##### Table of Contents



As
filed with the Securities and Exchange Commission on March 14, 2007
   UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    

    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the year ended December 31, 2006
 OR
 o
    

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 o
    


    SHELL COMPANY 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 1220
FI-00101 Helsinki
Finland  Address of principal executive offices
  Title of each class:
    
    Name of each exchange on which registered:Shares, nominal value  1.70 each, 
represented by American Depositary Shares
    
    New York Stock Exchange, Inc.
 None
 None
   þ o
  o þ
  þ o
  þ o o
  o þ
  o þ




---



##### 



TABLE OF CONTENTS
  INTRODUCTION
    
    iiiPART IItem 1. Identity of Directors, Senior Management and Advisers
    
    
    1Item 2. Offer Statistics and Expected Timetable
    
    
    1Item 3. Key Information
    
    
    1Selected Financial Data
    
    
    1Exchange Rates
    
    
    3Risk Factors
    
    
    4Item 4. Information on the Company
    
    
    11Organization
    
    
    11History and Development of the Company
    
    
    11Strategy
    
    
    12Corporate Structure
    
    
    15Business Summary
    
    
    17Discontinued Operations
    
    
    31Raw Materials
    
    
    32Seasonality
    
    
    33Dependence on Intellectual Property
    
    
    33Governmental Regulation and Environmental Matters
    
    
    33Property, Plants and Equipment
    
    
    36Significant Subsidiaries
    
    
    38Associated
Companies and Joint Ventures
    
    
    38Item 4A. Unresolved Staff Comments
    
    
    38Item 5. Operating and Financial Review and Prospects
    
    
    38Business Overview
    
    
    38Key Management Issues
    
    
    41Recent Acquisitions and Divestments
    
    
    43Critical Accounting Policies
    
    
    44Results of Operations
    
    
    49Principal Differences between IFRS and U.S. GAAP
    
    
    57Liquidity and Capital Resources
    
    
    57Capital Expenditure
    
    
    59Research and Development
    
    
    60Foreign Currency Fluctuations
    
    
    63Inflation
    
    
    63New Accounting Standards
    
    
    64Off Balance Sheet Arrangements
    
    
    65Item 6. Directors, Senior Management and Employees
    
    
    65Board of Directors
    
    
    65Chief Executive Officer and Our Executive Team
    
    
    68Compensation of Directors and Officers
    
    
    69Audit Committee and Compensation Committee
    
    
    70Home Country Practices
    
    
    70Employees
    
    
    71Share Ownership
    
    
    72Authorizations for Board of Directors
    
    
    73
  (i)




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Item 7. Major Shareholders and Related Party Transactions
    
    
    74Major Shareholders
    
    
    74Related Party Transactions
    
    
    74Item 8. Financial Information
    
    
    75Consolidated Financial Statements
    
    
    75Export Sales
    
    
    75Legal Proceedings
    
    
    75Dividend Policy
    
    
    76Significant Changes
    
    
    76Item 9. The Offer and Listing
    
    
    77Nature of Trading Market
    
    
    77Trading and Settlement on the Helsinki Stock Exchange
    
    
    78Regulation of the Finnish Securities Market
    
    
    78The Finnish Book Entry-Securities System
    
    
    79Item 10. Additional Information
    
    
    80Articles of Association
    
    
    80Material Contracts
    
    
    83Exchange Controls
    
    
    83Control of Foreign Ownership
    
    
    83Taxation
    
    
    83Documents on Display
    
    
    89Item 11. Quantitative and Qualitative Disclosures about Market Risk
    
    
    89Exchange Rates and Foreign Currency Exposure
    
    
    89Interest Rate Risk
    
    
    90Equity Price Risk
    
    
    90Commodity Price Risk
    
    
    91Item 12. Description of Securities Other than Equity Securities
    
    
    91PART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    92Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    92Item 15. Controls and Procedures
    
    
    93Item 16. [Reserved]
    
    
    94Item 16A. Audit Committee Financial Expert
    
    
    94Item 16B. Code of Ethics
    
    
    94Item 16C. Principal Accountant Fees and Services
    
    
    94Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    95Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    96PART IIIItem 17. Financial Statements
    
    
    97Item 18. Financial Statements
    
    
    97Item 19. Exhibits
    
    
    98
 (ii)




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INTRODUCTION
  CURRENCY PRESENTATION
  
    
    euro,  or EUR 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;
    
    Canadian dollar or CAD means the lawful currency of Canada;
    
    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.
  FINANCIAL AND OTHER INFORMATION
     (iii)




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FORWARD-LOOKING STATEMENTS
  
    
    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.
  (iv)




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##### Table of Contents



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
   For the year ended December 31,2004
    
    2005
    
    2006EUR
    
    EUR
    
    EUR(in millions, except per share data)INCOME STATEMENT DATAAmounts in Accordance with IFRSNet sales
    
    
    3,602
    
    
    
    4,221
    
    
    
    4,955Operating profit
    
    
    199
    
    
    
    335
    
    
    
    457Financial income and expenses, net
    
    
    (59
    )
    
    
    (43
    )
    
    
    (36
    )Profit on
Continuing Operations before tax
    
    
    140
    
    
    
    292
    
    
    
    421Income taxes
on Continuing Operations
    
    
    18
    
    
    
    (72
    )
    
    
    (11
    )Profit on
Continuing Operations
    
    
    158
    
    
    
    220
    
    
    
    410Profit (loss) on Discontinued Operations, net of taxes
    
    
    (14
    )
    
    
    17
    
    
    
    Profit
    
    
    144
    
    
    
    237
    
    
    
    410Profit attributable to minority interests
    
    
    1
    
    
    
    1
    
    
    
    1Profit attributable to equity shareholders
    
    
    143
    
    
    
    236
    
    
    
    409Profit
    
    
    144
    
    
    
    237
    
    
    
    410Earnings per share from Continuing Operations(1)Basic
    
    
    1.16
    
    
    
    1.57
    
    
    
    2.89Diluted
    
    
    1.16
    
    
    
    1.57
    
    
    
    2.89Earnings per share from Discontinued Operations(1)Basic
    
    
    (0.11
    )
    
    
    0.12
    
    
    
    Diluted
    
    
    (0.11
    )
    
    
    0.12
    
    
    
    
 (1)




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##### Table of Contents



For the year ended December 31,2004
    
    2005
    
    2006EUR
    
    EUR
    
    EUR(in millions, except per share data)Earnings
per share from Continuing and Discontinued Operations(1)Basic
    
    
    1.05
    
    
    
    1.69
    
    
    
    2.89Diluted
    
    
    1.05
    
    
    
    1.69
    
    
    
    2.89BALANCE SHEET DATAAmounts in Accordance with IFRSTotal assets
    
    
    3,570
    
    
    
    3,904
    
    
    
    4,958Cash and cash equivalents
    
    
    372
    
    
    
    323
    
    
    
    353Net interest bearing liabilities
    
    
    495
    
    
    
    289
    
    
    
    454Equity attributable to shareholders
    
    
    990
    
    
    
    1,285
    
    
    
    1,468OTHER DATAAmounts in Accordance with IFRSNet cash provided by (used in) operating activities
    
    
    261
    
    
    
    164
    
    
    
    442Net cash provided by (used in) investing activities
    
    
    312
    
    
    
    (90
    )
    
    
    (227
    )Net cash provided by (used in) financing activities
    
    
    (332
    )
    
    
    (136
    )
    
    
    (179
    )Capital expenditures on fixed assets(2)
    
    
    89
    
    
    
    104
    
    
    
    129Cash dividends declared and paid per share (EUR )(3)
    
    
    0.35
    
    
    
    1.40
    
    
    
    1.50Cash dividends declared and paid per share (U.S.$)(3)(4)
    
    
    0.47
    
    
    
    1.66
    
    
    
    1.98
 As of and for the year ended December 31,2002
    
    2003
    
    2004
    
    2005
    
    2006EUR
    
    EUR
    
    EUR
    
    EUR
    
    EUR(in millions, except per share data)INCOME STATEMENT DATAAmounts in Accordance with U.S. GAAPIncome
(loss) from Continuing Operations
    
    
    3
    
    
    
    (196
    )
    
    
    57
    
    
    
    178
    
    
    
    380Income (loss) from Discontinued Operations
    
    
    19
    
    
    
    (39
    )
    
    
    17
    
    
    
    1
    
    
    
    (Loss) Gain on disposal of Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    (72
    )
    
    
    18
    
    
    
    Profit (loss)
    
    
    22
    
    
    
    (235
    )
    
    
    2
    
    
    
    197
    
    
    
    380Basic and diluted earnings (loss) per share from
Continuing Operations(1)
    
    
    0.02
    
    
    
    (1.44
    )
    
    
    0.42
    
    
    
    1.27
    
    
    
    2.68Basic and diluted earnings (loss) per share from
Discontinued Operations(1)
    
    
    0.14
    
    
    
    (0.29
    )
    
    
    (0.41
    )
    
    
    0.14
    
    
    
    2.68BALANCE SHEET DATAAmounts in Accordance with U.S. GAAPTotal assets
    
    
    4,520
    
    
    
    3,996
    
    
    
    3,697
    
    
    
    4,055
    
    
    
    5,077Long-term liabilities
    
    
    1,334
    
    
    
    1,256
    
    
    
    1,231
    
    
    
    990
    
    
    
    1,013Shareholders equity
    
    
    1,326
    
    
    
    998
    
    
    
    978
    
    
    
    1,239
    
    
    
    1,402
 
 (1)
    
    The average numbers of shares used in calculating this amount were as follows: Number of shares issued
    
    Number of diluted sharesYear ended December 31,
    
    and outstanding
    
    issued and outstanding2002
    

    136,189,704
    
    

    136,189,7042003
    

    136,189,704
    
    

    136,189,7042004
    

    136,189,704
    
    

    136,192,0372005
    

    139,639,425
    
    

    139,665,1972006
    

    141,580,759
    
    

    141,600,424
 
 (2)
    
    Excluding business acquisitions.(3)
    
    Dividends are generally 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 the year ended
December 31, 2006 is the proposal of our Board of Directors to the annual general meeting to
be held on April 3, 2007.(4)
    
    Amounts in euro have been converted into U.S. dollars at the noon buying rate on December 29,
30 or 31, as the case may be, of the respective year solely for the readers convenience. (2)




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Exchange Rates
    Euro per U.S. Dollar
 Year
    
    Average
    
    High
    
    Low
    
    Period End2002
    
    
    1.0532
    
    
    
    1.1636
    
    
    
    0.9537
    
    
    
    0.95372003
    
    
    0.8783
    
    
    
    0.9652
    
    
    
    0.7938
    
    
    
    0.79382004
    
    
    0.8014
    
    
    
    0.8474
    
    
    
    0.7339
    
    
    
    0.73872005
    
    
    0.8065
    
    
    
    0.8571
    
    
    
    0.7421
    
    
    
    0.84452006
    
    
    0.7898
    
    
    
    0.8432
    
    
    
    0.7504
    
    
    
    0.75772007
(through March 13)
     
    
    0.7609
    
    
    
    0.7750
    
    
    
    0.7527
    
    
    
    0.7576Calendar Period
    

High
    

Low2006September
    
    
    0.7906
    
    
    
    0.7792October
    
    
    0.7999
    
    
    
    0.7829November
    
    
    0.7871
    
    
    
    0.7541December
    
    
    0.7649
    
    
    
    0.75042007January
    
    
    0.7750
    
    
    
    0.7527February
    
    
    0.7732
    
    
    
    0.7549March
(through March 13)
    
    
    0.7637
    
    
    
    0.7576
 (3)




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U.S. Dollars per Euro
 Year
    
    Average
    
    High
    
    Low
    
    Period End2002
    

    0.9495

    
    
    1.0485
    
    
    
    0.8594
    
    
    
    1.04852003
    


    1.1411

    
    
    1.2597
    
    
    
    1.0361
    
    
    
    1.25972004
    


    1.2478

    
    
    1.3625
    
    
    
    1.1801
    
    
    
    1.35382005
    

    1.2400

    
    
    1.3476
    
    
    
    1.1667
    
    
    
    1.18422006
    

    1.2661

    
    
    1.3327
    
    
    
    1.1860
    
    
    
    1.31972007
(through March 13)
    

    1.3142

    
    
    1.3286
    
    
    
    1.2904
    
    
    
    1.3199Calendar Period
    
    High
    
    Low2006September
    


    1.2833

    
    
    1.2648October
    


    1.2773

    
    
    1.2502November
    


    1.3261

    
    
    1.2705December
    


    1.3327

    
    
    1.30732007January
    


    1.3286

    
    
    1.2904February
    
    1.3246
    
    
    1.2933March
(through March 13)
    
    1.3199
    
    
    1.3094
    
 Risk Factors
   (4)




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Strategic
Risks
 Business Development Risks
     Business Environment Risks
    (5)




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Market Risks
    Technology Risks
 i.e.,
  Political, Economic, Cultural and Legislative Trends
    (6)




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Phenomena Related to Climate Change and Environment
   Operational Risks
 Organizational and Management Risks
    Business Interruption Risks
   (7)




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Production, Process and Productivity Risks
  Contract and Product Liability Risks
  Profitability Risks
   Information Security Risks
  Illegal Activities
  (8)




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Project Activity Risks
   Crisis Situations
  Hazard Risks
  Financial Risks
 Liquidity
   Interest Rate Risks
   (9)




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Currency Risks
      Accounts Receivable Risks and Other Counterparty Risks
    (10)




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Other Key Risks
 Internal Controls
  Impact of Largest Shareholders
   
 Item 4. Information on the Company.
 
 Organization
  
 History and Development of the Company
  (11)




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Strategy
    (12)




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Management Agenda
        Financial Targets
   (13)




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i.e
     Outlook for 2007
     (14)




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Corporate Structure
  Organization until December 31, 2006
  
    
    Metso Paperdesigns, develops and delivers processes, machinery, equipment and
related know-how and aftermarket services to the pulp and paper industry. Metso Papers
offering extends over the entire life cycle of the process covering new lines, rebuilds
and various aftermarket services. Until December 31, 2006, Metso Paper operated under
five business lines: Fiber, Paper and Board, Finishing, Tissue and Service. The
business lines are supplemented by regional functions in Asia-Pacific, Europe, North
America and South America.
    
    Metso Mineralsdesigns, develops and manufactures equipment and total solutions as
well as aftermarket solutions for rock and minerals processing industries. It operated
through its four business lines until December 31, 2006: Crushing and Screening,
Minerals Processing, Wear Protection and Conveying and Recycling.
    
    Metso Automationdesigns, develops and supplies both process automation and field
solutions for automation and information management in selected process industries.
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 valves, and
(3) process measurement solutions and analyzers. Metso Automation operated through its
two business lines, Process Automation Systems and Field Systems and a separate North
American business unit until the business lines were reorganized as of October 1, 2006.
After the reorganization, the business lines within Metso Automation are: Process
Automation Systems and Flow Control.
    
    Metso Venturesmain businesses until December 31, 2006 were: Metso Panelboard,
Foundries, Metso Powdermet and Valmet Automotive. Metso Panelboard develops and
supplies complete production lines for the panelboard industry. Foundries manufacture
castings for various engineering industry needs. Metso Powdermet develops materials
technology and component solutions for our customer industries and us. Valmet
Automotive is an independent contract manufacturer of specialty cars.
   (15)




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Organization as of January 1, 2007
    (16)




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Business Summary
 Net Sales by Geographic Area
  (17)




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Year ended December 31,2004
    
    2005
    
    2006(EUR in millions)Finland
    
    
    312
    
    
    
    352
    
    
    
    341Other Nordic countries
    
    
    301
    
    
    
    484
    
    
    
    283Other European countries
    
    
    888
    
    
    
    1,064
    
    
    
    1,378North America
    
    
    757
    
    
    
    889
    
    
    
    1,012South and Central America
    
    
    286
    
    
    
    485
    
    
    
    685Asia-Pacific
    
    
    829
    
    
    
    735
    
    
    
    991Rest of the world
    
    
    229
    
    
    
    212
    
    
    
    265Total
    
    
    3,602
    
    
    
    4,221
    
    
    
    4,955
 Metso Paper
    As of and for the year ended December 31,2004
    
    2005
    
    2006(EUR in millions, except personnel data)Net sales(1)
    
    
    1,559
    
    
    
    1,702
    
    
    
    1,947Operating profit(2)
    
    
    48
    
    
    
    91
    
    
    
    110Capital
employed(3)
    
    
    323
    
    
    
    329
    
    
    
    617Gross capital expenditure, excluding business acquisitions
    
    
    33
    
    
    
    34
    
    
    
    48Research and development
    
    
    50
    
    
    
    51
    
    
    
    60Order backlog(3)
    
    
    946
    
    
    
    1,267
    
    
    
    2,139Personnel(3)
    
    
    8,660
    
    
    
    8,201
    
    
    
    10,867
 
 (1)
    
    Includes net sales to Metsos other business areas of EUR 9 million, EUR 10 million and
EUR 13 million for the years ended December 31, 2004, 2005 and 2006, respectively.(2)
    
    Includes a reversal of Finnish pension liability of EUR 39.8 million and EUR 3.2 million for
the years ended December 31, 2004 and 2005, respectively.(3)
    
    Includes  the effect of the acquisition of the Pulping and
Power businesses from Aker Kvaerner as of December 31, 2006. Products and Services
 Fiber.
 (18)




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Paper & Board.
 Finishing.
 Tissue.
 Service
    Markets and Customers
  Year ended December 31,2004
    
    2005
    
    2006(Percent of total net sales)Finland
    
    
    12
    
    
    
    12
    
    
    
    9Other Nordic countries
    
    
    10
    
    
    
    20
    
    
    
    6Other European countries
    
    
    17
    
    
    
    19
    
    
    
    28North America
    
    
    19
    
    
    
    19
    
    
    
    17South and Central America
    
    
    5
    
    
    
    7
    
    
    
    12Asia-Pacific
    
    
    32
    
    
    
    21
    
    
    
    26Rest of the world
    
    
    5
    
    
    
    2
    
    
    
    2Total
    
    
    100
    
    
    
    100
    
    
    
    100
 (19)




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Marketing
  Competition
    i.e.
 (20)




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Recent Developments
      Metso Minerals
   (21)




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##### Table of Contents



As of and for the year ended December 31,2004
    
    2005
    
    2006(EUR in millions, except personnel data)Net sales(1)
    
    
    1,366
    
    
    
    1,735
    
    
    
    2,174Operating profit(2)
    
    
    105
    
    
    
    177
    
    
    
    286Capital employed
    
    
    712
    
    
    
    895
    
    
    
    949Gross capital expenditure
    
    
    24
    
    
    
    55
    
    
    
    66Research and development
    
    
    9
    
    
    
    11
    
    
    
    13Order backlog
    
    
    560
    
    
    
    852
    
    
    
    1,254Personnel
    
    
    8,048
    
    
    
    8,521
    
    
    
    9,170
 
 (1)
    
    Includes net sales to Metsos other business areas of EUR 1 million, EUR 2 million and
EUR 2 million for the years ended December 31, 2004, 2005 and 2006, respectively.(2)
    
    Includes a reversal of Finnish pension liability of EUR 4.9 million and EUR 0.4 million for
the years ended December 31, 2004 and 2005, respectively. Products and Services
  Crushing
and Screening.
 Minerals
Processing.
 Wear Protection and Conveying.
 Recycling.
 (22)




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Markets and Customers
  Year ended December 31,2004
    
    2005
    
    2006(Percent of total net sales)Finland
    
    
    2
    
    
    
    3
    
    
    
    2Other Nordic countries
    
    
    9
    
    
    
    7
    
    
    
    6Other European countries
    
    
    29
    
    
    
    25
    
    
    
