EARNINGS PER SHARE

Certain stock incentive plans grant stock awards that contain nonforfeitable rights to dividends meet the criteria of a participating security. Under the two-class method, earnings are allocated between common stock and participating securities. The presentation of basic and diluted earnings per share is required only for each class of common stock and not for participating securities. As such, the Company presents basic and diluted earnings per share for its one class of common stock.

The two-class method includes an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared and undistributed earnings for the period. The Company’s reported net earnings are reduced by the amount allocated to participating securities to arrive at the earnings allocated to common stock shareholders for purposes of calculating earnings per share.

The dilutive effect of participating securities is calculated using the more dilutive of the treasury stock or the two-class method. The Company has determined the two-class method to be the more dilutive. As such, the earnings allocated to common stock shareholders in the basic earnings per share calculation is adjusted for the reallocation of undistributed earnings to participating securities to arrive at the earnings allocated to common stock shareholders for calculating the diluted earnings per share.

The following table sets forth the computation of basic and diluted earnings per share under the two-class method (in millions of dollars, except for share and per share amounts):



	For the Years Ended December 31,
	2018			2017			2016

Net earnings attributable to W.W. Grainger, Inc. as reported	$	782		$	586		$	606
Distributed earnings available to participating securities	(2		)	(2		)	(2		)
Undistributed earnings available to participating securities	(4		)	(3		)	(3		)
Numerator for basic earnings per share - Undistributed and distributed earnings available to common shareholders	776			581			601
Undistributed earnings allocated to participating securities	4			3			3
Undistributed earnings reallocated to participating securities	(4		)	(3		)	(3		)
Numerator for diluted earnings per share - Undistributed and distributed earnings available to common shareholders	$	776		$	581		$	601

Denominator for basic earnings per share – weighted average shares	56,142,604			57,674,977			60,430,892
Effect of dilutive securities	391,581			308,190			409,038
Denominator for diluted earnings per share – weighted average shares adjusted for dilutive securities	56,534,185			57,983,167			60,839,930
Earnings per share two-class method
Basic	$	13.82		$	10.07		$	9.94
Diluted	$	13.73		$	10.02		$	9.87