7. Share-Based Payments

The Company from time to time grants share-based awards to its employees and consultants under the Sally Beauty Holdings, Inc. Amended and Restated 2010 Omnibus Incentive Plan (the "2010 Plan"), a stockholder-approved share-based compensation plan which allows for the issuance of up to 29.8 million shares of the Company's common stock. As such, during the fiscal years ended September 30, 2014, 2013 and 2012, the Company granted approximately 1.6 million, 1.6 million and 2.0 million stock options, respectively, and approximately 247,000, 139,000 and 32,000 restricted share awards, respectively, to its employees and consultants under the 2010 Plan. These amounts include 130,952 stock options issued and 210,820 restricted stock awards made during the fiscal year ended September 30, 2014 in connection with the executive management transition plan announced in May 2014. In addition, during the fiscal years ended September 30, 2014, 2013 and 2012, the Company granted approximately 27,000, 36,000 and 26,000 restricted stock units, respectively, to its non-employee directors under the 2010 Plan.

The Company measures the cost of services received from employees, directors and consultants in exchange for an award of equity instruments based on the fair value of the award on the date of grant, and recognizes compensation expense on a straight-line basis over the vesting period or over the period ending on the date a participant becomes eligible for retirement, if earlier. For the fiscal years 2014, 2013 and 2012, total compensation cost charged against income and included in selling, general and administrative expenses in the Company's consolidated statements of earnings for all share-based compensation arrangements was $22.1 million, $19.2 million and $16.9 million, respectively, and resulted in an increase in additional paid-in capital by the same amounts. These amounts include, for the fiscal years 2014, 2013 and 2012, $8.8 million, $5.9 million and $5.3 million, respectively, of accelerated expense related to certain retirement eligible employees who continue vesting awards upon retirement, under the provisions of the 2010 Plan and certain predecessor share-based plans such as the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan (the "2007 Plan"). During the fiscal year ended September 30, 2014, the accelerated share-based compensation expense includes $3.5 million related to the executive management transition plan announced in May 2014. For fiscal years 2014, 2013 and 2012, the total income tax benefit recognized in our consolidated statements of earnings in connection with all share-based compensation awards was $8.2 million, $7.1 million and $6.2 million, respectively.

Stock Option Awards

Each option has an exercise price equal to the closing market price of the Company's common stock on the date of grant and generally has a maximum term of 10 years. Options generally vest ratably over a four year period and are generally subject to forfeiture until the vesting period is complete, subject to certain retirement provisions contained in the 2010 Plan and certain predecessor share-based compensation plans such as the 2007 Plan.

The following table presents a summary of the activity for the Company's stock option awards for the fiscal year ended September 30, 2014:

	Number of Outstanding Options (in Thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value (in Thousands)
Outstanding at September 30, 2013		10,408		$	12.89		6.2	$	138,139
Granted		1,596			26.22
Exercised		(2,727	)		9.78
Forfeited or expired		(294	)		21.15

Outstanding at September 30, 2014		8,983		$	15.93		6.2	$	102,751


Exercisable at September 30, 2014		5,235		$	12.10		5.1	$	79,950

The following table summarizes additional information about stock options outstanding under the Company's share-based compensation plans:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding at September 30, 2014 (in Thousands)		Weighted Average Remaining Contractual Term (in Years)		Weighted Average Exercise Price		Number Exercisable at September 30, 2014 (in Thousands)		Weighted Average Exercise Price
$2.00 - 9.66		2,851		3.6	$	7.66		2,851	$	7.66
$11.39 - 26.30		6,132		7.3		19.78		2,384		17.41

Total		8,983		6.2	$	15.93		5,235	$	12.10

The Company uses the Black-Scholes option pricing model to value the Company's stock options for each stock option award. Using this option pricing model, the fair value of each stock option award is estimated on the date of grant. The fair value of the Company's stock option awards is expensed on a straight-line basis over the vesting period (generally four years) of the stock options or to the date a participant becomes eligible for retirement, if earlier.

The weighted average assumptions relating to the valuation of the Company's stock options are as follows:

	Year Ended September 30,
	2014			2013			2012
Expected life (in years)		5.0			5.0			5.0
Expected volatility		47.3	%		56.3	%		58.4	%
Risk-free interest rate		1.3	%		0.8	%		1.1	%
Dividend yield		0.0	%		0.0	%		0.0	%

The expected life of options represents the period of time that the options granted are expected to be outstanding and is based on historical experience of employees of the Company who have been granted stock options. The expected volatility reflects the average historical volatility for the Company's common stock over the expected life. The risk-free interest rate is based on the zero-coupon U.S. treasury notes with a comparable term as of the date of the grant. Since the Company does not currently expect to pay dividends, the dividend yield used is 0%.