    25North America
    
    
    23
    
    
    
    23
    
    
    
    23South and Central America
    
    
    13
    
    
    
    19
    
    
    
    18Asia-Pacific
    
    
    14
    
    
    
    15
    
    
    
    17Rest of the world
    
    
    10
    
    
    
    8
    
    
    
    9Total
    
    
    100
    
    
    
    100
    
    
    
    100
    Marketing
  Competition
  (23)




---



##### Table of Contents



Recent Developments
      Metso Automation
    (24)




---



##### Table of Contents



As of and for the year ended December 31,2004
    
    2005
    
    2006(EUR in millions, except personnel data)Net sales(1)
    
    
    535
    
    
    
    584
    
    
    
    613Operating profit(2)
    
    
    69
    
    
    
    81
    
    
    
    87Capital employed
    
    
    135
    
    
    
    125
    
    
    
    149Gross capital expenditure
    
    
    6
    
    
    
    11
    
    
    
    9Research and development
    
    
    31
    
    
    
    29
    
    
    
    29Order backlog
    
    
    176
    
    
    
    179
    
    
    
    276Personnel
    
    
    3,267
    
    
    
    3,169
    
    
    
    3,352
 
 (1)
    
    Includes net sales to Metsos other business areas of EUR 42 million, EUR 39 million and
EUR 57 million for the years ended December 31, 2004, 2005 and 2006, respectively.(2)
    
    Includes a reversal of Finnish pension liability of EUR 13.7 million and EUR 0.8 million for
the years ended December 31, 2004 and 2005, respectively. Products and Services
  Process Automation Systems
    Flow Control
   (25)




---



##### Table of Contents



Customer Support Services
  Markets and Customers
  Year ended December 31,2004
    
    2005
    
    2006(Percent of total net sales)Finland
    
    
    19
    
    
    
    20
    
    
    
    20Other Nordic countries
    
    
    4
    
    
    
    4
    
    
    
    3Other European countries
    
    
    27
    
    
    
    25
    
    
    
    22North America
    
    
    28
    
    
    
    28
    
    
    
    29South and Central America
    
    
    4
    
    
    
    4
    
    
    
    6Asia-Pacific
    
    
    14
    
    
    
    15
    
    
    
    15Rest of the world
    
    
    4
    
    
    
    4
    
    
    
    5Total
    
    
    100
    
    
    
    100
    
    
    
    100
  Marketing
   Competition
   (26)




---



##### Table of Contents



Recent Developments
     Metso Ventures
  Metso Panelboard
    As of and for the year ended December 31,2004
    
    2005
    
    2006(EUR in millions, except personnel data)Net sales(1)
    
    
    104
    
    
    
    112
    
    
    
    115Operating loss(2)
    
    
    (1
    )
    
    
    (3
    )
    
    
    (23
    )Capital employed
    
    
    (14
    )
    
    
    16
    
    
    
    (6
    )Gross capital expenditure
    
    
    1
    
    
    
    1
    
    
    
    0Research and
development
    
    
    3
    
    
    
    3
    
    
    
    3Order backlog
    
    
    32
    
    
    
    50
    
    
    
    42Personnel
    
    
    264
    
    
    
    281
    
    
    
    282
 
 (1)
    
    Includes net sales to Metsos other business areas of EUR 1 million, EUR 1 million and
EUR 0 million for the years ended December 31, 2004, 2005 and 2006, respectively.(2)
    
    Includes a reversal of Finnish pension liability of EUR 0.7 million for the year ended
December 31, 2004. (27)




---



##### Table of Contents



Competition
  Markets and Customers
   Year ended December 31,2004
    
    2005
    
    2006(Percent of total net sales)Finland
    
    
    0
    
    
    
    0
    
    
    
    0Other Nordic countries
    
    
    2
    
    
    
    4
    
    
    
    2Other European countries
    
    
    35
    
    
    
    57
    
    
    
    29North America
    
    
    4
    
    
    
    5
    
    
    
    12South and Central America
    
    
    5
    
    
    
    5
    
    
    
    25Asia-Pacific
    
    
    51
    
    
    
    29
    
    
    
    20Rest of the world
    
    
    3
    
    
    
    0
    
    
    
    12Total
    
    
    100
    
    
    
    100
    
    
    
    100
 Marketing
  Recent Developments
  Foundries
  (28)




---



##### Table of Contents



As of and for the year ended December 31,2004
    
    2005
    
    2006(EUR in millions, except personnel data)Net sales(1)
    
    
    75
    
    
    
    82
    
    
    
    95Operating profit(2)
    
    
    7
    
    
    
    5
    
    
    
    5Capital employed
    
    
    25
    
    
    
    30
    
    
    
    35Gross capital expenditure
    
    
    3
    
    
    
    6
    
    
    
    4Research and development
    
    
    0
    
    
    
    0
    
    
    
    0Order backlog
    
    
    28
    
    
    
    45
    
    
    
    51Personnel
    
    
    587
    
    
    
    618
    
    
    
    657
 
 (1)
    
    Includes net sales to Metsos other business areas of EUR 34 million, EUR 32 million and
EUR 38 million for the years ended December 31, 2004, 2005 and 2006, respectively.(2)
    
    Includes a reversal of Finnish pension liability of EUR 3.3 million and EUR 0.2 million for
the years ended December 31, 2004 and 2005, respectively. Products and Services
   Markets and Customers
   Year ended December 31,2004
    
    2005
    
    2006(Percent of total net sales)Finland
    
    
    70
    
    
    
    72
    
    
    
    71Other Nordic countries
    
    
    17
    
    
    
    17
    
    
    
    17Other European countries
    
    
    7
    
    
    
    3
    
    
    
    7North America
    
    
    3
    
    
    
    4
    
    
    
    3South and Central America
    
    
    1
    
    
    
    1
    
    
    
    0Asia-Pacific
    
    
    2
    
    
    
    3
    
    
    
    2Rest of the world
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    
    100
    
    
    
    100
    
    
    
    100
 Marketing
  Competition
  (29)




---



##### Table of Contents



Recent Developments
  Valmet Automotive
   As of and for the year ended December 31,2004
    
    2005
    
    2006(EUR in millions, except personnel and vehicledata)Net sales
    
    
    40
    
    
    
    78
    
    
    
    109Operating profit(1)
    
    
    (13
    )
    
    
    6
    
    
    
    12Capital employed
    
    
    24
    
    
    
    30
    
    
    
    23Gross capital expenditure
    
    
    12
    
    
    
    8
    
    
    
    2Research and development
    
    
    2
    
    
    
    1
    
    
    
    1Approximate number of vehicles assembled
    
    
    10,051
    
    
    
    21,233
    
    
    
    32,393Personnel
    
    
    763
    
    
    
    1,068
    
    
    
    1,013
 
 (1)
    
    Includes a reversal of Finnish pension liability of EUR 10.4 million and EUR 0.4 million
for the years ended December 31, 2004 and 2005, respectively. Products and Services
  Markets and Customers
  Competition
   (30)




---



##### Table of Contents



Recent Developments
   Metso Powdermet
   Recent Developments
  
 Discontinued Operations
      (31)




---



##### Table of Contents



As of and for the year ended December 31,2004
    
    2005
    
    2006(EUR in millions, except personnel data)Net sales
    
    
    397
    
    
    
    26
    
    
    
    Operating profit(1)
    
    
    3
    
    
    
    17
    
    
    
    Capital employed
    
    
    80
    
    
    
    
    
    
    
    Gross capital expenditure
    
    
    6
    
    
    
    0
    
    
    
    Research and development
    
    
    10
    
    
    
    1
    
    
    
    Order backlog
    
    
    53
    
    
    
    
    
    
    
    Personnel
    
    
    897
    
    
    
    
    
    
    
    
 
 (1)
    
    Includes losses on disposals of EUR 29 million and gain on disposals of EUR 17 million for
the years ended December 31, 2004 and 2005, respectively. Drives
  Dynapac
  Drilling
  Converting
   
 Raw Materials
   (32)




---



##### Table of Contents



Seasonality
  
 Dependence on Intellectual Property
    
 Governmental Regulation and Environmental Matters
   (33)




---



##### Table of Contents



i.e
   (34)




---



##### Table of Contents



(35)




---



##### Table of Contents



Property, Plants and Equipment
   Owned orLocation of Facility
    
    Leased
    
    Size (sq.ft)
    
    Principal ActivitiesMetso CorporationHelsinki, Finland
    
    Owned
    
    
    86,920
    
    
    Corporate head officeMetso PaperJyväskylä, Finland
    
    Owned
    
    
    1,057,948
    
    
    Large-sized Paper MachinesJärvenpää, Finland
    
    Owned
    
    
    622,596
    
    
    Paper Finishing MachinesValmet-Xian, Xian, China(1)
    
    Leased
    
    
    533,890
    
    
    Paper and Board Machines, Foundry, Air
Drying SystemsShanghai, Jiading, China
    
    Owned
    
    
    436,049
    
    
    Paper and Board Machines, FoundrySundsvall, Sweden
    
    Owned
    
    
    424,417
    
    
    Pulping MachineryKarlstad, Sweden
    
    Owned
    
    
    421,224
    
    
    Board and Tissue MachinesLaem Chabang, Thailand
    
    Owned
    
    
    312,524
    
    
    Service CenterKarlstad, Sweden
    
    Owned
    
    
    243,176
    
    
    Large-sized Cooking MachinesKarlstad, Sweden
    
    Leased
    
    
    193,884
    
    
    Large-sized Cooking MachinesValkeakoski, Finland
    
    Owned
    
    
    199,652
    
    
    Mechanical Pulping, Refiner Segments,
Stock Preparation Equipment and SystemsGothenburg, Sweden
    
    Leased
    
    
    192,582
    
    
    Environmental and Energy Technology
ProcessesAppleton, Wisconsin, United States
    
    Owned
    
    
    144,000
    
    
    Finishing Products, Roll ServiceTurku, Finland
    
    Leased
    
    
    140,567
    
    
    Air Drying SystemsColumbus, Mississippi, United States
    
    Owned
    
    
    149,079
    
    
    Roll CoveringAiken, South Carolina, United States
    
    Owned
    
    
    127,700
    
    
    Roll CoveringTurku, Pansio, Finland
    
    Leased
    
    
    125,938
    
    
    Air Drying SystemsNeenah, Wisconsin, United States
    
    Owned
    
    
    111,360
    
    
    Roll CoveringCernay, France
    
    Leased
    
    
    110,312
    
    
    Roll CoveringClarks Summit, Pennsylvania, United
States
    
    Owned
    
    
    110,000
    
    
    Roll CoveringCuritiba, Brazil
    
    Leased
    
    
    107,670
    
    
    Service Center for Cooking
and Fiberlines, Small Parts for
Recovery and Power BoilersPfungstadt, Germany
    
    Owned
    
    
    95,488
    
    
    Service CenterTampere, Finland
    
    Leased
    
    
    91,386
    
    
    Roll FactoryGorizia, Italy
    
    Owned
    
    
    89,179
    
    
    Air Drying SystemsBiddeford, Maine, United States
    
    Owned
    
    
    88,000
    
    
    Tissue Air Drying Systems, Tissue Process
Services for Paper MachinesBeloit, Wisconsin, United States
    
    Leased
    
    
    86,800
    
    
    Service CenterOulu, Finland
    
    Owned
    
    
    82,258
    
    
    Roll CoveringHollola, Finland
    
    Owned
    
    
    77,149
    
    
    Roll HandlingHagfors, Sweden
    
    Owned
    
    
    70,865
    
    
    Refiner SegmentsJärvenpää, Finland
    
    Leased
    
    
    68,049
    
    
    Paper Finishing MachinesMontreal, Canada
    
    Leased
    
    
    65,459
    
    
    Service Center, ComponentsFederal Way, Washington, United States
    
    Owned
    
    
    62,683
    
    
    Roll CoveringComo, Italy
    
    Leased
    
    
    54,311
    
    
    Paper and Board Machine RebuildsThunder Bay, Canada
    
    Leased
    
    
    50,908
    
    
    Air Drying SystemsWuxi, China
    
    Owned
    
    
    50,388
    
    
    Service CenterMelbourne, Australia
    
    Owned
    
    
    49,060
    
    
    Service CenterCorbehem, France
    
    Leased
    
    
    48,450
    
    
    Roll CoveringShanghai, P.R. China
    
    Leased
    
    
    43,670
    
    
    Logistics CenterSorocaba, São Paulo, Brazil
    
    Owned
    
    
    47,371
    
    
    Service CenterSävsjö, Sweden
    
    Owned
    
    
    47,901
    
    
    Steam and Hot Water Boilers
 (36)




---



##### Table of Contents



Owned orLocation of Facility
    
    Leased
    
    Size (sq.ft)
    
    Principal ActivitiesFlorence, Alabama, United States
    
    Owned
    
    
    40,000
    
    
    WoodhandlingValkeakoski, Finland
    
    Leased
    
    
    32,832
    
    
    Mechanical Pulping, Refiner Segments,
Stock Preparation Equipment and SystemsMetso MineralsSorocaba, São Paulo, Brazil
    
    Owned
    
    
    740,260
    
    
    Rock Crushers, Vibrating
Equipment, Castings, Rubber manufacturingIsithebe, South Africa
    
    Leased
    
    
    602,140
    
    
    Manganese Wear PartsMâcon, France
    
    Owned
    
    
    532,723
    
    
    Rock Crushers and Vibrating EquipmentTampere, Finland
    
    Owned
    
    
    510,990
    
    
    Rock Crushers, Mobile Crushing EquipmentDüsseldorf, Germany
    
    Owned
    
    
    420,223
    
    
    Metal Recycling MachinesVereeniging, South Africa
    
    Owned
    
    
    330,386
    
    
    Rock Crushers, Pave partsSala, Sweden
    
    Owned
    
    
    247,570
    
    
    Slurry Pumps and Process EquipmentTrelleborg, Sweden
    
    Leased
    
    
    242,100
    
    
    Rubber ManufacturingColumbia, South Carolina, United States
    
    Owned
    
    
    203,000
    
    
    Vibrating Equipment and Spare PartsViña del Mar, Chile
    
    Owned
    
    
    176,465
    
    
    Wear Protection and ConveyorsWarrenton, Missouri, United States
    
    Owned
    
    
    150,000
    
    
    Wire Screen Media ManufacturingClarksdale, Mississippi, United States
    
    Leased
    
    
    138,400
    
    
    Conveyor Component ManufacturingNewcastle, Australia
    
    Owned
    
    
    132,500
    
    
    Vibrating Equipment and Spare PartsYork, Pennsylvania, United States
    
    Owned
    
    
    131,965
    
    
    Mill Equipment and PartsKongsvinger, Norway
    
    Leased
    
    
    107,639
    
    
    Conveyor BeltsTampere, Finland
    
    Owned
    
    
    96,875
    
    
    Conveyor BeltsErsmark, Sweden
    
    Owned
    
    
    95,800
    
    
    Rubber ManufacturingVicálvaro, Spain
    
    Owned
    
    
    80,000
    
    
    Rock Crusher Spare Parts and
Vibrating EquipmentPortland, Oregon, United States
    
    Owned
    
    
    70,968
    
    
    Rock Crusher Service and Spare PartsAhmedabad, India
    
    Owned
    
    
    63,399
    
    
    Castings and Parts for Rock
Crushers and
PumpsMatamata, New Zealand
    
    Owned
    
    
    62,400
    
    
    Rock Crushers and Spare PartsBelleville, Canada
    
    Owned
    
    
    58,000
    
    
    Idler ManufacturingDungannon, Northern Ireland
    
    Owned
    
    
    56,000
    
    
    Mobile ScreensBawal, India
    
    Owned
    
    
    53,819
    
    
    Rock Crushers, Vibrating Equipment and
PumpsNorth Bay, Canada
    
    Owned
    
    
    55,000
    
    
    Rubber ManufacturingPerth, Australia
    
    Owned
    
    
    48,438
    
    
    Rubber ManufacturingMoers, Germany
    
    Owned
    
    
    47,361
    
    
    Conveyor BeltsTianjin, China
    
    Owned
    
    
    46,466
    
    
    Rock CrushersEvergem, Belgium
    
    Leased
    
    
    46,285
    
    
    Conveyor BeltsSan Antonio, Texas, United States
    
    Owned
    
    
    40,000
    
    
    Office, Metal Recycling MachinesGällivare, Sweden
    
    Leased
    
    
    37,674
    
    
    Maintenance and Service Parts to MinesMetso AutomationHelsinki, Finland
    
    Leased
    
    
    442,400
    
    
    Office, Valve and Accessories Manufacturing and TestingTampere, Finland
    
    Owned
    
    
    323,300
    
    
    Office, Automation Systems Manufacturing
and TestingShrewsbury, Massachusetts, United
States
    
    Owned
    
    
    175,000
    
    
    Office, Valve and
Accessories Manufacturing and TestingJin Qiao, Shanghai, China(1)
    
    Owned
    
    
    173,000
    
    
    Office, Valve ManufacturingWai Gao Qiao, Shanghai, China
    
    Leased
    
    
    121,000
    
    
    Office, Valve ManufacturingLithia Springs, Georgia, United
States
    
    Leased
    
    
    78,125
    
    
    Valve Assembly and TestingKajaani, Finland
    
    Leased
    
    
    73,800
    
    
    Office, Specialty Analyzers Manufacturing
and TestingLansdale, Pennsylvania, United States
    
    Leased
    
    
    72,100
    
    
    Office, Control Systems ManufacturingMetso VenturesUusikaupunki, Finland
    
    Owned
    
    
    1,216,000
    
    
    Car Assembly
 (37)




---



##### Table of Contents



Owned orLocation of Facility
    
    Leased
    
    Size (sq.ft)
    
    Principal ActivitiesKarlstad, Sweden
    
    Owned
    
    
    526,258
    
    
    FoundryJyväskylä, Finland
    
    Owned
    
    
    394,000
    
    
    FoundryTampere, Finland
    
    Owned
    
    
    288,020
    
    
    FoundryHannover, Germany
    
    Leased
    
    
    41,441
    
    
    Office, Energy plants, pressNastola, Finland
    
    Leased
    
    
    35,572
    
    
    Office, Particleboard line machinesSundsvall, Sweden
    
    Leased
    
    
    10,700
    
    
    Office, MDF line machines
 
 (1)
    
    Joint Venture, see   Associated Companies and
Joint Ventures below.  
 Significant Subsidiaries
  Company Name
    
    Country of IncorporationMetso Paper Oy
    
    FinlandMetso Svenska AB
    
    SwedenMetso Belgium N.V.
    
    The NetherlandsMetso USA Inc.
    
    United StatesMetso Minerals Oy
    
    Finland
 
 Associated Companies and Joint Ventures
  
 Item 4A. Unresolved Staff Comments.
  
 Item 5. Operating and Financial Review and Prospects.
  
