|SECURITIES AND EXCHANGE
COMMISSION
|----------------------------------

|WASHINGTON, D.C. 20549
|----------------------



|FORM 20-F
|---------



||  | REGISTRATION STATEMENT PURSUANT
      TO SECTION 12(b) OR
      (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|---------------------------------------------------------------------------------------------------------------



|OR
|--



||X| ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the year ended December
31, 2003
|---------------------------------------------------------------------------------------------------------------------------



|OR
|--



||  | TRANSITION REPORT PURSUANT
      TO SECTION 13 OR 15(d)
      OF THE SECURITIES EXCHANGE ACT OF 1934
      Commission file number 1-14400
|----------------------------------------------------------------------------------------------------------------------------------------------



|METSO CORPORATION
|-----------------

|(Exact name of Registrant as
specified in its charter)
|------------------------------------------------------



|The Republic of Finland
|-----------------------

|(Jurisdiction of incorporation
or organization)
|-----------------------------------------------



|P.O. Box 1220FIN-00101
HelsinkiFinland
|--------------------------------------

|(Address of principal executive
offices)
|----------------------------------------



|Securities registered or to be
registered pursuant to Section 12(b) of the Act:
|-------------------------------------------------------------------------------

|Title of each class: Shares, nominal value 1.70 each, 
      represented by American Depositary Shares | Name of each exchange on which registered: New York Stock Exchange, Inc.
|------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------



|Securities registered or to be
registered pursuant to Section 12(g) of the Act: None
|------------------------------------------------------------------------------------



|Securities for which there is a
reporting obligation pursuant to Section 15(d) of the Act: None
|-----------------------------------------------------------------------------------------------



|Number of shares, nominal value
1.70 each, outstanding on December 31, 2003: 136,250,545
|-----------------------------------------------------------------------------------------



|Indicate  by check  mark  whether  the
registrant:  (1) has filed  all  reports  required  to be filed by  Section  13 or 15(d)
of the  Securities  Exchange Act of 1934 during the preceding 12 months (or for such
shorted  period that the  registrant  was required to file  such reports), and (2) has
been subject to such filing requirements for the past 90 days.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Yes |X|                  
      No |   |
|----------------------------------------



|Indicate by check mark which financial statement
item the registrant has elected to follow.
|-------------------------------------------------------------------------------------------



|Item 17 |   |                 Item
      18 |X|
|-----------------------------------------------



| |  | 
| |  | 



---





|TABLE OF CONTENTS
|-----------------

|             | Page                                                          
|------------ | --------------------------------------------------------------
|INTRODUCTION | iii                                                           
|             |                                                               
|PART I       |                                                               
|             |                                                               
|Item 1.      | Identity of Directors, Senior Management and
      Advisers   
|Item 2.      | Offer Statistics and Expected Timetable                       
|Item 3.      | Key Information                                               
|             |                                                               
|             | Selected Financial Data                                       
|             | Exchange Rates                                                
|             | Risk Factors                                                  
|             |                                                               
|Item 4.      | Information on the Company                                    
|             |                                                               
|             | Organization                                                  
|             | History and Development of the Company                        
|             | Strategy                                                      
|             | Corporate Structure                                           
|             | Business Summary                                              
|             | Discontinued Operations                                       
|             | Raw Materials                                                 
|             | Seasonality                                                   
|             | Dependence on Intellectual Property                           
|             | Governmental Regulation and Environmental Matters             
|             | Property, Plants and Equipment                                
|             | Significant Subsidiaries                                      
|             | Associated Companies                                          
|             |                                                               
|Item 5.      | Operating and Financial Review and Prospects                  
|             |                                                               
|             | Business Environment and Trend Information                    
|             | Recent Developments                                           
|             | Critical Accounting Policies                                  
|             | Results of Operations                                         
|             | Principal Differences between Finnish GAAP and
      U.S. GAAP
|             | Liquidity and Capital Resources                               
|             | Capital Expenditure                                           
|             | Research and Development                                      
|             | Foreign Currency Fluctuations                                 
|             | Inflation                                                     
|             | Adoption of International Financial Reporting
      Standards 
|             | New Accounting Standards                                      
|             | Off-Balance Sheet Arrangements                                
|             |                                                               
|Item 6.      | Directors, Senior Management and Employees                    
|             |                                                               
|             | Board of Directors                                            
|             | Chief Executive Officer and Corporate Executive
      Team    
|             | Compensation of Directors and Officers                        
|             | Audit Committee and Compensation Committee                    
|             | Employees                                                     
|             | Share Ownership                                               
|             | Authorizations for Board of Directors                         



| | (i) | 
| | --- | 



---





|Item 7.   | Major Shareholders and Related Party Transactions                                  | 60
|--------- | ---------------------------------------------------------------------------------- | --
|          |                                                                                    |   
|          | Major Shareholders                                                                 | 60
|          | Related Party Transactions                                                         | 61
|          |                                                                                    |   
|Item 8.   | Financial Information                                                              | 61
|          |                                                                                    |   
|          | Consolidated Financial Statements                                                  | 61
|          | Export Sales                                                                       | 61
|          | Legal Proceedings                                                                  | 62
|          | Dividend Policy                                                                    | 62
|          | Significant Changes                                                                | 63
|          |                                                                                    |   
|Item 9.   | The Offer and Listing                                                              | 64
|          |                                                                                    |   
|          | Nature of Trading Market                                                           | 64
|          | Trading and Settlement on the Helsinki Exchanges                                   | 65
|          | Regulation of the Finnish Securities Market                                        | 65
|          | The Finnish Book-Entry Securities System                                           | 66
|          |                                                                                    |   
|Item 10.  | Additional Information                                                             | 67
|          |                                                                                    |   
|          | Articles of Association                                                            | 67
|          | Material Contracts                                                                 | 69
|          | Exchange Controls                                                                  | 70
|          | Control of Foreign Ownership                                                       | 70
|          | Taxation                                                                           | 70
|          | Documents on Display                                                               | 74
|          |                                                                                    |   
|Item 11.  | Quantitative and Qualitative Disclosures about
      Market Risk                   | 74
|          |                                                                                    |   
|          | Exchange Rates and Foreign Currency Exposure                                       | 75
|          | Interest Rate Risk                                                                 | 76
|          | Equity Price Risk                                                                  | 76
|          | Commodity Price Risk                                                               | 76
|          |                                                                                    |   
|Item 12.  | Description of Securities Other than Equity Securities                             | 76
|          |                                                                                    |   
|PART II   |                                                                                    |   
|          |                                                                                    |   
|Item 13.  | Defaults, Dividend Arrearages and Delinquencies                                    | 77
|Item 14.  | Material Modifications to the Rights of Security
      Holders and Use of Proceeds | 77
|Item 15.  | Controls and Procedures                                                            | 77
|Item 16.  | [Reserved]                                                                         | 77
|Item 16A. | Audit Committee Financial Expert                                                   | 77
|Item 16B. | Code of Ethics                                                                     | 77
|Item 16C. | Principal Accountant Fees and Services                                             | 77
|Item 16D. | Exemptions from the Listing Standards for Audit
      Committee                    | 78
|Item 16E. | Purchases of Equity Securities by the Issuer
      and Affiliated Purchasers       | 78
|          |                                                                                    |   
|PART III  |                                                                                    |   
|          |                                                                                    |   
|Item 17.  | Financial Statements                                                               | 78
|Item 18.  | Financial Statements.                                                              | 78
|Item 19.  | Exhibits                                                                           | 79
|          |                                                                                    |   



| | (ii) | 
| | ---- | 



---





|INTRODUCTION
|------------



|In this annual
report, the Company, Metso  Corporation, Metso, Group, we, us and
our refer to Metso Corporation  or Metso Corporation and its consolidated
subsidiaries,  as the context may require.  As used herein,  the term Finnish State refers
to the Republic of Finland.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|CURRENCY PRESENTATION
|---------------------



|We have published
our  consolidated  financial  statements in euro for periods  beginning on or after
January 1, 1999. As used  in this annual report:
|------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | euro or
 means the lawful  currency  of the member  states of the  European
Union (the EU)  participating  in the EUs  Economic and Monetary Union;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | U.S.
dollar, U.S.$ or USD means the lawful currency of the
United States of America;
| | - |  | ------------------------------------------------------------------------------------------

| |  |  | pound
sterling or GBP means the lawful currency of the United Kingdom of
Great Britain and Northern Ireland;
| | - |  | ----------------------------------------------------------------------------------------------------------------

| |  |  | South
African rand or ZAR means the lawful currency of the Republic of South
Africa; and
| | - |  | --------------------------------------------------------------------------------------------

| |  |  | Swedish
krona or SEK means the lawful currency of the Kingdom of Sweden.
| | - |  | ----------------------------------------------------------------------------



|Unless otherwise stated, euro
      amounts have been translated into U.S. dollars at the noon buying rate in
      New York City for cable transfer in foreign currencies as certified for
      customs purposes by the Federal Reserve Bank of New York (the noon
      buying rate) on December 31, 2003, which was 1.00 = U.S.$1.2597
      (U.S.$1.00 = 0.7938). On March 24, 2004, the noon buying rate for
      the euro was 1.00 = U.S.$1.2213 (U.S.$1.00 = 0.8188).
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|FINANCIAL AND OTHER INFORMATION
|-------------------------------



|Our consolidated
financial  statements are prepared in accordance with generally  accepted  accounting
principles in Finland  (Finnish GAAP),  which differ in certain  significant
respects from generally  accepted  accounting  principles in the United States  (U.S.
GAAP).  For a  discussion  of the  principal  differences  between  Finnish  GAAP
and U.S.  GAAP,  see Note 32 to our  audited  consolidated  financial  statements as of
and for the years ended December 31, 2002 and 2003, and income statement data for each of
the  years in the three-year  period ended  December 31, 2003,  included  elsewhere in
this annual  report.  See also Item 5. Operating and  Financial Review and ProspectsPrincipal
Differences between Finnish GAAP and U.S. GAAP.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The financial
information  set forth in a number of tables herein has been rounded to the nearest whole
number.  Accordingly,  in certain instances, the sum of the numbers in a column may not
conform exactly to the total figure given for that column.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As used herein,
Nordic Countries refers to Denmark,  Finland,  Iceland,  Norway and Sweden.
As used herein, North America refers to the United States and Canada. As used
herein,  South America refers to all countries in the American  continents
excluding  the United States and Canada.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We own or
otherwise have rights to a substantial  number of trademarks that we use in conjunction
with our business.  Some of  these trademarks are referred to in this annual report.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | 
| | ----- | 



---





|FORWARD-LOOKING STATEMENTS
|--------------------------



|Certain
statements in this annual report,  including but not limited to certain statements set
forth under the captions Item  3. Key  Information, Item 4. Information
on the Company, Item 5. Operating and Financial Review and Prospects, Item
8. Financial  Information and Item 11.  Quantitative  and Qualitative
Disclosures  about Market Risk and elsewhere are based upon the beliefs of  our
management  as well as  assumptions  made by and  information  currently  available to
our  management,  and such  statements  may  constitute  forward-looking  statements within
the meaning of the Section 27A of the U.S.  Securities  Act of 1933, as amended,  and
Section 21E of the U.S.  Securities  Exchange Act of 1934, as amended (the Exchange
Act).  Potential  investors should note that many  factors,  some of which are
discussed elsewhere in this annual report,  could affect our future operations and future
financial results  and could cause future  operations and future  financial  results to
differ  materially  from those  expressed in such  forward-looking  statements. Some of
these factors are:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | operating
factors,  such as the  continued  success of our  manufacturing  activities  and the
achievement  of  efficiencies  therein,  continued success of product  development,
acceptance of new products or services by our targeted  customers,  success of the
existing and future  collaboration  arrangements,  changes in business  strategy or
development  plans or  targets,  changes in the degree of  protection  created by our
patents  and other  intellectual  property  rights,  the  availability of capital on
acceptable terms,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | success
of future acquisitions and restructuring and changes in our business strategy,
| | - |  | --------------------------------------------------------------------------------------

| |  |  | industry
conditions,  such as strength of product  demand,  intensity of  competition,  prevailing
and future  global market  prices for our products and the pricing pressures  thereto,
financial  condition of the customers and competitors,  the  potential introduction of
competing products and technologies by our competitors, and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | general
economic  conditions,  such as rates of  economic  growth in our  principal  geographic
markets or  fluctuations  in  exchange and interest rates, and various other factors both
referenced and not referenced in this annual report.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Should one or more
of these factors materialize,  or should any assumptions of the management  underlying
such forward-looking  statements  prove to be incorrect,  our actual  operating  results
or financial  condition and prospects  could differ  materially from  those described
herein as anticipated, believed, estimated or expected.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | 
| | ---- | 



---





|PART I
|------



|Item 1.  Identity of Directors, Senior
Management and Advisers.
|---------------------------------------------------------------



|Not applicable.
|---------------



|Item 2.  Offer Statistics and Expected
Timetable.
|-------------------------------------------------



|Not applicable.
|---------------



|Item 3.  Key Information.
|-------------------------



|Selected Financial Data
|-----------------------



|Our consolidated financial
      statements are prepared in accordance with Finnish GAAP, which differs in
      certain significant respects from U.S. GAAP. A reconciliation to U.S. GAAP
      is set forth in Note 32 to our consolidated financial statements. For a
      discussion of the principal differences between Finnish GAAP and U.S. GAAP,
      see also Item 5. Operating and Financial Review and ProspectsPrincipal
      Differences between Finnish GAAP and U.S. GAAP. Our shares are traded
      on the New York Stock Exchange in the form of American Depository Shares
      (ADSs). Each ADS represents one of our shares. Per share data
      has been translated into U.S. dollars per ADS where appropriate.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The selected
financial data set forth below as of and for the years ended December 31, 1999,  2000,
2001, 2002 and 2003 is a  summary derived from our consolidated  financial statements and
should be read together with our consolidated  financial statements and  the notes
thereto.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                          | For the year ended December 31,     
|--------------------------------------------------------- | ------------------------------------
|                                                          | 1999                                
|                                                          |                                    
|                                                          | (in millions, except per share data)
|INCOME STATEMENT DATA                                     |                                     
|Amounts in Accordance with Finnish GAAP                   |                                     
|Net sales                                                 | 3,387                               
|Operating profit (loss)(2)                                | (10                                 
|Financial income and expenses, net                        | (19                                 
|Share of profits of associated companies                  | 1                                   
|                                                          |                                     
|Income (loss) before extraordinary items and income taxes | (28                                 
|                                                          |                                     
|Extraordinary income and expenses, net                    | (59                                 
|                                                          |                                     
|Income (loss) before taxes                                | (87                                 
|Income taxes                                              | 0                                   
|Minority interests                                        | (1                                  
|                                                          |                                     
|Net income (loss)                                         | (88                                 
|                                                          |                                     
|Earnings (loss) per share(3)(4)                           | (0.22                               

| | 1 | 
| | - | 



---





|                                                                                      | As of and for theyear ended December 31, |  
|------------------------------------------------------------------------------------- | ---------------------------------------- | -
|                                                                                      | 1999                                     |  
|                                                                                      |                                         |  
|                                                                                      | (in millions, except per share data)    
|INCOME STATEMENT DATA                                                                 |                                          |  
|Amounts in Accordance with U.S. GAAP                                                  |                                          |  
|Income (loss) from continuing operations                                              | (46                                      | )
|Income (loss) from discontinued operations                                            | (74                                      | )
|Gain on disposal of discontinued operations                                           |                                         |  
|                                                                                      |                                          |  
|Net income (loss)(5)                                                                  | (120                                     | )
|                                                                                      |                                          |  
|Basic and diluted earnings (loss) per share
      from continuing 
      operations   | (0.43                                    | )
|Basic and diluted earnings (loss) per share
      from discontinued 
      operations | (0.69                                    | )
|                                                                                      |                                          |  
|BALANCE SHEET DATA                                                                    |                                          |  
|Amounts in Accordance with Finnish GAAP                                               |                                          |  
|Total assets                                                                          | 3,169                                    |  
|Cash and cash equivalents                                                             | 159                                      |  
|Net interest bearing liabilities                                                      | 465                                      |  
|Shareholders equity                                                                  | 1,085                                    |  
|Amounts in Accordance with U.S. GAAP                                                  |                                          |  
|Total assets                                                                          | 3,375                                    |  
|Long-term liabilities                                                                 | 718                                      |  
|Shareholders equity                                                                  | 1,115                                    |  
|                                                                                      |                                          |  
|CASH FLOW DATA                                                                        |                                          |  
|Amounts in Accordance with Finnish GAAP                                               |                                          |  
|Net cash provided by (used in) operating activities                                   | (2)                                      |  
|Net cash provided by (used in) investing activities                                   | (134                                     | )
|Net cash provided by (used in) financing activities                                   | 51                                       |  
|Capital expenditures on fixed assets(6)                                               | 121                                      |  
|Cash dividends declared and paid per share ()(7)                                     | 0.40                                     |  
|Cash dividends declared and paid per share (U.S.$)(7)(8)                              | 0.40                                     |  

|
|

|(1) |  | Effective
September  2001,  Metso  acquired all of the  outstanding  shares of Svedala AB for a
total  acquisition  price of 943  million. Svedala has been consolidated in our
financial statements as of the fourth quarter of 2001.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The
operating loss for 2003 includes a goodwill  impairment of 205 million and
restructuring  expenses of 103 million related to  the efficiency improvement
program launched during the year.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Under
Finnish GAAP,  the earnings per share  calculation  excludes  extraordinary  items.  For
a discussion of the  calculation of  earnings (loss) per share,  see Note 11 to our
consolidated  financial  statements.  Under U.S. GAAP, these items would either be
included  in the  earnings  (loss)  per share from  continuing  operations  or in
earnings  (loss)  per share  from  discontinued  operations. See Note 32 to our
consolidated financial statements.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | The
average numbers of shares used in calculating this amount were as follows:
|--- |  | ------------------------------------------------------------------------------

| | Year ended December 31, | Number of Shares | 
| | ----------------------- | ---------------- | 
| | 1999                    | 135,631,740      | 
| | 2000                    | 135,363,537      | 
| | 2001                    | 136,135,223      | 
| | 2002                    | 136,189,704      | 
| | 2003                    | 136,189,704      | 

|(5) |  | As
of January  1,  2002,  for  purposes  of U.S.  GAAP,  Metso  adopted  SFAS 142,  which
ceased  amortization  of  goodwill  and  indefinite-lived  intangible assets.
Amortization expense on goodwill and indefinite-lived intangible assets on a U.S. GAAP
basis  for the years ended December 31, 1999, 2000 and 2001 was 10 million, 9
million and 12 million, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Excluding
business acquisitions.
|--- |  | --------------------------------

|(7) |  | Dividends
are paid after the  decision  by the annual  general  meeting  held in the year
following  the year for which they are  attributed  to. The dividend for 2003 is the
proposal of Metsos  board of directors to the annual  general  meeting to be held
on  April 6, 2004.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Solely
for the readers  convenience,  amounts in euros have been converted into U.S.
dollars at the noon buying rate on December  31, of the respective year.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2 | 
| | - | 



---





|Exchange Rates
|--------------



|We present our
financial  statements in euros.  A portion of our revenues and expenses is  denominated
in euros and a portion  is denominated in currencies other than the euro. The first table
below sets forth,  for the periods and dates indicated,  the average,  high, low and
period-end  noon buying rates for the euro expressed in euros per U.S.  dollar.  The
second table below sets forth,  for  the periods and dates  indicated,  the  average,
high,  low and  period-end  noon buying rates for the U.S.  dollar  expressed in U.S.
dollars per euro.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The average noon
buying rates have been  calculated  based on the noon buying rate for the last  business
day of each month or  portion of a month during the relevant period.  We are providing
this information  solely for the readers  convenience.  These are not  necessarily
the rates we used in the preparation of the financial  statements and we make no
representation  that euros could have been  converted into U.S. dollars at the rates
shown or at any other rate for such periods or at such dates.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  following
tables set forth the noon buying rate for the euro for each of the  previous  five years,
the period from the  beginning  of the year 2004 until the latest  practicable  date and
for each of the last six  months  (expressed  in euros per one U.S.  dollar):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Euros per U.S. Dollar
|---------------------

|Year                    | Average | High   | Low    | Period End
|----------------------- | ------- | ------ | ------ | ----------
|                        |         |        |        |           
|1999                    | 0.9455  | 0.9984 | 0.8466 | 0.9930    
|2000                    | 1.0860  | 1.2090 | 0.9675 | 1.0650    
|2001                    | 1.1711  | 1.1947 | 1.0488 | 1.1235    
|2002                    | 1.0531  | 1.1636 | 0.9537 | 0.9537    
|2003                    | 0.8782  | 0.9652 | 0.7938 | 0.7938    
|2004 (through March 24) | 0.8086  | 0.8273 | 0.7780 | 0.8188    



|Calendar Period          | Low    | High   | 
|------------------------ | ------ | ------ | 
|                         |        |        | 
|2003                     |        |        | 
|September                | 0.9198 | 0.8584 | 
|October                  | 0.8624 | 0.8451 | 
|November                 | 0.8759 | 0.8337 | 
|December                 | 0.8364 | 0.7938 | 
|                         |        |        | 
|2004                     |        |        | 
|January                  | 0.8072 | 0.7780 | 
|February                 | 0.8048 | 0.7785 | 
|March (through March 24) | 0.8273 | 0.8044 | 

| | 3 | 
| | - | 



---





|The following
tables set forth the noon buying rate for the U.S.  dollar for each of the previous five
years,  and the period  from the beginning of the year 2004 until the latest  practicable
date and for each of the last six months  (expressed in U.S. dollars  per one euro).
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|U.S. Dollars per Euro
|---------------------

|Year                    | Average | High   | Low    | Period End
|----------------------- | ------- | ------ | ------ | ----------
|                        |         |        |        |           
|1999                    | 1.0576  | 1.1812 | 1.0016 | 1.0070    
|2000                    | 0.9207  | 1.0335 | 0.8270 | 0.9388    
|2001                    | 0.8952  | 0.9535 | 0.8370 | 0.8901    
|2002                    | 0.9492  | 1.0485 | 0.8594 | 1.0485    
|2003                    | 1.1411  | 1.2597 | 1.0361 | 1.2597    
|2004 (through March 24) | 1.2369  | 1.2853 | 1.2088 | 1.2213    

|Calendar Period          | High   | Low    |  | 
|------------------------ | ------ | ------ |  | 
|                         |        |        |  | 
|2003                     |        |        |  | 
|September                | 1.1650 | 1.0845 |  | 
|October                  | 1.1833 | 1.1596 |  | 
|November                 | 1.1995 | 1.1956 |  | 
|December                 | 1.2597 | 1.1956 |  | 
|                         |        |        |  | 
|2004                     |        |        |  | 
|January                  | 1.2853 | 1.2389 |  | 
|February                 | 1.2848 | 1.2426 |  | 
|March (through March 24) | 1.2431 | 1.2088 |  | 



|Since July 1,
1999, our shares have been traded on the Helsinki Securities and Derivatives  Exchange,
Clearing House Ltd (the  Helsinki  Exchanges)  in euros.  Fluctuations  in
the  exchange  rate  between the euro and the U.S.  dollar  affect the U.S.  dollar
equivalent  of the euro price of the shares on the Helsinki  Exchanges  and, as a result,
are likely to affect the market price of our  ADSs,  which are traded on the New York
Stock  Exchange.  We declare  cash  dividends  in euros and then  convert  this  amount
to U.S.  dollars for ADS holders. Therefore, exchange rate fluctuations will affect the
U.S. dollar amounts that ADS holders receive.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For a discussion
of the effects of exchange rate  movements on our  operations,  see Item 5.
Operating and Financial  Review  and ProspectsForeign Currency Fluctuations.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our  foreign
exchange  risk  management  policy is focused on hedging  foreign  currency  exposures
related to firm sale and  purchase  commitments as well as net investments in foreign
subsidiaries to the extent  practicable.  We have to a large extent hedged  our foreign
currency  denominated net assets of foreign  subsidiaries  through  borrowings,  currency
derivatives,  and to some extent  through  receivables.  Apart from forward foreign
exchange contracts,  options and currency swaps, as of December 31, 2003, we were not  a
party to any other derivative  foreign currency  instruments.  For a discussion of our
foreign exchange risk management  policy,  see  Item 11. Quantitative and
Qualitative Disclosures About Market RiskExchange Rates and Foreign Currency
Exposure.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Risk Factors
|------------



|Business Cycles in the Global Economy and
Customer Industries
|-------------------------------------------------------------



|Business cycles in the global
      economy influence the demand for our products and our financial condition
      and results of operations, especially in the short-term. Management believes
      that, in the long-term, these effects are reduced by the geographical diversity
      of our operations, the various customer industries served, the large installed
      base of our products, the increase of the share of our aftermarket operations,
      and our commitment to long-term partnerships with customers over the life
      cycle of our products. Metso Paper is affected by the business cycles of
      the pulp and paper industry. Metso Minerals operations are dependent
      on the development of the mining, construction and civil engineering industries.
      In addition, the level of infrastructure investments affects the main part
      of Metso Minerals net sales. Although we have striven actively to
      reduce the risks of business cycles by growing our aftermarket operations,
      as well as increasing the flexibility of our operations through outsourcing
      and
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4 | 
| | - | 



---





|focusing on the  manufacture  and assembly of
core  components,  there can be no assurance that business  cycles will not continue to
significantly  affect the demand for our products,  our  business,  financial  condition
or results of operations.  See Item 5.  Operating  and Financial  Review and
ProspectsBusiness  Environment  and  Trend Information.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Competition
|-----------



|Our competitors vary by business
      area and product. We aim to differentiate ourselves from competitors through
      our high level of technology, quality, service and availability, and through
      our long-term commitment and reliability. Current or future competitors
      may launch new or enhanced products and new technology that may decrease
      the value and competitiveness of our products and weaken our opportunities
      of achieving our financial goals. We aim for competitive advantage not only
      through product development, but also by seeking to operate flexibly and
      cost-efficiently. To improve its competitiveness by providing products that
      respond to customer needs and preferences, Metso Paper cooperates with its
      customers in product development. In Metso Minerals business, it is
      important to react rapidly to customers changing needs to ensure competitiveness.
      Metso Automation cooperates with other companies in its industry on technology
      issues when appropriate. While management believes that our product range
      will keep pace with changing and developing technologies, there can be no
      assurance that products and technologies developed by other companies will
      not reduce the competitiveness of our products, which could have a material
      adverse effect on our business, financial condition or results of operations.
      See Item 4. Information on the CompanyBusiness Summary
      for a description of our significant competitors in each of our business
      areas.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Product Liability
|-----------------



|We are occasionally involved
      in product liability claims typical of companies in comparable industries.
      These claims are covered by our insurance policy with coverage of up to
      100 million (U.S.$125 million) per year, subject to applicable insurance
      conditions. As part of the global coverage, our North American subsidiaries
      carry local general and product liability policies, which cover claims up
      to an annual aggregate of 4 million (U.S.$5 million). Although management
      believes that our insurance coverage is currently adequate to cover the
      liability risks, we may be held responsible for damages beyond the scope
      of our insurance coverage, which could have a material adverse effect on
      our business, financial condition or results of operations.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Environmental Regulation
|------------------------



|Procedures to ensure compliance
      with applicable environmental protection laws and regulations and ISO 14001
      compliant environmental systems are key tools in our environmental management.
      Although our management is not aware of any current environmental matters
      that could reasonably be expected to have a material adverse effect on our
      financial condition or results of operations, there can be no assurance
      that continued compliance with the existing or future environmental laws,
      and the costs associated therewith, will not have a material adverse effect
      on our business, financial condition or results of operations in the future.
      See Item 4. Information on the CompanyGovernmental Regulation
      and Environmental Matters.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Project Activity
|----------------



|Our  operations
consist  partly of large project  deliveries to the pulp and paper  industry and the
mining  industry.  These  deliveries sometimes involve project-specific risks concerning
delivery schedules,  quality or the start-up of equipment.  Although the  risks of
individual  projects are generally not significant  compared to the magnitude of our
business,  and we seek to reduce customer  risks by exact contract and payment terms,
there can be no assurance that such project-specific  risks, if materialized,  will not
have  a material adverse effect on our business, financial condition or results of
operations.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Raw Materials, Suppliers and Subcontractors
|-------------------------------------------



|Developments in the global
      economy and political factors can influence the prices and availability
      of raw materials. For example, a raw material used by Metso Minerals in
      manufacturing wear parts for crushers is manganese, the supply of which
      is limited to South Africa. Political changes in this area, or delivery
      problems of producers, can affect the availability of manganese, which may
      have an adverse effect on our wear parts business. Also, the price and availability
      of scrap iron used in our foundries may fluctuate and have an adverse effect
      on our operations. In particular, changes in the prices of electricity,
      oil and metals may have a material adverse effect
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5 | 
| | - | 



---





|on our business, financial condition or results of operations,
      particularly, if these variations decrease the willingness of our customer
      industries to invest. See Item 4. Information on the CompanyRaw
      Materials.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Generally,  our
risks  related to the  purchase  of raw  materials  have  decreased  because we have
increasingly  focused on  manufacturing  and assembling core components only. On the
other hand,  outsourcing  increases the importance of, and risks related to,  our
suppliers and  subcontractors.  We purchase the majority of product  components from our
suppliers,  for whom it is not necessarily  possible to find  alternative  suppliers at
short  notice.  The  delivery  problems of  subcontractors  may also  adversely  affect
our  customer  relationships and business.  Although we have signed long-term contracts
with our major subcontractors in an attempt to limit  the  purchasing  risks  related to
availability  and pricing of product  components,  there can be no assurance  that these
risks,  if  materialized, will not have a material adverse effect on our business,
financial condition or results of operations.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Political, Economic and Legislative Changes
in Developing Countries
|-------------------------------------------------------------------



|Both our operations and the
      operations of our customers are geographically widespread. Political, economic
      and legislative changes can weaken our competitiveness or restrict our operations
      in some countries. As the markets for new machinery and equipment are increasingly
      concentrated in Asia and South America, sudden changes in these markets
      could have a material adverse impact on our business. For example, China
      currently represents a significant portion of our business and, hence, any
      sudden adverse political, economic or legislative changes in China could
      have a material adverse effect on our business, financial condition or results
      of operations. Management believes that the risks related to these growing
      markets for new equipment are reduced somewhat by the growth of our aftermarket
      operations in Europe and North America.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Property and Liability Risks
|----------------------------



|We manage our
exposure to  property,  business  interruption,  transport  and  liability  risks
(general  liability,  product  liability  and  management  liability)  through  global
insurance  schemes.  The  insurance  coverage  consists of property,  business
interruption,  transport and liability  insurance schemes and their local  applications.
Our total risk bearing capacity is taken into  consideration  when  setting  the  amount
of  deductibles.  Our  captive  company  will bear risks to the  extent  that is
financially  sustainable.  Although  management  believes that our insurance  coverage is
currently adequate to cover the liability risks, we may be  held  responsible for damages
beyond the scope of our insurance  coverage,  which could have a material adverse effect
on our business,  financial condition or results of operations.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Liquidity
|---------



|To ensure our short-term liquidity,
      we have set a minimum limit for cash and committed revolving credit facilities.
      We have also set limits for the proportion of short-term loans and for the
      average remaining maturity of long-term loans. We manage risks in the availability
      of funds and pricing in the long-term by diversifying funding between money
      and capital markets and banks. The credit rating agencies assess our business
      and publish credit ratings. A lowering of credit ratings could raise the
      financing costs of possible new loans taken, which could have a material
      adverse effect on our business, financial condition or results of operations.
      See Item 5. Operating and Financial Review and ProspectsLiquidity
      and Capital Resources for a discussion of the possible impact of credit
      ratings downgrades.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Interest Rate Risks
|-------------------



|Changes in market
interest rates and interest  margins may influence our financing  costs,  returns on
financial  investments  and valuation of derivative  contracts.  We have set limits for
the ratio of  floating-rate  to fixed-rate loans and the average length  of interest rate
periods.  Interest rate risks can also be managed by interest  rate swaps and other
derivative  contracts.  Although  management believes that the measures we have taken to
limit our exposure to interest rate risks are currently  adequate,  there can be  no
assurance that interest rate  fluctuations will not have a material adverse effect on our
business,  financial  condition or results  of operations. See Item 11.
Quantitative and Qualitative Disclosures About Market RiskExchange Rates and
Foreign Currency Exposure.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6 | 
| | - | 



---





|Currency Risks
|--------------



|Exchange rate changes affect
      our business, although the geographical diversity of our operations decreases
      the significance of any individual currency. Exchange rate variations have
      a direct effect on the prices of raw materials and production commodities
      purchased in non-domestic currencies and in the prices of end products for
      export, in which the invoicing currency is different from the currency of
      the manufacturing costs (transaction effect). More than one-half of our
      net sales originate from outside the euro zone. Alongside the euro, the
      most important currencies used in invoicing are the U.S. dollar and the
      Swedish krona. When the net sales and results of our subsidiaries outside
      the euro zone are translated into euros, they may increase or decrease because
      of exchange rate changes, even though no real change in such net sales or
      results has occurred (translation effect). Exchange rate movements may also
      affect our position by weakening the cost competitiveness of its products
      as against those of its competitors products manufactured in another
      currency area.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In accordance with our treasury
      policy, our operating units are required to hedge in full the currency exposures
      that arise from firm delivery and purchase agreements. In addition, the
      units can hedge anticipated non-euro denominated cash flows by taking into
      account the significance of such cash flows, the competitive situation and
      other opportunities to adapt. We have operations in countries in which currency
      regulation affects hedging risks. The most important of these are Brazil
      and China. We conduct hedging operations in a centralized fashion through
      our corporate treasury. We have set upper limits on the open currency exposures
      of the corporate treasury, calculated on the basis of their potential profit
      impact. These limits cover net exposures from transfers between units and
      items arising from financing activities. Future cash flows are hedged for
      periods, which do not normally exceed two years. Accordingly, the majority
      of future cash flows related to the order backlog are hedged. The equity
      of subsidiaries outside the euro zone is affected by exchange rate risks,
      which may lead to translation differences in our consolidated equity. We
      hedge these risks with respect to essential currencies in accordance with
      our treasury policy by using non-euro denominated loans and forward exchange
      agreements.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Although management believes
      that the measures we have taken to hedge our exposure to exchange rate fluctuations
      are currently adequate, there can be no assurance that exchange rate fluctuations
      will not have a material adverse effect on our business, financial condition
      or results of operations. For a discussion of our foreign exchange risk
      management policy, see Item 11. Quantitative and Qualitative Disclosures
      About Market RiskExchange Rates and Foreign Currency Exposure.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In addition,  a
non-euro  investors base currency  return on an  investment in our shares may be
negatively  affected by any  depreciation of the euro against the investors
functional  currency.  The value of dividends and other  distributions  paid in euros,
and the value of the shares quoted on the Helsinki Exchanges in euros could decline as a
result.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Credit Risks and Other Counterparty Risks
|-----------------------------------------



|When investing
cash assets and making derivative  contracts,  our corporate treasury may accept as
counterparties only parties  fulfilling  the credit  rating  criteria  defined in our
treasury  policy,  or parties  separately  approved in advance by our board of
directors.  With respect to investments,  derivative contracts and borrowing,  we have
set  counterparty-specific  limits to avoid risk  concentrations.  Our operating units
are primarily  responsible  for credit risks  pertaining to trade  activities.  Our
business areas  determine the  guidelines  for delivery and payment  terms granted to
customers,  their  supervision  and  enforcement,  which are then  implemented at the
business line and operating unit level. Our corporate  treasury  provides  centralized
services related to customer  financing  and  ensures  that the  principles  of our
treasury  policy are adhered to with  respect to terms of payment  and  required
collateral.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our ability to
manage our trade credit exposure,  risk  concentrations  and customer financing depends
on a number of factors,  including our capital  structure,  market conditions  affecting
our  counterparties  and our ability to mitigate exposure on acceptable  terms.  There
can be no assurance  that we will be  successful in managing the risks  connected  with
the trade credit  exposure,  risk  concentrations  and customer  financing that we may
from time to time have, which could have a material adverse effect on our business,
financial condition or results of operations.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Extended Payment Terms
|----------------------



|We have agreed on extended
      payment terms with selected customers in our businesses. In establishing
      credit arrangements, management must assess the creditworthiness of the
      customer and the timing of cash flows expected to be received under the
      arrangement. However, should the actual financial position of our customers
      or general economic conditions differ from our assumptions, we may be required
      to re-assess the
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7 | 
| | - | 



---





|ultimate collectibility of such trade credits, which could
      result in a write-off of these balances in future periods and could have
      a material adverse impact our business, financial condition or results of
      operations.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Major Shareholders May Exercise Their
Influence to Detriment of Other Shareholders
|----------------------------------------------------------------------------------



|See Item 7.
Major  Shareholders  and Related  Party  TransactionsMajor  Shareholders for
a discussion of the impact of the  ownership interest of the Finnish State and
UPM-Kymmene in the Company.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 4. Information on the Company
|----------------------------------



|Organization
|------------



|Metso  Corporation
is a stock  corporation  organized  in the  Republic of Finland  under the Finnish
Companies  Act.  Metso  Corporations registered office is located at Fabianinkatu
9A, P.O. Box 1220, 00101 Helsinki,  Finland; telephone +358-20-484-100.  Our  agent  for
the U.S.  federal  securities  law  purposes  is Metso  USA,  Inc.,  located  at 133
Federal  Street,  Suite  302,  Boston,  Massachusetts 02110.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|History and Development of the Company
|--------------------------------------



|Metso was created
as the result of the merger of Valmet and Rauma in July 1999. The new combined  company
was initially  given  the name Valmet-Rauma Corporation. The name was changed to Metso
Corporation in August 1999.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Valmet traces its origins back
      to the industrial plants established in the 1920s and 1930s to meet the
      needs of the Finnish Armed Forces. These industrial plants were joined to
      form a conglomerate, which was formally incorporated as a limited liability
      company in 1950, and during the 1950s began to broaden its product range
      to accommodate the demands of a market economy. Valmet delivered its first
      paper machine in 1953. From its establishment in 1950 until its initial
      public offering in 1988, Valmet was wholly owned by the Finnish State and
      other Finnish State entities. As of March 22, 2004, the Finnish State owned
      11.5 percent of the outstanding share capital of Metso Corporation.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Raumas business groups
      were formed from a number of companies with long operating histories brought
      together as a result of a series of strategic acquisitions by a Finnish
      engineering group Rauma-Repola Oy. In 1990, Rauma-Repola merged with United
      Paper Mills, a Finnish forest products company. The new company was called
      Repola Oy and was one of the largest industrial conglomerates in Finland.
      Its engineering division was organized as Rauma and its forest products
      division was organized as UPM. In 1996, Repola and Kymmene Corporation,
      a Finnish forest products company, merged to create a new company called
      UPM-Kymmene. As a result, Rauma became a majority owned subsidiary of UPM-Kymmene.
      In 1997, following a secondary offering of Rauma shares, distribution of
      shares as dividends, and the redemption of shares by Rauma, UPM-Kymmenes
      ownership in Rauma was reduced to 34.5 percent. As of March 22, 2004, UPM-Kymmene
      owned 14.6 percent of the outstanding share capital of Metso Corporation.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In September 2001,
Metso  Corporation  acquired  Svedala,  a global supplier of products and services for
the rock and mineral  processing  industry based in Sweden.  Svedala was  integrated in
the Metso  Minerals  business area. A public offer to acquire all the  shares in Svedala
was made in June 2000 and the acquisition  was completed on September 14, 2001 after the
competition  authorities of  the European Union and the United States gave their approval
to the acquisition.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For a discussion
of recent developments, see Item 5. Operating and Financial Review and ProspectsRecent
Developments.
|------------------------------------------------------------------------------------------------------------------------



|Strategy
|--------



|Our vision is to
transform from a machine supplier into a provider of  competitiveness  for our customers processes.
We aim  to improve the productivity and competitiveness of our customers core
industrial  processes.  We strive to do this through cooperation  with customers for the
entire life cycle of their processes.  We offer our customers  solutions to improve their
competitiveness  that  stem from our wide  know-how in new machines and  equipment,
rebuilds  and  modernizations,  as well as in  optimizing  and  servicing  related
processes. In our offering we take into account the differing needs of our customers.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8 | 
| | - | 



---





|Our  operations
are based on in-depth  know-how of customer  processes  in the pulp and paper  industry
and rock and minerals  processing industries,  on the extensive installed base of
machinery and equipment, and on automation knowledge.  These cornerstones of  our
strategy have helped us to become a leading global  supplier for the pulp and paper
industry and the rock and minerals  processing  industries.  In our  products and
services,  control  technology,  process  automation  and advanced  information  and
communications  technology, solutions are combined with process know-how.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our customers are
industrial  companies in businesses where  investments are large and have long life
cycles. We believe that,  based on our customers long-term  perspective,  we have a
solid  foundation for developing  cooperation  with them that lasts for the  entire life
cycle of their  processes.  We cooperate  with an  increasing  number of customers
globally.  Our target is to support the  efficiency  and  competitiveness  of our
customers investments  and processes by producing  increasingly  competitive  and
efficient  solutions, equipment and services founded on strong customer cooperation and
our technology and process know-how.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In addition to a
global  network and  wide-ranging  know-how,  our customers  require that the equipment
supplier takes wider  responsibility  for the  processes  delivered.  We develop
products  and  services  on the basis of our  extensive  installed  base of  machinery
and  equipment,  taking our  customers needs into account.  Our objective is to
further  increase our share in the service,  rebuild and process improvement of already
installed as well as new machinery and equipment worldwide.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In order to be
able to optimize  processes and improve their efficiency over their life cycles,  we are
adding  flexibility to  our products already at the design stage.  Automation is the
foundation for many  optimization,  maintenance and service  solutions and  remote
monitoring.  With the advanced ICT (information and communications  technology)
solutions,  we can offer our experts equipment  and process know-how
cost-efficiently for our customers production plants throughout the world. The
strategies of our business areas  and business  lines are  developed on the basis of
their  respective  strengths,  customer  needs and the  competitive  situation.  Our
network and resources and cooperation between business areas are utilized when it
strengthens competitiveness and cost-efficiency.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our most
important  target  in 2004 is the  improvement  of  profitability.  In order to reach
our  long-term  profitability  targets,  we must ensure that our  operations  are
competitive,  develop  our  aftermarket  activities  and  continuously  improve our
cost-efficiency  and  productivity.  Our financial targets are based on five-year
averages,  and include a target for operating profit  margin of over nine  percent,
return on capital  employed of over 20 percent,  and an annual  dividend  distribution
equivalent to at  least one-third of the average earnings per share.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Corporate Structure
|-------------------



|We are a global
engineering company  headquartered in Helsinki,  Finland, and serve our customers in
selected areas within the  process  industry.  Our business areas are global in scope
with operations in over 50 countries.  Our principal  production  plants are  located in
Finland, the United States, Sweden, the United Kingdom,  Germany,  France, Italy, Canada,
China, South Africa and Brazil. As  of December 31, 2003, approximately 35 percent of our
employees were based in Finland.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our operations are
currently organized into the following four business areas:
|------------------------------------------------------------------------------

| |  |  | Metso
Paper designs, develops and manufactures pulp and paper machinery and equipment and
complete production lines for the pulp and paper industry. Metso Paper also has
substantial aftermarket operations. It operates under four business lines: Paper,
Board, Tissue and Fiber.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Metso
Minerals designs, develops and manufactures equipment and total solutions, as well as
aftermarket solutions for rock and minerals processing industries through its six
business lines: Crushing & Screening, Minerals Processing, Wear Protection & Conveying,
Compaction & Paving, Recycling, and Drilling.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Metso Automation designs, develops and
      supplies both process automation and field solutions for automation and
      information management in selected process industries through its two business
      lines: Process Automation Systems and Field Systems. Metso Automations
      operations cover the three principal areas of process automation: (1) automation
      and information management application networks and systems and life cycle
      services, (2) flow control solutions, automated and
      manual control
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 9 | 
| | - | 



---



| |  |  | valves, and (3) process measurement solutions
      and analyzers. All Metso Automation operations in North America and Mexico
      are conducted by a separate business unit.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Metso
Ventures is comprised of Metso Panelboard, Metso Drives, Foundries, Metso Powdermet
and Valmet Automotive. Metso Panelboard develops and supplies complete production
lines for the panelboard industry. Metso Drives develops and manufactures paper
machine drives and other industrial gears as well as wind turbine gears. Foundries
manufactures castings for various engineering industry needs. Metso Powdermet develops
materials technology and component solutions for Metsos customer industries.
Valmet Automotive is an independent contract manufacturer of specialty cars.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The chart below
depicts the current structure consisting of the above described four business areas:
|----------------------------------------------------------------------------------------------------



|METSOBUSINESS AREAS
|-------------------

|METSO
      PAPER |  | METSO
      MINERALS          |  | METSO
      AUTOMATION                   |  | METSO
      VENTURES
|----------------- |  | ----------------------------- |  | ---------------------------------------- |  | --------------------
|                  |  |                               |  |                                          |  |                     
| Paper           |  |  Crushing & Screening        |  |  Process Automation Systems             |  |  Metso Panelboard  
| Board           |  |  Minerals Processing         |  |  Field Systems                          |  |  Metso Drives      
| Tissue          |  |  Compaction & Paving         |  |  North American Business 
         Unit |  |  Foundries         
| Fiber           |  |  Wear Protection & Conveying |  |                                          |  |  Metso Powdermet   
|                  |  |  Recycling                   |  |                                          |  |  Valmet Automotive 
|                  |  |  Drilling                    |  |                                          |  |                     
|                  |  |                               |  |                                          |  |                     



|The current
structure is a result of the restructurings described below:
|------------------------------------------------------------------------



|Since spring 2001,
the Metso Paper business area  comprised of three  divisions:  Pulping  Technology,
Paper  Technology and  Others, which included Converting and Panelboard Technology
businesses.  In March 2002, the Panelboard Technology was transferred from  Metso Paper
to the Metso  Ventures  business  area.  In November  2002,  we signed a memorandum  of
understanding  for the sale of the  Converting  business to Bobst Group SA of Switzerland
after which it was reported  separately under  discontinued  operations of Metso
Corporation.  In February 2003,  Metso Papers  operations  were  reorganized to
include five business  lines:  Paper,  Board,  Tissue,  Chemical Pulping and Mechanical
Pulping. In October 2003, Metso Papers foundries located in Jyväskylä,
Finland and Karlstad,  Sweden  were transferred to the Metso Ventures  business area. In
March 2004, Metso Paper combined the Chemical Pulping and Mechanical  Pulping  business
lines into one Fiber business line.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|From 2001, our
Metso  Automation  business area consisted of three  divisions:  Field Systems,  Paper
Automation and Energy & Process  Automation.  In August 2002, the Metso  Automation
business area was  restructured to consist of two business lines:  Process  Automation
Systems and Field Systems.  The new business line, Process  Automation  Systems,
combined the previous Paper Automation and  Energy & Process Automation divisions.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Svedala was
acquired and integrated in September 2001 into the Metso Minerals  business area by
creating four business  lines:  Crushing & Screening,  Minerals  Processing,
Compaction & Paving, and Wear Protection,  Service & Parts. In October 2002, we
created a  fifth business line called Recycling.  In September 2003, Metso Minerals operations
were divided into six business lines:  Crushing & Screening,  Minerals Processing,
Wear Protection & Conveying,  Compaction & Paving,  Recycling,  and Drilling.  In
October 2003, Metso  Minerals foundry located in Tampere,  Finland was transferred
to the Metso Ventures  business area. On February 4, 2004, our board of  directors
announced the  initiation of a review on the  development  alternatives  for the
Compaction & Paving  business  line.  These  alternatives include a potential
divestment.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10 | 
| | -- | 



---





|From 2001, Metso Ventures was
      comprised of Metso Engineering and Valmet Automotive. After the transfer
      of Metso Panelboard into the business area, we, in July 2002, restructured
      the Metso Ventures business area to comprise of four businesses: Metso Panelboard,
      Metso Drives, Metso Powdermet and Valmet Automotive. Metso Drives and Metso
      Powdermet were formerly part of Metso Engineering, as were Metso Works and
      Metso Hydraulics, which have now been sold. In October 2003, three foundries,
      two of which were formerly part of Metso Paper and one of Metso Minerals,
      were transferred to the Metso Ventures business area, creating a fifth business
      within the area, called Foundries.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The financial
information  as of and for the years ended  December 31, 2001 and 2002 discussed in this
annual report has been  restated to reflect the changes in our structure  described
above.  The  Converting  business has been reported as a separate  segment  under
discontinued  operations since the signature of a memorandum of  understanding  for its
sale to Bobst Group SA of Switzerland in  November 2002. After receipt of the required
competition authority approvals, the sale was completed on January 30, 2004.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Business Summary
|----------------



|Net Sales by Geographic Area
|----------------------------



|In 2003, we had
total net sales of 4,250 million (U.S.$5,354  million),  of which approximately 88
percent were accounted for  by exports  from Finland and sales by  international
operations,  and an operating  loss of 229  million  (U.S.$288  million).  As of
December 31, 2003, our total assets amounted to 3,823 million (U.S.$4,816 million),
and we had 26,240 employees worldwide.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
table sets forth our total net sales by geographic area for the three most recent years:
|------------------------------------------------------------------------------------------------------

|                                     | Year ended December 31,
|------------------------------------ | -----------------------
|                                     | 2001                   
|                                     | ( in millions)        
|Finland                              | 587                    
|Nordic Countries (excluding Finland) | 417                    
|Europe (excluding Nordic Countries)  | 1,172                  
|North America                        | 1,143                  
|South America                        | 360                    
|Asia-Pacific                         | 521                    
|Rest of the World                    | 143                    
|                                     |                        
|Total                                | 4,343                  
|                                     |                        

|Metso Paper
|-----------



|As a result of our
restructurings  described under Corporate  Structure above, the
divested  Converting  business or Metso  Panelboard and the operations of the two
foundries  that were  transferred to Metso Ventures are no longer  included in the Metso
Paper  business area.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
table sets forth certain financial data regarding Metso Paper for the three most recent
years:
|------------------------------------------------------------------------------------------------------------

|                         | As of and for
      the year ended December 31,
|------------------------ | -----------------------------------------------
|                         | 2001                                           
|                         | ( in millions,
      except personnel data)   
|Net sales(1)             | 2,180                                          
|Operating profit         | 165                                            
|Capital employed         | 544                                            
|Capital expenditures     | 67                                             
|Research and development | 72                                             
|Order backlog            | 949                                            
|Personnel                | 9,095                                          

|
|

|(1) |  | Includes
net sales to other Metsos business areas of 3 million, 4 million and
6 million in 2001, 2002 and 2003, respectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------



| | 11 | 
| | -- | 



---





|The following
table sets forth the breakdown of Metso Papers net sales by geographic area for the
three most recent years:
|---------------------------------------------------------------------------------------------------------------------------

|                                     | Year ended December 31,     
|------------------------------------ | ----------------------------
|                                     | 2001                        
|                                     | (Percent of total net sales)
|Finland                              | 18                          
|Nordic Countries (excluding Finland) | 10                          
|Europe (excluding Nordic Countries)  | 25                          
|North America                        | 26                          
|South America                        | 7                           
|Asia-Pacific                         | 13                          
|Rest of the world                    | 1                           
|                                     |                             
|Total                                | 100                         
|                                     |                             
|                                     |                             

|Metso Paper is one
of the worlds  leading  suppliers of equipment  and  machinery  for the pulp and
paper  industries.  Metso  Paper develops and  manufactures  equipment and designs plants
for the production of chemical and mechanical pulp and recycled fiber as  well as
provides service to the plants. It also manufactures,  rebuilds and services paper, board
and tissue machines,  paper finishing  machines and related air systems.  Metso Paper
specializes in the  manufacture,  rebuild and service of machines for the production of
paper of all printing  grades,  board and tissue.  Spare and wear parts supply,  process
upgrading and optimization are central to the  aftermarket  activities.  Process
improvements are expected to be an increasingly  important source of revenue as pulp and
paper mills  strive to enhance  process  efficiency and meet higher  environmental
standards.  Our customer  service  activities  include  start-up  assistance; training;
corrective, preventive and predictive maintenance programs as well as operations support.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Products and Services
|---------------------



|Paper. Metso
Paper produces new paper machines and production equipment as well as offers machine
rebuilds and service. The product lines also include new machines, machine rebuilds
and service for coating, calendering, winding and roll handling, and chemical
handling equipment for paper mills. Coaters and calenders are used to give base papers
certain properties, such as gloss or matt finishes and opacity. Winders are used
to cut large paper rolls to smaller sizes to fit printing machines. Roll handling
machines consist of roll wrapping and conveyor systems. Metso Papers paper
machines are among the largest and fastest in the world. A typical paper machine
costs between 50 million and 100 million and produces from 200,000 to more
than 400,000 tons of paper per year. These machines are designed to meet specific
customer needs and are used to produce fine paper (for office stationery),
newsprint, supercalendered and coated paper (for magazines and similar publications)
and coated base papers (for brochures and art purposes).
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Board. Metso
Paper produces new board machines and production equipment as well as offers machine
rebuilds and service. Metso Paper supplies machines for all board and packaging
grades, the most important grades being corrugated board, linerboard, folding
boxboard and liquid packaging board. A typical board machine costs between 30
million and 100 million and produces from 200,000 to more than 600,000 tons of
board per year.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Tissue. Metso
Paper produces new tissue machines and production equipment as well as offers machine
rebuilds and service. Metso Paper produces machines for manufacturing various types
of tissue papers and continues to be a leading supplier of Thru-Air  technology
for tissue and towel. A typical tissue machine costs between 10 million and 35
million and produces from 10,000 to more than 70,000 tons of tissue per year.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Fiber. Metso Paper
offers fiber lines, processes and production equipment as well as related aftermarket
activities for both the chemical and mechanical pulping technologies. Chemical
pulp is used for high quality paper products primarily due to its strength,
printability and ability to maintain brightness. Mechanical pulp is used primarily
for newsprint and magazine papers and certain paperboard grades. Metso Papers
fiber business line includes all process equipment and service necessary for complete
fiber plants. Metso Paper offers fiber producers technology that significantly
reduces the environmental impact of their operations. Management believes that in
the mechanical pulp industry Metso Paper is recognized as one of the leading
suppliers in plants, processes and equipment for production of refiner mechanical pulp,
ground wood pulp and recycled fiber based pulp.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 12 | 
| | -- | 



---





|Markets and Customers
|---------------------



|Metso  Papers
products  and services are sold to the pulp and paper  industry  throughout  the world.
Sales  worldwide  are  handled through a network of sales companies,  offices and local
representatives.  Orders typically require substantial down payments,  with the balance
paid in  installments.  Project  delivery times depend on the size and nature of the
project but may be as long as two  years.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Customers  are
located  in a number of  countries,  primarily  in  Europe,  North  America  and Asia.
Metso  Paper has major  production  facilities  in Finland,  Sweden and Italy,  and a
joint  venture in China.  Our  internal  production  processes  have been  reorganized by
creating a network of plants  specializing in designated product areas and manufacturing
processes in order to focus on  development of specific technologies and expertise.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As a major
supplier to the pulp and paper  industry,  Metso Paper has most of the  significant  pulp
and paper  producers  as  customers.  Customers  include  large  North  American-based
international  groups,  such  as  Georgia-Pacific,  International  Paper,
Kimberly-Clark,  MeadWestvaco,  Procter & Gamble,  Weyerhauser and Willamette,
European producers, such as M-real Corporation,  Norske  Skog, SCA, Stora Enso and
UPM-Kymmene,  and South American  producers,  such as Arauco and Suzano, as well as
various companies located  in Asia, such as April, Asian Pulp and Paper, Daishowa Paper,
Hansol and Oji.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Marketing
|---------



|Customer
agreements  for Metso Paper products are generally the result of extensive  negotiation
and  coordination  with our  customers.  Service and component sales are made on a
continuous basis by regional and service locations.  Metso Paper has an extensive
network of sales companies and sales  representatives in the Nordic Countries,  Western
Europe, North America,  South America, Asia and  Australia.  In addition,  a marketing
and sales team  supports  sales  activities  and develops  marketing  strategies in line
with our  customers needs.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Competition
|-----------



|In the paper
machine  industry,  machinery is designed to meet specific customer needs.  Paper,  board
and tissue machines are  sold on the basis of machine technology,  availability of
reference machines for comparative  purposes,  timing of delivery,  price and  service
ability.  Metso Paper competes for machine sales based on these four factors.  Management
believes that, based upon aggregate  production  capacity of paper  machines  sold,
Metso Paper has been the worlds  leading  producer of large paper machines in the
past  three years.  Management  also believes that we occupy a strong  position in the
large paper machine rebuild markets as a result of our  large installed base, advanced
technologies and leading position in the new paper machine market.  Metso Papers
principal  competitor  in large paper machines is the other major  producer,  Voith Paper
Group of Germany.  Mitsubishi of Japan is also a competitor in paper  machines.  Metso
Papers principal  competitor in board making machine lines is Voith Paper Group. In
tissue machines,  the competitors  include Andritz Corporation in Austria and Voith Paper
Group in Germany, as well as Overmechanica, Toschi and Celli in Italy.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso  Papers
principal  competitors  in the pulping  industry are Andritz  Corporation  of Austria and
Kvaerner  Pulping of  Norway.  Competition within the pulping industry focuses on energy
efficiency and fiber quality.  In addition,  environmental  concerns  affect competition
as principal  suppliers attempt to meet the increasing demand for  environmentally
friendly fiber.  Within chemical  pulping,  the environmental focus is on totally
chlorine-free and elemental  chlorine-free  production processes whereas in mechanical
pulping focus is on recycled fiber  production  processes.  Market  leaders in the area
of recycled  fiber pulping  include Voith Paper  Group of Germany and Black Clawson of
the United States.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Competition in the
service operations comes mainly from numerous smaller local or regional service
providers.  Customers also  partly employ their own personnel to take care of the
activities.  Service,  for example spare parts, is also often sold in conjunction  with
new paper and board machines or major rebuilds.  Management  believes that Metso Papers
service operations benefit from synergies  with Metso Paper products.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Recent Developments
|-------------------



|In 2002,  Metso
Paper received an order for a rebuild of an on-line  printing and writing
supercalandered  coated paper line  from Papiers  Gaspésia in Chandler,  Quebec,
Canada.  The rebuild was expected to be completed by mid-2004.  According to  information
Metso  received in the first  quarter of 2004,
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 13 | 
| | -- | 



---





|the project is  currently on hold due to
additional  financing  arrangements  by Metso  Papers customer.  In view of the
delay and postponement of the project completion,  Metso Paper is prepared to record an
approximately  10 million reserve in its result for the first quarter of 2004.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In February  2004,
Metso Paper  signed a letter of intent with  Konepaja  Häkkinen Oy of Finland to
outsource  its  Jyväskylä plate  fabrication.  According to the letter of
intent,  the ownership of the plate  fabrication  shop will be  transferred to Konepaja  Häkkinen
by mid-summer  2004 together with the personnel,  comprising 129 people.  The agreement
is part of the efficiency  improvement  program in Metso Paper aiming to focus in-house
manufacturing operations on core components.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In January 2004,
Metso Paper signed a letter of intent to transfer its Järvenpää components
production to Mesera Yhtiöt Oy,  a Finnish contract  manufacturer for the metal
industry.  According to the letter of intent, the ownership will be transferred in April
2004. The components  production  currently  employs 55 people.  The components
production shop of Metso Papers Järvenpää plant makes  welded and
machined  frame  structures  and other smaller key  components  of paper  finishing
machines.  The agreement is part of the  efficiency improvement program in Metso Paper
aiming to focus in-house manufacturing operations on core components.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In  November
2003,  Metso  Paper and Metso  Automation  opened a  joint-logistics  center in Wai Gao
Qiao Free  Trade Area of  Shanghai,  China.  The center employs  approximately 50 people
and serves the Chinese and  Asia-Pacific  markets.  The center will also  supply
components and spare parts to units in Europe and North America.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In June 2003, we
opened a new service  technology  center in connection  with our existing  facilities in Järvenpää,
Finland.  The center has approximately 150 employees.  The centers  aftermarket
offering targets paper finishing  equipment and aims to improve  the development and
commercialization of products,  and to facilitate customer training.  The service
technology center also includes a  remote  diagnostics  center,  which  provides
services of condition  monitoring  and  maintenance  systems,  together with  production
management and process information systems.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In February 2003,
we opened a service  technology  center in our existing  facilities in Sorocaba,  in the
state of São Paulo,  Brazil.  The center has  approximately  50 employees and
includes  facilities  for roll service,  spare parts  operations,  testing and  customer
training. In addition to supplying  maintenance  services,  the center will also provide
local support for new production line  deliveries and rebuilds in South America. The
center offers services that form part of our life cycle business offering.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For  a
description  of  the  recent  acquisitions  and  divestments,  see  Item  5.
Operating  and  Financial  Review  and  ProspectsRecent Developments.
|------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Minerals
|--------------



|As a result of our
restructurings  described under  Corporate  Structure and the
acquisition of Svedala and its consequent  integration  with Metso  Minerals,  Metso
Minerals operations are divided into six business  lines:  Crushing & Screening,
Minerals  Processing,  Wear Protection & Conveying,  Compaction & Paving,
Recycling,  and Drilling. The operations no longer include the foundry  in Tampere,
Finland, which was transferred to the Metso Ventures business area.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  predecessor
of Metso  Minerals,  the Nordberg  Group,  was formed as a result of the  combination  of
three  independent  crushing equipment manufacturers: Nordberg Manufacturing Company,
founded in 1886 in Milwaukee, Wisconsin;  Ateliers-Bergeaud,  founded  in  1895  in
Mâcon,  France;  and  Lokomo  Oy,  founded  in 1915  in  Tampere,  Finland.  Rauma-Repola
acquired  Lokomo  Oy in  1970,  Ateliers-Bergeaud  (at the time a  subsidiary  of
Nordberg)  in 1987 and  Nordberg in 1989.  Nordberg  was one of the worlds  leading
designer and manufacturer of rock crushing systems and equipment for the aggregates,
mining and recycle crushing industries.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Since the
acquisition  of Svedala in 2001,  the business  scope of Metso  Minerals is  considerably
wider,  including  civil  engineering  and  road  construction  related,  minerals
processing,  recycling,  drilling  and  bulk  materials  handling  equipment.
Aftermarket operations form an important part of Metso Minerals business.  Rock and
minerals crushing equipment require spare and wear  parts  continuously.  In addition,
we provide  different  types of aftermarket  activities  for the life cycle of the
equipment.  The  products are sold either through Metso  Minerals own global sales
organization or in some product lines through their own distributor  network.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 14 | 
| | -- | 