The weighted average fair value at the date of grant of the stock options issued by the Company during the fiscal years 2014, 2013 and 2012 was $11.08, $11.29 and $9.60, respectively. The total fair value of stock options issued to the Company's grantees that vested during the fiscal years 2014, 2013 and 2012 was $19.5 million, $12.7 million and $10.4 million, respectively.

The total intrinsic value of options exercised during the fiscal years 2014, 2013 and 2012 was $50.3 million, $55.4 million and $53.2 million, respectively. The total cash received during the fiscal years 2014, 2013 and 2012 from these option exercises was $26.7 million, $25.5 million and $28.0 million, respectively, and the tax benefit realized for the tax deductions from these option exercises was $18.3 million, $18.7 million and $18.9 million, respectively.

At September 30, 2014, approximately $13.5 million of total unrecognized compensation costs related to unvested stock option awards are expected to be recognized over the weighted average period of 2.3 years.

Stock Awards

Restricted Stock Awards

The Company from time to time grants restricted stock awards to employees and consultants under the 2010 Plan. A restricted stock award is an award of shares of the Company's common stock (which have full voting and dividend rights but are restricted with regard to sale or transfer) the restrictions over which lapse ratably over a specified period of time (generally four or five years). Restricted stock awards are independent of stock option grants and are generally subject to forfeiture if employment terminates prior to these restrictions lapsing, subject to certain retirement provisions of the 2010 Plan and certain predecessor share-based compensation plans such as the 2007 Plan.

The fair value of the Company's restricted stock awards is expensed on a straight-line basis over the period (generally five years) in which the restrictions on these stock awards lapse ("vesting") or over the period ending on the date a participant becomes eligible for retirement, if earlier. For these purposes, the fair value of the restricted stock award is determined based on the closing market price of the Company's common stock on the date of grant.

During the fiscal year ended September 30, 2014, the Company granted 210,820 restricted stock awards with restrictions that lapse ratably over terms ranging from three to four years, in connection with the executive management transition plan announced in May 2014.

The following table presents a summary of the activity for the Company's restricted stock awards for the fiscal year ended September 30, 2014:

Restricted Stock Awards	Number of Shares (in Thousands)			Weighted Average Fair Value Per Share		Weighted Average Remaining Vesting Term (in Years)
Unvested at September 30, 2013		337		$	16.30		3.1
Granted		247			26.57
Vested		(115	)		13.81
Forfeited		(33	)		21.10

Unvested at September 30, 2014		436		$	22.42		3.4

At September 30, 2014, approximately $3.4 million of total unrecognized compensation costs related to unvested restricted stock awards are expected to be recognized over the weighted average period of 3.4 years.

Restricted Stock Units

The Company currently grants restricted stock unit ("RSU" or "RSUs") awards, which generally vest within one year from the date of grant, pursuant to the 2010 Plan. To date, the Company has only granted RSU awards to its non-employee directors. RSUs represent an unsecured promise of the Company to issue shares of its common stock. RSUs are converted into shares of the Company's common stock generally on the vesting date. An independent director who receives an RSU award may elect, upon receipt of such award, to defer until a later date delivery of the shares of common stock of the Company that would otherwise be issued to such director on the vesting date. RSUs granted prior to the fiscal year 2012, are generally retained by the Company as deferred stock units that are not distributed until six months after the independent director's service as a director terminates. RSUs are independent of stock option grants and are generally subject to forfeiture if service terminates prior to the vesting of the units. Participants have no voting rights with respect to unvested RSUs. Under the 2010 Plan, the Company may settle the vested deferred stock units with shares of the Company's common stock or in cash.

The Company expenses the cost of the RSUs, which is determined to be the fair value of the RSUs at the date of grant, on a straight-line basis over the vesting period (generally one year). For these purposes, the fair value of the RSU is determined based on the closing market price of the Company's common stock on the date of grant.

The following table presents a summary of the activity for the Company's RSUs for the fiscal year ended September 30, 2014:

Restricted Stock Units	Number of Shares (in Thousands)			Weighted Average Fair Value Per Share		Weighted Average Remaining Vesting Term (In Years)
Unvested at September 30, 2013		—		$	—		—
Granted		27			26.30
Vested		(27	)		26.30
Forfeited		—			—

Unvested at September 30, 2014		—		$	—		—

During fiscal year 2014, all RSUs vested or were forfeited. Therefore, there are no unrecognized compensation costs as of September 30, 2014 in connection with past RSU awards.