7. Share-Based Payments

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.

The Company granted approximately 1.2 million and 1.5 million stock options and approximately 219,000 and 36,000 restricted share awards to its employees and consultants during the six months ended March 31, 2015 and 2014, respectively. Upon issuance of such grants, the Company recognized accelerated share-based compensation expense of $4.8 million and $5.3 million in the six months ended March 31, 2015 and 2014, respectively, in connection with certain retirement eligible employees who are eligible to continue vesting awards upon retirement under the provisions of the Sally Beauty Holdings, Inc. Amended and Restated 2010 Omnibus Incentive Plan (the “2010 Plan”). In addition, the Company granted approximately 20,000 and 27,000 restricted stock units to its non-employee directors during the six months ended March 31, 2015 and 2014, respectively.

The following table presents the total compensation cost charged against income and included in selling, general and administrative expenses for all share-based compensation arrangements and the related tax benefits recognized in our consolidated statements of earnings (in thousands):

	Three Months Ended March 31,				Six Months Ended March 31,
	2015		2014		2015		2014
Share-based compensation expense	$	2,840	$	3,268	$	10,600	$	11,790
Income tax benefit related to share-based compensation expense	$	1,077	$	1,166	$	3,995	$	4,347

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 Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan.

The following table presents a summary of the activity for the Company’s stock option awards for the six months ended March 31, 2015:

	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, 2014	8,983		$	15.93	6.2	$	102,751
Granted	1,166		29.23
Exercised	(4,426	)	11.73
Forfeited or expired	(207	)	25.41
Outstanding at March 31, 2015	5,516		$	21.75	7.2	$	69,586

Exercisable at March 31, 2015	2,244		$	15.83	5.6	$	41,606

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 March 31, 2015 (in Thousands)	Weighted Average Remaining Contractual Term (in Years)	Weighted Average Exercise Price		Number Exercisable at March 31, 2015 (in Thousands)	Weighted Average Exercise Price
$2.00 – 19.99	1,983	5.0	$	13.55	1,595	$	12.17
$20.00 – 30.07	3,533	8.5	26.36		649	24.82
Total	5,516	7.2	$	21.75	2,244	$	15.83

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:

	Six months ended March 31,
	2015		2014
Expected life (in years)	5.0		5.0
Expected volatility for the Company’s stock	30.9	%	48.4	%
Risk-free interest rate	1.6	%	1.3	%
Dividend yield	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 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 in the six months ended March 31, 2015 and 2014 was $8.78 and $11.32 per option, respectively. The total intrinsic value of options exercised during the six months ended March 31, 2015 was $84.6 million. The cash proceeds from these option exercises were $51.8 million and the tax benefit realized from these option exercises was $31.4 million.

At March 31, 2015, unrecognized compensation costs related to unvested stock option awards are approximately $14.6 million and are expected to be recognized over the weighted average period of 2.4 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 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 of the 2010 Plan.

The fair value of the Company’s restricted stock awards is expensed on a straight-line basis over the period (generally four to 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.

The following table presents a summary of the activity for the Company’s restricted stock awards for the six months ended March 31, 2015:

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, 2014	436		$	22.42	3.4
Granted	219		29.22
Vested	(83	)	14.30
Forfeited	(5	)	25.16
Unvested at March 31, 2015	567		$	26.21	3.0

At March 31, 2015, unrecognized compensation costs related to unvested restricted stock awards are approximately $6.1 million and are expected to be recognized over the weighted average period of 3.0 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 the Company’s 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 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 six months ended March 31, 2015:

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, 2014	—	$	—	—
Granted	20	29.20
Vested	—	—
Forfeited	—	—
Unvested at March 31, 2015	20	$	29.20	0.5

At March 31, 2015, unrecognized compensation costs related to unvested RSUs are approximately $0.3 million and are expected to be recognized over the weighted average period of 0.5 years.