---





|Currently,
principal production plants of Metso Minerals are located in Finland,  Sweden, the United
States,  Germany,  South  Africa, France and Brazil.
|---------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
table sets forth certain financial data regarding Metso Minerals for the three most
recent years:
|---------------------------------------------------------------------------------------------------------------

|                         | As of and for the year ended December 31,
|------------------------ | -----------------------------------------
|                         | 2001(1)                                  
|                         | ( in millions, except personnel data)   
|Net sales(2)             | 900                                      
|Operating profit (loss)  | 12                                       
|Capital employed         | 1,518                                    
|Capital expenditures     | 825                                      
|Research and development | 11                                       
|Order backlog            | 491                                      
|Personnel                | 11,495                                   

|
|

|(1) |  | Svedalas
financial data is included in Metso Minerals financial data since its acquisition
in September 2001.
|--- |  | ---------------------------------------------------------------------------------------------------------------

|(2) |  | Includes
net sales to other Metsos business areas of 3 million, 5 million and
7 million in 2001, 2002 and 2003, respectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------



|Products and Services
|---------------------



|Metso Minerals
offers total  solutions for customers in the  aggregates,  mining,  minerals  processing,
civil  engineering,  compaction and paving, cement,  recycle crushing,  metal and waste
recycling,  drilling,  bulk materials handling industries as well as  related
aftermarket  activities  through its six business lines. The product offering includes a
wide variety of products with a large  number of variations, types and models.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Crushing & Screening.
Metso Minerals Crushing & Screening offers a wide range of products for the
rock crushing and screening industry. Quarries for which the business line offers
various machines and even complete crushing plants form a key customer group within
the aggregates industry. A typical complete crushing plant at a quarry may incorporate
the following products offered by Metso Minerals: jaw crushers, primary gyratory
crushers, cone crushers, impact crushers, feeders and screens. There is an increased
demand for Metso Minerals in-pit crushing system due to its ability to offer
increased efficiency of crushing operations at quarries and especially construction
sites. In this system, the conventional approach of installing a stationary primary
crusher is replaced by track-mounted crushing units that move around to where the
blasted rock is located and thus eliminate the need to haul rocks to the crusher.
Another important customer segment in the aggregates industry, apart from quarrying, is
contract crushing. For this segment, Metso Minerals is able to offer a large variety
of small track-mounted crushing units that are easy to move between sites. This has
made it possible to exploit small deposits that earlier were uneconomical.
Furthermore, Metso Minerals offers complete, stationary recycling plants that are
mostly focused on retreating demolition and building debris, as well as old concrete
and other pavement materials, when roads are resurfaced.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Minerals
Processing. Within the Minerals Processing business line, Metso Minerals is able to
offer products, systems and services that cover grinding, classifying, enrichment,
washing and pre-treating, mineral separation, slurry handling, thermal drying and
processing. In addition to new equipment and installations, Metso Minerals provides
expertise in optimizing existing plants through services such as automation, plant
audits, plant upgrades, replacement parts and maintenance. The Minerals Processing
business line also provides bulk material handling products applicable to a large
number of customers, including mining and minerals processing, aggregate production,
paper industry, harbors, ports and railroads, and power industry. The equipment and
components include stackers and reclaimers and other products needed in loading and
unloading barges, ships and railcars.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Compaction & Paving.
Metso Minerals products in the Compaction & Paving business line include
pavers, planers, rollers, light compaction equipment and concrete machinery under
the Dynapac product brand. In addition to new equipment, Compaction & Paving also
provides expertise through services, such as spare and wear parts as well as maintenance.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Wear Protection
& Conveying. This business line offers wear parts for a vast variety of Metso
Minerals products, such as wear and rubber protection systems and hoses, mill
linings, screening media, dust sealings, conveyor belts and components.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 15 | 
| | -- | 



---





|Recycling. Metso
Minerals provides equipment and services for metal recycling under the Lindemann
product brand. The offering includes scrap shears, shredders, metal crushers, scrap
baling presses, car squeezers and other equipment for classification and separation as
well as spare and wear parts and maintenance.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Drilling. This
business line offers equipment and services for drilling under the Reedrill and Texoma
product brands. The offering includes track- and wheel-mounted drills and rotary
drills for surface mining and excavation, multi-boom jumbo-drills for underground
excavation and soil drilling equipment.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Markets and Customers
|---------------------



|The following
table sets forth the breakdown of Metso Minerals net sales by geographic area for
the three most recent years:
|-----------------------------------------------------------------------------------------------------------------------------

|                                     | Year ended December 31,     
|------------------------------------ | ----------------------------
|                                     | 2001                        
|                                     | (Percent of total net sales)
|Finland                              | 4                           
|Nordic Countries (excluding Finland) | 6                           
|Europe (excluding Nordic Countries)  | 28                          
|North America                        | 26                          
|South America                        | 12                          
|Asia-Pacific                         | 14                          
|Rest of the world                    | 10                          
|                                     |                             
|Total                                | 100                         
|                                     |                             

|Customers include quarries,
      contract crushers, civil engineering companies and the mining and cement
      industries. Recycle crushing represents a new and growing sector due to
      the worldwide increase of legislation regulating the disposal of construction
      debris. The price of rock crushing plants typically ranges from 1
      million to 5 million, although it may be as high as 15 million.
      The price of individual rock crushers ranges from 15,000 to 1
      million. The price of a typical complete minerals processing plant delivery
      to mining industry ranges from 30 million to 100 million.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Marketing
|---------



|In order to
service  local markets and  customers  better,  Metso  Minerals marketing is
subdivided  into six market areas:  Northern and Central  Europe,  Southern  Europe and
Mediterranean,  Southern  Africa,  North and Central  America,  South  America and
Asia-Pacific.  Metso Minerals has a number of sales companies in Europe,  South America,
Southern  Africa,  Asia and Australia.  Metso  Minerals sales network offers the
full range of products to the relevant  industries.  Metso Minerals supports its sales
operations in  North America through own distribution and a network of local distributors.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Competition
|-----------



|Competition in
Metso  Minerals industries is fragmented,  with few global  manufacturers  and
numerous  small,  regional and  local  manufacturers.  We believe that our competitive
advantages include our global operations  network,  which allows us to meet the
increasingly global needs of our customers,  and the wide product range we offer. In
crushing and screening,  our major competitors are  Astec,  Extec,  Komatsu,  Sandvik
and  Terex.  In mining  and  minerals  processing,  our major  competitors  include
Baker  Process,  Dorr-Oliver,  Heyl&Patterson,  FFE,  Krupp-Polysius,  Larox,
Mann-Takraf  and Outokumpu,  depending on the product line and particular  industry
segment.  In compaction and paving, our major competitors include Amman,  Bomag,
Caterpillar,  Ingersoll-Rand and Wirtgen. In  wear  protection  products  and  conveyor
belts,  our  major  competitors  include  Bridgestone,  Goodyear,  Rubber  Engineering,
Steinhaus/Isenmann,  TipTor and  Tyler/Polydeck.  In recycling,  our major  competitors
include Henschel and  Newell-Riverside  and in  drilling Atlas Copco, Ingersoll Rand and
Sandvik.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Recent Developments
|-------------------



|On February 4, 2004, Metsos
      board of directors announced the initiation of a review on the development
      alternatives for the Compaction & Paving business line. The alternatives
      include a potential divestment.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 16 | 
| | -- | 



---





|The construction and paving equipment manufacturer Dynapac
      operates as an independent business with relatively limited synergies with
      the other businesses within Metso Minerals.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In the fall of 2003, we announced
      several decisions to reduce over-capacity and restructure our operations.
      These included the decision in September 2003 to end crusher manufacturing
      at Milwaukee, Wisconsin, the decisions in October 2003 to close the screen
      manufacturing unit in Ketsch, Germany and the pump manufacturing unit in
      Colorado Springs unit in Colorado, as well as the decision in November 2003
      to optimize production efficiency in the Swedish factories of the Wear Protection
      & Conveying business line.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In November 2002,
we inaugurated a new enlarged  crusher plant in Tianjin,  China.  Additionally,  we
established a compaction  and paving  equipment  factory in Wuqing,  China in late 2001.
The facilities allow Metso Minerals to serve its customers in China with  locally
produced products and short lead times.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For  a
description  of  the  recent  acquisitions  and  divestments,  see  Item  5.
Operating  and  Financial  Review  and  ProspectsRecent Developments.
|------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Automation
|----------------



|Following  the
restructuring  of our  operations in August 2002,  our Metso  Automation  business  area
operates  through two  business lines:  Process Automation Systems and Field Systems.
All Metso Automations  business operations in North America and Mexico  have been
concentrated into one business unit. See Corporate Structure for a
further explanation of our corporate restructuring.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso  Automation
was formed as a result of the merger of Valmet  Automation and Neles  Controls.  Metso
Automation  designs,  develops,  manufactures  and  maintains  a wide range of
technologically  advanced  field  devices and  analyzers,  as well as process  automation
and  information  management  applications  and solutions.  Metso  Automations
products are used to measure,  monitor and  control industrial  processes,  such as the
pulp and paper as well as power,  refining,  petrochemical and chemical  industries.
Metso  Automation also specializes in several industry-specific  automation applications,
and provides system integration services (including  with respect to third party systems)
with its open  technologies.  Metso  Automation is also one of the worlds  leading
manufacturers  and suppliers of control and automated valves for the process  industries
in a large and fragmented global market.  Metso  Automations  devices,
applications,  solutions and services are designed to improve  customer process
performance and  profitability by increasing  productivity, quality, process availability
and eco-efficiency.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Automation
has production plants in Finland,  the United States and Mexico, as well as a
manufacturing  joint venture in  China. Metso  Automations  global sales operations
are handled through a worldwide  distribution  network including local distributors  and
Metso Automation sales companies in 36 countries.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
table sets forth certain financial data regarding Metso Automation for the three most
recent years:
|-----------------------------------------------------------------------------------------------------------------

|                         | As of and for the year ended December 31,
|------------------------ | -----------------------------------------
|                         | 2001                                     
|                         | ( in millions, except personnel data)   
|Net sales(1)             | 693                                      
|Operating profit         | 17                                       
|Capital employed         | 282                                      
|Capital expenditures     | 43                                       
|Research and development | 46                                       
|Order backlog            | 182                                      
|Personnel                | 4,532                                    

|
|

|(1) |  | Includes
net  sales to other  Metsos  business  areas of 68  million,  43
million  and 51  million  in 2001,  2002 and  2003,  respectively.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------



|Products and Services
|---------------------



|Metso Automations
Process Automation Systems focuses on an  industry-specific  approach offering
automation and information  management  applications  to the pulp and  paper,  power
industries  and  minerals
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 17 | 
| | -- | 



---





|processing.  Field  Systems  focuses  on
offering  technology-specific field systems such as control, automated and emergency
valves as well  as analyzers and transmitters.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Process Automation
      Systems
|--------------------------------



|The Process
Automation  Systems  business line develops and maintains  process  automation
technology for the pulp and paper  industry as well as the power and  minerals
processing  industries.  The business  lines  principal  product is metsoDNA,  or
Dynamic  Network of Applications,  which integrates automation and information operations
into one system in an open application  environment in  order to facilitate
decision-making  within  organizations.  metsoDNA achieves  integration by breaking down
the dependencies  between  functionality  and  hardware  components.  Management
believes  that  metsoDNA  represents  state-of-the-art  process  automation  and
information management solutions, based on free networking standards, embedded field
control applications and control automation.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In addition,  key
products of the Process Automation Systems business line are Sensodec systems for paper
machine  runnability  and condition  monitoring,  and the PaperIQ and PaperLab  systems
for paper  quality  management as well as IQInsight for paper machine  wet end moisture
measurement and DNAforesight, a new-generation web break management system.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Field Systems
|-------------



|The Field Systems
business line develops field systems for various  industries,  including pulp and paper,
power,  refining,  petrochemical  and  chemical,  as well as smart,  embedded
measurement  and  control  solutions,  sensors  and  analyzers  for special  applications.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  product
offering  of the Field  Systems  business  line in the area of flow  control  valves
covers a range of  valves,  including  simple  shut-off  valves to complex  control and
automated  valves and valve  controllers.  The business line also supplies  industrial
ball valves,  butterfly  valves and actuators,  serving the process  industries,
commercial  heating,  ventilation and air  conditioning,  and original equipment
manufacturer  markets. The product names used for our valves are Neles and Jamesbury.
The Field  Systems  business line also develops and manufactures  positioners and
actuators.  A positioner  transmits  information to an actuator,  which in turn operates
a valve.  Positioners and actuators are key components of control valves,  and Metso
Automation  typically sells  these components with their associated  valves as a single
unit. In 2003,  Metso Automation  introduced the new FieldCare  software and  ND9000
intelligent  valve  controller.  FieldCare is a totally open  solution  based on FDT/DTM
technology  that provides an accurate  information flow during the commissioning,
operation or maintenance of a production  process.  The ND9000 intelligent valve
controller  records and stores  data for the  lifetime  of the  device.  Management
believes  that the Field  Systems  business  line is a leading  supplier of advanced
digital  technology  control valves in terms of technical  performance  and product
reliability for the pulp and  paper industry.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Field Systems product
offering for the pulp and paper industry includes Kajaani  analyzers,  sensors and
sampling devices for  sophisticated  fiber and stock property  measurements,  and a wide
selection of shear force,  microwave and optical  transmitters  and  sampling  devices
for pulp  consistency  measurements.  Metso  Automation  is a leading  global  supplier
of pulp and  paper  special  analyzers, consistency transmitters and control valves.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Customer Support Services
|-------------------------



|Metso  Automation
has customer  service units in 36 countries.  These units,  together  with local
representatives,  form an  extensive global service network that is also supplemented
with remote control  solutions.  Integration of customers systems through
communication  networks with Metsos  global online  service  systems  enables
operations in accordance  with our life cycle  business  concept.  The Expert center in
Tampere,  Finland,  which was opened in 2001, can monitor online the  performance of
customers pulp and  paper  mills.  In addition to fast  diagnosis  and problem
solving,  the  service is  designed  to improve  process  availability  and  performance,
resulting in higher  efficiency and product  quality.  In 2002, the second Expert center
was opened in Atlanta,  Georgia.  The third Expert center for power and process industry
customers was opened in Tampere, Finland in 2003.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 18 | 
| | -- | 



---





|Markets and Customers
|---------------------



|The following
table sets forth the  breakdown of Metso  Automations  net sales by geographic
area for the three most recent  years:
|------------------------------------------------------------------------------------------------------------------------------------

|                                     | Year ended December 31,     
|------------------------------------ | ----------------------------
|                                     | 2001                        
|                                     | (Percent of total net sales)
|Finland                              | 23                          
|Nordic Countries (excluding Finland) | 4                           
|Europe (excluding Nordic Countries)  | 21                          
|North America                        | 37                          
|South America                        | 4                           
|Asia-Pacific                         | 8                           
|Rest of the world                    | 3                           
|                                     |                             
|Total                                | 100                         
|                                     |                             



|The principal
customers of the Field Systems business line and the Process  Automation  Systems
business line are in the pulp  and paper industry.  In many cases, the customers of the
Metso Automation  business area and the Metso Paper business area are the same  pulp and
paper companies and mills. The pulp and paper industry and the oil and gas,  refining,
chemical and petrochemical  industries  are the principal customer segments for valves.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Marketing
|---------



|Metso Automations
devices,  applications and solutions are sold  individually,  as upgrades and add-ons to
existing systems,  as integrated  systems,  and as parts of the new machinery or process
equipment  installations.  Automation  applications and solutions  are  primarily  sold
by Metso  Automations  own  worldwide  sales  organization.  Metso  Automation
also markets  conventional  valve  technology through distributors in North America.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Management
believes  that the Metso  Automation  business  area is well  positioned  to develop
innovative,  technologically  advanced and  competitively  priced products for customers
within the pulp and paper industry  through its coordinated  operations with  Metso
Paper. In certain cases,  particularly when customers purchase complete pulp or paper
machine lines,  Metso Automations  systems  are sold  jointly  with  Metso  Paper.
However,  in many  cases,  pulp and paper  machinery  customers  purchase  automation
systems,  measurement devices and control valves separately.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Competition
|-----------



|The process
automation  industry is highly  competitive  throughout the world. The principal
competitors of Metso Automation  are process automation and control companies,  many of
which are divisions of large  multinational  companies,  such as ABB Automation,  Emerson
Process Management,  Honeywell  Automation and Control Solutions,  Invensys,  Siemens A&D,
Voith Paper Automation and Yokogawa.  The  principal  factors  affecting  competition
include  device  and  system  reliability  and  availability,  application  expertise,
technological  advancement,  ease of configuration  and  customization,  engineering
support,  price,  customer support  availability,  reputation and references.  Management
believes that Metso Automation is among the leading suppliers  worldwide of special
measurement  and automation systems for the pulp and paper industries.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Competition in the
field systems area,  especially in valve  industry,  is  characterized  by a large number
of  participants,  many of which specialize in limited niche areas.  Key competitors
include Emerson,  Flowserve and Spectris.  Management  believes that  Metso Automation
has a leading position in the supply of control valves to the pulp and paper industry
worldwide.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Recent Developments
|-------------------



|In  November
2003,  Metso  Paper and Metso  Automation  opened a  joint-logistics  center in Wai Gao
Qiao Free  Trade Area of  Shanghai,  China.  The center employs  approximately 50 people
and serves the Chinese and  Asia-Pacific  markets.  Components and spare  parts will also
be supplied to units in Europe and North America.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 19 | 
| | -- | 



---





|In September
2003,  Metso  Automation  sold CPS  Electronics  Inc. to Scanfil Plc of Finland.  CPS
Electronics is a contract  manufacturer of electronics,  specializing in small and
medium-sized series production.  The company is located in Tampere, Finland and  had
approximately 130 employees.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In April 2003,  we
decided to close one of our two  factories in  Chihuahua,  Mexico.  The closed  facility
manufactured  and  assembled Neles  metal-seated  products.  The activities were absorbed
into other existing Metso  Automation  operations or outsourced.  Approximately 67 people
were affected by this action.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In February  2003,
we sold the Network  Management  Solutions  companies  (NMS) to Telvent of
Spain.  NMS provides SCADA and  information management solutions. NMS employed over 400
people and had annual net sales of approximately 59 million in 2002.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For  a
description  of  the  recent  acquisitions  and  divestments,  see  Item  5.
Operating  and  Financial  Review  and  ProspectsRecent Developments.
|------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Ventures
|--------------



|The Metso Ventures business
      area was created in January 2001 to comprise of Metso Engineering and Valmet
      Automotive. Metso Engineering was comprised of four divisions, Metso Drives,
      Metso Hydraulics, Metso Works and Metso Powdermet, out of which both Metso
      Works and Metso Hydraulics have since been divested. In March 2002, Metso
      Panelboard, formerly part of Metso Paper, was transferred to the Metso Ventures
      business area. In October 2003, two foundries that were formerly part of
      Metso Paper and one foundry formerly part of Metso Minerals were transferred
      to the Metso Ventures business area. Thus, currently Metso Ventures has
      five business lines: Metso Panelboard, Metso Drives, Foundries, Metso Powdermet
      and Valmet Automotive. See Corporate Structure for a further
      explanation of our corporate restructuring.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso
      Panelboard
|----------------------



|Metso  Panelboard
develops,  sells and supplies  complete  plants,  production  lines and  equipment  for
the  production  of  medium-density fiberboard,  particleboard and oriented strand-board.
Metso Panelboard also provides start-up, optimization,  spare-part  and maintenance
services for these lines.  Products are developed to use a wide mixture of wood and fiber
raw materials.  The industry  trend is to increasingly  use low cost industrial  wood
residues,  such as sawdust and recycled wood, as the main raw material  source.  Also
non-wood natural fibers can replace wood fibers in some cases.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
table sets forth certain financial data regarding Metso Panelboard for the three most
recent years:
|-----------------------------------------------------------------------------------------------------------------

|                         | As of and for the year ended December 31,
|------------------------ | -----------------------------------------
|                         | 2001                                     
|                         | ( in millions, except personnel data)   
|Net sales(1)             | 144                                      
|Operating loss           | (7                                       
|Capital employed         | 9                                        
|Capital expenditures     | 1                                        
|Research and Development | 6                                        
|Order backlog            | 14                                       
|Personnel                | 503                                      

|
|

|(1) |  | Includes
net sales to other Metsos business areas of 5 million, 1 million and
1 million in 2001, 2002 and 2003, respectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------



|Competition
|-----------



|Metso  Panelboards
main competitors in total production lines are G. Siempelkamp Group and
Dieffenbacher-Group.  Significant  competitors in equipment supplies are Andritz Group
and Pallmann.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Markets and
      Customers
|---------------------------



|Metso  Panelboard
has its main  operations in Finland,  Sweden and Germany and sells its products
globally.  The main markets  are Europe and Asia-Pacific,  followed by South America and
North America.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 20 | 
| | -- | 



---





|Customers are producers of wood-based  panels.
Some of the  main  customers are Finsa Group, Georgia Pacific, Ikea,  International
Paper, Kronospan Group,  Masisa Group,  Pfleiderer Group and Sonae  Group.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
table sets forth the  breakdown of Metso  Panelboards  net sales by geographic
area for the most recent three  years:
|------------------------------------------------------------------------------------------------------------------------------------

|                                     | Year ended December 31,     
|------------------------------------ | ----------------------------
|                                     | 2001                        
|                                     | (Percent of total net sales)
|Finland                              | 2                           
|Nordic Countries (excluding Finland) | 2                           
|Europe (excluding Nordic Countries)  | 24                          
|North America                        | 8                           
|South America                        | 43                          
|Asia-Pacific                         | 20                          
|Rest of the world                    | 1                           
|                                     |                             
|Total                                | 100                         
|                                     |                             

|Marketing
|---------



|Products are
marketed globally through Metso  Panelboards sales network and sales agents.
Management  believes that advanced  technology and the ability to supply complete lines
gives an advantage in the wood-based panel industry.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Recent Developments
|-------------------



|In October 2003,
Metso  Panelboard  announced that the operations of its German units in Willich and
Hannover will be combined  and the  number of  employees  reduced  by  one-third.  The
combined  unit will be located  in  Hannover  and  employ 73 people.  This  restructuring
is part of continued efforts to increase the efficiency and profitability of operations.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Drives
|------------



|Metso  Drives,
previously  part of Metso  Engineering  and  formerly  called  the Gears and  Components
group or  Santasalo,  develops, manufactures and provides mechanical drives and related
services for process and energy industries.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
table sets forth certain financial data regarding Metso Drives for the three most recent
years:
|-------------------------------------------------------------------------------------------------------------

|                         | As of and for the year ended December 31,
|------------------------ | -----------------------------------------
|                         | 2001                                     
|                         | ( in millions, except personnel data)   
|Net sales(1)             | 204                                      
|Operating profit         | 8                                        
|Capital employed         | 85                                       
|Capital expenditures     | 20                                       
|Research and development | 4                                        
|Order backlog            | 88                                       
|Personnel                | 1,511                                    

|
|

|(1) |  | Includes
net  sales to other  Metsos  business  areas of 55  million,  40
million  and 28  million  in 2001,  2002 and  2003,  respectively.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------



|Products
      and Services
|---------------------------



|Metso  Drives
manufactures  and sells  special  and  modular  gear units for  process  and  energy
industries  and  provides  comprehensive gear service. Examples include paper machine
drives, grinding mill drives and wind turbine gears.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 21 | 
| | -- | 



---





|Markets and
Customers
|---------------------



|Metso Drives has
operations in Finland,  Sweden,  Germany,  Canada and the United States.  The principal
market area for Metso  Drives is Europe.  The key customers are in the pulp and paper
industry  worldwide  and the energy  production  industry in Europe and  North  America.
Major  customers  also include Metso Paper and Metso  Minerals.  Approximately  one
quarter of Metso Drives sales are  derived from customers within Metso.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
table sets forth the breakdown of Metso Drives net sales by geographic area for the
most recent three years:
|---------------------------------------------------------------------------------------------------------------------------

|                                     | Year ended December 31,     
|------------------------------------ | ----------------------------
|                                     | 2001                        
|                                     | (Percent of total net sales)
|Finland                              | 39                          
|Nordic Countries (excluding Finland) | 25                          
|Europe (excluding Nordic Countries)  | 17                          
|North America                        | 15                          
|South America                        | 1                           
|Asia-Pacific                         | 3                           
|Rest of the world                    | 0                           
|                                     |                             
|Total                                | 100                         
|                                     |                             

|Marketing
|---------



|Mechanical drives
for the process industry and energy production,  as well as related services,  are sold
individually through  the sales network of Metso Drives. In industrial gears,  Metso
Drives has a global sales and marketing  agreement with the German-based  SEW Eurodrive
GmbH.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Competition
|-----------



|The demand for
Metso Drives products is dependent on process  industry  investments  and the
construction of new wind power  plants.  Metso  Drives market  position  varies
according to the industry  served.  Flender in Germany is the market  leader in wind
turbine gears. Other key competitors in the industry are Lohmann in Germany and Hansen in
Belgium.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Recent
Developments
|-------------------



|In January 2003,
we sold our hydraulic power  transmission  unit, Metso Hydraulics Oy, to Sampo-Rosenlew
Oy of Finland.  Metso  Hydraulics net sales in 2001 totaled 18 million and it
employed 120 people.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In  September
2002,  we opened a new  technology  center in  Jyväskylä,  Finland for the
development  of wind  turbine  gear  technology and gear service capabilities. The 25
million investment also expanded the production capacity for gear manufacturing.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 22 | 
| | -- | 



---





|Foundries
|---------



|Foundries within
Metso Ventures consist of three foundries.  Two iron foundries,  located in Jyväskylä,
Finland and Karlstad,  Sweden were previously part of Metso Paper and one steel foundry,
located in Tampere,  Finland, was part of Metso Minerals.  Foundries  manufacture
castings for customers in several engineering industry segments.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
table sets forth certain financial data regarding Foundries for the three most recent
years:
|----------------------------------------------------------------------------------------------------------

|                         | As of and for the year ended December 31,
|------------------------ | -----------------------------------------
|                         | 2001                                     
|                         | ( in millions, except personnel data)   
|Net sales(1)             | 66                                       
|Operating profit (loss)  | 5                                        
|Capital employed         | 25                                       
|Capital expenditures     | 3                                        
|Research and development |                                         
|Order backlog            | 18                                       
|Personnel                | 593                                      

|
|

|(1) |  | Includes
net  sales to other  Metsos  business  areas of 26  million,  24
million  and 30  million  in 2001,  2002 and 2003,  respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------



|Products and
Services
|---------------------



|Foundries
manufacture  and sell both steel and iron  industrial  castings  such as steel  castings
for rock  crushers,  paper  machine rolls, crusher frames, crusher wear parts, hydro
turbines and other engineering industry components.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Markets and
Customers
|---------------------



|Foundries  have
operations  in Finland  and Sweden  where their  principal  market is. The key  customers
are wind and hydro  turbine  manufacturers and various engineering  companies.  Major
customers also include Metso Paper and Metso Minerals.  Approximately  two-fifths of
Foundries sales are derived from customers within Metso.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
table sets forth the breakdown of Foundries net sales by geographic area for the
most recent three years:
|------------------------------------------------------------------------------------------------------------------------

|                                     | Year ended December 31,     
|------------------------------------ | ----------------------------
|                                     | 2001                        
|                                     | (Percent of total net sales)
|Finland                              | 75                          
|Nordic Countries (excluding Finland) | 21                          
|Europe (excluding Nordic Countries)  | 3                           
|North America                        | 1                           
|South America                        |                            
|Asia-Pacific                         |                            
|Rest of the world                    |                            
|                                     |                             
|Total                                | 100                         
|                                     |                             

|Marketing
|---------



|Industrial
castings are sold both by our own sales people as well as sales agents.
|----------------------------------------------------------------------------------



|Competition
|-----------



|The demand for the
products of Foundries is dependent  on the  equipment  sales of its  customers  for which
the castings are  used.  There is a wide range of competing  foundries  both in the
Nordic  countries  and Central  Europe.  Competition  also comes from  foundries located
elsewhere in the world,  increasingly in lower-cost  countries.  As a result,  Foundries
are focusing increasingly on  technologically more demanding castings.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 23 | 
| | -- | 



---





|Recent
Developments
|-------------------



|In October 2003,
the three foundries  comprising the current  Foundries  business under Metso Ventures
were  transferred  from  the Metso Paper and Metso Minerals business areas.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Valmet Automotive
|-----------------



|Valmet  Automotive
is  an  independent  contract  manufacturer  of high  quality  specialty  cars with
production  facilities in Uusikaupunki,  Finland. The production  facilities  consist of
a body shop,  paint shop,  assembly  shop and product  development  center.  The
production  is done on a  consignment  basis, and Valmet  Automotive is compensated for
the assembly of  each  vehicle.  Valmet  Automotive  is not  required to purchase
inventory,  and its customers are billed partially in advance so  as to limit Valmet
Automotives  working capital  requirements.  Management  estimates that the
Uusikaupunki  facilities have the  capacity,  given certain  modifications and increased
manpower,  to assemble up to 100,000 cars per year.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Valmet  Automotive
is defined as a non-core business in  Metsos  strategy,  and we aim to find a
strategic  partner for  the operations.  In November 2001, ThyssenKrupp Automotive AG of
Germany,  one of the leading automotive systems suppliers in the  world,  acquired  a  10
percent  minority  holding  in  Valmet  Automotive  with an option to acquire the
remaining  90 percent  by the end of 2003. In December  2003,  ThyssenKrupp  Automotive
informed  us that it  would  not  use its  option.  ThyssenKrupp  Automotive has however
indicated a continued  interest in Valmet  Automotive,  and Metso has agreed to  continue
the  cooperation  with ThyssenKrupp  Automotive in 2004 with the target of finding  a new
car model for assembly.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
table sets forth certain  financial data  regarding Valmet Automotive for the three most
recent years:
|--------------------------------------------------------------------------------------------------------------------

|                                         | As of and for the year ended December 31,               
|---------------------------------------- | --------------------------------------------------------
|                                         | 2001                                                    
|                                         | ( in millions, except personnel and
      vehicle data)
|Net sales                                | 136                                                     
|Operating profit (loss)                  | 27                                                      
|Capital employed                         | 44                                                      
|Capital expenditures                     | 12                                                      
|Research and development                 | 3                                                       
|Approximate number of vehicles assembled | 41,916                                                  
|Personnel                                | 1,553                                                   

|Products and
Services
|---------------------



|Valmet  Automotive
produces and develops  demanding  specialty cars and can supply total niche car projects
to OEMs (original  equipment manufacturers).
|--------------------------------------------------------------------------------------------------------------------------------------------------------



|Markets and
Customers
|---------------------



|Valmet  Automotives
current  products  are the  Porsche  Boxster  and the  Porsche  Boxster S cars for
Porsche  AG.  Valmet  Automotives  current contract with Porsche AG is based on a
cooperation  agreement signed on October 24, 2001,  covering continued car  production
until 2008, with an option until 2011.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In 1997, Valmet
Automotive and Saab Automobile AB entered into an agreement under which Valmet Automotive
assembled the Saab  9-3  high-performance  convertible  series.  The production began in
early 1998,  replacing the production of the Saab 900 convertible.  The  production of
high  performance  9-3 Viggens for Saab started in spring 1999 and terminated in spring
2002. The production of Saab  9-3 5D run-out  series  began in the  spring of 2002.  The
production  of Saab  convertibles  and 5D models by Valmet  Automotive  was  terminated
at the end of April 2003.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Competition
|-----------



|Specialty  cars of
the type produced by Valmet  Automotive are designed for very limited  customer  segments
and production is  to an  increasing  extent  subcontracted  to  external  manufacturers.
Valmet  Automotive  is  one  of the  biggest  manufacturers  of  convertibles  and
contract  manufacturers  of specialty  cars in Europe.  Valmet  Automotives
principal  competitors  are Karmann in  Germany,  Magna Steyr in Austria,  and Bertone
and
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 24 | 
| | -- | 



---





|Pininfarina in Italy. The current combined
production  volume of European  contract  manufacturers is nearly 300,000 cars per year
and expected to grow in the coming years.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Management
believes that Valmet  Automotives  principal  competitive  advantages  are its high
quality,  cost  efficient and  flexible  production  capabilities.  In 1999,  Valmet
Automotive became one of the first automobile plants in the world to gain QS-9000
quality  certification  and the  environmental  management  certificate  ISO 14001 was
granted in early 2001. In December 2003,  Valmet  Automotive was granted one of the first
ISO/TS 16949 quality certificates in the car industry.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|To maintain
Valmet  Automotives  modern and advanced  automobile  production  facility,  Valmet
Automotive has  continually  invested in updating its  production  technologies.  In
2003,  investments  totaled 14 million (8 million in 2002) and related to the
Porsche Boxster production.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Recent
Developments
|-------------------



|Due to the
expiration of the  agreement  with Saab  Automobile in April 2003,  Valmet  Automotive
does not currently  have a  sufficient order backlog to employ its entire  personnel.  In
April 2003, it adjusted the number of personnel  according to the backlog  of orders and
the needs of the Porsche  production by  temporarily  laying off half of the personnel.
After the temporary  layoffs and  natural  personnel  turnover,  the amount of active
personnel was 716 as of December 31, 2003. The temporary  lay-offs are estimated to  last
at least  one  year.  The  length of the  lay-offs  and the  number of  personnel  to be
called  back to work will  depend on the  production volume development during 2004.
Valmet Automotive continuously seeks a new car model to add to its production line.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Research and
Development
|------------------------



|The focus of
Valmet Automotives  in-house research and development  resources is on the
development of open-top vehicles with  their roof systems, body structures, interior and
package.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Powdermet
|---------------



|Metso  Powdermet
develops and supplies  functionally  tailored  materials  and component  technology
largely based on powder  metallurgy.  It concentrates mostly on supporting our main
business areas in material development  matters.  Metso Powderments current  main
external  project  involves  supplying  powder  metallurgy  parts for the particle
accelerator of the European  Organization  for  Nuclear Research, or CERN, located in
Switzerland. This project will continue until 2005.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso  Powdermets
net sales  totaled 10  million,  7 million and 7 million in 2003,  2002
and 2001,  respectively.  As of  December 31, 2003, Metso Powdermet had 24 employees.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Discontinued Operations
|-----------------------



|Converting
|----------



|In November  2002,
we signed a memorandum  of  understanding  with Bobst Group SA of  Switzerland  on the
divestment  of the  Converting  business.  After the required  competition  authority
approvals were received,  the sale was completed on January 30, 2004.  Based on this
development,  Converting was excluded from Metso Paper in 2002 and is reported as a
separate  entity under  Discontinued  Operations. See Corporate Structure for
a further discussion of our corporate restructuring.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 25 | 
| | -- | 



---





|The following
table sets forth certain financial data regarding Converting for the three most recent
years:
|-----------------------------------------------------------------------------------------------------------

|                         | As of and for the year ended December 31,
|------------------------ | -----------------------------------------
|                         | 2001                                     
|                         | ( in millions, except personnel data)   
|Net sales                | 176                                      
|Operating profit (loss)  | 3                                        
|Capital employed         | 60                                       
|Capital expenditures     | 3                                        
|Research and development | 2                                        
|Order backlog            | 72                                       
|Personnel                | 824                                      

|Products and
Services
|---------------------



|Since 1998,
Converting has consisted of operations of Italian Valmet Rotomec  (Rotomec)
and Atlas Converting plc (Atlas),  an U.K.-based manufacturer acquired in
1997. Converting offers a wide range of machines for the packaging and printing
industries.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Rotomec
specializes in rotogravure  and flexo printing  machines and special  coating and
laminating  machines for packaging.  Rotomec produces packaging industry machines for
various materials,  such as paper, board,  aluminum,  and plastic sheets. Rotomec also
produces printing machines for the production of wallpaper and interior furnishing
materials.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Atlas  specializes
in slitter  rewinders and  vacuum-metallizing  equipment for the treatment of paper, film
and aluminum foil  for the converting industry. Its products are mainly used in the film
and packaging industries.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The combined
product range of Atlas and Rotomec enables it to supply its customers with a complete
converting  line.  Atlas principal product trademarks are Atlas, Titan, and
General.  Rotomecs principal  trademarks are Rotomec and MAF. Rotomecs
production  is located in Casale in Northern Italy. Atlas production facilities are
located in Bedford, Biggleswade and Heywood in England.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Raw Materials
|-------------



|Each of our
business  areas  procures the raw  materials  and  subcomponents  required for its
operations  from a network of multiple  subcontractors  and  suppliers.  We  typically
have  long-term  relationships with our network of suppliers,  even if long-term supply
agreements are typically  only used for certain key raw materials.  No  business area is
dependent on a single supplier,  and we emphasize the  need to identify and monitor
replacement  suppliers in the event that  a  particular  supplier  is  unable  to  meet
our  requirements.  We  manufacture  internally many core components that are required
for our  operations.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  types of raw
materials  and  subcomponents  that we use  vary widely  within each of our  business
areas.  The most  important  include steel plates,  various  mechanical and electrical
components,  subassemblies  required by Metso Paper and Metso Minerals,  as well as
hardware,  software  and  computer  applications  required  by  Metso  Automation.  In
addition,  steel and other  metals and  minerals  are  required for Metso  Papers
and Metso  Minerals operations.  We have  long-term  supply  agreements  for these
key  materials,  with pricing  terms  following the  prevailing  market prices.  However,
we are not  dependent on any single  supplier and may procure  these raw materials  and
subcomponents  from multiple  sources,  including the open market.  In  addition,
certain  of our  business  areas  require  special  raw  materials.  For example,  Metso
Paper requires  rubber,  polyurethane,  composite  and hard  coatings  in the  production
of paper  machines,  including roll covers. Also, Metso Minerals requires manganese,
which  is a mineral of limited global  supply,  in the production of castings  for
various  wear  parts.  Also,  Foundries  within  Metso  Ventures  requires  scrap iron.
No individual  supplier or supply  agreement is  material.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|See Item 3.
Key  InformationRisk  Factors for a discussion  of  the  risks  associated
with  our  reliance  on  suppliers  and  subcontractors to procure raw materials and
subcomponents.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 26 | 
| | -- | 



---





|Seasonality
|-----------



|Seasonal
variations  affect, to a relatively limited extent,  our net sales mainly due to
seasonality in our customers operations.  Due to the timing and purchasing
decisions in certain of our customer  segments,  sales to such customer segments are
typically higher in the  fourth  quarter  than  during  the other  quarters  of the
year.  The  seasonality in Metso  Minerals  customers operations is primarily
a  result of weather conditions.  The second quarter is the peak delivery  quarter  of
the year for Metso  Minerals  Crushing  & Screening  and  Compaction  & Paving
business  lines,  as  customers  in the northern  hemisphere make required  machinery
investments to construct roads in  the regions summer months. Demand by Metso
Automations  customers is  lowest  in the  first  quarter,  and  also  Metso
Automations  third  quarter  sales  tend to be lower  than  second  quarter  sales
due to  weakened  customer  demand during summer  holidays.  Metso Papers net
sales are also somewhat  affected by seasonality  for similar  reasons  as  those
discussed  above.  However,  because  the  pulp  and  paper  projects  tend to be
long-term and are  recognized  each quarter based  on the percentage of completion,  the
impact of seasonal variations on  Metso  Papers  net  sales is not as great  as in
our  other  business  areas.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Dependence on Intellectual Property
|-----------------------------------



|We aim to create
value through our ownership of  intellectual  property rights, which include Metso brand,
patents,  utility models,  design  protections,  trademarks,  copyrights  and  domain
names.  We  emphasize  our  systematic  intellectual  property  management  and
harmonized,  corporate-wide practices. Attention is also paid to avoid  infringements of
the intellectual property rights of others.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We  seek  to
manage  our  intellectual  property  rights  portfolios in a way that supports both
competitiveness and technology  leadership  in our  businesses.  For  example,  our
patent  portfolio,  including 8,900 patents and 3,900 pending  applications,  is
regularly  evaluated,  screened and  developed  with current and future  business  needs
and  possibilities  in mind to raise the value/cost ratio of the  portfolio.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In 2003,  our
employees  filed  approximately  650 invention  disclosures.  We  sought  protection  in
the  form  of  patents  for  approximately  250  new  inventions  relating  to  the
products  and  services  of all our  business  areas.  Almost  900 new  patents  were
granted to us in 2003.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Governmental Regulation and Environmental
Matters
|-------------------------------------------------



|Our  operations
are  subject  to  various  local laws of the  countries in which we operate,  including
the United  States  federal,  state and local  environmental  laws and  regulations.
Under  various  environmental  laws,  including the U.S.  Comprehensive  Environmental
Response,  Compensation  and  Liability  Act  of  1980,  as  amended  (CERCLA),
an owner or operator of  property  may become  liable for  the costs of  remediation or
removal of certain  hazardous  substances  on its property,  regardless of whether the
owner or operator knew of,  or was responsible for, the release of such  substances.  In
addition,  a generator of hazardous  substances may be  responsible  for all or a
portion  of  remedial  and  investigatory  costs at  offsite  disposal  locations. There
are currently no CERCLA claims pending against us.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Minerals
Industries Inc.,  previously Nordberg Inc., a  company  belonging  to the  Metso
Minerals  business  area,  has been  named,  together  with a number  of other  parties,
as a  potentially  responsible  party  (PRP)  for  the  remediation  of  two
Wisconsin  landfills (Hunt and Muskego),  which have been designated as superfund  sites
under  CERCLA (the U.S.  Comprehensive  Environmental  Response,  Compensation  and
Liability  Act of 1980).  As a PRP,  Metso  Minerals  Industries  Inc.  is jointly  and
severally  liable for the  clean-up  costs  of such  sites.  With  respect  to Hunt
landfill  site,  Metso  Minerals  Industries  Inc.,  together  with the other named PRPs,
has  entered  into a consent  decree with the U.S.  government  pursuant to  which Metso
Minerals and such other  parties have agreed to cover the  clean-up  costs of the Hunt
site,  which had been  estimated  to be in  the range of  U.S.$13  million  to  U.S.$22
million.  Metso  Minerals  Industries  Inc. has a 6.3 percent share of the clean-up
costs and is  also covered by an indemnification  agreement with a previous owner of
Nordberg.  Construction  at the Hunt  site was  completed  in 1996 and  Metso Minerals
has paid a total of approximately  U.S.$0.4 million for  the clean-up  costs.  Additional
work at the Hunt site may be required  at  an  estimated  cost  to  Metso  Minerals
Industries,  Inc.  of  approximately  U.S.$0.2  million.  With  respect to the Muskego
site,  there is an  administrative  order in place,  with a total estimate of  U.S.$15
million for design and clean-up  costs, of which the share of  the previous  owner and
Metso  Minerals is expected to be at the level  of the already paid  U.S.$125,000.  No
activities at the Muskego site  have occurred since 1996.  Management  estimates that
Metso  Minerals maximum  remaining  liability  with  respect  to the Hunt and
Muskego  sites  will  not  exceed  the  currently  established  reserve  of
U.S.$267,000,  and that the reserve for the  remediation  costs of the  two landfill
sites will be sufficient for any
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 27 | 
| | -- | 



---





|remaining  liability due  to above  reasons  and
the fact that no  activity  on these  sites has  occurred for several years.
|-----------------------------------------------------------------------------------------------------------------------------



|In addition to the
two landfill sites  mentioned  above,  and  ordinary  environmental concerns attached to
old industrial facilities  (such as potential  asbestos in building  materials,  lead
paint,  and  storing of oil,  solvents and paint),  Metso Minerals  Industries Inc.  is
the  owner  and  operator  of  a  major  industrial  facility  at  Milwaukee,  Wisconsin,
at which  manufacturing  operations  have been  carried out since early 1900s.  According
to Phase I level evaluations  made, the facility  possesses several  underground  storage
tanks, and  had  extensive  foundry  operations  since  1900s.  To date,  no known
adverse  environmental  impacts have been  identified  at the site. As  part of the
efficiency  improvement  program of 2003,  Metso Minerals  has  announced  that it
intends to cease  manufacturing  in Milwaukee,  and has commenced a Phase II level
investigation  at the site. It has  been estimated  that some remedial  costs may be
required  pursuant to  such  ongoing  Phase  II  level  investigation  outcome.  Based on
the  preliminary  indications  from  the  Phase  II  level  investigation,  Management
estimates that Metso Minerals reserve of U.S.$4.2 million  reasonably  approximates
the required  remedial costs at the Milwaukee  facility.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As a result of the
acquisition  of Svedala,  Metso  Minerals  has two sites  with  certain  environmental
concerns.  The first is a  former  manufacturing  site in Mt.  Olive,  New Jersey,  which
Svedala  acquired in 1992. The company  acquired by Svedala  operated this site  from
1955 to 1987.  With the closing of  manufacturing  operations  in  1987,  the New  Jersey
Industrial  Site  Recovery  Act  triggered  an  environmental assessment.  Both soil and
groundwater contamination was  identified.  The source of most of the  contamination  was
traced back  to prior  owners  and  operators  of the  property,  which had been an
industrial  site since the early 1900s.  All known  contaminated  soil  has  been
removed  and  the  State  of  New  Jersey  Department  of  Environmental  Protection  (NJDEP)
has issued a No Further  Action letter regarding the soil  contamination.
Metso Minerals has sold the  site in Mt. Olive in December 2003.  However,  liabilities
for ground  water  contamination  issues  were  retained  by  Metso  Minerals.  In
addition  to the  prior  remediation  activities  at the  site,  Metso  Minerals
conducted a baseline  ecological  evaluation of the property  as required by the NJDEP.
The basic purpose of such evaluation was to  determine  whether  site-related
contamination  presents a risk to or  has  impacted  environmentally  sensitive  areas
within or adjacent to  the property. Such evaluation,  together with a recommendation
that no  further  ecological  evaluation  or testing be  conducted at the site,  was
submitted to the NJDEP by an environmental  consultant retained by  us.  There  can be no
assurance  that  the  NJDEP  agrees  with  such  recommendation.  However,  taking  into
account  (i)  that  we  have  purchased a pollution legal liability  insurance  policy
for the site,  which  generally  covers,  subject to  standard  exclusions,  clean-up
costs,  bodily injury and property damage for pre-existing and unknown  pollution
conditions,  and  (ii)  that  extensive  prior  remediation  activities  at  the  site
have  already  been  conducted,  we do  not  anticipate  any  liability  arising out of
the final  evaluation to be  material.  The estimated reserve required for the
remediation measures  relating to the ground water  contamination  and the completion of
the  baseline evaluation is U.S.$832,000.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  second  site
with  environmental  concerns  is a former  manufacturing  property  in  Danville,
Pennsylvania.  Both  soil  and  groundwater are contaminated with oil from the
manufacturing  process.  In  conjunction  with  the  state  of  Pennsylvania,  an
approved  remediation  plan has  being  developed.  Some  soil  remediation  has  already
been  completed.  Two  additional  areas of concern are being  investigated and possibly
remediated.  An U.S.$1.2 million reserve is  our best estimate of potential remediation
costs at this time.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Minerals,
through its Reedrill division was identified  as a PRP in two CERCLA sites. At one of the
sites,  liability has been  assumed by a  predecessor  company.  Regarding  the other
site,  Metso  Minerals  (Svedala)  has responded in March 2000 to an EPA request for
information  and identified  predecessor  companies as the potentially  responsible
parties.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso  Minerals
Industries,  Inc.  may  become  subject  to  remedial  costs  relating  to an old
industrial  facility in Colorado  Springs,  Colorado,  which  was used in  foundry  and
test  laboratory  operation.  The site is for  sale.  Phase I level  evaluations  do not
suggest any  environmental  conditions of any major concern.  However,  Phase II level
evaluations  have not been  conducted.  In case  Metso  needs to  obtain  an
environmental  insurance  to cover  the  unknown  environmental  conditions in connection
with the contemplated  sale of  the site,  a reserve of  U.S.$350,000  has been
established  to cover  such potential cost.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In Svedala,
Sweden,  in connection with an industrial  site,  which we sold in 2001 to Sandvik,
Metso  Minerals  has a  contractual  liability  to  remedy  Sandvik  for two  soil
removal  remedial  work  related costs.  One area is small and inside the  industrial
property  and is not  expected  to  cause  material  costs.  The  other  area is  outside
the  building  beneath  the  public  road  (due  to  the  contamination  from an old gas
station  belonging  to the factory) and  soil  removal  there  may  require  piling  of
an  existing  building.  Currently,  before the actual  remedial  work has been carried
out and  orders for the work placed,  our best estimate for the remedial  costs  is 165,000.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 28 | 
| | -- | 



---





|Metso  Minerals
manufactures  compaction  equipment  for the  construction  industry  in Ljungby,
Sweden.  In  connection  with the  production at the site during the years,  land
contamination may have  occurred.  In order to assess the  probability of land
contamination,  which  could  make  Metso  Minerals  subject  to  remedial  costs,  we
conducted a Phase I level  evaluation  on the site in  February  2004.  According  to
Phase I  evaluation,  it has been  estimated  that  some  remedial  action will be
required at the site.  The Phase I evaluation  was not  conclusive  enough  to enable us
to  estimate  the  amount of  costs relating to such remedial action.  Therefore,  we
have commenced  a Phase II level evaluation on the site in March 2004.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso  Panelboard,
part of the Metso Ventures business area,  has previously owned a site with certain
environmental  concerns.  The  site, located in Belgium, was owned by
Constructiewerkhuizen  De Mets  N.V., a company divested in 2001.  Pursuant to the sale
agreement,  we  are required to provide the purchaser  with an  environmental  report,
certified by the Belgian  authorities,  to the effect that the soil at  the  site  has
not  been  contaminated.  Consequently,  a third  party  conducted an  environmental
assessment at the site. The report of the  results was sent to the OVAM  (Belgian
environmental  authority)  for  acceptance  during the fall of 2003. In December 2003,
OVAM requested  certain  additional  analysis.  This  analysis  is  currently  being
conducted.  A cleaning  plan can be presented  for  acceptance to OVAM  after the report
is accepted.  In  accordance  with the  conditions of  the sale  agreement,  we have
estimated that our  responsibility  for  remediation  costs will be limited to 1
million,  which we recognized  as a reserve in connection with the disposal.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Environmental
awareness  and  environmentally  focused  technology solutions are an essential part of
our competitiveness.  We  develop  solutions  that  improve  eco-efficiency  of  our
customers industrial  core  processes.  Our  objective  is  to  reduce  the
environmental  impact of products and processes  throughout their life  cycle.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In June  2000,  we
signed the ICC  (International  Chamber of  Commerce)  Business  Charter  for
sustainable  development,  which  compliments  the  environmental  management  principles
of  our  own  environmental  policy. We expect that our most significant  production
sites will comply with ISO14001  environmental  management  systems in  the future.  In
2003, the ISO14001  certification  was granted to four  Metso sites,  and the current
amount of sites with the  certification  is 31. By the end of 2003, the ISO14001  systems
covered 62 percent of  our production  activity.  When systems  currently  under
development  will be  certified,  82 percent  of our  production  activity  will be
covered.  In 2003,  we were selected for the fifth time as a component  in Dow  Jones
Sustainability  Index  World  (DJSI)  for the  period  2003-2004.  We also
feature in the European sustainability index, DJSI  STOXX.  We have also been  reselected
for FTSE4Good  corporate  social  responsibility  index.  In addition,  we have been
included in several  smaller sustainability indices.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We are  committed
to full  compliance  with  all  applicable  national and international  laws,
regulations and generally  accepted  practices.  Our  environmental  reporting  procedure
covers operating  sites with significant  environmental  impacts. To our best knowledge,
overall  compliance  with site-level  permit  conditions was proper in  2003. No major
non-compliance  situations were observed.  Minor clean  up,  monitoring or  investigation
activities are being carried out at  several sites as indicated  above.  However,  we
anticipate that these  cases  do not  result  in  material  financial  consequences  for
us.  Management  is not aware of any other  current  environmental  matters  that could
reasonably be expected to have a material  adverse  effect  on our financial condition or
results of operations.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Property, Plants and Equipment
|------------------------------



|Our principal
executive  offices are located at Fabianinkatu  9 A, Helsinki, Finland.
|-------------------------------------------------------------------------------------



| | 29 | 
| | -- | 



---





|As  of  December
31,  2003,  our  principal  manufacturing  facilities included the following:
|----------------------------------------------------------------------------------------------

|Location of Facility                         |  | Owned or Leased | Size (sq.ft) |  | Principal Activities                                                       
|-------------------------------------------- |  | --------------- | ------------ |  | ---------------------------------------------------------------------------
|Metso Corporation                            |  |                 |              |  |                                                                            
|Helsinki, Finland                            |  | Owned           | 86,920       |  | Corporate head office                                                      
|                                             |  |                 |              |  |                                                                            
|Metso Paper                                  |  |                 |              |  |                                                                            
|Valmet-Xian, Xian, P.R.
      China(1)      |  | Leased          | 1,162,080    |  | Paper and Board Machines, Foundry,Air Drying Systems                       
|Jyväskylä, Finland                           |  | Owned           | 1,011,752    |  | Large-sized Paper Machines                                                 
|Järvenpää, Finland                           |  | Owned           | 607,327      |  | Paper Finishing Machines                                                   
|Sundsvall, Sweden                            |  | Owned           | 424,417      |  | Pulping Machinery                                                          
|Karlstad, Sweden                             |  | Owned           | 381,980      |  | Board and Tissue Machines                                                  
|Kotka, Finland                               |  | Owned           | 369,929      |  | Medium-sized Paper Machines, PulpDryers                                    
|Laem Chabang, Thailand                       |  | Owned           | 312,524      |  | Service Center                                                             
|Turku, Finland                               |  | Owned           | 281,910      |  | Air Drying Systems                                                         
|Valkeakoski, Finland                         |  | Owned           | 231,351      |  | Mechanical Pulping, RefinerSegments, Stock PreparationEquipment and Systems
|Como, Italy                                  |  | Leased          | 217,944      |  | Paper and Board Machine Rebuilds                                           
|Wuxi, P.R. China                             |  | Owned           | 213,048      |  | Service Center                                                             
|Turku, Finland                               |  | Leased          | 170,008      |  | Air Drying Systems                                                         
|Columbus, Mississippi, United
      States   |  | Owned           | 147,000      |  | Roll Covering                                                              
|Melbourne, Australia                         |  | Owned           | 130,424      |  | Service Center                                                             
|Appleton, Wisconsin, United States           |  | Owned           | 128,000      |  | Finishing Products, Roll Service                                           
|Aiken, South Carolina, United
      States   |  | Owned           | 124,000      |  | Roll Covering                                                              
|Cernay, France                               |  | Leased          | 110,312      |  | Roll Covering                                                              
|Neenah, Wisconsin, United States             |  | Owned           | 111,000      |  | Roll Covering                                                              
|Clarks Summit, Pennsylvania,United States    |  | Owned           | 101,000      |  | Roll
      Covering                                                        
|Beloit, Wisconsin, United States             |  | Leased          | 92,000       |  | Service Center                                                             
|Tampere, Finland                             |  | Leased          | 91,352       |  | Roll Factory                                                               
|Gorizia, Italy                               |  | Owned           | 89,179       |  | Air Drying Systems                                                         
|Oulu, Finland                                |  | Owned           | 85,144       |  | Roll Covering                                                              
|Biddeford, Maine, United States              |  | Owned           | 88,000       |  | Air Drying Systems, Non-wovenPaper Machines                                
|Hollola, Finland                             |  | Owned           | 77,149       |  | Roll Handling                                                              
|Hagfors, Sweden                              |  | Owned           | 66,174       |  | Refiner Segments                                                           
|Federal Way, Washington, United
      States |  | Owned           | 63,000       |  | Roll Covering                                                              
|Järvenpää, Finland                           |  | Leased          | 50,486       |  | Paper Finishing Machines                                                   
|Florence, Alabama, United States             |  | Owned           | 48,000       |  | Roll Covering                                                              
|Thunder Bay, Canada                          |  | Leased          | 46,708       |  | Air Drying Systems                                                         
|Montreal, Canada                             |  | Owned           | 5,000        |  | Service Center, Components                                                 
|Sorocaba, São Paulo, Brazil                  |  | Owned           | 40,888       |  | Service Center                                                             
|Pfungstadt, Germany                          |  | Owned           | 40,458       |  | Service Center                                                             
|                                             |  |                 |              |  |                                                                            
|Metso Minerals                               |  |                 |              |  |                                                                            
|Sorocaba, São Paulo, Brazil                  |  | Owned           | 898,910      |  | Rock Crushers, Vibrating Equipment,Rollers, Castings                       
|Milwaukee, Wisconsin, United
      States(2) |  | Owned           | 649,852      |  | Rock Crushers                                                              
|Isithebe, South Africa                       |  | Leased          | 602,140      |  | Manganese Spare Parts                                                      
|Viña del Mar,
      Chile                    |  | Owned           | 538,000      |  | Wear Protection
      and Conveyors                                        
|Mâcon, France                                |  | Owned           | 532,723      |  | Rock Crushers and Vibrating Equipment                                      
|Tampere, Finland                             |  | Owned           | 510,990      |  | Rock Crushers, Mobile CrushingEquipment                                    
|Karlskrona, Sweden                           |  | Owned           | 452,084      |  | Rollers                                                                    
|Düsseldorf, Germany                          |  | Owned           | 420,223      |  | Metal Recycling Machines                                                   
|Vereeniging, South Africa                    |  | Owned           | 330,386      |  | Rock Crushers, Castings                                                    

| | 30 | 
| | -- | 



---



|Location of Facility                         |  | Owned or Leased | Size (sq.ft) |  | Principal Activities                                          
|-------------------------------------------- |  | --------------- | ------------ |  | --------------------------------------------------------------
|Ahmedabad, India                             |  | Owned           | 350,076      |  | Castings and Parts for Rock Crushersand Pumps                 
|Bawal, India                                 |  | Owned           | 302,571      |  | Rock Crushers, Vibrating Equipmentand
      Pumps             
|Sala, Sweden                                 |  | Owned           | 247,570      |  | Slurry Pumps and Process Equipment                            
|Trelleborg, Sweden                           |  | Leased          | 242,100      |  | Rubber Manufacturing                                          
|Sherman, Texas, United States                |  | Owned           | 211,000      |  | Drilling Equipment                                            
|Gastonia, North Carolina, United States      |  | Owned           | 168,000      |  | Vibrating Equipment                                           
|Lingen, Germany                              |  | Owned           | 161,460      |  | Pavers                                                        
|Ljungby, Sweden                              |  | Leased          | 161,460      |  | Light Equipment for Compaction                                
|Warrenton, Missouri, United States           |  | Owned           | 150,000      |  | Wire Screen Media Manufacturing                               
|Colorado Springs, Colorado, UnitedStates (2) |  | Owned           | 140,458      |  | Pumps and Process Equipment, Castings                         
|Clarksdale, Mississippi, United States       |  | Leased          | 138,400      |  | Conveyor Component Manufacturing                              
|Newcastle, Australia                         |  | Owned           | 132,500      |  | Vibrating Equipment and Spare Parts                           
|York, Pennsylvania, United States            |  | Owned           | 131,965      |  | Mill Equipment and Parts                                      
|Ersmark, Sweden                              |  | Owned           | 131,320      |  | Rubber Manufacturing                                          
|Wardenburg, Germany                          |  | Owned           | 129,170      |  | Pavers and Planers                                            
|Kongsvinger, Norway                          |  | Leased          | 107,639      |  | Conveyor Belts                                                
|Ketsch, Germany(2)                           |  | Owned           | 98,813       |  | Vibrating Equipment                                           
|Keokuk, Iowa, United States                  |  | Owned           | 98,000       |  | Rubber Manufacturing                                          
|Tampere, Finland                             |  | Owned           | 96,875       |  | Conveyor Belts                                                
|Saint Valery-en-Caux, France                 |  | Owned           | 89,340       |  | Concrete Equipment                                            
|Vicálvaro, Spain                             |  | Owned           | 80,000       |  | Rock Crusher Spare Parts and VibratingEquipment               
|Wuqing, P.R. China                           |  | Owned           | 75,350       |  | Rollers and Pavers                                            
|Portland, Oregon, United States              |  | Owned           | 70,968       |  | Rock Crusher Service and Spare Parts                          
|Matamata, New Zealand                        |  | Owned           | 62,400       |  | Rock Crushers and Spare Parts                                 
|Belleville, Canada                           |  | Owned           | 58,000       |  | Idler Manufacturing                                           
|Dungannon, Northern Ireland                  |  | Owned           | 56,000       |  | Mobile Screens                                                
|North Bay, Canada                            |  | Owned           | 55,000       |  | Rubber Manufacturing                                          
|Perth, Australia                             |  | Owned           | 48,438       |  | Rubber Manufacturing                                          
|Moers, Germany                               |  | Owned           | 47,361       |  | Conveyor Belts                                                
|Tianjin, P.R. China                          |  | Owned           | 46,466       |  | Rock Crushers                                                 
|Evergem, Belgium                             |  | Leased          | 46,285       |  | Conveyor Belts                                                
|                                             |  |                 |              |  |                                                               
|Metso Automation                             |  |                 |              |  |                                                               
|Helsinki, Finland                            |  | Leased          | 442,400      |  | Office, Valve and AccessoriesManufacturing and Testing        
|Tampere, Finland                             |  | Owned           | 323,300      |  | Office, Automation SystemsManufacturing
      and Testing     
|Shrewsbury, Massachusetts, UnitedStates      |  | Owned           | 175,000      |  | Valve and Accessories Manufacturing                           
|Shanghai, P.R. China(1)                      |  | Leased          | 129,000      |  | Valve Manufacturing                                           
|Chihuahua, Mexico                            |  | Leased          | 98,800       |  | Valve Manufacturing                                           
|Lansdale, Pennsylvania, United States        |  | Leased          | 84,700       |  | Office, Control Systems Manufacturing                         
|Kajaani, Finland                             |  | Leased          | 77,600       |  | Office, Specialty AnalyzersManufacturing
      and Testing    
|                                             |  |                 |              |  |                                                               
|Metso Ventures                               |  |                 |              |  |                                                               
|Uusikaupunki, Finland                        |  | Owned           | 1,216,000    |  | Car Assembly                                                  
|Parkano, Finland                             |  | Owned           | 249,946      |  | Gears 50 percent and the rest hired to anexternal manufacturer
|Jyväskylä, Finland                           |  | Owned           | 183,645      |  | Gear Manufacturing and Service                                
|Karkkila, Finland                            |  | Owned           | 126,000      |  | Gear Manufacturing and Service                                
|Wuppertal, Germany                           |  | Leased          | 65,781       |  | Gears                                                         
|Cambridge, Ontario, Canada                   |  | Leased          | 35,000       |  | Gears                                                         
|Hannover, Germany                            |  | Leased          | 50,418       |  | Energy plants, dryers                                         
|Sundsvall, Sweden                            |  | Leased          | 38,736       |  | MDF line machines                                             



| | 31 | 
| | -- | 



---





|Location of Facility        |  | Owned or Leased | Size (sq.ft) |  | Principal Activities               
|--------------------------- |  | --------------- | ------------ |  | -----------------------------------
|Nastola, Finland            |  | Leased          | 35,572       |  | Particleboard and OSB line machines
|Willich, Germany(2)         |  | Leased          | 11,148       |  | Presses                            
|Jyväskylä, Finland          |  | Owned           | 394,000      |  | Foundry                            
|Tampere, Finland            |  | Owned           | 288,020      |  | Foundry                            
|Karlstad, Sweden            |  | Owned           | 195,000      |  | Foundry                            
|                            |  |                 |              |  |                                    
|Converting (3)              |  |                 |              |  |                                    
|Casale, Italy               |  | Owned           | 222,710      |  | Laminating and Printing Presses    
|Bedford, United Kingdom     |  | Owned           | 96,500       |  | Converting Machines                
|Heywood, United Kingdom     |  | Owned           | 82,000       |  | Converting Machines                
|Biggleswade, United Kingdom |  | Owned           | 72,700       |  | Converting Machines                

|
|

|(1) |  | Joint-venture,
see Associated Companies below.
|--- |  | ------------------------------------------------

|(2) |  | To
be closed as part of the Efficiency Improvement Program of 2003.
|--- |  | -------------------------------------------------------------------

|(3) |  | Converting
was divested in January 2004.
|--- |  | ----------------------------------------



|Management
believes that the production  capacity of each of our  production  plants is adequate and
suitable for our current  business  needs and that suitable  additional or  alternative
space would be available in the future,  if necessary,  on  commercially  reasonable
terms.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Significant Subsidiaries
|------------------------



|Metso
Corporation,  our Finnish parent company,  holds the majority of our operating assets in
Finland,  while assets outside  of Finland are held through regional or divisional
subsidiaries.  During 2001, we changed a number of the names of our subsidiaries by
eliminating  the  reference  to Valmet,  Nordberg,  Neles and other  predecessor
entities,  except for  Valmet  Automotive  Oy and the  subsidiaries  that already contain
the Metso name. Our significant  subsidiaries,  as defined in Rule 1-02(w) of Regulation
S-X, are as  follows, each of which is wholly-owned by Metso Corporation:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Company Name                   | Country of Incorporation
|------------------------------ | ------------------------
|Metso Paper Oy                 | Finland                 
|Metso Minerals Oy              | Finland                 
|Metso Svenska AB               | Sweden                  
|Metso USA Inc.                 | United States           
|Metso Minerals Industries Inc. | United States           



|Associated Companies
|--------------------



|We currently  own
35.8 percent of Allimand  S.A.,  which,  as of December 31, 2003,  had an equity value of
approximately  5  million;  48.3 percent of  Valmet-Xian  Paper  Machinery  Co.
Ltd.,  which had an equity value of  approximately  5 million;  and 50.0  percent
of Shanghai Neles-Jamesbury Valve Co. Ltd., which had an equity value of approximately
3 million.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 5.  Operating and Financial Review and
Prospects
|-----------------------------------------------------



|The following
discussion  and analysis by  management  concerning  the  financial  condition and the
results of operations of  Metso should be read together with the consolidated  financial
statements  included in this annual report. Our consolidated  financial  statements  have
been  prepared in accordance  with Finnish  GAAP,  which  differs in certain  significant
respects from U.S.  GAAP. A  reconciliation of the amounts of net income and shareholders equity
reported under Finnish GAAP to the amounts  determined under U.S.  GAAP,  and a
discussion  of the  principal  differences  between  Finnish  and U.S.  GAAP  are set out
in Note 32 to our  consolidated  financial statements, included elsewhere in this annual
report.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Business Environment and Trend Information
|------------------------------------------



|Our main customer
industries are pulp and paper,  construction  and mining as well as power and process
industries.  Certain  important trends apply to these  industries,  which have an effect
on our operations as
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 32 | 
| | -- | 