 Business Overview
 Our
Customers and Markets
  (38)




---



##### Table of Contents



Business Drivers and Trends
 Metso Paper.
   (39)




---



##### Table of Contents



Metso Minerals.
     (40)




---



##### Table of Contents



Metso Automation.
   i.e
 
 Key Management Issues
 Key
Management Issues in 2006
     (41)




---



##### Table of Contents



Key
Management Issues in 2005 and 2004
   (42)




---



##### Table of Contents



Recent Acquisitions and Divestments
      (43)




---



##### Table of Contents



Critical Accounting Policies
  (44)




---



##### Table of Contents



Trade Receivables
     Allowance for Inventory Obsolescence
     Revenue Recognition
  Accounting for Income Taxes
  (45)




---



##### Table of Contents



Allocation of Excess Purchase Price to Acquired Assets
  Impairment Testing
  
    
    material permanent deterioration in the economic or political environment of our
customers or of our own activity;
    
    significant under-performance relative to expected historical or projected future
performance; and
    
    significant changes in Metsos strategic orientations affecting the business plans
and previous investment policies.
    (46)




---



##### Table of Contents



U.S. GAAP
    Reserve for Warranty Costs
  Restructuring Costs
  (47)




---



##### Table of Contents




    
    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
our 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; and
    
    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.
 .
 Pensions
  
    
    A weighted average expected return on plan assets. Actual return on plan assets
may differ significantly based on market activity;
    
    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; and
    
    Estimated rates of future pay increases. Actual increases may not reflect actual
future increases. Based on the significant changes in the Companys structure and
the uncertainty of the global market place, these estimates are difficult to
project.
  Share Based Payments
  (48)




---



##### Table of Contents



Results of Operations
   Year ended December 31,2004
    
    2005
    
    2006(EUR in millions)Metso Paper
    
    
    1,559
    
    
    
    1,702
    
    
    
    1,947Metso Minerals
    
    
    1,366
    
    
    
    1,735
    
    
    
    2,174Metso Automation
    
    
    535
    
    
    
    584
    
    
    
    613Metso Ventures
    
    
    230
    
    
    
    284
    
    
    
    332Intra Metso net sales
    
    
    (88
    )
    
    
    (84
    )
    
    
    (111
    )Metso total
    
    
    3,602
    
    
    
    4,221
    
    
    
    4,955
  Year ended December 31,2004(1)
    
    2005(2)
    
    2006(EUR in millions)Metso Paper
    
    
    48
    
    
    
    91
    
    
    
    110Metso Minerals
    
    
    105
    
    
    
    177
    
    
    
    286Metso Automation
    
    
    69
    
    
    
    81
    
    
    
    87Metso Ventures
    
    
    (6
    )
    
    
    11
    
    
    
    2Corporate Office and Other
    
    
    (17
    )
    
    
    (25
    )
    
    
    (28
    )Metso total
    
    
    199
    
    
    
    335
    
    
    
    457
 
 (1)
    
    The operating profit includes nonrecurring income resulting from reversal of Finnish
pension liability as follows: Metso Paper EUR 39.8 million, Metso Minerals EUR 4.9 million,
Metso Automation EUR 13.7 million, Metso Ventures EUR 14.6 million and Corporate Office and
Other EUR 2.3 million. (49)




---



##### Table of Contents



(2)
    
    The operating profit includes nonrecurring income resulting from reversal of Finnish pension
liability of EUR 5 million. Results of Operations for the Year Ended December 31, 2006 compared to the Year Ended December
31, 2005
 Net Sales for Continuing Operations
 The Group.
   Metso Paper.
   Metso Minerals.
 (50)




---



##### Table of Contents



Metso Automation.
   Metso Ventures.
  Net Sales for Discontinued Operations
 Discontinued Operations.
 (51)




---



##### Table of Contents



Operating Profit/(Loss) for Continuing Operations
 The Group.
 Metso Paper.
 Metso Minerals.
 Metso Automation.
 Metso Ventures.
 Operating Profit for Discontinued Operations
  (52)




---



##### Table of Contents



Profit on Continuing Operations Before Tax
   Profit Attributable to Equity Shareholders and Earnings per Share from Continuing and Discontinued
Operations
 Income Taxes.
 Profit Attributable to Equity Shareholders and Earnings per share.
 Results of Operations for the Year Ended December 31, 2005 compared to the Year Ended December 31,
2004
 Net Sales for Continuing Operations
 The Group.
 Metso Paper.
 (53)




---



##### Table of Contents



Metso Minerals.
   Metso Automation.
   (54)




---



##### Table of Contents



Metso Ventures.
  Net Sales for Discontinued Operations
 Discontinued Operations.
 Operating Profit/(Loss) for Continuing Operations
 The Group.
 Metso Paper.
 (55)




---



##### Table of Contents



Metso Minerals.
 Metso Automation.
 Metso Ventures.
 Operating Profit for Discontinued Operations
  Profit on Continuing Operations Before Tax
   (56)




---



##### Table of Contents



Profit Attributable to Equity Shareholders and Earnings per Share from Continuing and Discontinued
Operations
 Income Taxes.
 Profit Attributable to Equity Shareholders and Earnings per share.
 
 Principal Differences between IFRS and U.S. GAAP
    
 Liquidity and Capital Resources
      (57)




---



##### Table of Contents



i.e
   (58)




---



##### Table of Contents



Disclosure about Contractual Obligations and Commercial Commitments
  Payments Due by PeriodLess than 1
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    year
    
    1-3 years
    
    3-5 years
    
    5 years(EUR in millions)Contractual ObligationsLong-term debt, incl. short-term
portion(1)
    
    
    824
    
    
    
    126
    
    
    
    199
    
    
    
    399
    
    
    
    100Short-term
debt(1)
    
    
    133
    
    
    
    133
    
    
    
    
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    18
    
    
    
    3
    
    
    
    6
    
    
    
    3
    
    
    
    6Operating leases
    
    
    166
    
    
    
    46
    
    
    
    62
    
    
    
    34
    
    
    
    24Total contractual cash obligations
    
    
    1,141
    
    
    
    308
    
    
    
    267
    
    
    
    436
    
    
    
    130
 
 (1)
    
    Includes undiscounted interests. Amount of CommitmentTotalamounts
    
    Less than 1
    
    
    
    
    
    
    
    
    
    More thancommitted
    
    year
    
    1-3 years
    
    3-5 years
    
    5 years(EUR in millions)Other Commercial CommitmentsGuarantees
    
    
    6
    
    
    
    5
    
    
    
    1
    
    
    
    
    
    
    
    Standby repurchase obligations
    
    
    5
    
    
    
    1
    
    
    
    2
    
    
    
    2
    
    
    
    0Purchase commitments
    
    
    606
    
    
    
    582
    
    
    
    24
    
    
    
    
    
    
    
    Other commitments
    
    
    5
    
    
    
    4
    
    
    
    1
    
    
    
    0
    
    
    
    Total commercial commitments
    
    
    622
    
    
    
    592
    
    
    
    28
    
    
    
    2
    
    
    
    0
  
 Capital Expenditure
  (59)




---



##### Table of Contents



Year ended December 31,2004
    
    2005
    
    2006(EUR in millions)Finland(1)
    
    
    54
    
    
    
    49
    
    
    
    65Other Nordic countries
    
    
    10
    
    
    
    9
    
    
    
    9Other European countries
    
    
    11
    
    
    
    13
    
    
    
    15North America
    
    
    9
    
    
    
    15
    
    
    
    15South and Central America
    
    
    8
    
    
    
    14
    
    
    
    17Asia-Pacific
    
    
    4
    
    
    
    5
    
    
    
    8Rest of the world
    
    
    1
    
    
    
    2
    
    
    
    2Total
    
    
    97
    
    
    
    107
    
    
    
    131
 
 (1)
    
    Part of the capital expenditure recorded under Finland for years 2004 and 2005 is global by
nature and it relates to our global Enterprise Resource Planning systems. 
 Research and Development
       (60)




---



##### Table of Contents



Metso Paper
      Metso Minerals
    (61)




---



##### Table of Contents



Metso Automation
      Metso Ventures
   (62)




---



##### Table of Contents



Foreign Currency Fluctuations
      
 Inflation
  (63)




---



##### Table of Contents



New Accounting Standards
 IFRS
 IFRS 7
   IFRS 8
   U.S. GAAP
   (64)




---



##### Table of Contents



i.e.,
  
 Off-Balance Sheet Arrangements
  
 Item 6. Directors, Senior Management and Employees.
   
 Board of Directors
   (65)




---



##### Table of Contents



Name
    
    Position
    
    Year of BirthMatti Kavetvuo
    
    Chairman of the Board of Directors
    
    1944Jaakko Rauramo
    
    Vice Chairman of the Board of Directors
    
    1941Svante Adde
    
    Director; Managing Director of Compass Advisers
    
    1956Maija-Liisa Friman
    
    Director; President and Chief Executive Officer of Aspocomp Group Oyj
    
    1952Christer Gardell
    
    Director; Founder and Managing partner, Cevian Capital
    
    1960Satu Huber
    
    Director; Managing Director, Federation of Finnish Financial Services
    
    1958Yrjö Neuvo
    
    Director; Professor, Ph.D. (EE)
    
    1943
 Matti Kavetvuo
 Jaakko Rauramo
 Svante Adde
 Maija-Liisa Friman
 (66)




---



##### Table of Contents



Christer Gardell
 Satu Huber
 Yrjö Neuvo
    (67)




---



##### Table of Contents



Chief Executive Officer and Our Executive Team
     Name
    
    Position
    
    Year of BirthJorma Eloranta
    
    President and Chief Executive Officer
    
    1951Olli Vaartimo
    
    Executive Vice President and Chief
Financial Officer, deputy to the
President and Chief Executive
Officer
    
    1950Risto Hautamäki
    
    President, Metso Paper
    
    1945Matti Kähkönen
    
    President, Metso Minerals
    
    1956Pasi Laine
    
    President, Metso Automation
    
    1963Bertel Langenskiöld
    
    Head of Metso Papers Fiber Business
Line and integration of the acquired
Pulping and Power units
    
    1950
 Jorma Eloranta
 Olli Vaartimo
 (68)




---



##### Table of Contents



Risto Hautamäki
 Matti Kähkönen
 Pasi Laine
 Bertel Langenskiöld
 
 Compensation of Directors and Officers
    (69)




---



##### Table of Contents



Audit Committee and Compensation Committee
 Audit Committee.
   Compensation Committee
   
 Home Country Practices
   
    
    The annual general meeting of our shareholders held on April 4, 2006 established a
nomination committee, which consisted of the representatives of our four biggest
shareholders on November 1, 2006 along with the Chairman of our Board of Directors as an
expert member. The nomination
 (70)




---



##### Table of Contents



committee has prepared proposals in respect of the composition of our Board of Directors and
the director remuneration for the following annual general meeting of our shareholders,
which is scheduled for April 3, 2007. Pursuant to Section 303A.04 of the NYSE listing
standards, domestic companies listed on the New York Stock Exchange must have a nominating
or corporate governance committee composed entirely of independent directors.
 
    
    Our Compensation Committee makes recommendations to our Board of Directors with respect
to the compensation of our President and Chief Executive Officer. In accordance with the
Finnish Companies Act, the compensation of our President and CEO is approved by our entire
Board of Directors. Section 303A.05 of the NYSE listing standards requires that the
compensation committee of a company must determine and approve the compensation of the
chief executive officer.
    
    Under the Finnish Companies Act, a general meeting of shareholders of a Finnish company
appoints the independent auditor(s) of the company. Similarly, only a general meeting of
shareholders can remove the independent auditor(s) and appoint their successor. Section
303.06 of the NYSE listing standards requires, pursuant to Rule 10A-3 of the U.S.
Securities Exchange Act of 1934, that the audit committee of a company must be directly
responsible for the appointment and retention of the independent auditor of the company.
    
    Under the Finnish Companies Act, a general meeting of
shareholders of a Finnish company approves all share option plans prior to
their launch. All other incentive plans that require the delivery of
company shares in the form of newly-issued shares or treasury shares
require shareholder approval at the time of delivery of the shares
or, if shareholder approval is granted through an authorization of
the Board of Directors, a maximum of five years in advance of the
delivery of the shares. Pursuant to Section 303A.08 of the New York
Stock Exchanges listing standards, shareholders of domestic companies listed on the New York Stock Exchange must be given the opportunity to vote on
all equity-compensation plans and material revisions thereto, with certain
limited exemptions.
 
 Employees
   As of December 31,Percentage of2004
    
    
    2005
    
    
    2006
    
    
    GroupEmployees by business areaMetso Paper
    
    
    8,660
    
    
    
    8,201
    
    
    
    10,867
    
    
    
    42Metso Minerals
    
    
    8,048
    
    
    
    8,521
    
    
    
    9,170
    
    
    
    36Metso Automation
    
    
    3,267
    
    
    
    3,169
    
    
    
    3,352
    
    
    
    13Metso Ventures
    
    
    1,637
    
    
    
    1,993
    
    
    
    1,967
    
    
    
    8Corporate Office and Shared Services
    
    
    293
    
    
    
    294
    
    
    
    322
    
    
    
    1Continuing Operations
    
    
    21,905
    
    
    
    22,178
    
    
    
    25,678
    
    
    
    100Discontinued Operations
    
    
    897
    
    
    
    
    
    
    
    
    
    
    
    Metso total
    
    
    22,802
    
    
    
    22,178
    
    
    
    25,678
    
    
    
    100
 (71)




---



##### Table of Contents



As of December 31,Percentage of2004
    
    
    2005
    
    
    2006
    
    
    GroupEmployees by geographic areaFinland
    
    
    9,089
    
    
    
    8,340
    
    
    
    9,281
    
    
    
    36Other Nordic countries
    
    
    2,622
    
    
    
    2,491
    
    
    
    3,580
    
    
    
    14Other European countries
    
    
    2,902
    
    
    
    2,959
    
    
    
    3,067
    
    
    
    12North America
    
    
    3,557
    
    
    
    3,526
    
    
    
    3,715
    
    
    
    14South and Central America
    
    
    1,950
    
    
    
    2,070
    
    
    
    2,439
    
    
    
    10Asia-Pacific
    
    
    1,366
    
    
    
    1,498
    
    
    
    2,262
    
    
    
    9Rest of the world
    
    
    1,316
    
    
    
    1,294
    
    
    
    1,334
    
    
    
    5Total
    
    
    22,802
    
    
    
    22,178
    
    
    
    25,678
    
    
    
    100
 
 Share Ownership
   Sole Voting
    
    
    Beneficially
    
    
    Number of
    
    
    Maximum Number
    
    
    Maximum Numberor
    
    
    Shared
    
    
    Metso
    
    
    of Shares Allocated
    
    
    of Shares AllocatedInvestment
    
    
    Voting
    
    
    2003A
    
    
    in the 2006 Share
    
    
    in the 2007 SharePower
    
    
    Power
    
    
    options
    
    
    Ownership Plan
    
    
    Ownership PlanBoard of DirectorsMatti Kavetvuo(1)
    
    
    
    
    
    
    94
    
    
    
    
    
    
    
    
    
    
    
    Jaakko Rauramo
    
    
    4,205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Svante Adde
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Maija-Liisa Friman
    
    
    1,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Christer
Gardell
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Satu Huber
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Yrjö
Neuvo
    
    
    3,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Metso Executive TeamJorma
Eloranta(2)
    
    
    18,300
    
    
    
    
    
    
    
    2,000
    
    
    
    5,000
    
    
    
    6,300Olli Vaartimo
    
    
    1,144
    
    
    
    
    
    
    
    
    
    
    
    4,830
    
    
    
    4,500Risto Hautamäki
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,415
    
    
    
    3,330Matti
Kähkönen(3)
    
    
    
    
    
    
    871
    
    
    
    
    
    
    
    3,700
    
    
    
    4,500Bertel Langenskiöld
    
    
    1,500
    
    
    
    
    
    
    
    
    
    
    
    4,870
    
    
    
    4,500Pasi Laine
    
    
  
    
    
    
   
    
    
    
   
    
    
    
    3,000
    
    
    
    3,330
 
 (1)
    
    Includes 94 shares held by Mr. Kavetvuos spouse.(2)
    
    In February 2007, Mr. Eloranta subscribed for Metso shares
with 2,000 options. Approval of the subscriptions is pending.(3)
    
    Includes 871 shares held by Mr. Kähkönens spouse.  (72)




---



##### Table of Contents



i.e
   
 Authorizations for Board of Directors
      (73)




---



##### Table of Contents



Item 7. Major Shareholders and Related Party Transactions.
 
 Major Shareholders
    Number ofTitle of Class
    
    Identity of Person or Group
    
    
    Shares
    
    
    PercentShares, nominal value EUR 1.70 each
    
    The Finnish State
    
    
    15,695,287
    
    
    
    11.08Shares, nominal value EUR 1.70 each
    
    Members of our Board of Directors
    
    
    9,605
    
    
    
    0.01
 Ownership of Our Securities in the United States
  
 Related Party Transactions
  (74)




---



##### Table of Contents



Item 8. Financial Information.
 
 Consolidated Financial Statements
  
 Export Sales
  Year ended December 31,2004
    
    
    2005
    
    
    2006(EUR in millions)Other Nordic countries
    
    
    210
    
    
    
    353
    
    
    
    148Other European countries
    
    
    420
    
    
    
    523
    
    
    
    738North America
    
    
    141
    
    
    
    158
    
    
    
    144South and Central America
    
    
    75
    
    
    
    96
    
    
    
    123Asia-Pacific
    
    
    526
    
    
    
    331
    
    
    
    470Rest of the world
    
    
    23
    
    
    
    31
    
    
    
    51Total
    
    
    1,395
    
    
    
    1,492
    
    
    
    1,674
  
 Legal Proceedings
     (75)




---



##### Table of Contents



Dividend Policy
      
 Significant Changes
  (76)




---



##### Table of Contents



Item 9. The Offer and Listing.
 
 Nature of Trading Market
   Helsinki Stock Exchange
    
    
    New York Stock ExchangePrice per Share
    
    
    Price per ADSHigh
    
    
    Low
    
    
    High
    
    
    Low(EUR )
    
    
    
    
    
    
    (U.S.$ )Annual2002
    
    
    15.15
    
    
    
    7.73
    
    
    
    14.26
    
    
    
    7.812003
    
    
    11.41
    
    
    
    7.52
    
    
    
    12.77
    
    
    
    8.312004
    
    
    12.89
    
    
    
    9.12
    
    
    
    16.49
    
    
    
    11.102005
    
    
    24.46
    
    
    
    11.31
    
    
    
    28.44
    
    
    
    14.702006
    
    
    38.65
    
    
    
    23.21
    
    
    
    50.82
    
    
    
    27.842007(through March 13)
    
    
    42.20
    
    
    
    34.79
    
    
    
    54.27
    
    
    
    44.37Quarterly2005First Quarter
    
    
    14.90
    
    
    
    11.31
    
    
    
    20.00
    
    
    
    14.70Second Quarter
    
    
    18.12
    
    
    
    13.22
    
    
    
    22.11
    
    
    
    17.20Third Quarter
    
    
    21.95
    
    
    
    17.67
    
    
    
    26.58
    
    
    
    21.03Fourth Quarter
    
    
    24.46
    
    
    
    19.00
    
    
    
    28.44
    
    
    
    23.152006First Quarter
    
    
    32.07
    
    
    
    23.21
    
    
    
    38.93
    
    
    
    27.84Second Quarter
    
    
    34.95
    
    
    
    23.51
    
    
    
    43.92
    
    
    
    29.80Third Quarter
    
    
    29.57
    
    
    
    25.42
    
    
    
    37.97
    
    
    
    31.64Fourth Quarter
    
    
    38.65
    
    
    
    28.95
    
    
    
    50.82
    
    
    
    36.672007First
Quarter (through March 13)
    
    
    42.20
    
    
    
    34.79
    
    
    
    54.27
    
    
    
    44.37Monthly2006September
    
    
    29.20
    
    
    
    28.56
    
    
    
    37.55
    
    
    
    34.69October
    
    
    35.65
    
    
    
    28.95
    
    
    
    44.84
    
    
    
    36.67November
    
    
    36.64
    
    
    
    33.06
    
    
    
    46.64
    
    
    
    42.00December
    
    
    38.65
    
    
    
    34.42
    
    
    
    50.82
    
    
    
    45.932007January
    
    
    41.40
    
    
    
    36.73
    
    
    
    53.58
    
    
    
    47.40February
    
    
    42.20
    
    
    
    34.79
    
    
    
    54.27
    
    
    
    44.37March
(through March 13)
    
    
    39.29
    
    
    
    35.50
    
    
    
    50.75
    
    
    
    47.30
 (77)




---



##### Table of Contents



Trading and Settlement on the Helsinki Stock Exchange
     
 Regulation of the Finnish Securities Market
   2 3
  (78)




---



##### Table of Contents



The Finnish Book-Entry Securities System
 General
   Registration
    Custody of the Shares and Nominees
  (79)




---



##### Table of Contents



Item 10. Additional Information.
 
