Operating profit at our Engine/Mobile Filtration segment increased 1% from the first quarter of 2012 due to a 0.5 percentage point improvement in operating margin from last year’s first quarter despite the reduction in heavy-duty engine filter sales. This increase in operating margin from the first quarter of 2012 was led by lower selling and administrative expenses as a percentage of net sales due to lower legal and other costs driven by the settlement of various legal proceedings in the first quarter of 2012. Gross margin percentage was lower than the first quarter of 2012 primarily due to lower fixed overhead absorption influenced by additional costs associated with the expansion of the Yankton heavy-duty engine filtration manufacturing facility.

Industrial/Environmental Filtration Segment

Net sales at our Industrial/Environmental Filtration segment increased 1% from the first quarter of 2012. Geographically, domestic net sales increased 2% while net sales outside the U.S. declined less than 1%. Our growth in domestic sales was heavily influenced by a 26% increase in natural gas filtration product sales as we continue to develop our capability to support the natural gas extraction and transportation process from shale formations. These higher natural gas filtration product sales were supplemented by a 5% increase in net sales at our Total Filtration Services (TFS) distribution business but partially offset by lower net sales at our commercial and industrial HVAC business due to general softness and at TransWeb, our filtration media business, which has been negatively impacted commercially from uncertainty surrounding the 3M litigation. The relatively flat net sales outside the U.S. were driven by an increase in natural gas filtration vessel sales in several international markets including Southeast Asia and the Middle East, offset by lower off-shore oil platform drilling filtration product sales due to shipments delayed until later in the fiscal year.

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