---





|well.  Business driven by the installed base of
machinery  and  equipment is growing  especially  in Europe and North  America,  where
our  customers  are focusing  more on efficiency  improvements for their existing
processes rather than investing on new machinery or equipment.  Demand for new machinery
and equipment  focuses on areas with strong economic growth and/or good  availability  of
raw materials  required,  which supports demand for pulp and  paper as well as rock and
minerals processing  investments.  Such areas include China and South America.
Accordingly,  we have adapted  our own organization by cutting new machine  resources and
strengthened  aftermarket  resources in Europe and North America,  while we  have
increased our new machine  resources in the growing  markets of Asia and South America.
Furthermore,  the investment  activity in  our main customer  industries has been below
average for the past few years,  reflecting the challenging  situation in the
end-markets.  The  challenging  business  environment has required,  and will continue to
require,  that we continue to streamline our cost structure  and strengthen our
competitiveness.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Within the paper
industry,  new  papermaking  capacity has mostly been built in Asia during the past few
years. In the end of  the  1990s,  demand  was most  active in South  East  Asia,  but
has  since  shifted  to China.  The  demand in the  Chinese  market is  increasingly  for
high-grade  paper  products,  which has  increased the  investments  of Metso  Papers
customers in high-speed  and  high-quality  machinery  and  equipment.  Provided that the
strong  economic  growth in China  continues,  we expect  continued  strong  investment
activity in China by our customers in the paper industry.  South American customers have
in the recent years been active in  investing in new chemical  pulping  capacity due to
the good  availability of fast growing wood resources,  such as eucalyptus,  in the
region.  Management  expects this  competitive  advantage to continue to support  demand
for pulp equipment in South America during the  next years as well.  Our customers in the
European pulp and paper  industry have in the past few years invested in new capacity to
some  extent,  although they have mainly focused on machine rebuilds and process
improvements.  As demand for paper products in Europe is not  expected  to increase
significantly,  the current  investment  level could  continue  for a few years.  In
North  America,  investment  activity in the pulp and paper industry has been low.
Especially in the United States,  there have been very few new investments since  the
1990s and the demand is focused on smaller rebuilds and aftermarket activities.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The share of Metso Minerals
      net sales originating from Europe and North America has decreased from 2001
      to 2003. Although the major aggregates producers come from these areas,
      the growth in demand for aggregates is moderate, and aggregates are used
      mainly to maintain existing infrastructure. In developing countries, such
      as China, construction is supported by the economic growth and is increasing
      strongly. Also, large multi-year government programs aimed to improve the
      infrastructure in these countries increase the demand for aggregates and
      investments in new production machines and equipment provided by Metso Minerals.
      The focus in mining operations has moved to the Southern Hemisphere. In
      recent years, the demand for new mining equipment has increased in South
      America, Southern Africa, and Australia, while the emphasis in mining operations
      in the Northern Hemisphere has been on aftermarket and service operations.
      Many countries in the Southern Hemisphere have significant metal deposits
      attracting new investment. Metals prices and the supply-demand balance are
      important indicators for the mining industry as well as for their suppliers.
      The markets for metal processing equipment have been growing in Asia, Eastern
      Europe and South America, where economic growth has also been increasing
      the consumption and production of steel. In Western Europe and North America,
      the industry has mainly focused on rebuilding metal processing plants and
      process renewals, and the recycling of steel and other metals has increased
      at a fast rate also for environmental reasons.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Over  one-half of
Metso  Automations  sales are derived from the pulp and paper  industry,  and the
apparent  trends in that  industry  affect the business  environment  of Metso
Automation.  The  application  of  automation  in  industrial  processes has been
increasing slowly for a few years.  Management  expects the growth rate to accelerate in
the future inasmuch as many process industries  have systems that are obsolete by todays
standards,  and inasmuch as newer technology  enables  developing  solutions that improve
the  efficiency of equipment and processes.  Automation is  increasingly  embedded in
machines and equipment,  and more fully  integrated in  the overall information systems
of mills and processes.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Business environment in 2003
|----------------------------



|The year 2003
continued to  characterized  by the  uncertainty in the global  economy.  Economic growth
was weak in Europe and  North  America.  However,  in Asia,  and  particularly  in China,
economic  growth  continued to be strong and was reflected in lively  investment
activity.  In the last quarter of 2003,  the North  American  economy  showed signs of
recovery.  The weakening of the U.S.  dollar against the euro throughout the year 2003
was clearly  reflected in our operating  environment.  It reduced the  competitiveness
of our products made in Europe,  and the value of our sales and earnings in the United
States was lower when  converted  into the euro,  our reporting currency.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 33 | 
| | -- | 



---





|Metso  Papers
market  situation was  satisfactory  as a whole,  but  customers willingness  to
commit to new pulp or paper  machine  investments  continued to be at a low level in
Europe and North America.  This lack of  willingness  was a result of low paper  prices.
Printing  paper prices  declined in Europe in the first half of 2003, and leveled off
during the second half of 2003. In North  America,  the prices of newsprint and magazine
paper  strengthened  slightly in the second half of 2003, but fine paper prices declined
significantly.  The SARS epidemic  temporarily  weakened the market situation in China,
mainly during the second quarter of 2003, but,  in the second half of the year,  demand
recovered to the good level of the first months of 2003,  when the continued  strong
economic  growth  increased  demand  for paper.  Paper  consumption  per capita in China
continues  to be very low  compared  to Europe or North  America, which makes China an
interesting market for both Chinese as well as global pulp and paper companies.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The construction
industry,  which represents the most significant of Metso Minerals customer
industry,  was also affected by  the global  economic  uncertainty.  Demand in Europe
weakened  during 2003 and remained at the low level  experienced in North America
already  in 2002.  However,  there were signs of an  improvement  in the U.S.  market in
the last  quarter  of 2003.  In China,  demand  remained  good in 2003.  The economic
growth is supporting  infrastructure  investments,  for which our products are used.  The
mining  industry  represents  approximately  one-third  of Metso  Minerals sales.
The prices of the most common  base  metals rose  steadily  throughout  2003 and,
towards the end of 2003, the number of mining  project  inquiries  increased in South
America,  South Africa and  Australia.  However,  we did not yet receive any big mining
project orders during 2003. The prices of recycled metal rose significantly  during 2003,
which supports the customers of Metso Minerals Recycling business line.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The demand for
Metso Automations  products remained at the low level of 2002 in North America.  In
Europe, the investments of  Metso Automations  customer industries were also at a
low level. In China, demand for Metso Automations  products was good. Generally  in
2003,  demand in the power and process  industry  was  stronger  than in 2002,  whereas
demand in the pulp and paper  industry  was  weaker.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Summary on business environment in 2002
|---------------------------------------



|In 2002,
uncertainty in the global economy was reflected in our market  environment  and product
demand  throughout the year,  especially in the important U.S. and German markets,  where
investment  activity of our customer industries was low. On the other hand,  the
development in the Chinese market was positive.  The strong  economic  growth  supported
demand for our products.  Generally,  the  demand for  aftermarket  related  activities
was good,  and they accounted for 33 percent of our net sales compared with 27 percent in
the previous  year.  Our order backlog at the end of the year was ten percent lower than
at the end of 2001. The market for Metso Paper  was  satisfactory.  Major paper machine
projects  were ongoing  mainly in Canada,  China and Europe.  The U.S.  markets  remained
slow  throughout the year with rebuilds  pending  mainly in Europe.  The demand for Metso
Papers  aftermarket  offering was good. The demand  for Metso Minerals products
supplied to the construction  industry was good in Europe,  except for Germany.  In the
U.S. markets,  on  the other  hand,  the demand  continued  weak.  The demand for mining
industry  products  was modest.  The demand for Metso  Minerals aftermarket
offering was good. The demand for Metso  Automations  products was satisfactory
except for the United States,  where the  market was weak the entire year.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Summary on business environment in 2001
|---------------------------------------



|In 2001, there was a clear
      slowdown in the global economic activity. This was indicated by the lower
      value of new orders we received, which was down by 11 percent on the previous
      year. The demand for our products was at a good level in the first half
      of 2001. During the second half demand was weaker due to increasing uncertainty
      in our principal markets in Europe and North America. However, orders received
      remained at a satisfactory level. The demand for Metso Papers products
      was satisfactory. The orders for new paper machine lines were received mainly
      from China and Europe. The demand in North America weakened, and was mainly
      focused on rebuilds of paper and pulp lines and on service. In general,
      the demand for aftermarket operations remained good. For Metso Minerals,
      the demand in the civil engineering industry in 2001 was relatively good
      in Europe, except for Germany, but weakened clearly in North America. In
      the mining industry, the demand was quiet in North America, but remained
      at previous years level in the Southern Hemisphere. For Metso Automation,
      the demand was good to satisfactory in Europe. There was a clear weakening
      of demand in North America. However, demand was strong in China and Brazil.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 34 | 
| | -- | 



---





|Recent Developments
|-------------------



|The most
significant  development  since the  formation  of Metso  through the merger of Valmet
and Rauma was our decision to  create  another  globally  leading  player in rock and
minerals  processing,  alongside  our  similar  position  in the pulp and paper
industry.  Metso Minerals became a business area similar in size to Metso Paper through
the  acquisition of Svedala.  Since the Svedala  acquisition,  in order to reduce the
debt that resulted from this acquisition,  we have divested several non-core  businesses
that came  into our possession with the acquisition as well as other existing  businesses
that were not considered  integral parts of Metso.  Only  limited small acquisitions have
been done in the past couple of years to strengthen Metso Papers aftermarket
activities.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Recent Acquisitions
|-------------------



|Acquisition of Svedala
|----------------------



|In September
2001, our Metso Minerals  business area was  strengthened  by the  acquisition of
Svedala,  a global supplier of  products  and  services  for the rock and mineral
processing  industry  based in Sweden.  A public  offer to acquire all the shares in
Svedala was made in June 2000. The  competition  authorities  of the European  Union and
the United States  examined the effects of the  acquisition  and, in September 2001, gave
their  clearance  under certain  conditions.  The acquisition was then completed on
September  14, 2001. The cost of acquiring the shares of Svedala was 943 million.
The acquisition  price for Svedala  including debt assumed was  1,371 million. The
acquisition was financed with cash assets and a syndicated bank loan.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The approvals
from the U.S.  Federal Trade  Commission  (the FTC) and the EU Commission
(the European  Commission)  were  subject to certain  conditions.  To address
the concerns of the FTC, we divested our grinding  mills  operations,  which had annual
net  sales of approximately 25 million and approximately 30 employees.  The
grinding mills operations,  which comprised rod and ball mills,  semiautogenous  and
autogenous mills, were sold to Outokumpu Mintec Oy on September 20, 2001.  Furthermore,
to address the concerns of  the FTC, and to fulfill the conditions for the approval of
the European  Commission,  we divested  certain parts of Svedalas  crushing  and
screening  operations,  including jaw crushers,  cone crushers,  horizontal  shaft impact
crushers,  certain  screens,  feeders and  conveyors as well as Nordberg  primary
gyratory  product  ranges and related  aftermarket  capabilities.  These crushing and
screening  operations had net sales of approximately  150 million for the year 2000
and approximately 900 employees.  The operations were sold to  Sandvik AB, a Swedish
industrial group, on October 1, 2001.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Svedala had annual
net sales of 1.7 billion for the year ended December 31, 2000. Upon  consummation
of the  acquisition,  we  combined  Svedala  with our Metso  Minerals  business  area.
Svedala  was a global  manufacturer  of  equipment  and  systems  for the  construction,
mining and mineral processing  industries,  producing a wide range of products such as
crushing and screening equipment,  grinding mills,  pelletising  plants,  conveyors,
compactors and asphalt pavers. A substantial portion of the total sales consisted of
aftermarket operations,  including spare and wear parts as well as maintenance.  The
Svedala acquisition made us a global market leader  in rock and mineral processing
systems.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The estimated
annual synergy benefits from the  acquisition,  initially  estimated to amount to 70
million and raised in 2002  to a target of 90 million,  did not  materialize  in
full.  This was due to the positive  effects of the  integration in 2002 and 2003  being
offset by the  negative  effect of exchange  rate changes and the weak market  situation.
The total  nonrecurring  restructuring  expenses  arising  from the  acquisition
amounted to 72 million  (90  million net of tax  benefits of 18
million).  As part of the  integration  process,  12 production  plants,  mostly in the
United  States,  were closed down or sold. In addition,  approximately  70  distribution
and service units were closed.  Metso  Minerals also  divested or closed four  non-core
businesses;  Svedala Robot B.V.,  Kranlyft Ab, Interconsult i Falkenberg Ab and Oy Rolac
Ab. The combined net sales of these four units totaled 79 million in 2001.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Other Acquisitions
|------------------



|In 2003, we did
not make any material acquisitions.
|---------------------------------------------------



|In September
2002,  Metso Paper became the sole owner of  Scandinavian  Mill Service Oy by acquiring
YIT  Installaatiot  Oys  shareholding of Scandinavian Mill Service.  Before the
acquisition,  our holding was 49 percent.  Scandinavian Mill Service specialized  in the
paper industry service and maintenance operations. The acquisition was part of the
development of our life cycle business.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 35 | 
| | -- | 



---





|Recent Divestitures
|-------------------



|In January 2004,
we sold the Converting  business to Bobst S.A. of  Switzerland.  Converting had sales of
183 million in 2003  and approximately 800 employees. The sale price was
approximately 75 million.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In  September
2003,  we sold CPS  Electronics  Inc.,  a  subsidiary  of Metso  Automation,  to Scanfil
Plc of  Finland.  CPS  Electronics is a contract  manufacturer  of  electronics,
specializing  in small and  medium-sized  series  production.  The number of  employees
totaled approximately 130.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In February 2003,
we sold the Network Management  Solutions companies (NMS),  part of the Metso
Automation business area, to  Telvent of Spain.  NMS provides SCADA and information
management  solutions.  NMS employed over 400 people and had annual net sales of
approximately 59 million in 2002.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In January 2003,
we sold our hydraulic  power  transmission  unit,  Metso  Hydraulics,  which was part of
the Metso  Ventures  business area to Sampo-Rosenlew Oy. Metso Hydraulics net sales in
2001 totaled 18 million and it employed 120 people.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In December 2002,
we finalized the divestment of Hodge Foundry in Greenville,  Pennsylvania to a group of
investors  including  the local management. The foundry employs 90 persons and had net
sales of U.S.$10 million in 2002.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In August 2002, we
sold the assets of our construction  equipment  distribution  company, Oy Rolac Ab, in
Finland, to Bilia AB  of Sweden.  Rolacs net sales in 2001 were  approximately
50 million and it employed  approximately 90 persons.  Rolac came into Metso
Minerals possession in the Svedala acquisition.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In July 2002,  we
sold Svedala  Robot B.V. in The  Netherlands  to ITT  Industries  of the United  States.
Svedala Robot B.V.  manufactures submersible pumps and pump systems used in wastewater
applications.  Its net sales in 2001 were approximately 10 million  and it employed
75 persons. The transaction is one of the planned  divestitures  announced by Metso
Minerals to dispose of its non-core  businesses after the acquisition of Svedala.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In June 2002, we
sold our  engineering  workshop in Cedar  Rapids,  Iowa,  to the  operating  management
of the factory.  The  factory came into Metso Minerals possession in the Svedala
acquisition.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In April 2002, we
sold Metso Works, a company with engineering  workshop operations in Pori, Parkano and
Loviisa,  Finland, to  Hollming Oy of Finland. Metso Works net sales in 2001
totaled 38 million and it employed 532 persons.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In May 2002, we
closed down the conveyor belt  production unit in Hamburg,  Germany.  The unit employed
95 persons and its net  sales were 11 million in 2001.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------



|In February  2002,
we  restructured  our  operations in the United States as a  consequence  of the Svedala
acquisition.  We  discontinued  manufacturing operations in Appleton and Clintonville,
both in Wisconsin,  and move them partly to Milwaukee,  Wisconsin  and partly to
Gastonia, North Carolina with consequent personnel reductions of approximately 200.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Efficiency Improvement Program of 2003
|--------------------------------------



|In 2003,  our
board of directors  adopted an efficiency  improvement  program  designed to cut fixed
costs.  We aim to achieve  annual cost savings of more than 100 million as a result
of the program.  Related to the efficiency  improvement program,  expenses of  103
million were recognized for the year ended December 31, 2003.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In Metso Paper,
the annual cost savings  target through the efficiency  improvement  program is almost
40 million.  To match  its  target,  the  organization  of Metso  Paper  will be
streamlined  and Metso  Papers  workforce  is  scheduled  to be  reduced by
approximately  630 employees in Finland,  Sweden,  Italy and North America by mid-2004.
In addition,  as a result of an ongoing review  regarding the outsourcing of in-house
manufacturing capacity in Finland affecting  approximately 350 employees,  Metso Paper
has signed  letters of intent to sell two manufacturing  units in Finland.  The
efficiency  improvement  program expenses recognized in Metso Paper  amounted to 36
million for 2003.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 36 | 
| | -- | 



---





|In Metso
Minerals,  the annual cost  savings  target  through the  efficiency  improvement
program is just over 50 million.  Operational  efficiency will be improved through
the reduction of personnel at the Tampere crusher plant in Finland, the Mâcon plant
in  France and at Metso Minerals headquarters.  As part of the program, we plan to
close down the production plant for mining crushers in  Milwaukee,  Wisconsin,  a plant
for mining industry process  equipment and pumps in Colorado  Springs,  Colorado and a
plant for mining  and crushing screens in Ketsch,  Germany during 2004. As a result of
these  arrangements,  Metso Minerals workforce is expected to be  reduced by
approximately 350 employees.  Metso Minerals will also adjust its wear protection
business to correspond with demand in its  two units  operating in Sweden and further
measures will also be taken to adjust the resources of the global sales and service
network  to reflect  the market  situation.  As a result of these  arrangements,  Metso
Minerals  expects to further  reduce its  workforce  by  approximately 250 to 320
employees.  The efficiency  improvement  program expenses recognized in Metso Minerals
amounted to 55 million  for 2003.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In Metso
Automation,  the annual cost savings target through the efficiency  improvement  program
is 10 million. To match its  target,  Metso Automations  organization has
been streamlined and, by mid-2004,  its workforce is expected to be reduced by a total of
approximately  140 employees in Finland and North America and in the global sales
network.  As part of the program,  Metso  Automation  also divested CPS  Electronics
Inc., a contract  manufacturer of electronics,  in September 2003. The efficiency
improvement  program  expenses recognized in Metso Automation amounted to 7 million
for 2003.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In Metso Ventures,
the annual cost savings target through the efficiency  improvement  program is 5
million.  As part of the  program,  two Metso  Panelboard  units in Germany were
combined.  The  efficiency  improvement  program  expenses  recognized in Metso  Ventures
amounted to 4 million for 2003.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Minor  personnel
reductions  were also made at corporate  headquarters  and 1 million was
recognized  as an expense for the  efficiency  improvement  program  within  corporate
headquarters.  Of the 103 million in expenses  recognized in connection  with the
efficiency  improvement  program  for the year  ended  December  31,  2003,  18
million  was paid in 2003 and 8  million  related to  write-downs  of fixed assets
and  inventory.  The  remaining 77 million was booked as accrued  liabilities  on
our balance sheet as of  December 31, 2003. This balance at the year-end included 17
million in reserves related to fixed assets and inventory.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Goodwill impairment
|-------------------



|Due to the
continued  demanding  market  situation in rock and minerals  processing  and exchange
rate  movements  that were  unfavorable to Metso  Minerals,  an impairment  charge of
205 million related to goodwill was recorded in Metso Minerals in 2003. This
goodwill  impairment had no cash flow effect.  The impairment will decrease our annual
amortization of goodwill by  approximately  10  million in 2004.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Critical Accounting Policies
|----------------------------



|The  preparation
of our  consolidated  financial  statements in accordance  with Finnish GAAP requires our
management to make  estimates and  assumptions  that affect the amounts  reported in the
consolidated  financial  statements and  accompanying  notes.  We  believe that our
estimates and assumptions are  reasonable.  However,  actual results and the timing of
the recognition of such amounts  could differ from those  estimates.  We have  identified
the following  critical  accounting  policies and  estimates  utilized by our  management
in the preparation of our consolidated financial statements.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In some
instances,  accounting  policies  followed in  accordance  with U.S.  GAAP (as  reported
in Note 32 to the  financial  statements)  differ from those  policies  followed in
accordance  with Finnish  GAAP.  Where the  difference  in  accounting  policy is
material and contains significant critical estimates, we have included a separate
discussion of those policies below.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Accounts Receivable
|-------------------



|Our  policy is to
maintain  an  allowance  for bad debts  based on our best  estimate  of the  amounts
that are  potentially  uncollectable  at the balance sheet date. We base our estimate on
a systematic,  on-going review and evaluation that we perform as part  of our credit-risk
evaluation  process.  As part of this  evaluation,  we take into account our history of
collections,  the size and  compositions of the receivable balances, current economic
events and conditions and other pertinent information.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 37 | 
| | -- | 



---





|We believe that
the accounting  estimate related to the establishment of a reserve for credit losses is a
critical  accounting  estimate because:
|-------------------------------------------------------------------------------------------------------------------------------------------------



|(1) the
evaluation  is  inherently  judgmental,  and requires the use of  significant
assumptions  about  expected  customer  default amounts that may be susceptible to
significant change; and
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2)  changes in
the  estimates  regarding  the  allowance  for bad debts  could  have a  significant
impact on our  financial  statements.
|------------------------------------------------------------------------------------------------------------------------------------------



|Allowance for Slow-Moving and Obsolete
Inventory
|------------------------------------------------



|Our policy is to
maintain an allowance  for slow moving and obsolete  inventory  based on our best
estimate of such amounts at  the balance sheet date. We base our estimate on a
systematic,  on-going  review and evaluation of inventory  balances.  As part of this
evaluation,  we also consider the average age of the  inventory as compared to
anticipated  necessary  levels for future  periods.  We  believe that the  accounting
estimate  related to the  establishment  for  inventory  obsolescence  reserves is a
critical  accounting  estimate because:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(1) the evaluation
is inherently  judgmental and requires the use of significant  assumptions  about the
expected future sales  composition, which may be susceptible to significant change; and
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2)  changes in
the  estimates  regarding  the  allowance  for  inventory  obsolescence  could  have a
material  impact on our  financial statements.
|-----------------------------------------------------------------------------------------------------------------------------------------------------



|Revenue Recognition
|-------------------



|We deliver
complete  installations to our customers,  where the moment of signing a sales contract
(firm  commitment) and the  final  reception of a delivery by the customer  can take
place in  different  financial  periods.  In  accordance  with our  accounting
principles,  we apply the percentage of completion method (POC method) for
recognition of such long-term delivery contracts.  In year  2003,  approximately 26
percent of our net sales were recognized under the POC method,  which is based on
predetermined  milestones and  where the revenue is recognized  based on the  estimated
realized  value added or on the  cost-to-cost  method.  We use the POC method  since
reasonably  dependable  estimates of the revenue and costs  applicable to a contract can
be  established.  A projected loss on a  firm  commitment  is  recognized  in income,
when a contract  becomes  binding to us. The  estimated  revenue,  the costs and  profit,
including the planned delivery  schedule,  of the projects are subject to regular
revisions as the contract  progresses to completion.  Revisions  in profit  estimates
are charged to income in the period in which the facts that give rise to the  revision
become  known.  Although we have  significant  experience  using the POC method,  the
total costs  estimated to be incurred on projects may change over  time due to  changes
in the  underlying  project  costs  structures,  which may  ultimately  affect  the
revenue  recognized.  As the  reliability  of cost  estimates is based on our  experience
in  manufacturing  and  delivering  paper  machines,  pulp making lines and  complete
crushing  installations,  we do not apply the POC method for sales where we consider that
the final outcome of the project and  related  costs  cannot be  pre-established
reliably.  Completed  contract  method may also be preferred to POC method when we
consider  there to be an external risk factor, for example the country of destination.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Accounting for Income Taxes
|---------------------------



|As part of the
process of preparing our  consolidated  financial  statements,  we are required to
estimate our income taxes in  each of the  jurisdictions  and  countries  in which we
operate.  This  process  involves  estimating  the actual  current tax exposure  together
with  assessing  temporary  differences  resulting  from  differing  treatment  of items,
such as deferred  revenue and cost  reserves, for tax and accounting purposes.  These
differences result in deferred tax assets and liabilities,  which are included in our
consolidated  balance sheet. We assess the likelihood  that our deferred tax assets will
be recovered from future taxable  income,  and  to the extent we believe  that  recovery
is not likely,  we  establish a valuation  allowance.  To the extent we  establish a
valuation  allowance or increase this allowance, we include an expense in the tax reserve
in the income statement.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Significant
management  judgment is required in  determining  our  provision  for income  taxes,  our
deferred tax assets and  liabilities  and any valuation  allowance  recorded.  We have
recorded net deferred tax assets of 123 million as of December 31, 2003,  net of a
valuation  allowance of 114 million as of December 31,  2003, due to
uncertainties  related to our ability to utilize some of  our deferred tax assets,
primarily  consisting of operating losses carried forward for certain foreign
subsidiaries before expiration  and the
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 38 | 
| | -- | 



---





|final  outcome of tax audits in some
subsidiaries.  The  valuation  allowance is based on our  estimates of taxable  income by
country in which we operate,  and the period over which our deferred tax assets will be
recoverable.  In the event that actual results  differ from these  estimates  or we
adjust  these  estimates  in future  periods,  we may need to  establish  an  additional
valuation  allowance, which we do not expect to have a material impact our financial
condition and results of operations.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Allocation of Excess Purchase Price to
Acquired Assets
|------------------------------------------------------



|In accordance with
our accounting  principles,  we have allocated  excess purchase price to acquired
long-lived  tangible and  intangible  assets and  liabilities.  Whenever  feasible,  we
have used as a basis for such  allocations the readily  available  market  values to
determine the fair value basis.  However,  when this has not been possible,  as often is
the case with long-lived  intangible  assets and certain assets with no active markets or
available  price  quotations,  the valuation has been based on past  performance of  such
asset and its  intended  future use in our  business.  The  appraisals,  which  have been
based on  current  replacement  costs,  discounted  cash flows and estimated  selling
prices  depending on the  underlying  asset,  require  management to make  estimates and
assumptions  of the  future  use of these  assets  and their  impact on our  financial
position.  Any  change in our  future  business  priorities and orientations may affect
the planned outcome of initial appraisals.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Valuation of Long-Lived Assets and Intangible
Assets and Goodwill
|-----------------------------------------------------------------



|We assess the
carrying value of identifiable  intangible assets,  long-lived assets and goodwill
annually,  or more frequently  if events or changes in  circumstances  indicate that such
carrying  value may not be  recoverable.  Triggering  events for  impairment  reviews
include the following:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | material
permanent deterioration in the economic or political environment of our customers or our
own activity;
| | - |  | ---------------------------------------------------------------------------------------------------------------

| |  |  | significant
under-performance relative to expected historical or projected future performance; and
| | - |  | --------------------------------------------------------------------------------------------------

| |  |  | significant
changes in our strategic orientations affecting our business plans and previous
investment policies.
| | - |  | ----------------------------------------------------------------------------------------------------------------



|Our accounting
policy related to the annual impairment test for goodwill and other  indefinite-lived
intangibles is based on  numerous  estimates.  We believe that the  accounting  estimates
related to the  recoverability  of the carrying value of goodwill and  intangible assets
are critical accounting estimates because:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(1) The valuation
is inherently  judgmental  and highly  susceptible to change from period to period
because it requires us to  make  assumptions  about future supply and demand related to
our individual  business units,  future sales prices and what cost savings  will be
achievable;
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) The value of
the  benefits  and savings that we expect to realize as a result of the  efficiency
improvement  program are  inherently subjective;  (3) We  determine  the fair value of
the  reporting  units  using a weighted  average  cost of capital as the rate to discount
estimated  future cash flows.  This rate may not be indicative of actual rates obtained
in the market,  if  incremental  borrowings are  necessary; and
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) The impact of
an impairment charge could be material to our financial statements.
|-------------------------------------------------------------------------------------



|If we fail to meet
our  forecasted  sales  levels,  fail to achieve  our  anticipated  cost  reductions,  or
if weak  economic  conditions  prevail in our primary markets,  the estimated fair values
of our reporting units may be adversely  affected,  resulting in  impairment charges.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As of September
30, 2003, upon completion of the annual impairment  assessment,  based on approved
updated  forecasted plans,  we recognized an impairment loss of 205 million related
to the Metso Minerals business area.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 39 | 
| | -- | 



---





|U.S. GAAP
|---------



|Under U.S. GAAP, we have a
      significant amount of goodwill and brand names related to acquisitions in
      prior years that, in accordance with SFAS 142, are no longer being amortized.
      The goodwill is tested in a two-step process. The first step is performed
      annually or as necessary based on the criteria and using the same methodology
      discussed above under Finnish GAAP. The second step requires us to allocate
      the excess of the fair value determined in Step 1 to the assets and liabilities
      of the reporting unit being tested. In order to complete this step, we must
      make estimates regarding the valuation of our assets and liabilities. These
      estimates may not reflect the eventual value recognized related to these
      items. The estimates are based upon assumptions about replacement cost of
      specific items, our intended use for our assets and, in the case of intangible
      assets, detailed calculations to estimate the fair value of such assets.
      These calculations include significant estimates made by management including
      the same estimates as described above regarding the valuation process for
      goodwill. As of December 31, 2003, under U.S. GAAP we had 561 million
      of goodwill remaining after recording an impairment of 206 million
      relating to Metso Minerals businesses. In addition, an impairment charge
      on brand names amounting to 13 million was recognized in 2003. Changes
      to these underlying assumptions could have resulted in a significantly different
      amount of impairment recorded for U.S. GAAP.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Reserve for Warranty Costs
|--------------------------



|Our warranty
reserve is based on the history of past  warranty  costs and claims for machines and
equipment  under  warranty.  The usual  warranty  period is 12 months from the date of
customer  acceptance of the delivered  equipment.  For larger  projects,  the  average
warranty  period is two years.  For sales  involving new  technology and long-term
delivery  contracts,  additional  warranty  reserves can be  established on a case by
case basis to take into account the  potentially  increased  risk.  While we believe that
our  warranty  reserve is adequate and that the judgment  applied is  conservative,  the
amounts  estimated to become due and payable  could  differ  materially  from what will
actually  transpire in the future.  Actual costs of claims incurred or the number of
claims incurred  could significantly differ from the amounts assumed to estimate this
reserve.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Restructuring Costs
|-------------------



|At times, we
record  restructuring  provisions as a result of programs that are implemented
throughout our operations.  These  provisions  are  recorded in order for us to
summarize  the  impacts of the  programs  and  separate  these  costs from our  recurring
operations.  When the decisions are made to undertake restructuring activities,
management develops a formal plan and presents this to  the board of directors for
approval.  Once the plan is approved,  management  raises a valid expectation in those
affected that it will  carry out the  restructuring  by starting to implement  that plan
or announcing  its main  features to those  affected by it. The costs  included in a
provision  for  restructuring  are only those costs that are either  incremental  and
incurred as a direct  result of the  plan, or are the result of a continuing  contractual
obligation with no continuing  economic  benefit to us, or a penalty  incurred to  cancel
the contractual obligation.  These costs are estimated based on numerous significant
assumptions including,  but not limited to,  the following assumptions:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(1) Estimated
number of employees to be terminated in order to carry out managements plans;
|--------------------------------------------------------------------------------------------



|(2) Estimated
level of reduction of production capacity based on projected future production levels;
|----------------------------------------------------------------------------------------------------



|(3) Approximate
termination costs for specific contracts, leases, etc.; and
|---------------------------------------------------------------------------



|(4) Estimated
write-downs of asset values based on revised future cash flow projections.
|----------------------------------------------------------------------------------------



| | 40 | 
| | -- | 



---





|We believe that
the calculation of the amount recorded as a restructuring cost is a critical accounting
policy because:
|-----------------------------------------------------------------------------------------------------------------------

| |  |  | Although
management  has  devised a formal  plan,  the plan has not yet been  fully  implemented
at the time the  expense is  recorded.  There could be significant changes to the plan
and associated costs upon completion of the measures included in  the plan.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
estimated reduction in capacity for specific  manufacturing  plants is based on managements
anticipated future levels of  production  based on estimated  future order intake.  Final
outcome could differ from projected  amounts due to changes in  the overall market
conditions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Estimated
write-downs of asset values are based on calculations that are inherently  subjective.
These calculations  include  assumptions of future cash flows to be generated from the
assets,  estimated  growth rates and estimated  discount rate of  the future cash flows,
as well as an overall assurance regarding the intended use of these assets.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under U.S. GAAP, a liability
      for a cost associated with an exit or disposal activity is recognized when
      the liability is incurred, and can be measured at fair value. These costs
      include, but are not limited to, one-time benefits provided to current employees
      who are involuntary terminated and costs to terminate contracts that are
      not capital leases. If employees are required to render service until they
      are terminated in order to receive the termination benefits, the cost under
      U.S. GAAP is recognized ratably over the future service period.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Pensions
|--------



|In accordance with
U.S. GAAP, we determine our pension benefit expense based on assumptions that include the
following:
|-----------------------------------------------------------------------------------------------------------------------



|(1) a weighted
average  expected  return on plan  assets.  Actual  return on plan  assets may differ
significantly  based on  market activity.
|----------------------------------------------------------------------------------------------------------------------------------------------



|(2) an assumed
discount  rate to be used in the  calculation  of the current  year  pension  expense
and  pension  liability  balance. This rate may not be indicative of actual rates
realized in the market.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3)  estimated
rates of future pay  increases.  Actual  increases  may not  reflect  actual  future
increases.  Based on the  significant  change in the  Companys  structure and the
uncertainty  of the global  market  place,  these  estimates are difficult to  project.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The actuarial experience that differs from our assumptions
      and changes in our assumptions can result in gains and losses that are not
      yet recognized in our consolidated financial statements. We recognize amortization
      of any unrecognized gain or loss as a component of our pension expense if,
      as of the beginning of the year, such unrealized net gain or loss exceeds
      10 percent of the greater of (1) the projected benefit obligation or (2)
      the market-related value of the plans assets. In such case, the amount
      of amortization expense we recognize is the resulting excess, divided by
      the average remaining service period of active employees expected to receive
      benefits under such plan. Pension benefit expense was 38 million in
      2003 and 42 million in 2002. It is based on the expected return on
      plan assets of 7.9 percent for 2003 and 8.0 percent for 2002. A one percent
      increase in the expected return on plan assets would have reduced pension
      benefit expense by approximately 1.6 million, and a one percent decrease
      in the expected return on plan assets would have increased pension benefit
      expense by approximately 1.6 million for the year ended December 31,
      2003.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 41 | 
| | -- | 



---





|Results of Operations
|---------------------



|In January 2001,
we restructured our internal  organization in a manner that caused the components of our
reportable  segments  to change. As a result of this restructuring,  our reportable
segments are currently Metso Paper, Metso Minerals,  Metso Automation and  Metso
Ventures.  In March 2002, Metso  Panelboard,  comprising our panelboard  operations,
which were carried out through Metso Paper,  was  transferred  to Metso  Ventures.  In
October 2003, we  transferred  the foundry  operations of Metso Paper and Metso Minerals
into  Metso Ventures.  The financial  information discussed below reflects the
above-mentioned  restructurings.  In January 2004, we sold the  Converting  business,
previously  part of Metso Paper,  which is in this annual report still reported
separately  under  Discontinued  Operations.  See  Item  4.  Information  on  the
CompanyCorporate  Structure for a more  detailed  description  of  our
corporate  restructuring.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The table below
sets forth our net sales by business area for the three most recent years in accordance
with Finnish GAAP:
|--------------------------------------------------------------------------------------------------------------------------

|                                                      | Year ended December
      31,
|----------------------------------------------------- | -----------------------------
|                                                      | 2001                         
|                                                      | ( in millions)              
|Metso Paper                                           | 2,180                        
|                                                      |                              
|Metso Minerals                                        | 900                          
|                                                      |                              
|Metso Automation                                      | 693                          
|                                                      |                              
|Metso Ventures                                        | 554                          
|                                                      |                              
|Intra Metso Net Sales                                 | (160                         
|                                                      |                              
|                                                      |                              
|Continuing Operations                                 | 4,167                        
|                                                      |                              
|Discontinued Operations
         Converting Equipment | 176                          
|                                                      |                              
|                                                      |                              
|Metso Total                                           | 4,343                        
|                                                      |                              



|The table below
sets forth our operating  profit  (loss) by business  area for the three most recent
years in accordance  with  Finnish GAAP:
|---------------------------------------------------------------------------------------------------------------------------------------------

|                                                      | Year ended December
      31,
|----------------------------------------------------- | -----------------------------
|                                                      | 2001                         
|                                                      | ( in millions)              
|Metso Paper                                           | 165                          
|                                                      |                              
|Metso Minerals                                        | 12                           
|                                                      |                              
|Metso Automation                                      | 17                           
|                                                      |                              
|Metso Ventures                                        | 33                           
|                                                      |                              
|Corporate Headquarters and other                      | 16                           
|                                                      |                              
|                                                      |                              
|Continuing Operations                                 | 243                          
|                                                      |                              
|Discontinued Operations
         Converting Equipment | 3                            
|                                                      |                              
|                                                      |                              
|Metso Total                                           | 246                          
|                                                      |                              



| | 42 | 
| | -- | 



---





|Results of Operations for the Year Ended
December 31, 2003, compared to the Year Ended December 31, 2002
|--------------------------------------------------------------------------------------------------------



|Net Sales for Continuing Operations
|-----------------------------------



|The Group. In 2003,
      our total consolidated net sales were 4,250 million, compared to net
      sales of 4,691 million in 2002, representing a decrease of 441
      million, or 9.4 percent. Metso Paper accounted for 38 percent, Metso Minerals
      37 percent, Metso Automation 12 percent and Metso Ventures nine percent
      of our net sales. Converting accounted for four percent of our net sales.
      In 2003, 88 percent of our net sales or 3,724 million were derived
      from exports and international operations, compared to 92 percent or 4,320
      million in 2002. Our order intake in 2003 amounted to 4,256 million,
      representing a decrease of 390 million, or 8.4 percent, from 4,646
      million in 2002. Our order backlog as of December 31, 2003 was 1,505
      million, representing a decrease of 84 million, or 5.3 percent, from
      1,589 million as of December 31, 2002.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Paper. In
2003, net sales of Metso Paper were 1,651 million, compared to net sales of
1,778 million in 2002, representing a decrease of 127 million, or 7.1
percent. The decline was due to the unfavorable market situation, which affected the
sales volume. Aftermarket activities accounted for 34 percent of Metso Papers net
sales in 2003, compared to 28 percent in 2002. The increase was mainly due to the
redefined scope of aftermarket in 2003. The figure now also includes process
improvements. Metso Papers order intake in 2003 amounted to 1,710 million,
representing an increase of 99 million, or 6.1 percent, over 1,611 million
in 2002. The increase reflects the good order intake in China. Metso Papers
order backlog as of December 31, 2003 amounted to 784 million, representing an
increase of 49 million, or 6.7 percent, over 735 million as of December 31,
2002.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Minerals.
In 2003, net sales of Metso Minerals were 1,637 million, compared to net sales of
1,804 million in 2002, representing a decrease of 167 million, or 9.3
percent. The decline was primarily due to weak demand in the North American markets
and the lack of big mining projects. Also exchange rate changes, mainly the weakening
U.S. dollar had a negative impact on Metso Minerals business. Aftermarket
activities accounted for 44 percent of Metso Minerals net sales in 2003, compared
to 42 percent in 2002. Metso Minerals order intake in 2003 amounted to 1,594
million, representing a decrease of 254 million, or 13.7 percent, from 1,848
million in 2002. Metso Minerals order backlog as of December 31, 2003 amounted to
397 million, representing a decrease of 71 million, or 15.2 percent, from
468 million as of December 31, 2002.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Automation.
In 2003, net sales of Metso Automation were 531 million, compared to net sales of
622 million in 2002, representing a decrease of 91 million, or 14.6
percent. The decrease was largely due to the divestitures of Network Management
Solutions and CPS Electronics that were completed during 2003. Aftermarket activities
accounted for 25 percent of Metso Automations net sales in 2003, compared to 23
percent in 2002. Metso Automations order intake in 2003 amounted to 531
million, representing a decrease of 112 million, or 17.4 percent, from 643
million in 2002. Metso Automations order backlog as of December 31, 2003
amounted to 145 million, representing a decrease of 40 million, or 21.6
percent, from 185 million as of December 31, 2002. The decrease in order backlog
was due to the two divestitures. Excluding the order backlog of the divested
companies as of December 31, 2002, Metso Automations order backlog as of
December 31, 2003 was approximately at the same level as the order backlog as of
December 31, 2002.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Ventures.
In 2003, net sales of Metso Ventures were 370 million, compared to net sales
of 446 million in 2002, representing a decrease of 76 million, or 17.0
percent. The decrease was due to the lower volumes in both Metso Drives and Valmet
Automotive. Metso Drives volume decrease was due to the divestment of Metso
Hydraulics that was completed in January 2003 and, more importantly, the low wind
turbine gear deliveries in the first half of 2003. Valmet Automotives sales
decreased in 2003 as the manufacture of Saab cars ceased at the beginning of May 2003,
and the manufacturing of Porsche cars decreased in 2003 from the level of 2002. Sales
of Metso Panelboard increased significantly in 2003 from the level of 2002 due to the
positive development of sales in Asia. Sales of Foundries in 2003 were almost at the
2002 level. Metso Ventures order intake in 2003 amounted to 398 million,
representing a decrease of 70 million, or 15.0 percent, from 468 million in
2002. Metso Ventures order backlog amounted to 175 million as of December
31, 2003, representing an increase of 21 million, or 13.6 percent, over 154
million as of December 31, 2002.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net Sales for Discontinued Operations
|-------------------------------------



|Discontinued
Operations.  In 2003, net sales of Converting were 183 million,  compared to net
sales of 160 million in 2002,  representing an increase of 23 million,  or
14.4 percent.  Convertings order intake
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 43 | 
| | -- | 



---





|amounted to 144 million in 2003,
representing a  decrease  of 52  million,  or 26.5  percent,  from 196
million in 2002.  Convertings  order  backlog  amounted to 59 million as of
December 31, 2003, representing a decrease of 43 million, or 42.2 percent, from
102 million as of December 31, 2002.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Operating Profit/(Loss) for Continuing Operations
|-------------------------------------------------



|The Group. In
2003, our consolidated operating loss was 229 million, compared to an operating
profit of 167 million in 2002, representing a decrease of 396 million. The
operating loss included goodwill impairment of 205 million in Metso Minerals. It
also included 103 million in restructuring expenses related to the efficiency
improvement program. Other factors negatively affecting the operating performance
were the lower sales volume, the strengthening of the euro, the lower margins in Metso
Papers large projects in 2003 compared to 2002, and the continued tight
competition related to Metso Minerals crushing and screening equipment market.
In 2003, cost of goods sold amounted to 3,211 million (3,425 million in
2002), which represented 75.6 percent of net sales in 2003, up from 73.0 percent in
2002. Our operating margin decreased to negative 5.4 percent in 2003 from positive
3.6 percent in 2002. The operating loss included net nonrecurring expenses of 106
million, which included 15 million in income from divestitures and sales of
shares, 103 million in restructuring expenses related to the efficiency
improvement program, and 18 million in other nonrecurring expenses.
Furthermore, the operating loss included a goodwill impairment of 205 million made
in Metso Minerals.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Paper. In
2003, the operating profit of Metso Paper was 25 million, compared to an
operating profit of 115 million in 2002, representing a decrease of 90
million, or 78.3 percent. Metso Papers operating margin decreased to 1.5
percent in 2003 from 6.5 percent in 2002. Profitability was weakened by lower
margins in large projects compared to 2002, under-utilization of production
capacity and the strengthening of the euro. The operating profit also includes 36
million of nonrecurring expenses due to the efficiency improvement program.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Minerals.
In 2003, the operating loss of Metso Minerals was 235 million, compared to an
operating profit of 50 million in 2002, representing a decrease of 285
million. Metso Minerals operating margin decreased to negative 14.3 percent in
2003 from positive 2.7 percent in 2002. The operating loss included goodwill
impairment of 205 million due to the continued weak market situation in rock and
minerals processing and unfavorable exchange rate movements. The positive effects of
the integration of Svedala into Metso Minerals were offset by the effect of exchange
rate changes and the weak market situation. In addition, profitability was weakened
by the strengthening of the euro and the weak market situation in crushing and screening,
as well as in minerals processing. The operating loss included nonrecurring expenses of
66 million of which 55 million relates to the efficiency improvement program.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Automation.
In 2003, the operating profit of Metso Automation was 28 million, compared to an
operating profit of 16 million in 2002, representing an increase of 12
million, or 75.0 percent. Metso Automations operating margin increased to 5.3
percent in 2003 from 2.6 percent in 2002. This improvement was due to the measures
taken to streamline the cost structure in 2002 and 2003. During 2003, process
automation systems and the North American operations improved their profitability.
The operating profit included nonrecurring income of 11 million from
divestitures of Network Management Solutions in February 2003, and CPS Electronics in
September 2003, and nonrecurring expenses of 7 million from costs related to the
efficiency improvement program.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Ventures. In
      2003, the operating loss of Metso Ventures was 9 million, compared
      to an operating profit of 20 million in 2002, representing a decrease
      of 29 million. Metso Ventures operating margin decreased to
      negative 2.4 percent in 2003 from positive 4.5 percent in 2002. Metso Panelboard
      improved its performance from 2002 but, due to the nonrecurring costs of
      4 million related to the combining of two units in Germany as part
      of the corporate-wide efficiency improvement program, the year 2003 resulted
      in a loss. Metso Drives made an operating profit in 2003 but the operating
      profit was clearly lower than the operating profit in 2002 due to the low
      volumes in early 2003 and the launching cost of new products. Foundries
      were at a break-even level in 2003. Valmet Automotive made an operating
      loss in 2003, a significant weakening from 2002, due to over 50 percent
      decrease in car delivery volumes as well as a 4 million reserve for
      possible additional costs in 2004 due to the difficult employment situation.
      Approximately one-half of Valmet Automotives personnel were laid off
      after the Saab manufacture ended in May 2003.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 44 | 
| | -- | 



---





|Operating Loss for Discontinued Operations
|------------------------------------------



|Discontinued
Operations. In 2003, the operating loss of Converting was 4 million compared
to the operating loss of 9 million in 2002. Convertings operating margin
was negative 2.2 percent in 2003, a slight improvement from negative 5.6 percent in
2002.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Income/(Loss) before Extraordinary Items
and Income Taxes
|---------------------------------------------------------



|In 2003, our loss
before  extraordinary  items and income taxes was 303 million,  compared to an
income before  extraordinary  items and income taxes of 93 million in 2002. There
were no extraordinary items in 2003 and 2002.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Financial income
for 2003 was 8 million,  compared to 17 million for 2002, representing a
decrease of 9 million.  Financial  expense for 2003 was 82 million compared
to 91 million in 2002, representing a decrease of 9 million.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our net interest
bearing  liabilities  were  slightly  down at 1,109  million as of December  31,
2003,  compared to 1,118  million as of December 31, 2002.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net Income/(Loss) and Earnings per Share
|----------------------------------------



|Income Taxes. Income
      tax benefits were 44 million in 2003, compared to income tax expenses
      of 26 million in 2002. This was due to the booking of a 51 million
      tax benefit related to the goodwill impairment in Metso Minerals. Most of
      the 205 million goodwill impairment (i.e., 175 million) was
      accepted as tax-deductible, and the corresponding tax benefit of 51
      million reduced the effect of the impairment on the net result.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net Loss. In
2003, we had a net loss of 258 million, compared to a net income of 65
million in 2002. In 2003, we had a loss per share of 1.89, compared to earnings
per share of 0.48 in 2002.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Results of Operations for the Year Ended
December 31, 2002, compared to the Year Ended December 31, 2001
|--------------------------------------------------------------------------------------------------------



|Net Sales for Continuing Operations
|-----------------------------------



|The Group. In 2002,
      our total consolidated net sales were 4,691 million, compared to net
      sales of 4,343 million in 2001, representing an increase of 348
      million, or 8.0 percent. The increase was due to the Svedala acquisition.
      Excluding the effect of the Svedala acquisition, our total consolidated
      net sales in 2002 were lower than in 2001. Metso Paper accounted for 37
      percent, Metso Minerals 38 percent, Metso Automation 13 percent and Metso
      Ventures nine percent of our net sales. Converting accounted for three percent
      of net sales. In 2002, 92 percent of our net sales or 4,320 million
      were derived from exports and international operations, compared to 87 percent
      or 3,764 million in 2001. Our order intake in 2002 amounted to 4,646
      million, representing an increase of 868 million, or 23.0 percent,
      over 3,778 million in 2001. This increase was also due to the acquisition
      of Svedala. Our order backlog as of December 31, 2002 was 1,589 million,
      representing a decrease of 183 million, or 10.3 percent, from 1,772
      million as of December 31, 2001.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Paper. In
2002, net sales of Metso Paper were 1,778 million, compared to net sales of
2,180 million in 2001, representing a decrease of 402 million, or 18.4
percent. The decrease was due to fewer deliveries of large paper making lines in 2002.
Pulping technology deliveries increased slightly in 2002. Aftermarket operations
accounted for 28 percent of Metso Papers net sales in 2002 compared to 26 percent
in 2001. The majority of the decrease in net sales came from Finland and North America.
In 2002, the demand was mainly for rebuilds, tissue and pulping lines. Metso Papers
order intake in 2002 amounted to 1,611 million, representing a decrease of
95 million, or 5.6 percent, from 1,706 million in 2001. Metso Papers
order backlog as of December 31, 2002 amounted to 735 million, representing a
decrease of 214 million, or 22.6 percent, from 949 million as of December 31,
2001.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Minerals. In 2002,
      net sales of Metso Minerals were 1,804 million, compared to net sales
      of 900 million in 2001, representing an increase of 904 million,
      or 100.4 percent. The increase was due to the Svedala acquisition in September
      2001. Excluding the effect of the Svedala acquisition, Metso Minerals
      net sales were lower in 2002 than in 2001. Aftermarket operations accounted
      for 42 percent of Metso Minerals
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 45 | 
| | -- | 



---





|net sales in 2002 compared to 35 percent in 2001. Svedala
      had a higher portion of aftermarket operations than Metso Minerals prior
      to the acquisition, which explains the increase from 2001. Metso Minerals
      order intake in 2002 amounted to 1,848 million, representing an increase
      of 986 million, or 114.4 percent, over 862 million in 2001.
      Metso Minerals order backlog as of December 31, 2002 amounted to 468
      million, representing a decrease of 23 million, or 4.7 percent, from
      491 million as of December 31, 2001.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Automation.
In 2002, net sales of Metso Automation were 622 million, compared to net sales of
693 million in 2001, representing a decrease of 71 million, or 10.2
percent. The decrease was largely due to reduced deliveries of automation systems for
the pulp and paper industry and tougher price competition. Metso Automations
products retained their good position in its principal markets in Europe and North
America and increased their position in China. Metso Automations order intake
in 2002 amounted to 643 million, representing a decrease of 33 million,
or 4.9 percent, from 676 million in 2001. The demand for Metso Automations
products was satisfactory, except in the United States where the market was weak the
entire year. Metso Automations order backlog as of December 31, 2002 amounted
to 185 million, representing an increase of 3 million, or 1.6 percent,
over 182 million as of December 31, 2001.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Ventures. In
      2002, net sales of Metso Ventures were 446 million, compared to net
      sales of 554 million in 2001, representing a decrease of 108
      million, or 19.5 percent. The decrease was due to the significant decline
      in the sales of Metso Panelboard. The sales of Metso Drives and Valmet Automotive
      also decreased in 2002 compared to the level of 2001 whereas sales of Foundries
      increased slightly. Metso Ventures order intake in 2002 amounted to
      468 million, representing a decrease of 28 million, or 5.6 percent,
      from 496 million in 2001. Metso Ventures order backlog amounted
      to 154 million as of December 31, 2002, representing an increase of
      25 million, or 19.4 percent, over 129 million as of December
      31, 2001. The increase was due to the strength of Metso Panelboard orders
      received in the second half of the year 2002.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net Sales for Discontinued Operations
|-------------------------------------



|Discontinued
Operations. In 2002, net sales of Converting were 160 million, compared to net
sales of 176 million in 2001, representing a decrease of 16 million, or 9.1
percent. Convertings order intake amounted to 196 million in 2002,
representing an increase of 27 million, or 16.0 percent, over 169
million in 2001. Convertings order backlog amounted to 102 million as of
December 31, 2002, representing an increase of 30 million, or 41.7 percent, over
72 million as of December 31, 2001.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Operating Profit/(Loss) for Continuing Operations
|-------------------------------------------------



|The Group. In
2002, our consolidated operating profit was 167 million, compared to an
operating profit of 246 million in 2001, representing a decrease of 79
million, or 32.1 percent. The decrease was due to the weakened market situation in
Germany and the United States. In addition, the operating losses of Metso Panelboard
and Converting as well as the extensive integration carried out in Metso Minerals
weakened profitability. Cost of goods sold increased to 3,425 million in 2002
from 3,200 million in 2001 as a result of increased net sales, and decreased
as a percentage of net sales to 73.0 percent in 2002 from 73.7 percent in 2001. Our
operating margin decreased to 3.6 percent in 2002 from 5.7 percent in 2001.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Paper. In
2002, the operating profit of Metso Paper was 115 million, compared to an
operating profit of 165 million in 2001, representing a decrease of 50
million, or 30.3 percent. The decrease was primarily due to the small number of
deliveries at the beginning of the year 2002 and under-utilization of production
capacity. Metso Papers operating margin decreased to 6.5 percent in 2002 from 7.6
percent in 2001. The operating profit also included 6 million of restructuring
costs related to actions taken in Sweden and the United States.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Minerals.
In 2002, the operating profit of Metso Minerals was 50 million, compared to an
operating profit of 12 million in 2001, representing an increase of 38
million. The increase was due to the Svedala acquisition, offset by the effects of
extensive integration carried out in Metso Minerals following the Svedala acquisition.
Metso Minerals operating margin increased to 2.7 percent in 2002 from 1.4 percent
in 2001. The operating profit included a 13 million restructuring cost due to
the closing of the plants in Clintonville and Vespasiano, Brazil and the restructuring
of the Milwaukee plant in Wisconsin.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Automation. In
      2002, the operating profit of Metso Automation was 16 million, compared
      to an operating profit of 17 million in 2001, representing a decrease
      of 1 million, or 5.9 percent. Metso Automations operating margin
      increased to 2.6 percent in 2002 from 2.5 percent in 2001. Profitability
      was weakened by tougher price competition and under-utilization of production
      capacity. The operating profit
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 46 | 
| | -- | 



---





|included 3 million in business
restructuring costs from Finland and the  United States,  which reduced  the number of
Metso Automations personnel by  approximately 400.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Ventures.
In 2002, the operating profit of Metso Ventures was 20 million, compared to an
operating profit of 33 million in 2001, representing a decrease of 13
million, or 39.4 percent. The decrease was primarily due to lower profitability in
Metso Panelboard and the additional nonrecurring expenses of 8 million taken in
the business due to the restructuring. Metso Drives improved its operating profit in
2002 from the level of 2001 whereas operating profit was somewhat lower in Valmet
Automotive. Foundries showed a slight increase in operating profit. Metso Ventures operating
margin decreased to 4.5 percent in 2002 from 6.0 percent in 2001.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Operating Loss for Discontinued Operations
|------------------------------------------



|Discontinued Operations.
      In 2002, the operating loss of Converting was 9 million compared to
      the operating profit of 3 million in 2001. Convertings operating
      margin decreased to negative 5.6 percent in 2002 from positive 1.7 percent
      in 2001.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Income before Extraordinary Items and
Income Taxes
|--------------------------------------------------



|In 2002, our
income before extraordinary items and income taxes was 93 million, compared to
222 million in 2001.
|------------------------------------------------------------------------------------------------------------------



|Financial  income
for 2002 was 17  million,  compared  to 41  million  for 2001,  representing
a decrease  of 24  million.  Financial expense for 2002 was 91 million
compared to 65 million in 2001, representing an increase of 26 million.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our net interest
bearing  liabilities  decreased to 1,118 million as of December 31, 2002,  compared
to 1,251 million as of  December 31, 2001.
|-------------------------------------------------------------------------------------------------------------------------------------------------



|Extraordinary Items
|-------------------



|Income and
expenses arising from  significant  transactions  considered  outside the normal course
of business were entered in  extraordinary  items.  In 2002,  there were no
extraordinary  items.  In 2001, the  extraordinary  expenses of 8 million  included
an  inventory adjustment in Metso Engineerings German operations and restructuring
adjustments in Metso Automations U.S. operations.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net Income and Earnings per Share
|---------------------------------



|Income Taxes.
Income taxes amounted to 26 million in 2002, compared to income taxes of 72
million in 2001. In 2002, our effective tax rate was 28 percent compared to the
effective tax rate of 32 percent in 2001. The tax rate was exceptionally low in 2002
because the accumulated losses of the Converting Equipment group became tax
deductible already in 2002 when we signed a memorandum of understanding relating to
its sale. On the other hand, the tax rate was raised by increased amortization of
goodwill due to the Svedala acquisition.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net Income. In
2002, we had net income of 65 million, compared to a net income of 141
million in 2001. In 2002, we had earnings per share of 0.48. In 2001, we had
earnings per share, excluding the above mentioned extraordinary items, of 1.09.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Principal Differences between Finnish GAAP
and U.S. GAAP
|--------------------------------------------------------



|Our consolidated
financial statements are prepared in accordance with Finnish GAAP.
|-----------------------------------------------------------------------------------



|Our net loss in 2003 under
      Finnish GAAP was 258 million, compared to net income of 65 million
      in 2002 and net income of 141 million in 2001. Under U.S. GAAP, Metso
      would have reported net loss of 245 million in 2003, compared to net
      income 113 million in 2002 and net income 127 million in 2001.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The principal
differences  between Finnish GAAP and U.S. GAAP that affect our net loss, as well as our
shareholders equity,  relate to the business  combination of Valmet and Rauma, the
acquisition of Svedala,  the  non-amortization of goodwill under U.S. GAAP  and the
recognition of goodwill  impairment.  See Note 32 to
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 47 | 
| | -- | 



