7. Share-Based Payments

The Company from time to time may grant performance-based awards and service-based awards to its employees 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, 2016, 2015 and 2014, the Company granted approximately 1.5 million, 1.2 million and 1.6 million service-based stock options, respectively, and approximately 40,000, 222,000 and 247,000 service-based restricted stock awards, respectively, to its employees under the 2010 Plan. In addition, during the fiscal year ended September 30, 2016, the Company granted approximately 152,000 performance-based restricted stock units ("Performance Units") to its employees under the 2010 Plan. Furthermore, during the fiscal years ended September 30, 2016, 2015 and 2014, the Company granted approximately 28,000, 20,000 and 27,000 service-based restricted stock units, respectively, to its non-employee directors under the 2010 Plan.

The Company measures the cost of services received from employees and directors 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, in connection with service-based awards, over the period ending on the date a participant becomes eligible for retirement, if earlier. For the fiscal years 2016, 2015 and 2014, 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 $12.6 million, $16.8 million and $22.1 million, respectively, and resulted in an increase in additional paid-in capital by the same amounts. These amounts include, for the fiscal years 2016, 2015 and 2014, $1.3 million, $4.8 million and $8.8 million, respectively, of accelerated expense related to certain retirement eligible employees who continue vesting in service-based awards upon retirement, pursuant to provisions contained in the 2010 Plan, including, for the fiscal year 2014, expense of $3.5 million in connection with the executive management transition plan announced in May 2014. For fiscal years 2016, 2015 and 2014, the total income tax benefit recognized in our consolidated statements of earnings in connection with all share-based compensation awards was $4.8 million, $6.3 million and $8.2 million, respectively.

Performance-Based Awards

The Company from time to time may grant Performance Units under the 2010 Plan. Performance Units represent unsecured obligations of the Company to issue shares of its common stock. The number of shares, if any, which will be issued in connection with these awards, is contingent upon both (a) employee service conditions and (b) the Company's level of achievement with respect to specified performance targets. The Company measures the cost of services received from employees in exchange for an award of Performance Units based on the fair value of the award on the date of grant and it recognizes expense over the requisite service period (generally three years). The fair value of a Performance Unit 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, 2016, the Company granted approximately 152,000 Performance Units ("target units") to its employees. Under the terms of these awards, a grantee may earn from 0% to 200% of his or her target units, with the ultimate number of units earned upon settlement (and expense recognized) dependent on the Company's level of achievement with respect to certain specified cumulative performance targets during the three-year period ending on September 30, 2018 (the "Performance Period") and satisfaction of the employee service condition. Periodic expense for Performance Unit awards, which is estimated quarterly, is based on the Company's projected performance during the Performance Period compared to the performance targets contained in the award. As such, for the fiscal year ended September 30, 2016, the Company has estimated and recognized compensation expense at 100% of the performance targets since it believes achievement of that percentage of the performance targets is probable. To date, the Company has only granted Performance Units subject to the Company's level of achievement with respect to specified performance targets related to: consolidated sales growth and return on invested capital, in addition to service conditions. The awards issued during the fiscal year ended September 30, 2016 contain a performance matrix for each of the two performance metrics (consolidated sales growth and return on invested capital), which matrices provide for achievement of 0% to 100% of the applicable performance targets. The performance multiplier to be applied to the number of target units awarded will be calculated by adding together the percentage of the target award earned under each of the two performance matrices.

The following table presents a summary of the activity for the Company's Performance Unit awards for the fiscal year ended September 30, 2016:

Performance Unit Awards	Number of Shares (in Thousands)			Weighted Average Fair Value Per Share		Weighted Average Remaining Vesting Term (in Years)
Unvested at September 30, 2015		—		$	—		—
Granted		152			23.45
Vested		—			—
Forfeited		(20	)		23.45

Unvested at September 30, 2016		132		$	23.45		2.0

At September 30, 2016, unrecognized compensation costs related to unvested performance unit awards are approximately $2.0 million and are expected to be recognized over the weighted average period of 2.0 years.

Service-Based Awards

Stock Option Awards

The Company from time to time may grant service-based stock option awards to employees under the 2010 Plan. 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 three or 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.

