STOCK-BASED COMPENSATION

Stock Options

The assumptions used in our Black-Scholes valuation related to grants made during the six months ended December 31, 2015 and 2014 were as follows:



	2015		2014
Risk-free interest rate	1.4	%	1.5	%
Expected life (years) ⁽³⁾	4.5		4.5
Expected volatility ⁽⁴⁾	31.0	%	32.5	%
Expected dividend yield	2.0	%	1.6	%

(3) Expected life is derived from historical experience.

(4) Expected volatility is based on the implied historical volatility of our stock.

Changes in our stock options for the six months ended December 31, 2015 were as follows:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Life (years)	Aggregate Intrinsic value (in thousands)
Options outstanding, June 30, 2015	2,094,037		$	36.08
Granted	742,687		30.04
Exercised	(38,569	)	25.02
Lapsed and forfeited	(168,666	)	36.79
Options outstanding, December 31, 2015	2,629,489		$	34.49	5.5	$	—
Options vested and expected to vest, December 31, 2015	2,537,759		$	34.59	5.3	$	—
Options exercisable, December 31, 2015	1,661,984		$	35.35	3.2	$	—

During the six months ended December 31, 2015 and 2014, compensation expense related to stock options was $1.9 million and $2.8 million, respectively. As of December 31, 2015, the total unrecognized compensation cost related to options outstanding was $4.4 million and is expected to be recognized over a weighted average period of 2.4 years.

Weighted average fair value of options granted during the six months ended December 31, 2015 and 2014 was $6.84 and $10.16, respectively. Fair value of options vested during the six months ended December 31, 2015 and 2014 was $2.3 million and $6.9 million, respectively.

Tax benefits relating to excess stock-based compensation deductions are presented in the condensed consolidated statements of cash flow as financing cash inflows. Tax benefits resulting from stock-based compensation deductions were less than amounts reported for financial reporting purposes by $1.7 million for the six months ended December 31, 2015 and exceeded amounts reported for financial reporting purposes by $1.3 million for the six months ended December 31, 2014.

The amount of cash received from the exercise of capital stock options during the six months ended December 31, 2015 and 2014 was $1.0 million and $6.1 million, respectively. The related tax benefit was immaterial for the six months ended December 31, 2015 and was $1.3 million during the six months ended December 31, 2014. The total intrinsic value of options exercised was immaterial during the six months ended December 31, 2015 and was $3.4 million during the six months ended December 31, 2014.

Under the provisions of the Kennametal Inc. Stock and Incentive Plan of 2010 as amended and restated on October 22, 2013, plan participants may deliver stock, owned by the holder for at least six months, in payment of the option price and receive credit for the fair market value of the shares on the date of delivery. The fair market value of shares delivered during both the six months ended December 31, 2015 and 2014 was immaterial.

Restricted Stock Units – Time Vesting and Performance Vesting

Performance vesting restricted stock units are earned pro rata each year if certain performance goals are met over a three-year period and are also subject to a service condition that requires the individual to be employed by the Company at the payment date after the three-year performance period, with the exception of retirement eligible grantees, who upon retirement are entitled to receive payment for any units that have been earned, including a prorated portion in the partially completed fiscal year in which the retirement occurs. Time vesting stock units are valued at the market value of the stock on the grant date. Performance vesting stock units with a market condition are valued using a Monte Carlo model.

Changes in our time vesting and performance vesting restricted stock units for the six months ended December 31, 2015 were as follows:



	Performance Vesting Stock Units		Performance Vesting Weighted Average Fair Value		Time Vesting Stock Units		Time Vesting Weighted Average Fair Value
Unvested performance vesting and time vesting restricted stock units, June 30, 2015	101,245		$	43.00	689,268		$	41.53
Granted	117,589		31.60		499,162		31.06
Vested	—		—		(276,649	)	40.92
Performance metric not achieved	(42,697	)	31.60		—		—
Forfeited	(15,703	)	35.93		(52,148	)	39.02
Unvested performance vesting and time vesting restricted stock units, December 31, 2015	160,434		$	35.53	859,633		$	35.78

During the six months ended December 31, 2015 and 2014, compensation expense related to time vesting and performance vesting restricted stock units was $8.8 million and $10.6 million, respectively. As of December 31, 2015, the total unrecognized compensation cost related to unvested time vesting and performance vesting restricted stock units was $18.6 million and is expected to be recognized over a weighted average period of 2.3 years.