---





|our consolidated  financial  statements
included elsewhere in this annual  report for a description of the principal  differences
between Finnish GAAP and U.S. GAAP.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Liquidity and Capital Resources
|-------------------------------



|In 2003,  net cash
provided by operating  activities  amounted to 146  million,  compared to 252
million and 235 million in  2002 and 2001,  respectively.  The decrease from 2002
was due to the lower  profitability and bigger amount of net working capital tied  in
operations  in 2003.  The bigger  amount of net working  capital tied in operations in
2003 was mainly due to Metso Papers  ongoing  project  deliveries and their timing
resulting in an increase in the working capital being tied up in projects  accounted for
according  to the POC method.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net cash from
operating  activities in 2003 was  sufficient to finance our investing  activities.  Net
cash used in investing  activities  amounted to 80 million in 2003,  compared to
14  million and 943  million in 2002 and 2001,  respectively.  The net cash
used in investing  activities  in 2003 included  gross capital  expenditures  of 130
million while net capital  expenditures  were 80  million.  The net cash used in
investing  activities in 2002 consisted of gross capital expenditures of 194
million offset by proceeds  from the sale of assets  amounting to 181 million
(primarily  divested shares and divested  businesses).  In 2001, the high amount of  net
cash used in investing activities was attributable to the acquisition of Svedala.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net cash used in
financing  activities amounted to 121 million in 2003, compared to net cash used in
financing  activities of  233 million in 2002 and net cash provided by financing
activities of 433 million in 2001.  Dividends paid amounted to 82 million in
both 2003 and 2002. Our net interest  bearing  liabilities  (interest  bearing
liabilities  less cash and cash  equivalents,  interest  bearing loans receivable and
interest bearing accounts  receivable)  amounted to 1,109 million in 2003, compared
to 1,118 million and  1,251 million in 2002 and 2001,  respectively.  In
2002, the decrease in our net interest bearing liabilities was due to cash released
through  asset sales and cash provided by  operations.  Due to the weak  profitability
in 2003,  the decrease in net interest  bearing  liabilities was only marginal. We will
continue to take further measures to decrease net interest bearing liabilities in 2004.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our liquid assets (cash and
      cash equivalents) amounted to 130 million as of December 31, 2003,
      compared to liquid assets of 190 million as of December 31, 2002 and
      liquid assets of 212 million as of December 31, 2001.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our financing is
mainly  long-term and long-term debt accounted for 75 percent of our total
interest-bearing  debt at the end  of 2003.  The  long-term  debt,  consisting  primarily
of bonds and loans from  financial  and pension  institutions,  amounted to 957
million,  1,020 million and 1,179 million as of December 31, 2003, 2002 and
2001,  respectively.  The bonds consisted  principally of  two bond loans with the
principal  amounts of U.S.$200  million (158 million) and 500 million.  The
U.S. dollar  denominated bond was  issued in the United States in December 1997 and
registered with the U.S.  Securities and Exchange  Commission (the SEC).  It
matures  in 2007 and bears a fixed annual interest rate of 6.875 percent.  The euro
denominated bond was issued in December 2001. It matures in  2006 and carries a fixed
annual  interest rate of 6.25 percent.  The bond is part of the euro  medium-term  note
program of 1 billion,  which we  established in December 2000. The total amount
outstanding  under the euro  medium-term  note program was 535 million as of
December 31, 2003.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our loans from
financial  institutions  consist of international bank borrowings with either fixed or
variable interest rates.  A major share of the loans are either U.S. dollar or euro
denominated.  The interest rates vary from 1.69 percent to 9.50 percent,  and  the loans
have maturities ranging from 2004 to 2011.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In July 1998, we
entered into a syndicated  seven-year  revolving credit facility with a group of
international banks for 230  million.  The facility had been undrawn at the end of
December 31, 2002. In August 2000,  we obtained  loan  facilities of 1.2 billion
from a syndicate of fifteen  international  banks to finance the  acquisition  of
Svedala.  The  short-term  portion of the  facilities  expired in February 2002, and the
long-term  revolving  credit portion of 400 million was set to expire in 2005. Of
the facility,  98  million had been utilized as of December 31, 2002. In June 2003,
we entered into a new five-year  revolving  credit facility  agreement  with a syndicate
of 14 banks.  It replaced the earlier  mentioned two revolving  credit  facilities:
230 million credit facility from  1998 and the remaining  400 million of the
credit  facility  from year 2000,  while  extending the maturity of the credit
commitments  until 2008. As of December 31, 2003, 66 million of this facility was
drawn.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As of December 31,
2003,  the undrawn  committed  long-term  credit  facilities  of Metso totaled 384
million and the undrawn  committed short-term credit facilities amounted to 100
million.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 48 | 
| | -- | 



---





|We have a
short-term euro commercial paper program of 150 million and a domestic  commercial
paper program  amounting to 300  million with a group of Finnish and  international
banks in each case.  As of December 31, 2003,  we had not drawn any funds under the  euro
commercial  paper program.  The total amount undrawn under the domestic  commercial
paper program was 38 million as of December  31, 2003.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Management
believes that our financial situation is stable,  inasmuch as  interest-bearing  debt is
mainly long-term debt and  there are adequate  long-term and short-term  financing
reserves and facilities for our current scope of operations.  Cash in bank and  lines of
credit are sufficient to cover fluctuations in the cash flows of the businesses.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The ratio of our
net interest  bearing  liabilities  to equity was 107.7  percent as of December  31,
2003,  compared to 80.6  percent and 84.8 percent as of December 31, 2002 and 2001,
respectively.  The increased gearing ratio resulted from the acquisition of  Svedala in
September  2001.  Initially,  our target was to have a gearing ratio of below 50 percent
by the end of first quarter of 2003  through increasing operating cash flow,  releasing
working capital tied up in inventories and accounts  receivable,  and from disposing
non-core businesses.  However, the current market situation did not allow us to achieve
our target.  Nonetheless,  we are attempting to  actively reduce our gearing through
improved profitability in operations, and thus cash flow, as well as continued
divestitures.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As of December
31,  2003,  the  shareholders equity,  distributable  funds and total  assets of
the parent  company,  Metso  Corporation,  amounted to 1,153 million,  616
million and 2,911 million,  respectively.  As of December 31, 2003, the
shareholders equity,  distributable funds and total assets of Metso Corporation and
its consolidated  subsidiaries  amounted to 1,024 million, 510  million and
3,823 million, respectively.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On June 27, 2003,
Standard & Poors Rating Service (S&P)  downgraded our
short-term loan rating from A-2 to A-3 and lowered  the outlook on our BBB long-term
rating from stable to negative.  After placing our long-term rating under credit watch on
February 4,  2004,  and our  short-term  rating on  February  16,  2004,  S&P
lowered  our  long-term  rating to BB+ with a stable  outlook and the  short-term  rating
to B on March 3, 2004.  Additionally,  S&P lowered the ratings of our outstanding
bonds and euro  medium-term  note  program to BB. On June 23, 2003,  Moodys
Investor  Service  (Moodys)  downgraded  our  long-term  rating from
Baa2 to Baa3.  After  placing our rating under credit review with negative  implications
on February 5, 2004,  Moodys  lowered our long-term  rating to Ba1  with a negative
outlook on February 17, 2004. These  downgrades may increase the cost of capital
associated with refinancing  existing  debt and interest  payments on any new debt we may
incur.  There are no prepayment  covenants in our financial  contracts that would be
triggered by changes in our credit ratings.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Disclosure about Contractual Obligations
and Commercial Commitments
|-------------------------------------------------------------------



|The table  below
sets forth  aggregated  information  about our  contractual  obligations  and  commercial
commitments  as of  December 31, 2003.
|-------------------------------------------------------------------------------------------------------------------------------------------------

|                                               | Payments Due
      by Period
|---------------------------------------------- | ----------------------------
|                                               | Total                       
|                                               | ( in
      millions)       
|Contractual Obligations                        |                             
|Long-term debt, incl. short-term
      portion | 974                         
|Capital lease obligations                      | 25                          
|Operating leases                               | 158                         
|                                               |                             
|Total contractual cash obligations             | 1,157                       
|                                               |                             



| | 49 | 
| | -- | 



---





|                               | Amount of
      Commitment           
|------------------------------ | -------------------------------------
|                               | Total 
      amounts 
      committed
|                               | ( in
      millions)                
|Other Commercial Commitments   |                                      
|Guarantees                     | 7                                    
|Standby repurchase obligations | 20                                   
|Purchase commitments           | 261                                  
|Other commitments              | 28                                   
|                               |                                      
|Total commercial commitments   | 316                                  
|                               |                                      





|We generally
record the pension  expense of our employees in accordance with local  accounting
practices in the countries in  which our  employees  are provided  with such  benefits.
Under U.S.  GAAP,  pension  expense is recorded on a full  accrual  basis and  reflected
in the income  statement over the working lives of the employees  provided with such
benefits.  The economic and  demographic  assumptions  used in calculating  pension
expense are to be reviewed and updated  periodically to the extent that local market
economic  conditions and demographics change.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The companies within Metso
      have various pension schemes in accordance with the local conditions and
      practices of the countries in which they operate. The schemes are generally
      funded through payments to insurance companies or to trustee-administered
      funds. The pension payments booked in our Finnish GAAP income statement
      amounted to approximately 112 million and 104 million for the
      years ended December 31, 2002, and 2003, respectively. We have also recognized
      under Finnish GAAP an off-balance sheet liability of 13 million of
      unfunded pension liabilities for foreign subsidiaries for each of the years
      ended December 31, 2002 and 2003. Under Finnish GAAP, we have not recognized
      the liability for the Finnish defined pension benefit liability of the TEL-system.
      Under U.S. GAAP, the Finnish pension liability is considered a defined benefit
      plan that is required to be recognized. The pension benefit obligation amounted
      to 102 million as of December 31, 2003.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Capital Expenditure
|-------------------



|Our gross capital
expenditures,  excluding  acquisitions,  amounted to 128 million in 2003, compared
to 193 million and 154  million in 2002 and 2001,  respectively.  For the
preceding  three years,  our capital  expenditures  have  consisted  principally  of
maintenance,  development  and  expansion  of existing  production  capacity,  office and
service  facilities  as well as  information  technology.  In 2004, our net capital
expenditures  are projected to be  approximately  100 million,  which will mainly
be related to  improvements of existing capacity and facilities. We expect to finance the
expenditure with cash flow from operations.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The table below
summarizes our capital expenditures by region, excluding acquisitions, for the periods
indicated:
|-----------------------------------------------------------------------------------------------------------------

|                                    | Year ended
      December 31,
|----------------------------------- | -----------------------------
|                                    | 2001                         
|                                    | ( in
      millions)        
|Finland                             | 81                           
|Other Nordic Countries              | 18                           
|Europe (excluding Nordic Countries) | 17                           
|North America                       | 19                           
|South America                       | 4                            
|Asia-Pacific                        | 14                           
|Rest of the World                   | 1                            
|                                    |                              
|Total                               | 154                          
|                                    |                              



|Our principal
capital  expenditures for 2003 were a new composite roll plant in Oulu,  Finland;  a
TMP/CTMP pilot pulping line  in Anjalankoski,  Finland;  service  technology centers in Järvenpää,
Finland,  and Sorocaba,  Sâo Paulo,  Brazil; a service center in  Raisio, Finland;
and logistics centers in Jyväskylä, Finland, and Shanghai, China.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 50 | 
| | -- | 



---





|Research and Development
|------------------------



|Our research and
technology  development is focused,  in line with our strategy,  on  applications  to
improve the operational  efficiency  of  processes  and  strengthen  life cycle
business.  Rather  than just  buying  machines  and  equipment,  customers  are
increasingly  investing in  competitiveness  based on processes that function  optimally
throughout their life cycle. The products and  services  being  developed for the process
industry  benefit to a large extent from the latest  information  technology and
automation  solutions.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We give high
priority to research and  development  and invested 129 million in research and
development  activities in 2003  (3.0  percent  of 2003 net  sales),  compared  to 156
million in 2002 (3.3  percent of 2002 net sales) and 150  million in 2001 (3.5
percent of 2001 net sales).  This decrease in the level of investment was due to the more
focused  approach in research and development  activities.  At the end of 2003, we had a
total of 1,224  employees  working in the area of research and  development,
representing  a  decrease of 9.3 percent from the end of 2002. Of those  employees,  44
percent,  20 percent,  27 percent,  and seven percent  worked in  Metso Paper,  Metso
Minerals,  Metso  Automation  and Metso  Ventures,  respectively.  Geographically,  our
research and  development  activities are  concentrated in Finland and Sweden,  although
we have significant  research and development  units in North America and  Central Europe
as well.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Following is a
summary of our significant research and development activities by business area:
|-----------------------------------------------------------------------------------------------



|Metso Paper
|-----------



|Metso Paper
develops  complete  processes and supporting  aftermarket  solutions for all  significant
paper,  board and fiber  qualities.  A key target is to improve the  competitiveness  of
customer  processes through  efficiency,  quality,  eco-efficiency  and  optimized life
cycle costs.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In 2003,  Metso
Paper spent  approximately  56 million on research and  development,  compared to
72 million in 2002 and 72  million in 2001. This decrease in the level of
expenditure was due to the adjustment of activities to the prevailing  market  situation
and a more focused approach in research and development activities.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We have 12
technology centers that are located in Finland,  Sweden, the United States and Italy.
During 2003, an expansion of  the  technology  center  supporting the  development  of
mechanical  pulp and recycled  fiber  processes at  Anjalankoski,  Finland was
inaugurated.  Also in 2003, a decision was made to centralize  roll cover  development
related to  aftermarket  operations in Finland.  This resulted in the closure of the
technology center in Clarks Summit, Pennsylvania in the United States.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Research and
development  activities  have  increasingly  been focused on the development of rebuild
and process  improvement  concepts for the current installed base. In addition, the
development of recycled fiber treatment processes has continued.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Minerals
|--------------



|In 2003, the research and development
      activities in Metso Minerals focused on enhancing the competitiveness of
      the current product portfolio by efficiency and cost improvements and the
      strengthening of our market position through new product launches.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Minerals
spent  approximately  22 million on research and development in 2003,  compared to
21 million in 2002 and 11  million in 2001.  Despite the cost cutting
measures  implemented  within the business area, the research and development  spending
and  personnel in 2003 remained at the 2002 level.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Technology centers
of Metso Minerals are located in Brazil,  Canada,  Finland,  France,  Germany, New
Zealand,  Sweden and the  United States.
|----------------------------------------------------------------------------------------------------------------------------------------------



|Metso Automation
|----------------



|Metso  Automation
develops  automation and field system  solutions for chosen  process  industry  needs.
In its research and  development,  it is increasingly  emphasizing  the development of
service  business  solutions.  Metso  Automation also cooperates with  other Metso
business areas in this field.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 51 | 
| | -- | 



---





|Metso  Automation
spent  approximately  33 million on research and development in 2003,  compared to
44 million in 2002 and  46 million in 2001. Investments were principally
concentrated in process automation and smart field solutions.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Of the
approximately  300 people working in Metso  Automations  research and development,
the majority is located in Finland  while other key locations are in Canada and the
United States.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Ventures
|--------------



|Metso  Ventures
consists of Metso  Drives,  Metso  Panelboard,  Metso  Powdermet  and Valmet  Automotive.
The  research  and  development  activities of each of these businesses are described
separately below. Metso Ventures spent  approximately 10 million on  research and
development in 2003, compared to 12 million in 2002 and 14 million in 2001.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Drives research
and development aims to create  mechanical  drive solutions,  which fulfill customer
needs in terms of  reliability,  cost and  eco-efficiency.  The activities take place in
two locations in Finland in close co-operation with Metsos other  business areas.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso  Panelboards
research and  development  is focused on improving the  competitiveness  of its machinery
and systems for  wood-based panel  industries:  medium-density  fiberboard (MDF),
particleboard  and  oriented-strand  board (OSB).  Recently,  special  emphasis has been
placed on the  development of the front part of the MDF production  process and
continuous  pressing.  The activities  take place in Metso Panelboard offices in Finland,
Germany and Sweden.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Powdermet
focuses on developing  functionally  tailored  materials and component  technology
solutions for the pulp and  paper as well as the rock and minerals processing
industries,  and selected other process and energy  applications.  The solutions are
largely based on powder metallurgy aiming at developing materials with superior wear and
corrosion resistance characteristics.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Valmet  Automotive
as an independent  contract  manufacturer of high quality  specialty cars focused its
in-house research and  development resources on development of open-top vehicles with
their roof systems, body structures, interior and package.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Foreign Currency Fluctuations
|-----------------------------



|Exchange rate
movements  generally  affect us through the  translation of foreign  subsidiary
revenues,  costs,  profits and  losses into our consolidated  financial  statements
expressed in euros and through their  transaction  impact on the amount of the net  sales
with respect to foreign  currency  revenues  from export  sales of our various
operations.  Exchange  rate  movements  also have  certain competitive effects on our
sales.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Both our
production and sales activities are distributed  throughout  numerous geographic regions
creating exposure to various  currency  risks.  The principal  currencies  that we are
exposed to are the U.S.  dollar,  the euro and the Swedish krona.  In general,
appreciation of the euro relative to the U.S. dollar has an adverse effect on our sales
and operating  profit,  while its  depreciation  has a positive  effect.  A majority  of
our sales in the United  States  have been  supplied  by our U.S.  production  and
aftermarket  facilities  or sourced  locally,  which reduces the direct  impact of euro
 U.S.  dollar  fluctuations  on our  profitability  in that  market.  However,
Metso Paper,  Metso  Automation  and Metso  Minerals all have part of their U.S. sales
based on exports from Europe.  Some of these  sales  face  competitors  with  costs in a
different  currency,  typically  U.S.  based  competitors.  See Item 3. Key
InformationExchange Rates.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our foreign
currency risk management  policy is focused on hedging the foreign currency  exposures
arising from firm sales and  purchase  commitments  and the net  investments in foreign
subsidiaries  to the extent  practicable.  See Item 11.  Quantitative  and
Qualitative  Disclosures  About Market  RiskExchange  Rates and Foreign  Currency
Exposure. We hedge our currency risks with forward  exchange contracts and options.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Foreign  exchange
gains and losses resulted in 2003 in a net loss of 3 million,  compared to a net
loss of 6 million in 2002  and a net gain of 3 million in 2001. Of the total
foreign  exchange gains and losses,  a portion  included in the operating  profit or
loss  amounted  to a net gain of 1  million in 2003,  compared  to a net loss of
3 million in 2002 and to a net gain of 1 million in  2001. The rest of the
foreign exchange gains and losses have been included in the financial items.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 52 | 
| | -- | 



---





|Exchange rate
movements  also impact our assets and  liabilities  denominated in currencies  other than
the euro. We use loans  and receivables,  currency swaps, and forward exchange  contracts
to hedge our equity investments  denominated in non-euro  currencies,  with  maturities
ranging  from less  than one year to seven  years.  We have  also  made  long-term  U.S.
dollar  and pound  sterling  denominated  loans to certain foreign  subsidiaries.  We
hedge the associated  currency risk through  cross-currency  swaps and forward  exchange
contracts.  Foreign exchange  contracts are used to hedge our foreign  currency risk
arising from the short-term  borrowings.  The principal currency for our short-term
borrowings is currently the euro.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Inflation
|---------



|Inflation  in
Finland as measured by the change in the consumer  price index was 0.9 percent in 2003,
1.6 percent in 2002 and  2.6 percent in 2001.  Inflation in Finland did not have a
significant impact on our operating results.  However, a major portion of our
operations,  sales and  production  is performed in countries  with rates of inflation
higher or lower of that in Finland.  Changes in  exchange  rates or interest  rates may
or may not reflect  differences  in inflation  rates.  Quantifying  the  individual  or
combined  effects of these factors on our reported income is therefore not possible.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Adoption of International Financial Reporting
Standards
|-------------------------------------------------------



|In compliance with regulations
      adopted by the European Commission in June 2002, our consolidated financial
      statements will be prepared in accordance with international financial reporting
      standards (IFRS), including international accounting standards
      and interpretations issued by the international accounting standards board
      (IASB), from the beginning of 2005. Finnish GAAP differs in certain significant
      respects from IFRS. Metsos corporate headquarters is preparing to
      transfer to IFRS reporting together with the business areas.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The standards that have a significant
      impact on Metsos income or the recognizing of income and expenses
      are, among others, IAS 10 (Events after the balance sheet date), IAS 19
      (Employee benefits), IAS 37 (Provisions, contingent liabilities and contingent
      assets) and IAS 39 (Financial instruments: recognition and measurement).
      In addition, IASB is preparing Exposure Draft 3 with amendments to standard
      IAS 22 (Business combinations). The draft proposes that, instead of amortization,
      goodwill and other intangible assets would be annually reviewed for impairment.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|New Accounting Standards
|------------------------



|In May 2003, the
FASB issued SFAS 150, Accounting for Certain Financial  Instruments with  Characteristics
of both Liabilities  and Equity  (SFAS 150).  The  statement  establishes  standards  on
how to classify  and measure  certain  financial  instruments  with  characteristics of
both liabilities and equity and requires additional  disclosures  regarding alternative
ways of settling instruments  and the capital  structure of entities  all of whose
shares are mandatory  redeemable.  The  provisions of SFAS 150 were effective for  all
financial  instruments  entered into or modified  after May 31, 2003,  and  otherwise
was  effective for the first interim  period  beginning after June 15, 2003. However,
the guidance applying to mandatorily  redeemable  noncontrolling  interests has been
deferred.  Metso does not expect this statement to have a material impact on its
financial statements.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In April 2003, the
FASB issued SFAS 149,  Amendment of Statement 133 on Derivative  Instruments and Hedging
Activities  (SFAS  149).  SFAS 149 generally  improves  financial  reporting for
derivative  instruments  by requiring  that  contracts  with  comparable  characteristics
be accounted for similarly and by clarifying when a derivative  contains a financing
component that warrants  special  reporting in the statement of cash flows. The guidance
in SFAS 149 was effective  prospectively  for contracts entered into or modified  and for
hedging  relationships  designated  after June 30, 2003.  Metso does not expect this
statement to have a material impact on its  financial statements.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In December 2003,
the Financial  Accounting  Standards Board issued FASB  Interpretation  No.46 R,
Consolidation  of Variable  Interest  Entities  Revised,  which  modifies the scope
exceptions  provided in FIN 46.  Entities  would be required to replace FIN 46
provisions with FIN 46R provisions for all newly created  post-January  31, 2003 entities
as of the end of the first  reporting  period  ending after March 15, 2004. We reviewed
our investment  portfolio,  including associated  companies,  and identified no
investments in  Variable Interest Entities, as defined by FIN 46, which would require
additional adjustment or disclosure in 2003.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 53 | 
| | -- | 



---





|In January 2004,
the FASB issued FASB Staff  Position  (FSP)  106-1,  Accounting  and
Disclosure  Requirements  Related to  Medicare  Prescription Drug,  Improvement and
Modernization Act of 2003 (the Act). This FSP addresses the accounting
implications of  the newly issued Act to an entity that  sponsors a  postretirement
health care plan that provides  prescription  drug  benefits.  This  Act,  signed into
law in December  2003 in the United  States,  introduces  a  prescription  drug benefit
under  Medicare as well as a  federal  subsidy to sponsors of certain  retiree  health
care benefit plans.  The FSP includes an election to defer  accounting for the
implications of this new law until specific  authoritative  guidance to address the
accounting  treatment has been issued.  As such, as  a result of the lack of the
existence of such  guidance,  any  measures  included in these  financial  statements  of
the  accumulated  postretirement  benefit  obligation  (APBO) or net periodic
postretirement  benefit cost in the financial  statements or  accompanying  notes do not
reflect the effects of the Act on the plan.  Authoritative  guidance,  when issued,
could  require a change in previously  reported information.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Off-Balance Sheet Arrangements
|------------------------------



|There are no
off-balance  sheet  arrangements  that have or are  reasonably  likely to have a current
or future effect on our  financial condition,  changes in financial condition,  revenues
or expenses, results of operations,  liquidity, capital expenditures or  capital
resources that is material to investors.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 6. Directors, Senior Management and
Employees
|--------------------------------------------------



|Pursuant to the
Finnish  Companies  Act and our  articles of  association,  our control and  management
is divided  among our  shareholders,  board of directors,  and president and chief
executive officer.  In addition,  we have a corporate executive team, which  assists our
president and chief executive officer in the day-to-day management of the Company.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The business
address for our directors and executive management is P.O. Box 1220, FIN-00101 Helsinki,
Finland.
|--------------------------------------------------------------------------------------------------------------



|Board of Directors
|------------------



|The board of directors of Metso
      Corporation has ultimate responsibility for the management and proper arrangement
      of the operations of the company, and for assuring good corporate governance
      in compliance with applicable legislation. The board of directors decides
      upon matters, which, considering the scope and size of the operations of
      the company, are of major importance. These include the acceptance of the
      goals of the company and the main strategies for achieving them, the acceptance
      of action plans, the definition and acceptance of control policies, the
      acceptance of the organizational structure of the company, and the nomination
      of the president and chief executive officer, his deputy and the members
      of the corporate executive team and the monitoring and evaluating of their
      performance.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our board of
directors  is  composed  of at least  five and no more than  eight  members.  Our board
of  directors  currently  consists of seven members,  each of whom was elected by the
shareholders  at the annual general  meeting of  shareholders on April 15,  2003,  for a
term ending at the following  annual general  meeting of  shareholders.  Our next annual
general  meeting will be held on  April 6, 2004. Board members may be appointed or
removed only by a shareholders resolution at a general meeting.  The following
table  lists the names of the members of our board of directors, possible principal
occupation or employment and their year of birth:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Name               | Position                                                      | Year of Birth
|------------------ | ------------------------------------------------------------- | -------------
|Matti Kavetvuo     | Chairman of the board                                         | 1944         
|Mikko Kivimäki     | Vice chairman of the board                                    | 1939         
|Maija-Liisa Friman | Director; managing director of Vattenfall Oy                  | 1952         
|Heikki Hakala      | Director                                                      | 1941         
|Juhani Kuusi       | Director                                                      | 1938         
|Pentti Mäkinen     | Director; labor representative, Metso Corporation             | 1952         
|Jaakko Rauramo     | Director; chairman of the board, SanomaWSOY
      Corporation | 1941         



|Matti Kavetvuo
has been the chairman of our board of directors since 2003. He was president and chief
executive officer of Pohjola Insurance Group until 2001, when he retired.
Previously he was president and chief executive officer of Valio Ltd. in 1992-1999,
and president and chief executive officer of Orion Corporation in
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 54 | 
| | -- | 



---





|1985-1991.  Mr.  Kavetvuo was employed by
Instrumentarium  Corporation in 1971-1984,  where he served as  president in 1979-1984.
Mr. Kavetvuo is also chairman of the board of directors of Orion  Corporation,  Suominen
Corporation and Workidea Ltd. He is vice chairman of the board of  directors at Kesko
Corporation.  He is also a  member of the board of  directors  of Alma  Media
Corporation,  KCI  Konecranes  International  Plc,  Lännen  Tehtaat  Plc,  Marimekko
Corporation,  Merivaara  Oy,  Perlos  Corporation  and Fair  Foundation.  He  is a member
of the  supervisory  board of The Finnish Fair  Corporation  and Finlands  Post
Corporation.  Mr.  Kavetvuo  holds a Master of Science  degree in Engineering  and  a
Master of Science  degree in Economics and Business Administration.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Mikko Kivimäki
      has been the vice chairman of our board of directors since 1999. He was
      previously president and chief executive officer of Rautaruukki Corporation
      in 1982-2003 and chairman of the board of directors of Rautaruukki Corporation
      in 1985-2001. He also serves as the chairman of the executive board of the
      Finnish Maritime Administration. Mr. Kivimäki holds a Master of Laws
      degree.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Maija-Liisa
Friman has been a member of our board of directors since 2003. Ms. Friman has been
managing director of Vattenfall Oy since 2000. She was appointed as president and
chief executive officer of Aspocomp Group on February 2, 2004, where she will take up
her appointment on April 1, 2004. Previously, she was president of Gyproc Oy in
1993-2000. Ms. Friman is a member of the board of directors of Empower Oy, SYK Ltd,
Sponda Plc and the Finnish Medical Foundation. Ms. Friman holds a Master of Science
degree in Engineering.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Heikki Hakala has
been a member of our board of directors since 2000. He served as president and chief
executive officer of Metso Corporation in 1999-2000. Previously, he was president and
chief executive officer of Rauma Corporation in 1996-1999. He joined Rauma-Repola Oy in
1986. Mr. Hakala is the chairman of the board of Juhani Mäkivirta Oy and Kuusakoski
Group Oy. He is also the vice chairman of the boards of directors of Lassila & Tikanoja
plc and Pohjola Group plc, and a member of the boards of directors of Orion Corporation
and Altia Corporation. Mr. Hakala holds a Master of Science degree in Economics and
Business Administration and a Doctoral degree in Technology (hon.).
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Juhani Kuusi has
been a member of our board of directors since 2000. Mr. Kuusi previously served as
senior vice president, head of Nokia Research Center from 1995 to 2002. Prior to
joining Nokia, Mr. Kuusi was director general of the Technology Development Center for
12 years. Mr. Kuusi holds a Doctorate degree in Technology.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Pentti Mäkinen
has been a member of our board of directors since 2000 serving in the capacity of a labor
representative. Mr. Mäkinen has been employed by Metso since 1969 and is the
chief shop steward in Metso Paper, Jyväskylä, Finland since 1999. He is a
plate-welder by education.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Jaakko Rauramo has
been a member of our board of directors since 1999. He served as president and chief
executive officer of SanomaWSOY in 1999-2001 and president of Sanoma Corporation in
1984-1999. Mr. Rauramo is the chairman of the board of directors of SanomaWSOY
Corporation. He is also a member of the boards of directors of the European Publishers
Council and Stiftelsen Svenska Dagbladet. He is a member of the international
council of the Museum of Television & Radio in New York. He is a trustee of Reuters
Founders Share Company Limited. Mr. Rauramo holds a Master of Science degree in
Engineering.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On February 20,
2004,  Metso  Corporations  shareholders  representing  more than 20 percent of the
votes in Metso  announced  that they will propose to the annual general  meeting
convening on April 6, 2004, that the number of members of our board of directors  be
seven and that the  following  members of the board of directors be re-elected  for a
term of one year:  Maija-Liisa  Friman,  Matti  Kavetvuo,  Juhani Kuusi,  Pentti Mäkinen
and Jaakko Rauramo.  In addition,  such  shareholders  will propose that Mr. Risto  Hautamäki,
president and chief executive  officer of Tamfelt Group,  and Ms. Satu Huber,  director
of finance and head of finance  division at the  Finnish  State  Treasury,  be elected as
new members of the board of  directors.  Such  shareholders  will  further  propose that
Matti  Kavetvuo be re-elected as chairman and Jaakko Rauramo be elected as the new vice
chairman of the board of directors.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 55 | 
| | -- | 



---





|Chief Executive Officer and Corporate
Executive Team
|----------------------------------------------------



|Metsos
executive  officers,  which form Metsos corporate  executive team, include our
president and chief executive officer,  business area  presidents  and certain  other
members of senior  management.  The corporate  executive  team supports the president and
chief  executive  officer in matters on the agenda of the board of directors meetings.
It also  considers  all matters  essential to  corporate  management,  including
strategies,  issues related to corporate  synergies and  corporate-wide  projects,
acquisitions and  divestitures,  as well as matters  related to  corporate  image,
monthly  reporting,  interim  reviews,  main  principles  of investor  relations and
human resources, as well as bonus plans.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
table lists the names of the current members of the corporate  executive  team,  their
current  responsibilities  within our Company and their year of birth:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Name                | Position                                                                                                           | Year of Birth
|------------------- | ------------------------------------------------------------------------------------------------------------------ | -------------
|Jorma Eloranta      | President and chief executive officer                                                                              | 1951         
|Olli Vaartimo       | Executive vice president and chief
      financial officer, 
      deputy to president and chief executive officer | 1950         
|Arto Aaltonen       | Executive vice president, Metso Paper                                                                              | 1947         
|Vesa Kainu          | President, Metso Ventures                                                                                          | 1947         
|Bertel Karlstedt    | President, Metso Paper                                                                                             | 1962         
|Matti Kähkönen      | President, Metso Automation                                                                                        | 1956         
|Bertel Langenskiöld | President, Metso Minerals                                                                                          | 1950         
|Harri Luoto         | Senior vice president, general counsel                                                                             | 1946         



|Jorma Eloranta
started as our president and chief executive officer on March 1, 2004. Prior to such
time, Mr. Eloranta was president and chief executive officer of Kvaerner Masa-Yards
Inc. in 2001-2004. He has also served as president and chief executive officer of
Patria Industries Group in 1997-2001, as deputy chief executive of Finvest Group and
Jaakko Pöyry Group in 1996-1997 and as president of Finvest Ltd in 1985-1995. Mr.
Eloranta is the vice chairman of the board of directors of Aspocomp Group Oyj and vice
chairman of the supervisory board of Sampo Life Insurance Company Ltd. He is also a
member of the board of directors of Kvaerner Masa Yards Inc. Mr. Eloranta has announced
to the board of directors of Aspocomp Group Oyj that he will not be available for
re-election in the Aspocomp annual general meeting to be held on April 2, 2004. Mr.
Eloranta holds a Master of Science degree in Engineering.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Olli Vaartimo
became our executive vice president, chief financial officer, and deputy to the
president and chief executive officer on April 22, 2003. He served as interim president
and chief executive officer of Metso from September 25, 2003 to February 29, 2004.
Mr. Vaartimo has previously served as president of Metso Minerals in 1999-2003 and
president and chief executive officer of Nordberg in the Rauma Group in 1993-1999.
From 1991 to 1998 he was also executive vice president and chief financial officer of
Rauma Corporation. Mr. Vaartimo joined Rauma in 1974. Mr. Vaartimo holds a
Master of Science degree in Economics and Business Administration.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Arto Aaltonen has
served as executive vice president of Metso Paper since 2001. In 1999-2001, he
served as president and chief executive officer of Metso Automation and, prior to
that, as a business area president of Neles Controls in the Rauma Group from 1995. Mr.
Aaltonen joined Sunds Defibrator in 1987. Mr. Aaltonen holds a Master of Science degree
in Engineering.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Vesa Kainu has
served as president of Metso Ventures since 2003. In 2001-2003, he served as
executive vice president of Metso Minerals and in 1999-2001 he was president of
Metso Paper Service. Prior to that, he headed Valmets maintenance services
business line from 1994. He joined the Company in 1971. Mr. Kainu is a member of the
board of directors of Exel Oyj. He holds a Bachelor of Science degree in Engineering.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Bertel Karlstedt
has served as president of Metso Paper since 2003. Prior to that, he headed Metso
Papers paper making business line in 1999-2003, and Valmets pulp drying
business unit from 1996. Mr. Karlstedt joined Valmet in 1988. Mr. Karlstedt holds a
Master of Science degree in Engineering.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Matti Kähkönen
has served as president of Metso Automation since 2001. Prior to that, he headed
Metso Automation field systems division in 1999-2001, and served as division
president of Neles Controls in the Rauma Group from 1993. Mr. Kähkönen joined
Rauma in 1980. Mr. Kähkönen holds a Master of Science degree in Engineering.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 56 | 
| | -- | 



---





|Bertel Langenskiöld
has served as president of Metso Minerals since 2003. Previously, he was president and
chief executive officer of Fiskars Corporation in 2001-2003, and president of Tampella
Oy/Kvaerner Pulping Oy in 1994-2000. Mr. Langenskiöld is a member of the board
of Wärtsilä Corporation. Mr. Langenskiöld holds a Master of Science degree
in Engineering.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Harri Luoto serves
      as senior vice president and general counsel, having previously served as
      Valmets general counsel from 1985. Mr. Luoto joined Valmet in 1982.
      Mr. Luoto holds a Master of Laws degree.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In October 2002,
then executive vice president and chief  financial  officer,  Sakari  Tamminen  announced
that he would leave  Metso to join  Rautaruukki  Corporation.  Mr.  Tamminen  served
until April 21, 2003.  The board of directors of Metso  appointed  Olli  Vaartimo as
executive vice president and deputy to the chief executive officer as from April 22, 2003.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In September
2003, Tor Bergman,  then president and chief  executive  officer of Metso  Corporation,
and chairman of Metsos  business  areas,  was relieved from his positions and
ceased to be employed by Metso  effective of September 25, 2003.  Olli  Vaartimo,
executive vice president of Metso, was designated by the board of directors to serve as
interim  president and chief executive  officer  of Metso  Corporation  as well as
chairman of Metsos  business  areas.  On November 28, 2003, the board of directors
appointed  Jorma  Eloranta as our president and chief executive officer. Mr. Eloranta
assumed the positions on March 1, 2004.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Compensation of Directors and Officers
|--------------------------------------



|For the year ended
December 31, 2003,  fees totaling  264,600  (U.S.$333,320)  were paid to the seven
members of the board of  directors  of Metso  Corporation.  The monthly  fees paid were
as follows:  chairman of the board 4,000  (U.S.$5,040),  vice  chairman  3,000
(U.S.$3,780)  and other board members 2,500  (U.S.$3,150).  In addition,  a fee of
300 (U.S.$380) per meeting was paid to all  members of the board of directors for
the meetings they attended.  Compensation  for traveling  expenses and daily  allowances
was paid  in accordance with the general travel rules of Metso.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For the year ended December
      31, 2003, salaries and bonuses totaling 2,231,870 were paid to the
      nine members of our corporate executive team for the actual period they
      were members of the corporate executive team. Performance bonuses for the
      year 2002 accounted for 257,198, or 11.5 percent, of the total compensation
      paid. None of the members received benefits in 2003 exceeding the lesser
      of 50,000 or 10 percent of their total compensation. In addition to
      the current members of the corporate executive team of Metso Corporation
      listed above, both the previous president and chief executive officer Tor
      Bergman (until September 25, 2003) and previous executive vice president
      and chief financial officer Sakari Tamminen (until April 21, 2003) were
      members of the corporate executive team during the time they held positions
      with Metso in 2003. The salaries of all members of the corporate executive
      team comprise a fixed basic salary and/or a bonus based on the result of
      the corporation or of the business area in question. The salary may also
      be based on other development objectives central to our operations.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We also pay
premiums to a pension  insurance  company to provide for a  supplemental  group  pension
insurance  covering our  corporate  executive  team and some senior  executives,  which
enables a  retirement  age of 60. In 2003,  the amount of such  pension  insurance
premium payments totaled approximately 1.2 million.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The annual salary
of president and chief  executive  officer Jorma  Eloranta is 438,000.  According
to his service  contract,  Jorma  Elorantas  age of retirement is 60 years,  and
his full pension equals 60 percent of the annual salary serving as the basis for  the
pension  calculation.  If Mr. Eloranta  terminates his contract for a reason for which
Metso is responsible,  or if his contract is  terminated  by Metso,  he is entitled  to
compensation  corresponding  to 24 months salary and  benefits.  The annual  salary
of Tor  Bergman,  who served as president and chief executive officer until September 25,
2003, was 420,475.  In accordance with his contract,  when his employment was
terminated, Tor Bergman received a severance payment corresponding to 24 months salary
and benefits.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As of December 31,
2003, there were no loans  outstanding to any members of our board of directors or our
corporate  executive  team.
|-------------------------------------------------------------------------------------------------------------------------------------



| | 57 | 
| | -- | 



---





|Audit Committee and Compensation Committee
|------------------------------------------



|Audit Committee. The
      audit committee consists of a chairman and two members elected by the board
      of directors from among its members. From May 27, 2003, the audit committee
      consists of Maija-Liisa Friman (chairman), Heikki Hakala and Matti Kavetvuo.
      The audit committee reviews the financial reporting, Metsos compliance
      with laws and regulations and Metsos procedures, internal control,
      risk management and matters relating to auditing. The audit committee also
      maintains procedures for the receipt, retention and treatment of complaints
      received by Metso regarding accounting, internal controls, or auditing matters
      and for the confidential, anonymous submission by our employees of concerns
      regarding accounting or auditing matters. Each year, the audit committee
      draws up a working order for itself, subject to approval by the board of
      directors. In 2003, the audit committee met five times.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Compensation
Committee. The compensation committee consists of the chairman and vice chairman of the
board of directors and one member elected by the board from among its members. From
April 29, 2003, the compensation committee consists of Matti Kavetvuo (chairman),
Mikko Kivimäki and Jaakko Rauramo. The compensation committee makes proposals to
the board of directors concerning the compensation of our management and the
personnel compensation systems. Pursuant to the Finnish Companies Act, the
shareholders determine the amount of compensation for the board of directors at the
annual general meeting. In 2003, the compensation committee met ten times.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Employees
|---------



|Metsos
employees  numbered 26,240 at year-end 2003, as compared to 28,489 at year-end 2002, and
30,242 at year-end 2001. The  reduction  was a result of the  divestment  of non-core
businesses  and  restructuring  measures  taken as well as sizeable  temporary  lay-offs
in the Valmet Automotive business. We believe that we have good relations with our
employees and labor unions.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  following
table sets forth the number of  employees by business  area and by region as of December
31,  2001,  2002 and  2003.  The  increase  in the  number  of the  Corporate
Headquarters personnel  in 2003 was due to the  inclusion  of the  financial
administration service centers employees in the figures.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | As of December
      31,
|-------------------------------- | ------------------------
|                                 | 2001                    
|Employees by business area       |                         
|Metso Paper                      | 9, 095                  
|Metso Minerals                   | 11, 495                 
|Metso Automation                 | 4,532                   
|Metso Ventures                   | 4,179                   
|Corporate Headquarters and Other | 117                     
|                                 |                         
|Continuing Operations            | 29,418                  
|Discontinued Operations          |                         
|Converting Equipment             | 824                     
|                                 |                         
|Metso Total                      | 30,242                  
|                                 |                         
|                                 |                         
|                                 |                         
|                                 | As of December
      31,
|                                 | 2001                    
|Employees by geographic area     |                         
|Finland                          | 11,268                  
|Other Nordic Countries           | 3,566                   
|Other European countries         | 5,150                   
|North America                    | 5,628                   
|South America                    | 1,852                   
|Asia-Pacific                     | 1,298                   
|Rest of the world                | 1,480                   
|                                 |                         
|Total                            | 30,242                  
|                                 |                         



| | 58 | 
| | -- | 



---





|Share Ownership
|---------------



|As of March 22, 2004, the members
      of our board of directors and our corporate executive team held in the aggregate
      a total of 30,955 shares of Metso Corporation for which they held sole voting
      or investment power, representing less than one percent of our total issued
      and outstanding share capital. As of March 22, 2004, members of our board
      of directors and corporate executive team collectively held in the aggregate
      843,900 options of the Company.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following table sets forth
      the total number of shares and options of Metso Corporation beneficially
      held by each of our directors and members of our corporate executive team
      as of March 22, 2004:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                         | Sole Voting
      
      or 
      Investment 
      Power | Beneficially
      Shared 
      Voting 
      Power | Number of
      
      Series 2000 
      A and B 
      options | Number of
      
      Series 2001 
      A and B 
      options | Number of
      
      Series 2003 
      A options
|------------------------ | ---------------------------------------------------------- | ---------------------------------------------------- | ---------------------------------------------------------------- | ---------------------------------------------------------------- | ---------------------------------------------------
|Directors                |                                                            |                                                      |                                                                  |                                                                  |                                                    
|Matti Kavetvuo(1)        |                                                           |                                                      | 94                                                               |                                                                  |                                                   
|Mikko Kivimäki           | 2,500                                                      |                                                      |                                                                 |                                                                  |                                                   
|Maija-Liisa Friman       | 1,500                                                      |                                                      |                                                                 |                                                                  |                                                   
|Heikki Hakala(2)         | 10,262                                                     |                                                      | 399,121                                                          |                                                                  | 126,900                                            
|Juhani Kuusi             | 10,000                                                     |                                                      |                                                                 |                                                                  |                                                   
|Pentti Mäkinen           |                                                           |                                                      |                                                                 |                                                                  |                                                   
|Jaakko Rauramo           | 4,205                                                      |                                                      |                                                                 |                                                                  |                                                   
|Corporate Executive Team |                                                            |                                                      |                                                                  |                                                                  |                                                    
|Jorma Eloranta           |                                                           |                                                      |                                                                 |                                                                  |                                                   
|Olli Vaartimo            | 1,144                                                      |                                                      |                                                                 |                                                                  | 130,000                                            
|Arto Aaltonen            | 600                                                        |                                                      |                                                                 |                                                                  | 100,000                                            
|Vesa Kainu               | 60                                                         |                                                      |                                                                 |                                                                  | 65,000                                             
|Bertel Karlstedt         | 120                                                        |                                                      |                                                                 |                                                                  | 72,000                                             
|Matti Kähkönen(3)        |                                                           |                                                      | 871                                                              |                                                                  | 90,000                                             
|Bertel Langenskiöld      |                                                           |                                                      |                                                                 |                                                                  |                                                   
|Harri Luoto(4)           | 564                                                        |                                                      | 110                                                              |                                                                  | 45,000                                             

|
|

|(1) |  | Includes
94 shares held by Mr. Kavetvuos spouse.
|--- |  | -------------------------------------------------

|(2) |  | Pohjola
Corporation  beneficially  owns  399,121  shares.  Mr.  Hakala is vice  chairman  of the
board of  directors  of  Pohjola  Corporation,  and, as a result,  may be deemed to share
voting  power with  respect to the shares  beneficially  owned by Pohjola  Corporation
within the meaning of Rule 13d-3 under the Exchange  Act. Mr. Hakala does not believe
that he has the power to direct  the voting of shares held by Pohjola Corporation and
disclaims beneficial ownership of these shares.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes 871 shares held by Mr. Kähkönens
      spouse.
|--- |  | --------------------------------------------------------

|(4) |  | Includes
110 shares held by Mr. Luotos spouse.
|--- |  | -----------------------------------------------



|Metso  Corporation
currently  has three  option  programs,  launched in 2000,  2001 and 2003.  The  programs
are part of the  incentive  system for key  personnel,  and included  218 people at the
end of 2003.  The  programs  give the right to  subscribe  for a  maximum of 13,800,000
new shares of Metso Corporation.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The year 2000 option program
      includes 5,000,000 options, which entitle their holders to subscribe for
      a maximum of 5,000,000 shares. Of the options, 2,500,000 were A options
      and 2,500,000 were B options. The two series were combined on April 1, 2003
      as one series. The share subscription price per share was 13.80 on
      December 31, 2003. Annually paid dividends are deducted from the subscription
      price. Subscription of shares with the options began on April 1, 2001 for
      the A options, and on April 1, 2003 for the B options, at which time the
      two series were also combined. The subscription period for the year 2000
      A/B options will end on April 30, 2005.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The year 2001 option program
      includes 1,000,000 options, which entitle their holders to subscribe for
      a maximum of 1,000,000 shares. Of the options, 500,000 were A options and
      500,000 were B options. The two series were combined on April 1, 2003 as
      one series. The share subscription price per share was 13.80 on December
      31, 2003. Annually paid dividends are deducted from the subscription price.
      Subscription of shares with the options began on April 1, 2001 for the A
      options, and on April 1, 2003 for the B options, at which time the two series
      were also combined. The subscription period for the year 2001 A/B options
      will end on April 30, 2005.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The year 2003
option  program  includes a total of 7,800,000  options,  which entitle their holders to
subscribe for a maximum  of 7,800,000  shares.  Of the options,  5,600,000 can be
distributed  to key personnel of Metso pursuant to the decision of the annual  general
meeting held on April 15,  2003.  Options will be  distributed,  if Metsos
earnings  per share  increase  sufficiently  with  reference to Metsos earnings per
share at the  establishment  of the year 2003 option program,  and other criteria for the
granting of  options are met. Of the
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 59 | 
| | -- | 



---





|options,  2,600,000  were  designated as 2003A,
2,600,000 as 2003B and 2,600,000 as 2003C  options.  The share  subscription  prices are,
for the 2003A option,  the  trade-weighted  average price of the Metso share on the
Helsinki Exchanges during  January 1 through March 31, 2004, for the 2003B option, the
trade-weighted  average price of the Metso share on the Helsinki Exchanges  during
January 1 through  March 31,  2005,  and for the 2003C  option,  the  trade-weighted
average  price of the Metso  share on the  Helsinki  Exchanges  during  January 1 through
March 31, 2006.  The  subscription  prices of shares that can be subscribed for with the
options will be reduced,  after  commencement of the subscription  price  determination
period and before share  subscription,  by the  amount of dividends decided upon on the
record day for each dividend  distribution.  The share subscription  periods are, for the
2003A  option from April 1, 2006 through  April 30, 2009,  for the 2003B option from
April 1, 2007 through  April 30, 2010,  and for the 2003C  option from April 1, 2008
through April 30, 2011.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In  spring  2003,
our board of  directors  decided  that the  maximum  number of 2003A  options  to be
distributed  would be  2,500,000.  At the same time, the board of directors defined the
following minimum criteria for distributing the 2003A options:  a five  percent
operating  margin, a nine percent return on capital  employed (ROCE),  and earnings per
share of 0.75 in 2003. As the minimum  criteria have not been  fulfilled,  no
options have been  distributed  from the program,  apart from 100,000 options granted to
our new  president and chief executive officer.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Authorizations for Board of Directors
|-------------------------------------



|The annual
general  meeting held on April 15, 2003,  authorized  the board of  directors to resolve
on  increasing  the share  capital of Metso Corporation by issuing new shares,
convertible  bonds,  and/or stock options in one or more issues. The authorization
expires one year from the annual  general  meeting.  No more than  12,500,000 new shares
with a nominal value of 1.70 per share may be  subscribed for through  issuance of
new shares,  subscription of shares pursuant to conversion of convertible  bonds into
shares and/or  subscription  of shares  pursuant  to stock  options.  The share  capital
of Metso  Corporation  may be raised in total by no more than  21,250,000,
representing 9.17 percent of share capital and voting rights.  The board of directors had
not taken any action based upon  this authorization by the date of this annual report.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The annual
general  meeting held on April 15,  2003,  authorized  the board of  directors  to
decide,  within one year of the  annual  general  meeting,  on the  repurchase  of shares
of Metso  Corporation,  using its  distributable  funds.  Such  shares  may be
repurchased for use as payment in acquisitions  or in financing  investments and as an
incentive for key personnel.  The annual general  meeting also authorized the board of
directors to decide on the disposal and annulment of any shares of Metso  Corporation
repurchased  pursuant  to the  authorization.  Such shares may be  repurchased,  provided
that their  combined  nominal  value does not exceed five  percent of the share  capital
of Metso  Corporation,  which  represents a maximum of 6,812,527  shares.  The board of
directors had not  taken any action based upon this authorization by the date of this
annual report.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 7. Major Shareholders and Related Party
Transactions
|---------------------------------------------------------



|Major Shareholders
|------------------



|UPM-Kymmene Corporation currently
      owns 14.62 percent of our total shares and total votes. In addition, the
      Finnish State currently owns 11.52 percent of our total shares and total
      votes. There have been no changes in their ownership since 1999 when Metso
      Corporation was established. Pursuant to Schedule 13G, filed with the SEC
      by Capital Research and Management Company as of December 31, 2003, it held
      6.00 percent of our total shares. On March 25, 2003, Harris Associates L.P.
      announced that certain funds under its management held 5.07 percent of our
      total shares and total votes. On June 12, 2002, Franklin Resources Group
      announced that certain of its funds held 5.17 percent of our total shares
      and, in addition, Franklin Resources Inc. had voting authority representing
      6.30 percent of our total shares. Neither UPM-Kymmene Corporation, the Finnish
      State, Capital Research and Management Company, Franklin Resources Group,
      Harris Associates L.P. nor any other shareholder has any special voting
      rights. However, UPM-Kymmene Corporation, the Finnish State, Capital Research
      and Management Company, Franklin Resources Group and Harris Associates L.P.
      may, through their share ownership, continue to have substantial influence
      in deciding matters submitted for a vote of shareholders, such as approval
      of the annual financial statements, declarations of annual reserves and
      dividends, capital increases, amendments to our articles of association
      and the election and removal of members of our board of directors.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following table lists,
      as of March 22, 2004, the total number of our shares owned by UPM-Kymmene
      Corporation, the Finnish State, Franklin Resources Group, Capital Research
      and Management
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 60 | 
| | -- | 



---





|Company and Harris  Associates L.P., the only
persons or  entities known to be the beneficial  owner of more than five percent of our
shares,  as  well as shares owned by members of our board of  directors:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Title of Class                  | Identity of Person or Group                              | Number of Shares | Percent
|------------------------------- | -------------------------------------------------------- | ---------------- | -------
|Shares, nominal value1.70 each | UPM-Kymmene Corporation                                  | 19,922,115       | 14.62  
|Shares, nominal value1.70 each | The Finnish State                                        | 15,695,287       | 11.52  
|Shares, nominal value1.70 each | Funds managed by Capital Research and Management Company | 8,180,000        | 6.00   
|Shares, nominal value1.70 each | Funds managed by Franklin Resources Group                | 7,040,337        | 5.17   
|Shares, nominal value1.70 each | Funds managed by Harris Associates L.P.                  | 6,904,600        | 5.07   
|Shares, nominal value1.70 each | Members of our board of directors                        | 28,467           | 0.02   



|Ownership of Our Securities in the United
States
|------------------------------------------------



|As of March 8,
2004, the most recent practicable date,  approximately  2,058,098 shares, or 1.5 percent
of the total number of  our issued and outstanding shares were held by approximately 40
record holders with addresses in the United States.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Related Party Transactions
|--------------------------



|There have been no
material  transactions  during the last  fiscal  year or during the  current  fiscal year
up to the date of  this annual report to which any director or executive  officer or any
10 percent  shareholder  or any relative or spouse of any of them  was a party.  There is
no  significant  outstanding  indebtedness  owed to Metso by any  director or  executive
officer or ten percent  shareholder.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|There have been no
material  transactions  during the last  fiscal  year or during the  current  fiscal year
up to the date of  this annual report with enterprises controlling, controlled by or
under common control with Metso or an associate of Metso.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 8.  Financial Information
|------------------------------



|Consolidated Financial Statements
|---------------------------------



|See Item 18.
Financial Statements.
|------------------------------------



|Export Sales
|------------



|The value of
exports by Metso,  including sales to unaffiliated  customers and intra-Group  sales,
from Finland by destination  were as follows for the most recent three years:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | Year ended December
      31,
|----------------------------------- | -----------------------------
|                                    | 2001                         
|                                    | ( in millions)              
|Other Nordic Countries              | 365                          
|Europe (excluding Nordic Countries) | 592                          
|North America                       | 200                          
|South America                       | 85                           
|Asia-Pacific                        | 269                          
|Rest of the World                   | 20                           
|                                    |                              
|Total                               | 1,531                        
|                                    |                              



| | 61 | 
| | -- | 



---





|In 2003,  without
elimination  of  intra-Group  sales,  the value of goods  exported from  Finland,
Sweden,  other  European  countries and the United States totaled  approximately  1,352
million or 21 percent of our total sales, 639 million or ten percent of  our total
sales, 330 million or five percent of our total sales, 221 million or three
percent of our total sales, respectively.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Legal Proceedings
|-----------------



|We have  extensive
worldwide  operations  and are  involved  in  several  legal  proceedings  in the
ordinary  course of our  business.  While the results of these  proceedings  cannot be
predicted with certainty,  we do not expect them to result in liabilities  that have a
material effect on our financial position or results of operations.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Several actions
raising product  liability claims are pending against Metso in the United States.
However,  we do not believe  that the outcome of these actions,  individually or in the
aggregate,  will have a material adverse effect on our business,  liquidity,  financial
condition or results of  operations.  We further  believe that the risks of legal
disputes  concerning  deliveries  and the  taxation of our export delivery projects are
customary in our fields of operation and are not material as a whole.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As of February 20,
2004,  there had been a total of 288 complaints  alleging  asbestos  injuries filed in
the United States in  which a Metso  entity is one of the  named  defendants.  Where a
given  plaintiff  has  named  more  than one  viable  Metso  unit as a  defendant,  the
cases are counted by the number of viable Metso defendants.  Of these claims,  123 are
still pending and 165 cases have  been closed. Of the closed cases, 112 were dismissed
and 53 were settled.  For the 53 cases settled,  the average compensation has been
U.S.$540  per case.  The outcome of the still  pending  cases is not  expected to
materially  deviate from the outcome of the previous  claims. Hence, management believes
that Metso has no material asbestos related liability in the United States.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|See Item 4.
Governmental  Regulation and  Environmental  Matters for a discussion on certain
pending  environmental  issues  with possible legal implications.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------



|Dividend Policy
|---------------



|We pay annual
dividends to our shareholders  based on a longer-term  outlook for our consolidated
profitability and financial  position. The timing and amount of future dividend payments,
if any, will depend on our future earnings,  financial condition,  results  of
operations,  cash flows,  working  capital  requirements  and other  factors that our
board of directors  considers  relevant.  The  objective of our dividend  policy is to
distribute an annual  dividend  equivalent  to at least  one-third of the average
earnings per  share over five years.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For  companies
domiciled in Finland and  incorporated  under the Finnish law,  dividends  on shares are
generally  only paid  annually after  shareholder  approval of both the companys
financial  results and of the amount of dividend  proposed by the board of  directors.
Under the  Finnish  law,  the amount of any  dividend is limited to the amount of profits
and other  distributable  equity  available at the end of the preceding fiscal year on a
consolidated or  unconsolidated  basis,  whichever is lower.  Subject to certain
exceptions relating to the right of the minority  shareholders to request otherwise,  the
dividend may not exceed an amount recommended  by the board of directors.  As of December
31, 2003, our parent companys  distributable equity was 616 million (U.S.$776
million) and  our consolidated  distributable equity was 510 million (U.S.$642
million).  The difference between our parent companys  distributable  equity of
616 million and our  distributable  equity  including our  consolidated
subsidiaries  of 510 million is caused by earnings  related to our parent  companys
subsidiaries  that are reflected in our  consolidated  accounts but not in the accounts
of our parent  company.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Dividends paid to
holders of ADSs who are  non-residents  of Finland will generally be subject to the
Finnish  withholding tax  at a rate of 29 percent.  Such ADS holders may,  however,  be
subject to a lower  withholding tax rate and may be allowed an imputation  tax credit to
reduce the tax on dividends where there is a double taxation  treaty with Finland that
contains  appropriate  provisions.  The current  convention  between the United  States
and Finland for the  Avoidance  of Double  Taxation  and the  Prevention  of Fiscal
Evasion  with  Respect to Taxes on Income and on Capital  does not  contain  provisions
that extend  such  imputation  credits to U.S.  holders of our shares or ADSs. See Item
10. Additional InformationTaxation.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our board of
directors  will propose to the annual  general  meeting of our  shareholders  to be held
on April 6, 2004 that a  dividend of 0.20 per share be paid for the fiscal year
ended  December 31,  2003.  Any  dividend  decided  upon by the annual  general  meeting
will be paid on April 20, 2004 to  shareholders  entered in
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 62 | 
| | -- | 



---





|the  register of  shareholders  on April 13,
2004.  We have paid a  dividend of 0.60, 0.60,  0.60 and 0.40 per
share for the fiscal years ended December 31, 2002, 2001,  2000 and 1999, respectively.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Significant Changes
|-------------------



|Except as
otherwise  disclosed  in this annual  report,  no  significant  change has  occurred in
our  business or  financial  condition  since  December  31,  2003.  See Item 5.
Operating  and  Financial  Review and  ProspectsBusiness  Environment  and Trend
Information.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 63 | 
| | -- | 



---





|Item 9.  The Offer and Listing
|------------------------------



|Nature of Trading Market
|------------------------



|The principal
trading market for our shares is the Helsinki  Exchanges,  where our shares are traded
under the symbol MEO1V. Since July 1, 1999,  our shares have been traded in
the United States on the New York Stock  Exchange under the symbol MX in the
form  of ADSs. Each ADS represents one share. The depositary for the ADSs is the Bank of
New York.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The table  below
sets  forth,  for the  periods  indicated,  the  reported  high and low  quoted  prices
for our shares on the  Helsinki  Exchanges  based on its Daily Official List and the high
and low quoted prices for our ADSs as reported in the New York Stock  Exchange  Composite
Transactions:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | Helsinki Exchanges | New York Stock
      Exchange
|-------------------------------- | ------------------ | -----------------------------
|                                 | Price per Share    | Price per ADS                
|                                 | High               | Low                          
|                                 | ()                | (U.S.$)                      
|Annual                           |                    |                              
|                                 |                    |                              
|                                 |                    |                              
|2000                             | 16.20              |                              
|2001                             | 14.10              |                              
|2002                             | 15.15              |                              
|2003                             | 11.41              |                              
|2004 (through March 24)          | 11.45              |                              
|                                 |                    |                              
|                                 |                    |                              
|Quarterly                        |                    |                              
|                                 |                    |                              
|                                 |                    |                              
|2002                             |                    |                              
|First Quarter                    | 14.79              |                              
|Second Quarter                   | 15.15              |                              
|Third Quarter                    | 13.50              |                              
|Fourth Quarter                   | 12.00              |                              
|                                 |                    |                              
|                                 |                    |                              
|2003                             |                    |                              
|First Quarter                    | 11.41              |                              
|Second Quarter                   | 10.10              |                              
|Third Quarter                    | 10.31              |                              
|Fourth Quarter                   | 10.34              |                              
|                                 |                    |                              
|                                 |                    |                              
|2004                             |                    |                              
|First Quarter (through March 24) | 11.45              |                              
|                                 |                    |                              
|                                 |                    |                              
|Monthly                          |                    |                              
|                                 |                    |                              
|                                 |                    |                              
|2003                             |                    |                              
|September                        | 10.31              |                              
|October                          | 9.92               |                              
|November                         | 10.20              |                              
|December                         | 10.34              |                              
|                                 |                    |                              
|                                 |                    |                              
|2004                             |                    |                              
|January                          | 10.55              |                              
|February                         | 11.45              |                              
|March (through March 24)         | 11.35              |                              



| | 64 | 
| | -- | 



---





|Trading and Settlement on the Helsinki
Exchanges
|------------------------------------------------



|Trading  in,  and
clearing  of,  securities  on  the  Helsinki  Exchanges  takes place in euro,  with the
minimum  tick size for trading  quotations  being one euro cent.  All price  information
is produced and  published only in euro.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The trading
system of the  Helsinki  Exchanges,  the  Helsinki  Exchanges  Automated Trading and
Information  System, is a decentralized  and fully  automated  order-driven  system.
Trading is conducted on the  basis of trading lots, which are fixed separately for each
share series.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Official  share
trading  takes  place from 10:00 a.m.  to 6:00  p.m. and evening  trading from 6:03 p.m.
to 7:30 p.m.  Helsinki  time on  each trading day. The official  closing  prices are
confirmed at the end  of the official  share trading at 6:00 p.m.  Offers may be placed
in the  system  beginning at 9:00 a.m. during a pre-trading  period.  Offers are  matched
from 9:40 to 10:00 a.m. to determine  the opening  quotations of  the day.  Contract
transactions  may continue to be  registered  during  aftermarket  trading  from 6:03 to
6:30 p.m.  and from 8:30 to 9:00 a.m.  the  following  morning  within the price  limits
arrived at during the  official share trading and the evening trading.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Trades are
normally  cleared in the Finnish Central  Securities  Depositorys  (the FCSD)
automated  clearing and settlement system on  the third  banking day after the trade date
unless  otherwise  agreed by  the parties.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Regulation of the Finnish Securities Market
|-------------------------------------------



|The Finnish
Financial  Supervision  Authority  supervises  the  securities  market in  Finland.  The
principal  statute  governing  the  securities  market is the Finnish  Securities  Market
Act of 1989, which  contains regulations with respect to company and shareholder
disclosure  obligations,  admission to listing and trading of listed  securities and
public tender offers and insider  obligations,  among other things.  The  Finnish
Financial  Supervision  Authority monitors compliance with these  regulations.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Finnish
Securities Market Act specifies minimum disclosure  requirements for Finnish companies
applying for listing on the Helsinki  Exchanges  or making a public  offering of
securities  in Finland.  The  information  provided must be  sufficient to enable
investors to make a  sound  evaluation  of the  securities  being  offered  and  the
issuing  company.  Finnish  listed  companies  have a  continuing  obligation  to
publish regular financial  information,  and to inform the market of any  matters  likely
to  have a  material  impact  on  the  value  of  their  securities.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|A shareholder  is
required,  without  undue delay,  to notify a  Finnish listed company and the Finnish
Financial  Supervision  Authority  when its voting  participation  in, or its percentage
ownership of, the  issued share capital of such Finnish listed company reaches,  exceeds
or  falls  below five  percent,  ten  percent,  15 percent,  20 percent,  25  percent,
331/3  percent,  50 percent or 662/3  percent,  calculated  in  accordance  with the
Finnish  Securities  Market Act, or when it enters  into an agreement or other
arrangement  that, when effective,  has such  consequence.  If  a  Finnish  listed
company  receives  information  indicating  that a voting  interest or  ownership
interest has reached,  exceeded  or  fallen  below  these  thresholds,  it must  disclose
such  information to the public and to the Helsinki Exchanges.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Pursuant to the
Finnish  Securities  Market Act, a  shareholder  whose holding in a Finnish listed
company  increases above two-thirds of  the total voting  rights  attached to the shares
of the listed  company,  calculated in accordance with the Finnish  Securities  Market
Act, after  the  commencement  of a public  quotation  of such  shares must offer to
purchase  the  remaining  shares and other  securities  entitling  their  holders  to
shares of such  company  for fair  market  value.  Under the  Finnish  Companies Act, a
shareholder  holding shares  representing more  than 90 percent of all the share  capital
in a company  and more than 90  percent  of the shares  and the votes  entitled  to be
cast at a general  meeting  of  shareholders  has  the  right  to  require  the  minority
shareholders  to sell  the  remaining  shares  of such  company  to such  shareholder
for  fair  market  value.  In  addition,  any  minority  shareholder  that  possesses
shares  that  may  be  so  purchased  by a  majority  shareholder  is entitled to require
such majority  shareholder  to purchase its shares.  Detailed rules apply for the
calculation of the  above proportions of shares and votes.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 65 | 
| | -- | 



