data on Ulta stock option exercises. Prior to 2013, we had limited historical data related to exercise behavior since our initial public offering on October 30, 2007. As a result, the Company elected to use the shortcut approach to determine the expected life in accordance with the SEC Staff Accounting Bulletin on share-based payments and the expected volatility was based on the historical volatility of a peer group of publicly-traded companies. Beginning in fiscal 2013, the Company introduced a forfeiture rate. Forfeitures of options are estimated at the grant date based on historical rates of the Company’s stock option activity and reduce the compensation expense recognized. The Company does not currently pay a regular dividend. The dividend paid in May 2012 was a one-time special cash dividend.

The Company granted 371 stock options during fiscal 2014. The compensation cost that has been charged against income for stock option grants was $9,078, $10,214, and $11,967 for fiscal 2014, 2013, and 2012, respectively. The weighted-average grant date fair value of options granted in fiscal 2014, 2013 and 2012 was $32.38, $34.31 and $46.29, respectively. The total fair value of stock options issued that vested during fiscal 2014, 2013 and 2012 was $8,799, $10,544 and $12,089, respectively. At January 31, 2015, there was approximately $16,628 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 $15,032, $49,404 and $138,291 in fiscal 2014, 2013 and 2012, respectively.

A summary of the status of the Company’s stock option activity is presented in the following table (shares in thousands):

The following table presents information related to options outstanding and options exercisable at January 31, 2015, under the Company’s stock option plans based on ranges of exercise prices (shares in thousands):

The aggregate intrinsic value of outstanding and exercisable options as of January 31, 2015 was $64,167 and $38,669, respectively. The last reported sale price of our common stock on the NASDAQ Global Select Market on January 31, 2015 was $131.94 per share.

Restricted stock awards

The Company issues restricted stock to certain employees and its Board of Directors. Employee grants will generally cliff vest after 3 years and director grants will cliff vest within one year. The compensation expense recorded in fiscal 2014, 2013 and 2012 was $5,845, $5,789 and $1,408, respectively. Beginning in fiscal 2013, the Company introduced a forfeiture rate. Forfeitures of restricted stock awards are estimated at the grant date based on historical rates of the Company’s restricted stock award activity and reduce the compensation expense recognized. At January 31, 2015, unrecognized compensation cost related to restricted stock awards was $7,770. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately two years.

A summary of the status of the Company’s restricted stock activity is presented in the following table (shares in thousands):