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. The Company's sales arrangements generally 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, whereby 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 and nine months ended September 30, 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 September 30, 2018 and December 31, 2017.

Measurement

The Company’s revenue is reported as Net sales and is measured at 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 are accounted for as Net sales and shipping and handling costs are accounted for in Cost of goods sold.

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 returns were approximately $28 million as of both September 30, 2018 and December 31, 2017, respectively, and are reported as a reduction of Accounts receivable, net. Total accrued sales incentives were approximately $63 million and $55 million as of September 30, 2018 and December 31, 2017, respectively, and are reported as part of Accrued expenses.

Disaggregation of Revenues

Grainger serves a large number of customers in diverse industries, which are subject to different economic and market specific 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 market specific factors. The

following table presents the Company's percentage of revenue by reportable segment and by major customer industry for the three and nine months ended September 30, 2018:



	Three Months Ended September 30, 2018
	U.S.		Canada		Total Company (2)
Government	20	%	5	%	15	%
Heavy Manufacturing	19	%	20	%	18	%
Light Manufacturing	13	%	6	%	11	%
Transportation	5	%	8	%	5	%
Commercial	16	%	9	%	13	%
Retail/Wholesale	8	%	4	%	7	%
Contractors	9	%	11	%	8	%
Natural Resources	3	%	34	%	4	%
Other (1)	7	%	3	%	19	%
Total net sales	100	%	100	%	100	%
Percent of Total Company Revenue	73	%	5	%	100	%



	Nine Months Ended September 30, 2018
	U.S.		Canada		Total Company (2)
Government	19	%	6	%	14	%
Heavy Manufacturing	19	%	20	%	18	%
Light Manufacturing	13	%	6	%	11	%
Transportation	5	%	7	%	5	%
Commercial	16	%	10	%	13	%
Retail/Wholesale	8	%	4	%	7	%
Contractors	10	%	11	%	8	%
Natural Resources	3	%	33	%	4	%
Other (1)	7	%	3	%	20	%
Total net sales	100	%	100	%	100	%
Percent of Total Company Revenue	73	%	6	%	100	%

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

(2) Total Company includes other businesses, which include the Company's single channel businesses and operations in Europe, Asia and Latin America and account for approximately 22% and 21% of revenue for the three and nine months ended September 30, 2018, respectively.

Cost of Goods Sold

Cost of goods sold includes products and product-related costs, vendor consideration, shipping and handling costs and service costs.