5. Earnings Per Share (“EPS”)

Basic EPS is computed by dividing net income attributable to Kraton by the weighted-average number of shares outstanding during the period.

Diluted EPS is computed by dividing net income attributable to Kraton by the diluted weighted-average number of shares outstanding during the period and, accordingly, reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options, were exercised, settled or converted into common stock and were dilutive. The diluted weighted-average number of shares used in our diluted EPS calculation is determined using the treasury stock method.

Unvested awards of share-based payments with rights to receive dividends or dividend equivalents, such as our restricted stock awards, are considered to be participating securities, and therefore, the two-class method is used for purposes of calculating EPS. Under the two-class method, a portion of net income is allocated to these participating securities and is excluded from the calculation of EPS allocated to common stock. Our restricted stock awards are subject to forfeiture and restrictions on transfer until vested and have identical voting, income and distribution rights to the unrestricted common shares outstanding.

The computation of diluted EPS excludes the effect of the potential exercise of stock options that are anti-dilutive. The number of stock options excluded from the computation was 872,406 and 760,087 for the three months ended June 30, 2013 and 2012, and 851,752 and 723,431 for the six months ended June 30, 2013 and 2012, respectively.

The effects of share-based compensation awards on the diluted weighted-average number of shares outstanding used in calculating diluted EPS are as follows:


	Three months ended June 30, 2013								Three months ended June 30, 2012
	Net Income Attributable to Kraton			Weighted Average Shares Outstanding			Earnings Per Share		Net Income Attributable to Kraton			Weighted Average Shares Outstanding			Earnings Per Share
	(In thousands, except per share data)								(In thousands, except per share data)
Basic:
As reported	$	3,829			32,528				$	12,407			32,241
Amounts allocated to unvested restricted shares		(54	)		(455	)				(120	)		(311	)

Amounts available to common stockholders		3,775			32,073		$	0.12		12,287			31,930		$	0.38

Diluted:
Amounts allocated to unvested restricted shares		54			455					120			311
Non participating share units		0			125					0			29
Stock options added under the treasury stock method		0			180					0			213
Amounts reallocated to unvested restricted shares		(53	)		(455	)				(119	)		(311	)

Amounts available to stockholders and assumed conversions	$	3,776			32,378		$	0.12	$	12,288			32,172		$	0.38


	Six months ended June 30, 2013								Six months ended June 30, 2012
	Net Income Attributable to Kraton			Weighted Average Shares Outstanding			Earnings Per Share		Net Income Attributable to Kraton			Weighted Average Shares Outstanding			Earnings Per Share
	(In thousands, except per share data)								(In thousands, except per share data)
Basic:
As reported	$	81			32,443				$	28,760			32,191
Amounts allocated to unvested restricted shares		(1	)		(375	)				(243	)		(272	)

Amounts available to common stockholders		80			32,068		$	0.00		28,517			31,919		$	0.89

Diluted:
Amounts allocated to unvested restricted shares		1			375					243			272
Non participating share units		0			92					0			29
Stock options added under the treasury stock method		0			231					0			261
Amounts reallocated to unvested restricted shares		(1	)		(375	)				(241	)		(272	)

Amounts available to stockholders and assumed conversions	$	80			32,391		$	0.00	$	28,519			32,209		$	0.89