11 income increased by 38.0 percent (44.4 percent in local currency), led by increases from Japan’s ROI improvement project and strong disk drive results in the Hong Kong and Wuxi, China, operations. Gross margin for 2001 remained virtually flat with only a slight increase to 30.1 percent compared to 30.0 percent in the prior year. This reflects an improved product mix and benefits of plant rationalization efforts, offsetting strong pricing pressure from major customers. Operating expenses as a percentage of sales for 2001 and 2000 were 20.2 percent and 20.3 percent, respectively. Operating expenses in 2001 totaled $229.6 million com- pared to $221.9 million in 2000, an increase of $7.7 mil- lion, or 3.5 percent. The increase in operating expenses relative to the prior year reflects higher sales levels and the continued impact of the businesses acquired in 2000. Selling expenses in 2001 were flat as compared to 2000. General and administrative expenses increased $7.2 mil- lion from the prior year. Interest expense increased $1.7 million, or 17.5 percent, primarily due to higher short-term debt levels throughout the year related to last year’s acquisitions. Other income totaled $4.4 million in 2001 compared to other income  of $4.6 million in the prior year. The major components  of other income in 2001 were: interest income of $1.2 mil- lion, earnings from non-consolidated joint ventures of  $3.0 million, and other miscellaneous income and expense items netting to $0.2 million of miscellaneous income. The effective income tax rate of 28.0 percent in 2001 decreased from the 30.0 percent tax rate in 2000. The tax rate was adjusted in the third quarter to provide for the increased contributions from the company’s international operations in lower tax rate countries and reflects the foreign tax credit generated by the receipt of a dividend from the company’s operations in Japan. The company anticipates that it will have a comparable proportion of income coming from its international operations located in lower tax rate countries in 2002. The company anticipates that its effective income tax rate will be approximately 28.0 percent in 2002. Total backlog was $355.3 million, up 7.2 percent from the same period last year. In the Industrial Products seg- ment, total backlog increased 16.8 percent from the same period last year. In the Engine Products segment, total backlog was down 1.3 percent compared to the same period last year. Hard order backlog, goods scheduled for delivery in 90 days, was $179.9 million, down 2.1 percent from $183.7 million in the prior year. Within the Industrial Products segment, hard order backlog for gas turbine products increased 28.7 percent from the prior year. This increase was offset by decreases in dust collection and spe- cial application products of 26.2 percent and 24.1 percent, respectively, resulting in a slight overall increase in the Industrial Products segment from the prior year. In the Engine products segment, overall hard order backlog decreased 4.5 percent from the prior year. Within this  segment, off-road and transportation products posted decreases of 6.4 percent and 16.3 percent, respectively, while aftermarket hard order backlog increased 4.5 per- cent from the prior year. Fiscal 2000 Compared to Fiscal 1999 The company exceeded one billion dollars in sales in 2000, reporting record sales of $1.092 billion. This was an increase of 15.7 percent over prior-year sales of $944.1 million. Businesses acquired in this fiscal year contributed $56.7 million of revenues for the year. Excluding the impact of acquisitions, sales for the year ended July 31, 2000 were up 9.7 percent over the prior year. Sales for the Engine Products segment of $674.0 million were up 10.2 percent over the prior year. Sales for the Industrial Products segment of $418.3 mil- lion were up 25.7 percent over the prior year. Overall, growth was strong across essentially all the markets within both the Engine Products and Industrial Products segments with the exception of a 5.9 percent decline in sales of transportation products within the Engine Products segment, reflecting a slowdown in the North America heavy-duty truck market and a decrease in automotive sales due to the loss of the CK platform business. Continued increases in sales for the gas turbine systems and special application products reflected continued  high demand in those markets. The increase in sales also reflected strengthening in other markets such as dust  collection, engine aftermarket and off-road products. Domestic Engine Products sales were up 8.7 percent from the prior year. This increase was led by strong sales in engine aftermarket products, which increased domesti- cally by 23.6 percent including businesses acquired during the year. Exclusive of acquisitions, domestic aftermarket product sales increased 10.4 percent. Domestic sales in off-road equipment products were also strong with an increase of 14.7 percent from the prior year reflecting growth in the agricultural, mining and large equipment markets compared to the prior year. Domestic sales in transportation products were down 1.8 percent with mixed results coming from an increase of 10.2 percent 