Financial Statement Discussion

The impact of foreign currency translation decreased sales by $3.5 million, or 0.5 percent, during the quarter and decreased sales by $32.2 million, or 1.3 percent, for the year. The impact of foreign currency translation decreased reported net earnings by $0.3 million, or 0.4 percent, during the quarter and decreased reported net earnings by $2.1 million, or 0.8 percent, for the year.

Gross margin was 36.1 percent for the quarter and 34.8 percent for the year, compared to prior year margins of 35.0 percent for both the quarter and the year. The improvement in the quarter is primarily attributable to a higher percentage of our sales coming from replacement filters and the benefits from our Continuous Improvement initiatives. Restructuring expenses included in gross margin were $0.3 million in the quarter and $1.6 million for the year.

Operating expenses for the quarter were $128.3 million, down 1.5 percent from last year. As a percent of sales, operating expenses were 20.3 percent compared to last year's 19.8 percent. For the year, operating expenses were $503.8 million, or 20.7 percent of sales, compared to $510.7 million, or 20.5 percent of sales, last year.

Restructuring expenses included in operating expenses were $0.9 million and $2.4 million for the quarter and the year, respectively. Our ongoing cost containment actions and lower incentive compensation have helped to offset the restructuring expenses, higher pension expenses, and the incremental expenses related to our Strategic Business Systems project.

Our effective tax rate for the quarter was 28.2 percent, compared to a prior year rate of 30.7 percent. The decrease in the quarter was due to a change in the geographic mix of earnings compared to last year. For the year, the effective tax rate was 29.0 percent compared to a prior year rate of 28.7 percent.

As part of our ongoing share repurchase program we repurchased 1,166,000 shares, or 0.8 percent of our diluted shares outstanding, for $41.6 million during the quarter. For the year, we repurchased 2,987,000 shares, or 2.0 percent of our diluted shares outstanding, for $102.6 million.