 Articles of Association
 Organization and Register
 osakeyhtiö
 Purpose and Object
  Share Capital and Shares
  Corporate Governance
    (80)




---



##### Table of Contents



Preemptive Rights
  General Meeting of Shareholders
  (81)




---



##### Table of Contents



Voting
   Liquidation
  Purchase Obligations
 1 3
  (82)




---



##### Table of Contents



Material Contracts
  
 Exchange Controls
  
 Control of Foreign Ownership
  
 Taxation
  Finnish Taxation
 c
 (83)




---



##### Table of Contents



Companies
  Shareholders and Holders of ADSs
 Taxation of Dividends
 avoir fiscal
   Withholding Tax on Dividends
    (84)




---



##### Table of Contents



Finnish Transfer Tax
  Finnish Capital Gains and Other Taxes
  U.S. Federal Income Taxation
 General
  (85)




---



##### Table of Contents



Ownership of ADSs in General
   Distributions
 pro rata
 (86)




---



##### Table of Contents



Sale or Exchange of Shares or ADSs
 i.e.
  (87)




---



##### Table of Contents



Passive Foreign Investment Company Considerations
    Backup Withholding Tax and Information Reporting Requirements
   (88)




---



##### Table of Contents



Documents on Display
  
 Item 11. Quantitative and Qualitative Disclosures about Market Risk.
 .
  i.e.
   
 Exchange Rates and Foreign Currency Exposure
   (89)




---



##### Table of Contents



Interest Rate Risk
    
 Equity Price Risk
  (90)




---



##### Table of Contents



Commodity Price Risk
     
 Item 12. Description of Securities Other than Equity Securities.
  (91)




---



##### Table of Contents



PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies.
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.
  (92)




---



##### Table of Contents



Item 15. Controls and Procedures.
 Disclosure
Controls and Procedures
   Managements
Annual Report on Internal Control over Financial Reporting
      Attestation
Report of the Registered Public Accounting Firm
  Changes in Internal Control over Financial Reporting
  (93)




---



##### Table of Contents



Item 16. [Reserved].
 
 Item 16A. Audit Committee Financial Expert.
  
 Item 16B. Code of Ethics.
  
 Item 16C. Principal Accountant Fees and Services.
 Audit Fees
  Audit-Related Fees
  Tax Fees
  (94)




---



##### Table of Contents



All Other Fees
  Audit Committee Pre-Approval Policies and Procedures
    
 Item 16D. Exemptions from the Listing Standards for Audit Committees.
  (95)




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##### Table of Contents



Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
  Total Number ofSharesPurchased as
    
    Maximum Number ofAverage
    
    Part of Publicly
    
    Shares that May YetTotal Number
    
    Price Paid
    
    Announced
    
    Be Purchased Underof Shares
    
    per Share
    
    Plans or
    
    the Plans orPeriod
    
    Purchased
    
    (EUR)
    
    Programs
    
    ProgramsJanuary 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,021,889
    (1)February 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,021,889
    (1)March 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,021,889
    (1)April 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,021,889
    (2)May 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,021,889
    (2)June 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,021,889
    (2)July 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,021,889
    (2)August 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,021,889
    (2)September 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,021,889
    (2)October 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,021,889
    (2)November 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,021,889
    (2)December 2006
    
    
    300,000
    (3)
    
    
    36.63
    
    
    
    300,000
    (3)
    
    
    6,725,139
    (2)Total
    
    
    300,000
    
    
    
    36.63
    
    
    
    300,000
 
 (1)
    
    On April 4, 2005, our annual general meeting authorized our Board of Directors to
repurchase our own shares up to an amount where the combined par value of these shares and the
combined par value of  existing treasury shares together corresponds to no
more than five percent of Metsos share capital at the moment of repurchasing. Under
the authorization, own shares should be repurchased by using funds available for the
distribution of profits on the Helsinki Stock Exchange. The authorization was valid until
April 4, 2006.(2)
    
    On April 4, 2006, our annual general meeting authorized our Board of Directors to repurchase
our own shares up to an amount where the combined par value of these shares and the combined
par value of  existing treasury shares together corresponds to no more than
five percent of Metsos share capital at the moment of repurchasing. Under the
authorization, own shares should be repurchased by using funds available for the distribution
of profits on the Helsinki Stock Exchange. The authorization is valid until April 4, 2007.(3)
    
    Based on the authorization of the annual general meeting, our Board of Directors decided to
outsource the administration of the share ownership plan to a partnership (MEO1V Incentive Ky)
included in Metsos consolidated financial statements, which purchased the 300,000 Metso
shares required to implement the share ownership plan. (96)




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##### Table of Contents



PART III
 
 Item 17. Financial Statements.
  
 Item 18. Financial Statements.
  (97)




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##### Table of Contents



Item 19. Exhibits.
 Documents filed as exhibits to this annual report:1.1
    
    Articles of Association of Metso Corporation.*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 10 to our consolidated financial statements included in this annual report for
information on how earnings per share information was calculated.8.1
    
    Subsidiaries of Metso Corporation.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 financial year ended December 31, 2005, filed with the SEC on
March 15, 2006.**
    
    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.***
    
    Incorporated by reference to our annual report on Form 20-F for the financial year ended
December 31, 2003, filed with the SEC on March 25, 2004. (98)




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##### Table of Contents



SIGNATURES
  Date:  March 14, 2007
    METSO CORPORATIONBy:
    /s/                 JORMA ELORANTAName:
    Jorma ElorantaTitle:
    President and Chief Executive OfficerBy:
    /s/         OLLI VAARTIMOName:
    Olli VaartimoTitle:
    Executive Vice President and Chief Financial Officer (99)




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF METSO CORPORATION
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Statements of Income for each of the years ended
December 31, 2004, 2005 and 2006
    
    
    F-4Consolidated Balance Sheets as of December 31, 2005 and 2006
    
    
    F-5Consolidated Statements of Cash Flows for each of the years ended
December 31, 2004, 2005 and 2006
    
    
    F-7Consolidated Statements of Changes in Shareholders Equity as of
December 31, 2004, 2005 and 2006
    
    
    F-9Notes to the Consolidated Financial Statements
    
    
    F-11
 F-1




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##### Table of Contents



METSO
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the Board of Directors and Shareholders of
Metso Corporation:
  Consolidated financial statements
   Internal control over financial reporting
 Internal ControlIntegrated Framework Internal ControlIntegrated Framework
  F-2




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##### Table of Contents



METSO
   
 
 
 F-3




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##### Table of Contents



METSO
 
 Consolidated Statements of Income
(in millions, except for per share amounts)
 Year ended December 31,Note
    
    2004
    
    2005
    
    2006
    
    
    
    Net sales
    
    
    35
    
    
    
    3,602
    
    
    
    4,221
    
    
    
    4,955Cost of goods sold
    
    
    8, 9
    
    
    
    (2,673
    )
    
    
    (3,110
    )
    
    
    (3,659
    )Gross profit
    
    
    
    
    
    
    929
    
    
    
    1,111
    
    
    
    1,296Selling, general and administrative expenses
    
    
    4, 8, 9
    
    
    
    (798
    )
    
    
    (794
    )
    
    
    (846
    )Other operating income and expenses, net
    
    
    5, 35, 13
    
    
    
    (11
    )
    
    
    12
    
    
    
    6Share in profits and losses of associated companies
    
    
    16, 35
    
    
    
    4
    
    
    
    1
    
    
    
    1Reversal of Finnish pension liability
    
    
    7, 29, 35
    
    
    
    75
    
    
    
    5
    
    
    
    Operating profit
    
    
    35
    
    
    
    199
    
    
    
    335
    
    
    
    457Financial income and expenses, net
    
    
    10
    
    
    
    (59
    )
    
    
    (43
    )
    
    
    (36
    )Profit on continuing operations before tax
    
    
    
    
    
    
    140
    
    
    
    292
    
    
    
    421Income taxes on continuing operations
    
    
    11
    
    
    
    18
    
    
    
    (72
    )
    
    
    (11
    )Profit on continuing operations
    
    
    
    
    
    
    158
    
    
    
    220
    
    
    
    410Profit (loss) on discontinued operations, net of taxes
    
    
    13
    
    
    
    (14
    )
    
    
    17
    
    
    
    Profit
    
    
    
    
    
    
    144
    
    
    
    237
    
    
    
    410Profit attributable to minority interests
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    1Profit attributable to equity shareholders
    
    
    
    
    
    
    143
    
    
    
    236
    
    
    
    409Profit
    
    
    
    
    
    
    144
    
    
    
    237
    
    
    
    410Earnings per share from continuing operationsBasic, 
    
    
    14
    
    
    
    1.16
    
    
    
    1.57
    
    
    
    2.89Diluted, 
    
    
    14
    
    
    
    1.16
    
    
    
    1.57
    
    
    
    2.89Earnings per share from discontinued operationsBasic, 
    
    
    14
    
    
    
    (0.11
    )
    
    
    0.12
    
    
    
    Diluted, 
    
    
    14
    
    
    
    (0.11
    )
    
    
    0.12
    
    
    
    Earnings per share from continuing and discontinued
operationsBasic, 
    
    
    14
    
    
    
    1.05
    
    
    
    1.69
    
    
    
    2.89Diluted, 
    
    
    14
    
    
    
    1.05
    
    
    
    1.69
    
    
    
    2.89
 The accompanying Notes form an integral part of these consolidated financial statements.
 F-4




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##### Table of Contents



METSO
 
 Consolidated Balance Sheets
(in millions)
 As at December 31,Note
    
    2005
    
    2006
    
    ASSETSNon-current assetsIntangible assets
    
    
    15Goodwill
    
    
    
    
    
    
    498
    
    
    
    768Other intangible assets
    
    
    
    
    
    
    99
    
    
    
    274597
    
    
    
    1,042Property, plant and equipment
    
    
    15Land and water areas
    
    
    
    
    
    
    58
    
    
    
    57Buildings and structures
    
    
    
    
    
    
    220
    
    
    
    221Machinery and equipment
    
    
    
    
    
    
    286
    
    
    
    318Assets under construction
    
    
    
    
    
    
    17
    
    
    
    19581
    
    
    
    615Financial and other assetsInvestments in associated companies
    
    
    16
    
    
    
    20
    
    
    
    19Available-for-sale equity investments
    
    
    17
    
    
    
    12
    
    
    
    15Loan and other interest bearing receivables
    
    
    20
    
    
    
    5
    
    
    
    6Available-for-sale financial assets
    
    
    20
    
    
    
    34
    
    
    
    5Deferred tax asset
    
    
    11
    
    
    
    163
    
    
    
    228Other non-current assets
    
    
    20
    
    
    
    39
    
    
    
    33273
    
    
    
    306Total non-current assets
    
    
    
    
    
    
    1,451
    
    
    
    1,963Current assetsInventories
    
    
    19
    
    
    
    888
    
    
    
    1,112ReceivablesTrade and other receivables
    
    
    20
    
    
    
    918
    
    
    
    1,218Costs and earnings of projects under
construction in excess of advance billings
    
    
    18
    
    
    
    173
    
    
    
    284Loan and other interest bearing receivables
    
    
    20
    
    
    
    2
    
    
    
    2Available-for-sale financial assets
    
    
    20
    
    
    
    135
    
    
    
    10Tax receivables
    
    
    
    
    
    
    14
    
    
    
    161,242
    
    
    
    1,530Cash and cash equivalents
    
    
    21
    
    
    
    323
    
    
    
    353Total current assets
    
    
    
    
    
    
    2,453
    
    
    
    2,995Assets held for sale
    
    
    
    
    
    
    
    
    
    
    Total assets
    
    
    
    
    
    
    3,904
    
    
    
    4,958
 The accompanying Notes form an integral part of these consolidated financial statements.
 F-5




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##### Table of Contents



METSO
 Consolidated Balance Sheets 3⁄4 Continued
(in millions)
 As at December 31,Note
    
    2005
    
    2006
    
    SHAREHOLDERS EQUITY AND LIABILITIESEquity
    
    
    22Share capital
    
    
    
    
    
    
    241
    
    
    
    241Share premium reserve
    
    
    
    
    
    
    76
    
    
    
    77Cumulative translation adjustments
    
    
    
    
    
    
    (9
    )
    
    
    (45
    )Fair value and other reserves
    
    
    
    
    
    
    424
    
    
    
    432Retained earnings
    
    
    
    
    
    
    553
    
    
    
    763Equity attributable to shareholders
    
    
    
    
    
    
    1,285
    
    
    
    1,468Minority interests
    
    
    
    
    
    
    7
    
    
    
    6Total equity
    
    
    
    
    
    
    1,292
    
    
    
    1,474Mortgages and contingent liabilities
    
    
    30
    
    
    
    
    
    
    
    LiabilitiesNon-current liabilitiesLong-term debt
    
    
    24
    
    
    
    593
    
    
    
    605Post employment benefit obligations
    
    
    29
    
    
    
    157
    
    
    
    157Deferred tax liability
    
    
    11
    
    
    
    20
    
    
    
    57Provisions
    
    
    26
    
    
    
    33
    
    
    
    53Other long-term liabilities
    
    
    
    
    
    
    7
    
    
    
    2Total non-current liabilities
    
    
    
    
    
    
    810
    
    
    
    874Current liabilitiesCurrent portion of long-term debt
    
    
    24
    
    
    
    160
    
    
    
    93Short-term debt
    
    
    27
    
    
    
    35
    
    
    
    132Trade and other payables
    
    
    28
    
    
    
    925
    
    
    
    1,238Provisions
    
    
    26
    
    
    
    191
    
    
    
    213Advances received
    
    
    
    
    
    
    312
    
    
    
    655Billings in excess of cost and earnings
of projects under construction
    
    
    18
    
    
    
    146
    
    
    
    222Tax liabilities
    
    
    
    
    
    
    33
    
    
    
    57Total current liabilities
    
    
    
    
    
    
    1,802
    
    
    
    2,610Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    Total liabilities
    
    
    
    
    
    
    2,612
    
    
    
    3,484Total shareholders equity and liabilities
    
    
    
    
    
    
    3,904
    
    
    
    4,958
 The accompanying Notes form an integral part of these consolidated financial statements.
 F-6




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##### Table of Contents



METSO
 
 Consolidated Statements of Cash Flows
(in millions)
 Year ended December 31,Note
    
    2004
    
    2005
    
    2006
    
    
    
    Cash flows from operating activities:Profit
    
    
    
    
    
    
    144
    
    
    
    237
    
    
    
    410Adjustments to reconcile profit to net cash provided by
operating activitiesDepreciation and amortization
    
    
    9
    
    
    
    115
    
    
    
    102
    
    
    
    105Change of provisions related to restructuring programs
    
    
    6
    
    
    
    (11
    )
    
    
    (12
    )
    
    
    (7
    )Gain on sale of fixed assets
    
    
    5
    
    
    
    (11
    )
    
    
    (18
    )
    
    
    (6
    )Loss (gain) on sale of subsidiaries and associated companies
    
    
    13
    
    
    
    29
    
    
    
    (17
    )
    
    
    (10
    )Gain on sale of available-for-sale equity investments
    
    
    5
    
    
    
    (9
    )
    
    
    (2
    )
    
    
    (1
    )Share of profits and losses of associated companies
    
    
    16
    
    
    
    (4
    )
    
    
    (1
    )
    
    
    (1
    )Interests and dividend income
    
    
    10
    
    
    
    52
    
    
    
    39
    
    
    
    26Income taxes
    
    
    
    
    
    
    (4
    )
    
    
    72
    
    
    
    11Other non-cash items
    
    
    
    
    
    
    (21
    )
    
    
    24
    
    
    
    25Change in net working capital, net of effect from business
acquisitions and disposals
    
    
    
    
    
    
    63
    
    
    
    (170
    )
    
    
    (18
    )Interest paid
    
    
    
    
    
    
    (60
    )
    
    
    (55
    )
    
    
    (45
    )Interest received
    
    
    
    
    
    
    6
    
    
    
    13
    
    
    
    19Dividends received
    
    
    
    
    
    
    3
    
    
    
    2
    
    
    
    2Income taxes paid
    
    
    
    
    
    
    (31
    )
    
    
    (50
    )
    
    
    (68
    )Net cash provided by (used in) operating activities
    
    
    
    
    
    
    261
    
    
    
    164
    
    
    
    442Cash flows from investing activities:Capital expenditures on fixed assets
    
    
    15
    
    
    
    (89
    )
    
    
    (104
    )
    
    
    (129
    )Proceeds from sale of fixed assets
    
    
    
    
    
    
    39
    
    
    
    46
    
    
    
    14Business acquisitions, net of cash acquired
    
    
    12
    
    
    
    (2
    )
    
    
    (14
    )
    
    
    (277
    )Proceeds from sale of businesses, net of cash sold
    
    
    13
    
    
    
    389
    
    
    
    95
    
    
    
    13Investments in associated companies
    
    
    16
    
    
    
    (1
    )
    
    
    (2
    )
    
    
    Proceeds from sale of associated companies
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    0Investments in available-for-sale equity investments
    
    
    
    
    
    
    (7
    )
    
    
    (1
    )
    
    
    (2
    )Proceeds from sale of available-for-sale equity investments
    
    
    
    
    
    
    27
    
    
    
    3
    
    
    
    2Investments in available-for-sale financial assets
    
    
    
    
    
    
    (47
    )
    
    
    (166
    )
    
    
    (23
    )Proceeds from sale of available-for-sale financial assets
    
    
    
    
    
    
    7
    
    
    
    52
    
    
    
    177Increase in loan receivables
    
    
    
    
    
    
    (6
    )
    
    
    (2
    )
    
    
    (4
    )Decrease in loan receivables
    
    
    
    
    
    
    6
    
    
    
    3
    
    
    
    2Other items
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    Net cash provided by (used in) investing activities
    
    
    
    
    
    
    312
    
    
    
    (90
    )
    
    
    (227
    )Cash flows from financing activities:Share options exercised
    
    
    22
    
    
    
    
    
    
    
    72
    
    
    
    1Redemption of own shares
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Dividends paid
    
    
    
    
    
    
    (27
    )
    
    
    (48
    )
    
    
    (198
    )Hedging of net investment in foreign subsidiaries
    
    
    
    
    
    
    11
    
    
    
    (2
    )
    
    
    (6
    )Net borrowings (payments) on short-term debt
    
    
    
    
    
    
    (258
    )
    
    
    (2
    )
    
    
    90Proceeds from issuance of long-term debt
    
    
    
    
    
    
    454
    
    
    
    6
    
    
    
    113Principal payments of long-term debt
    
    
    
    
    
    
    (485
    )
    
    
    (156
    )
    
    
    (165
    )Principal payments of finance leases
    
    
    
    
    
    
    (4
    )
    
    
    (6
    )
    
    
    (3
    )Other items
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    
    
    
    
    (332
    )
    
    
    (136
    )
    
    
    (179
    )Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    241
    
    
    
    (62
    )
    
    
    36Effect of changes in exchange rates on cash and cash
equivalents
    
    
    
    
    
    
    1
    
    
    
    13
    
    
    
    (6
    )Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    130
    
    
    
    372
    
    
    
    323Cash and cash equivalents at end of year
    
    
    
    
    
    
    372
    
    
    
    323
    
    
    
