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. Our weighted average restricted stock awards outstanding were 523,153 and 454,726 for the three months ended June 30, 2014 and 2013, respectively, and 491,612 and 374,965 for the six months ended June 30, 2014 and 2013, respectively. We withheld 9,673 and 25,380 shares of restricted stock upon vesting to satisfy employee payroll tax withholding requirements for the three and six months ended June 30, 2014, respectively. We immediately retired all shares withheld and the transactions were reflected in additional paid in capital in the Condensed Consolidated Statements of Changes in Equity and as a purchase of treasury stock in the Condensed Consolidated Statements of Cash Flows.

The computation of diluted EPS includes weighted average restricted share units of 85,808 and 57,591 for the three months ended June 30, 2014 and 2013, respectively, and 76,595 and 47,810 for the six months ended June 30, 2014 and 2013, respectively, and weighted average performance share units of 157,771 and 67,585 for the three months ended June 30, 2014 and 2013, respectively, and 129,971 and 44,061 for the six months ended June 30, 2014 and 2013, respectively.

The computation of diluted EPS also includes stock options added under the treasury stock method, which amounted to 264,537 and 179,640 and 267,818 and 230,605 for the three and six months ended June 30, 2014 and 2013, respectively.

The computation of diluted earnings per share excludes the effect of the potential exercise of stock options that are anti-dilutive, amounting to 841,058 and 872,406 for the three months ended June 30, 2014 and 2013, respectively, and 841,058 and 851,752 for the six months ended June 30, 2014 and 2013, respectively.

The calculations of basic and diluted EPS are as follows:

	Three months ended June 30, 2014								Three months ended June 30, 2013
	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	$	11,143			32,791				$	3,829			32,528
Amounts allocated to unvested restricted shares		(178	)		(523	)				(54	)		(455	)
Amounts available to common stockholders		10,965			32,268		$	0.34		3,775			32,073		$	0.12
Diluted:
Amounts allocated to unvested restricted shares		178			523					54			455
Non-participating share units		—			244					—			125
Stock options added under the treasury stock method		—			265					—			180
Amounts reallocated to unvested restricted shares		(175	)		(523	)				(53	)		(455	)
Amounts available to stockholders and assumed conversions	$	10,968			32,777		$	0.33	$	3,776			32,378		$	0.12

	Six months ended June 30, 2014								Six months ended June 30, 2013
	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	$	3,234			32,707				$	81			32,443
Amounts allocated to unvested restricted shares		(49	)		(492	)				(1	)		(375	)
Amounts available to common stockholders		3,185			32,215		$	0.10		80			32,068		$	0.00
Diluted:
Amounts allocated to unvested restricted shares		49			492					1			375
Non-participating share units		—			207					—			92
Stock options added under the treasury stock method		—			268					—			231
Amounts reallocated to unvested restricted shares		(48	)		(492	)				(1	)		(375	)
Amounts available to stockholders and assumed conversions	$	3,186			32,690		$	0.10	$	80			32,391		$	0.00