According to the Food and Agriculture Organization of the United Nations, the volume of global production of paper products, including paperboard, grew at a compound annual growth rate of approximately 3.0% from 1980 to 2002. Over this same period, according to the International Monetary Fund, the average annual rate of global economic growth was 3.3%. Consistent, global economic growth over the long term has helped support the stable growth in demand for paper because economic growth tends to increase demands for many types of paper products, including packaging, newsprint, tissue and office paper.

According to the Food and Agriculture Organization of the United Nations, in 2002 approximately 33% of global paper production occurred in North America, 31% occurred in Europe, 30% occurred in Asia, and 4% occurred in South America. In recent years, the rate of growth in paper production has been higher in the emerging markets of South America and Asia, which experienced compound annual growth rates of approximately 3.6% and 4.5%, respectively, from 1992-2002, than in the more mature markets of North America and Europe, which experienced compound annual growth rates of approximately 1.2% and 3.2%, respectively, over the same period.

In addition to general economic growth, other factors which have contributed to the growth in paper demand have included the effects of greater industrialization throughout the world and expanded use of computer and other electronic equipment, which has substantially increased the amount of documentation that is created and printed. Not only has paper consumption increased over the past decades, but there has also been a shift to more highly differentiated paper products. For example, the success of advanced printing techniques, including those using multiple colors and high resolution images, depends in part on the use of specialized paper products.

The Company’s clothing segment products are large, highly engineered synthetic textile belts that carry paper along the length of paper-making machines as it is processed from paper stock into finished paper. Because all paper-making machines have different physical configurations and operating parameters, clothing products must be customized to each machine. The Company manufactures the three general types of clothing products used on paper-making machines—forming fabrics, press felts and dryer fabrics—each of which is located in a different section of the machine. Forming fabrics and press felts are typically replaced multiple times a year, but replacement frequency varies significantly by the grade of paper being produced, the manner in which the paper-making machine is operated and the quality of raw materials used in the paper stock. Dryer fabrics are replaced less frequently, with replacement typically taking place no more than once per year.

In the Company’s roll covers segment, the majority of the sales are generated through the manufacture and refurbishment of roll covers. The Company also manufactures spreader rolls and provides general mechanical maintenance and repair services for the internal mechanisms of rolls. The Company manufactures, refurbishs and replaces covers for three kinds of rolls on paper-making machines: working rolls (including vacuum rolls and press rolls), calendar rolls and coater rolls. The Company manufactures and repairs spreader rolls, which are small-diameter curved rolls used throughout a paper-making machine to stretch, smooth and remove wrinkles from the paper and clothing.

The Company offers a wide range of mechanical maintenance and repair services for the internal mechanisms of rolls. The Company provides major mechanical services at ten locations and it is expanding to additional locations.

The Company has introduced a number of innovations to its roll cover and spreader roll products in recent years, including composite calendar roll covers that use nanoparticle technology to improve roll cover durability and paper gloss, as well as covers that use an improved polyurethane to increase abrasion and moisture resistance as well as responsiveness and stability.

Cost of products sold for the year ended December 31, 2004 increased by $25.1 million, or 8.8%, to $309.6 million from $284.5 million for the year ended December 31, 2003.

Selling expenses increased by $5.7 million, or 8.5%, to $72.8 million for the year ended December 31, 2004 from $67.1 million for the year ended December 31, 2003.

Restructuring expenses increased by $8.5 million, or 77.3%, to $19.5 million for the year ended December 31, 2004 from $11.0 million for the year ended December 31, 2003.

Research and development expenses increased by $1.7 million, or 23.9%, to $8.8 million for the year ended December 31, 2004 from $7.1 million for the year ended December 31, 2003.