    353
 The accompanying Notes form an integral part of these consolidated financial statements.
 F-7




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##### Table of Contents



METSO
 Consolidated Statements of Cash Flows  Continued
(in millions)
 Year ended December 31,2004
    
    2005
    
    2006
    
    
    
    Change in net working capital, net of effect from business
acquisitions and disposals:(Increase) decrease in assets and increase (decrease) in liabilities:Inventory
    
    
    (129
    )
    
    
    (178
    )
    
    
    (215
    )Trade and other receivables
    
    
    (87
    )
    
    
    (139
    )
    
    
    (194
    )Percentage of completion: recognized assets and liabilities, net
    
    
    113
    
    
    
    42
    
    
    
    1Trade and other payables
    
    
    166
    
    
    
    105
    
    
    
    390Total
    
    
    63
    
    
    
    (170
    )
    
    
    (18
    )Supplemental cash flow information:Revolving credit facility activityBorrowings
    
    
    50
    
    
    
    
    
    
    
    Payments
    
    
    116
    
    
    
    
    
    
    
    Non-cash exchange of bondsNew bonds issued
    
    
    274
    
    
    
    
    
    
    
    Bonds redeemed
    
    
    256
    
    
    
    
    
    
    
    
  The accompanying Notes form an integral part of these consolidated financial statements.
 F-8




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##### Table of Contents



METSO
 
 Consolidated Statements of Changes in Shareholders Equity
(in millions)
 EquityShare
    
    Cumulative
    
    Fair value
    
    
    
    
    
    attributableShare
    
    premium
    
    translation
    
    and other
    
    Retained
    
    to
    
    Minority
    
    Totalcapital
    
    reserve
    
    adjustments
    
    reserves
    
    earnings
    
    shareholders
    
    interests
    
    equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at January 1, 2004
    
    
    232
    
    
    
    14
    
    
    
    (50
    )
    
    
    431
    
    
    
    252
    
    
    
    879
    
    
    
    7
    
    
    
    886Translation differences
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Transfer of translation differences
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    Deferred tax asset
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    (3
    )
    
    
    (2
    )Net income (expense) recognized
directly in equity
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    (7
    )
    
    
    (5
    )
    
    
    (3
    )
    
    
    (8
    )Profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143
    
    
    
    143
    
    
    
    1
    
    
    
    144Total recognized income for 2004
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    136
    
    
    
    138
    
    
    
    (2
    )
    
    
    136Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    (27
    )
    
    
    
    
    
    
    (27
    )Balance at December 31, 2004
    
    
    232
    
    
    
    14
    
    
    
    (48
    )
    
    
    431
    
    
    
    361
    
    
    
    990
    
    
    
    5
    
    
    
    995Effects of adopting IAS 32Own shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Effects of adopting IAS 39Cash flow hedges, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Available-for-sale equity
investments, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    2Balance at January 1, 2005
    
    
    232
    
    
    
    14
    
    
    
    (48
    )
    
    
    435
    
    
    
    364
    
    
    
    997
    
    
    
    5
    
    
    
    1,002Cash flow hedges, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Available-for-sale equity
investments, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    0Net investment hedge effects, net
of taxes
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    (21
    )Translation differences
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    60Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    2Net income (expense) recognized
directly in equity
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    (11
    )
    
    
    1
    
    
    
    29
    
    
    
    1
    
    
    
    30Profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    236
    
    
    
    236
    
    
    
    1
    
    
    
    237Total recognized income for 2005
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    (11
    )
    
    
    237
    
    
    
    265
    
    
    
    2
    
    
    
    267Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48
    )
    
    
    (48
    )
    
    
    
    
    
    
    (48
    )Share options exercised
    
    
    9
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    71Balance at December 31, 2005
    
    
    241
    
    
    
    76
    
    
    
    (9
    )
    
    
    424
    
    
    
    553
    
    
    
    1,285
    
    
    
    7
    
    
    
    1,292Cash flow hedges, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    16Available-for-sale equity
investments, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Net investment hedge effects, net
of taxes
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    22Translation differences
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    
    
    
    
    (59
    )Other
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    2
    
    
    
    (1
    )
    
    
    2
    
    
    
    (2
    )
    
    
    0Net income (expense) recognized
directly in equity
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    19
    
    
    
    (1
    )
    
    
    (18
    )
    
    
    (2
    )
    
    
    (20
    )Profit (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    409
    
    
    
    409
    
    
    
    1
    
    
    
    410Total recognized income for 2006
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    19
    
    
    
    408
    
    
    
    391
    
    
    
    (1
    )
    
    
    390
 F-9




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##### Table of Contents



METSO
 EquityShare
    
    Cumulative
    
    Fair value
    
    
    
    
    
    attributableShare
    
    premium
    
    translation
    
    and other
    
    Retained
    
    to
    
    Minority
    
    Totalcapital
    
    reserve
    
    adjustments
    
    reserves
    
    earnings
    
    shareholders
    
    interests
    
    equityDividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (198
    )
    
    
    (198
    )
    
    
    
    
    
    
    (198
    )Share options exercised
    
    
    0
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Redemption of own shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (11
    )Balance at December 31, 2006
    
    
    241
    
    
    
    77
    
    
    
    (45
    )
    
    
    432
    
    
    
    763
    
    
    
    1,468
    
    
    
    6
    
    
    
    1,474
 The accompanying Notes form an integral part of these consolidated financial statements
 F-10




---



##### Table of Contents



METSO
 
 Notes to Consolidated Financial Statements
 Note 1. Accounting principles
 Description of businesses
    Basis of preparation
    Use of estimates
  Accounting convention
  F-11




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Principles of consolidation
 Subsidiaries
    Associated companies and joint ventures
    Foreign currency translation
    F - 12




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Derivative financial instruments
 Accounting principles applicable before January 1, 2005
   Accounting principles applicable after January 1, 2005
   Hedging currency risk
     Hedging interest rate risk
  F - 13




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  Hedging commodity risk
  Fair value estimation
  Employee benefits
 Share-based payments
  Pensions and coverage of pension liabilities
    F - 14




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Revenue recognition
  Percentage-of-completion method
  Service revenue
  Sales with repurchase commitments
  Trade-ins
  Government grants
  Shipping and handling costs
  Advertising costs
  F - 15




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Other operating income and expenses
  Income taxes
    Earnings per share
   Intangible assets
  Amortization of intangible assets
  Patents and licenses
    
    5  - 10 yearsComputer software
    
    3  -  5 yearsOther intangibles
    
    < 1  - 15 years
  F - 16




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  Impairment of intangible assets with indefinite useful lives
  Research and development
  Property, plant and equipment
   Buildings and structures
    
    15 - 40 yearsMachinery and equipment
    
    3 - 20 years
    F - 17




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Capitalization of interest expenses
  Leases
   Financial investments
    Available-for-sale equity investments
  Available-for-sale financial assets
 Non-current available-for-sale financial assets
  Current available-for-sale financial assets
  F - 18




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  Loan and other interest bearing receivables
   Inventories
    Trade receivables and securitization
    Cash and cash equivalents
  Assets classified as held-for-sale
   F - 19




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  Own shares
   Dividends
  Long-term debt
  Capitalization of transaction costs related to issuance of debt instruments
  Capitalization of transaction costs related to exchange of debt instruments
  Provisions
  Restructuring costs
  F - 20




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Environmental remediation costs
  Warranty costs
  Note 2. Financial risk management
   Foreign currency risk management
   Trade flow related derivatives
   Foreign currency denominated equity
  F - 21




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  Foreign currency denominated loans
  Short-term funding and liquidity management
   Interest rate management
   Commodity risks
  Credit risks and other counterparty risks
  Note 3. Critical accounting estimates and judgements
  F - 22




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Trade receivables
  Inventory
  Revenue recognition
  Accounting for income taxes
   
 Allocation of excess purchase price to acquired assets
  F - 23




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  Impairment testing
  
    
    material permanent deterioration in the economic or political environment of the
customers or of own activity;
    
    significant under-performance relative to expected historical or projected future
performance; and
    
    significant changes in Metsos strategic orientations affecting the business plans and
previous investment policies.
  
 Reserve for warranty costs
  Pensions
  
    
    a weighted average expected return on plan assets. Actual return on plan assets may
differ significantly based on market activity.
    
    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.
    
    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.
 F - 24




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  
 Share based payments
  Note 4. Selling, general and administrative expenses
  Year ended December 31,2004
    
    2005
    
    2006( in millions)Marketing and selling expenses
    
    
    (443
    )
    
    
    (435
    )
    
    
    (468
    )Research and development expenses, net
    
    
    (92
    )
    
    
    (89
    )
    
    
    (94
    )Administrative expenses
    
    
    (263
    )
    
    
    (270
    )
    
    
    (284
    )Total
    
    
    (798
    )
    
    
    (794
    )
    
    
    (846
    )
  Year ended December 31,2004
    
    2005
    
    2006( in millions)Research and development expenses, total
    
    
    (96
    )
    
    
    (96
    )
    
    
    (109
    )Capitalized development costs
    
    
    2
    
    
    
    0
    
    
    
    (1
    )Capital expenditure
    
    
    4
    
    
    
    6
    
    
    
    14Grants received
    
    
    8
    
    
    
    8
    
    
    
    8Depreciation and amortization
    
    
    (10
    )
    
    
    (7
    )
    
    
    (6
    )Research and development expenses, net
    
    
    (92
    )
    
    
    (89
    )
    
    
    (94
    )
 F - 25




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Note 5. Other operating income and expenses, net
  Year ended December 31,2004
    
    2005
    
    2006( in millions)Gain on sale of subsidiaries and businesses (1)
    
    
    0
    
    
    
    0
    
    
    
    10Gain on sale of fixed assets (2)
    
    
    11
    
    
    
    15
    
    
    
    6Gain on sale of available-for-sale equity investments
    
    
    9
    
    
    
    2
    
    
    
    1Rental income
    
    
    5
    
    
    
    3
    
    
    
    3Foreign exchange gains (3)
    
    
    
    
    
    
    12
    
    
    
    7Change in fair value of derivatives (4)
    
    
    
    
    
    
    3
    
    
    
    5Other income
    
    
    8
    
    
    
    11
    
    
    
    10Other operating income, total
    
    
    33
    
    
    
    46
    
    
    
    42Nonrecurring expenses related to 2003 restructuring program (5)
    
    
    (14
    )
    
    
    3
    
    
    
    1Nonrecurring expenses related to 2004 restructuring program (5)
    
    
    (24
    )
    
    
    (7
    )
    
    
    0Impairment of goodwill (6)
    
    
    
    
    
    
    
    
    
    
    (7
    )Write-downs on fixed assets
    
    
    
    
    
    
    (8
    )
    
    
    (6
    )Foreign exchange losses (3)
    
    
    
    
    
    
    (11
    )
    
    
    (14
    )Change in fair value of derivatives (4)
    
    
    
    
    
    
    (10
    )
    
    
    (4
    )Other expenses
    
    
    (6
    )
    
    
    (1
    )
    
    
    (6
    )Other operating expenses, total
    
    
    (44
    )
    
    
    (34
    )
    
    
    (36
    )Other operating income and expenses, net
    
    
    (11
    )
    
    
    12
    
    
    
    6
 
 (1)
    
    Gain on disposal of Metso Powdermet AB in the year ended December 31, 2006.(2)
    
    Gains on sale of fixed assets were 11 million, 18 million and 6 million for the years
ended December 31, 2004, 2005 and 2006, respectively. In 2005, 3 million resulted from a sale
of assets related to outsourcing of activities as part of the Metso 2003 restructuring
program.(3)
    
    Includes foreign exchange gains and losses resulting from trade receivables and payables and
related derivatives.(4)
    
    For more information on derivative instruments, see Notes 32 and 33.(5)
    
    For more information on restructuring programs, see Note 6.(6)
    
    Goodwill impairment charge related to Metso Panelboard business, for more information on
goodwill impairment see Note 15. Note 6. Restructuring costs
 2003 Program
   
 F - 26




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  As at December 31,2005
    
    2006( in millions)Pensions and postretirement benefits (1)
    
    
    6
    
    
    
    4Employee termination and exit costs
    
    
    2
    
    
    
    1Other expenses
    
    
    0
    
    
    
    0Total
    
    
    8
    
    
    
    5
 
 (1)
    
    As at December 31, 2005 and 2006, accrued pensions comprised long-term liabilities of 5
million and of 3 million, respectively. 2004 Program
   
  As at December 31,2005
    
    2006( in millions)Pensions and postretirement benefits (1)
    
    
    4
    
    
    
    3Employee termination and exit costs
    
    
    3
    
    
    
    0Other expenses
    
    
    0
    
    
    
    0Total
    
    
    7
    
    
    
    3
 
 (1)
    
    As at December 31, 2005 and 2006, accrued pensions comprised long-term liabilities of 4
million and of 2 million, respectively.  Balance at
    
    Impact of
    
    Additions
    
    Reversal
    
    
    
    
    
    Balancebeginning
    
    exchange
    
    charged
    
    of excess
    
    Realized
    
    at end ofof year
    
    rates
    
    to expense
    
    reserve
    
    reserve
    
    year( in millions)Pension and
postretirement
benefits
    
    
    10
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    (3
    )
    
    
    7Employee
termination and
exit costs
    
    
    5
    
    
    
    0
    
    
    
    
    
    
    
    (1
    )
    
    
    (3
    )
    
    
    1Other expenses
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    
    15
    
    
    
    0
    
    
    
    
    
    
    
    (1
    )
    
    
    (6
    )
    
    
    8
 F - 27




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Note 7. Reversal of Finnish pension liability (TEL)
    
   
  
  Note 8. Personnel expenses and the number of personnel
 Personnel expenses:
 Year ended December 31,2004
    
    2005
    
    2006( in millions)Salaries and wages
    
    
    (881
    )
    
    
    (854
    )
    
    
    (909
    )Pension costs, defined contribution plans
    
    
    (84
    )
    
    
    (77
    )
    
    
    (79
    )Pension costs, defined benefit plans (1)
    
    
    (5
    )
    
    
    (10
    )
    
    
    (9
    )Reversal of Finnish pension liability (TEL), gross amount (2)
    
    
    80
    
    
    
    5
    
    
    
    Other post-employment benefits
    
    
    (3
    )
    
    
    (3
    )
    
    
    (4
    )Share-based payments
    
    
    
    
    
    
    0
    
    
    
    (5
    )Other indirect employee costs
    
    
    (167
    )
    
    
    (143
    )
    
    
    (162
    )Total
    
    
    (1,060
    )
    
    
    (1,082
    )
    
    
    (1,168
    )
 
 (1)
    
    For more information on pension costs, see Note 29.(2)
    
    For more information on reversal of Finnish pension liability (TEL), see Note 7. 
 F - 28




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Board remuneration:
 Year ended December 31,2004
    
    2005
    
    2006( in thousands)Serving board members December 31, 2006:Matti Kavetvuo
    
    
    (69
    )
    
    
    (73
    )
    
    
    (87
    )Jaakko Rauramo
    
    
    (47
    )
    
    
    (50
    )
    
    
    (57
    )Svante Adde
    
    
    
    
    
    
    (31
    )
    
    
    (49
    )Maija-Liisa Friman
    
    
    (42
    )
    
    
    (47
    )
    
    
    (58
    )Christer Gardell
    
    
    
    
    
    
    
    
    
    
    (38
    )Satu Huber
    
    
    (32
    )
    
    
    (40
    )
    
    
    (49
    )Yrjö Neuvo
    
    
    
    
    
    
    
    
    
    
    (38
    )Jukka Leppänen (1)
    
    
    
    
    
    
    
    
    
    
    (6
    )Former board members:Juhani Kuusi
    
    
    (39
    )
    
    
    (40
    )
    
    
    (9
    )Risto Hautamäki
    
    
    (31
    )
    
    
    (8
    )
    
    
    Pentti Mäkinen (1)
    
    
    (36
    )
    
    
    (18
    )
    
    
    (2
    )Heikki Hakala
    
    
    (9
    )
    
    
    
    
    
    
    Mikko Kivimäki
    
    
    (10
    )
    
    
    
    
    
    
    Total
    
    
    (315
    )
    
    
    (307
    )
    
    
    (393
    )
 
 (1)
    
    Has attended meetings as a personnel representative, no voting right.    
 Chief Executive Officer and Executive Team remuneration:
 Year ended December 31,2004
    
    2005
    
    2006( in thousands)Salaries and short-term employee benefits
    
    
    (2,170
    )
    
    
    (2,382
    )
    
    
    (3,396
    )Termination benefits
    
    
    
    
    
    
    
    
    
    
    Pension insurance premiums
    
    
    (342
    )
    
    
    (299
    )
    
    
    (516
    )Other long-term benefits
    
    
    
    
    
    
    
    
    
    
    Share-based payments
    
    
    
    
    
    
    (215
    )
    
    
    (1,419
    )Total
    
    
    (2,512
    )
    
    
    (2,896
    )
    
    
    (5,331
    )
   
   
 F - 29




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Number of personnel at end of year:
 2004
    
    2005
    
    2006Metso Paper
    
    
    8,660
    
    
    
    8,201
    
    
    
    10,867Metso Minerals
    
    
    8,048
    
    
    
    8,521
    
    
    
    9,170Metso Automation
    
    
    3,267
    
    
    
    3,169
    
    
    
    3,352Metso Ventures
    
    
    1,637
    
    
    
    1,993
    
    
    
    1,967Corporate Office and Shared Services
    
    
    293
    
    
    
    294
    
    
    
    322Continuing operations
    
    
    21,905
    
    
    
    22,178
    
    
    
    25,678Discontinued operations
    
    
    897
    
    
    
    
    
    
    
    Metso total
    
    
    22,802
    
    
    
    22,178
    
    
    
    25,678
 Average number of personnel during the period:
 2004
    
    2005
    
    2006Metso Paper
    
    
    9,021
    
    
    
    8,451
    
    
    
    8,941Metso Minerals
    
    
    8,178
    
    
    
    8,283
    
    
    
    8,816Metso Automation
    
    
    3,294
    
    
    
    3,247
    
    
    
    3,269Metso Ventures
    
    
    1,598
    
    
    
    1,768
    
    
    
    2,017Corporate Office and Shared Services
    
    
    263
    
    
    
    297
    
    
    
    321Continuing operations
    
    
    22,354
    
    
    
    22,046
    
    
    
    23,364Discontinued operations
    
    
    2,009
    
    
    
    359
    
    
    
    Metso total
    
    
    24,363
    
    
    
    22,405
    
    
    
    23,364
 Note 9. Depreciation and amortization
  Year ended December 31,2004
    
    2005
    
    2006( in millions)Intangible assets
    
    
    (15
    )
    
    
    (16
    )
    
    
    (17
    )Property, plant and equipmentBuildings and structures
    
    
    (23
    )
    
    
    (22
    )
    
    
    (21
    )Machinery and equipment
    
    
    (77
    )
    
    
    (64
    )
    
    
    (67
    )Total
    
    
    (115
    )
    
    
    (102
    )
    
    
    (105
    )
  Year ended December 31,2004
    
    2005
    
    2006( in millions)Cost of goods sold
    
    
    (70
    )
    
    
    (60
    )
    
    
    (65
    )Selling, general and administrative expensesMarketing and selling
    
    
    (7
    )
    
    
    (9
    )
    
    
    (6
    )Research and development
    
    
    (10
    )
    
    
    (7
    )
    
    
    (6
    )Administrative
    
    
    (28
    )
    
    
    (26
    )
    
    
    (28
    )Total
    
    
    (115
    )
    
    
    (102
    )
    
    
    (105
    )
 F - 30




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Note 10. Financial income and expenses, net
  Year ended December 31,2004
    
