## Results of Operations 

The following discussion of the company’s financial condi- tion and results of operations should be read in conjunc- tion with the Consolidated Financial Statements and Notes thereto (including Note H, Segment Reporting) and other financial information included elsewhere in this Report. 

Fiscal 2001 Compared to Fiscal 2000 The company reported record sales in 2001 of $1.137 billion. This was an increase of 4.1 percent over prior-year sales of $1.092 bil- lion. Excluding the impact of businesses acquired in 2000, sales for the year ended July 31, 2001 were up 0.5 percent over the prior year. This modest growth in sales for the year reflected the diversification of our Industrial Products and Engine Products segments as shown by the strength in the gas turbine market offsetting the slump in the North American truck market. Sales for the Industrial Products segment were a record $530.2 million, up 26.7 percent over the prior year. Excluding the acquisition of DCE, sales for the year were up 18.9 percent from the prior year. Leading this increase were sales in gas turbine products with an increase over the prior year of 66.6 percent to record sales of $195.0 million, reflecting the continued high demand in this market. Sales in dust collection and special application products also increased from the prior year by 12.5 percent and 8.9 percent, respectively. Excluding the acquisition of DCE, dust collection product sales decreased 4.4 percent from the prior year. Sales for the Engine Products segment of $606.8 million were down 10.0 percent over the prior year reflecting the U.S. economic weakness and the strong U.S. dollar overseas. Worldwide markets for medium and heavy-duty trucks were severely depressed, reflected in a decrease in transportation product sales of 47.6 percent from the prior year. Excluding the company’s second quar- ter exit from a block of truck related business due to unfa- vorable commercial terms, sales were down 37.1 percent from the prior year. Sales in off-road products decreased 5.9 percent from the prior year while aftermarket product sales increased 5.0 percent. 

Domestic Industrial Products sales increased 28.1 per- cent from the prior year. This increase was led by strong sales of gas turbine systems products domestically reflect- ing continued demand for large turbines in North America, with domestic sales almost doubling from the prior year. Domestic dust collection product sales grew slightly with an increase of 1.7 percent while sales in special application products domestically decreased 8.2 percent. Domestic 

Engine Products sales were down 10.5 percent from the prior year. The medium and heavy-duty truck market con- tinued to show its effects on the company’s transportation product sales domestically with a decrease of 51.8 percent from the prior year. This was somewhat offset by increases in domestic aftermarket and off-road product sales of 1.7 percent and 13.1 percent, respectively. 

In U.S. dollars, total international sales increased 5.6 percent from the prior year. Excluding the negative impact of foreign currency translation of $35.6 million, sales increased 14.4 percent over the prior year. Total inter- national Industrial Products sales were up 24.9 percent from the prior year. Sales of all products within this seg- ment were strong internationally, with increases across the board. Leading this growth were sales of dust collection products with an increase of 34.1 percent from the prior year. Sales of gas turbine products and special application products increased 20.2 percent and 18.9 percent from the prior year, respectively. Total international Engine Products sales were down 8.9 percent compared to the prior year despite an increase in aftermarket product sales of 11.3 percent. International sales of off-road and transportation products decreased from the prior year by 28.3 percent and 29.0 percent, respectively. 

The company reported record net earnings for 2001 of $75.5 million compared to $70.2 million in 2000, an increase of 7.6 percent. Net earnings per share – diluted were $1.66, up 10.0 percent from $1.51 in the prior year. With only a modest increase in sales, the increase in net earnings is also a result of cost management, particularly in plant rationalization efforts throughout the year and other cost reduction initiatives in the second half of the year. This along with the decrease in the company’s effec- tive tax rate due to increased profitability from foreign operations helped to offset the effect of negative foreign currency exchange rates. The Industrial Products segment continued to grow, contributing 46.6 percent of consoli- dated sales, approximately 70.0 percent of the operating income and all of the growth in operating income for the year. International operating income totaled approximately 68.9 percent and 62.1 percent of consolidated operating income in 2001 and 2000, respectively. International operations also contributed all of the growth in operating income. Europe’s operating income increased 7.1 percent (16.2 percent in local currency) as a result of strong gas turbine results, the completion of the DCE integration and improved results in most markets. Asia-Pacific’s operating 