---





|The Finnish
Criminal Code also contains  provisions relating to  breach  of  disclosure
requirements,  misuse  of  privileged  or inside  information  and  market  manipulation.
Breach  of  these  provisions  constitutes a criminal offense.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Finnish Book-Entry Securities System
|----------------------------------------



|General
|-------



|Finland  has  made
a  gradual  changeover  from a  certificated  securities  system to a  book-entry
securities  system  since August 1,  1991,  when  the  relevant  legislation  came  into
effect.  Use of the  book-entry  securities  system is  mandatory  for  shares  listed on
the  Helsinki Exchanges.  Our shares were entered into the Finnish book-entry  system on
May 2, 1996.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Finnish
book-entry  securities system is centralized at the  FCSD, which provides  national
clearing and  registration  services for  securities.  The FCSD maintains a central
book-entry  securities system  for both equity and debt securities.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The FCSD
maintains  a register of the  shareholders  of listed  companies and book-entry  accounts
for  shareholders  who do not wish to  utilize  the  services of a  commercial  account
operator.  The issuers  participating  in the  Finnish  book-entry  securities  system
and  the  account  operators  pay  for  the  expenses  incurred  by  the  FCSD  in
connection with maintaining the central  book-entry  securities  system.  The account
operators, which consist of credit institutions,  investment  service  companies  and
other  institutions  licensed  to act as account  operators  by the FCSD (each,  an Account
Operator),  are entitled to  make entries in the  book-entry  register and
administer the book-entry  accounts.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Registration
|------------



|In  order  to
effect  entries  in  the  Finnish  book-entry  securities  system,  a  securityholder  or
its nominee must  establish a  book-entry  account with the FCSD or an Account Operator
or register its  securities through nominee  registration.  Finnish  shareholders may not
register  their  securities  through  nominee  registration.  For  shareholders who have
not transferred their shares into book-entries,  a  joint  book-entry  account shall be
opened with the FCSD, the registered  holder  of which  shall be the  issuing  company.
All  transactions  in  securities  registered with the Finnish book-entry securities
system are  executed as  computerized  book-entry  transfers.  The Account  Operator
confirms book-entry  transfers by sending  notifications of transactions  to the holder
of the respective  book-entry account. The account holders  also  receive an annual
statement  of their  holdings  as of the end of  each calendar year.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Each  book-entry
account  is  required  to  contain  specified  information  with  respect  to  the
account  holder  or  the  custodian  administering  the  assets  of  a  nominee  account.
Such  information  includes the type and number of  book-entry  securities  registered
and  the  rights  and  restrictions  pertaining  to  the  account  and to the  book-entry
securities  registered  in the account.  A possible  nominee  account is  identified  as
such on the entry.  The FCSD and the  Account  Operators  are  required  to observe
strict  confidentiality,  although  certain  information  (for example the name,
nationality and address of  each  account  holder)  contained  in  the  register  of
shareholders  maintained by the FCSD must be made  available to the public by the FCSD
and the issuer, except in the case of nominee registration.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Each  Account
Operator  is  strictly  liable  for  errors  and  omissions on the  registers  maintained
by it and for any  unauthorized  disclosure of information.  However, if an account
holder has suffered a  loss as a  result  of a  faulty  registration  or an  amendment
to,  or  deletion  of,  rights  with  respect to  registered  securities  and the
Account  Operator is unable to  compensate  for such loss,  such account  holder is
entitled to receive  compensation  from the FCSD. To cover for  this contingency,  the
FCSD maintains a statutory registration fund. The  capital of the fund must be at least
0.000048  percent of the average of  the  total  market  value  of  the  book-entries
kept  in  the  Finnish  book-entry  securities  system during the last five calendar
years,  and  it must not be less than 20  million.  The  compensation  to be paid
to  one injured  party  shall be equal to the amount of damages  suffered by  such
injured party from a single Account  Operator  subject to a maximum  amount of 25,000.
Furthermore,  the liability of the registration fund  is limited to 10 million per
incident.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 66 | 
| | -- | 



---





|Custody of the Shares and Nominees
|----------------------------------



|A  non-Finnish
shareholder  may  appoint an asset  manager (or  certain  non-Finnish  organizations
approved  by the  FCSD) to act as a  custodial  nominee account holder on its behalf.  A
nominee  shareholder  is entitled to receive  dividends  and exercise  all share
subscription  rights and other  financial and  administrative  rights  attached to the
shares,  such as the right to attend and vote at general meetings of the  company.  A
beneficial  owner  wishing  to attend and vote at a general  meeting  must  seek  a
temporary  registration  in  the  register  of  shareholders  not  later  than ten days
prior to the  relevant  general  meeting.  A custodial  nominee account holder is
required to disclose to  the Finnish  Financial  Supervision  Authority and the relevant
company  upon request the name of the beneficial  owner of any shares  registered  in the
name  of  such  custodial  nominee  account  holder,  where  the  beneficial  owner is
known,  as well as the  number  of shares  owned by  such  beneficial  owner.  If the
name of the  beneficial  owner  is not  known,  the  custodial  nominee  account  holder
is required to disclose  said  information  on  the  representative  acting  on  behalf
of  the  beneficial owner and to submit a written  declaration to the effect that  the
beneficial  owner of the shares is not a Finnish  natural person or  legal entity.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Finnish
Depositories  for  both  Clearstream  Banking  S.A.,  Luxembourg and Euroclear Bank,
S.A./N.V.,  as operator of the Euroclear  System,  have nominee accounts within the
Finnish book-entry  securities  system and, accordingly,  non-Finnish shareholders may
hold their shares  through their accounts with Clearstream Banking or Euroclear.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Shareholders
wishing  to  hold  their  shares  in the  Finnish  book-entry  securities  system in
their  name and who do not  maintain a  book-entry  account in Finland are required to
open a book-entry account  at an  authorized  Account  Operator in Finland and a
convertible  euro  account at a bank operating in Finland.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 10.  Additional Information
|--------------------------------



|Articles of Association
|-----------------------



|Organization and Register
|-------------------------



|Metso Corporation is incorporated
      as a stock corporation (osakeyhtiö) and is organized under the
      laws of the Republic of Finland. We are registered in the Trade Register
      maintained by the National Board of Patents and Registration of Finland
      under the business identity code 1538032-5.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Purpose and Object
|------------------



|Pursuant  to
Section 2 of our  articles  of  association,  our  object is to design,  develop, sell
and manufacture products and systems  for the  engineering,  mechanical,  vehicle,
electronics and automation  industries,  as well as provide  spare  parts and
maintenance  services  relating  to  these,  either  directly  or  through  our
subsidiary  or  affiliate  companies.  As the parent company,  we may also attend to the
organization,  financing  and  purchases of the Group and to other joint  tasks  of the
same  kind,  and we  may  own  real  estate,  shares  and  participations  and carry on
securities  trading  and other  investment  business.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Share Capital and Shares
|------------------------



|Pursuant  to
Section 3 of our  articles  of  association,  our  share  capital  may not be less  than
170  million  nor more than 680  million.  Within  these  limits,  our share
capital may be increased or  decreased  without  amending  our articles of  association.
Pursuant to  Section 4 of our articles of association,  the number of shares we issue
may not be less than 100 million  shares or exceed 400  million  shares.  The par value
of each share is 1.70.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Corporate Governance
|--------------------



|Our corporate
governance is based on the Finnish Companies Act  and on our articles of association.
The shares of Metso Corporation are  listed on the Helsinki Exchanges and the New York
Stock Exchange.  Metso  Corporation  complies with the  regulations  and  guidelines
concerning  listed companies issued by HEX Plc and Finlands  Financial  Supervision
Authority.  Our corporate  governance system also observes the rules and  corporate
governance  recommendations  of the New York  Stock  Exchange  concerning  listed
companies that are foreign private  issuers,  and the  U.S.  Sarbanes-Oxley  Act of 2002.
Our general operating  principles and  responsibility  relationships are described in our
corporate  governance  principles.  Metsos values and ethical
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 67 | 
| | -- | 



---





|principles create the  foundation  for
corporate  governance,  personnel  and  management  actions  and  cooperation with key
stakeholders.
|-------------------------------------------------------------------------------------------------------------------------------------------



|The board of directors of Metso
      Corporation has ultimate responsibility for the management and proper arrangement
      of the operations of the Company, and for assuring good corporate governance
      in compliance with applicable laws and regulations. The board of directors
      decides upon matters, which, considering the scope and size of the operations
      of Metso Corporation, are of major importance. These include the acceptance
      of the goals of Metso Corporation and the main strategies for achieving
      them, the acceptance of action plans, the definition and acceptance of control
      policies, the acceptance of the organizational structure of Metso Corporation,
      and the nomination of the president and chief executive officer, his deputy
      and the members of the corporate executive team and the monitoring and evaluating
      of their performance. The members of the board of directors of Metso Corporation
      are elected by the annual general meeting for a term of one year. In accordance
      with the articles of association, the board of directors consists of at
      least five and no more than eight members.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Pursuant to the
Finnish  Companies Act, members of our board of  directors  are  prohibited  from
participating  in the  negotiation  or  performance,  or otherwise  having an involvement
in connection  with, a  contract  between  themselves and Metso.  This prohibition also
includes  contracts  between  Metso  and a  third  party  if such  director  would
receive a material  benefit in  conflict  with the  interests  of Metso.  With certain
limitations,  the Finnish Companies Act permits members of  our board of directors to
borrow money from Metso,  so long as such loan  is secured and is within the limits of
our distributable equity.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For information relating to
      our board of directors and corporate executive team, see also Item
      6. Directors, Senior Management and Employees.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------



|Preemptive Rights
|-----------------



|Under Finnish law,
existing  shareholders of Finnish companies  have  preferential  rights  to  subscribe,
in  proportion  to  their  shareholdings,  in new shares of such companies as well as for
issues of  subscription  warrants or debt  instruments  convertible  into shares or
carrying  warrants  to  subscribe  for  shares,  unless  the  corporate  resolution
approving such issue provides  otherwise.  Under the Finnish  Companies Act, a resolution
waiving  preemptive rights must be approved  by at least  two-thirds of all votes cast
and all shares  represented at  the general meeting of shareholders.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|General Meeting of Shareholders
|-------------------------------



|Under the Finnish
Companies Act,  shareholders  exercise their  power  to  decide  on  corporate  matters
at  general  meetings  of  shareholders.  Our  articles  of  association  require  that
a  general  meeting of  shareholders  be held  annually  before the end of June on a
date  decided by our board of  directors  to decide upon the approval of  the income
statement  and balance  sheet and measures  warranted by the  profit or loss,  discharges
from  liability,  emoluments for the members  of our board of directors and  remuneration
of auditors,  number and the  members  of our board of  directors  and  auditors,  as
well as  matters  raised by individual  shareholders.  Extraordinary  general  meetings
of  shareholders  in respect of specific  matters  are held when  considered  necessary
by the board of directors,  or when requested in writing by an  auditor  of  the  Company
or  by  shareholders  representing  at  least  one-tenth of all the issued shares.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under our
articles of  association,  a  shareholder  must give  notice  to the  Company  of his or
her  intention  to  attend a  general  meeting  no later  than the date  and  time
specified  by the  board of  directors  in the  notice  of the  general  meeting,  which
may  not be  earlier than ten days before the general meeting.  Under our articles of
association,  notices of general meetings must be given not earlier than  two months
prior to, and not later than 17 days  before,  the meeting by  publishing  an
announcement  of the  meeting  in at least  two  Finnish  newspapers  published
regularly in the Helsinki area  designated by the  board of directors at its discretion
or by in some other verifiable way.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Inasmuch  as the
shares  have been  transferred  to the Finnish  Book-Entry  Securities  System, in order
to have the right to attend and  vote at a general  meeting,  a shareholder  must be
registered not later  than ten days prior to the relevant  general  meeting in the
register of  shareholders  kept  by the  Finnish  Central  Securities  Depository  in
accordance  with the  Finnish  Companies  Act and the Finnish Act on the  Book-Entry
Securities  System.  See Item 9. The Offer and  ListingThe  Finnish
Book-Entry  Securities  SystemRegistration. Voting rights may  not be
exercised  by a  shareholder  if such  shareholders  shares are  registered  in the
name of a  nominee.  A  beneficial  owner  wishing to  exercise  such  rights  should
seek  a  temporary  registration  in the  register of  shareholders  not later than ten
days prior to the relevant  general meeting.  There are no quorum  requirements
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 68 | 
| | -- | 



---





|for  general meetings  in the Finnish  Companies
Act or our articles of association.  Hence,  it  is  possible  that,  depending  on  the
attendance  at  any  particular  shareholders meeting,  a relatively limited number
of shareholders may  approve resolutions put forward at such  meetings.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Voting
|------



|A  shareholder
may  attend  and vote at a general  meeting  of  shareholders  in  person  or  through
an  authorized  representative.  Shareholders  that have not  transferred  their  shares
to the  Finnish  book-entry  securities  system  may  also  attend  and  vote at  general
meetings if they were  registered  in the share  register  maintained by  the  Company
before  the date on which  the  shares  should  have  been  transferred  to the
book-entry  securities  system  at the  latest  and  provide  evidence  of  their
ownership  of  shares  on the  date of the  general meeting.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Each  share is
entitled  to one vote at a general  meeting  of  shareholders.  While resolutions are
usually passed by a majority of the  votes  cast,  certain  resolutions,  such as a
resolution  to amend our  articles of  association,  a  resolution  to issue shares not
subject to  shareholders preferential subscription rights and, in certain cases, a
resolution  regarding a merger or liquidation of the Company,  require a  majority  of at
least  two-thirds  of the  votes  cast  and the  shares  represented  at the  general
meeting of  shareholders.  Further,  if an  amendment of our articles of  association
would  diminish the rights of  an entire  class of shares,  the  resolution,  in
addition to the above  majority requirement,  requires the consent of shareholders
representing  at least  one-half  of all the shares of such  class and a  majority  of
two-thirds  of the  shares  of such  class  represented  at the  general  meeting  of
shareholders.  Any  amendment  to the  purchase  obligation  provisions of our articles
of association  (described below) requires at  least  three-fourths of the votes cast and
the shares represented at the  meeting.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Liquidation
|-----------



|If the Company
were to be liquidated,  any liquidation proceeds  remaining  after all of its
liabilities  were paid would be distributed  to its shareholders in proportion to their
shareholdings.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Purchase Obligations
|--------------------



|Our  articles  of
association  contain a clause  according  to  which a shareholder or a group of related
shareholders who or which has  acquired  either  331/3  percent  or 50  percent  of the
total  ordinary  shares or of the total voting power of the Company,  at the minimum,  is
obligated to purchase the shares of all other  shareholders  who request  such  purchase.
Our articles of  association  specify that the purchase  price of such shares shall be
the higher of the following:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a)
The weighted  average trading price of the ordinary shares  of the Company on the
Helsinki  Exchanges  during the ten business  days  prior  to the  day on  which  the
shareholder  obligated  to  purchase  ordinary  shares of the Company in  accordance
with this  provision informed the Company that the above-mentioned  percentage  of
ownership  of  ordinary  shares  or votes has been  reached  or  exceeded or, in the
event that no such  notification is provided to  the Company,  or such notification is
provided after the expiration  of the  period of time set forth in our  articles  of
association,  then  during  the ten  business  days prior to the day on which the  Companys
board of directors is informed in any other manner; or
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b)
the  weighted  average  price  per  share,  which  the  shareholder  obligated to
purchase  ordinary  shares of the Company  in accordance  with this provision has paid
for the ordinary shares  that he/she has  procured or obtained in some other way over the
12  months preceding the date defined in paragraph (a) above.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In addition,  such
shareholder  is also  obligated to purchase  any  subscription  rights,  warrants or
convertible  bonds issued by the  Company if so requested by the holder or holders
thereof.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Pursuant  to the
Securities  Market  Act,  a  shareholder  who  acquires  in excess of  two-thirds  of the
total  voting  rights of the  shares of a company after the  commencement of a public
quotation of the  shares must offer to purchase the remaining shares.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Material  Contracts
|-------------------



|Neither  Metso
nor any of its  consolidated  subsidiaries  has  entered  into  any  contracts  in the
last  two  years  outside  of the  ordinary  course of business that have had or may
reasonably be expected  to have a material effect on our business.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 69 | 
| | -- | 



---





|Exchange Controls
|-----------------



|Our  share may be
bought by  non-residents  of  Finland  on the  Helsinki  Exchanges  without  any
separate  Finnish  exchange  control  consent.  Non-residents may receive dividends
without a separate Finnish  exchange control  consent,  the transfer out of Finland being
subject to  payment by the Company of  withholding  taxes.  Non-residents  that have
acquired  our shares may  receive  shares  pursuant  to a bonus issue or  through
participation  in  a  new  issue  without  a  separate  Finnish  exchange  control
consent.  Shares  may  be  sold  in  Finland  by  non-residents,  and the proceeds of
such sale may be transferred  out of  Finland  in any  convertible  currency.  There are
no  Finnish  exchange  control  regulations  applying  to the sale of shares of the
Company by  non-residents to other non-residents.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Control of Foreign Ownership
|----------------------------



|Restrictions  on
foreign  ownership of Finnish  companies  were  abolished as of January 1, 1993.
However,  under the Act on the Control  of Foreigners Acquisition of Finnish
Companies of 1992,  clearance by  the  Finnish  Ministry  of Trade and  Industry  would
be  required  if a  foreign  person or entity,  other than a person or entity  from
another  member  state of the  European  Economic  Area or the  Organization  for
Economic Cooperation and Development,  or a Finnish entity controlled by  one or more
such foreign persons or entities,  were to acquire a holding  of one-third  or more of
the voting  power of the Company.  The Ministry  of Trade and  Industry  could  refuse
clearance  where the  acquisition  would jeopardize important national interests,  in
which case the matter  would be referred to the government of Finland.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Taxation
|--------



|The following
description  is based on tax laws of Finland and  the United  States as in effect on the
date of this annual report and is  subject to changes in the Finnish and U.S. law,
including  changes that  could have  retroactive  effect.  Prospective  investors  should
consult  their professional  advisors as to the tax consequences of the purchase,
ownership and disposition of shares or ADSs,  including,  in particular,  the effect of
tax laws of any other jurisdiction.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Finnish Taxation
|----------------



|The following is a
description  of the material  Finnish income  tax consequences of the purchase,
ownership,  and disposition of shares  or  ADSs  by  a  holder  who  is  not  a  resident
of  Finland  (a  non-resident).  It does not  purport to be a complete
analysis of all  potential  Finnish tax  consequences  to holders of the shares and ADSs.
Prospective  investors  should  consult  their  own  advisers  as to the  consequences
of the purchase,  ownership,  and disposition of shares or  ADSs in light of their
particular  circumstances,  including the effect  of any foreign,  state, or local tax
laws.  Statements regarding Finnish  tax  laws  set  forth  below  are  based  on the
laws in  force  and as  interpreted by the relevant  taxation  authorities as of the date
hereof  and are subject to any changes in Finnish law, or in the  interpretation  thereof
by the relevant taxation authorities.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|A beneficial
owner of an ADS should be treated as the owner of  the underlying share for purposes of
the current  Convention between the  Government  of the United  States of America and the
Government  of the  Republic  of  Finland  for the  Avoidance  of  Double  Taxation  and
the  Prevention  of Fiscal  Evasion  with  Respect  to Taxes on Income and on  Capital
and for  Finnish  tax  purposes.  Accordingly,  the Finnish tax  consequences  to  owners
of  shares  discussed  below  apply  also  to  beneficial owners of ADSs.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Companies
|---------



|Finnish companies
are subject to national  corporate income tax  on their  worldwide  income.  With effect
from January 1, 1996, the rate  of such tax was 28 percent.  The corporate income tax
rate was raised to  29 percent, with effect as from January 1, 2000.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Finland applies an imputation
      or avoir fiscal system for profits distributed as dividends in order
      to eliminate double taxation of companies and their shareholders. Under
      the avoir fiscal system, there is a minimum tax payable to the Finnish
      tax authorities by a Finnish company depending on the amount of profit distributed
      as dividends. For the tax years 2001 and 2000, the applicable minimum tax
      was 29/71 of the dividends distributed to the shareholders. For the year
      2002, the applicable minimum tax was also 29/71. To the extent that this
      minimum tax exceeds or is less than the corporate tax charge payable to
      the Finnish taxation authorities calculated on taxable income, a tax surplus
      will be established or a supplementary tax liability will be imposed
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 70 | 
| | -- | 



---





|(as appropriate). Any tax surplus generated may be used,
      for a period of ten years, to offset any supplementary tax which may become
      payable in subsequent years. As further discussed below, Finland is considering
      amending or possibly abolishing the avoir fiscal system.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Shareholders and Holders of ADSs
|--------------------------------



|Tax Credit on
Dividends
|-----------------------



|The Finnish avoir fiscal
      system is applied in its entirety only to shareholders who are residents
      of Finland. Under the avoir fiscal system, a tax credit is available
      to resident shareholders on the payment of dividends by a Finnish company
      equal to the lesser of, the tax paid by such company for its income and
      29/71 of the dividend paid, as described above. Because corporate income
      tax rate and the tax credit are currently of the same size, no taxes are
      generally payable by shareholders in respect of dividend income received
      from a listed Finnish company. The tax credit is not generally available
      to non-residents. Shareholders who are non-residents may, however, be entitled
      to the tax credit in whole or in part where there is a double taxation treaty
      with Finland that contains the appropriate provisions. Currently, the only
      such tax treaty in force is with Ireland, entitling certain shareholders
      resident in Ireland to a tax credit equal to one-half of the credit available
      to residents of Finland.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In June 2001, the Finnish Ministry
      of Finance appointed a committee to evaluate, among other things, the acceptability
      of the avoir fiscal system in light of Finnish and EU legislation.
      The committee presented its report in November 2002. The committee was of
      the opinion that Finland should abolish the avoir fiscal system and,
      as a result, dividends would be taxable. In addition, the Finnish Supreme
      Administrative Court has requested a preliminary ruling from the European
      Court of Justice in relation to the Finnish imputation system on September
      10, 2002. As a result of the ruling, Finland may be forced to amend or even
      abolish the current avoir fiscal system. The Finnish government has
      publicly announced its plan to abolish the avoir fiscal system, which
      shall, if the plan is effectuated, mean that in the future dividends shall
      partly be subject to dual taxation. After the change of law abolishing the
      avoir fiscal system enters into force, 70 percent of the dividends
      paid out by a Finnish public company will be considered taxable capital
      income. As of the date of this annual report, no further details in respect
      of the timing of the entry into force of the new legislation was available.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Withholding Tax
on Dividends
|----------------------------



|Non-residents  of
Finland  are  subject to Finnish  withholding  tax on  dividends  paid by a  Finnish
company.  In the  absence  of any  applicable  treaty,  the rate of  withholding  tax is
29 percent as from  January 1, 2000.  Finland has entered into double taxation treaties
with  many  countries  pursuant  to which the  withholding  tax is  reduced on  dividends
paid to persons  entitled to the benefits under such treaties,  unless the  shares  from
which  such  dividends  derive are  effectively  connected with a permanent
establishment or a fixed base in Finland, in  which case Finnish  income taxes are levied
on the dividends so derived.  In the case of the treaty with the United States,  the
withholding  tax  rates  are  reduced  to 15  percent.  The  Finnish  company  paying
the  dividend  is  responsible  for  deducting  any  applicable  Finnish  withholding tax.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|A  reduction  of
such  withholding  tax rate can be obtained at  source  upon  the  submission  of a
Source  Tax  Card  or the  required  information  (name, date of birth and address) to
the payer prior to the  payment of dividends.  If such a Source Tax Card or such
information is  not submitted in a timely manner,  a refund of tax withheld in excess of
the  applicable  treaty rate can be  obtained  upon  application  to the  local tax
authority.  The Bank of New York as  Depositary  for the ADSs  has agreed to use
reasonable  efforts to make and maintain  arrangements  enabling  holders  to  receive
tax  credits,  reduction  in  Finnish  withholding  tax or other  benefits  (pursuant  to
treaty or  otherwise)  relating  to dividend  payments on the ADSs at the time the
dividend is  paid.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|No withholding tax is levied
      under Finnish law on dividends paid to corporate entities that reside in
      the EU and directly hold at least 25 percent of the capital of the distributing
      Finnish company, provided that such entities are not entitled to the tax
      credit under the Finnish avoir fiscal system and are subject to a
      general corporate income tax in their respective countries of residency,
      as specified in Directive 90/435/EEC.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Finnish
Transfer Tax
|--------------------



|There is no
transfer tax payable in Finland on share  transfers  made on the  Helsinki  Exchanges.
If the  transfer  is not  made on the  Helsinki  Exchanges,  a transfer  tax at the rate
of 1.6  percent of the  relevant sales price is payable by the buyer.  However,  if the
buyer is  neither a resident of Finland nor a Finnish  branch of a foreign  credit
institution  nor a  Finnish  branch  of a foreign  brokerage  firm,  the  seller  must
collect  the tax from the buyer.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 71 | 
| | -- | 



---





|If neither the buyer nor  the  seller is a
resident  of  Finland or a Finnish  branch of a foreign  credit  institution or a Finnish
branch of a  foreign  brokerage firm and  it is not a question  of  transfer of shares in
a housing or  real estate  company,  the  transfer of shares will be exempt from  Finnish
transfer  tax. No transfer tax is payable in connection with newly issued shares.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Finnish Capital
Gains and Other Taxes
|-------------------------------------



|Shareholders  who
are not  resident in Finland,  and who do not  engage in trade or business  through a
permanent  establishment or fixed  base in Finland  which could be  regarded as the
holder of the  relevant  shares  or ADSs,  will  normally  not be  subject  to  Finnish
taxes on  capital  gains  realized on the transfer of shares.  Transfers of shares  by a
non-resident  of  Finland by way of gift or by reason of the death  of  the  owner  are
subject  to  Finnish  gift  or  inheritance  tax  respectively  if either the  transferor
or the transferee was a resident  of  Finland  at the time of death  or when  the gift
was  given,  unless  Finland has waived its rights in a tax treaty to impose tax.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|U.S. Federal Income Taxation
|----------------------------



|General
|-------



|The  following  is
a  summary  of the  principal  U.S.  federal  income  tax  consequences  that  may be
relevant  with  respect  to the  acquisition,  ownership  and  disposition  of shares or
ADSs,  which are  evidenced by American Depositary  Receipts.  This summary addresses
only  the U.S. federal income tax  considerations  of holders that are initial
purchasers  of the shares or ADSs at the  initial  issue  price and that  will hold
shares  or ADSs as  capital  assets.  This  summary  does not  address tax considerations
applicable to holders that may be subject to  special tax rules, such as financial
institutions,  insurance companies,  real estate  investment  trusts,  grantor trusts,
regulated  investment  companies,  dealers or traders in securities or  currencies,
tax-exempt  entities,  persons that received shares or ADSs as compensation  for the
performance  of services,  persons that will hold shares or ADSs as part  of a  hedging or
conversion transaction  or  as a  position  in a  straddle for
U.S.  federal  income tax purposes,  persons that have a  functional  currency other
than the U.S.  dollar or holders  that own  (or are deemed to own) ten  percent  or more
(by voting  power or value)  of the stock of the  Company.  This  summary does not
address any state,  local or foreign tax  consequences  of the  acquisition,  ownership
and  disposition of shares or ADSs.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Moreover,  this
summary  does not  address  the  U.S.  federal  estate  and  gift  or  alternative
minimum  tax  consequences  of  the  acquisition,  ownership and  disposition of shares
or ADSs. This summary  is based (i) on the  Internal  Revenue  Code of 1986,  as  amended
(the  Code),  U.S.  Treasury  Regulations  and judicial  and  administrative
interpretations  thereof, in each case as in effect and available on the  date hereof,
and (ii) in part, on the  representations of the depositary  and the  assumption  that
each  obligation in the deposit  agreement and  any related  agreement  will be performed
in accordance  with its terms.  All of the  foregoing  are subject to change,  which
change could apply  retroactively and could affect the tax consequences described below.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For purposes of
this summary,  a U.S.  Holder is a beneficial  owner of shares or ADSs that,
for U.S. federal income tax purposes,  is:  (i) a citizen or resident of the United
States,  (ii) a  partnership or  corporation  created  or  organized  in or under
the laws of the  United  States  or any state  thereof  (including  the  District  of
Columbia),  (iii) an  estate the income of which is subject to U.S.  federal  income
taxation  regardless  of its  source,  or (iv) a  trust,  if such  trust  validly
elects to be treated as a U.S.  person for U.S.  federal income  tax  purposes  or if (A) a
court  within the  United  States is able to  exercise  primary  supervision  over its
administration  and (B) one or  more U.S.  persons have the authority to control all
of the  substantial  decisions of such trust.  A Non-U.S.  Holder is a
beneficial  owner of  shares or ADSs that is not a U.S. holder.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|If a partnership
(or any other entity treated as a partnership  for U.S.  federal  income tax  purposes)
holds shares or ADSs,  the tax  treatment of the partnership or a partner in such
partnership  generally  will  depend on the  status of the  partner  and the  activities
of the  partnership.  Such  partner or  partnership  should  consult its own tax  advisor
as to its tax consequences.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Ownership of ADSs in General
|----------------------------



|For  U.S.  federal
income  tax  purposes,  a  holder  of  ADSs  generally  will be  treated as the owner of
the  shares  represented  by  such ADSs.
|----------------------------------------------------------------------------------------------------------------------------------------------------



|The  U.S.
Treasury  Department  has  expressed  concern  that  depositaries for American Depositary
Receipts,  or other intermediaries  between  the  holders  of  shares of an issuer  and
the  issuer,  may be  taking actions that are  inconsistent  with the claiming of U.S.
foreign  tax credits by U.S.  holders of such  receipts  or shares.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 72 | 
| | -- | 



---





|Accordingly,  the  analysis  regarding the
availability  of a U.S.  foreign tax credit  for Finnish taxes  and sourcing rules
described  below could be affected  by future actions that may be  taken by the U.S.
Treasury Department.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Distributions
|-------------



|The gross amount of any distribution
      by the Company of cash or property (other than certain distributions, if
      any, of shares or ADSs distributed pro rata to all shareholders of
      the Company including holders of ADSs) with respect to shares or ADSs, before
      reduction for any Finnish taxes withheld therefrom, will be includible in
      income by a U.S. Holder as dividend income to the extent such distributions
      are paid out of the current or accumulated earnings and profits of the Company
      as determined under U.S. federal income tax principles. Non-corporate U.S.
      Holders generally will be taxed on such dividends at the lower rates applicable
      to long-term capital gains (i.e., generally, gains from the sale or exchange
      of capital assets held for more than one year) for taxable years beginning
      on or before December 31, 2008. However, such dividends will not be eligible
      for the dividends received deduction generally allowed to corporate U.S.
      Holders. To the extent, if any, that the amount of any distribution by the
      Company exceeds the Companys current and accumulated earnings and
      profits as determined under U.S. federal income tax principles, it will
      be treated first as a tax-free return of the U.S. Holders adjusted
      tax basis in the shares or ADSs and thereafter as capital gain. The Company
      does not maintain calculations of its earnings and profits under U.S. federal
      income tax principles.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Any such  dividend
paid in euros (or any  currency  other than  U.S.  dollars) will be included in the gross
income of a U.S.  Holder in  an amount equal to the U.S.  dollar value of the euro (or,
if not euros,  the  currency  in which the  dividend  was paid) on the date of receipt,
which  in the  case of  ADSs,  is the  date  they  are  received  by the  depositary.
The amount of any  distribution of property other than cash  will  be  the  fair  market
value  of  such  property  on the  date  of  distribution.  Any  gain  or  loss  realized
by  a  U.S.  Holder  that  subsequently  sells or  otherwise  disposes of euros (or,  any
currency  other than U.S. dollars) will be ordinary gain or loss.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Dividends
received by a U.S.  Holder with respect to shares or  ADSs will be treated as foreign
source income,  which may be relevant in  calculating  such  holders  foreign tax
credit  limitation.  Subject to  certain  conditions  and  limitations,  any  Finnish
tax  withheld  on  dividends  may be deducted  from  taxable  income or credited  against
a  U.S.  Holders U.S.  federal  income tax  liability.  The  limitation on  foreign
taxes eligible for credit is calculated  separately with respect  to specific classes of
income. For this purpose,  dividends  distributed  by the Company  generally will
constitute  passive  income, or, in the  case of certain U.S. Holders, financial
services income.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Subject to the
discussion  below under Backup  Withholding Tax  and Information Reporting
Requirements, a Non-U.S. Holder of shares or  ADSs  generally  will  not  be
subject  to  U.S.  federal  income  or  withholding  tax on  dividends  received on
shares or ADSs,  unless such  income  is  effectively  connected  with the  conduct  by
such  Non-U.S.  Holder of a trade or business in the United States.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Sale or Exchange of Shares or ADSs
|----------------------------------



|A U.S.  Holder
generally  will  recognize  gain or loss on the  sale or exchange of shares or ADSs equal
to the  difference  between the  amount realized on such sale or exchange and the U.S.
Holders adjusted  tax basis in the shares or ADSs.  Such gain or loss will be
capital gain  or  loss.  In the  case of a  non-corporate  U.S.  Holder,  the  maximum
marginal U.S.  federal  income tax rate  applicable to such gain will be  lower than the
maximum  marginal U.S. federal income tax rate applicable  to ordinary income (other than
certain  dividends) if such U.S. Holders  holding  period for such shares or ADSs
exceeds one year.  Gain or loss,  if any,  recognized by a U.S.  Holder  generally will
be treated as U.S.  source  income  or loss  for  U.S.  foreign  tax  credit  purposes.
The  deductibility of capital losses is subject to limitations.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The initial  tax
basis of shares or ADSs to a U.S.  Holder will  be  the  U.S.  dollar  value  of the
euro  denominated  purchase  price  determined  on the date of  purchase.  If the shares
or ADSs are treated  as traded on an  established  securities  market, a cash
basis  U.S.  Holder (or, if it elects,  an accrual basis U.S.  Holder) will determine
the dollar value of the cost of such shares or ADSs by  translating  the  amount paid at
the spot rate of exchange on the  settlement  date of the  purchase.  The conversion of
U.S. dollars to euros and the immediate use  of that currency to purchase  shares or ADSs
generally  will not result  in taxable gain or loss for a U.S. Holder.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|With  respect to
the sale or  exchange  of shares or ADSs,  the  amount  realized  generally will be the
U.S. dollar value of the payment  received  determined  on (i) the date of  receipt of
payment in the case  of a cash basis  U.S.  Holder  and (ii) the date of  disposition  in
the  case of an accrual basis U.S. Holder.  If the shares or ADSs are treated  as traded
on an established  securities  market, a cash basis
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 73 | 
| | -- | 



---





|taxpayer  (or, if it  elects,  an accrual basis
taxpayer)  will determine the U.S.  dollar value of the amount  realized by translating
the amount received  at the spot rate of exchange on the  settlement date of the sale.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Subject to the
discussion  below under Backup  Withholding Tax  and Information Reporting
Requirements, a Non-U.S. Holder of shares or  ADSs  generally  will  not  be
subject  to  U.S.  federal  income  or  withholding  tax on any gain  realized  on the
sale or  exchange of such  shares or ADSs unless  (i) such gain is  effectively
connected with the  conduct by such  Non-U.S.  Holder of a trade or  business  in the
United  States  or  (ii) in  the  case of any  gain  realized  by an  individual
Non-U.S.  Holder,  such  holder is  present  in the  United  States  for  183 days
or more in the  taxable  year of  such  sale or  exchange  and  certain other conditions
are met.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Backup Withholding Tax and Information
Reporting Requirements
|-------------------------------------------------------------



|U.S.  backup
withholding  tax  and  information  reporting  requirements  generally  apply  to
certain  payments  to  certain  noncorporate  holders of stock.  Information  reporting
generally  will  apply to payments  of  dividends  on, and to  proceeds  from the sale or
redemption  of, shares or ADSs made within the United States to a holder  of  shares  or
ADSs  (other  than an  exempt  recipient, including  a  corporation,  a
payee  that  is  not a U.S.  person  that  provides  an  appropriate  certification  and
certain other persons).  A payor will be  required  to  withhold  backup  withholding
tax  from any  payments  of  dividends on, or the proceeds from the sale or redemption
of, shares or  ADSs  within  the  United  States  to a holder  (other  than an  exempt
recipient)  if such  holder  fails  to  furnish  its  correct  taxpayer
identification  number or otherwise  fails to comply with,  or establish  an exemption
from, such backup withholding tax requirements.  The backup  withholding tax rate is 28
percent through 2010.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In the case of
such  payments  made within the United States to  a foreign simple trust,  foreign
grantor trust or foreign  partnership  (other than a payment to a foreign simple trust,
foreign grantor trust  or foreign partnership that qualifies as a withholding
foreign trust or a  withholding  foreign  partnership within  the
meaning  of the  applicable U.S. Treasury  Regulations and a payment to a foreign simple
trust,  foreign  grantor  trust  or  foreign  partnership  that  is  effectively
connected  with the  conduct of a trade or business in the  United  States),  the
beneficiaries  of the foreign simple trust,  the  persons  treated  as the  owners of the
foreign  grantor  trust or the  partners  of the  foreign  partnership,  as the  case
may be,  will be  required  to  provide  the  certification  discussed  above in order to
establish  an exemption  from backup  withholding  tax and  information  reporting
requirements.  Moreover, a payer may rely on a certification  provided  by a payee that
is not a U.S.  person only if such payer does  not have actual  knowledge or a reason to
know that any  information or  certification stated in such certificate is incorrect.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The above
description is not intended to constitute a complete analysis of all tax consequences
relating to acquisition, ownership and disposition of shares or ADSs. You should
consult your own tax advisor concerning the tax consequences of your particular
situation.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Documents on Display
|--------------------



|We  are  subject
to  the  informational  requirements  of  the  Exchange Act. In  accordance  with these
requirements,  we file reports  and other  information  with the SEC.  These  materials,
including this  annual report and the exhibits  thereto,  may be inspected and copied at
the SECs Public  Reference Room at 450 Fifth Street,  N.W.,  Washington  D.C.
20549.  The public may obtain  information on the operation of the  SECs Public
Reference  Room by calling the SEC in the United States at  1-800-SEC-0330.  The SEC also
maintains a web site at http://www.sec.gov  that contains any reports,  statements and
other  information  that have  been filed  electronically with the SEC. We have made
electronic filings  with the SEC since October 30, 2002. In addition,  material submitted
by  us may be inspected at the offices of the New York Stock  Exchange at 20  Broad
Street, New York, New York 10005.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 11.  Quantitative and Qualitative
Disclosures about Market Risk
|--------------------------------------------------------------------



|The task of Metsos
corporate  treasury is to manage financial  risks in accordance  with the treasury
policy  reviewed and approved by  the  board of  directors  of Metso  Corporation,  and
to  safeguard  the  availability  of  Metsos  equity  and debt  capital  under
competitive  terms.  The  corporate  treasury  functions as the  counterparty  to the
operating units,  centrally  manages external funding and is responsible  for  the
management  of  financial  assets  and  appropriate  hedging  measures.  Our financial
operations  are conducted to support  business  purposes and within the  framework of
corporate  operating  policies and  guidelines.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 74 | 
| | -- | 



---





|Market risk refers
to the risk of loss  arising  from  adverse  changes in exchange  rates,  interest
rates,  and other relevant market  prices,  such as  equity or  commodity  prices.  In
order to manage  our  exposures to market risk,  we  continually  assess our market
exposures  and attempt to hedge such risks through  financial  operations to reduce  the
adverse effects on our profitability.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our business units seek to
      identify the financial risks connected with their business operations and
      minimize their impact on Metsos financial results. To control financial
      risks within limits, we use different derivative and non-derivative instruments,
      such as forward contracts, currency and interest rate swaps, options and
      foreign currency denominated balance sheet items. Derivatives are used only
      to support the underlying businesses (i.e., for hedging purposes only).
      Currently, we do not hold derivatives for trading (speculative) purposes
      and we do not use high-risk derivative instruments such as written options
      on a sole basis or leveraged instruments. For additional information on
      the derivative financial instruments we use, see Note 28 to our audited
      consolidated financial statements. Metso meets the criteria for hedge accounting
      under Finnish GAAP but has decided not to apply hedge accounting under U.S.
      GAAP.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We do  not
anticipate  any  material  adverse  effect  on  our  consolidated  financial condition,
results of operations or cash flows,  resulting from the use of derivative financial
instruments.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We use
sensitivity  analysis  techniques  to measure  exchange  rate,  interest  rate,  equity
price and  electricity  price risk.  The  estimated  amounts  generated  from  the
sensitivity  analysis  are  forward-looking  statements  of market risk,  assuming
certain  adverse  market  conditions  occur.  Actual  results  in the  future  may
differ  materially  from  the  projected  results.  The  method  expresses  the
potential  change in future  earnings,  cash flows or fair  values for a  specified
period  resulting  from selected  hypothetical  variations in  foreign  currency
exchange  rates,  interest  rates,  equity  prices or  electricity prices.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Exchange Rates and Foreign Currency Exposure
|--------------------------------------------



|In accordance with
our treasury policy,  under the direction of  our corporate treasury department,  the
business units hedge in full the  currency  exposures  that  arise  from  firm  delivery
and  purchase  agreements.  In  addition,  the  units  can  hedge  anticipated  foreign
currency-denominated  cash flows by taking into account the significance  of such cash
flows,  the competitive  situation and other  opportunities  to adapt. The business units hedging
practices are monitored  regularly  by our corporate treasury department.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Hedging
operations are centralized  through Metsos  treasury.  Upper  limits  have  been
set on the  open  currency  exposures  of the  corporate  treasury,  calculated on the
basis of their potential  profit  impact.  These limits cover net exposures from
transfers  between units  and items arising from financing  activities.  Future  foreign
currency  net cash flows are hedged for periods,  which do not normally exceed two
years.  Accordingly,  the  majority of future cash flows  related to the  order backlog
are hedged.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We  have,  to a
large  extent,  hedged  our  foreign  currency  denominated  net  assets of  foreign
subsidiaries  through  borrowings,  currency  derivatives,  and to some extent  through
receivables.  As of  December  31,  2003,  apart from  forward  foreign  exchange
contracts,  options and currency swaps, we were not a party to any other  derivative
foreign currency instruments.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We had  hedged
approximately  90  percent  of our net  foreign  currency  exposure at the end of 2003,
arising primarily from long-term  contracts,  net of any expected matching foreign
currency  payments.  In  addition,  as of December 31,  2003,  we had hedged net of tax
effect 57  percent of our  Swedish  krona,  72  percent  of our U.S.  dollar and 64
percent  of  our  Canadian  dollar  denominated  net  investments  in  subsidiaries by
borrowings and forward exchange contracts.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our net  gains
and  losses  sustained  from  foreign  currency  exchange rate fluctuations  were
approximately a net loss of 3 million  for the year  ended  December  31,  2003,
compared  to a net loss of 6  million for the year ended December 31, 2002.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The basis  for the
sensitivity  analysis  to  measure  foreign  exchange risk is an aggregate
corporate-level  currency exposure, which  is composed of future cash flows in foreign
currencies.  The  aggregate  foreign  exchange  transaction  exposure  is  composed of
all assets and  liabilities that are denominated in foreign currencies,  excluding those
items  which  have been used to hedge net  investments,  projected  cash  flows  from
firm  commitments  of both  short- and  long-term  sales and  purchase  contracts,
hedged  anticipated  cash  flows  and  derivative  financial instruments hedging the
above items.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 75 | 
| | -- | 



---





|The sensitivity
analysis assumes an instantaneous  ten percent  change in foreign  currency  rates
against the euro from their level as  of December 31, 2003,  with all other  variables
held  constant.  If the  euro  appreciates  or  depreciates  ten  percent  against  all
other  currencies,  the impact on our cash flows derived from the year-end 2003  net
exposure is a  corresponding  decrease or increase of  approximately  2 million
during future years,  compared to less than 1 million as of  December 31, 2002.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|These  above
assumptions  are  hypothetical  and  the  actual  results may differ substantially from
the projected figures.
|---------------------------------------------------------------------------------------------------------------------------



|Interest Rate Risk
|------------------



|We are exposed to
variations  in interest  rates  primarily on  euro and U.S. dollar  denominated  debt,
which may cause changes in the  values of interest bearing liabilities and assets,  which
are already in  the  balance  sheet  (price  risk) and also affect the amounts of future
interest  income or expenses  (reinvestment  risk or cash flow risk). To  manage
interest  rate  risk,  we  have  set  limits  for the  ratio  of  floating-rate  to
fixed-rate  loans and the average  duration.  Interest  rate  risks  can also be  managed
by  interest  rate  swaps  and  other  derivative contracts.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We use
sensitivity  analysis  techniques to measure and assess  our interest  rate risk.  The
basis for the  sensitivity  analysis is an  aggregate  corporate level interest rate
exposure,  composed of interest  bearing investments,  interest bearing debts and
financial  derivatives,  such as interest rate swaps, which are used to hedge the above
items.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  sensitivity
analysis  assumes a one  percent  (100  basis  points)  parallel move in interest rates
for all  maturities  from their  levels as of December 31, 2003 with all other  variables
held constant.  A one percent move  upwards or  downwards  in all  interest  rates would
lead  to a  corresponding  increase  or  decrease  of  approximately  5  million on
net  interest  expenses  on the  outstanding  balances  as of  December 31, 2003,
compared to 5 million as of December 31, 2002.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Equity Price Risk
|-----------------



|The market  value
of the shares in  publicly  traded  companies  owned by us as of December 31, 2003,  was
16 million.  If the prices of  the  shares  had  decreased  by ten  percent,  the
market  value of the  investments  at the end of 2003  would  have  declined  by 2
million in  comparison  to 1  million  at the end of  2002.  We have  not  used any
derivative instruments to hedge our equity investments.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Commodity Price Risk
|--------------------



|We are  exposed
to  variations  in  prices  of  materials  and  supplies  including  energy.  To  manage
risks  related  to  prices  of  electricity in certain  regions,  we have since August
2003 used forward  contracts to hedge part of these  exposures.  Hedging is focusing on
the  estimated energy consumption for the next twelve-month  period with some  contracts
extended to approximately three years.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We use
sensitivity  analysis  techniques to measure and assess  risk on electricity  forward
contracts.  The basis for the  sensitivity  analysis  is the net  aggregate  amount of
energy  bought by the forward  contracts.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The sensitivity
analysis assumes a 10 percent parallel move in  electricity  price for all  maturities
from their levels as of December  31,  2003.  A 10 percent  move  upwards or downwards in
all prices would  lead  to  a  corresponding  increase  or  decrease  in  net  assets  of
approximately  1  million  on  fair  values  of  electricity  forward  contracts
outstanding as of December 31, 2003.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Other  commodity
risks  are not  managed  by  using  financial  instruments.
|----------------------------------------------------------------------------



|Item 12.  Description of Securities Other
than Equity Securities
|----------------------------------------------------------------



|Not applicable.
|---------------



| | 76 | 
| | -- | 



---





|PART II
|-------



|Item 13.  Defaults, Dividend Arrearages and
Delinquencies
|---------------------------------------------------------



|None.
|-----



|Item 14.  Material Modifications to the
Rights of Security Holders and  Use of Proceeds
|---------------------------------------------------------------------------------------



|None.
|-----



|Item 15.  Controls and Procedures
|---------------------------------



|Our  president
and chief  executive  officer and our executive  vice  president  and  chief  financial
officer;  after  evaluating  the  effectiveness  of our disclosure  controls and
procedures (as defined in  Rules  13a-14(c)  under the Exchange Act) as of December 31,
2003,  have  concluded that, as of such date, our disclosure  controls and procedures
were  effective  to ensure  that  material  information  relating to the  Company  was
made  known  to  them  by  others  within  the  Company  particularly  during the period
in which  this  annual  report was being  prepared.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|There were no
changes in the  Companys  internal  control over  financial  reporting  that
occurred  during  the  fiscal  year  ended  December 31,  2003  that have
materially  affected,  or are  reasonably  likely  to  materially  affect,  the  Companys
internal  control  over  financial reporting.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 16.  [Reserved]
|--------------------



|Item 16A.  Audit Committee Financial Expert
|-------------------------------------------



|Our board of
directors  has  determined  that Mr. Heikki Hakala  is an audit committee  financial
expert as defined in the  instructions  to Item 16A of Form  20-F.  Both other  members
of the audit  committee,  Mr.  Matti  Kavetvuo  and  Ms.  Maija-Liisa  Friman,  are
independent  directors  as  defined  in  Section  303A.02  of  the  New  York  Stock
Exchanges Listed Company Manual.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 16B.  Code of Ethics
|-------------------------



|In 2002,  we
adopted  a code of  ethics  that  applies  to our  president and chief executive
officer,  our chief financial officer and  our principal  accounting  officer.  The code
of ethics can be viewed on  our  Internet  pages at  www.metso.com  -> About us ->
Values -> Ethical  Principles.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 16C.  Principal Accountant Fees and
Services
|-------------------------------------------------



|Audit Fees
|----------



|During  the
financial  years  ended  December  31,  2002  and  December 31, 2003,  we incurred
aggregate  expenses of 3.2 million and  2.8  million  respectively,  for
services  rendered  by our  principal  auditor,  PricewaterhouseCoopers  for the audit of
our annual  financial  statements  and  services  rendered in  connection  with
statutory  and  regulatory filings including the review of documents filed with the SEC.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Audit-Related Fees
|------------------



|During the financial years
      ended December 31, 2002 and December 31, 2003, we incurred aggregate expenses
      of 0.8 million and 1.3 million, respectively, for services rendered
      by our principal auditor, PricewaterhouseCoopers for assurance and related
      services. Audit-related fees consist of fees billed for assurance and related
      services that are reasonably related to the performance of the audit or
      review of the registrants financial statements or that are traditionally
      performed by the external auditor, and include consultations concerning
      financial accounting and reporting standards; internal control reviews,
      review of security controls and operational effectiveness of systems, due
      diligence reviews related to acquisitions, and employee benefit plan audits.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 77 | 
| | -- | 



---





|Tax Fees
|--------



|During  the
financial  years  ended  December  31,  2002  and  December 31, 2003,  we incurred
aggregate  expenses of 2.1 million and  2.7  million,  respectively,  for
services  rendered by our  principal  auditor, PricewaterhouseCoopers,  for services
related to tax compliance  including  the  preparation  of  original  and  amended  tax
returns and  claims for refund; tax consultations and tax planning services.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|All Other Fees
|--------------



|During the
financial  year ended December 31, 2002, we incurred  aggregate  expenses  of  0.2
million  for  services  provided  by  PricewaterhouseCoopers  Consulting  prior  to its
sale to IBM in  2002.  There were no such fees incurred in 2003.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Audit Committee Pre-Approval Policies and
Procedures
|----------------------------------------------------



|The audit committee has adopted
      a policy requiring pre-approval of audit, audit-related, tax and other non-audit
      services provided by our independent auditors. Under this policy, the audit
      committee shall annually pre-approve an audit plan containing the types
      of services to be performed by our principal auditor, including an estimate
      of fees grouped by the type of service, based on a schedule prepared together
      by Metso and our principal accountant. The appendices to the policy set
      out the services that have been pre-approved by the audit committee without
      specific advance consideration, subject to an annual review. All other audit,
      audit-related, tax and other services that do not fall under the de minimis
      exception and which are outside the scope of pre-approval described above
      must be specifically pre-approved by the audit committee.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|During 2003, services provided
      to Metso by PricewaterhouseCoopers representing less than 2 percent of audit-related
      fees (equivalent to less than 0.5 percent of the total fees) were approved
      by the Audit Committee pursuant to the de minimis exception to the
      pre-approval requirement provided in Rule 2-01(c)(7)(i)(C) of Regulation
      S-X.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 16D.  Exemptions from the Listing
Standards for Audit Committees
|---------------------------------------------------------------------



|Not applicable.
|---------------



|Item 16E. Purchases of Equity Securities
      by the Issuer and Affiliated Purchasers
|--------------------------------------------------------------------------------------



|Not applicable.
|---------------



|PART III
|--------



|Item 17.  Financial Statements.
|-------------------------------



|Not applicable.
|---------------



|Item 18. Financial Statements.
|------------------------------



|See financial
statements beginning on page F-1.
|-----------------------------------------------



| | 78 | 
| | -- | 



---





|Item 19. Exhibits
|-----------------



|Documents filed as
exhibits to this annual report:
|--------------------------------------------------



|1.1 | Articles
of Association of Metso.*
|--- | ----------------------------------





|2.1 | Not
applicable.**
|--- | -----------------





|4.1 | Service
Contract  for  Jorma  Eloranta,  president  and  chief  executive officer of Metso
Corporation, dated November 30, 2003.
|--- | --------------------------------------------------------------------------------------------------------------------------------





|6.1 | See
Note 11 to our consolidated  financial  statements  included  in this annual report for
information on how earnings per share  information was calculated.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------





|8.1 | List
of Subsidiaries.
|--- | ---------------------





|12.1 | Certification
of Jorma Eloranta,  president and chief executive  officer of Metso  Corporation,
pursuant  to Section  302 of the  Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------





|12.2 | Certification
of Olli  Vaartimo,  executive  vice president and  chief  financial  officer  of  Metso
Corporation,  pursuant  to  Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|13.1 | Certification
of Jorma Eloranta,  president and chief executive  officer  of Metso  Corporation,
pursuant  to 18 U.S.C.  Section  1350, as adopted  pursuant to Section 906 of the
Sarbanes-Oxley  Act of 2002.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|13.2 | Certification
of Olli  Vaartimo,  executive  vice president and  chief  financial  officer of Metso
Corporation,  pursuant to 18  U.S.C.  Section 1350, as adopted  pursuant to Section 906
of the  Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|
|

|* |  | Incorporated by reference to our annual report
      on Form 20-F for the fiscal year ended December 31, 2002, filed with the
      SEC on April 17, 2003.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|** |  | The
total amount of long-term debt securities authorized under  any instrument does not
exceed ten percent of the total assets of  the Group on a consolidated basis.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 79 | 
| | -- | 