    2005
    
    2006( in millions)Financial income
Dividends received
    
    
    3
    
    
    
    1
    
    
    
    1Interest income
    
    
    10
    
    
    
    14
    
    
    
    18Other financial income
    
    
    1
    
    
    
    1
    
    
    
    1Net gain (loss) from foreign exchange
    
    
    (1
    )
    
    
    4
    
    
    
    (1
    )Financial income total
    
    
    13
    
    
    
    20
    
    
    
    19Financial expensesInterest expenses
    
    
    (63
    )
    
    
    (52
    )
    
    
    (44
    )Interest expenses on financial leases
    
    
    0
    
    
    
    (1
    )
    
    
    (1
    )Other financial expenses
    
    
    (9
    )
    
    
    (10
    )
    
    
    (10
    )Financial expenses total
    
    
    (72
    )
    
    
    (63
    )
    
    
    (55
    )Financial income and expenses, net
    
    
    (59
    )
    
    
    (43
    )
    
    
    (36
    )
 Note 11. Income taxes
  Year ended December 31,2004
    
    2005
    
    2006( in millions)Current tax (expense) benefit
    
    
    (24
    )
    
    
    (61
    )
    
    
    (85
    )Deferred tax (expense) benefit
    
    
    42
    
    
    
    (11
    )
    
    
    74Income taxes, total
    
    
    18
    
    
    
    (72
    )
    
    
    (11
    )
  Year ended December 31,2004
    
    2005
    
    2006( in millions)Income before taxes from continuing operations
    
    
    140
    
    
    
    292
    
    
    
    421Income tax (expense) benefit at Finnish statutory rate
    
    
    (41
    )
    
    
    (76
    )
    
    
    (109
    )Income tax for prior years
    
    
    8
    
    
    
    (1
    )
    
    
    (4
    )Difference between Finnish and foreign tax rates
    
    
    (6
    )
    
    
    (11
    )
    
    
    (12
    )Write-down of subsidiary shares (1)
    
    
    53
    
    
    
    
    
    
    
    Benefit of operating loss carryforward
    
    
    10
    
    
    
    22
    
    
    
    33Operating losses with no current tax benefit (2)
    
    
    (4
    )
    
    
    (1
    )
    
    
    (4
    )Non-deductible expenses and tax exempt income
    
    
    (1
    )
    
    
    (2
    )
    
    
    (2
    )Change in tax rates and tax legislation
    
    
    (3
    )
    
    
    
    
    
    
    Deferred tax asset attributable to the U.S. subsidiaries (3)
    
    
    
    
    
    
    
    
    
    
    87Other
    
    
    2
    
    
    
    (3
    )
    
    
    0Income tax (expense) benefit
    
    
    18
    
    
    
    (72
    )
    
    
    (11
    )
 F - 31




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 
 (1)
    
    The tax benefit of 53 million for the year ended December 31, 2004, relates to a write-down
recorded in 2003.(2)
    
    Operating losses with no current tax benefit relate to current year losses for which no
deferred tax asset has been recognized.(3)
    
    In the year ended December 31, 2006 Metso recorded a deferred tax asset of 87 million for
operating loss carry-forwards, net deductible temporary differences and unused tax credits
attributable to the U.S. subsidiaries in full. At December 31, 2005 no deferred tax asset was
recorded for these items due to the uncertainty of their utilization. F - 32




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  Charged toBalance at
    
    Charged
    
    share-beginning
    
    to income
    
    holders
    
    Translation
    
    Acquisitions and
    
    Balance atof year
    
    statement
    
    equity
    
    differences
    
    disposals
    
    end of year( in millions)2005Deferred tax assetsTax losses carried forward
    
    
    104
    
    
    
    (18
    )
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    95Fixed assets
    
    
    7
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Inventory
    
    
    10
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Provisions
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16Accruals
    
    
    19
    
    
    
    (2
    )
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    18Pension provisions
    
    
    3
    
    
    
    2
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    6Other
    
    
    16
    
    
    
    13
    
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    32Total deferred tax assets
    
    
    175
    
    
    
    4
    
    
    
    11
    
    
    
    3
    
    
    
    
    
    
    
    193Offset against deferred tax
liabilities (1)
    
    
    (16
    )
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )Net deferred tax assets
    
    
    159
    
    
    
    (10
    )
    
    
    11
    
    
    
    3
    
    
    
    
    
    
    
    163Deferred tax liabilitiesPurchase price adjustments
    
    
    18
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    26Fixed assets
    
    
    12
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Other
    
    
    2
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Total deferred tax liabilities
    
    
    32
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    50Offset against deferred tax
assets(1)
    
    
    (16
    )
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )Net deferred tax liabilities
    
    
    16
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    20Deferred tax assets, net
    
    
    143
    
    
    
    (11
    )
    
    
    11
    
    
    
    3
    
    
    
    (3
    )
    
    
    1432006Deferred tax assetsTax losses carried forward
    
    
    95
    
    
    
    15
    
    
    
    (6
    )
    
    
    
    
    
    
    7
    
    
    
    111Fixed assets
    
    
    13
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Inventory
    
    
    13
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26Provisions
    
    
    16
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20Accruals
    
    
    18
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33Pension provisions
    
    
    6
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18Other
    
    
    32
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41Total deferred tax assets
    
    
    193
    
    
    
    65
    
    
    
    (6
    )
    
    
    
    
    
    
    7
    
    
    
    259Offset against deferred tax
liabilities (1)
    
    
    (30
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31
    )Net deferred tax assets
    
    
    163
    
    
    
    64
    
    
    
    (6
    )
    
    
    
    
    
    
    7
    
    
    
    228Deferred tax liabilitiesPurchase price adjustments
    
    
    26
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    56Fixed assets
    
    
    13
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Other
    
    
    11
    
    
    
    (1
    )
    
    
    4
    
    
    
    1
    
    
    
    6
    
    
    
    21Total deferred tax liabilities
    
    
    50
    
    
    
    (9
    )
    
    
    4
    
    
    
    1
    
    
    
    42
    
    
    
    88Offset against deferred tax
assets(1)
    
    
    (30
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31
    )Net deferred tax liabilities
    
    
    20
    
    
    
    (10
    )
    
    
    4
    
    
    
    1
    
    
    
    42
    
    
    
    57Deferred tax assets, net
    
    
    143
    
    
    
    74
    
    
    
    (10
    )
    
    
    (1
    )
    
    
    (35
    )
    
    
    171
 
 (1)
    
    Deferred tax assets and liabilities are offset when there is a legally enforceable right to
offset current tax assets against current tax liabilities and when the deferred income taxes
relate to the same fiscal authority.A deferred tax liability is recognized if Metso makes an explicit decision to distribute
earnings from subsidiaries located in countries where distribution generates tax consequences. For
the years ended December


F - 33



---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  
 Tax losses carried forward
        
    
  Tax losses
    
    Potentialcarried
    
    deferred tax
    
    
    
    
    
    Deferred taxforward
    
    asset
    
    Not recorded
    
    asset( in millions)2005Finland
    
    
    257
    
    
    
    67
    
    
    
    0
    
    
    
    67USA
    
    
    154
    
    
    
    59
    
    
    
    59
    
    
    
    0Germany
    
    
    63
    
    
    
    23
    
    
    
    0
    
    
    
    23Other
    
    
    81
    
    
    
    23
    
    
    
    18
    
    
    
    5Total
    
    
    555
    
    
    
    172
    
    
    
    77
    
    
    
    952006Finland
    
    
    164
    
    
    
    43
    
    
    
    0
    
    
    
    43USA
    
    
    77
    
    
    
    32
    
    
    
    0
    
    
    
    32Germany
    
    
    51
    
    
    
    19
    
    
    
    0
    
    
    
    19Other
    
    
    92
    
    
    
    27
    
    
    
    10
    
    
    
    17Total
    
    
    384
    
    
    
    121
    
    
    
    10
    
    
    
    111
 Note 12. Acquisitions
 Acquisition of Pulping and Power businesses
      
  
 F - 34




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
   
  Carrying
    
    Fair valueamount
    
    allocations
    
    Fair value( in millions)Intangible assets
    
    
    6
    
    
    
    154
    
    
    
    160Property, plant and equipment
    
    
    25
    
    
    
    
    
    
    
    25Inventories
    
    
    52
    
    
    
    
    
    
    
    52Trade and other receivables
    
    
    186
    
    
    
    
    
    
    
    186Other assets
    
    
    26
    
    
    
    
    
    
    
    26Minority interests
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Advances received
    
    
    (216
    )
    
    
    
    
    
    
    (216
    )Deferred tax liabilities
    
    
    (4
    )
    
    
    (41
    )
    
    
    (45
    )Other liabilities assumed
    
    
    (169
    )
    
    
    
    
    
    
    (169
    )Non-interest bearing net assets
    
    
    (95
    )
    
    
    113
    
    
    
    18Cash and cash equivalents acquired
    
    
    247
    
    
    
    
    
    
    
    247Debt assumed
    
    
    (195
    )
    
    
    
    
    
    
    (195
    )Estimated purchase price
    
    
    (335
    )
    
    
    
    
    
    
    (335
    )Costs related to acquisition
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Goodwill
    
    
    384
    
    
    
    (113
    )
    
    
    271Purchase price settled in cash
    
    
    
    
    
    
    
    
    
    
    (307
    )Settlement of acquired debt
    
    
    
    
    
    
    
    
    
    
    (195
    )Costs related to acquisition
    
    
    
    
    
    
    
    
    
    
    (6
    )Cash and cash equivalents acquired
    
    
    
    
    
    
    
    
    
    
    247Cash outflow on acquisition for 2006
    
    
    
    
    
    
    
    
    
    
    (261
    )Estimated purchase price payable
    
    
    
    
    
    
    
    
    
    
    (28
    )Total estimated cash outflow on acquisition
    
    
    
    
    
    
    
    
    
    
    (289
    )
 Other acquisitions
  
 
 F - 35




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 
    
 
    
 
  Year ended December 31,2004
    
    2005
    
    2006( in millions)Intangible assets
    
    
    1
    
    
    
    8
    
    
    
    4Property, plant and equipment
    
    
    0
    
    
    
    2
    
    
    
    24Inventories
    
    
    
    
    
    
    6
    
    
    
    5Trade and other receivables
    
    
    1
    
    
    
    8
    
    
    
    0Other assets
    
    
    0
    
    
    
    3
    
    
    
    1Minority interests
    
    
    
    
    
    
    (1
    )
    
    
    2Advances received
    
    
    
    
    
    
    0
    
    
    
    (6
    )Deferred tax liabilities
    
    
    
    
    
    
    (3
    )
    
    
    0Other liabilities assumed
    
    
    (1
    )
    
    
    (12
    )
    
    
    (8
    )Non-interest bearing net assets
    
    
    1
    
    
    
    11
    
    
    
    22Cash and cash equivalents acquired
    
    
    1
    
    
    
    2
    
    
    
    2Debt assumed
    
    
    
    
    
    
    0
    
    
    
    (19
    )Purchase price
    
    
    (3
    )
    
    
    (16
    )
    
    
    (18
    )Costs related to acquisitions
    
    
    0
    
    
    
    0
    
    
    
    0Goodwill
    
    
    1
    
    
    
    3
    
    
    
    13Purchase price settled in cash
    
    
    (3
    )
    
    
    (16
    )
    
    
    (18
    )Costs related to acquisitions
    
    
    0
    
    
    
    0
    
    
    
    0Cash and cash equivalents acquired
    
    
    1
    
    
    
    2
    
    
    
    2Cash outflow on acquisitions
    
    
    (2
    )
    
    
    (14
    )
    
    
    (16
    )
 Note 13. Discontinued operations and disposals of businesses
  F - 36




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  
  
  
  
  
  Year ended December 31,2004
    
    2005
    
    2006( in millions)Cash and cash equivalents
    
    
    12
    
    
    
    3
    
    
    
    0Intangible assets
    
    
    36
    
    
    
    1
    
    
    
    Property, plant and equipment
    
    
    77
    
    
    
    53
    
    
    
    0Goodwill
    
    
    124
    
    
    
    7
    
    
    
    Other assets
    
    
    334
    
    
    
    50
    
    
    
    7Minority interests
    
    
    (1
    )
    
    
    
    
    
    
    Liabilities sold
    
    
    (152
    )
    
    
    (33
    )
    
    
    (4
    )Net assets of disposed businesses
    
    
    430
    
    
    
    81
    
    
    
    3Gain (loss) on disposal
    
    
    (29
    )
    
    
    17
    
    
    
    10Total consideration
    
    
    401
    
    
    
    98
    
    
    
    13Consideration received in cash
    
    
    401
    
    
    
    98
    
    
    
    13Cash and cash equivalents disposed of
    
    
    (12
    )
    
    
    (3
    )
    
    
    0Cash inflow on disposals
    
    
    389
    
    
    
    95
    
    
    
    13
  F - 37




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Year ended December 31,2004
    
    2005
    
    2006( in millions)Net sales
    
    
    397
    
    
    
    26
    
    
    
    Expenses
    
    
    (368
    )
    
    
    (26
    )
    
    
    Profit before tax
    
    
    29
    
    
    
    0
    
    
    
    Income taxes
    
    
    (4
    )
    
    
    0
    
    
    
    Profit after tax
    
    
    25
    
    
    
    0
    
    
    
    Gain (loss) on the disposal of the disposal group before tax
    
    
    (29
    )
    
    
    17
    
    
    
    Taxes
    
    
    (10
    )
    
    
    0
    
    
    
    Gain (loss) on the disposal of the disposal group after tax
    
    
    (39
    )
    
    
    17
    
    
    
    Profit (loss) on discontinued operations, net of taxes
    
    
    (14
    )
    
    
    17
    
    
    
    
  Year ended December 31,2004
    
    2005
    
    2006( in millions)Cash flows provided by (used in) operating activities
    
    
    5
    
    
    
    2
    
    
    
    Cash flows provided by (used in) investing activities
    
    
    2
    
    
    
    0
    
    
    
    Cash flows provided by (used in) financing activities
    
    
    (23
    )
    
    
    (2
    )
    
    
    Cash flows provided by (used in) discontinued operations
    
    
    (16
    )
    
    
    0
    
    
    
    
 F - 38




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Note 14. Earnings per Share
  Basic
  Year ended December 31,2004
    
    2005
    
    2006( in millions)Profit attributable to equity shareholders, continuing operations
    
    
    157
    
    
    
    219
    
    
    
    409Profit (loss) attributable to equity shareholders, discontinued
operations
    
    
    (14
    )
    
    
    17
    
    
    
    Profit attributable to equity shareholders, continuing and
discontinued operations
    
    
    143
    
    
    
    236
    
    
    
    409Weighted average number of shares issued and outstanding
(in thousands)
    
    
    136,190
    
    
    
    139,639
    
    
    
    141,581Basic earnings per share, continuing operations, 
    
    
    1.16
    
    
    
    1.57
    
    
    
    2.89Basic earnings (loss) per share, discontinued operations, 
    
    
    (0.11
    )
    
    
    0.12
    
    
    
    Basic earnings per share, continuing and discontinued
operations, 
    
    
    1.05
    
    
    
    1.69
    
    
    
    2.89
 Diluted
  Year ended December 31,2004
    
    2005
    
    2006( in millions)Profit attributable to equity shareholders, continuing operations
    
    
    157
    
    
    
    219
    
    
    
    409Profit (loss) attributable to equity shareholders, discontinued
operations
    
    
    (14
    )
    
    
    17
    
    
    
    Profit attributable to equity shareholders, continuing and
discontinued operations
    
    
    143
    
    
    
    236
    
    
    
    409Weighted average number of shares issued and outstanding
(in thousands)
    
    
    136,190
    
    
    
    139,639
    
    
    
    141,581Adjustment for share options (in thousands)
    
    
    2
    
    
    
    26
    
    
    
    19Weighted average number of diluted shares issued and outstanding
(in thousands)
    
    
    136,192
    
    
    
    139,665
    
    
    
    141,600Diluted earnings per share, continuing operations, 
    
    
    1.16
    
    
    
    1.57
    
    
    
    2.89Diluted earnings (loss) per share, discontinued operations, 
    
    
    (0.11
    )
    
    
    0.12
    
    
    
    Diluted earnings per share, continuing and discontinued
operations, 
    
    
    1.05
    
    
    
    1.69
    
    
    
    2.89
 F - 39




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Note 15. Intangible assets and property plant and equipment
 :
 Patents
    
    
    
    
    
    Otherand
    
    Capitalized
    
    intangible
    
    IntangibleGoodwill
    
    licenses
    
    software
    
    assets
    
    assets total( in millions)2005Acquisition cost at beginning of year
    
    
    491
    
    
    
    73
    
    
    
    33
    
    
    
    74
    
    
    
    671Translation differences
    
    
    10
    
    
    
    0
    
    
    
    0
    
    
    
    1
    
    
    
    11Business acquisitions
    
    
    4
    
    
    
    
    
    
    
    0
    
    
    
    7
    
    
    
    11Disposals of businesses
    
    
    (7
    )
    
    
    0
    
    
    
    0
    
    
    
    (3
    )
    
    
    (10
    )Capital expenditure
    
    
    0
    
    
    
    4
    
    
    
    5
    
    
    
    7
    
    
    
    16Reclassifications (1)
    
    
    0
    
    
    
    8
    
    
    
    3
    
    
    
    (6
    )
    
    
    5Decreases
    
    
    0
    
    
    
    (5
    )
    
    
    (4
    )
    
    
    (8
    )
    
    
    (17
    )Acquisition cost at end of year
    
    
    498
    
    
    
    80
    
    
    
    37
    
    
    
    72
    
    
    
    687Accumulated depreciation and
amortization at beginning of year
    
    
    
    
    
    
    (33
    )
    
    
    (11
    )
    
    
    (42
    )
    
    
    (86
    )Translation differences
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    (1
    )
    
    
    (1
    )Business acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Disposals of businesses
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    2
    
    
    
    2Reclassifications
    
    
    
    
    
    
    (3
    )
    
    
    (1
    )
    
    
    4
    
    
    
    0Decreases
    
    
    
    
    
    
    2
    
    
    
    2
    
    
    
    7
    
    
    
    11Depreciation and amortization charges
for the year
    
    
    
    
    
    
    (6
    )
    
    
    (5
    )
    
    
    (5
    )
    
    
    (16
    )Accumulated depreciation at end of year
    
    
    
    
    
    
    (40
    )
    
    
    (15
    )
    
    
    (35
    )
    
    
    (90
    )Net book value at end of year
    
    
    498
    
    
    
    40
    
    
    
    22
    
    
    
    37
    
    
    
    5972006Acquisition cost at beginning of year
    
    
    498
    
    
    
    80
    
    
    
    37
    
    
    
    72
    
    
    
    687Translation differences
    
    
    (7
    )
    
    
    0
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    (9
    )Business acquisitions
    
    
    284
    
    
    
    4
    
    
    
    3
    
    
    
    163
    
    
    
    454Disposals of businesses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    0Capital expenditure
    
    
    
    
    
    
    1
    
    
    
    2
    
    
    
    25
    
    
    
    28Reclassifications (1)
    
    
    
    
    
    
    5
    
    
    
    7
    
    
    
    (7
    )
    
    
    5Decreases
    
    
    (7
    )
    
    
    (21
    )
    
    
    0
    
    
    
    (1
    )
    
    
    (29
    )Acquisition cost at end of year
    
    
    768
    
    
    
    69
    
    
    
    48
    
    
    
    251
    
    
    
    1,136Accumulated depreciation and
amortization at beginning of year
    
    
    
    
    
    
    (40
    )
    
    
    (15
    )
    
    
    (35
    )
    
    
    (90
    )Translation differences
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    1
    