The following table presents a summary of the activity for the Company's service-based stock option awards for the fiscal year ended September 30, 2016:

	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, 2015		5,316		$	21.89		6.8	$	19,255
Granted		1,486			23.65
Exercised		(938	)		17.27
Forfeited or expired		(280	)		25.64

Outstanding at September 30, 2016		5,584		$	22.95		6.1	$	19,615


Exercisable at September 30, 2016		3,550		$	21.54		5.4	$	17,071

The following table summarizes additional information about service-based stock options outstanding at September 30, 2016 under the Company's share-based compensation plans:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Options Outstanding (in Thousands)		Weighted Average Remaining Contractual Term (in Years)		Weighted Average Exercise Price		Number of Options Exercisable (in Thousands)		Weighted Average Exercise Price
$5.24 - 19.99		1,169		3.6	$	12.84		1,169	$	12.84
$20.00 - 31.58		4,415		6.7		25.63		2,381		25.81

Total		5,584		6.1	$	22.95		3,550	$	21.54

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 three or 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,
	2016			2015			2014
Expected life (in years)		5.0			5.0			5.0
Expected volatility for the Company's stock		27.2	%		30.9	%		47.3	%
Risk-free interest rate		1.5	%		1.6	%		1.3	%
Dividend yield		0.0	%		0.0	%		0.0	%

The expected life of options awarded represents the period of time that such options are expected to be outstanding and is based on the Company's historical experience. The risk-free interest rate is based on the zero-coupon U.S. Treasury notes with a term comparable to the expected life of an award at the date of the grant. Since the Company does not currently expect to pay dividends, the dividend yield used for this purpose is 0%.

The weighted average fair value per share at the date of grant of the stock options awarded by the Company during the fiscal years 2016, 2015 and 2014 was $6.32, $8.78 and $11.08, respectively. The aggregate fair value of stock options that vested during the fiscal years 2016, 2015 and 2014 was $16.5 million, $10.0 million and $19.5 million, respectively.

The aggregate intrinsic value of options exercised by the Company's grantees during the fiscal years 2016, 2015 and 2014 was $11.0 million, $86.7 million and $50.3 million, respectively. The total cash received by the Company during the fiscal years 2016, 2015 and 2014 from these option exercises was $16.2 million, $54.4 million and $26.7 million, respectively, and the tax benefit realized for the tax deductions from these option exercises was $3.7 million, $31.7 million and $18.3 million, respectively.

At September 30, 2016, approximately $8.5 million of total unrecognized compensation costs related to unvested stock option awards are expected to be recognized over the weighted average period of 1.8 years.

Restricted Stock Awards

The Company from time to time may grant service-based restricted stock awards to employees 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. These restrictions lapse ratably over a specified period of time (generally three to 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 contained in the 2010 Plan.

The fair value of the Company's restricted stock awards is expensed on a straight-line basis over the period (generally three to five years) over 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 2014, the Company granted 210,820 service-based 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 service-based restricted stock awards for the fiscal year ended September 30, 2016:

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, 2015		446		$	25.82		2.8
Granted		40			25.35
Vested		(192	)		24.16
Forfeited		(23	)		27.18

Unvested at September 30, 2016		271		$	26.80		1.9

At September 30, 2016, approximately $3.0 million of total unrecognized compensation costs related to unvested restricted stock awards are expected to be recognized over the weighted average period of 1.9 years.

Restricted Stock Units

The Company currently grants service-based restricted stock unit ("RSU" or "RSUs") awards, which generally vest within one year from the date of grant, pursuant to the 2010 Plan. As of September 30, 2016, the Company has only granted service-based RSU awards to its non-employee directors. RSUs represent an unsecured promise of the Company to issue shares of its common stock. Unless forfeited prior to the vesting date, 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 the Company's common stock that would otherwise be issued 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 service-based 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 an 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 service-based RSUs for the fiscal year ended September 30, 2016:

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, 2015		—		$	—		—
Granted		28			24.10
Vested		(28	)		24.10
Forfeited		—			—

Unvested at September 30, 2016		—		$	—		—

At September 30, 2016, all RSUs previously awarded have vested and there are no unrecognized compensation costs in connection therewith.