---





|INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS OF METSO CORPORATION
|---------------------------------------------------------------

|                                                                    | Page
|------------------------------------------------------------------- | ----
|Report of Independent Auditors                                      | F-2 
|                                                                    |     
|Consolidated Statements of Income
      for each of the years ended |     
|December 31, 2001,
      2002 and 2003                              | F-3 
|                                                                    |     
|Consolidated Balance Sheets as
      of December 31, 2002 and 2003  | F-4 
|                                                                    |     
|Consolidated Statements of Cash
      Flows for each of the years   |     
|ended December 31,
      2001, 2002 and 2003                        | F-7 
|                                                                    |     
|Consolidated Statements of Changes
      in Shareholders Equity    |     
|as of December 31,
      2001, 2002 and 2003                        | F-9 
|                                                                    |     
|Notes to the Consolidated Financial
      Statements                | F-10



| | F-1 | 
| | --- | 



---





|METSO
|-----



|REPORT OF INDEPENDENT AUDITORS
|------------------------------



|To the Board of Directors and Shareholders of
Metso Corporation
|---------------------------------------------------------------



|In our opinion, the accompanying consolidated
balance sheets and the related  consolidated statements of income, statements of cash
flows and statements of  shareholders equity, present fairly, in all material respects,
the financial  position of Metso Corporation and its subsidiaries at December 31, 2003
and  December 31, 2002, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2003, in conformity  with
accounting principles generally accepted in Finland. These financial  statements are the
responsibility of the Companys management; our  responsibility is to express an opinion
on these financial statements based on  our audits. We conducted our audits of these
statements in accordance with  auditing standards generally accepted in the United States
of America and in  Finland, which require that we plan and perform the audit to obtain
reasonable  assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting  the
amounts and disclosures in the financial statements, assessing the  accounting principles
used and significant estimates made by management, and  evaluating the overall financial
statement presentation. We believe that our  audits provide a reasonable basis for our
opinion.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Accounting principles generally accepted in
Finland vary in certain significant  respects from accounting principles generally
accepted in the United States of  America. Information relating to the nature and effect
of such differences is  presented in Note 32 to the consolidated financial statements.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Helsinki, Finland 
      February 23, 2004, except for Notes 32 and 33, 
      as to which date is March 24, 2004
|-----------------------------------------------------------------------------------------------------------------



|PricewaterhouseCoopers Oy  Authorized Public
Accountants
|--------------------------------------------------------



| | F-2 | 
| | --- | 



---





|METSO
|-----



|Consolidated Statements of
Income (in millions, except for per share amounts)
|-----------------------------------------------------------------------------

|                                                                |  |       |  | Year ended December 31, |  
|--------------------------------------------------------------- |  | ----- |  | ----------------------- | -
|                                                                |  | Note  |  | 2001                    |  
|                                                                |  |       |  |                        |  
|                                                                |  |       |  |                         |  
|Net sales                                                       |  |       |  | 4,343                   |  
|                                                                |  |       |  |                         |  
|Cost of goods sold                                              |  | 3,6   |  | (3,200                  | )
|                                                                |  |       |  |                         |  
|Gross profit                                                    |  |       |  | 1,143                   |  
|                                                                |  |       |  |                         |  
|Selling, general and administrative expenses                    |  | 2,3,6 |  | (873                    | )
|Nonrecurring operating income and expenses,
      net           |  | 4     |  | 4                       |  
|Goodwill impairment                                             |  | 5     |  |                        |  
|Amortization of goodwill                                        |  | 6     |  | (28                     | )
|                                                                |  |       |  |                         |  
|Operating profit (loss)                                         |  |       |  | 246                     |  
|                                                                |  |       |  |                         |  
|Financial income and expenses, net                              |  | 7     |  | (24                     | )
|Share of profits of associated companies                        |  | 8     |  | 0                       |  
|                                                                |  |       |  |                         |  
|Income (loss) before extraordinary items
      and income taxes |  |       |  | 222                     |  
|                                                                |  |       |  |                         |  
|Extraordinary expenses, net                                     |  | 9     |  | (8                      | )
|                                                                |  |       |  |                         |  
|Income (loss) before income taxes                               |  |       |  | 214                     |  
|                                                                |  |       |  |                         |  
|Income taxes                                                    |  | 10    |  | (72                     | )
|Minority interests                                              |  |       |  | (1                      | )
|                                                                |  |       |  |                         |  
|Net income (loss)                                               |  |       |  | 141                     |  
|                                                                |  |       |  |                         |  
|Earnings (loss) per share                                       |  | 11    |  | 1.09                    |  
|                                                                |  |       |  |                         |  



|The accompanying Notes form an
integral part of these consolidated financial statements.
|----------------------------------------------------------------------------------------



| | F-3 | 
| | --- | 



---





|METSO
|-----



|Consolidated Balance Sheets
(in millions)
|-----------------------------------------

|                                                                              |  |       |  | As of December 31, | 
|----------------------------------------------------------------------------- |  | ----- |  | ------------------ | 
|                                                                              |  | Note  |  | 2002               | 
|ASSETS                                                                        |  |       |  |                   | 
|                                                                              |  |       |  |                    | 
|Fixed assets and financial assets                                             |  |       |  |                    | 
|Intangible assets                                                             |  | 12    |  |                    | 
|Goodwill                                                                      |  |       |  | 895                | 
|Other intangible assets                                                       |  |       |  | 116                | 
|                                                                              |  |       |  |                    | 
|                                                                              |  |       |  | 1,011              | 
|                                                                              |  |       |  |                    | 
|Tangible assets                                                               |  | 12,13 |  |                    | 
|Land and water areas                                                          |  |       |  | 85                 | 
|Buildings                                                                     |  |       |  | 350                | 
|Machinery and equipment                                                       |  |       |  | 343                | 
|Other tangible assets                                                         |  |       |  | 31                 | 
|Assets under construction                                                     |  |       |  | 82                 | 
|                                                                              |  |       |  |                    | 
|                                                                              |  |       |  | 891                | 
|                                                                              |  |       |  |                    | 
|Financial assets                                                              |  |       |  |                    | 
|Shareholdings and other securities                                            |  | 15    |  | 51                 | 
|Own shares                                                                    |  | 15    |  | 1                  | 
|Loans receivable                                                              |  | 18    |  | 20                 | 
|Accounts receivable                                                           |  | 18    |  | 5                  | 
|Other long-term investments                                                   |  | 16,18 |  | 26                 | 
|                                                                              |  |       |  |                    | 
|                                                                              |  |       |  | 103                | 
|                                                                              |  |       |  |                    | 
|Total fixed and financial assets                                              |  |       |  | 2,005              | 
|                                                                              |  |       |  |                    | 
|Current assets                                                                |  |       |  |                    | 
|Inventories                                                                   |  |       |  |                    | 
|Materials and supplies                                                        |  |       |  | 186                | 
|Work in process                                                               |  |       |  | 281                | 
|Finished products                                                             |  |       |  | 352                | 
|                                                                              |  |       |  |                    | 
|                                                                              |  |       |  | 819                | 
|                                                                              |  |       |  |                    | 
|Receivables                                                                   |  | 18    |  |                    | 
|Accounts receivable                                                           |  |       |  | 836                | 
|Costs and earnings of projects under construction in excess
      of billings |  | 17    |  | 174                | 
|Loans receivable                                                              |  |       |  | 5                  | 
|Accrued income and prepaid expenses                                           |  |       |  | 201                | 
|Deferred tax asset                                                            |  | 10    |  | 98                 | 
|Other receivables                                                             |  |       |  | 60                 | 
|Other short-term investments                                                  |  |       |  | 11                 | 
|                                                                              |  |       |  |                    | 
|                                                                              |  |       |  | 1,385              | 
|                                                                              |  |       |  |                    | 
|Cash and cash equivalents                                                     |  |       |  | 190                | 
|                                                                              |  |       |  |                    | 
|Total current assets                                                          |  |       |  | 2,394              | 
|                                                                              |  |       |  |                    | 
|                                                                              |  |       |  |                    | 
|Total assets                                                                  |  |       |  | 4,399              | 
|                                                                              |  |       |  |                    | 



|The accompanying Notes form an integral
      part of these consolidated financial statements.
|----------------------------------------------------------------------------------------------



| | F-4 | 
| | --- | 



---





|METSO
|-----



|Consolidated Balance Sheets --
Continued  (in millions)
|-------------------------------------------------------

|                                               |  |       |  | As of December 31, |  
|---------------------------------------------- |  | ----- |  | ------------------ | -
|                                               |  | Note  |  | 2002               |  
|                                               |  |       |  |                   |  
|SHAREHOLDERS EQUITY AND 
         LIABILITIES |  |       |  |                    |  
|                                               |  |       |  |                    |  
|Shareholders equity                           |  | 19    |  |                    |  
|Share capital                                  |  |       |  | 232                |  
|Share premium reserve                          |  |       |  | 14                 |  
|Legal reserve                                  |  |       |  | 227                |  
|Cumulative translation differences             |  |       |  | (60                | )
|Reserve for own shares                         |  |       |  | 1                  |  
|Other reserves                                 |  |       |  | 202                |  
|Retained earnings                              |  |       |  | 698                |  
|Net income (loss) for the financial year       |  |       |  | 65                 |  
|                                               |  |       |  |                    |  
|Total shareholders equity                     |  |       |  | 1,379              |  
|                                               |  |       |  |                    |  
|                                               |  |       |  |                    |  
|Minority interests                             |  |       |  | 10                 |  
|                                               |  |       |  |                    |  
|Mortgages and contingent liabilities           |  | 25    |  |                   |  
|                                               |  |       |  |                    |  
|Liabilities                                    |  |       |  |                    |  
|Long-term debt                                 |  | 20    |  |                    |  
|Bonds                                          |  |       |  | 713                |  
|Loans from financial institutions              |  |       |  | 233                |  
|Pension loans                                  |  |       |  | 38                 |  
|Other long-term debt                           |  |       |  | 36                 |  
|                                               |  |       |  |                    |  
|                                               |  |       |  | 1,020              |  
|                                               |  |       |  |                    |  
|Other long-term liabilities                    |  |       |  |                    |  
|Accrued expenses                               |  | 21,24 |  | 126                |  
|Deferred tax liability                         |  | 10    |  | 25                 |  
|Other long-term loans                          |  |       |  | 1                  |  
|                                               |  |       |  |                    |  
|                                               |  |       |  | 152                |  
|                                               |  |       |  |                    |  



|The accompanying Notes form an integral
      part of these consolidated financial statements.
|----------------------------------------------------------------------------------------------



| | F-5 | 
| | --- | 



---





|METSO
|-----



|Consolidated Balance Sheets --
Continued  (in millions)
|-------------------------------------------------------

|                                                                                         |  |       |  | As of December 31,
|---------------------------------------------------------------------------------------- |  | ----- |  | ------------------
|                                                                                         |  | Note  |  | 2002              
|                                                                                         |  |       |  |                  
|Current liabilities                                                                      |  |       |  |                   
|Current portion of long-term debt                                                        |  |       |  | 50                
|Other interest bearing short-term debt                                                   |  | 22    |  | 283               
|Advances received                                                                        |  |       |  | 141               
|Accounts payable                                                                         |  |       |  | 321               
|Billings in
      excess of costs and earnings of projects under 
          construction |  | 17    |  | 84                
|Accrued expenses and deferred income                                                     |  | 23,24 |  | 873               
|Other current liabilities                                                                |  |       |  | 86                
|                                                                                         |  |       |  |                   
|                                                                                         |  |       |  | 1,838             
|                                                                                         |  |       |  |                   
|                                                                                         |  |       |  |                   
|Total liabilities                                                                        |  |       |  | 3,010             
|                                                                                         |  |       |  |                   
|                                                                                         |  |       |  |                   
|Total shareholders equity and liabilities                                               |  |       |  | 4,399             
|                                                                                         |  |       |  |                   



|The accompanying Notes form an integral
      part of these consolidated financial statements.
|----------------------------------------------------------------------------------------------



| | F-6 | 
| | --- | 



---





|METSO
|-----



|Consolidated Statements of Cash
Flows  (in millions)
|----------------------------------------------------

|                                                                       | Year ended December 31,
|---------------------------------------------------------------------- | -----------------------
|
|
|Cash flows from operating activities:                                  |                        
|Net income (loss)                                                      |                        
|Adjustments to reconcile net income (loss)
      to net cash           |                        
|provided by operating activities:                                      |                        
|Depreciation and amortization                                          |                        
|Efficiency improvement program of 2003:                                |                        
|Provisions                                                             |                        
|Asset write-downs                                                      |                        
|Impairment of goodwill                                                 |                        
|Tax receivable on goodwill impairment                                  |                        
|Gain on sale of fixed assets                                           |                        
|Gains on sale of subsidiaries and associated
      companies           |                        
|Gains on sale of marketable securities                                 |                        
|Share of profits and losses of associated
      companies              |                        
|Other non-cash items                                                   |                        
|Change in net working capital, net of effect
      from                |                        
|business acquisitions                                                  |                        
|                                                                       |                        
|Net cash provided by operating activities                              |                        
|                                                                       |                        
|Cash flows from investing activities:                                  |                        
|Capital expenditures on fixed assets                                   |                        
|Proceeds from sale of fixed assets                                     |                        
|Acquisition of Svedala, net of cash acquired                           |                        
|Other business acquisitions, net of cash
      acquired                |                        
|Investments in associated companies                                    |                        
|Proceeds from sale of subsidiaries and associated
      companies      |                        
|Tax paid on gain of Timberjack sale                                    |                        
|Proceeds from sale of shares and marketable
      securities           |                        
|Investments in shares and marketable securities                        |                        
|                                                                       |                        
|Net cash used in investing activities                                  |                        
|                                                                       |                        
|Cash flows from financing activities:                                  |                        
|Dividends paid                                                         |                        
|Hedging of net investment in foreign subsidiaries                      |                        
|Net borrowings (payments) on short-term debt                           |                        
|Proceeds from issuance of long-term debt                               |                        
|Principal payments of long-term debt                                   |                        
|Notes receivable issued                                                |                        
|Proceeds from payments on notes receivable                             |                        
|Other                                                                  |                        
|                                                                       |                        
|Net cash provided by (used in) financing
      activities              |                        
|                                                                       |                        
|Effect of changes in exchange rates on cash
      and cash equivalents |                        
|Net decrease in cash and cash equivalents                              |                        
|Cash and cash equivalents at beginning of
      year                   |                        
|                                                                       |                        
|                                                                       |                        
|Cash and cash equivalents at end of year                               |                        
|                                                                       |                        



|The accompanying Notes form an
integral part of these consolidated financial statements.
|----------------------------------------------------------------------------------------



| | F-7 | 
| | --- | 



---





|METSO
|-----



|Consolidated Statements of Cash
Flows -- Continued  (in millions)
|-----------------------------------------------------------------

|                                                            | Year ended December 31,
|----------------------------------------------------------- | -----------------------
|
|
|Change in net working capital,
      net of effect from     |                        
|business acquisitions:                                      |                        
|(Increase) decrease in assets and increase
      (decrease) |                        
|in liabilities:                                             |                        
|Inventory                                                   |                        
|Receivables                                                 |                        
|Other assets                                                |                        
|Percentage of completion: recognized assets
      and       |                        
|liabilities, net                                            |                        
|Accounts payable                                            |                        
|Accrued liabilities                                         |                        
|Other liabilities                                           |                        
|                                                            |                        
|Total                                                       |                        
|                                                            |                        
|Supplemental cash flow information:                         |                        
|Acquisition of businesses:                                  |                        
|Intangible assets                                           |                        
|Tangible assets                                             |                        
|Goodwill                                                    |                        
|Current assets, other than cash                             |                        
|Minority interests                                          |                        
|Liabilities assumed                                         |                        
|                                                            |                        
|Acquisition of businesses, net cash used                    |                        
|                                                            |                        
|Revolving credit facility activity                          |                        
|Borrowings                                                  |                        
|Payments                                                    |                        
|                                                            |                        
|Cash paid (received) during the year for                    |                        
|Interest                                                    |                        
|Income taxes (1)                                            |                        

|
|

|(1) |  | Includes
cash receipt of  30 million related to income tax benefit  realized for the goodwill
impairment for the year ended December 31, 2003.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------



|The accompanying Notes form an
integral part of these consolidated financial statements.
|----------------------------------------------------------------------------------------



| | F-8 | 
| | --- | 



---





|METSO
|-----



|Consolidated Statements of
Changes in Shareholders Equity  (in millions, unless otherwise indicated)
|-----------------------------------------------------------------------------------------------------

|                            | Number
      of
      shares | Share
      capital | Share
      premium
      reserve | Legal
      reserve | Cumulative
      translation
      differences | Reserve
      for own
      shares | Other
      reserves | Retained
      earnings | Total
|--------------------------- | ---------------------------- | ------------------- | --------------------------------- | ------------------- | ---------------------------------------------- | ---------------------------------- | -------------------- | ----------------------- | -----
|                            |                              | (thousands)         |                                   |                    |                                                |                                   |                      |                        |      
|Balance at December 31,     |                              |                     |                                   |                     |                                                |                                    |                      |                         |      
|2000                        |                              | 135,562             |                                   | 230                 |                                                | 8                                  |                      | 220                     |      
|Dividends                   |                              |                    |                                   |                    |                                                |                                   |                      |                        |      
|Share issue (option rights) |                              | 689                 |                                   | 2                   |                                                | 6                                  |                      |                        |      
|Translation differences     |                              |                    |                                   |                    |                                                |                                   |                      |                        |      
|Other                       |                              |                    |                                   |                    |                                                |                                   |                      | 1                       |      
|Net income (loss)           |                              |                    |                                   |                    |                                                |                                   |                      |                        |      
|                            |                             
|Balance at December 31,     |                             
|2001                        |                              | 136,251             |                                   | 232                 |                                                | 14                                 |                      | 221                     |      
|                            |                              |                     |                                   |                     |                                                |                                    |                      |                         |      
|Dividends                   |                              |                    |                                   |                    |                                                |                                   |                      |                        |      
|Translation differences     |                              |                    |                                   |                    |                                                |                                   |                      |                        |      
|Other                       |                              |                    |                                   |                    |                                                |                                   |                      | 6                       |      
|Net income (loss)           |                              |                    |                                   |                    |                                                |                                   |                      |                        |      
|                            |                             
|Balance at December 31,     |                             
|2002                        |                              | 136,251             |                                   | 232                 |                                                | 14                                 |                      | 227                     |      
|                            |                              |                     |                                   |                     |                                                |                                    |                      |                         |      
|Dividends                   |                              |                    |                                   |                    |                                                |                                   |                      |                        |      
|Translation differences     |                              |                    |                                   |                    |                                                |                                   |                      |                        |      
|Other                       |                              |                    |                                   |                    |                                                |                                   |                      | 1                       |      
|Net income (loss)           |                              |                    |                                   |                    |                                                |                                   |                      |                        |      
|                            |                             
|Balance at December 31,     |                             
|2003                        |                              | 136,251             |                                   | 232                 |                                                | 14                                 |                      | 228                     |      



|The accompanying Notes form an
integral part of these consolidated financial statements.
|----------------------------------------------------------------------------------------



| | F-9 | 
| | --- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Note 1. Accounting Principles
|-----------------------------



|Description of  businesses
|--------------------------



|Metso is
a multinational engineering company, which designs, develops and produces
systems, automation solutions, machinery and equipment for process industries.
The main customer industries are the pulp and paper, mining, construction and
civil engineering as well as energy and chemical industries. Metsos
operations are divided into four business areas: Metso Paper, Metso Minerals,
Metso Automation and Metso Ventures. Metso Ventures is comprised of Metso
Panelboard, Metso Drives, Metso Powdermet and Valmet Automotive. As of March
2002, reporting for Metso Panelboard was transferred from Metso Paper to Metso
Ventures. In November 2002, Metso announced its plan to dispose of Converting
Equipment, the sale was finalized on January 31, 2004. As of October 1, 2003 the
reporting for the foundries located in Finland and in Sweden was transferred
from Metso Paper and from Metso Minerals to Metso Ventures. On February 4, 2004,
Metso announced its decision to review the development possibilities of its
Compaction and Paving business line, including divestment. Compaction and Paving
is reported under Metso Minerals.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Basis of presentation
|---------------------



|The consolidated financial
      statements, prepared in accordance with Finnish generally accepted accounting
      principles (Finnish GAAP), include the financial statements
      of Metso Corporation (the Parent Company) and its subsidiaries
      (together with the Parent Company, Metso or the Company).
      Metso Corporation was formed in 1999 as a result of the merger of Rauma
      Corporation (Rauma) and Valmet Corporation (Valmet).
      The merger was consummated on July 1, 1999 and is accounted for by the pooling-of-interests
      method.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
financial statements are presented in millions of euros ( ),
except for share and per share amounts.
|-----------------------------------------------------------------------------------------------------------



|Use of estimates
|----------------



|The
preparation of financial statements, in conformity with Finnish GAAP, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Accounting convention
|---------------------



|The
financial statements are prepared under the historical cost convention.
|---------------------------------------------------------------------------



|Principles of consolidation
|---------------------------



|The consolidated
financial statements include the accounts of the Parent Company and each of
those companies in which it owns, directly or indirectly through subsidiaries,
over 50 percent of the voting rights. The companies acquired during the
financial period have been consolidated from the date that Metso acquired
control. Subsidiaries sold have been included up to their date of sale.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|All
intercompany transactions are eliminated as part of the consolidation process.
Minority interests are presented separately before net income. They are also
shown separately from shareholders equity and liabilities on the
consolidated balance sheets.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Acquisitions
of companies are accounted for using the purchase method. Goodwill represents
the excess of the purchase cost over the book value of the net assets of the
acquired companies. A portion of the goodwill is allocated to fixed assets,
which are depreciated over their useful lives. The remaining goodwill arising
from acquisitions is amortized over a period not to exceed twenty years.
Deferred credit (negative goodwill) represents the excess of net assets of
acquired companies over the purchase cost. Deferred credit arising from
acquisitions is allocated to reduce the acquired fixed assets.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The  equity method
of accounting is used for investments in associated companies in  which the investment
provides Metso the ability to exercise significant  influence over the operating and
financial policies
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-10 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|of the investee company.  Such influence is
presumed to exist for investments in companies in which  Metsos direct or indirect
ownership is between 20 and 50 percent. Under  the equity method, the share of profits
and losses of associated companies is  included in the consolidated statements of income.
The share of the result of  associated companies, the activity of which is closely
connected with the  business areas of Metso, is recorded in other income and expenses,
net.  Metsos share of post-acquisition retained profits and losses of associated
companies is reported as part of investments in associated companies in the  consolidated
balance sheets.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Other
shareholdings and securities (voting rights less than 20 percent) are stated at
cost and dividends received are included in the statements of income; a
write-down is made where it is deemed necessary to reduce the cost to estimated
net realizable value.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Foreign currency translation
|----------------------------



|Transactions
in foreign currencies are recorded at the rates of exchange prevailing at the
date of the transactions. At the end of the accounting period, unsettled foreign
currency transaction balances are valued at the rates of exchange prevailing at
the balance sheet date. Trade flow related foreign currency exchange gains and
losses are treated as adjustments to sales and purchases. Foreign exchange gains
and losses associated with financing are entered as a net amount under financial
income and expenses.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
statements of income of foreign subsidiaries (i.e., outside the Euro area) are
translated into euro at the average exchange rates for the financial year and
the balance sheets are translated at the exchange rate of the balance sheet
date. The resulting translation differences are recorded directly to equity.
When Metso hedges the equity of its foreign subsidiaries with foreign currency
loans and with financial derivatives, the translation difference is adjusted by
the currency effect of hedging instruments and recorded in equity, net of taxes.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Derivative financial
instruments
|--------------------------------



|Metso
uses a variety of derivative financial instruments, mainly forward exchange
contracts, and a limited number of interest rate, currency and cross-currency
swaps as well as currency options and commodity contracts, as part of an overall
risk management policy. These instruments are used to reduce the foreign
currency and interest rate risks relating to existing assets, liabilities, firm
commitments, forecasted sales and estimated consumption of raw materials.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso
does not hold nor issue derivative financial instruments for trading purposes.
|------------------------------------------------------------------------------------



|Metso uses
principally forward exchange contracts to hedge the currency risk on certain
commercial assets (receivables) and liabilities (payables) and firm commitments
(orders). The derivatives are designated at inception as a hedge with respect to
the hedged item or group of items with similar characteristics. If a derivative
has been contracted to close or reduce net exposure to a certain currency or
group of currencies, it is fair valued quarterly and the arising variation in
fair values is recognized in the consolidated statements of income.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Currency
options are used to hedge forecasted sales. Options are recorded at fair value.
|----------------------------------------------------------------------------------------



|Metso
hedges its net foreign investments in certain currencies to reduce the effect of
exchange rate fluctuations. The hedging instruments are mainly foreign currency
loans and forward exchange contracts, and to some extent cross-currency swaps.
Both realized and unrealized exchange gains and losses measured on these
instruments are recorded, net of taxes, in a separate component of equity
against the translation differences arising from consolidation to the extent
that these hedges are effective.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Currency
and cross-currency swaps are used to hedge foreign currency denominated loans.
The translation differences arising from the derivative instruments are recorded
concurrently with the translation difference of the underlying loans. Interest
expense and income, net is recognized as incurred.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|When
derivative instruments have been used to mitigate the foreign currency
fluctuation arising from business acquisitions, the instruments are fair valued
and the respective change is charged to income.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metsos
exposure to interest rate risk, arising from interest bearing receivables and  loans, is
managed
|--------------------------------------------------------------------------------------------------------



| | F-11 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|through interest rate swaps and interest rate
futures. The net  of interest payable and receivable on the swaps is accrued and recorded
in  interest and other financial expenses to match the interest income/expense on  the
related underlying hedged items. Realized gains and losses occurring from  early
termination of contracts are recorded in income over the remaining period  of the
original swap agreement.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|If the
interest leg of a cross-currency swap or an interest swap has not been
designated as a hedge of an underlying item at its inception, the interest
portion of the swaps is recorded at fair value. Interest rate futures are fair
valued quarterly and the change in fair value is recognized in financial income
and expenses, net.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso has
entered into electricity futures to reduce the effects of the volatility of the
electricity prices of its units located in Finland. The unrealized gains and
losses of the contracts are deferred and recognized concurrently with the
underlying consumption at the maturity date of the related contracts.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Other long-term investments
|---------------------------



|Marketable debt securities,
      e.g., bonds, commercial papers and time deposits are included in other long-term
      investments when their maturity, at the time of their inception, exceeds
      one year. The unrealized gains and losses on marketable securities are deferred
      and recognized in income when realized either at disposal or at maturity.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Revenue recognition
|-------------------



|Revenues
from goods and services sold are recognized, net of sales taxes, discounts and
foreign exchange differences, when substantially all the risks and rewards of
ownership are transferred to the buyer, or when legal title of the goods and
responsibility for shipment has transferred to the buyer. The transfer of risk
takes place either when the goods are shipped or made available to the buyer for
shipment, depending on the delivery clause of the contract. The credit
worthiness of the buyer is verified before engaging into a sale. However, should
a risk of non-payment arise after revenue recognition, a provision for non
collectibility risk is established.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Percentage-of-completion
method: Sales and anticipated profits under significant long-term engineering
and construction contracts are recorded on a percentage-of-completion basis. The
measurement is done either by units of delivery, which are based on
predetermined milestones and on the realized value added (contract value of the
work performed to date) or by the cost-to-cost method of accounting. Estimated
contract profits are recorded in earnings in proportion to recorded sales. In
the cost-to-cost method, sales and profits are recorded after considering the
ratio of accumulated costs to estimated total costs to complete each contract.
In certain cases, subcontractor materials, labour and equipment, are included in
sales and costs of goods sold when management believes that Metso is responsible
for the ultimate acceptability of the project. Changes to total estimated
contract costs and losses, if any, are recognized in the period in which they
are determined.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Sales
with repurchase commitments are recognized at the time of the delivery and the
commitment is included in contingent liabilities.
|--------------------------------------------------------------------------------------------------------------------------------------



|Trade-ins:
Sales, against which trade-ins are accepted, are recorded at contract price. Any
reduction between the agreed trade-in price and its recorded value in the
inventory is recognized in cost of goods sold concurrently with the sale.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Shipping and handling costs
|---------------------------



|The
Company includes shipping fees billed to customers in revenues and shipping
costs incurred in cost of sales.
|----------------------------------------------------------------------------------------------------------------



|Advertising costs
|-----------------



|Advertising
costs are expensed as incurred.
|-------------------------------------------



| | F-12 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Research and development
|------------------------



|Research
and development costs are expensed as incurred. Research and development costs
comprise salaries, administration costs, depreciation and amortization of
tangible and intangible fixed assets.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Maintenance, repair and
renewals
|--------------------------------



|Maintenance,
repairs and renewals are charged to expense as incurred. However, major
betterments are capitalized and depreciated over their expected useful lives.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Pensions and coverage of
pension liabilities
|--------------------------------------------



|The
pension coverage of personnel working for Metso in Finland is mainly insured by
payments made to pension insurance companies and, to some extent, by an internal
Pension Fund. The Fund has been closed to new employees since 1987 and the
accumulated pension liability of the Fund has been transferred to an external
insurance company. Subsequently the Fund was wound up in the year 2001.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
companies within Metso have various pension schemes in accordance with the local
conditions and practices in the countries in which they operate. The schemes are
generally funded through payments to insurance companies or to
trustee-administered funds as determined by periodic actuarial calculations.
Metso has met minimum funding requirements for the countries in which it
maintains pension schemes. Metsos contributions to defined contribution
plans and to multi-employer and insured plans are charged to the income
statement concurrently with the payment obligations.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Fixed assets and long-term
investments
|--------------------------------------



|Intangible
and tangible assets are stated at cost, less accumulated depreciation. Land and
water areas are not depreciated.
|---------------------------------------------------------------------------------------------------------------------------



|Depreciation
and amortization is calculated on a straight-line basis over the expected useful
lives of the assets as follows:
|-----------------------------------------------------------------------------------------------------------------------------

| | Buildings                                              |  | 15  40 years | 
| | ------------------------------------------------------ |  | ------------- | 
| | Machinery and equipment                                |  | 3  20 years  | 
| | Other tangible assets                                  |  | 5  20 years  | 
| | Intangibles, other than goodwill
      and trade names |  | 3  12 years  | 
| | Trade names                                            |  | 20 years      | 
| | Goodwill                                               |  | 5  20 years  | 



|Impairments
of fixed assets and capital gains and losses on the disposal of fixed assets are
included in operating profit (loss) or in extraordinary items depending on the
nature of the event.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Goodwill
arising from strategic business acquisitions is amortized over 20 years. The
acquisition of Svedala in 2001 has been classified as strategic and the goodwill
arising from it is being amortized over 20 years.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso
reviews long-lived assets and certain intangibles, other than goodwill, to be
held and used by the company for impairment whenever events and changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
carrying value of goodwill for each business area is reviewed annually or, more
frequently, if the facts and circumstances, such as declines in sales, operating
profit or cash flows or material adverse changes in the business climate,
suggest that its carrying value may not be recoverable. The testing is performed
at the reporting unit level, which in Metso is one level below the segment
level. The annual testing may be waived if there has not been significant
changes to the assets and liabilities of the reporting unit, if in the previous
testing the fair value clearly exceeded the carrying values tested, and if the
likelihood that the current fair value would be less than the current carrying
value of the reporting unit is remote. Metso uses discounted cash flow analysis
to assess the fair value of goodwill.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-13 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Capitalization of interest
expenses
|-----------------------------------



|The
interest expenses of self-constructed investments are capitalized in
Metsos financial statements. The capitalized interest expense is amortized
over the estimated useful life of the underlying asset.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Revaluation of fixed assets
|---------------------------



|Fixed
assets are stated at historical acquisition price reduced by accumulated
depreciation. Revaluations are not permitted.
|----------------------------------------------------------------------------------------------------------------------------



|Leasing
|-------



|Rental
expenses for operating leases are expensed as incurred. Acquisitions of property
and equipment under capital lease arrangements are recorded in fixed assets and
depreciated over their expected useful lives.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Own shares (treasury stock)
|---------------------------



|Own
shares held by Metso are valued at reacquisition price in a separate caption
under financial assets. Own shares have been deducted from the number of shares
outstanding and the share capital for the calculation of per share and other
performance related indicators.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Cash and cash equivalents
|-------------------------



|Cash and
cash equivalents consist of cash in banks and other liquid investments with an
original maturity of ninety days or less.
|---------------------------------------------------------------------------------------------------------------------------------



|Inventories
|-----------



|Inventories
are stated at the lower of historical cost calculated on an average
cost basis or net realizable value. Historical costs include purchase
costs as well as transportation and processing costs. The costs of finished
goods include direct materials, wages and salaries plus social costs,
subcontracting and other direct costs. In addition, production costs include an
allocable portion of production and project administration overheads. Net
realizable value is the estimated amount that can be realized from the sale of
the asset in the normal course of business after allowing for the costs of
realization.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Inventories
are shown net of a reserve for obsolete and slow-moving inventories. A reserve
is established and a corresponding charge is taken to income in the period in
which the loss occurs based upon an assessment of technological obsolescence,
turnover and related factors.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Trade-in
equipment received is recorded as inventory at the lower of cost or net
realizable value reduced by a reasonable sales margin.
|---------------------------------------------------------------------------------------------------------------------------------------



|Accounts receivable and
securitization
|--------------------------------------



|Accounts
receivable are recognized at original invoice amount to customers net of
allowance for doubtful receivables. The allowance is recorded on the basis of
periodic reviews of potential non-recovery of receivables by taking into
consideration individual customer credit risk, economic trends in customer
industries and changes in payment terms. Bad debts are written off when official
announcement of receivership, liquidation or bankruptcy is received confirming
that the receivable will not be honoured. If extended payment terms, exceeding
two years, are offered to customers, the invoice amount is discounted to its
present value and interest income is recognized over the credit term.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso
sells certain receivables through arrangements with third party financial
institutions. If specific criteria are met, including legal isolation from the
Company, these receivables are removed from the Metsos books, and a gain
or loss on sale of the receivables is recorded.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Nonrecurring operating
income and expenses
|------------------------------------------



|Nonrecurring
operating income and expenses include restructuring and reorganization costs  which have
|-----------------------------------------------------------------------------------------------------



| | F-14 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|either been realized or planned and to which the
management is  committed, and other major one-time operating income and expenses.
|----------------------------------------------------------------------------------------------------------------------------------



|Extraordinary items
|-------------------



|Extraordinary
items, net of taxes, include significant unusual income and expenses not
resulting from ordinary course of business operations.
|---------------------------------------------------------------------------------------------------------------------------------------------



|Equity share of untaxed
reserves
|--------------------------------



|In
Finland and certain other countries, companies are permitted to reduce or
increase taxable income by adjustments to untaxed reserve accounts, provided
that such amounts are reflected in the companys financial statements. Such
amounts are included, net of taxes, in other shareholders equity in the
consolidated accounts.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Warranty
|--------



|An
accrual is made for expected warranty costs. The adequacy of this accrual is
reviewed periodically based on an analysis of historical experience and
anticipated probable warranty liabilities.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Restructuring costs
|-------------------



|A provision for restructuring
      is recognized only after management has developed and approved a formal
      plan to which it has committed. The costs included in a provision for restructuring
      are those costs that are either incremental and incurred as a direct result
      of the plan or are the result of a continuing contractual obligation with
      no continuing economic benefit to Metso or a penalty incurred to cancel
      the contractual obligation. A restructuring provision also includes other
      costs incurred as a result of the plan, which are recorded separately under
      nonrecurring income and expenses, such as asset write-downs, environmental
      liabilities and costs to transfer operations to new locations.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Environmental remediation
costs
|-------------------------------



|Metso
accrues for losses associated with environmental remediation obligations when
such losses are probable and reasonably estimable. Accruals for estimated losses
from environmental remediation obligations generally are recognized no later
than completion of the remedial feasibility study. Such accruals are adjusted as
further information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are not discounted to
their present value. Recoveries of environmental remediation costs from other
parties are recorded as assets when their receipt is deemed probable.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Income taxes
|------------



|Income
taxes presented in the income statement consist of current and deferred taxes.
Current taxes include estimated taxes corresponding to the results for the
financial year of the companies, and adjustments of taxes for previous years.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|A
deferred tax liability or asset has been determined for all temporary
differences between the tax bases of assets and liabilities and their amounts in
financial reporting, using the enacted tax rates effective for the future years.
The deferred tax liabilities are recognized in the balance sheet in full, and
the deferred tax assets at their estimated realizable amounts. Deferred tax
assets are reduced by a valuation allowance if, based on the weight of available
evidence, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|No
deferred tax liability has been recognized for undistributed earnings of
domestic subsidiaries (i.e., Finnish) since such earnings can be transferred to
the Parent Company without tax consequences. Metso does not provide deferred
income taxes on undistributed earnings of foreign subsidiaries, except in
situations where Metso has elected to distribute earnings of foreign
subsidiaries.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Earnings per share
|------------------



|Earnings  per
share is based on income before extraordinary items and income taxes  adjusted for
|------------------------------------------------------------------------------------------------



| | F-15 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|minority interests and taxes related to normal
business operations.  The amount is divided by the weighted average number of shares
outstanding  during each period. The average number of own shares has been deducted from
the  number of outstanding shares.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
diluted earnings per share have been computed by applying the treasury
stock method, under which earnings per share data is computed as if the
warrants and options were exercised at the beginning of the period, or on the
issuance of, if later, and as if the funds obtained thereby were used to
purchase common stock at the average market price during the period. In addition
to the weighted average number of shares outstanding, the denominator includes
the incremental shares obtained through the assumed exercise of the warrants and
options.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
assumption of exercise is not reflected in earnings per share when the exercise
price of the warrants and options exceeds the average market price of the common
stock during the period. The warrants and options have a dilutive effect only
when the average market price of the common stock during the period exceeds the
exercise price of the warrants and options.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Note 2. Selling, General and Administrative
Expenses
|----------------------------------------------------



|Selling,
general and administrative expenses consist of the following:
|----------------------------------------------------------------------

|                                                | Year ended December 31,
|----------------------------------------------- | -----------------------
|
|                                                |                        
|Marketing and selling expenses                  |                        
|Research and development expenses,
      net(1) |                        
|Administrative expenses                         |                        
|Other income                                    |                        
|Other expenses                                  |                        
|                                                |                        
|Total                                           |                        
|                                                |                        

|
|

|(1) |  | Research and development expenses are presented
      net of grants received of 9 million, 8 million and 7 million
      and net of capitalized investments of 13 million, 13 million
      and 7 million and includes depreciation of 9 million, 11
      million and 11 million for the years ended December 31, 2001, 2002
      and 2003, respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Note 3. Personnel Expenses and Number of
Personnel
|--------------------------------------------------



|Information
regarding personnel expenses and number of personnel is as follows:
|-------------------------------------------------------------------------------

|                                     | Year ended December 31,
|------------------------------------ | -----------------------
|
|                                     |                        
|Salaries to the members of Boards of |                        
|Directors and managing directors     |                        
|of group companies                   |                        
|Other wages and salaries             |                        
|Pension costs                        |                        
|Other indirect employee costs        |                        
|                                     |                        
|Total                                |                        
|                                     |                        

|                          | Year ended December 31,
|------------------------- | -----------------------
|
|Number of personnel:      |                        
|Personnel, average        |                        
|Personnel, at end of year |                        



| | F-16 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Note 4. Nonrecurring Operating Income and
Expenses
|--------------------------------------------------



|Nonrecurring
operating income and expenses consist of the following:
|--------------------------------------------------------------------

|                                                      | Year ended December 31,
|----------------------------------------------------- | -----------------------
|
|                                                      | ( in millions)        
|Gain on sale of businesses                            |                        
|Metso
      Automation                                |                       
|Metso Ventures                                        |                       
|Gain on sale of listed and other
      shares         |                        
|Metso Ventures                                        |                       
|Headquarters and other                                | 47                     
|                                                      |                        
|Nonrecurring operating income,
      total            | 47                     
|                                                      |                        
|Expenses related to the efficiency
      improvement  |                        
|program of 2003                                       |                        
|Metso Paper                                           |                       
|Metso Minerals                                        |                       
|Metso Automation                                      |                       
|Metso Ventures                                        |                       
|Headquarters and other                                |                       
|Restructuring expenses                                |                        
|Metso Paper                                           | (15                    
|Metso Minerals                                        | (13                    
|Metso Automation                                      | (8                     
|Metso Ventures                                        |                       
|Converting Equipment                                  |                       
|Other expenses                                        |                        
|Metso Minerals                                        | (3                     
|Metso Ventures                                        |                       
|Headquarters and other                                | (4                     
|Converting Equipment                                  |                       
|                                                      |                        
|Nonrecurring operating expenses,
      total          | (43                    
|                                                      |                        
|Nonrecurring operating income
      and expenses, net | 4                      
|                                                      |                        



|Gain on
sale of listed and other shares included gains on disposal of listed companies
of  37 million,  7 million and  3 million for the years ended
December 31, 2001, December 31, 2002 and December 31, 2003, respectively.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In
January 2003, Metso divested Metso Hydraulics, which was part of Metso Ventures,
and in February 2003 Network Management Solutions, which was part of Metso
Automation. For the year ended December 31, 2003, the gain recognized for the
sale of Metso Hydraulics was  1 million and the gain on the sale of Network
Management Solutions was  11 million.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Restructuring
expenses consist of both paid and accrued expenses related to the restructuring
of business operations. For the year ended December 31, 2001, Metso Papers
expenses of  15 million consisted of reorganizing operations in the United
States and in Sweden. Metso Automations expenses amounted to  8
million and related to reorganizing operations in the United States. Metso
Minerals expenses,  13 million, consisted of restructuring and
integration measures worldwide and included  7 million of restructuring
expenses related to the acquisition of Svedala.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For the  year
ended December 31, 2002, the restructuring expenses comprised  10  million, of which
 4 million related to Svedala acquisition, of employee  and exit costs of Metso
Minerals operations in Europe and in North and  South America. The streamlining of
Metso Papers North American and Swedish  operations continued in the year ended
December 31, 2002, with exit costs  amounting to  6 million. Concurrently with
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-17 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Metso Papers reorganization, Converting Equipment recognized
      1 million of exit costs in North America. Restructuring costs of 8
      million recognized by Metso Ventures Panelboard Technology and 3
      million by Metso Automation, relate to restructuring of operations to enhance
      the refocused business strategies.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For the
year ended December 31, 2003, restructuring expenses consisted of Metso
Automations reorganization in the United States and amounted to  5
million.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------



|For the years ended December
      31, 2001 and 2002, respectively, other expenses comprised of 4 million
      for marketing and support costs for extending the use of the Metso name
      to business operations and of additional one-time inventory write-off of
      4 million in Converting Equipment. For the years ended December 31,
      2001 and 2002, respectively, the caption includes, in both financial years,
      costs of 3 million in Metso Minerals for integration projects, initiated
      before the acquisition of Svedala, and which continued through out the year
      2002. For the year ended December 31, 2003, other expenses of Metso Minerals,
      11 million, included reserves for Metso Minerals UK operations
      and various reserves related to the Svedala acquisition. For the year ended
      December 31, 2003, Metso Ventures other expenses of 2 million
      comprised a write-down of patents in Metso Panelboard and charges related
      to Metso Drives operations in the United States.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In June
2003, Metso announced an efficiency improvement program affecting all business
areas. The program is designed to cut overhead costs and aims to achieve
substantial cost savings. For the year ended December 2003, Metso recognized
 103 million of expenses related to the efficiency improvement program.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The total
costs of the efficiency improvement program of 2003 comprised of the following:
|-----------------------------------------------------------------------------------------

|                                               | Year ended
      December 31, 
      2003
      ( in millions)
|---------------------------------------------- | ---------------------------------------------------------------
|Efficiency improvement program                 |                                                                
|Pensions and postretirement benefits           |                                                                
|Employee termination and exit
      cost       |                                                                
|Write-down of fixed assets and
      inventory |                                                                
|Restructuring expenses                         |                                                                
|Other expenses                                 |                                                                
|                                               |                                                                
|Efficiency improvement program, total          |                                                                
|                                               |                                                                



|A summary of
the cash flow effect and balance sheet impact of the efficiency improvement
program of 2003 is presented below:
|----------------------------------------------------------------------------------------------------------------------------

|                                                                        | Year ended
      December 31, 2003
      ( in millions)
|----------------------------------------------------------------------- | --------------------------------------------------------
|Amount recorded as expense for
      the efficiency improvement program |                                                         
|Paid in 2003                                                            |                                                         
|Write-down of fixed
      assets and inventory                          |                                                         
|                                                                        |                                                         
|Accrued liabilities as at December
      31, 2003                       |                                                         
|                                                                        |                                                         
|                                                                        |                                                         



|Note 5. Goodwill impairment
|---------------------------



|Metso  assesses
the value of the goodwill for impairment annually or more frequently,  if facts and
circumstances indicate the need, using fair value measurement  techniques, such as the
discounted cash flow methodology. The testing is  performed on the reporting unit level,
which can be a reportable segment or one  level below reportable segment. In the
discounted cash flow method, Metso  discounts forecasted performance
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-18 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|plans to their present value. The discount rate
is the weighted average cost of capital for the reporting unit, calculated as  the
opportunity cost to all capital providers weighted by their relative  contribution to the
reporting units total capital and the risk associated  with the cash flow and the
timing of the cash flow. The comparison methods and  other estimation techniques are
utilized to verify the reasonableness of the  value derived from the discounted cash flow.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Due to
the tightened competition, reduced demand in certain market areas and exchange
rate development, especially the impact of the weakened U.S. Dollar, the
operating profits of Metso Minerals operations were lower than expected for the
year. As of September 30, 2003, upon completion of the annual impairment
assessment, based on updated forecasted plans approved by the Board of
Directors, it was determined that Metso should recognize an impairment loss of
 205 million related to the Metso Minerals business.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|A summary of changes in Metsos goodwill during the
      years ended December 31, 2002 and 2003 by business segments is as follows:
|------------------------------------------------------------------------------------------------------------------------------------

|                     | Balance at
      Beginning
      of Year | Amortization    | Translation
      difference
      and other
      changes | Impairment
      loss | Balance at
      End of Year
|-------------------- | ---------------------------------------- | --------------- | ---------------------------------------------------------- | --------------------- | ----------------------------
|                     |                                          | ( in millions)
|2002                 |                                          |                 |                                                            |                       |                             
|Metso Paper          |                                          | 117             |                                                            | (8                    | )                           
|Metso Minerals(1)    |                                          | 858             |                                                            | (43                   | )                           
|Metso Automation     |                                          | 30              |                                                            | (3                    | )                           
|Metso Ventures       |                                          | 19              |                                                            | (2                    | )                           
|Converting Equipment |                                          | 13              |                                                            | (1                    | )                           
|                     |                                          |                 |                                                            |                       |                             
|Total                |                                          | 1,037           |                                                            | (57                   | )                           
|                     |                                          |                 |                                                           
|2003                 |                                          |                 |                                                           
|Metso Paper          |                                          | 96              |                                                            | (8                    | )                           
|Metso Minerals       |                                          | 746             |                                                            | (38                   | )                           
|Metso Automation     |                                          | 25              |                                                            | (3                    | )                           
|Metso Ventures       |                                          | 16              |                                                            | (1                    | )                           
|Converting Equipment |                                          | 12              |                                                            | (1                    | )                           
|                     |                                          |                 |                                                            |                       |                             
|Total                |                                          | 895             |                                                            | (51                   | )                           

|
|

|(1) |  | Other
changes for the year ended December 31, 2002 include the final  allocation of  81
million of excess purchase price to the fixed  assets acquired in the Svedala acquisition
in 2001. See Note 14 for  additional information.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Note 6. Depreciation and Amortization
|-------------------------------------



|Depreciation
and amortization expenses consist of the following:
|----------------------------------------------------------------

|                        | Year ended December 31,
|----------------------- | -----------------------
|
|                        |                        
|Intangible assets       |                        
|Goodwill                |                        
|Other intangible assets |                        
|Tangible assets         |                        
|Buildings               |                        
|Machinery and equipment |                        
|Other tangible assets   |                        
|                        |                        
|Total                   |                        
|                        |                        
|                        |                        



| | F-19 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Depreciation and
amortization charged against operations by activity are as follows:
|------------------------------------------------------------------------------------

|                                               | Year ended December 31,
|---------------------------------------------- | -----------------------
|
|                                               |                        
|Cost of goods sold                             |                        
|Marketing, selling and administrative expenses |                        
|Marketing and selling                          |                        
|Research and development                       |                        
|Administrative                                 |                        
|Goodwill                                       |                        
|                                               |                        
|Total                                          |                        
|                                               |                        



|Note 7. Financial Income and Expenses, net
|------------------------------------------



|The
following table provides a summary of financial income and expenses:
|------------------------------------------------------------------------

|                                      | Year ended December 31,
|------------------------------------- | -----------------------
|
|                                      |                        
|Financial income                      |                        
|Dividends received                    |                        
|Interest income                       |                        
|Other financial income                |                        
|Net gain (loss) from foreign exchange |                        
|                                      |                        
|Financial income total                |                        
|                                      |                        
|Financial expenses                    |                        
|Interest expenses                     |                        
|Other financial expenses              |                        
|                                      |                        
|Financial expenses total              |                        
|                                      |                        
|Financial income and expenses, net    |                        
|                                      |                        



|As at
December 31, 2001, other financial expenses included  5 million in expenses
related to the temporary financing of the Svedala acquisition.
|-------------------------------------------------------------------------------------------------------------------------------------------------



|Note 8. Investments in Associated Companies
|-------------------------------------------



|In
addition to information provided below for investments in associated companies,
see also Note 15.
|----------------------------------------------------------------------------------------------------

|                                                          | Year ended December 31,
|--------------------------------------------------------- | -----------------------
|
|                                                          |                        
|Dividends received                                        |                        
|Share of profits or losses in associated
      companies  |                        
|Equity value of investments in associated
      companies |                        



| | F-20 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Note 9. Extraordinary Expenses
|------------------------------



|The
following extraordinary expenses include significant transactions considered
outside the normal course of business and the effects of changes in the
accounting principles:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                               | Year ended December 31,
|-------------------------------------------------------------- | -----------------------
|
|                                                               |                        
|Extraordinary expenses, net of taxes                           |                        
|Inventory adjustment in
      Metso Drives German operations  |                        
|Reserve in Metso Automations
      U.S. operations            |                        
|                                                               |                        
|Extraordinary expenses, net of tax benefit
      of 3 million |                        
|                                                               |                        



|Note 10. Income Taxes
|---------------------



|The
domestic and foreign components of income (loss) before extraordinary items and
income taxes are as follows:
|----------------------------------------------------------------------------------------------------------------

|                | Year ended December 31,
|--------------- | -----------------------
|
|                |                        
|Finland         |                        
|Other countries |                        
|                |                        
|Total           |                        
|                |                        



|The
components of income tax expense (benefit) are as follows:
|--------------------------------------------------------------

|                                  | Year ended December 31,
|--------------------------------- | -----------------------
|
|                                  |                        
|Current taxes                     |                        
|Finland                           |                        
|Other countries                   |                        
|                                  |                        
|                                  |                        
|Deferred taxes                    |                        
|Finland                           |                        
|Other countries                   |                        
|                                  |                        
|                                  |                        
|                                  |                        
|Current and deferred taxes        |                        
|Tax effect of extraordinary items |                        
|                                  |                        
|Income tax expense (benefit)      |                        
|                                  |                        



| | F-21 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|The differences
between income tax expense (benefit) computed at Finnish statutory rate (29
percent) and income tax expense (benefit) provided on earnings are as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                               | Year ended December 31,
|-------------------------------------------------------------- | -----------------------
|
|                                                               |                        
|Income tax expense (benefit) at Finnish statutory
      rate   |                        
|Income tax for prior years                                     |                        
|Write-down of subsidiary shares(1)                             |                        
|Temporary differences for which no deferred
      tax has been |                        
|provided                                                       |                        
|Benefit of operating loss carryforwards                        |                        
|Amortization and impairment of goodwill                        |                        
|Nontaxable income                                              |                        
|Nondeductible expenses                                         |                        
|Taxes on foreign subsidiaries net income
      in excess of   |                        
|income taxes at Finnish statutory
      rates                  |                        
|Operating losses with no current tax benefit(2)                |                        
|Effect of extraordinary items                                  |                        
|Other                                                          |                        
|                                                               |                        
|Income tax expense (benefit)                                   |                        
|                                                               |                        

|
|

|(1) |  | Write-down
of subsidiary shares includes for the year ended December 31, 2003, the impact of
realized tax benefit of 51 million related to a write-down of subsidiary shares
recorded in 2002  with full valuation allowance.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Operating
losses with no current tax benefit relate to current year  losses for which no deferred
tax asset has been recognized.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------



|The
components of net deferred tax asset (liability) consist of the following:
|------------------------------------------------------------------------------

|                                                          | As at December 31,
|--------------------------------------------------------- | ------------------
|
|                                                          |                   
|Non-current assets                                        |                   
|Tax losses carried forward                                |                   
|Provisions                                                |                   
|Other                                                     |                   
|Valuation allowance                                       |                   
|                                                          |                   
|                                                          |                   
|Current assets                                            |                   
|Intercompany profit in inventory                          |                   
|Provisions                                                |                   
|Valuation allowance                                       |                   
|                                                          |                   
|                                                          |                   
|Current liabilities                                       |                   
|Inventories and other                                     |                   
|                                                          |                   
|                                                          |                   
|Non-current liabilities                                   |                   
|Accelerated depreciation and other untaxed
      reserves |                   
|Other                                                     |                   
|                                                          |                   
|                                                          |                   
|                                                          |                   
|Deferred tax asset (liability), net                       |                   
|                                                          |                   



| | F-22 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|As at
December 31, 2003, Metso had  514 million of losses carried forward,
primarily attributable to foreign subsidiaries. New losses for the year ended
December 31, 2003, amounting to  101 million, increased the deferred tax
asset on loss carry-forward by  3 million. Approximately 40 percent of the
accumulated loss carry-forwards at December 31, 2003 have no expiration date, 25
percent expires between years 2004-2013 and the remaining 35 percent between
years 2014-2024.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
valuation allowance for the deferred tax asset has been as follows:
|-----------------------------------------------------------------------

|                       | Balance at
      Beginning
      of Year | Deduction       | Increase | Balance at
      End
      of Year
|---------------------- | ---------------------------------------- | --------------- | -------- | ----------------------------------
|                       |                                          | ( in millions)
|2002                   |                                          |                 |          |                                   
|Losses carried forward |                                          | 88              |          | (34                               
|Other(1)               |                                          | 17              |          | (17                               
|                       |                                          |                 |          |                                   
|Total                  |                                          | 105             |          | (51                               
|2003                   |                                         
|Losses carried forward |                                          | 110             |          | (49                               
|Other                  |                                          | 0               |          | 0                                 
|                       |                                          |                 |          |                                   
|Total                  |                                          | 110             |          | (49                               

|
|

|(1) |  | The
deduction in the valuation allowance for 2002 includes  16  million related to a
write-down on subsidiary shares that became tax  deductible in the 2002 taxation.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Note 11. Earnings (Loss) per Share
|----------------------------------



|Earnings
(loss) per share is calculated as follows:
|---------------------------------------------------

|                                                                       | Year ended December 31,
|---------------------------------------------------------------------- | -----------------------
|
|                                                                       |                        
|Income (loss) before extraordinary
      items and income taxes        |                        
|Minority interests                                                     |                        
|Taxes on normal business operations                                    |                        
|                                                                       |                        
|                                                                       |                        
|                                                                       |                        
|Weighted average number of shares issued
      and outstanding         |                        
|(in thousands)                                                         |                        
|Earnings (loss) per share,                                            |                        
|                                                                       |                        
|Weighted average number of diluted shares
      issued and outstanding |                        
|(in thousands)                                                         |                        
|Diluted earnings (loss) per share,                                    |                        
|                                                                       |                        



|The diluted earnings (loss)
      per share have been computed by applying the treasury stock
      method, under which earnings per share data is computed as if the warrants
      and options were exercised at the beginning of the period, or on the issuance
      of the warrants and options, if that occurs later during the period, and
      as if the funds obtained thereby were used to purchase common stock at the
      average market price during the period. In addition to the weighted average
      number of shares outstanding, the denominator includes the incremental shares
      obtained through the assumed exercise of the warrants and options. The warrants
      and options have a dilutive effect only when the average market price of
      the common stock during the period exceeds the exercise price of the warrants
      and options.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-23 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Note 12. Intangible and Tangible Assets
|---------------------------------------



|Intangible
and tangible assets consist of the following:
|--------------------------------------------------------

|                                        | Year ended December 31,
|--------------------------------------- | -----------------------
|
|                                        |                        
|Goodwill                                |                        
|Acquisition cost at beginning of year   |                        
|Increases                               |                        
|Decreases                               |                        
|Impairment                              |                        
|Translation differences                 |                        
|Accumulated depreciation at end of year |                        
|                                        |                        
|Net book value at end of year           |                        
|                                        |                        
|Other intangible assets                 |                        
|Acquisition cost at beginning of year   |                        
|Increases                               |                        
|Decreases                               |                        
|Translation differences                 |                        
|Accumulated depreciation at end of year |                        
|                                        |                        
|Net book value at end of year           |                        
|                                        |                        
|Land and water areas                    |                        
|Acquisition cost at beginning of year   |                        
|Increases                               |                        
|Decreases                               |                        
|Translation differences                 |                        
|                                        |                        
|Net book value at end of year           |                        
|                                        |                        
|Buildings                               |                        
|Acquisition cost at beginning of year   |                        
|Increases                               |                        
|Decreases                               |                        
|Translation differences                 |                        
|Accumulated depreciation at end of year |                        
|                                        |                        
|Net book value at end of year           |                        
|                                        |                        
|Machinery and equipment                 |                        
|Acquisition cost at beginning of year   |                        
|Increases                               |                        
|Decreases                               |                        
|Translation differences                 |                        
|Accumulated depreciation at end of year |                        
|                                        |                        
|Net book value at end of year           |                        
|                                        |                        
|Other tangible assets                   |                        
|Acquisition cost at beginning of year   |                        
|Increases                               |                        
|Decreases                               |                        
|Translation differences                 |                        
|Accumulated depreciation at end of year |                        
|                                        |                        
|Net book value at end of year           |                        
|                                        |                        



| | F-24 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------

|                                            | Year ended December 31,
|------------------------------------------- | -----------------------
|
|                                            |                        
|Assets under construction                   |                        
|Acquisition cost at beginning
      of year |                        
|Increases                                   |                        
|Decreases                                   |                        
|Translation differences                     |                        
|                                            |                        
|Net book value at end of year               |                        
|                                            |                        

|
|

|(1) |  | Includes
20 million of reclassifications between Other intangible  assets and Assets under
construction.
|--- |  | ---------------------------------------------------------------------------------------------------------



|Note 13. Capitalization of Interest Expenses
|--------------------------------------------



|The
capitalized interest expenses consist of the following:
|-----------------------------------------------------------

|                                                   | Year ended December 31,
|-------------------------------------------------- | -----------------------
|
|                                                   |                        
|Net capitalized interest, beginning
      of year  |                        
|Amortization of capitalized interest
      expense |                        
|                                                   |                        
|Net capitalized interest, end
      of year        |                        
|                                                   |                        



|Note 14. Purchase accounting: acquisition of
Svedala in September 2001
|----------------------------------------------------------------------



|The goodwill
arising from the acquisition of Svedala consists of the following:
|-------------------------------------------------------------------------------

|                                                             |  in millions
|------------------------------------------------------------ | -------------
|Purchase price of the shares                                 |              
|Net assets of Svedala including capitalized
      costs in   |              
|acquisition balance sheet                                    |              
|                                                             |              
|Excess of purchase consideration over the
      book value   |              
|of net assets acquired                                       |              
|Allocation of fair values exceeding book
      values net of |              
|deferred tax expense of 33
      million                    |              
|                                                             |              
|Final goodwill at acquisition                                |              
|                                                             |              



| | F-25 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Allocation of fair values
|-------------------------



|The fair
values exceeding book values of the acquisition balance sheet were allocated to
fixed assets as follows:
|-----------------------------------------------------------------------------------------------------------------

|                      | Gross
      amount | Tax
      effect | Net
      amount
|--------------------- | ------------------ | ---------------- | ----------------
|                      |                    | ( in millions) 
|Intangible assets     |                    |                  |                 
|Trade names           |                    | 58               |                 
|Patents               |                    | 7                |                 
|Tangible assets       |                   
|Land areas            |                    | 13               |                 
|Buildings             |                    | 21               |                 
|Other tangible assets |                    | 15               |                 
|                      |                    |                  |                 
|Total                 |                    | 114              |                 
|                      |                    |                  |                 



|The
amortization periods of fixed assets assigned from the excess of purchase
consideration are:
|------------------------------------------------------------------------------------------------

|Trade names           |  | 20 years | 
|--------------------- |  | -------- | 
|Patents               |  | 10 years | 
|Buildings             |  | 20 years | 
|Other tangible assets |  | 8 years  | 



|Total
nonrecurring expenses resulting from the Svedala acquisition as of December 31,
2002:
|-------------------------------------------------------------------------------------------

|                                                   | Gross
      amount | Tax
      effect | Net
      amount
|-------------------------------------------------- | ------------------ | ---------------- | ----------------
|                                                   |                    | ( in millions) 
|Capitalized in the acquisition
      balance sheet |                    | 79               |                 
|Recognized in the income
      statement in the    |                   
|years
      ended December 31, 2001 and 2002       |                    | 11               |                 
|                                                   |                    |                  |                 
|Total                                              |                    | 90               |                 
|                                                   |                    |                  |                 



|The
capitalized nonrecurring expenses include termination benefits, lease
termination and exit costs, preacquisition liabilities and contingencies.
|---------------------------------------------------------------------------------------------------------------------------------------------------



| | F-26 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Note 15. Shareholdings and Other Securities
|-------------------------------------------



|Investments
in associated companies are as follows:
|---------------------------------------------------

|                                          | Year ended December 31,
|----------------------------------------- | -----------------------
|
|
|                                          |                        
|Allimand S.A.                             |                        
|Valmet-Xian Paper Machinery Co. Ltd.      |                        
|Shanghai Neles-Jamesbury Valve Co. Ltd.   |                        
|Others                                    |                        
|                                          |                        
|Total investments in associated companies |                        
|                                          |                        



|Investments in
shareholdings and other securities consist of the following:
|---------------------------------------------------------------------------

|                                                            | Year ended December 31,
|----------------------------------------------------------- | -----------------------
|                                                            | 2002                   
|                                                            | Number 
      of shares
|                                                            |                        
|Tamfelt Corporation, Finland(1)                             | 242,100                
|Sampo Plc, Finland                                          | 327,540                
|Sato Corporation Plc, Finland                               | 239,555                
|Exel Plc, Finland                                           | 650,000                
|Other shares and securities                                 |                        
|                                                            |                        
|Total investments in shares and 
          other securities |                        
|                                                            |                        
|Total shareholdings and 
          other securities         |                        
|                                                            |                        

|
|

|(1) |  | Split
2 for 1 in 2003.
|--- |  | ----------------------



|Investments in own
shares are as follows:
|-----------------------------------------

|                                        | Year ended December
      31,
|--------------------------------------- | -----------------------------
|                                        | 2002                         
|                                        | Number 
      of shares      
|                                        |                              
|Own shares held by Metso    Corporation | 60,841                       
|                                        |                              



|Note 16. Other Long-term Investments
|------------------------------------



|Other
long-term investments consist of certificates of deposits, bonds and other
securities with a maturity of greater than one year at the time of acquisition.
Other long-term investments amounted to  26 million at December 31, 2002
and to  10 million at December 31, 2003. Other long-term investments are
recorded at the lower of cost or market value.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-27 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Information
regarding other long-term investments is as follows:
|----------------------------------------------------------------

|                         | As at December 31,
|------------------------ | ------------------
|
|
|                         |                   
|Debt Securities          |                   
|Bonds and Treasury bills |                   
|Other securities         |                   
|                         |                   
|Total                    |                   
|                         |                   



|Additional
information regarding other long-term investments is as follows:
|---------------------------------------------------------------------------

|                                             | Year ended December 31,
|-------------------------------------------- | -----------------------
|
|                                             |                        
|Purchases                                    |                        
|Transferred through Svedala acquisition      |                        
|Reclassified in other short-term investments |                        
|Reclassified in loans receivable             |                        
|Proceeds from sales                          |                        
|Proceeds from maturities                     |                        
|Realized gains                               |                        
|Realized losses                              |                        



|Realized
gains and losses on the sale of securities are determined by reference to the
carrying value of the specific security sold.
|------------------------------------------------------------------------------------------------------------------------------------



|As at
December 31, 2003, the maturities of long-term investments in debt and other
securities are as follows:
|-------------------------------------------------------------------------------------------------------------

|                     | Year ended
      December 31, 2003
      ( in millions)
|-------------------- | --------------------------------------------------------
|Less than five years |                                                         
|Five to ten years    |                                                         
|More than ten years  |                                                         
|                     |                                                         
|Total                |                                                         
|                     |                                                         



| | F-28 | 
| | ---- | 



---





|Note 17. Costs and Earnings of Projects under
Construction in Excess of Billings/Billings in Excess of Costs  and Earnings of Projects
under Construction
|---------------------------------------------------------------------------------------------------------------------------------------------------------



|Information
on balance sheet items of uncompleted contracts at December 31, 2002 and 2003 is
as follows:
|--------------------------------------------------------------------------------------------------------

|                                                        | Costs and
      earnings of
      uncompleted
      projects | Billings of
      Projects | Net
|------------------------------------------------------- | ------------------------------------------------------------ | -------------------------- | ---
|                                                        |                                                              | ( in millions)           
|2002                                                    |                                                              |                            |    
|Projects where costs and earnings exceed
      billings |                                                              | 538                        |    
|Projects where billings exceed costs and
      earnings |                                                              | 161                        |    
|                                                        |                                                             
|2003                                                    |                                                             
|Projects where costs and earnings exceed
      billings |                                                              | 600                        |    
|Projects where billings exceed costs and
      earnings |                                                              | 420                        |    



|Compared
to the previous year, the building of new production capacity has shifted from
Europe and North America mainly to China and to some extent to South America
affecting the timing of revenue recognition under the percentage of completion
method.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Note 18. Interest bearing and Non-interest
bearing Assets
|---------------------------------------------------------



|Interest
bearing and non-interest bearing assets are as follows:
|----------------------------------------------------------------

|                                     | As at December 31,
|------------------------------------ | ------------------
|
|
|                                     |                   
|Financial assets                     |                   
|Loans receivable                     |                   
|Accounts receivable                  |                   
|Other long-term investments          |                   
|                                     |                   
|Total                                |                   
|                                     |                   
|Receivables                          |                   
|Accounts receivable                  |                   
|Costs and earnings of projects under |                   
|construction in excess of billings   |                   
|Loans receivable                     |                   
|Prepaid expenses and accrued income  |                   
|Other receivables                    |                   
|Other short-term investments         |                   
|                                     |                   
|Total                                |                   
|                                     |                   

|
|

|(1) |  | Includes
18 million of prepayments to foreign pension plans and  pension insurances.
|--- |  | -------------------------------------------------------------------------------------



| | F-29 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Note 19. Shareholders Equity
|-----------------------------



|At December 31, 2003, Metso
      had 136,250,545 issued shares with a par value of 1.70 per share,
      the share capital being 232 million. Under its Articles of Association,
      Metso Corporations authorized share capital may not be less than 170
      million nor more than 680 million.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|At
December 31, 2003, Metso held 60,841 of its own shares. The reacquisition price
of  1 million has been recorded in the reserve of own shares at cost. In
the shareholders meeting held on April 15, 2003, the shareholders of Metso
renewed the authorization for the Board of Directors to reacquire treasury stock
in the limit of five percent of the nominal value of outstanding shares at the
time of purchase. Treasury stock can be utilized for business acquisitions, for
major investments and for incentive plans of key personnel.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Calculation
of distributable funds is as follows:
|-------------------------------------------------

|                                                                          | As at December
      31, 2003
      ( in millions)
|------------------------------------------------------------------------- | ---------------------------------------------------
|Other reserves                                                            |                                                    
|Retained earnings                                                         |                                                    
|Result for the financial year                                             |                                                    
|Equity share of accelerated depreciation
      and other untaxed reserves |                                                    
|Translation differences                                                   |                                                    
|                                                                          |                                                    
|Total distributable funds                                                 |                                                    
|                                                                          |                                                    



|The
Parent Companys distributable funds at December 31, 2003 were  616
million. The distribution of dividends to shareholders is limited to the lower
of consolidated distributable funds or distributable funds held by the Parent
Company.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|During the years ended December
      31, 2003 and December 31, 2002, the Parent Company paid a dividend of 82
      million to shareholders, or 0.60 per common share.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Foreign
currency translation adjustment included in the shareholders equity
consists of the following:
|-------------------------------------------------------------------------------------------------------