    
    
    1Business acquisitions
    
    
    
    
    
    
    (3
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    (6
    )Disposals of businesses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    0Reclassifications
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Decreases
    
    
    
    
    
    
    16
    
    
    
    0
    
    
    
    2
    
    
    
    18Depreciation and amortization charges
for the year
    
    
    
    
    
    
    (7
    )
    
    
    (5
    )
    
    
    (5
    )
    
    
    (17
    )Accumulated depreciation at end of year
    
    
    
    
    
    
    (34
    )
    
    
    (22
    )
    
    
    (38
    )
    
    
    (94
    )Net book value at end of year
    
    
    768
    
    
    
    35
    
    
    
    26
    
    
    
    213
    
    
    
    1,042
 F - 40




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Property,Land and
    
    Buildings
    
    Machinery
    
    
    
    
    
    plant andwater
    
    and
    
    and
    
    Assets under
    
    equipmentareas
    
    structures
    
    equipment
    
    construction
    
    total( in millions)2005Acquisition cost at beginning of year
    
    
    70
    
    
    
    506
    
    
    
    1,286
    
    
    
    19
    
    
    
    1,881Translation differences
    
    
    1
    
    
    
    13
    
    
    
    39
    
    
    
    0
    
    
    
    53Business acquisitions
    
    
    0
    
    
    
    2
    
    
    
    1
    
    
    
    0
    
    
    
    3Disposals of businesses
    
    
    (1
    )
    
    
    (22
    )
    
    
    (77
    )
    
    
    0
    
    
    
    (100
    )Capital expenditure
    
    
    0
    
    
    
    8
    
    
    
    49
    
    
    
    31
    
    
    
    88Reclassifications (1)
    
    
    (1
    )
    
    
    11
    
    
    
    17
    
    
    
    (32
    )
    
    
    (5
    )Decreases
    
    
    (11
    )
    
    
    (38
    )
    
    
    (129
    )
    
    
    (1
    )
    
    
    (179
    )Acquisition cost at end of year
    
    
    58
    
    
    
    480
    
    
    
    1,186
    
    
    
    17
    
    
    
    1,741Accumulated depreciation and
amortization at beginning of year
    
    
    
    
    
    
    (253
    )
    
    
    (979
    )
    
    
    
    
    
    
    (1,232
    )Translation differences
    
    
    
    
    
    
    (6
    )
    
    
    (28
    )
    
    
    
    
    
    
    (34
    )Business acquisitions
    
    
    
    
    
    
    0
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Disposals of businesses
    
    
    
    
    
    
    2
    
    
    
    45
    
    
    
    
    
    
    
    47Reclassifications
    
    
    
    
    
    
    (7
    )
    
    
    7
    
    
    
    
    
    
    
    0Decreases
    
    
    
    
    
    
    26
    
    
    
    120
    
    
    
    
    
    
    
    146Depreciation and amortization charges
for the year
    
    
    
    
    
    
    (22
    )
    
    
    (64
    )
    
    
    
    
    
    
    (86
    )Accumulated depreciation at end of year
    
    
    
    
    
    
    (260
    )
    
    
    (900
    )
    
    
    
    
    
    
    (1,160
    )Net book value at end of year
    
    
    58
    
    
    
    220
    
    
    
    286
    
    
    
    17
    
    
    
    5812006Acquisition cost at beginning of year
    
    
    58
    
    
    
    480
    
    
    
    1,186
    
    
    
    17
    
    
    
    1,741Translation differences
    
    
    (1
    )
    
    
    (7
    )
    
    
    (18
    )
    
    
    (1
    )
    
    
    (27
    )Business acquisitions
    
    
    1
    
    
    
    22
    
    
    
    73
    
    
    
    1
    
    
    
    97Disposals of businesses
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    0Capital expenditure
    
    
    0
    
    
    
    6
    
    
    
    52
    
    
    
    43
    
    
    
    101Reclassifications (1)
    
    
    0
    
    
    
    6
    
    
    
    30
    
    
    
    (41
    )
    
    
    (5
    )Decreases
    
    
    (1
    )
    
    
    (25
    )
    
    
    (162
    )
    
    
    0
    
    
    
    (188
    )Acquisition cost at end of year
    
    
    57
    
    
    
    482
    
    
    
    1,161
    
    
    
    19
    
    
    
    1,719Accumulated depreciation and amortization at beginning of year
    
    
    
    
    
    
    (260
    )
    
    
    (900
    )
    
    
    
    
    
    
    (1,160
    )Translation differences
    
    
    
    
    
    
    3
    
    
    
    13
    
    
    
    
    
    
    
    16Business acquisitions
    
    
    
    
    
    
    (4
    )
    
    
    (44
    )
    
    
    
    
    
    
    (48
    )Disposals of businesses
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    0Reclassifications
    
    
    
    
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    0Decreases
    
    
    
    
    
    
    19
    
    
    
    157
    
    
    
    
    
    
    
    176Depreciation and amortization charges for the year
    
    
    
    
    
    
    (21
    )
    
    
    (67
    )
    
    
    
    
    
    
    (88
    )Accumulated depreciation at end of year
    
    
    
    
    
    
    (261
    )
    
    
    (843
    )
    
    
    
    
    
    
    (1,104
    )Net book value at end of year
    
    
    57
    
    
    
    221
    
    
    
    318
    
    
    
    19
    
    
    
    615
 
 (1)
    
    Includes reclassifications between intangible assets and assets under construction of 5
million for the years ended December 31, 2005 and 2006, respectively. F - 41




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  
   Property, plantBuildings and
    
    Machinery and
    
    and equipmentstructures
    
    equipment
    
    total( in millions)2005Acquisition cost at end of year
    
    
    26
    
    
    
    8
    
    
    
    34Accumulated depreciation at end of year
    
    
    (8
    )
    
    
    (3
    )
    
    
    (11
    )Net book value at end of year
    
    
    18
    
    
    
    5
    
    
    
    232006Acquisition cost at end of year
    
    
    27
    
    
    
    8
    
    
    
    35Accumulated depreciation at end of year
    
    
    (11
    )
    
    
    (4
    )
    
    
    (15
    )Net book value at end of year
    
    
    16
    
    
    
    4
    
    
    
    20
  2005
    
    2006( in millions)Net capitalized interest at beginning of year
    
    
    1
    
    
    
    1Amortization of capitalized interest expense
    
    
    0
    
    
    
    0Net capitalized interest at end of year
    
    
    1
    
    
    
    1
 Goodwill impairment
    F - 42




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  
  Derivedweightedaverage cost
    
    Balance at
    
    Translation
    
    
    
    
    
    Balanceof capital
    
    beginning
    
    difference and
    
    Impairment
    
    at end ofapplied
    
    of year
    
    other changes
    
    loss
    
    year(%)
    
    ( in millions)2005Metso Paper
    
    
    9.411.7
    
    
    
    73
    
    
    
    9
    
    
    
    
    
    
    
    82Metso Minerals
    
    
    11.712.1
    
    
    
    385
    
    
    
    4
    
    
    
    
    
    
    
    389Metso Automation
    
    
    14.915.1
    
    
    
    19
    
    
    
    1
    
    
    
    
    
    
    
    20Metso Ventures
    
    
    10.511.5
    
    
    
    7
    
    
    
    0
    
    
    
    
    
    
    
    7Discontinued operations
    
    
    
    
    
    
    7
    
    
    
    (7
    )
    
    
    
    
    
    
    Total
    
    
    9.415.1
    
    
    
    491
    
    
    
    7
    
    
    
    
    
    
    
    498
 Derivedweightedaverage cost
    
    Balance at
    
    Translation
    
    
    
    
    
    Balanceof capital
    
    beginning
    
    difference and
    
    Impairment
    
    at end ofapplied
    
    of year
    
    other changes
    
    loss
    
    year(%)
    
    ( in millions)2006Metso Paper (1)
    
    
    12.212.5
    
    
    
    82
    
    
    
    274
    
    
    
    
    
    
    
    356Metso Minerals
    
    
    12.112.3
    
    
    
    389
    
    
    
    3
    
    
    
    
    
    
    
    392Metso Automation
    
    
    14.915.0
    
    
    
    20
    
    
    
    0
    
    
    
    
    
    
    
    20Metso Ventures
    
    
    11.112.3
    
    
    
    7
    
    
    
    
    
    
    
    (7
    )
    
    
    0Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    11.115.0
    
    
    
    498
    
    
    
    277
    
    
    
    (7
    )
    
    
    768
 
 (1)
    
    The acquisition of Aker Kvaerners Pulping and Power businesses increased goodwill by 271
million in Metso Paper. For more information on acquisitions, see Note 12. F - 43




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Note 16. Investments in associated companies
  2005
    
    2006( in millions)Investments in associated companies and joint venturesAcquisition cost at beginning of year
    
    
    7
    
    
    
    9Translation differences
    
    
    0
    
    
    
    0Increases
    
    
    2
    
    
    
    0Disposals and other decreases
    
    
    0
    
    
    
    (3
    )Acquisition cost at end of year
    
    
    9
    
    
    
    6Equity adjustments in investments in associated
companies and joint venturesEquity adjustments at beginning of year
    
    
    10
    
    
    
    11Share of results
    
    
    1
    
    
    
    1Translation differences
    
    
    1
    
    
    
    (2
    )Dividend income
    
    
    (1
    )
    
    
    (2
    )Disposals and other changes
    
    
    
    
    
    
    5Equity adjustments at end of year
    
    
    11
    
    
    
    13Book value of investments in associated companies and
joint ventures at end of year
    
    
    20
    
    
    
    19
 As at December 31,2005
    
    2006Ownership
    
    Book value
    
    Ownership
    
    Book value(%)
    
    ( in millions)
    
    (%)
    
    ( in millions)Allimand S.A.
    
    
    35.8
    
    
    
    5
    
    
    
    35.8
    
    
    
    5Valmet-Xian Paper Machinery Co. Ltd.
    
    
    48.3
    
    
    
    8
    
    
    
    48.3
    
    
    
    7Shanghai Neles-Jamesbury Valve Co. Ltd.
    
    
    50.0
    
    
    
    4
    
    
    
    50.0
    
    
    
    4Avantone Oy
    
    
    48.2
    
    
    
    1
    
    
    
    48.2
    
    
    
    0Others
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    3Total investments in associated
companies and joint ventures
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    19
   Year ended December 31,2004
    
    2005
    
    2006( in millions)Assets
    
    
    44
    
    
    
    48
    
    
    
    50Liabilities
    
    
    27
    
    
    
    28
    
    
    
    31Net sales
    
    
    41
    
    
    
    42
    
    
    
    40Profit
    
    
    4
    
    
    
    1
    
    
    
    1
 F - 44




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Related party transactions
  Year ended December 31,2004
    
    2005
    
    2006( in millions)Net sales
    
    
    1
    
    
    
    1
    
    
    
    1Purchases
    
    
    8
    
    
    
    16
    
    
    
    19Receivables
    
    
    1
    
    
    
    1
    
    
    
    1Payables
    
    
    1
    
    
    
    2
    
    
    
    1
 Note 17. Available-for-sale equity investments
  As at December 31,2005
    
    2006Number
    
    Owner-
    
    
    
    
    
    Numberof shares
    
    ship
    
    Book value
    
    of shares
    
    Owner-ship
    
    Book value(%)
    
    ( in millions)
    
    
    
    
    
    (%)
    
    ( in millions)Tamfelt Corporation
    
    
    726,300
    
    
    
    2.6
    
    
    
    6
    
    
    
    726,300
    
    
    
    2.6
    
    
    
    8Other shares and securities
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    7Total available-for-sale
equity investments
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    15
  2005
    
    2006( in millions)Book value as at January 1
    
    
    12
    
    
    
    12Additions
    
    
    1
    
    
    
    2Changes in fair values
    
    
    2
    
    
    
    2Disposals
    
    
    (3
    )
    
    
    (1
    )Other changes
    
    
    
    
    
    
    Book value as at December 31
    
    
    12
    
    
    
    15
 F - 45




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Note 18. Percentage of completion
  
  Costs andearnings ofuncompleted
    
    Billings ofprojects
    
    projects
    
    Net( in millions)2005Projects where costs and earnings exceed billings
    
    
    610
    
    
    
    437
    
    
    
    173Projects where billings exceed costs and earnings
    
    
    306
    
    
    
    452
    
    
    
    1462006Projects where costs and earnings exceed billings
    
    
    1,296
    
    
    
    1,012
    
    
    
    284Projects where billings exceed costs and earnings
    
    
    697
    
    
    
    919
    
    
    
    222
 Note 19. Inventory
 As at December 31,2005
    
    2006( in millions)Materials and supplies
    
    
    190
    
    
    
    254Work in progress
    
    
    420
    
    
    
    518Finished products
    
    
    278
    
    
    
    340Total inventory
    
    
    888
    
    
    
    1,112
  
  F - 46




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Note 20. Interest bearing and non-interest bearing receivables
  As at December 31,2005
    
    2006Non-
    
    
    
    
    
    
    
    
    
    Non-current
    
    Current
    
    Total
    
    current
    
    Current
    
    Total( in millions)
    

    ( in millions)Interest bearing receivablesLoan receivables (1)
    
    
    5
    
    
    
    2
    
    
    
    7
    
    
    
    5
    
    
    
    2
    
    
    
    7Available-for-sale financial assets
    
    
    34
    
    
    
    135
    
    
    
    169
    
    
    
    5
    
    
    
    10
    
    
    
    15Trade receivables (1)
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    1
    
    
    
    
    
    
    
    1Total
    
    
    39
    
    
    
    137
    
    
    
    176
    
    
    
    11
    
    
    
    12
    
    
    
    23Non-interest bearing receivablesLoan receivables (1)
    
    
    2
    
    
    
    1
    
    
    
    3
    
    
    
    1
    
    
    
    1
    
    
    
    2Trade receivables (1)
    
    
    27
    
    
    
    764
    
    
    
    791
    
    
    
    12
    
    
    
    967
    
    
    
    979Prepaid expenses and accrued income
    
    
    
    
    
    
    68
    
    
    
    68
    
    
    
    
    
    
    
    93
    
    
    
    93Other receivables
    
    
    10
    
    
    
    85
    
    
    
    95
    
    
    
    20
    
    
    
    157
    
    
    
    177Total
    
    
    39
    
    
    
    918
    
    
    
    957
    
    
    
    33
    
    
    
    1,218
    
    
    
    1,251
 
 (1)
    
    For the year ended December 31, 2006, loan and trade receivables have been reduced by an
expense of 10 million in the allowance for doubtful accounts. For additional information on
changes in the allowance for doubtful notes and receivables, see also Note 25.  Note 21. Cash and cash equivalents
 As at December 31,2005
    
    2006( in millions)Bank and cash
    
    
    120
    
    
    
    222Commercial papers and other investments
    
    
    203
    
    
    
    131Total cash and cash equivalents
    
    
    323
    
    
    
    353
 Note 22. Equity
     
  F-47




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  Share amounts
 2005
    
    2006Number of outstanding shares, January 1
    
    
    136,189,704
    
    
    
    141,593,773Share options exercised
    
    
    5,404,069
    
    
    
    65,000Redemption of own shares by a partnership (MEO1V Incentive Ky)
    
    
    
    
    
    
    (300,000
    )Number of outstanding shares, December 31
    
    
    141,593,773
    
    
    
    141,358,773Treasury shares held by the parent company
    
    
    60,841
    
    
    
    60,841Shares administered by a partnership (MEO1V Incentive Ky)
    
    
    
    
    
    
    300,000Total number of shares, December 31
    
    
    141,654,614
    
    
    
    141,719,614
    
  
  
 Fair value and other reserves
    F-48




---



##### Table of Contents



METSO
 Notes
to Consolidated Financial Statements  (Continued)
  FairTreasury
    
    Hedge
    
    value
    
    Legal
    
    Otherstock
    
    reserve
    
    reserve
    
    reserve
    
    reserves
    
    Total( in millions)Balance as at January 1, 2004
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    228
    
    
    
    202
    
    
    
    431Change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance as at December 31, 2004
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    228
    
    
    
    202
    
    
    
    431Effects of adopting IAS 32
Own shares
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Effects of adopting IAS 39

Cash flow hedges, net of taxes
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Available-for-sale equity
investments, net of taxes
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Share options granted
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    0Balance as at January 1, 2005
    
    
    (1
    )
    
    
    4
    
    
    
    2
    
    
    
    228
    
    
    
    202
    
    
    
    435Cash flow hedgesFair value gains, net of taxes
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Transferred to profit and loss,
net of taxes
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )Available-for-sale equity investments
Fair value gains, net of taxes
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Transferred to profit and loss,
net of taxes
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )Share options granted
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    0Balance as at December 31, 2005
    
    
    (1
    )
    
    
    (7
    )
    
    
    2
    
    
    
    228
    
    
    
    202
    
    
    
    424Cash flow hedgesFair value gains, net of taxes
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Transferred to profit and loss,
net of taxes
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )Available-for-sale equity investments
Fair value gains, net of taxes
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Transferred to profit and loss,
net of taxes
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Redemption of own shares
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Share options and shares granted
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Balance as at December 31, 2006
    
    
    (12
    )
    
    
    9
    
    
    
    4
    
    
    
    229
    
    
    
    202
    
    
    
    432
  2005
    
    2006( in millions)Cumulative translation adjustment as at January 1
    
    
    (48
    )
    
    
    (9
    )Change in foreign currency translation
    
    
    60
    
    
    
    (59
    )Hedging of net investment denominated in foreign currency
    
    
    (30
    )
    
    
    28Tax effect
    
    
    9
    
    
    
    (6
    )Transfer of translation differences
    
    
    
    
    
    
    1Cumulative translation adjustment as at December 31
    
    
    (9
    )
    
    
    (45
    )
 F-49




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Note 23. Share-based payments
   
 Share ownership plan
   
   
 2003 options program
   
  As at December 31,2004
    
    2005
    
    2006Average
    
    
    
    
    
    Average
    
    
    
    
    
    Averageexercise
    
    
    
    
    
    exercise
    
    
    
    
    
    exerciseprice
    
    Amount of
    
    price
    
    Amount
    
    price
    
    Amount/share
    
    options
    
    /share
    
    of options
    
    /share
    
    of optionsBeginning of year
    
    
    
    
    
    
    
    
    
    
    10.45
    
    
    
    100,000
    
    
    
    10.10
    
    
    
    100,000Granted
    
    
    10.65
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.70
    
    
    
    (65,000
    )Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    §
    End of year
    
    
    10.45
    
    
    
    100,000
    
    
    
    10.10
    
    
    
    100,000
    
    
    
    8.70
    
    
    
    35,000Exercisable at end of year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,000
 F-50




---



##### Table of Contents



METSO
 Notes
to Consolidated Financial Statements  (Continued)
 
 2004Share price, 
    
    
    10.85Exercise price, 
    
    
    10.65Volatility, %
    
    
    39.93Risk-free interest rate, %
    
    
    3.29Expected annual dividends, 
    
    
    Expected life in years
    
    
    5.17
  2001 options program
 
 Note 24. Long-term debt
  Book values
    
    Fair values2005
    
    2006
    
    2005
    
    2006( in millions)
    
    ( in millions)Bonds
    
    
    688
    
    
    
    526
    
    
    
    725
    
    
    
    543Loans from financial institutions
    
    
    40
    
    
    
    151
    
    
    
    40
    
    
    
    151Pension loans
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Finance lease obligations
    
    
    21
    
    
    
    18
    
    
    
    21
    
    
    
    18Other long-term debt
    
    
    4
    
    
    
    3
    
    
    
    4
    
    
    
    3753
    
    
    
    698
    
    
    
    790
    
    
    
    715Less current maturities
    
    
    160
    
    
    
