Laura D. Brown - Senior Vice President of Communications & Investor Relations William D. Chapman - Senior Director of Investor Relations

Hello. This is Laura Brown, Senior Vice President of Communications and Investor Relations. With me is Bill Chapman, Senior Director of Investor Relations. The purpose of this podcast is to provide you with additional information regarding Grainger's fourth quarter 2013 results. Please also reference our 2013 fourth quarter earnings release issued today, January 24, in addition to other information available on our Investor Relations website to supplement this podcast. Before we begin, please remember that certain statements and projections of future results made in the press release and in this podcast constitute forward-looking information. These statements are based on current market conditions and competitive and regulatory expectations and involve risk and uncertainty. Please see our Form 10-K for a discussion of factors that relate to forward-looking statements. Today, we reported results for the year 2013 and updated our earnings per share and sales guidance for 2014. For the full year 2013, company sales increased 5% to $9.4 billion. Net earnings increased 16% to $797 million and earnings per share increased 17% to $11.13. Operating cash flow increased 21% to $986 million. Despite a challenging economic environment, this was a solid year for Grainger as we continued to invest in infrastructure and growth designed to accelerate our share gains within the MRO market and increase our size and scale. We also updated our guidance. We now expect 2014 earnings per share of $12.10 to $12.85 and sales of 5% to 9% growth. This change is largely due to a weaker Canadian dollar in recent months and the divestiture of a number of the direct-marketing Specialty Brands that were sold on December 31, 2013. Our 2014 guidance issued on November 13, 2013, called for earnings per share of $12.25 to $13 and sales of 6% to 10% growth. To better understand our…

Thanks, Laura. Since we have already analyzed company operating performance, we will discuss performance by reporting segment. As a reminder, results in this discussion exclude the charges detailed in the earnings press release and Exhibit 1 of this podcast, which is posted on the Investor Relations section of our website. Adjusted operating earnings in the United States increased 7% versus the 2012 fourth quarter, driven by the 10% sales growth and positive expense leverage, partially offset by lower gross profit margins. Gross profit margins for the quarter decreased 180 basis points, driven by lower gross margins from the acquired businesses and faster growth with lower-margin customers. Of the 180 basis point decline, nearly 2/3 is related to acquisitions with lower gross margins. Positive expense leverage was driven by the 10% sales growth versus a 5% increase in operating expenses and included $28 million in incremental growth-related spending on areas such as new sales representatives, eCommerce and inventory management. The U.S. operating margin decreased 50 basis points to 16.3%, primarily due to the acquired businesses with lower gross profit margins. Excluding the acquisitions, the adjusted operating margin for the U.S. segment would have increased 20 basis points in the quarter versus the prior year. Let's move on to our business in Canada. Operating earnings decreased 10% versus the 2012 fourth quarter, down 5% in local currency. The decrease was driven by lower gross profit margins, the 3% sales decline due to unfavorable foreign exchange and negative expense leverage. Gross margins in Canada decreased 20 basis points versus the prior year. This decline was primarily due to product cost inflation exceeding price inflation, driven by unfavorable foreign exchange, which is a function of purchasing approximately 1/3 of Canada's products from the United States. Contributing to the lower operating performance was approximately $2…