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Unformatted text preview: K-36 NOTE 1 BACKGROUND AND BASIS OF PRESENTATION INDUSTRY INFORMATION W.W. Grainger, Inc. is the leading broad-line supplier of facilities maintenance and other related products in North America. In this report, the words Company or Grainger mean W.W. Grainger, Inc. and its subsidiaries. MANAGEMENT ESTIMATES In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and revenues and expenses. Actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts in the 2004 and 2003 financial statements, as previously reported, have been reclassified to conform to the 2005 presentation. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions are eliminated from the consolidated financial statements. FOREIGN CURRENCY TRANSLATION The financial statements of the Companys foreign subsidiaries are measured using the local currency as the functional currency. Net exchange gains or losses resulting from the translation of financial statements of foreign operations and related long-term debt are recorded as a separate component of shareholders equity. See Note 2 to the Consolidated Financial Statements. INVESTMENTS IN UNCONSOLIDATED ENTITIES For investments in which the Company owns or controls from 20% to 50% of the voting shares, the equity method of accounting is used. The Company also accounts for investments below 20% using the equity method when significant influence can be exercised over the operating and financial policies of the investee company. See Note 7 to the Consolidated Financial Statements. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION Revenues recognized include product sales, billings for freight and handling charges and fees earned for services provided. The Company recognizes product sales and billings for freight and handling charges primarily on the date products are shipped to, or picked up by, the customer. The Companys standard shipping terms are FOB shipping point. On occasion, the Company will negotiate FOB destination terms. These sales are recognized upon delivery to the customer. Fee revenues, which account for less than 1% of total revenues, are recognized after services are completed. VENDOR CONSIDERATION The Company accounts for vendor consideration in accordance with Emerging Issues Task Force (EITF) Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor (Issue 02-16). The Company provides numerous advertising programs to promote its vendors products, including catalogs and other printed media, Internet and other marketing programs. Most of these programs relate to multiple vendors, which makesmedia, Internet and other marketing programs....
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- Fall '11