|                                                             | Year ended December 31,
|------------------------------------------------------------ | -----------------------
|
|                                                             | ( in millions)        
|Cumulative translation adjustment
      at beginning of year | 25                     
|Change in foreign currency translation                       | (127                   
|Hedging of net investment denominated
      in foreign      
|currency, net of tax expense
      of 17 million and       
|16 million, respectively                                    | 42                     
|                                                             |                        
|Cumulative translation adjustment
      at end of year       | (60                    
|                                                             |                        



| | F-30 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Note 20. Long-term Debt
|-----------------------



|Long-term
debt consists of the following:
|-----------------------------------------

|                                  | As at December 31,
|--------------------------------- | ------------------
|
|                                  | ( in millions)   
|Bonds                             | 713               
|Loans from financial institutions | 270               
|Loans from pension institutions   | 48                
|Other long-term debt              | 39                
|                                  |                   
|                                  | 1,070             
|                                  |                   
|Less current maturities           | 50                
|                                  |                   
|Total                             | 1,020             
|                                  |                   



|Bonds
|-----



|The bonds consist
principally of two loans: a USD 200 million (158 million) bond and a
 500 million bond. The USD denominated bond was issued in the United States
in December 1997 and registered with the Securities Exchange Commission (SEC).
It matures in 2007 and bears a fixed annual interest rate of 6.875%. A portion
of the bond has been converted through a currency swap agreement of GBP 45
million (64 million) into British pound sterling with a fixed annual rate
of 7.51%. The currency swap agreement matures concurrently with the bond.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
 500 million bond was issued in December 2001 under the Euro Medium Term
Note Program of  1 billion, which Metso established in December 2000. The
bond matures in 2006 and carries a fixed interest of 6.25%.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Loans from financial
institutions
|---------------------------------



|Loans
from financial institutions consist of international bank borrowings with either
fixed or variable interest rates. A major share of loans is either USD or EUR
denominated. The interest rates vary from 1.69% (USD) to 9.50% (ZAR). The loans
are payable from year 2004 to 2011.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In June
2003, Metso signed a five-year  450 million revolving credit facility
agreement with a syndicate of 14 international banks. The credit replaced two
then existing revolving credits:  230 million credit from 1998 and the
remaining  400 million of the credit from year 2000. Of these facilities,
 98 million was utilized at December 31, 2002. As at December 31, 2003,
 66 million of the current revolving facility was utilized.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As at
December 31, 2003 the undrawn committed facilities of Metso totaled  384
million.
|----------------------------------------------------------------------------------------



|Loans from pension
institutions
|-------------------------------



|Pension
loans consist of Finnish pension insurance reborrowing loans amounting to
 32 million and of  6 million foreign pension loans.
|----------------------------------------------------------------------------------------------------------------------------------------



|Other long-term debt
|--------------------



|Other
long-term loans consist principally of pension liabilities amounting to  39
million at December 31, 2002. As at December 31, 2003 other long-term debt
comprised  29 million pension liabilities,  16 million obligations
under finance leases and  7 million other liabilities.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-31 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Maturities
of long-term debt as at December 31, 2003 are as follows:
|--------------------------------------------------------------------

|               | Bonds | Loans from
      financial
      institutions | Loans from
      Pension
      Institutions | Other
      long-term
      debt | Total
|-------------- | ----- | --------------------------------------------- | ------------------------------------------- | -------------------------------- | -----
|               |       | ( in millions)                              
|Year           |       |                                               |                                             |                                  |      
|2004           |       | 2                                             |                                             | 4                                |      
|2005           |       | 0                                             |                                             | 11                               |      
|2006           |       | 500                                           |                                             | 47                               |      
|2007           |       | 158                                           |                                             | 10                               |      
|2008           |       | 0                                             |                                             | 91                               |      
|2009 and after |       | 37                                            |                                             | 24                               |      
|               |       |                                               |                                             |                                  |      
|Total          |       | 697                                           |                                             | 187                              |      
|               |       |                                               |                                             |                                  |      



|Note 21. Other Long-term Liabilities -
Accrued Expenses
|-------------------------------------------------------



|Long-term
accrued liabilities consist of the following:
|-------------------------------------------------------

|                                                                          | As at December 31,
|------------------------------------------------------------------------- | ------------------
|
|                                                                          |                   
|Accrued costs related to the efficiency
      improvement program of 2003 |                   
|Pension liabilities for involuntarily
      terminated personnel          |                   
|Accrued restructuring costs                                               |                   
|                                                                          |                   
|                                                                          |                   
|                                                                          |                   
|Pension liabilities                                                       |                   
|Pension liabilities for involuntarily terminated
      personnel          |                   
|Accrued post-retirement benefits                                          |                   
|Warranty and guarantee liabilities                                        |                   
|Accrued restructuring costs                                               |                   
|Other long-term provisions and accruals(1)                                |                   
|                                                                          |                   
|Total                                                                     |                   
|                                                                          |                   

|
|

|(1) |  | Includes
various amounts, which are individually insignificant.
|--- |  | ---------------------------------------------------------------



|Note 22. Other Interest Bearing Short-term
Debt
|-----------------------------------------------



|Other
interest bearing short-term debt consists of the following:
|-----------------------------------------------------------------

|                                    | As at December 31,
|----------------------------------- | ------------------
|
|                                    |                   
|                                    |                   
|Loans from financial institutions   |                   
|Domestic commercial paper financing |                   
|Euro Commercial Paper financing     |                   
|Other                               |                   
|                                    |                   
|Total                               |                   
|                                    |                   



|Weighted
average interest rate applicable to short-term borrowing at December 31, 2002
and 2003 was 3.4 percent and 2.4 percent, respectively.
|----------------------------------------------------------------------------------------------------------------------------------------------



| | F-32 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Metso had
undrawn committed short-term credit facilities with banks totaling  100
million at December 31, 2003.
|----------------------------------------------------------------------------------------------------------------



|Metso has established a short-term
      Euro Commercial Paper Program of 150 million and a domestic commercial
      paper program amounting to 300 million.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------



|Note 23. Accrued Expenses and Deferred Income
|---------------------------------------------



|Accrued
expenses and deferred income consist of the following:
|--------------------------------------------------------------

|                                                                             | As at December 31,
|---------------------------------------------------------------------------- | ------------------
|
|                                                                             |                   
|Accrued expenses related to the
      efficiency improvement program of 2003 |                   
|Pension liabilities
      for personnel with terminated contracts            |                   
|Employee termination
      and exit costs                                    |                   
|Accrued restructuring
      costs                                            |                   
|Other                                                                        |                   
|                                                                             |                   
|                                                                             |                   
|                                                                             |                   
|Accrued restructuring costs                                                  |                   
|Employee termination and exit
      costs                                    |                   
|Accrued interest expenses                                                    |                   
|Accrued personnel expenses                                                   |                   
|Accrued project costs                                                        |                   
|Environmental and product liabilities                                        |                   
|Taxes currently payable                                                      |                   
|Warranty and guarantee liabilities                                           |                   
|Other(1)                                                                     |                   
|                                                                             |                   
|Total                                                                        |                   
|                                                                             |                   

|
|

|(1) |  | Includes
various amounts, which are individually insignificant.
|--- |  | ---------------------------------------------------------------



|Note 24. Changes in cost accruals
|---------------------------------



|The cost
accruals, including both long-term and short-term portions, have changed as
follows during the financial year 2003:
|----------------------------------------------------------------------------------------------------------------------------

|                                       | Balance at
      beginning
      of year | Impact of
      exchange
      rates | Additions
      charged to
      expense | Deductions | Balance at
      end of year
|-------------------------------------- | ---------------------------------------- | ------------------------------------ | ---------------------------------------- | ---------- | ----------------------------
|                                       |                                          | ( in millions)                     
|Allowance for doubtful notes and       |                                          |                                      |                                          |            |                             
|receivables                            |                                          | 45                                   |                                          | (3         | )                           
|Allowance for inventory                |                                          | 72                                   |                                          | (5         | )                           
|Environmental and product              |                                         
|liabilities                            |                                          | 4                                    |                                          | 0          |                             
|Efficiency improvement program of 2003 |                                          |                                     |                                          |           |                             
|Accrued restructuring costs            |                                          | 28                                   |                                          | (2         | )                           
|Accrued employee termination and exit  |                                         
|costs                                  |                                          | 25                                   |                                          | (1         | )                           
|                                       |                                          |                                      |                                          |            |                             
|Total                                  |                                          | 174                                  |                                          | (11        | )                           
|                                       |                                          |                                      |                                          |            |                             



| | F-33 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|The total
costs and accruals related to the efficiency improvement program have been
recognized as follows during the financial year 2003:
|------------------------------------------------------------------------------------------------------------------------------------------

|                                       | Balance at
      beginning
      of year | Impact of
      exchange
      rates | Additions
      charged to
      expense | Deductions | Balance at
      end of year
|-------------------------------------- | ---------------------------------------- | ------------------------------------ | ---------------------------------------- | ---------- | ----------------------------
|                                       |                                          | ( in millions)                     
|Pension liabilities for personnel with |                                          |                                      |                                          |            |                             
|terminated contracts                   |                                          |                                     |                                          |           |                             
|Employee termination and exit costs    |                                          |                                     |                                          |           |                             
|Accrued restructuring costs            |                                          |                                     |                                          |           |                             
|Other                                  |                                          |                                     |                                          |           |                             
|                                       |                                          |                                      |                                          |            |                             
|Total                                  |                                          |                                     |                                          |           |                             
|                                       |                                          |                                      |                                          |            |                             



|Balance
at the end of year includes reserves amounting to  17 million related to
fixed assets and inventory.
|-------------------------------------------------------------------------------------------------------------



|The cost
accruals for warranty and guarantee liabilities have changed as follows during
the financial year 2003:
|----------------------------------------------------------------------------------------------------------------

|                       | Balance at
      beginning
      of year | Impact
      of
      exchange
      rates | Increase for
      current
      years
      deliveries | Increase for
      previous
      years
      deliveries | Deductions(1) | Balance
      at end of
      year
|---------------------- | ---------------------------------------- | ------------------------------------------ | -------------------------------------------------------- | --------------------------------------------------------- | ------------- | ----------------------------------
|                       |                                          | ( in millions)                           
|Warranty and guarantee |                                          |                                            |                                                          |                                                           |               |                                   
|liabilities            |                                          | 158                                        |                                                          | (4                                                        | )             | 43                                

|
|

|(1) |  | Includes
reversals of  24 million related to expired warranty and  guarantee liabilities.
|--- |  | ------------------------------------------------------------------------------------------



|Metso
issues various types of contractual product warranties under which it generally
guarantees the performance levels agreed in the sales contract, the performance
of products delivered during the agreed warranty period and services rendered
for a certain period or term. The warranty liability is based on historical
realized warranty costs for deliveries of standard products and services. The
usual warranty is 12 months from the date of customer acceptance of the
delivered equipment. For larger projects, the average warranty period is two
years. For more complex contracts, including long-term projects sold by Metso
Paper and Metso Minerals, the warranty reserve is calculated contract by
contract and updated regularly to take into consideration any changes in the
potential warranty liability.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso is
subject to potential liability under certain government regulations and various
claims and legal actions that are pending or may be asserted against Metso
concerning environmental matters. The maximum potential future obligation
related to certain environmental guarantees cannot be estimated due to numerous
uncertainties, including the enactment of new laws and regulations, the
development and application of new technologies, the identification of new sites
for which Metso may have remediation responsibility and the apportionment and
collectibility of remediation costs when other parties are involved.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|When
circumstances indicate that a payment obligation becomes probable, a liability
is recognized in the consolidated balance sheet with an offsetting amount
recorded as an expense.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-34 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Note 25. Mortgages and contingent liabilities
|---------------------------------------------



|Mortgages
and contingent liabilities consist of the following:
|--------------------------------------------------------------

|                                                             | As at December 31,
|------------------------------------------------------------ | ------------------
|
|                                                             |                   
|                                                             |                   
|Mortgages on corporate debt                                  |                   
|Other pledges and contingencies                              |                   
|Mortgages                                                    |                   
|Pledged assets                                               |                   
|Guarantees on behalf of associated
      company obligations |                   
|Other guarantees                                             |                   
|                                                             |                   
|                                                             |                   
|                                                             |                   
|Repurchase and other commitments(1)                          |                   

|
|

|(1) |  | Prior
year amount has been reclassified to conform to current year  presentation.
|--- |  | ---------------------------------------------------------------------------------



|The
mortgage amount on corporate debt has been calculated as the amount of
corresponding loans. The nominal value of the mortgages at December 31, 2003 was
 0.2 million higher than the amount of the corresponding loans.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
repurchase commitments, amounting to  8 million and  20 million for
the years ended December 31, 2002 and 2003, respectively, represent engagements
whereby Metso guarantees specified trade-in values for products sold to
customers and third parties. The amounts in the above schedule comprise the
agreed value in full of each repurchase commitment.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Other commitments include 13
      million of unfunded pension liabilities for foreign subsidiaries for each
      of the years ended December 31, 2002 and 2003.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Note 26. Lawsuits and Claims
|----------------------------



|Several
product liability suits against Metso Corporation are pending in the United
States. Management does not believe that the outcome of these actions,
individually or in the aggregate, will have a material adverse effect on
Metsos business, liquidity, results of operations or financial condition.
The normal risks of legal disputes concerning deliveries cannot be regarded as
material in terms of Metsos total business activities.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Pending asbestos litigation
|---------------------------



|As of
February 20, 2004 there had been a total of 288 complaints alleging asbestos
injuries filed in the United States in which a Metso entity is one of the named
defendants. Where a given plaintiff has named more than one viable Metso unit as
a defendant, the cases are counted by the number of viable Metso defendants. Of
these claims, 123 are still pending and 165 cases have been closed. Of the
closed cases, 112 were dismissed and 53 were settled. For the 53 cases settled
the average compensation has been U.S.$540 per case. The outcome of the still
pending cases is not expected to materially deviate from the outcome of the
previous claims. Hence, management believes that Metso has not material asbestos
related claims in the United States.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Pending environmental
litigation
|--------------------------------



|Metso  Minerals
Industries Inc., previously Nordberg Inc., a company belonging to the  Metso Minerals
business area, has been named, together with a number of other  parties, as a potentially
responsible party (PRP) for the  remediation of two Wisconsin landfills (Hunt
and Muskego), which have been  designated as
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-35 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|superfund sites under CERCLA (the U.S.
Comprehensive Environmental  Response, Compensation and Liability Act of 1980). As a PRP,
Metso Minerals  Industries Inc. is jointly and severally liable for the clean-up costs of
such  sites. With respect to Hunt landfill site, Metso Minerals Industries Inc.,
together with the other named PRPs, has entered into a consent decree with the  U.S.
government pursuant to which Metso Minerals and such other parties have  agreed to cover
the clean-up costs of the Hunt site, which had been estimated to  be in the range of
U.S.$13 million to U.S.$22 million. Metso Minerals Industries  Inc. has a 6.3 percent
share of the clean-up costs and is also covered by an  indemnification agreement with a
previous owner of Nordberg. Construction at the  Hunt site was completed in 1996 and
Metso Minerals has paid a total of  approximately U.S.$0.4 million for the clean-up
costs. Additional work at the  Hunt site may be required at an estimated cost to Metso
Minerals Industries,  Inc. of approximately U.S.$0.2 million. With respect to the Muskego
site, there  is an administrative order in place, with a total estimate of U.S.$15
million  for design and clean-up costs, of which the share of the previous owner and
Metso Minerals is expected to be at the level of the already paid U.S.$0.125  million. No
activities at the Muskego site have occurred since 1996. Management  estimates that Metso
Minerals maximum remaining liability with respect to  the Hunt and Muskego sites
will not exceed the currently established reserve of  U.S.$0.267 million, and that the
reserve for the remediation costs of the two  landfill sites will be sufficient for any
remaining liability due to above  reasons and the fact that no activity on these sites
has occurred for several  years.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In
addition to the two landfill sites mentioned above, and ordinary environmental
concerns attached to old industrial facilities (such as potential asbestos in
building materials, lead paint, and storing of oil, solvents and paint), Metso
Minerals Industries Inc. is the owner and operator of a major industrial
facility at Milwaukee, Wisconsin, at which manufacturing operations have been
carried out since early 1900s. According to Phase I level evaluations made, the
facility possesses several underground storage tanks, and had extensive foundry
operations since 1900s. To date, no known adverse environmental impacts have
been identified at the site. As part of the efficiency improvement program of
2003, Metso Minerals has announced that it intends to cease manufacturing in
Milwaukee, and has commenced a Phase II level investigation at the site. It has
been estimated that some remedial costs may be required pursuant to such ongoing
Phase II level investigation outcome. Based on the preliminary indications from
the Phase II level investigation, Management estimates that Metso Minerals
reserve of U.S.$4.2 million reasonably approximates the required remedial costs
at the Milwaukee facility.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As a
result of the acquisition of Svedala, Metso Minerals has two sites with certain
environmental concerns. The first is a former manufacturing site in Mt. Olive,
New Jersey, which Svedala acquired in 1992. The company acquired by Svedala
operated this site from 1955 to 1987. With the closing of manufacturing
operations in 1987, the New Jersey Industrial Site Recovery Act triggered an
environmental assessment. Both soil and groundwater contamination was
identified. The source of most of the contamination was traced back to prior
owners and operators of the property, which had been an industrial site since
the early 1900s. All known contaminated soil has been removed and the State of
New Jersey Department of Environmental Protection (NJDEP) has issued
a No Further Action letter regarding the soil contamination. Metso
Minerals has sold the site in Mt. Olive in December 2003. However, liabilities
for ground water contamination issues were retained by Metso Minerals. In
addition to the prior remediation activities at the site, Metso Minerals
conducted a baseline ecological evaluation of the property as required by the
NJDEP. The basic purpose of such evaluation was to determine whether
site-related contamination presents a risk to or has impacted environmentally
sensitive areas within or adjacent to the property. Such evaluation, together
with a recommendation that no further ecological evaluation or testing be
conducted at the site, was submitted to the NJDEP by an environmental consultant
retained by Metso. There can be no assurance that the NJDEP agrees with such
recommendation. However, taking into account (i) that Metso Minerals has
purchased a pollution legal liability insurance policy for the site, which
generally covers, subject to standard exclusions, clean-up costs, bodily injury
and property damage for pre-existing and unknown pollution conditions, and (ii)
that extensive prior remediation activities at the site have already been
conducted, Metso does not anticipate any liability arising out of the final
evaluation to be material. The estimated reserve required for the remediation
measures relating to the groundwater contamination is U.S.$0.832 million.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
second site with environmental concerns is a former manufacturing property in
Danville, Pennsylvania. Both soil and groundwater are contaminated with oil from
the manufacturing process. In conjunction with the state of Pennsylvania, an
approved remediation plan has being developed. Some soil remediation has already
been completed. Two additional areas of concern are being investigated and
possibly remediated. An U.S.$1.2 million reserve is our best estimate of
potential remediation costs at this time.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-36 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Metso
Minerals, through its Reedrill division was identified as a PRP in two CERCLA
sites. At one of the sites, liability has been assumed by a predecessor company.
Regarding the other site, Metso Minerals (Svedala) has responded in March 2000
to an EPA request for information and identified predecessor companies as the
proper responsible parties.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso
Minerals Industries Inc. may become subject to remedial costs relating to an old
industrial facility in Colorado Springs, Colorado, which was used in foundry and
test laboratory operation. The site is for sale. Phase I level evaluations do
not suggest any environmental conditions of any major concern. However, Phase II
level evaluations have not been conducted. In case Metso needs to obtain an
environmental insurance to cover the unknown environmental conditions in
connection with the contemplated sale of the site, a reserve of U.S.$0.350
million has been established to cover such potential cost.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In
Svedala, Sweden, in connection with an industrial site, which was sold in 2001
to Sandvik, Metso Minerals has a contractual liability to remedy Sandvik for two
soil removal remedial work related costs. One area is small and inside the
industrial property and is not expected to cause material costs. The other area
is outside the building beneath the public road (due to the contamination from
an old gas station belonging to the factory) and soil removal there may require
piling of an existing building. Currently, before the actual remedial work has
been carried out and orders for the work placed, the best estimate for the
remedial costs is  0.165 million.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso
Minerals manufactures compaction equipment for the construction industry in
Ljungby, Sweden. In connection with the production at the site during the years,
land contamination may have occurred. In order to assess the probability of land
contamination, which could make Metso Minerals subject to remedial costs, a
Phase I level evaluation was conducted on the site in February 2004. According
to Phase I evaluation, it has been estimated that some remedial action will be
required at the site. The Phase I evaluation was not conclusive enough to enable
Metso to estimate the amount of costs relating to such remedial action.
Therefore, we have commenced a Phase II level evaluation on the site in March
2004.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso
Panelboard, part of the Metso Ventures business area, has previously owned a
site with certain environmental concerns. The site, located in Belgium, was
owned by Constructiewerkhuizen De Mets N.V., a company divested in 2001.
Pursuant to the sale agreement, Metso is required to provide the purchaser with
an environmental report, certified by the Belgian authorities, to the effect
that the soil at the site has not been contaminated. Consequently, a third party
conducted an environmental assessment at the site. The report of the results was
sent to the OVAM (Belgian environmental authority) for acceptance during the
fall of 2003. In December 2003, OVAM requested certain additional analysis. This
analysis is currently being conducted. A cleaning plan can be presented for
acceptance to OVAM after the report is accepted. In accordance with the
conditions of the sale agreement, Metso has estimated that its responsibility
for remediation costs will be limited to  1 million, which has been
recognized as a reserve in connection with the disposal.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-37 | 
| | ---- | 



---



|METSO
|-----

|Notes to Consolidated Financial Statements
|------------------------------------------

|Note 27. Lease Contracts
|------------------------



|Metso
leases offices, manufacturing and warehouse space under various non-cancellable
leases. Certain contracts contain renewal options for various periods of time.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Minimum
annual rentals for operating and capital leases in effect at December 31, 2003
are as follows:
|------------------------------------------------------------------------------------------------------

|                             | Operating
      leases | Capital 
      leases
|---------------------------- | ---------------------- | ---------------------
|                             | ( in millions)       
|Fiscal year                  |                        |                      
|2004                         | 43                     |                      
|2005                         | 32                     |                      
|2006                         | 24                     |                      
|2007                         | 17                     |                      
|2008                         | 14                     |                      
|2009 and later               | 28                     |                      
|                             |                        |                      
|Total minimum lease payments | 158                    |                      
|                             |                        |                      



|Total
rental expense amounted to 46 million, 41 million and 39
million for the years ended December 31, 2001, 2002 and 2003, respectively.
|---------------------------------------------------------------------------------------------------------------------------------------------



|Future lease
payments for empty premises
|----------------------------------------



|Due to reorganization of production
      and sales activities, Metso has, from time to time, empty leased premises
      with non-cancellable rental engagements. A cost reserve for the remaining
      lease period is made when it is probable that economically realistic sub-lease
      or early termination arrangements cannot be negotiated. The cost accrual
      is based on discounted future lease payments. In connection with the Svedala
      acquisition, Metso recognized an accrual for duplicate lease costs. As of
      December 31, 2002 and 2003, the remaining reserve amounted to 7 million
      and 5 million, respectively.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Note 28. Financial Instruments
|------------------------------



|Foreign currency
risk management
|--------------------------------



|Both the
production and sales activities of Metso are geographically widely spread
creating exposure to various currency risks, the main currencies being USD, EUR,
SEK and GBP. Due to the number of Swedish based operations of acquired Svedala
companies the SEK exposure against other currencies has increased since
September 2001.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Foreign
exchange gains and losses, reported in the operating profit resulted in a net
gain of 1 million in 2001, a net loss of 3 million in 2002 and a net
gain of 1 million in 2003.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Trade flow related
derivatives
|------------------------------



|The trade
flow related currency exposures are hedged with forward exchange contracts. The
Corporate Treasury monitors the global currency risk and enters into forwards
with third parties to reverse the currency exposures created through internal
derivative transactions with the subsidiaries. External forwards contracted by
the Corporate Treasury are fair valued quarterly. External currency forwards
entered into directly by the subsidiaries are designated at inception as hedges
of an underlying transaction. The currency leg of such forwards is fair valued
and the interest component is recognized upfront concurrently with the
respective underlying.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Foreign currency
denominated equity
|-----------------------------------



|Metso  hedges its
USD, SEK and, to some extent, CAD denominated net investments to  reduce the effect of
exchange rate fluctuations. As of December 31, 2003, the  hedging instruments were
foreign currency
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-38 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|loans and forward exchange contracts.  Both
realized and unrealized exchange gains and losses measured on these  instruments are
recorded, net of taxes, in a separate component of equity  against the translation
differences arising from consolidation. The forwards are  designated as hedges of net
investments at inception and their effectiveness is  measured quarterly. The interest
component of forwards is fair valued and the  change in fair value is recognized in the
income statement.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Foreign currency
denominated loans
|----------------------------------



|Metso has
made medium-term, mainly USD and GBP denominated, loans to its foreign
subsidiaries. The resulting currency risk has been hedged with cross-currency
swaps and forward exchange contracts.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Short-term funding
and liquidity management
|-------------------------------------------



|Forward
exchange contracts are used to mitigate foreign currency risk arising from
short-term borrowing and liquidity management. Such forwards are fair valued
quarterly. Metso also enters into call and put options to allow more flexible
control of the net currency exposures. The options have maturities not exceeding
twelve months and they are fair valued quarterly.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso
measures and monitors foreign currency risk using sensitivity analysis. The
consolidated net exposures in different currencies are continuously controlled
and the risk is mitigated through different financial instruments, including
derivatives, as required by the Corporate Treasury Policy. The financial
derivatives for other than trade flow related currency risks are all entered
into by the Corporate Treasury.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Interest rate
management
|------------------------



|Metso
uses both interest rate and cross-currency swaps and interest rate futures
contracts to mitigate the risks arising from interest bearing receivables and
debt. The notional amount of interest rate swaps outstanding at December 31,
2002 and 2003 was 60 million and 60 million, respectively. The
notional amount of interest rate futures contracts at December 31, 2002 and 2003
amounted to 15 million and 15 million, respectively. The interest
rate risk is measured using sensitivity analysis and controlled by the Corporate
Treasury.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Commodity risks
|---------------



|In 2003,
Metso extended its risk management policy to include the volatility in
electricity prices and authorized its affiliates located in Finland, together
with the Corporate Treasury, to enter into electricity forward contracts. The
commodity risk is measured using sensitivity analysis.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
utilization of financial derivatives (expressed as notional amounts) is divided
as follows:
|-----------------------------------------------------------------------------------------------

|                                                | At December
      31,
|----------------------------------------------- | ---------------------
|                                                | 2002                 
|                                                | ( in
      millions)
|Trade flow related currency derivatives         |                      
|Fair valued derivatives                         | 778                  
|Ear-marked with underlying
      item           | 5                    
|Foreign currency denominated equity             | 102                  
|Foreign currency denominated loans.             | 104                  
|Short-term funding and liquidity management     | 533                  
|Long-term funding and other arrangements        | 38                   
|Currency risk management                        | 184                  
|Interest risk management                        | 75                   
|                                                |                      
|Total notional amount of derivative instruments | 1,819                
|                                                |                      



| | F-39 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|The
following table presents the notional amounts, carrying amounts and fair values
of derivative financial instruments:
|------------------------------------------------------------------------------------------------------------------------

|                                  | At December
      31, 
|--------------------------------- | ----------------------
|                                  | 2002                  
|                                  | Notional 
      Amount
|                                  | ( in
      millions) 
|Forward exchange contracts        | 1,617                 
|Cross-currency swaps              | 4                     
|Currency swaps                    | 100                   
|Interest rate swaps               | 60                    
|Interest rate futures contracts   | 15                    
|Option agreements                 |                       
|Bought                            | 9                     
|Sold                              | 14                    
|                                  |                       
|Electricity forward contracts (1) |                      

|
|

|(1) |  | Notional
amount GWh
|--- |  | -------------------



|Carrying
amounts noted in the table above are included in the balance sheet. The notional
amounts indicate the volumes in the use of derivatives, they do not indicate the
exposure to risk. The fair value reflects the estimated amounts, that Metso
would receive or pay to terminate the contracts at the reporting date, thereby
taking into account the current unrealized gains or losses of open contracts.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|At
December 31, 2003, the maturities of the financial derivatives are as follows
(expressed as notional amounts):
|-----------------------------------------------------------------------------------------------------------------

|                                  | 2004                  | 2005 | 2006 | 2007 | 2008 
      and after
|--------------------------------- | --------------------- | ---- | ---- | ---- | ---------------------
|                                  | ( in
      millions)
|Forward exchange contracts        | 1,529                 |      | 38   |      |                     
|Cross-currency swaps              |                      |      |     |      |                     
|Currency swaps                    |                      |      | 15   |      |                     
|Interest rate swaps               |                      |      |     |      | 40                   
|Interest rate futures contracts   | 15                    |      |     |      |                     
|                                  |                       |      |      |      |                      
|Option agreements                 |                       |      |      |      |                      
|Bought                            | 13                    |      |     |      |                     
|Sold                              | 34                    |      |     |      |                     
|                                  |                       |      |      |      |                      
|Electricity forward contracts (1) | 192                   |      | 108  |      | 44                   

|
|

|(1) |  | Notional
amount GWh
|--- |  | -------------------



|Fair value of
financial instruments
|-----------------------------------



|U.S. FASB
Statement No. 107, Disclosures about Fair Values of Financial  Instruments, requires
the disclosure of estimated fair values for all  financial instruments, both on- and
off-balance-sheet, for which it is  practicable to estimate fair value. Metso has used a
variety of methods and  assumptions, which were based on market conditions and risks
existing at the  time to estimate the fair value of the Groups financial
instruments at  December 31, 2002 and 2003. For certain instruments, including cash and
cash  equivalents, accounts payable, accruals and short-term debt, it was assumed that
the carrying amount approximated fair value due to the short maturity of those
instruments. Quoted market prices or dealer quotes for the same or similar  financial
instruments were used to estimate the fair value for marketable  securities and long-term
investments. Other
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-40 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|techniques, such as estimated  discounted cash
flows or replacement cost have been used to determine fair value  for the remaining
financial instruments.
|---------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                        | Year ended
      December 31,
|--------------------------------------------------------------------------------------- | -----------------------------
|                                                                                        | 2002                         
|                                                                                        | Carrying 
      Value        
|                                                                                        | ( in
      millions)        
|Assets                                                                                  |                              
|Shareholdings and other securities (excluding 
         shares in associated companies) | 37                           
|Own shares                                                                              | 1                            
|Loans receivable, long-term                                                             | 20                           
|Accounts receivable, long-term                                                          | 5                            
|Other interest bearing long-term investments                                            | 26                           
|Accounts receivable, short-term                                                         | 836                          
|Loans receivable, short-term                                                            | 5                            
|Short-term investments                                                                  | 11                           
|Cash and cash equivalents                                                               | 190                          
|                                                                                        |                              
|Liabilities                                                                             |                              
|Bonds                                                                                   | 713                          
|Loans from financial institutions                                                       | 233                          
|Loans from pension institutions                                                         | 38                           
|Other long-term debt                                                                    | 36                           
|Current portion of long-term loans                                                      | 50                           
|Other interest bearing short-term debt                                                  | 283                          



|Note 29. Concentrations of Credit Risk
|--------------------------------------



|Metso is
exposed to credit risk primarily in relation to project deliveries, trade
receivables and the use of financial instruments. The companies within Metso
conduct diverse business activities with a large number of customers and
suppliers. The receivables are well diversified and, where appropriate, secured
by various trade finance instruments such as letters of credit, export
guarantees or by withheld security interest in products sold under extended
credit terms. In the use of financial instruments, Metso minimizes credit and
counterparty risk by dealing only with major local or international banks and
financial institutions or companies with investment grade credit ratings.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Management
believes that no significant unmanaged concentration of credit risk with any
individual customer, counterparty or geographical region exists for Metso.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-41 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Note 30. Principal Subsidiaries
|-------------------------------



|Listed
below are the principal subsidiaries of Metso Corporation:
|-----------------------------------------------------------------

|                                     | Country       | Percentage 
      of Ownership
|------------------------------------ | ------------- | ------------------------------
|Metso Paper                          |               |                               
|Metso Paper Oy                       | Finland       | 100.0                         
|Metso Paper USA Inc.                 | United States | 100.0                         
|Metso Paper Ltd                      | Canada        | 100.0                         
|Metso Paper Karlstad AB              | Sweden        | 100.0                         
|Metso Paper Sundsvall AB             | Sweden        | 100.0                         
|Metso Paper Pori Oy                  | Finland       | 100.0                         
|Metso Paper Valkeakoski
      Oy     | Finland       | 100.0                         
|                                     |               |                               
|Metso Minerals                       |               |                               
|Metso Minerals Industries
      Inc. | United States | 100.0                         
|Metso Dynapac AB                     | Sweden        | 100.0                         
|Metso Minerals (Tampere)
      Oy    | Finland       | 100.0                         
|Metso Minerals (Australia)
      Ltd | Australia     | 100.0                         
|Metso Dynapac GmbH                   | Germany       | 100.0                         
|                                     |               |                               
|Metso Automation                     |               |                               
|Metso Automation Oy                  | Finland       | 100.0                         
|Metso Automation USA Inc.            | United States | 100.0                         
|                                     |               |                               
|Metso Ventures                       |               |                               
|Metso Drives Oy                      | Finland       | 100.0                         
|Valmet Automotive Oy                 | Finland       | 90.0                          



| | F-42 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Note 31. Business and Geographic Information
|--------------------------------------------



|Metsos reportable segments
      are comprised of strategic business areas that offer different products
      and services. They are further divided into subsegments or business groups.
      Each business area is managed separately because each segment requires different
      technology and marketing strategies. At December 31, 2003, the main reportable
      segments are Metso Paper, Metso Minerals, Metso Automation and Metso Ventures.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Paper: Metso
      Paper develops, designs and manufactures pulp and paper industry machinery
      and equipment, complete production lines for pulp and papermaking, and machinery
      and equipment for the packing and converting industries. In November 2002,
      Metso announced a formal plan to dispose of its Converting equipment business.
      The business was sold to the Swiss company, Bobst Group SA, on January 30,
      2004. In following segment schedules Converting equipment is presented separate
      from Metso Paper under discontinued operations.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso
Minerals. In the beginning of 2001, Metso Minerals, which had earlier belonged
to the Machinery segment, became a separate business area. Metso Minerals covers
the production and marketing of rock and mineral processing solutions for
quarries, mines and civil engineering contractors. In September 2001, through
the acquisition of Svedala group, which was included as a whole in Metso
Minerals, the activity of the segment was extended to cover compaction and
paving and metal recycling equipment.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Automation.
      Metso Automation develops, designs and supplies application networks and
      systems and field solutions for automation and information management in
      the process industry.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso Ventures: In
      the beginning of 2002, Metso Panelboard was transferred from Metso Paper
      to Metso Ventures and all prior year data has been restated to conform to
      the new structure. In October 2003, the foundry operations in Finland and
      Sweden, formerly part of Metso Paper and of Metso Minerals, were transferred
      to the Metso Ventures business area and all prior year data has been restated
      to conform to the new structure. The other subsegments of Metso Ventures
      are Metso Drives, Metso Powdermet and Valmet Automotive. Metso Ventures
      covers gears for industries, machinery and equipment for manufacturing panelboards,
      and assembly of specialty cars.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
presentation below is prepared according to the current structure to assess the
performance of the various business segments.
|---------------------------------------------------------------------------------------------------------------------------------



|The
accounting policies of the reportable segments and their subsegments are the
same as those described in Note 1 to the Consolidated Financial Statements. All
intersegment sales are market based. Metso evaluates the performance of its
operating segments and allocates resources to them based on the operating profit
(loss). No single customer represents more than ten percent of Metsos net
sales.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Information about Metsos
      reportable segments as of and for the years ended December 31, 2001, 2002
      and 2003 is shown in the following tables.
|----------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-43 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Net sales by business area
|--------------------------



|Net sales
by business area for the three years ended December 31, 2001, 2002 and 2003 are
as follows:
|-----------------------------------------------------------------------------------------------------

|                            | Year ended December 31,
|--------------------------- | -----------------------
|                            | 2001                   
|                            | ( in millions)        
|                            |                        
|Metso Paper                 | 2,180                  
|Metso Minerals(1)           | 900                    
|Metso Automation            | 693                    
|Metso Ventures              | 554                    
|Intra Metso net sales       | (160                   
|                            |                        
|Continuing
      operations | 4,167                  
|Converting Equipment        | 176                    
|                            |                        
|Metso total                 | 4,343                  
|                            |                        

|
|

|(1) |  | Includes
Svedala acquisition from September 14, 2001.
|--- |  | -----------------------------------------------------



|Operating profit (loss), nonrecurring items
and amortization of goodwill by business area
|-----------------------------------------------------------------------------------------



|Operating
profit (loss) before nonrecurring operating items and amortization of goodwill
by business area for the three years ended December 31, 2001, 2002 and 2003 are
as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | Year ended December
      31,
|-------------------------------- | -----------------------------
|                                 | 2001                         
|                                 | ( in millions)              
|                                 |                              
|Metso Paper                      | 188                          
|Metso Minerals(1)                | 42                           
|Metso Automation                 | 28                           
|Metso Ventures                   | 35                           
|Corporate Headquarters and other | (27                          
|                                 |                              
|Continuing
      operations      | 266                          
|Converting Equipment             | 4                            
|                                 |                              
|Metso total                      | 270                          
|                                 |                              

|
|

|(1) |  | Includes
Svedala acquisition from September 14, 2001.
|--- |  | -----------------------------------------------------



|Nonrecurring
operating items by business area for the three years ended December 31, 2001,
2002 and 2003 are as follows:
|------------------------------------------------------------------------------------------------------------------------

|                                 | Year ended December
      31,
|-------------------------------- | -----------------------------
|                                 | 2001                         
|                                 | ( in millions)              
|                                 |                              
|Metso Paper                      | (15                          
|Metso Minerals                   | (16                          
|Metso Automation                 | (8                           
|Metso Ventures                   |                             
|Corporate Headquarters and other | 43                           
|                                 |                              
|Continuing
      operations      | 4                            
|Converting Equipment             |                             
|                                 |                              
|Metso total                      | 4                            
|                                 |                              



| | F-44 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Amortization
of goodwill by business area for the three years ended December 31, 2001, 2002
and 2003 is as follows:
|-------------------------------------------------------------------------------------------------------------------

|                                 | Year ended December
      31,
|-------------------------------- | -----------------------------
|                                 | 2001                         
|                                 | ( in millions)              
|                                 |                              
|Metso Paper                      | (8                           
|Metso Minerals(1)                | (14                          
|Metso Automation                 | (3                           
|Metso Ventures                   | (2                           
|Corporate Headquarters and other |                             
|                                 |                              
|Continuing
      operations      | (27                          
|Converting Equipment             | (1                           
|                                 |                              
|Metso total                      | (28                          
|                                 |                              

|
|

|(1) |  | Includes
Svedala acquisition from September 14, 2001.
|--- |  | -----------------------------------------------------



|Operating
profit (loss) by business area the three years ended December 31, 2001, 2002 and
2003 are as follows:
|---------------------------------------------------------------------------------------------------------------

|                                 | Year ended December
      31,
|-------------------------------- | -----------------------------
|                                 | 2001                         
|                                 | ( in millions)              
|                                 |                              
|Metso Paper                      | 165                          
|Metso Minerals(1)                | 12                           
|Metso Automation                 | 17                           
|Metso Ventures                   | 33                           
|Corporate Headquarters and other | 16                           
|                                 |                              
|Continuing
      operations      | 243                          
|Converting Equipment             | 3                            
|                                 |                              
|Metso total                      | 246                          
|                                 |                              

|
|

|(1) |  | Includes
Svedala acquisition from September 14, 2001.
|--- |  | -----------------------------------------------------

|(2) |  | Includes
a goodwill impairment charge of 205 million recorded in  September 2003.
|--- |  | ----------------------------------------------------------------------------------



|Capital employed by business area
|---------------------------------



|Capital
employed by business area as of December 31, 2001, 2002 and 2003 is as follows:
|---------------------------------------------------------------------------------------

|                                 | At December 31,
|-------------------------------- | ---------------
|                                 | 2001           
|                                 | ( in millions)
|                                 |                
|Metso Paper                      | 544            
|Metso Minerals                   | 1,518          
|Metso Automation                 | 282            
|Metso Ventures                   | 164            
|Corporate Headquarters and other | 476            
|                                 |                
|Continuing operations            | 2,984          
|Converting Equipment             | 60             
|                                 |                
|Metso total                      | 3,044          
|                                 |                



| | F-45 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Capital expenditures by business area
|-------------------------------------



|Capital expenditures
(including business acquisitions) by business area for the three years ended
December 31, 2001, 2002 and 2003 are as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | Year ended December
      31,
|-------------------------------- | -----------------------------
|                                 | 2001                         
|                                 | ( in millions)              
|                                 |                              
|Metso Paper                      | 67                           
|Metso Minerals                   | 825                          
|Metso Automation                 | 43                           
|Metso Ventures                   | 36                           
|Corporate Headquarters and other | 8                            
|                                 |                              
|Continuing operations            | 979                          
|Converting Equipment             | 3                            
|                                 |                              
|Metso total                      | 982                          
|                                 |                              

|
|

|(1) |  | Includes
the acquisition of Svedala.
|--- |  | ------------------------------------



|Depreciation and amortization by business area
|----------------------------------------------



|Depreciation
and amortization by business area for the three years ended December 31, 2001,
2002 and 2003 are as follows:
|-------------------------------------------------------------------------------------------------------------------------

|                                 | Year ended December
      31,
|-------------------------------- | -----------------------------
|                                 | 2001                         
|                                 | ( in millions)              
|                                 |                              
|Metso Paper                      | 64                           
|Metso Minerals(1)                | 36                           
|Metso Automation                 | 19                           
|Metso Ventures                   | 24                           
|Corporate Headquarters and other | 2                            
|                                 |                              
|Continuing
      operations      | 145                          
|Converting Equipment             | 4                            
|                                 |                              
|Metso total                      | 149                          
|                                 |                              

|
|

|(1) |  | Includes Svedala acquisition from September 14,
      2001.
|--- |  | -----------------------------------------------------------



| | F-46 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Orders received by business area
|--------------------------------



|Orders
received by business area for the three years ended December 31, 2001, 2002 and
2003 are as follows:
|-----------------------------------------------------------------------------------------------------------

|                            | Year ended December
      31,
|--------------------------- | -----------------------------
|                            | 2001                         
|                            | ( in millions)              
|                            |                              
|Metso Paper                 | 1,706                        
|Metso Minerals(1)           | 862                          
|Metso Automation            | 676                          
|Metso Ventures              | 496                          
|Intra Metso orders received | (131                         
|                            |                              
|Continuing
      operations | 3,609                        
|Converting Equipment        | 169                          
|                            |                              
|Metso total                 | 3,778                        
|                            |                              

|
|

|(1) |  | Includes
Svedala acquisition from September 14, 2001.
|--- |  | -----------------------------------------------------



|Order backlog by business area
|------------------------------



|Order backlog by business area
      as of December 31, 2001, 2002 and 2003 is as follows:
|------------------------------------------------------------------------------------------

|                            | At December 31,
|--------------------------- | ---------------
|                            | 2001           
|                            | ( in millions)
|                            |                
|Metso Paper                 | 949            
|Metso Minerals              | 491            
|Metso Automation            | 182            
|Metso Ventures              | 129            
|Intra Metso order backlog   | (51            
|                            |                
|Continuing
      operations | 1,700          
|Converting Equipment        | 72             
|                            |                
|Metso total                 | 1,772          
|                            |                



| | F-47 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Information
about Metsos operations in different geographical areas as at and for the
years ended December 31, 2001, 2002 and 2003 is as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------



|Net sales to unaffiliated customers by
destination:
|---------------------------------------------------

|Year | Finland         | Other 
      Nordic 
      Countries | Other 
      European 
      Countries | North 
      America | South 
      America | Asia- 
      Pacific | Rest 
      of the 
      World | Elimi- 
      nations | Metso 
      Total
|---- | --------------- | ------------------------------------ | -------------------------------------- | -------------------- | -------------------- | -------------------- | ------------------------------- | --------------------- | ------------------
|     | ( in millions)
|     |                 |                                      |                                        |                      |                      |                      |                                 |                       |                   
|2001 | 587             | 417                                  | 1,172                                  | 1,143                | 360                  | 521                  | 143                             |                      | 4,343             
|2002 | 382             | 453                                  | 1,363                                  | 1,199                | 417                  | 652                  | 225                             |                      | 4,691             
|2003 | 357             | 310                                  | 1,272                                  | 989                  | 264                  | 824                  | 234                             |                      | 4,250             



|In 2003,
26 percent of net sales was recognized under the percentage of completion
method. The percentage was highest in the Metso Paper business area, where it
accounted for 53 percent of net sales.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metsos
exports, including sales to unaffiliated customers and intragroup sales from
Finland, by destination for the years ended December 31, 2001, 2002 and 2003 are
as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year | Other 
      Nordic 
      Countries | Other 
      European 
      Countries | North 
      America | South 
      America | Asia- Pacific | Rest of The World | Total
|---- | ------------------------------------ | -------------------------------------- | -------------------- | -------------------- | ------------- | ----------------- | -----
|     | ( in millions)                     
|     |                                      |                                        |                      |                      |               |                   |      
|2001 | 365                                  | 592                                    | 200                  | 85                   | 269           | 20                | 1,531
|2002 | 297                                  | 567                                    | 183                  | 137                  | 248           | 21                | 1,453
|2003 | 195                                  | 523                                    | 209                  | 38                   | 372           | 15                | 1,352



|Fixed
assets and financial assets by location as of December 31, 2001, 2002 and 2003
are as follows:
|----------------------------------------------------------------------------------------------------

|Year | Finland         | Other 
      Nordic 
      Countries | Other 
      European 
      Countries | North 
      America | South 
      America | Asia- 
      Pacific | Rest 
      of the 
      World | Elimi-nations | Metso 
      Total
|---- | --------------- | ------------------------------------ | -------------------------------------- | -------------------- | -------------------- | -------------------- | ------------------------------- | ------------- | ------------------
|     | ( in millions)
|     |                 |                                      |                                        |                      |                      |                      |                                 |               |                   
|2001 | 530             | 949                                  | 158                                    | 457                  | 28                   | 64                   | 9                               |              | 2,195             
|2002 | 514             | 935                                  | 108                                    | 357                  | 24                   | 57                   | 10                              |              | 2,005             
|2003 | 504             | 746                                  | 96                                     | 233                  | 23                   | 52                   | 10                              |              | 1,664             



|Fixed and
financial assets include goodwill, other intangible assets, tangible assets,
shares and other long-term interest bearing and non-interest bearing
receivables.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Gross
capital expenditure (excluding business acquisitions) by region for the years
ended December 31, 2001, 2002 and 2003 are as follows:
|------------------------------------------------------------------------------------------------------------------------------------------

|Year | Finland         | Other 
      Nordic 
      Countries | Other 
      European 
      Countries | North 
      America | South 
      America | Asia- 
      Pacific | Rest 
      of the 
      World | Elimi- 
      nations | Metso 
      Total
|---- | --------------- | ------------------------------------ | -------------------------------------- | -------------------- | -------------------- | -------------------- | ------------------------------- | --------------------- | ------------------
|     | ( in millions)
|     |                 |                                      |                                        |                      |                      |                      |                                 |                       |                   
|2001 | 81              | 18                                   | 17                                     | 19                   | 4                    | 14                   | 1                               |                      | 154               
|2002 | 119             | 23                                   | 23                                     | 14                   | 5                    | 8                    | 1                               |                      | 193               
|2003 | 70              | 15                                   | 19                                     | 10                   | 5                    | 7                    | 2                               |                      | 128               



| | F-48 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Note 32. Differences between Generally
Accepted Accounting Principles in Finland and the United States
|------------------------------------------------------------------------------------------------------



|Metsos
consolidated financial statements are prepared in accordance with Finnish GAAP,
which differ in certain respects from the accounting principles generally
accepted in the United States (U.S. GAAP). The principal differences
between Finnish GAAP and U.S. GAAP are presented and described below, together
with explanations of the adjustments that affect consolidated net income and
total shareholders equity as of and for the periods indicated. As detailed
further below, the significant business combination of Valmet and Rauma is
accounted for as the pooling of interests under Finnish GAAP, but is accounted
for using the purchase method under U.S. GAAP. This difference impacts the
valuation of a number of financial statement accounts at the date of the
combination. For presentation purposes in the following reconciliation, the
Business combination, net item solely includes the impact of
differences that arose using the purchase method under U.S. GAAP. The other
items reflect the post-combination differences between Finnish GAAP and U.S.
GAAP. Certain amounts have been reclassified to conform to the current year
presentation.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                                                       | Year ended December
      31,
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------
|                                                                                                                                                                       | 2001                         
|                                                                                                                                                                       | ( in millions)              
|Reconciliation of net income                                                                                                                                           |                              
|Net income in accordance with Finnish GAAP                                                                                                                             | 141                          
|U.S. GAAP adjustments:                                                                                                                                                 |                              
|a) Business combination, net                                                                                                                                           | (5                           
|b) Purchase accounting, net                                                                                                                                            | (14                          
|c) Amortization of goodwill                                                                                                                                            | 11                           
|d) Impairment of goodwill                                                                                                                                              |                             
|e) Impairment of brand names                                                                                                                                           |                             
|f) Fair value of financial derivatives                                                                                                                                 | (8                           
|g) Pension surplus refund                                                                                                                                              | 3                            
|h) Employee benefit plans                                                                                                                                              | (8                           
|i) Restructuring costs                                                                                                                                                 | 5                            
|j) Written put option on subsidiary shares                                                                                                                             |                             
|l) Net investment hedge                                                                                                                                                |                             
|m) Repurchase commitments                                                                                                                                              |                             
|p) Discontinued operations                                                                                                                                             |                             
|Deferred tax effect of U.S. GAAP adjustments                                                                                                                           | 2                            
|                                                                                                                                                                       |                              
|Net income (loss) in accordance with U.S. GAAP                                                                                                                         | 127                          
|                                                                                                                                                                       |                              
|                                                                                                                                                                       |                              
|Income (loss) from continuing operations                                                                                                                               | 127                          
|Discontinued operations:                                                                                                                                               |                              
|Income (loss) from discontinued operations,
      net of income tax 
        expense of 1 million, 0 million and tax benefit
      3 million, 
        respectively | 0                            
|                                                                                                                                                                       |                              
|Net income (loss) in accordance with U.S. GAAP                                                                                                                         | 127                          
|                                                                                                                                                                       |                              
|                                                                                                                                                                       |                              
|                                                                                                                                                                       |                              
|                                                                                                                                                                       |                              
|Basic and diluted earnings (loss) per share:                                                                                                                           |                              
|Continuing operations                                                                                                                                                  | 0.93                         
|Discontinued operations                                                                                                                                                | 0.00                         
|Total basic and diluted earnings (loss) per share                                                                                                                      | 0.93                         
|Weighted average number of common shares outstanding 
      under U.S. GAAP (in thousands):                                                                            |                              
|Basic and diluted                                                                                                                                                      | 136,135                      



| | F-49 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------

|                                                           | As of December
      31,
|---------------------------------------------------------- | ------------------------
|                                                           | 2002                    
|                                                           | ( in millions)         
|Reconciliation of shareholders equity                     |                         
|Shareholders equity in accordance with Finnish
      GAAP | 1,379                   
|U.S. GAAP adjustments:                                     |                         
|a) Business combination, net                               | 81                      
|b) Purchase accounting, net                                | (35                     
|c) Amortization of goodwill                                | 63                      
|d) Impairment of goodwill                                  |                        
|e) Impairment of brand names                               |                        
|f) Fair value of financial derivatives                     | 27                      
|g) Pension surplus refund                                  | (1                      
|h) Employee benefit plans                                  | (59                     
|i) Restructuring costs                                     |                        
|j) Written put option on subsidiary shares                 |                        
|k) Investments                                             | 3                       
|m) Repurchase commitments                                  |                        
|n) Treasury stock                                          | (1                      
|o) Translation difference                                  | (47                     
|p) Discontinued operations                                 |                        
|Deferred tax effect of U.S. GAAP adjustments               | 9                       
|                                                           |                         
|Shareholders equity in accordance with U.S.
      GAAP    | 1,419                   
|                                                           |                         



|a) Business combination
|-----------------------



|The
merger of Rauma and Valmet, which, under Finnish GAAP, was accounted for by the
pooling of interests method, was consummated on July 1, 1999. The net income and
shareholders equity of Rauma, existing prior to the consummation date, was
pooled with the shareholders equity of Valmet.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under U.S. GAAP, the merger
      was accounted for as a purchase, with Valmet as the accounting acquirer.
      The total purchase consideration of Rauma was determined on the basis of
      the fair value of the transaction when the combination was announced on
      November 17, 1998. The fair value of the outstanding Rauma warrants at November
      17, 1998 were included in the purchase consideration, since such warrant
      holders were entitled to Metso warrants determined using the share-exchange
      ratio. In addition, the direct costs of the merger consisting of finders
      fees and professional and legal fees, amounting to 3 million, net
      of taxes, were included in the total purchase consideration. The excess
      of purchase consideration over the net assets, which amounted to 219
      million, was allocated to tangible fixed assets for an amount of 272
      million, inventory for 42 million and to pension liabilities for 10
      million. The net deferred taxes on these adjustments amounted to 85
      million.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In
connection with the merger, Metso incurred and recognized restructuring costs
and liabilities as a result of combining the two operations. Under Finnish GAAP,
these costs were expensed. Under U.S. GAAP, certain qualifying liabilities
established in connection with a purchase business combination amounting to
13 million were recorded to the acquisition balance sheet as liabilities
assumed.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
impact of the above adjustments on the reconciliation of net income and of the
shareholders equity is as follows:
|----------------------------------------------------------------------------------------------------------------------



| | F-50 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------

|                                               | Year ended December
      31,
|---------------------------------------------- | -----------------------------
|                                               | 2001                         
|                                               | ( in millions)              
|Net income                                     |                              
|Amortization of goodwill                       | 5                            
|Impairment of goodwill                         |                             
|Depreciation of buildings
      and structures | (3                           
|Depreciation of other tangible
      assets    | (11                          
|Write down of fixed assets                     |                             
|Disposal of fixed assets                       | 0                            
|Deferred taxes                                 | 4                            
|                                               |                              
|Total                                          | (5                           
|                                               |                              

|                          | As of December
      31,
|------------------------- | ------------------------
|                          | 2002                    
|                          | ( in millions)         
|Shareholders equity      |                         
|Rauma historical goodwill | (34                     
|Land and water areas      | 2                       
|Buildings and structures  | 86                      
|Machinery and equipment   | 117                     
|Employee benefits         | (33                     
|Current liabilities       | (12                     
|Deferred taxes            | (45                     
|                          |                         
|Total                     | 81                      
|                          |                         



|The
following table presents the change in U.S. GAAP purchase accounting adjustments
for the years ended December 31, 2002 and December 31, 2003, respectively:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | Opening 
      balance | Decreases | Accumulated
      
      amortization | Closing 
      balance
|----------------------- | ---------------------- | --------- | ------------------------------------- | ----------------------
|                        | ( in millions)       
|Year 2002:              |                        |           |                                       |                       
|Land and water areas    | 2                      |           |                                      |                       
|Buildings               | 96                     |           |                                      |                       
|Machinery and equipment | 160                    |           | (5                                    | )                     
|                        |                        |           |                                       |                       
|Total                   | 258                    |           | (5                                    | )                     
|                        |                        |           |                                       |                       
|Year 2003:              |                        |           |                                       |                       
|Land and water areas    | 2                      |           | (1                                    | )                     
|Buildings               | 96                     |           | (4                                    | )                     
|Machinery and equipment | 155                    |           | (29                                   | )                     
|                        |                        |           |                                       |                       
|Total                   | 253                    |           | (34                                   | )                     
|                        |                        |           |                                       |                       



| | F-51 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|b) Purchase accounting, net
|---------------------------



|During
the year ended December 31, 2001, Metso acquired Svedala Industri AB, a Swedish
industrial group. The following tables reflect the reconciliation of the total
consideration for Svedala, the allocation of the excess of purchase
consideration over the net assets and the U.S. GAAP purchase accounting
adjustments:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                         |  in millions
|-------------------------------------------------------------------------------------------------------- | -------------
|                                                                                                         |              
|Cash paid                                                                                                | 924          
|Direct acquisition costs                                                                                 | 19           
|Liabilities recognized pursuant to EITF 95-3,
      
           net of income tax benefit of 10 million | 50           
|                                                                                                         |              
|Total consideration                                                                                      | 993          
|Net assets acquired                                                                                      | (145         
|                                                                                                         |              
|Excess of purchase consideration over the net
      assets acquired                                      | 848          
|                                                                                                         |              



|U.S. GAAP purchase accounting adjustments:
|------------------------------------------

|                                                                    |  in millions
|------------------------------------------------------------------- | -------------
|Goodwill                                                            | 685          
|Land and buildings                                                  | 34           
|Other tangible assets                                               | 15           
|Patents                                                             | 7            
|Trademarks                                                          | 58           
|Customer value                                                      | 67           
|Order backlog                                                       | 30           
|Inventories                                                         | 10           
|Liability for pensions under FAS87 and FAS106                       | 8            
|Deferred taxation on the above adjustments                          | (66          
|                                                                    |              
|Excess of purchase consideration over the net
      assets acquired | 848          
|                                                                    |              



|Direct
acquisition costs of 19 million, which have been capitalized to the
purchase price, consisted of professional and legal fees.
|-------------------------------------------------------------------------------------------------------------------------------------



|The
restructuring costs of 50 million, net of taxes, which have been included
in the acquisition cost, consist of the following:
|---------------------------------------------------------------------------------------------------------------------------------

|                                                                                      |  in millions
|------------------------------------------------------------------------------------- | -------------
|                                                                                      |              
|Termination benefits, net of income tax benefit
      of 6 million                   | 32           
|Lease termination and other exit costs, net
      of income tax benefit of 2 million | 11           
|Other closure costs, net of income tax benefit
      of 2 million                    | 7            
|                                                                                      |              
|Total, net of income tax benefit of 10
      million                                 | 50           
|                                                                                      |              
|                                                                                      |              



|The major actions that have
      been taken by the Company included reducing excess production capacity in
      the United States and in the United Kingdom, closing down unprofitable manufacturing
      entities in the United States, Mexico and Germany and combining local sales
      structures in different countries.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-52 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|The
following table presents the change in U.S. GAAP purchase accounting
adjustments, excluding goodwill, from the acquisition balance sheet to the
balance sheet as of December 31, 2003:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                          | Purchase 
      accounting 
      adjustments 
      at the 
      acquisition date | Accumulated
      
