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 1,643,950 and 757,687 for the three months ended September 30, 2013 and 2012, and 1,643,950 and 737,033 for the nine months ended September 30, 2013 and 2012, respectively. For the three months ended September 30, 2013, the weighted average restricted share units and performance share units of 57,591 and 67,585, respectively, and 51,106 and 51,988 for the nine months ended September 30, 2013, respectively, are not included as a component of diluted EPS as they are anti-dilutive.

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 September 30, 2013											Three months ended September 30, 2012
	Net Loss Attributable to Kraton			Weighted Average Shares Outstanding				Loss Per Share				Net Loss Attributable to Kraton			Weighted Average Shares Outstanding				Loss Per Share
	(In thousands, except per share data)											(In thousands, except per share data)
Basic:
As reported	$	(5,598	)		32,528						$		(15,499	)		32,251
Amounts allocated to unvested restricted shares		78			(455	)							148			(308	)
Amounts available to common stockholders		(5,520	)		32,073		$		(0.17	)			(15,351	)		31,943		$		(0.48	)
Diluted:
Amounts allocated to unvested restricted shares		(78	)		455								(148	)		308
Non participating share units		0			0								0			0
Stock options added under the treasury stock method		0			0								0			0
Amounts reallocated to unvested restricted shares		78			(455	)							148			(308	)
Amounts available to stockholders and assumed conversions	$	(5,520	)		32,073		$		(0.17	)	$		(15,351	)		31,943		$		(0.48	)

	Nine months ended September 30, 2013											Nine months ended September 30, 2012
	Net Loss Attributable to Kraton			Weighted Average Shares Outstanding				Loss 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	$	(5,517	)		32,471						$		13,261			32,210
Amounts allocated to unvested restricted shares		68			(402	)							(117	)		(283	)
Amounts available to common stockholders		(5,449	)		32,069		$		(0.17	)			13,144			31,927		$		0.41
Diluted:
Amounts allocated to unvested restricted shares		(68	)		402								117			283
Non participating share units		0			0								0			29
Stock options added under the treasury stock method		0			0								0			246
Amounts reallocated to unvested restricted shares		68			(402	)							(116	)		(283	)
Amounts available to stockholders and assumed conversions	$	(5,449	)		32,069		$		(0.17	)	$		13,145			32,202		$		0.41