REVENUE

Company revenue is primarily comprised of MRO product sales and related activities, such as freight and services.

Recognition

The Company recognizes revenue when a sales arrangement with a customer exists (e.g., contract, purchase orders, others), transaction price is fixed or determinable and the Company has satisfied its performance obligation per the sales arrangement. Company sales arrangements have standard payment terms that do not exceed a year.

The majority of Company revenue originates from contracts with a single performance obligation to deliver products, whereas the Company’s performance obligations are satisfied when control of the product is transferred to the customer per the arranged shipping terms. Some Company contracts contain a combination of product sales and services which are distinct and accounted for as separate performance obligations. The Company’s performance obligations for services are satisfied when the services are rendered within the arranged service period. Total service revenue is not material and accounted for approximately 1% of total Company revenue for the three months ended March 31, 2018.

The Company records a contract asset when it has a right to payment from a customer that is conditioned on events other than the passage of time. The Company also records a contract liability when customers prepay but the Company has not yet satisfied its performance obligation. The Company did not have any material unsatisfied performance obligations, contract assets or liabilities as of March 31, 2018 and December 31, 2017.

Measurement

The Company’s revenue is reported as Net sales and is measured as the determinable transaction price, net of any variable considerations (e.g., rights to return product, sales incentives, others) and any taxes collected from customers and subsequently remitted to governmental authorities. The Company considers shipping and handling as activities to fulfill its performance obligation. Billings for freight and shipping and handling costs are accounted for as Net sales and Cost of merchandise sold, respectively.

The Company offers customers rights to return product and sales incentives, which primarily consist of volume rebates. The Company’s rights of return and sales incentives generally do not exceed a year. The Company estimates sales returns and volume rebate accruals throughout the year based on various factors, including contract terms, historical experience and performance levels. Total accrued sales incentives were approximately $49 million and $55 million as of March 31, 2018 and December 31, 2017, respectively, and are reported as part of Accrued expenses. Total accrued sales returns were approximately $26 million and $28 million as of March 31, 2018 and December 31, 2017, respectively, and are reported as a reduction of Accounts receivable - net.

Disaggregation of Revenues

Grainger serves a large number of customers in diverse industries, which are subject to different economic and industry factors. The Company's presentation of revenue by industry most reasonably depicts how the nature, amount, timing and uncertainty of Company revenue and cash flows are affected by economic and industry factors. The following table presents the Company's percentage of revenue by reportable segment and by major customer industry for the three months ended March 31, 2018:



	Three Months Ended March 31, 2018
	United States		Canada		Total Company (2)
Government	17	%	7	%	13	%
Heavy Manufacturing	20	%	20	%	19	%
Light Manufacturing	13	%	5	%	11	%
Transportation	5	%	8	%	5	%
Commercial	16	%	10	%	13	%
Retail/Wholesale	8	%	4	%	7	%
Contractors	10	%	12	%	8	%
Natural Resources	3	%	31	%	4	%
Other (1)	8	%	3	%	20	%
Total net sales	100	%	100	%	100	%
Percent of Total Company Revenue	72	%	7	%	100	%

(1) Other category primarily includes revenue from individual customers not aligned to any industry segment, including small business and consumers and intersegment net sales.

(2) Total Company includes other businesses which include the Company's single channel businesses and small operations in the U.S., Europe, Asia and Latin America and account for approximately 21% of revenue.

Cost of Merchandise Sold

Cost of merchandise sold included products and product-related costs, vendor consideration, freight and handling costs and service costs.