      Decreases/ 
      Increases | Accumulated 
      amortization | Translation
      
      differences | Purchase 
      accounting 
      adjustments at 
      December 31, 
      2003
|--------------------------------------------------------- | ----------------------------------------------------------------------------------- | ---------------------------------------------------- | ------------------------------- | ------------------------------------ | --------------------------------------------------------------------------------
|                                                          | ( in
      millions)                                                              
|Brand names(1)                                            | 58                                                                                  |                                                      | (13                             | )(2)                                 |                                                                                
|Customer value                                            | 67                                                                                  |                                                      |                                |                                      | (24                                                                             
|Patents(1)                                                | 7                                                                                   |                                                      |                                |                                      | (2                                                                              
|Land and water areas(1)                                   | 13                                                                                  |                                                      | (1                              | )                                    |                                                                                
|Buildings(1)                                              | 21                                                                                  |                                                      | (2                              | )                                    | (2                                                                              
|Other tangible assets(1)                                  | 15                                                                                  |                                                      |                                |                                      | (4                                                                              
|Order backlog                                             | 30                                                                                  |                                                      |                                |                                      | (30                                                                             
|Inventory                                                 | 10                                                                                  |                                                      | (10                             | )                                    |                                                                                
|Liability for pensions 
          under FAS87 and FAS 106 | 8                                                                                   |                                                      |                                |                                      |                                                                                
|Deferred taxes                                            | (66                                                                                 | )                                                    | 8                               |                                      | 18                                                                              
|                                                          |                                                                                     |                                                      |                                 |                                      |                                                                                 
|Total                                                     | 163                                                                                 |                                                      | (18                             | )                                    | (44                                                                             
|                                                          |                                                                                     |                                                      |                                 |                                      |                                                                                 

|
|

|(1) |  | The
following purchase accounting adjustments have also been recorded  under Finnish GAAP:
58 million for brands, 7 million for  patents, 13 million for land and
water areas, 21 million for  buildings and 15 million for other tangible
assets.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Impairment
loss on brand names (see adjustment e) impairment of brand  names).
|--- |  | ------------------------------------------------------------------------------



|The
amortization periods of assets assigned from the excess of purchase
consideration are:
|------------------------------------------------------------------------------------------

|Buildings                   | 20 years                                                                     
|--------------------------- | -----------------------------------------------------------------------------
|Other tangible assets       | 8 years                                                                      
|Patents                     | Average of 9 years and 5 months                                              
|Customer value              | From 40 months to 80 months depending 
         on the type of customer group
|Order backlog and inventory | Average of 15 months                                                         



|The
impact of these adjustments on the reconciliation of net income and
shareholders equity, excluding impact of translation difference and
impairment loss on intangible assets, between Finnish GAAP and U.S. GAAP for the
Svedala acquisition are as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                             | Year ended December
      31,
|------------------------------------------------------------------------------------------------------------ | -----------------------------
|                                                                                                             | 2001                         
|                                                                                                             | ( in millions)              
|Difference between net income under Finnish
      GAAP and U.S. GAAP                                         |                              
|                                                                                                             |                              
|Reversal of amortization of brand names                                                                      |                             
|Amortization of customer value under U.S. GAAP                                                               | (3                           
|Difference between amortization of other intangible
      assets                                             | (0                           
|Difference between depreciation of tangible
      assets                                                     | (1                           
|Amortization of order backlog under U.S. GAAP                                                                | (14                          
|Inventory: amortization of difference between
      the fair value and 
      net book value under U.S. GAAP | (2                           
|Deferred taxes                                                                                               | 6                            
|                                                                                                             |                              
|Total difference between net income under
      Finnish GAAP and 
           U.S. GAAP                       | (14                          
|                                                                                                             |                              
|Difference of cumulative effect on shareholders
      equity between 
           Finnish GAAP and U.S. GAAP | (14                          
|                                                                                                             |                              



| | F-53 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Following
are Metsos unaudited pro forma results for 2001 assuming the acquisition
had occurred on January 1, 2001:
|--------------------------------------------------------------------------------------------------------------------

|                                                                 | Year ended
      December 31,           
|---------------------------------------------------------------- | ----------------------------------------
|                                                                 | 2001                                    
|                                                                 | ( in
      millions) 
      (unaudited)
|                                                                 |                                         
|                                                                 |                                         
|Net sales                                                        | 5,451                                   
|Net income                                                       | 107                                     
|Earnings per share:                                              |                                         
|Basic
      and diluted earnings per share                       | 0.78                                    
|Weighted average number of shares
      outstanding (thousands): |                                         
|Basic
      and diluted                                          | 136,135                                 



|This
unaudited pro forma result has been prepared for comparative purposes only, and
do not purport to be indicative of the results of operations, which actually
would have resulted had the merger taken place on January 1, 2001.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|c) Amortization of goodwill
|---------------------------



|Under
Finnish GAAP, goodwill is amortized over its estimated useful life. Under U.S.
GAAP, prior to July 1, 2001, goodwill was amortized over its estimated useful
life consistent with Finnish GAAP. Metso adopted the transition provisions of
SFAS 141, Business Combinations, with effect from July 1, 2001. Metso also
adopted the provisions of SFAS 142, Goodwill and Other Intangible Assets, on
January 1, 2002. As a result of the adoption of SFAS 141 and SFAS 142, goodwill
and certain intangible assets having indefinite lives are no longer subject to
amortization under U.S. GAAP subsequent to the date of adoption.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For the
year ended December 31, 2001, the reconciliation difference on goodwill
amortization between net income reported under Finnish GAAP and U.S. GAAP
amounted to 11 million on acquisitions finalized after June 30, 2001.
Total amount of goodwill arising from acquisitions, other than Svedala,
initiated subsequent to the adoption SFAS 141 amounted to 10 million and
4 million for the years ended December 31, 2001 and 2002, respectively.
The acquisitions for the year ended December 31, 2003 did not include any
goodwill.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For the
years ended December 31, 2001, 2002 and 2003, respectively, the impact on net
income between Finnish and U.S. GAAP is as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                             | Year ended December
      31,
|---------------------------------------------------------------------------------------------------------------------------- | -----------------------------
|                                                                                                                             | 2001                         
|                                                                                                                             | ( in millions)              
|Difference between net income under Finnish
      GAAP and 
         U.S. GAAP                                               |                              
|Goodwill amortization under Finnish GAAP                                                                                     | 28                           
|Goodwill amortization under U.S. GAAP in the
      year 
         ended December 31, 2001                                    | (12                          
|Amortization of goodwill existing in Rauma prior
      to the merger of Valmet 
      and Rauma in 1999, adjusted in Note a) | (5                           
|                                                                                                                             |                              
|Remaining U.S. GAAP net income adjustment                                                                                    | 11                           
|                                                                                                                             |                              



| | F-54 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Had the
Company accounted for its goodwill and identifiable intangible assets that have
indefinite lives under SFAS 142 for the year ending December 31, 2001, the
impact on reported results would have been as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                           | Year ended
      December 31,           
|---------------------------------------------------------- | ----------------------------------------
|                                                           | 2001                                    
|                                                           | ( in
      millions) 
      (unaudited)
|                                                           |                                         
|Net income under U.S. GAAP as reported                     | 127                                     
|Amortization:                                              |                                         
|Goodwill                                                   | 12                                      
|Intangibles, net of taxes                                  |                                        
|                                                           |                                         
|Adjusted net income under U.S. GAAP                        | 139                                     
|Earnings per share:                                        |                                         
|Basic and diluted earnings
      per share                 | 1.02                                    
|Weighted average number of shares outstanding (thousands): |                                         
|Basic and diluted                                          | 136,135                                 



|d) Impairment of goodwill
|-------------------------



|Under
U.S. GAAP, as a result of the adoption of SFAS 141 and SFAS 142, goodwill and
certain intangible assets having indefinite lives are no longer subject to
amortization. Their book values are tested annually for impairment, or more
frequently, if facts and circumstances indicate the need. Fair value measurement
techniques, such as the discounted cash flow methodology, are utilized to assess
potential impairments. The testing is performed on the reporting unit level,
which can be either a reportable segment or one level below reportable segment.
In the discounted cash flow method, Metso discounts forecasted performance plans
to their present value. The discount rate utilized is the weighted average cost
of capital for the reporting unit, calculated as the opportunity cost to all
capital providers weighted by their relative contribution to the reporting
units total capital and the risk associated with the cash flows and the
timing of the cash flows. Comparison methods (e.g., peer comparables) and other
estimation techniques are used to verify the reasonableness of the fair values
derived from the discounted cash flow assessments.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Upon
adoption of SFAS 142 as of January 1, 2002, the Company completed the
transitional impairment test and concluded that there was no impairment of
goodwill or identifiable intangibles with indefinite lives. The Company also
completed this annual impairment test as of September 30, 2002 and no impairment
in the carrying value was recorded as a result of those tests. In 2003, as a
result of tightened competition, reduced demand in certain market areas and the
development of exchange rates, especially the impact of the weakened U.S.
Dollar, the operating profits of Metso Minerals operations were lower than
expected. As of September 30, 2003, upon completion of the first step of the
annual impairment assessment, based on updated forecasted plans approved by the
Board of Directors, it was determined that a potential risk of impairment
existed, since the carrying values exceeded the fair values of certain Metso
Minerals reporting units. The second step of the impairment test compared
the implied fair value of these reporting units goodwill to the
corresponding carrying value of goodwill. The result of such impairment test was
that the carrying value of goodwill of such reporting units exceeded the implied
fair value of the goodwill by 206 million. Accordingly, an impairment loss
of this amount was recognized.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Concurrently,
Metso performed an impairment assessment of its goodwill under Finnish GAAP,
which resulted in an impairment loss of 205 million, see Note 5. The
difference in the amount of the goodwill impairment under Finnish GAAP versus
U.S. GAAP, adjusted for goodwill reversed in the business combination under
U.S.GAAP, has been reported in the reconciliation of income statement and
shareholders equity of Note 32. The business combination has been
explained in Note 32 a).
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-55 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|An
analysis of goodwill by reporting segment under U.S. GAAP is given below:
|----------------------------------------------------------------------------

|                          | Paper                 | Automation | Minerals | Ventures | Discontinued | Total
|------------------------- | --------------------- | ---------- | -------- | -------- | ------------ | -----
|                          | ( in
      millions)
|2002:                     |                       |            |          |          |              |      
|As of January 1, 2002     | 97                    |            | 27       |          | 514          |      
|Translation difference(1) | (14                   | )          | (2       | )        | (37          | )    
|Decreases                 |                      |            |         |          |             |      
|Increases                 | 1                     |            |         |          | 20           | (2)  
|As of December 31, 2002   | 84                    |            | 25       |          | 497          |      
|                          |                       |            |          |          |              |      
|2003:                     |                       |            |          |          |              |      
|Translation difference    | (11                   | )          | (1       | )        | (21          | )    
|Increases                 |                      |            |         |          |             |      
|Impairment                |                      |            |         |          | (163         | )    
|Decreases                 |                      |            |         |          |             |      
|As of December 31, 2003   | 73                    |            | 24       |          | 313          |      
|                          |                       |            |          |          |              |      
|                          |                       |            |          |          |              |      

|
|

|(1) |  | Includes
10 million of translation difference related to cumulative  amortization expense
recognized as of December 31, 2001.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes
17 million of purchase accounting adjustments related to  the acquisition of
Svedala.
|--- |  | -----------------------------------------------------------------------------------------------



|An analysis
of identifiable intangible assets under U.S. GAAP is given below:
|-----------------------------------------------------------------------------

|                                 | Brand 
      Names | Customer 
      Value | Order 
      Backlog | Other 
      intangible 
      assets | Total
|-------------------------------- | ------------------ | --------------------- | -------------------- | ------------------------------------- | -----
|                                 | ( in millions)   
|2002:                            |                    |                       |                      |                                       |      
|As of January 1, 2002            | 58                 |                       | 67                   |                                       | 30   
|Translation difference           | (3                 | )                     | (3                   | )                                     |     
|Additions                        |                   |                       |                     |                                       |     
|Decreases                        |                   |                       |                     |                                       |     
|Accumulated amortization expense |                   |                       | (14                  | )                                     | (30  
|                                 |                    |                       |                      |                                       |      
|As of December 31, 2002          | 55                 |                       | 50                   |                                       |     
|                                 |                    |                       |                      |                                       |      
|2003:                            |                    |                       |                      |                                       |      
|As of January 1, 2003            | 55                 |                       | 64                   |                                       | 30   
|Translation difference           | (3                 | )                     | (1                   | )                                     |     
|Additions                        |                   |                       |                     |                                       |     
|Decreases                        | (13                | )(1)                  |                     |                                       |     
|Accumulated amortization expense |                   |                       | (24                  | )                                     | (30  
|                                 |                    |                       |                      |                                       |      
|As of December 31, 2003          | 39                 |                       | 39                   |                                       |     
|                                 |                    |                       |                      |                                       |      

|
|

|(1) |  | Impairment
loss on brand names (see adjustment e) impairment of brand  names).
|--- |  | ------------------------------------------------------------------------------

|(2) |  | Includes
patents and licenses for a net book value of 34 million  and 32 million for
the years ended December 31, 2002 and December  31, 2003, respectively
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



|Brand
names have been designated as intangible assets with an indefinite life under
U.S. GAAP and as such, have not been amortized. For the year ended December 31,
2003, the amortization expense of the other identifiable intangible assets
subject to amortization was 22 million. The amortization expense is
expected to be 22 million, 22 million, 22 million, 22
million and 16 million for the years ended December 31, 2004, 2005, 2006,
2007 and 2008, respectively.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-56 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|e) Impairment of brand names
|----------------------------



|Under
Finnish GAAP, brand names are amortized based on their estimated economic life.
Their carrying value is tested for impairment when there are indications that
the income generating capacity of the brand name has reduced due to internal or
external factors. Under Metsos impairment principles, if a reporting unit,
subject to impairment testing, carries both goodwill and intangible assets on
its balance sheet, any impairment loss is primarily offset against the goodwill.
If the impairment loss exceeds the carrying value of goodwill, the excess will
be written off against other intangible assets.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under
U.S. GAAP, certain intangible assets, such as brand names, are considered to
have an indefinitive life and therefore are not amortized. Their carrying value
is tested regularly for impairment either separately or together with goodwill.
In the second phase of the goodwill impairment assessment, in order to arrive at
the implied fair value of the goodwill, the company has to calculate the fair
values of the assets and liabilities related to the reporting unit subject to
testing. Should the carrying value of an intangible asset with indefinitive life
exceed its implied fair value calculated for the second phase, as was the case
in the impairment assessment of one of Metso Minerals reporting unit, the
excess would be recognized as an impairment loss. During 2003, as a result of
the second phase test, Metso recognized an impairment loss of 13 million
on brand names. The implied fair value of the brand names was evaluated through
the relief from royalty method.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|f) Fair value of financial derivatives
|--------------------------------------



|Under
U.S. GAAP, all derivative financial instruments are recognized on the balance
sheet at fair values with changes in fair values recognized through earnings
unless strict hedge accounting criteria for cash flow hedges or hedges of net
investments have been met. In addition, SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities requires the Company to
bifurcate certain hybrid contracts (i.e. contracts with embedded derivatives)
and to fair value the derivative components through earnings.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso
enters into forward exchange contracts to manage its foreign exchange exposure
related to firm commitments and anticipated revenues net of expenses denominated
in foreign currencies other than the functional currencies. As permitted under
Finnish GAAP, Metso has deferred the unrealized gains and losses (balance sheet
date fair values) on such hedges until the underlying transaction has been
recorded in the financial statements. Under U.S. GAAP, as Metso has not met the
SFAS No. 133 hedge accounting criteria, such unrealized gains and losses must be
included in the determination of net income, resulting in an U.S. GAAP income
adjustment of (7) million, 33 million and (10) million for the
years ended December 31, 2001, 2002 and 2003, respectively.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso has entered into long-term
      swap contracts to hedge its interest rate exposure. Under Finnish GAAP,
      the Company accounts for the swap contracts using the accrual method. Under
      U.S. GAAP, swap contracts are fair valued and changes in fair values must
      be included in the determination of net income resulting in a U.S. GAAP
      income adjustment of (2) million 3 million and 0 million
      for the years ended December 31, 2001, 2002 and 2003, respectively.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under
Finnish GAAP, the Company is not required to bifurcate and fair value foreign
currency embedded derivatives included in firm commitments. Under U.S. GAAP,
firm commitments, in which the currency is not the functional currency of either
counterparty, must be fair valued on the balance sheet with changes in fair
values recorded through earnings. The effect to record embedded derivatives at
fair values in Metsos U.S. GAAP net income amounted to 1 million,
(1) million and (13) million for the years ended December 31, 2001,
2002 and 2003, respectively.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In 2003,
Metso extended its risk management policy to include commodity forwards. Their
designation and effectiveness testing do not meet hedge accounting criteria
under U.S. GAAP and the changes in fair value have to be recognized through
earnings. Their effect to Metsos U.S. GAAP net income was (1)
million for the year ended December 31, 2003.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-57 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|The
combined effect of these adjustments in Metsos U.S. GAAP net income and
shareholders equity for the years ended December 31, 2001, 2002 and 2003,
respectively, is as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                  | Gross           | Tax | Net
|----------------------------------------------------------------- | --------------- | --- | ---
|                                                                  | ( in millions)
|Balance sheet difference as at January 1, 2001                    |                |     |   
|Changes in fair values recognized through 2001 U.S. GAAP earnings | (8              | )   | 2  
|                                                                  |                 |     |    
|Balance sheet difference as at December 31, 2001                  | (8              | )   | 2  
|Changes in fair values recognized through 2002 U.S. GAAP earnings | 35              |     | (10
|                                                                  |                 |     |    
|Balance sheet difference as at December 31, 2002                  | 27              |     | (8 
|Changes in fair values recognized through 2003 U.S. GAAP earnings | (24             | )   | 7  
|                                                                  |                 |     |    
|Balance sheet difference as at December 31, 2003                  | 3               |     | (1 
|                                                                  |                 |     |    



|Under
Finnish GAAP, Metso applies hedge accounting and records the realized gains and
losses on hedging instruments to the same income statement line item and cash
flow statement line item as the underlying hedge transaction is recorded. Under
U.S. GAAP, the following adjustments would be made to the income statement line
items for the years ended December 31, 2001, 2002 and 2003, respectively:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              | Year ended December 31,
|----------------------------- | -----------------------
|                              | 2001                   
|                              | ( in millions)        
|Operating profit              |                       
|Financial income and expenses | (8                     
|Income taxes                  | 2                      
|                              |                        
|Net income                    | (6                     
|                              |                        



|g) Pension surplus refund
|-------------------------



|During 2000, Metso received
      a surplus refund amounting to 14 million before taxes from the Swedish
      pension insurer Alecta (SPP). The refund was received partly in cash with
      the remaining portion of the total amount mainly utilizable against future
      pension premiums. Under Finnish GAAP, the total surplus refund was recognized
      in income in 2000.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under U.S. GAAP, only the portion
      reimbursed in cash can be recognized in income. As at December 31, 2000,
      Metso had received, of the total refund, 8 million in cash. In consecutive
      years, the cash payments have amounted to 3 million, 2 million
      and 1 million before taxes for the years ended December 31 2001, 2002
      and 2003, respectively. As of December 31, 2003, the remaining difference
      between Finnish and U.S. GAAP was less than 0.3 million.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|h) Employee benefit plans
|-------------------------



|Pensions and other
postretirement benefits
|------------------------------------------



|Metso
generally records pension expense in accordance with local accounting practices
in the countries in which employees are provided with such benefits.
|----------------------------------------------------------------------------------------------------------------------------------------------------------



|Under
U.S. GAAP, pension expense is recorded on a full accrual basis and reflected in
the income statement over the working lives of the employees provided with such
benefits. The economic and demographic assumptions used in calculating pension
expense are to be reviewed and updated periodically to the extent that local
market economic conditions and demographics change.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-58 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|The
companies within Metso have various pension schemes pursuant to local conditions
and practices of the countries in which they operate. Most of these programs are
defined benefit pension schemes with retirement, disability, death and
termination income benefits. The retirement income benefits are generally a
function of years of employment and the final salary with Metso, and are usually
coordinated with local national pensions. The schemes are generally funded
through payments to insurance companies or to trustee-administered funds as
determined by periodic actuarial calculations. Metso also maintains some
multiemployer pension arrangements, insured plans and defined contribution
pension arrangements. Contributions to these plans amounted to approximately
69 million, 75 million, and 67 million for years ended
December 31, 2001, 2002, and 2003, respectively.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In 2001, Metso acquired Svedala,
      an international group with employees benefiting from defined contribution
      pension and postretirement benefit plans mainly in the United States, Canada,
      Brazil, the United Kingdom, Germany and Sweden. The accumulated benefit
      liability under purchase accounting has been reported in the schedule below
      under the purchase accounting adjustment.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso
provides certain health care and life insurance benefits for retired employees.
Substantially all the U.S. and Canadian employees are provided these benefits.
Under U.S. GAAP, SFAS No. 106 Employers Accounting for
Postretirement Benefits Other than Pensions requires Metso to accrue the
estimated cost of postretirement benefit payments during the years the employee
provides services.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Metso
uses December 31 as measurement date for its pension plans.
|-----------------------------------------------------------------



|For its
noninsured, employer-sponsored defined benefit pension schemes, net periodic
benefit cost included in Metsos net profit (loss) for the years ended
December 31, 2001, 2002 and 2003, calculated in accordance with U.S. GAAP,
includes the following components for companies subject to SFAS No. 87 and 106
recalculation:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      | Pension benefits, domestic | Pension and post- retirement
        benefits, foreign
|------------------------------------- | -------------------------- | ------------------------------------------------------
|                                      | 2001                       | 2002                                                  
|                                      | ( in millions)            | ( in millions)                                       
|                                      |                            |                                                       
|Service cost                          | 16                         |                                                       
|Interest cost                         | 7                          |                                                       
|Expected return on plan assets        |                           |                                                       
|Net amortization                      | 4                          |                                                       
|Employee contributions                |                           |                                                       
|                                      |                            |                                                       
|Net periodic benefit cost             | 27                         |                                                       
|                                      |                            |                                                       
|Special adjustments:                  |                            |                                                       
|SFAS No. 88 events                    |                           |                                                       
|Purchase accounting adjustment        |                           |                                                       
|Other adjustment                      |                           |                                                       
|                                      |                            |                                                       
|Grand total net periodic benefit cost | 27                         |                                                       
|                                      |                            |                                                       



| | F-59 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|The
following tables set forth the change in benefit obligation and the amounts,
which would be recognized in Metsos consolidated balance sheet in
accordance with U.S. GAAP for the years ended December 31, 2002 and 2003:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        | Pension benefits, domestic | Pension and post-retirement 
        benefits, foreign
|--------------------------------------- | -------------------------- | ------------------------------------------------------
|                                        | 2002                       | 2003                                                  
|                                        | ( in millions)            | ( in millions)                                       
|Change in benefit obligation            |                            |                                                       
|Benefit obligation at beginning of year | 115                        |                                                       
|Service cost                            | 16                         |                                                       
|Interest cost                           | 6                          |                                                       
|SFAS No. 88 events                      |                           |                                                       
|Participant contributions               |                           |                                                       
|Amendments                              |                           |                                                       
|Special termination benefits            |                           |                                                       
|Increase in coverage                    |                           |                                                       
|Acquisitions                            |                           |                                                       
|Actuarial loss (gain)                   | (19                        | )                                                     
|Benefits paid                           | (16                        | )                                                     
|Currency effect                         |                           |                                                       
|                                        |                            |                                                       
|Benefit obligation at end of year       | 102                        |                                                       
|                                        |                            |                                                       

|                                               | Pension benefits, domestic | Pension and post-retirement 
        benefits, foreign
|---------------------------------------------- | -------------------------- | ------------------------------------------------------
|                                               | 2002                       | 2003                                                  
|                                               | ( in millions)            | ( in millions)                                       
|Change in plan assets                          |                            |                                                       
|Fair value of plan assets at beginning of year |                           |                                                       
|Actuarial return on plan assets                |                           |                                                       
|Company contribution                           | 16                         |                                                       
|FAS 88 events                                  |                           |                                                       
|Participant contribution                       |                           |                                                       
|Other adjustment                               |                           |                                                       
|Benefits paid                                  | (16                        | )                                                     
|Currency effect                                |                           |                                                       
|                                               |                            |                                                       
|Fair value of plan assets at end of year       | 0                          |                                                       
|                                               |                            |                                                       
|Funded status reconciliation                   |                            |                                                       
|Funded status                                  | (102                       | )                                                     
|Unrecognized transitional obligations (asset)  |                           |                                                       
|Unrecognized prior service cost                | (7                         | )                                                     
|Unrecognized actuarial (gain) loss             | 20                         |                                                       
|                                               |                            |                                                       
|Prepaid (accrued) benefit cost                 | (89                        | )                                                     
|                                               |                            |                                                       



|Under U.S. GAAP, an additional
      minimum liability is recognized and a charge made to other comprehensive
      income when the accumulated benefit obligation exceeds the fair value of
      plan assets to the extent this amount is not covered by the net liability
      recognized in the balance sheet. For the years ended December 31, 2002 and
      2003, an additional minimum liability of 23 million and 25 million
      was recognized, respectively.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-60 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Amounts
recognized in the statement of financial position consist of:
|---------------------------------------------------------------------

|                                       | Pension benefits, domestic | Pension and post retirement benefits, foreign
|-------------------------------------- | -------------------------- | ---------------------------------------------
|                                       | 2002                       | 2003                                         
|                                       | ( in millions)            | ( in millions)                              
|Accrued employee benefit liability     | (89                        | )                                            
|Prepaid benefit cost                   |                           |                                              
|Intangible asset                       |                           |                                              
|Accumulated other comprehensive income |                           |                                              
|                                       |                            |                                              
|Net amount recognized                  | (89                        | )                                            
|                                       |                            |                                              
|For plans where ABO exceeds assets:    |                            |                                              
|ABO                                    | 66                         |                                              
|PBO                                    | 102                        |                                              
|Fair value of assets                   |                           |                                              



|Weighted
average assumptions used to determine the net periodic benefit cost for years
ended December 31, 2002 and 2003 are as follows:
|---------------------------------------------------------------------------------------------------------------------------------------

|                               | Pension benefits, domestic | Pension and post-retirement benefits, foreign
|------------------------------ | -------------------------- | ---------------------------------------------
|                               | 2002                       | 2003                                         
|Discount rate                  | 5.80%                      | 5.50%                                        
|Expected return on plan assets |                           |                                             
|Rate of compensation increase  | 3.50%                      | 3.50%                                        



|Weighted
average assumptions used to determine the benefit obligations as of December 31
are as follows:
|--------------------------------------------------------------------------------------------------------

|                              | Pension benefits, domestic | Pension and post-retirement benefits, foreign
|----------------------------- | -------------------------- | ---------------------------------------------
|                              | 2002                       | 2003                                         
|Discount rate                 | 5.50%                      | 5.25%                                        
|Rate of compensation increase | 3.50%                      | 3.00%                                        



|An increase of one percentage
      point in the assumed health care cost trend would increase the accumulated
      postretirement benefit obligation by 2 million at December 31, 2003.
      It would increase the sum of the service and interest cost by 0.2
      million for 2003. A decrease of one percentage point in the assumed health
      care cost trend would decrease the accumulated postretirement benefit obligation
      by 2 million at December 31, 2003. It would decrease the sum of the
      service and interest cost by 0.2 million for 2003. The health care
      cost trend during the next five years is expected to fall from 11 percent
      to five percent.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
following additional information, as required in accordance with SFAS 132
Employers Disclosure about Pensions and Other Postretirement Benefits
Revised, which was issued in December 2003, applies to domestic plans
only. The disclosure requirements will be extended to cover foreign plans in
2004.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In 2004,
Metso expects to contribute 16 million in respect to the Finnish TEL
system for the pension liability. At December 31, 2002 and 2003, the accumulated
benefit obligation for domestic plans amounted to 66 million and 71
million, respectively.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
Company has elected the deferral provisions of FSP No. FAS 106-1,
Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003", and as such,
any measures of the APBO or net periodic postretirement benefit cost in the
financial statements or accompanying notes do not reflect the effects of the Act
on the plan. Specific authoritative guidance on the accounting for the federal
subsidy is pending and that guidance, when issued, could require the sponsor to
change previously reported information.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-61 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|i) Restructuring costs
|----------------------



|Timing
difference in recognition of restructuring costs under Finnish GAAP and U.S.
GAAP in the years ended December 31, 2001 and December 31, 2002
|---------------------------------------------------------------------------------------------------------------------------------------------------



|Under
Finnish GAAP, Metso recognized downsizing and restructuring costs of 36
million and 28 million, for the years ended December 31, 2001 and 2002,
respectively, as nonrecurring expenses (see Note 4). The severance and early
retirement measures, included in the restructuring costs, have concerned 457 and
335 employees of Metso in the years ended December 31, 2001 and 2002,
respectively. In addition, 1,318 persons, employed by the acquired Svedala
group, were included in the involuntary termination and early retirement plans.
The costs have been recognized as part of the restructuring costs of 50
million, net of taxes, which have been capitalized in the acquisition balance of
Svedala.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
personnel categories included both factory and administrative personnel mainly
in Metso Minerals.
|-----------------------------------------------------------------------------------------------------



|Under
U.S. GAAP, certain portions of the restructuring and integration costs,
amounting to 5 million, did not qualify for accrual and expense
recognition in the year ended December 31, 2001. As the total amount was
realized in the year ended December 31, 2002, the difference between income
under Finnish and U.S. GAAP was reversed in 2002.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Timing difference
in recognition of restructuring costs under Finnish GAAP and U.S. GAAP in the year ended
December 31, 2003
|----------------------------------------------------------------------------------------------------------------------------



|In June
2003, Metso announced an efficiency improvement program affecting all business
areas. The program is designed to cut overhead costs and aims to achieve
substantial cost savings. For the year ended December 2003, Metso recognized
103 million of expenses related to the efficiency improvement program. The
plan covers streamlining of sales and administrative organizations and closing
down plants to reduce excess production capacity in the United States and
Germany. The planned personnel cuts shall be about 630 persons in Metso Paper,
350 persons in Metso Minerals, 140 persons in Metso Automation and 73 persons in
Metso Ventures worldwide. The main measures under the plan are expected to be
completed by the end of year 2004. In addition, Metso is looking into
outsourcing component production, which may affect some 350 jobs. Further
streamlining of sales network and reduction of over-capacity may reduce the
workforce by further 250 to 320 jobs. The realized and planned costs have been
presented in detail in Note 4.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under
U.S. GAAP, a liability for a cost associated with an exit or disposal activity
is measured at fair value and recognized when the liability is incurred. These
costs include, but are not limited to, one-time benefits provided to current
employees, who are involuntarily terminated and costs to terminate contracts,
other than capital leases. If employees are required to render service until
they are terminated in order to receive the termination benefits, the cost under
U.S. GAAP is recognized ratably over the future service period whereas under
Finnish GAAP, a provision for the full termination benefit cost is recognized in
the period in which the Company becomes legally or constructively committed to a
plan. Certain portions of the costs related to efficiency improvement program,
amounting to 30 million before a tax effect of 6 million, do not
meet the criteria for accrual and expense recognition under U.S. GAAP for the
year ended December 31, 2003, and have been reversed in the income statement and
shareholders equity reconciliation of Note 32.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-62 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Cost accruals for
restructuring plans
|-------------------------------------



|The table
below illustrates the activity in the restructuring reserves, excluding reserves
related to the efficiency improvement program of 2003:
|-------------------------------------------------------------------------------------------------------------------------------------------------

|                                     | As of December 31,
|------------------------------------ | ------------------
|                                     | 2002              
|                                     | ( in millions)   
|Balance as at January 1              | 74                
|Translation difference               |                  
|Additions to current year reserves   | 36                
|Adjustments to prior year reserves   | (10               
|Amounts paid/ charged to the reserve | (47               
|                                     |                   
|Balance as at December 31            | 53                
|                                     |                   



|Included
in the balances above are amounts related to lease contracts and post-employment
pension amounting to 12 million and 9 million at December 31, 2002
and 2003 respectively, which have been included in long-term liabilities as the
payout of these obligations will not be completed within one year.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under
U.S. GAAP, the cost accrual for the 2003 efficiency improvement program is as
follows:
|--------------------------------------------------------------------------------------------

|                                                                                                          | As of December 31,
|--------------------------------------------------------------------------------------------------------- | ------------------
|                                                                                                          | 2003              
|                                                                                                          | ( in millions)   
|Reserve recorded under Finnish GAAP                                                                       | 77                
|Reclassified under U.S. GAAP as deductions to fixed assets and inventory                                  | (17               
|                                                                                                          |                   
|Efficiency improvement program reserve related to restructuring costs
        under Finnish 
        GAAP | 60                
|Amounts reversed under U.S. GAAP                                                                          | (30               
|                                                                                                          |                   
|U.S. GAAP reserve as of December 31, 2003                                                                 | 30                
|                                                                                                          |                   



|The
impairment losses amounting to 23 million recognized on fixed assets under
Finnish GAAP relate to operations that are being restructured as part of the
efficiency improvement program. The impairment losses on tangible fixed assets
arise from the difference between historical book values and the estimated
disposal value assessed when the decision to close and divest a place has been
taken. In addition, Metso recognized an additional inventory obsolescence
provision of 2 million. Out of the total impairment loss of 25
million, 17 million are included as provisions under Finnish GAAP as of
December 31, 2003. Under U.S. GAAP such amounts would be recorded as deductions
of the related asset balances.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The reserve recorded under
      U.S.GAAP is mainly composed of pension liabilities and early retirement
      measures, which amount to 10 million, and of employee termination
      benefits of 16 million. The remaining amount of 4 million includes
      other restructuring costs related to reduction of production capacity and
      streamlining of the sales organization under the program. Of the total cost
      accrual, 24 million is payable within one year and the remaining 6
      million, which includes mainly pension liabilities, becomes due after one
      year.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|j) Written put option on subsidiary shares
|------------------------------------------



|Under
Finnish GAAP, certain obligations, such as written put options on subsidiary
shares, need not be recognized before they are exercised by the counterparty.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under U.S. GAAP, Metso is required
      to fair value such written put options and to recognize them as a liability
      on the balance sheet. Metso has issued a put option obliging it to redeem,
      at a fixed price, the minority ownership in one of its subsidiaries. The
      option, which can be exercised between January 1, 2005 and September 30,
      2005, has been fair valued by discounting the settlement amount to its present
      value, adjusted by the value of the minority ownership under U.S. GAAP as
      of December 31, 2003.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-63 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|k) Investments
|--------------



|Under
Finnish GAAP, Metso records short-term investments at market value and changes
in the market value are recorded as part of financial income and
expense in the Consolidated Statement of Income. Under Finnish GAAP, Metso
records other long-term investments, other than equity securities, at lower of
cost or market value. Shares are recorded at lower of cost or market value, when
the market value can be considered to reflect a permanent impairment of the
investment.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For U.S.
GAAP purposes, all of Metsos short-term and other long-term investments in
debt securities and equity securities with a readily determinable market value
are classified as available-for-sale and recorded at fair value with
changes in unrealized appreciation recorded directly to shareholders
equity, net of applicable deferred income taxes. As a result, Metso recognized
3 million and 6 million as of December 31, 2002 and 2003,
respectively as an adjustment to shareholders equity under U.S. GAAP.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Available-for-sale
securities in accordance with U.S. GAAP are summarized as follows:
|-------------------------------------------------------------------------------------

|                  | U.S.GAAP 
      Cost (*) |  | Gross 
      unrealized 
      holding gains |  | Gross 
      unrealized 
      holding losses |  | Market 
      Value
|----------------- | ------------------------ |  | -------------------------------------------- |  | --------------------------------------------- |  | -------------------
|                  | ( in millions)         
|December 31, 2002 | 45                       |  | 4                                            |  | (1)                                           |  | 48                 
|December 31, 2003 | 35                       |  | 6                                            |  | (0)                                           |  | 41                 

|
|

|(*) |  | U.S.
GAAP cost is comprised of the historical acquisition price.
|--- |  | ----------------------------------------------------------------



|The gain
realized on disposal of available-for-sale securities was 3 million and
7 million for the years ended December 31, 2003 and 2002, respectively.
|----------------------------------------------------------------------------------------------------------------------------------------------------------



|l) Net investment hedge
|-----------------------



|Under
Finnish GAAP, Metso has designated an intercompany foreign currency denominated
loan as a hedge of a net investment and as a result records the exchange rate
difference against the translation difference arising from the hedge of the net
investment at consolidation. Under U.S. GAAP, hedge accounting may be applied in
consolidation only if the intercompany loan designated as a hedging instrument
is offset by a third-party loan. The exchange rate gain has been reversed from
cumulative translation adjustment accounts and recognized as income.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under
Finnish GAAP, Metso has applied hedge accounting for a forward exchange contract
designated as a hedge of its net investments in foreign subsidiaries denominated
in CAD and USD. The subsidiaries are owned by the parent company, which has the
euro as its functional currency.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under
U.S. GAAP, the hedge effectiveness criteria are not met as the change in the
fair value of the hedging instrument is based on changes in CAD/USD spot
exchange rates where as the translation adjustment arises between CAD and EUR
and USD and EUR, respectively. As a result, the unrealized loss on the hedging
instrument has been included in the determination of net income under U.S. GAAP.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|m) Repurchase commitments and securitization
|--------------------------------------------



|Repurchase
commitments
|----------------------



|Metso has
entered into certain contracts to sell machines, which include commitments to
buy-back the machine at a minimum specified value at the end of the contract
period. Under Finnish GAAP, revenue is recognized in full and any liability
resulting from the guarantee is disclosed as a contingent liability and
recognized only when incurred.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|U.S. GAAP
precludes recognition of revenue for these contracts and accordingly, the  revenue and
gross profit related to these sales, net of taxes, has been  reversed. Under U.S. GAAP,
the amounts received for these machines, net of the  guaranteed amount, are recorded as
deferred revenue and amortized over the  contract
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-64 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|period. The equipment remains as an asset on the
balance sheet and is  amortized over the contracted period to the lower of its repurchase
value or  market value. At the end of the contract period, if the repurchase commitment
has not been exercised, the remaining deferred revenue is recognized as income  against
the remaining value of the equipment.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Securitization
|--------------



|Metso has
entered into various agreements with third party financial institutions to sell
certain receivables with recourse. These agreements require periodic
installments of principal and interest over periods of up to five years from
inception, with interest rates based on market conditions. Metso has retained
the servicing of substantially all of these contracts.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
Swedish Export Credits Guarantee Board provides an export guarantee for the
benefit of the Company covering 100% political risk and 80-85% of commercial
risk on the receivables. Metso provides the buyer of the receivables with a
guarantee to cover any non-payment by the customer not covered by the Swedish
Export Credits Guarantee.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net
receivables outstanding at December 31, 2003 relating to finance contracts sold
were 14 million.
|-----------------------------------------------------------------------------------------------------



|n) Treasury stock
|-----------------



|Under
Finnish GAAP, treasury stock is presented within financial assets. Under U.S.
GAAP, treasury stock is to be shown as a deduction of the consolidated
shareholders equity and, consequently, 1 million at December 31,
2002 and 2003, respectively, has been deducted from the shareholders
equity under U.S. GAAP.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|o) Translation difference
|-------------------------



|Under Finnish GAAP, the Company
      records certain purchase accounting adjustments related to foreign subsidiaries
      in euro, which is the functional currency of the Parent Company.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under
U.S. GAAP, purchase accounting adjustments are recorded in the functional
currency of the subsidiary to which they relate. As a result, currency
translation differences have been recognized with respect to such purchase
accounting adjustments. The translation difference is following:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      | As of December
      31,
|--------------------- | ------------------------
|                      | 2002                    
|                      | ( in millions)         
|Goodwill              | (39                     
|Brand names           | (4                      
|Customer value        | (3                      
|Patents               | (1                      
|Land and water areas  | (1                      
|Buildings             | (1                      
|Other tangible assets | (1                      
|Deferred taxes        | 3                       
|                      |                         
|Total                 | (47                     
|                      |                         



|p) Discontinued operations
|--------------------------



|In
November 2002, Metso announced it signed a memorandum of understanding with a
Swiss buyer Bobst Group SA to dispose of the Converting Equipment group, which
manufactures equipment for the packaging industry. The final sales price is
expected to be approximately 75 million and the transaction was closed on
January 30, 2004. In accordance with Finnish GAAP, the results of discontinued
operations are included in the determination of consolidated net income.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-65 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|As part of reorientation of
      Metsos strategic direction, commenced in 2003, to strengthen its balance
      sheet, Metso has announced its intention to explore the business development
      possibilities, including disposal, of its Compaction and Paving business
      line within Metso Minerals.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under
U.S. GAAP, both the Converting Equipment group and Compaction and Paving
business line meet the criteria of a component entity classified as held for
sale under SFAS 144, Accounting for the Impairment or Disposal of
Long-lived Assets, and accordingly, income from continuing and
discontinued operations has been presented separately and all prior period
information have been restated to reflect such presentation.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Certain
income statement line items for the discontinued operations are presented in the
following table:
|---------------------------------------------------------------------------------------------------------

|                 | Year ended
      December 31,
|---------------- | -----------------------------
|                 | 2001                         
|                 | ( in
      millions)        
|                 |                              
|Net sales        | 259                          
|Operating profit | 1                            
|Net income       | 0                            



|The main
balance sheet items for the discontinued operations are:
|-----------------------------------------------------------------

|                                       | As of December
      31,
|-------------------------------------- | ------------------------
|                                       | 2002                    
|                                       | ( in
      millions)   
|Fixed assets and long-term investments | 290                     
|Inventories                            | 133                     
|Other current assets                   | 188                     
|                                       |                         
|Total assets                           | 611                     
|                                       |                         
|Shareholders equity                   | 269                     
|Long-term liabilities                  | 63                      
|Short-term liabilities                 | 279                     
|                                       |                         
|Shareholders equity and liabilities   | 611                     
|                                       |                         



|Under
Finnish GAAP, intangible and tangible fixed assets related to discontinued
operations continue to be amortized even after having being qualified as
held-for-sale.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under
U.S. GAAP, in accordance with SFAS 144, fixed assets, which qualify as
held-for-sale either individually or as part of a disposal group, are no longer
amortized when the held-for-sale criteria is met. The depreciation related to
discontinued operations amounting to 2 million, which has been recognized
under Finnish GAAP, has been reversed.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|q) Consolidated Statement of Comprehensive
Income
|-------------------------------------------------



|The
Company has adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, which establishes standards for the reporting
and presentation of comprehensive income and its components. The Company has
chosen to present comprehensive income in accordance with Finnish GAAP and
components of comprehensive income consist of the following:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-66 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------

|                                                                                                                                                                         | Year ended
      December 31,
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------------
|                                                                                                                                                                         | 2001                         
|                                                                                                                                                                         | ( in
      millions)        
|Comprehensive income                                                                                                                                                     |                              
|Net income under Finnish GAAP                                                                                                                                            | 141                          
|Other comprehensive income                                                                                                                                               |                              
|Foreign currency translation
      adjustments                                                                                                                           | (17                          
|Hedging of net investment
      denominated in foreign 
           currency, net of taxes of 2 million,
      (17) million and (16) 
           million, respectively | (4                           
|Additional minimum liability,
      net of tax benefit of 
           3 million and 4 million                                                                          |                             
|                                                                                                                                                                         |                              
|Other comprehensive income                                                                                                                                               | (21                          
|                                                                                                                                                                         |                              
|Comprehensive income                                                                                                                                                     | 120                          
|                                                                                                                                                                         |                              



|r) Earnings per share
|---------------------



|Earnings
per share for Finnish GAAP purposes is based on income before extraordinary
items and income taxes, adjusted for minority interest and taxes related for
normal business operations (see Note 1 Accounting Principles for
detailed discussion). Under U.S. GAAP, basic earnings per share is calculated by
dividing net income by the average number of common shares outstanding during
the year. Diluted earnings per share is calculated by adjusting outstanding
shares, assuming conversion of all potentially dilutive stock options.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|s) Customer tooling
|-------------------



|The fixed
asset balance as of December 31, 2002 and 2003 includes 4 million and
18 million, respectively, related to amounts received from customers to
invest in specific equipment to fulfill the contractual obligations to them. The
amounts received have been recorded as a liability under advances received and
are being amortized. As a result of the offsetting impact of the depreciation of
such assets and amortization of amounts received, the net impact to the earnings
under U.S. GAAP is zero.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|t) Stock compensation
|---------------------



|Pursuant
to SFAS No. 123 Accounting for Stock-Based Compensation, the Company
has elected to account for its stock option plan under the intrinsic value
method of APB Opinion 25 Accounting for Stock Issued to Employees
and adopt only the disclosure provisions of SFAS No. 123. As of December 31,
2003, no compensation expense was recognized under APB 25 related to the
Companys employee stock options as the exercise prices of the
Companys employee stock options, which are adjusted by subsequent dividend
payments, equal or exceed the market price of the underlying stock on the date
of grant. Under SFAS No. 123, stock options are valued at grant date using the
Black-Scholes valuation model and compensation costs are recognized ratably over
the vesting period. Had compensation costs been determined as prescribed by SFAS
No. 123, the Companys net income and earnings per share would have been
reduced to pro forma amounts indicated in the following table:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-67 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------

|                                                                                                                                                                                           | Year ended
      December 31,
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------------
|                                                                                                                                                                                           | 2001                         
|                                                                                                                                                                                           | ( in
      millions)        
|                                                                                                                                                                                           | (unaudited)                  
|Net income (loss)                                                                                                                                                                          |                              
|as reported                                                                                                                                                                                | 127                          
|Stock based
      compensation cost included in 
            the determination of net income, net of taxes                                                                                 |                             
|Stock based
      compensation cost that would have 
            been included in the determination of net
      income 
            if the fair value method was used, net of
      taxes | (5                           
|Pro forma                                                                                                                                                                                  | 122                          
|Basic and diluted earnings (loss)
      per share                                                                                                                                          |                              
|as reported                                                                                                                                                                                | 0.93                         
|Pro forma                                                                                                                                                                                  | 0.90                         



|The
Company has currently three option programs, the 2000 stock option plan, the
2001 stock option plan and the 2003 stock option plan.
|---------------------------------------------------------------------------------------------------------------------------------------



|The Board of directors of Metso
      Corporation proposed to the 2003 Annual General Meeting held in April 2003
      that stock options, named 2003A, 2003B and 2003C, be issued to the key persons
      of Metso Group and to its wholly owned subsidiary, Metso Capital Oy (the
      2003 Plan). Upon issue all stock options were distributed to
      Metso Capital Oy. Metso Capital Oy distributes stock options to the key
      persons of Metso Group by the resolution of the Board of Directors. The
      total number of stock options distributed to the key persons under the 2003
      Plan cannot exceed 5,600,000 stock options.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In May
2003, Metsos Board of Directors decided on the maximum number of options
and on the earnings criteria by which 2003A stock options can be distributed in
the spring of 2004. The maximum number of stock options that can be distributed
is 2,500,000 options. The maximum amount can be distributed, if the operating
profit percentage for 2003 reaches at least 9 percent, the return on capital
employed reaches at least 20 percent and earnings per share exceed 1.60.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
minimum criteria for partial distribution of stock options for 2003 were an
operating profit percentage of at least 5 percent, a return on capital employed
of at least 9 percent and earnings per share of at least 0.75. An
additional criterion for the distribution of stock options was that the
trade-weighted average price of the Metso share on the Helsinki Exchanges during
the period January 1  March 31, 2004 does not fall below 10.11. The
criteria for the program were not fulfilled during the financial year and no
stock options under the 2003 Plan have been granted, apart from 100,000 options
granted on March 1, 2004 to the new President and chief executive officer.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-68 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------

|                                                     |  | 2003A                                                                                                                                                                                                                                                                                                  |  | 2003B                                                                                                                                                                                                                                                                                                  |  | 2003C                                                                                                                                                                                                                                                                                                 
|---------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                     |  |                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                       
|Number of stock options                              |  | 2,600,000                                                                                                                                                                                                                                                                                              |  | 2,600,000                                                                                                                                                                                                                                                                                              |  | 2,600,000                                                                                                                                                                                                                                                                                             
|                                                     |  |                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                       
|Subscription period                                  |  | April 1, 2006  April 30, 2009                                                                                                                                                                                                                                                                         |  | April 1, 2007  April 30, 2010                                                                                                                                                                                                                                                                         |  | April 1, 2008  April 30, 2011                                                                                                                                                                                                                                                                        
|                                                     |  |                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                       
|Share subscription price 
           per stock ption |  | The trade volume weighted average quotation of the Metso
        share on the Helsinki Exchanges between January 1 and March 31, 2004 adjusted
        by dividends payable after January 1, 2004 but before the date of the
        share subscription. The exercise price cannot be below par value. |  | The trade volume weighted average quotation of the Metso
        share on the Helsinki Exchanges between January 1 and March 31, 2005 adjusted
        by dividends payable after January 1, 2005 but before the date of the
        share subscription. The exercise price cannot be below par value. |  | The trade volume weighted average quotation of the Metso
        share on the Helsinki Exchanges between January 1 and March 31, 2006 adjusted
        by dividends payable after January 1, 2006 but before the date of the
        share subscription. The exercise price cannot be below par value.
|                                                     |  |                                                                                                                                                                                                                                                                                                       
|Subscription                                         |  | One stock option gives the right to subscribe
      one share.                                                                                                                                                                                                                                        



|If a
subscriber of the options under the 2003 Plan ceases to be employed by or in the
service of the Metso Group for any other reason than retirement or death before
1 April 2008, such person is obligated without delay to offer to the Company
free of charge the warrants for which the share subscription period had not
begun at the last day of such persons employment.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The 2001
Annual General Meeting approved of an issue of two series of warrants (the
2001 Plan), named A and B, to persons belonging to the management
and to certain other key persons with following conditions:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     |  | A warrants                                                                                                          | B warrants                          
|------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------- | ------------------------------------
|                                     |  |                                                                                                                     |                                     
|Number of warrants                   |  | 500,000                                                                                                             | 500,000                             
|                                     |  |                                                                                                                     |                                     
|Exercise period                      |  | April 1, 2001  April
      30, 2005                                                                                | April 1, 2003  April
      30, 2005
|                                     |  |                                                                                                                    
|Exercise price per 
         warrant |  | 15.60 adjusted
      by dividends payable after March 1, 2001. The exercise price cannot be below
      par value.
|                                     |  |                                                                                                                    
|Subscription                         |  | One warrant gives
      the right to subscribe one share.                                                          



|The
series A and B stock options issued by Metso in 2001 were combined and made
available for trading as a separate security on the main list of the Helsinki
Exchanges from April 1, 2003.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The 2000 Annual General Meeting
      approved a plan (the 2000 Plan) in order to standardize the
      incentive programs of the Group in such a manner that the warrant holders
      of Valmet Corporation and Rauma Corporation were offered a possibility to
      convert their warrants in the aforementioned companies to the warrants being
      issued. As a result of the 2000 Plan, 3,500,000 outstanding Valmet and Rauma
      warrants were converted to the plan. Under the 2000 Plan, two series of
      warrants, named A and B, are issued to persons belonging to the management
      and certain other key persons with following conditions:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-69 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------

|                                     |  | A warrants                                                                                                       | B warrants                          
|------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------
|                                     |  |                                                                                                                  |                                     
|Number of warrants                   |  | 2,500,000                                                                                                        | 2,500,000                           
|                                     |  |                                                                                                                  |                                     
|Exercise period                      |  | April 1, 2001  April
      30, 2005                                                                             | April 1, 2003  April
      30, 2005
|                                     |  |                                                                                                                 
|Exercise price per 
         warrant |  | 16 adjusted
      by dividends payable after March 1, 2000. The exercise price cannot be below
      par value.
|                                     |  |                                                                                                                 
|Subscription                         |  | One warrant gives
      the right to subscribe one share.                                                       



|To the extent the subscription
      rights of warrants are not used by the persons included in the 2000 or 2001
      Plan, they can be subscribed by Metso Corporations subsidiary, Metso
      Capital Oy. The Board of Directors of Metso Corporation is authorized to
      transfer such warrants in future to persons becoming eligible to its incentive
      plan.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
series B stock options that Metso issued in 2000 were made available for trading
on the main list of the Helsinki Exchanges combined with the series 2000 A stock
options from April 1, 2003.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|If a
subscriber of the warrants under the 2000 or 2001 Plan ceases to be employed by
or in the service of the Metso Group for any other reason than retirement or
death, then such person is obligated without delay to offer to the Company free
of charge the warrants for which the share subscription period had not begun at
the last day of such persons employment.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
following tables summarizes information about stock options outstanding at
December 31, 2003.
|-------------------------------------------------------------------------------------------------

|                                       | Number of
      
      Shares to be subscribed | Weighted
      
      average Fair Value | Weighted
      
      Average Exercise Price
|-------------------------------------- | ---------------------------------------------- | ---------------------------------------- | --------------------------------------------
|2000 Plan                              |                                                |                                          |                                             
|                                       |                                                |                                          |                                             
|Outstanding at January 1,
      2000   |                                               |                                          |                                             
|Granted                                | 4,902,500                                      |                                          | 2.82                                        
|Forfeited                              | 35,000                                         |                                          |                                             
|Outstanding at January 1,
      2001   | 4,867,500                                      |                                          |                                             
|Granted                                | 295,000                                        |                                          | 0.68                                        
|Forfeited                              | 227,500                                        |                                          |                                             
|Exercised                              |                                               |                                          |                                             
|Outstanding at December 31,
      2001 | 4,935,000                                      |                                          |                                             
|Granted                                |                                               |                                          |                                            
|Forfeited                              | 61,000                                         |                                          |                                             
|Exercised                              |                                               |                                          |                                             
|Outstanding at December 31,
      2002 | 4,874,000                                      |                                          |                                             
|Granted                                | 30,000                                         |                                          | 0.07                                        
|Forfeited                              | 34,250                                         |                                          |                                             
|Exercised                              |                                               |                                          |                                             
|Outstanding at December 31,
      2003 | 4,869,750                                      |                                          |                                             



| | F-70 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------

|                                 | Number of 
      Shares to be subscribed | Weighted 
      average Fair Value | Weighted 
      Average Exercise Price
|-------------------------------- | ---------------------------------------- | ---------------------------------- | --------------------------------------
|2001 Plan                        |                                          |                                    |                                       
|                                 |                                          |                                    |                                       
|Outstanding at January 1, 2001   |                                         |                                    |                                       
|Granted                          | 675,000                                  |                                    | 1.11                                  
|Forfeited                        |                                         |                                    |                                       
|Exercised                        |                                         |                                    |                                       
|Outstanding at December 31, 2001 | 675,000                                  |                                    |                                       
|Granted                          | 120,000                                  |                                    | 1.62                                  
|Forfeited                        |                                         |                                    |                                       
|Exercised                        |                                         |                                    |                                       
|Outstanding at December 31, 2002 | 795,000                                  |                                    |                                       
|Granted                          | 105,000                                  |                                    | 0.23                                  
|Forfeited                        | 27,500                                   |                                    |                                       
|Exercised                        |                                         |                                    |                                       
|Outstanding at December 31, 2003 | 872,500(1)                               |                                    |                                       

|
|

|(1) |  | On
March 1, 2004, in accordance with his employment agreement, the new  President and chief
executive officer was granted 30,000 options under 2001  Plan.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



|The fair
value of the options is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | Year ended December 31,
|----------------------- | -----------------------
|                        | 2001                   
|                        |                        
|2000 Plan               |                        
|                        |                        
|Expected volatility     | 41.04%                 
|Risk-free interest rate | 4.09%                  
|Dividend yield          | 5.08%                  
|Expected life (years)   | 2.3                    
|                        |                        
|2001 Plan               |                        
|                        |                        
|Expected volatility     | 41.16%                 
|Risk-free interest rate | 4.05%                  
|Dividend yield          | 4.59%                  
|Expected life (years)   | 2.2                    



|Valmet
|------



|The 1998 Annual General Meeting
      approved an issue of two series of warrants to persons belonging to the
      management of the Company and to certain other key persons (the 1998
      I plan). The warrants entitle the holders to subscribe to an aggregate
      of 2,000,000 shares in the Valmet (1,000,000 shares in each series). The
      subscription period for the new shares commenced on April 1, 2001 for the
      first series, entitling holders to subscribe for new shares of Valmet at
      a price of 18.16 per share, and on April 1, 2003 for the second series,
      entitling the holders to subscribe new shares of Valmet at a price of 19
      per share. The subscription period for both series will close on March 31,
      2005. The share subscription price for both series is adjusted by dividends
      distributed after May 1, 1998 and before the date of the subscription. As
      of December 31, 2003, no shares had been subscribed for under the 1998 I
      plan. Consequent to the approval of the 2000 plan of Metso, the holders
      utilized the possibility to convert their warrants of the 1998 I Plan to
      warrants under the 2000 Plan.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-71 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Rauma
|-----



|In February 1998, the shareholders
      approved a plan (the 1998 II plan) to issue warrants (A, B and
      C warrants) to certain senior management employees of Rauma. The aggregate
      amount of warrants issued was 1,100,000. Each warrant entitles its holder
      to subscribe for one share of Rauma. The A warrants entitle the holders
      to subscribe to 330,000 shares of Rauma during the period from April 17,
      2001 to April 17, 2005. The B warrants entitle the holders to subscribe
      to 330,000 shares of Rauma during the period from April 17, 2002 to April
      17, 2005. The C warrants entitle the holders to subscribe to 440,000 shares
      of Rauma during the period from April 17, 2003 to April 17, 2005. The original
      subscription price was 20.35 per share, adjusted by the dividends
      distributed after May 1, 1998 and before the date of subscription. The merger
      between Valmet and Rauma adjusted the subscription price to 18.68
      per share for both warrants based on the exchange ratio. The expiration
      date for all warrants is April 17, 2005. No share entitlements provided
      by options transferred from Rauma Corporation were subscribed for in 2002
      or in 2003.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Consequent
to the approval of the 2000 plan of Metso Corporation, the holders utilized the
possibility to convert their warrants of the 1998 II Plan to warrants under the
2000 Plan.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|No other
bonds with warrants or convertible bonds were outstanding during 2003.
|-------------------------------------------------------------------------------



|u) Classification differences and Other
Disclosures
|---------------------------------------------------



|Extraordinary items
|-------------------



|Under
Finnish GAAP, certain income or expense items that are considered to have been
earned or incurred outside of the ordinary course of business are classified as
extraordinary and are shown in a separate caption after income from
operations.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under
U.S. GAAP, extraordinary items are those that are considered both unusual in
nature and infrequent in occurrence; in practice, such extraordinary items are
rarely recorded. Accordingly, net extraordinary items for the years ended
December 31, 2001, 2002 and 2003 would not be classified as extraordinary items
under U.S. GAAP.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
disposition of the extraordinary items under Finnish GAAP is as follows:
|----------------------------------------------------------------------------

|                                                                     | Year ended December 31,
|-------------------------------------------------------------------- | -----------------------
|                                                                     |                        
|                                                                     | 2001                   
|                                                                     |                        
|                                                                     | ( in millions)        
|                                                                     |                        
|Extraordinary income                                                 |                       
|                                                                     |                        
|Extraordinary expenses:                                              |                        
|Inventory adjustment in Metso
      Drives German operations        | (3                     
|Reserve in Metso Automations
      US operations, net of income tax | (5                     
|                                                                     |                        
|Total                                                                | (8                     
|                                                                     |                        



|The inventory adjustment of
      3 million, recognized in the year ended December 31, 2001, would have
      impacted the operating profit of Metso Drives and the reserve of 5
      million, net of deferred income tax, would have affected the operating profit
      of Metso Automation.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Impairment
|----------



|Under
Finnish GAAP, impairment losses on intangible and tangible assets can be
recognized as liabilities, especially if the underlying asset is held for sale
and the reserve reflects the expected unrealized loss at disposal. In connection
with the efficiency improvement program launched in 2003, Metso recognized
various write-downs of long-lived assets and inventory obsolescence for an
amount of 17 million as accrued liabilities.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-72 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Under
U.S. GAAP, impairment losses and inventory obsolescence are recognized as a
reduction of the cost basis of the underlying assets. The write-downs would have
impacted the value of inventory by 1 million, the value of intangible
assets by 2 million and the value of tangible fixed assets by 14
million.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Service revenues
|----------------



|Net sales
includes service revenues totaling 1,394 million and 1,399 million
for the years ended December 31, 2003 and 2002, respectively. Metso defines
service revenue as aftermarket and maintenance activities, which can comprise
(but are not limited to) service and maintenance work, service agreements,
performance testing and evaluation, and spare and wear parts.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Deferred taxes
|--------------



|Under
Finnish GAAP, the balance sheet presentation of deferred taxes differs from the
presentation requirements set forth in U.S. GAAP, see Note 10 for Finnish GAAP
disclosure.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under
U.S. GAAP, the current and non-current deferred tax liabilities and assets are
presented as a net current and as a net non-current amount, consistent with the
classification of the related assets and liabilities having generated the
deferred tax. The classification is made for each separate tax-paying component
within each taxing jurisdiction. Following table presents the deferred tax
assets and liabilities under Finnish GAAP according to the presentation
prescribed by SFAS 109 Accounting for Income Taxes under U.S. GAAP:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                           | As of December
      31,
|-------------------------- | ------------------------
|                           |                         
|                           | 2002                    
|                           |                         
|                           | ( in
      millions)   
|Non-current assets         |                         
|Tax losses carried forward | 186                     
|Other                      | 11                      
|Valuation allowance        | (110                    
|                           |                         
|                           | 87                      
|                           |                         
|                           |                         
|Current assets             |                         
|Inventory                  | 26                      
|Reserves                   | 23                      
|Accruals                   | 22                      
|Medical benefits           | 14                      
|Other                      | 2                       
|Valuation allowance        | 0                       
|                           |                         
|                           | 87                      
|Current liabilities        |                         
|Inventory                  | (1                      
|                           |                         
|                           |                         
|Non-current liabilities    |                         
|Fixed assets               | (18                     
|Purchase price adjustments | (35                     
|Untaxed reserves           | (12                     
|Other                      | (35                     
|                           |                         
|                           | (100                    
|                           |                         
|Deferred tax asset, net    | 73                      
|                           |                         



| | F-73 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|v) Valuation and Qualifying Accounts
|------------------------------------



|Allowance
for doubtful accounts for the three years ended December 31, 2001, 2002 and 2003
is set forth below:
|--------------------------------------------------------------------------------------------------------------

|     | Balance at 
      Beginning 
      of Year | Charged to 
      Cost and 
      Expenses | Deductions | Other(1) | Balance at 
      End 
      of Year
|---- | ------------------------------------------ | ------------------------------------------ | ---------- | -------- | ------------------------------------
|     | ( in millions)                           
|2001 | 29                                         |                                            | 11         |          | (11)                                
|2002 | 56                                         |                                            | 13         |          | (16)                                
|2003 | 45                                         |                                            | 5          |          | (13)                                

|
|

|(1) |  | Includes
foreign currency translation effects and the acquisition balance  sheet of Svedala Group
in 2001.
|--- |  | ----------------------------------------------------------------------------------------------------------



|Allowances
for inventory accounts for the three years ended December 2001, 2002 and 2003 is
set forth below:
|------------------------------------------------------------------------------------------------------------

|     | Balance atBeginningof Year | Additions(1) | Deductions | Other(2) | Balance atEndof Year
|---- | -------------------------- | ------------ | ---------- | -------- | --------------------
|    
|    
|     | ( in millions)           
|2001 | 21                         | 10           | (9         | )        | 58                  
|2002 | 80                         | 12           | (13        | )        | (7                  
|2003 | 72                         | 15           | (15        | )        | (5                  

|
|

|(1) |  | Excludes amounts recorded as direct write-off
      of inventories of 8 million, 7 million and 3 million for
      the years ended December 31, 2001, 2002 and 2003, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes
foreign currency translation effects and the opening balance of  Svedala Group in 2001.
|--- |  | ------------------------------------------------------------------------------------------------



|w)  New Accounting Standards
|----------------------------



|In May
2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity (SFAS 150). The statement
establishes standards on how to classify and measure certain financial
instruments with characteristics of both liabilities and equity and requires
additional disclosures regarding alternative ways of settling instruments and
the capital structure of entities  all of whose shares are mandatory
redeemable. The provisions of SFAS 150 were effective for all financial
instruments entered into or modified after May 31, 2003, and otherwise was
effective the first interim period beginning after June 15, 2003. However, the
guidance applying to mandatorily redeemable noncontrolling interests has been
deferred. The Company does not expect this statement to have a material impact
on its financial statements.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In April
2003, the FASB issued SFAS 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities (SFAS 149). SFAS 149 generally improves
financial reporting for derivative instruments by requiring that contracts with
comparable characteristics be accounted for similarly and by clarifying when a
derivative contains a financing component that warrants special reporting in the
statement of cash flows. The guidance in SFAS 149 was effective prospectively
for contracts entered into or modified and for hedging relationships designated
after June 30, 2003. The Company does not expect this statement to have a
material impact on its financial statements.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In December 2003, the Financial
      Accounting Standards Board issued FASB Interpretation No. 46 R, Consolidation
      of Variable Interest Entities Revised (FIN 46R). FIN 46R modifies the scope
      exceptions provided in FIN 46. Entities would be required to replace FIN
      46 provisions with FIN 46R provisions for all newly created post-January
      31, 2003 entities as of the end of the first interim or annual reporting
      period ending after March 15, 2004. We reviewed our investment portfolio,
      including associated companies, and identified no investments in Variable
      Interest Entities, as defined by FIN 46.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-74 | 
| | ---- | 



---





|METSO
|-----



|Notes to Consolidated Financial
Statements
|------------------------------------------



|Note 33. Subsequent Events
|--------------------------



|Papiers Gaspésia
|----------------



|In 2002,
Metso Paper received an order for a rebuild of an on-line printing and writing
supercalandered coated paper line from Papiers Gaspésia in Chandler,
Quebec, Canada. The rebuild was expected to be completed by mid-2004. According
to the information Metso has received in the first quarter of 2004, the project
is currently on hold due to additional financing arrangements by the customer.
In view of the delay and postponement of the project completion, Metso Paper is
prepared to make an approximately 10 million reserve in its result for the
first quarter of 2004.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | F-75 | 
| | ---- | 



---





|SIGNATURES
|----------



|The  registrant
hereby  certifies  that  it  meets  all of the  requirements  for  filing on Form 20-F
and that it has duly  caused  and  authorized the undersigned to sign this annual report
on its behalf.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |     |                   
|-------------------- | --- | ------------------
|Date: March 25, 2004 |     | METSO CORPORATION 
|                     |     |                   
|                     | By: | /s/ Jorma Eloranta
|                     |     | Name:             
|                     |     | Title:            
|                     |     |                   
|                     |     |                   
|                     | By: | /s/ Olli Vaartimo 
|                     |     | Name:             
|                     |     | Title: