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

Hi, 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 2013 Second Quarter Results. Please also reference our 2013 second quarter earnings release issued today, July 17, 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 2013 second quarter. Company sales for the quarter increased 6% versus the 2012 second quarter. There were 64 selling days in both quarters. Operating earnings increased 11%, and net earnings increased 14%. Earnings per share were $3.03 for the quarter, an increase of 15% versus the 2012 second quarter. The 2013 second quarter included a $0.03 per share tax benefit, which we will discuss later in the podcast. Excluding this benefit, earnings per share increased 14%. We also narrowed our guidance ranges for both 2013 sales and earnings per share, which Bill will cover in detail at the end of the podcast. Let's now walk down the operating section of the income statement in more detail. Gross profit margins increased 50 basis points to 44% versus 43.5% in 2012, primarily driven by Canada and the Other Businesses. Company operating margin increased 70 basis points to 14.7% versus 14% a year ago. Both reportable segments and the Other Businesses contributed to the increase in company operating margin, which…

Thanks, Laura. Since we've already analyzed company operating performance, let's jump right into performance by reportable segment. Operating earnings in the United States increased 9% versus the 2012 second quarter, while the operating margin increased 40 basis points to 18.2%. This performance was driven by the 7% sales growth and positive operating expense leverage. Gross profit margins for the quarter were essentially flat versus the prior year. We were able to increase prices above product cost inflation. However, this was effectively offset by unfavorable selling mix tied to stronger sales to large customers. Operating expenses grew at a slower rate than sales and included $33 million in incremental growth-related spending on areas such as new sales representatives, eCommerce and advertising. Let's move on to our business in Canada. Operating earnings increased 11% versus the prior year in U.S. dollars. The improvement in operating performance was driven by higher sales and higher gross margins. Gross margins increased 140 basis points to 39.9%. The gross profit margin improvement was due to cost savings from freight consolidation, higher supplier rebates and favorable mix. Approximately half of the improvements are expected to continue into future periods. The operating margin in Canada increased 90 basis points to 12.9%. The Other Businesses generated $13 million in operating earnings in the 2013 second quarter versus $11 million in the 2012 second quarter. This improvement was primarily driven by earnings growth in Japan and Europe, partially offset by lower earnings, and in some cases, larger losses for some of the smaller businesses in Asia and Latin America. Below the operating line, interest expense, net of interest income, was $2.4 million in the 2013 second quarter versus $2.3 million in the 2012 second quarter. The tax rate in the quarter was 36.5% versus 37.9% in the 2012 quarter. The…