    93
    
    
    
    160
    
    
    
    83Total
    
    
    593
    
    
    
    605
    
    
    
    630
    
    
    
    632
 Bonds
 Nominal
    
    Effective
    
    Originalinterest rate
    
    interest rate
    
    loan amount
    
    Outstanding bookDec 31, 2006
    
    Dec 31, 2006
    
    in currency,
    

value at December 31,(%)
    
    (%)
    
    millions
    
    2005
    
    2006( in millions)19972007
    
    
    6.88
    
    
    
    6.88
    
    
    USD 200
    
    
    
    92
    
    
    
    8320012006
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    156
    
    
    
    20042011
    
    
    5.10
    
    
    
    6.50
    
    
    
    274
    
    
    
    257
    
    
    
    259505
    
    
    
    342Private placements
issued underEMTN
program, maturing
2009-
2012
    
    
    
    
    
    
    4.45 - 5.61
    
    
    
    186
    
    
    
    183
    
    
    
    184Bonds total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    688
    
    
    
    526Less current maturities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156
    
    
    
    83Bonds, long-term portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    532
    
    
    
    443
 F-51




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
       
  
   
   Loans from
    
    Finance
    
    Otherfinancial
    
    lease
    
    long-termBonds
    
    institutions
    
    obligations
    
    debt
    
    Total( in millions)Year2007
    
    
    83
    
    
    
    7
    
    
    
    3
    
    
    
    0
    
    
    
    932008
    
    
    
    
    
    
    21
    
    
    
    3
    
    
    
    1
    
    
    
    252009
    
    
    82
    
    
    
    15
    
    
    
    3
    
    
    
    0
    
    
    
    1002010
    
    
    15
    
    
    
    14
    
    
    
    2
    
    
    
    0
    
    
    
    312011
    
    
    326
    
    
    
    18
    
    
    
    1
    
    
    
    2
    
    
    
    347Later
    
    
    20
    
    
    
    76
    
    
    
    6
    
    
    
    
    
    
    
    102
 F-52




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Note 25. Allowances
  Balance
    
    
    
    
    
    
    
    
    
    Increaseat
    
    Impact of
    
    Additions
    
    from
    
    
    
    
    
    Deductions/
    
    Balancebeginning
    
    exchange
    
    charged to
    
    business
    
    Realized
    
    other
    
    at endof year
    
    rates
    
    expense
    
    acquisitions
    
    reserve
    
    additions
    
    of year( in millions)Allowance for
doubtful notes and
receivables
    
    
    35
    
    
    
    (2
    )
    
    
    10
    
    
    
    1
    
    
    
    (6
    )
    
    
    (3
    )
    
    
    35Allowance for
inventory
obsolescence
    
    
    53
    
    
    
    (3
    )
    
    
    15
    
    
    
    0
    
    
    
    (9
    )
    
    
    (2
    )
    
    
    54Total
    
    
    88
    
    
    
    (5
    )
    
    
    25
    
    
    
    1
    
    
    
    (15
    )
    
    
    (5
    )
    
    
    89
  Note 26. Provisions
  As at December 31,2005
    
    2006Non-
    
    
    
    
    
    
    
    
    
    Non-current
    
    Current
    
    Total
    
    current
    
    Current
    
    Total( in millions)
    
    ( in millions)Warranty and guarantee liabilities
    
    
    4
    
    
    
    158
    
    
    
    162
    
    
    
    25
    
    
    
    169
    
    
    
    194Accrued restructuring expenses (1)
    
    
    15
    
    
    
    10
    
    
    
    25
    
    
    
    9
    
    
    
    23
    
    
    
    32Environmental and product liabilities
    
    
    
    
    
    
    5
    
    
    
    5
    
    
    
    
    
    
    
    6
    
    
    
    6Other provisions
    
    
    14
    
    
    
    18
    
    
    
    32
    
    
    
    19
    
    
    
    15
    
    
    
    34Total
    
    
    33
    
    
    
    191
    
    
    
    224
    
    
    
    53
    
    
    
    213
    
    
    
    266
 
 (1)
    
    For additional information on significant restructuring programs, see also Note 6.  IncreaseBalance at
    
    Impact of
    
    Additions
    
    from
    
    
    
    
    
    Reversal of
    
    Balancebeginning
    
    exchange
    
    charged to
    
    business
    
    Realized
    
    reserve /
    
    at end ofof year
    
    rates
    
    expense
    
    acquisitions
    
    reserve
    
    other changes
    
    year( in millions)Accrued restructuring
expensesexpenses (1)
    
    
    25
    
    
    
    0
    
    
    
    5
    
    
    
    13
    
    
    
    (10
    )
    
    
    (1
    )
    
    
    32Environmental and product
liabilities
    
    
    5
    
    
    
    0
    
    
    
    3
    
    
    
    0
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    6Total
    
    
    30
    
    
    
    0
    
    
    
    8
    
    
    
    13
    
    
    
    (11
    )
    
    
    (2
    )
    
    
    38
 
 (1)
    
    For additional information on significant restructuring programs, see also Note 6.  F-53




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Accrued restructuring expenses
  
 Environmental and product liabilities
 
 
 Warranty and guarantee liabilities
  Impact
    
    Increase for
    
    Increase for
    
    IncreaseBalance at
    
    of
    
    current
    
    previous
    
    from
    
    
    
    
    
    Balancebeginning
    
    exchange
    
    years
    
    years
    
    business
    
    
    
    
    
    at end ofof year
    
    rates
    
    deliveries
    
    deliveries
    
    acquisitions
    
    Deductions
    
    year(in millions)Warranty and
guarantee provisions
    
    
    162
    
    
    
    (2
    )
    
    
    62
    
    
    
    27
    
    
    
    29
    
    
    
    (84
    )
    
    
    194
  F-54




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Note 27. Short-term debt
  As at December 31,2005
    
    2006( in millions)Loans from financial institutions
    
    
    35
    
    
    
    43Domestic commercial paper financing
    
    
    
    
    
    
    89Total
    
    
    35
    
    
    
    132
    
 Note 28. Trade and other payables
  As at December 31,2005
    
    2006( in millions)Trade payables
    
    
    575
    
    
    
    802Accrued interests
    
    
    6
    
    
    
    6Accrued personnel costs
    
    
    177
    
    
    
    189Accrued project costs
    
    
    34
    
    
    
    73Short-term derivatives
    
    
    39
    
    
    
    1Other
    
    
    94
    
    
    
    167Total
    
    
    925
    
    
    
    1,238
 Note 29. Post-employment benefit obligations
  F-55




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 The amounts recognized as of December 31 in the balance sheet are following:
 Year ended December 31,Other post-Pension benefits,
    
    Pension benefits,
    
    employmentdomestic
    
    foreign
    
    benefits2005
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006( in millions)Present value of funded obligations
    
    
    11
    
    
    
    9
    
    
    
    291
    
    
    
    285
    
    
    
    
    
    
    
    Fair value of plan assets
    
    
    (8
    )
    
    
    (7
    )
    
    
    (226
    )
    
    
    (239
    )
    
    
    
    
    
    
    3
    
    
    
    2
    
    
    
    65
    
    
    
    46
    
    
    
    
    
    
    
    Present value of unfunded obligations
    
    
    
    
    
    
    
    
    
    
    82
    
    
    
    96
    
    
    
    44
    
    
    
    41Unrecognized asset
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3
    
    
    
    
    
    
    
    Unrecognized actuarial gains (losses)
    
    
    (2
    )
    
    
    (1
    )
    
    
    (36
    )
    
    
    (31
    )
    
    
    (4
    )
    
    
    (4
    )Unrecognized past service costs (credit)
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net liability recognized
    
    
    3
    
    
    
    3
    
    
    
    114
    
    
    
    114
    
    
    
    40
    
    
    
    37Amounts in the balance sheet:Liabilities
    
    
    3
    
    
    
    3
    
    
    
    115
    
    
    
    117
    
    
    
    40
    
    
    
    37Assets
    
    
    
    
    
    
    0
    
    
    
    (1
    )
    
    
    (3
    )
    
    
    
    
    
    
    Net liability recognized
    
    
    3
    
    
    
    3
    
    
    
    114
    
    
    
    114
    
    
    
    40
    
    
    
    37
 
  Foreign pension and otherPension benefits, domestic
    
    post-employment benefits2005
    
    2006
    
    2005
    
    2006( in millions)Net liability at beginning of year
    
    
    10
    
    
    
    3
    
    
    
    158
    
    
    
    154Liability for new plans covered
    
    
    (1
    )
    
    
    
    
    
    
    0
    
    
    
    1Acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Net expense recognized in the income statement
    
    
    (2
    )
    
    
    1
    
    
    
    10
    
    
    
    12Contributions
    
    
    (4
    )
    
    
    (1
    )
    
    
    (22
    )
    
    
    (23
    )Translation differences
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    (7
    )Net liability at end of year
    
    
    3
    
    
    
    3
    
    
    
    154
    
    
    
    151
  2005
    
    2006(%)
    
    (%)Equity securities
    
    
    50
    
    
    
    50Bonds
    
    
    45
    
    
    
    43Other
    
    
    5
    
    
    
    7
  F-56




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
   Other post-Pension benefits,
    
    Pension benefits,
    
    employmentdomestic
    
    foreign
    
    benefits2004
    
    2005
    
    2006
    
    2004
    
    2005
    
    2006
    
    2004
    
    2005
    
    2006( in millions)Service cost
    
    
    9
    
    
    
    2
    
    
    
    1
    
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    1
    
    
    
    1
    
    
    
    1Interest cost
    
    
    5
    
    
    
    1
    
    
    
    0
    
    
    
    17
    
    
    
    18
    
    
    
    18
    
    
    
    2
    
    
    
    2
    
    
    
    3Expected return on plan assets
    
    
    0
    
    
    
    (1
    )
    
    
    0
    
    
    
    (13
    )
    
    
    (15
    )
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    Amortization  Past service costs
    
    
    (7
    )
    
    
    (1
    )
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    Net actuarial (gain) loss recognized
in year
    
    
    (1
    )
    
    
    
    
    
    
    0
    
    
    
    2
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Immediate recognition due to asset
ceiling
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    (Gains) losses on immediate settlements
    
    
    (81
    )
    
    
    (3
    )
    
    
    0
    
    
    
    (11
    )
    
    
    (2
    )
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    Expense (income) recognized in income
statement
    
    
    (75
    )
    
    
    (2
    )
    
    
    1
    
    
    
    0
    
    
    
    7
    
    
    
    8
    
    
    
    3
    
    
    
    3
    
    
    
    4Actual return (loss) on plan assets
    
    
    1
    
    
    
    (2
    )
    
    
    0
    
    
    
    16
    
    
    
    20
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
  Other post-Pension benefits,
    
    Pension benefits,
    
    employmentdomestic
    
    foreign
    
    benefits2005
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006( in millions)Defined benefit obligation at beginning
of year
    
    
    19
    
    
    
    11
    
    
    
    301
    
    
    
    373
    
    
    
    34
    
    
    
    44Service cost
    
    
    2
    
    
    
    1
    
    
    
    5
    
    
    
    5
    
    
    
    1
    
    
    
    1Interest cost
    
    
    1
    
    
    
    0
    
    
    
    18
    
    
    
    18
    
    
    
    2
    
    
    
    3Actuarial (gains) losses
    
    
    (1
    )
    
    
    0
    
    
    
    30
    
    
    
    4
    
    
    
    5
    
    
    
    0Losses (gains) on curtailment
    
    
    (3
    )
    
    
    0
    
    
    
    (2
    )
    
    
    0
    
    
    
    
    
    
    
    Plan participant contributions
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    0
    
    
    
    0Past service cost
    
    
    (3
    )
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    Acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    Increase in coverage
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    1
    
    
    
    
    
    
    
    0Settlements
    
    
    0
    
    
    
    (3
    )
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    Translation differences
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    (19
    )
    
    
    5
    
    
    
    (4
    )Benefits paid
    
    
    (4
    )
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )
    
    
    (3
    )
    
    
    (3
    )Defined benefit obligation at end of year
    
    
    11
    
    
    
    9
    
    
    
    373
    
    
    
    381
    
    
    
    44
    
    
    
    41
  F-57




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Foreign pension and otherPension benefits, domestic
    
    post-employment benefits2005
    
    2006
    
    2005
    
    2006( in millions)Fair value of assets at beginning of year
    
    
    10
    
    
    
    8
    
    
    
    171
    
    
    
    226Adjustments for new plans covered
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    2Settlements
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    Acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Actual return on plan assets
    
    
    (2
    )
    
    
    0
    
    
    
    20
    
    
    
    23Plan participant contributions
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Employer contributions
    
    
    4
    
    
    
    1
    
    
    
    22
    
    
    
    23Benefits paid
    
    
    (4
    )
    
    
    
    
    
    
    (20
    )
    
    
    (20
    )Translation differences
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    (17
    )Fair value of assets at end of year
    
    
    8
    
    
    
    7
    
    
    
    226
    
    
    
    239
  2004
    
    2005
    
    2006( in millions)Present value of defined benefit obligations at
December 31
    
    
    354
    
    
    
    428
    
    
    
    431Fair value of plan assets at December 31
    
    
    181
    
    
    
    234
    
    
    
    246Unrecognized asset
    
    
    2
    
    
    
    3
    
    
    
    3Unrecognized actuarial gains (losses)
    
    
    (8
    )
    
    
    (42
    )
    
    
    (36
    )Unrecognized past service costs
    
    
    1
    
    
    
    2
    
    
    
    2
  Domestic
    
    Foreign2005
    
    2006
    
    2005
    
    2006(%)
    
    (%)
    
    (%)
    
    (%)Benefit obligation: discount rate
    
    
    4.50
    
    
    
    4.50
    
    
    
    5.05
    
    
    
    5.28Benefit obligation: rate of compensation increase
    
    
    3.77
    
    
    
    3.70
    
    
    
    3.39
    
    
    
    3.65Benefit obligation: rate of pension increase
    
    
    2.10
    
    
    
    2.10
    
    
    
    0.89
    
    
    
    1.08Expense in income statement: discount rate
    
    
    5.00
    
    
    
    4.50
    
    
    
    5.74
    
    
    
    5.34Expense in income statement: rate of
compensation increase
    
    
    3.07
    
    
    
    3.77
    
    
    
    3.68
    
    
    
    3.66Expense in income statement: expected return on
plan assets
    
    
    5.40
    
    
    
    5.40
    
    
    
    7.64
    
    
    
    7.81Expense in income statement: rate of pension
increase
    
    
    2.30
    
    
    
    2.10
    
    
    
    0.91
    
    
    
    0.89
  
  Finland
    
    Gompertz model with Finnish TEL parametersGermany
    
    Heubeck RT 2005 G
 F-58




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 United Kingdom
    
    PXA92 year of birthCanada
    
    UP94 projected to 2010/2015United States of America
    
    RP2000 projected to 2015
    
 Note 30. Mortgages and contingent liabilities
  As at December 31,2005
    
    2006( in millions)On own behalfMortgages
    
    
    5
    
    
    
    16Pledged assets
    
    
    0
    
    
    
    0On behalf of associated companiesGuarantees
    
    
    
    
    
    
    On behalf of othersGuarantees
    
    
    5
    
    
    
    6Other commitmentsRepurchase commitments
    
    
    6
    
    
    
    5Other contingencies
    
    
    6
    
    
    
    5Total
    
    
    22
    
    
    
    32
 
   
 F-59




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Note 31. Lease Contracts
   2005
    
    2006
    
    2005
    
    2006Operating leases
    
    Finance leases( in millions)
    
    ( in millions)Less than 1 year
    
    
    37
    
    
    
    46
    
    
    
    4
    
    
    
    412 years
    
    
    28
    
    
    
    35
    
    
    
    4
    
    
    
    423 years
    
    
    19
    
    
    
    27
    
    
    
    4
    
    
    
    334 years
    
    
    14
    
    
    
    21
    
    
    
    3
    
    
    
    245 years
    
    
    12
    
    
    
    13
    
    
    
    3
    
    
    
    2Over 5 years
    
    
    15
    
    
    
    24
    
    
    
    8
    
    
    
    7Total minimum lease payments
    
    
    125
    
    
    
    166
    
    
    
    26
    
    
    
    22Future financial expenses
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (4
    )Total net present value of finance leases
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    18
  2005
    
    2006( in millions)Less than 1 year
    
    
    3
    
    
    
    312 years
    
    
    3
    
    
    
    323 years
    
    
    3
    
    
    
    334 years
    
    
    3
    
    
    
    245 years
    
    
    2
    
    
    
    1Over 5 years
    
    
    7
    
    
    
    6Total net present value of finance leases
    
    
    21
    
    
    
    18
   
  Future lease payments for empty premises
 
 F-60




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Note 32. Derivative financial instruments
  2005
    
    
    2006Fair
    
    
    Fair
    
    
    Fair
    
    
    
    
    
    
    Fair
    
    
    Fair
    
    
    FairNotional
    
    
    value,
    
    
    value,
    
    
    value,
    
    
    Notional
    
    
    value,
    
    
    value,
    
    
    value,amount
    
    
    assets
    
    
    liabilities
    
    
    net
    
    
    amount
    
    
    assets
    
    
    liabilities
    
    
    net( in millions)Forward exchange contracts
    
    
    1,159
    
    
    
    7
    
    
    
    39
    
    
    
    (32
    )
    
    
    1,357
    
    
    
    17
    
    
    
    1
    
    
    
    16Cross-currency swaps
    
    
    2
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1
    
    
    
    0
    
    
    
    
    
    
    
    0Currency swaps
    
    
    1
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1
    
    
    
    
    
    
    
    0
    
    
    
    0Interest rate swaps
    
    
    183
    
    
    
    0
    
    
    
    4
    
    
    
    (4
    )
    
    
    143
    
    
    
    1
    
    
    
    1
    
    
    
    0Interest rate futures contracts
    
    
    20
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Option agreementsBought
    
    
    29
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    7
    
    
    
    0
    
    
    
    0
    
    
    
    0Sold
    
    
    55
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    6
    
    
    
    0
    
    
    
    0
    
    
    
    0Electricity forward contracts (1)
    
    
    354
    
    
    
    2
    
    
    
    0
    
    
    
    2
    
    
    
    475
    
    
    
    1
    
    
    
    0
    
    
    
    1Total
    
    
    
    
    
    
    9
    
    
    
    43
    
    
    
    (34
    )
    
    
    
    
    
    
    19
    
    
    
    2
    
    
    
    17
 
 (1)
    
    Notional amount GWh   2005
    
    2006Assets
    
    Liabilities
    
    Assets
    
    Liabilities( in millions)
    
    ( in millions)Interest rate swaps  cash flow hedges
    
    
    
    
    
    
    4
    
    
    
    1
    
    
    
    Interest rate swaps  fair value hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps  non-qualifying hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    4
    
    
    
    1
    
    
    
    1Forward exchange contracts  cash flow hedges
    
    
    2
    
    
    
    21
    
    
    
    9
    
    
    
    0Forward exchange contracts  net investment hedges
    
    
    1
    
    
    
    11
    
    
    
    10
    
    
    
    1Forward exchange contracts  non-qualifying hedges
    
    
    4
    
    
    
    7
    
    
    
    1
    
    
    
    37
    
    
    
    39
    
    
    
    20
    
    
    
    4Currency swaps  non-qualifying hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Electricity forward contracts  non-qualifying hedges
    
    
    2
    
    
    
    
    
    
    
    1
    
    
    
    0Options  non-qualifying hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total derivatives
    
    
    9
    
    
    
    43
    
    
    
    22
    
    
    
    5
    F-61




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 20112007
    
    2008
    
    2009
    
    2010
    and after( in millions)Forward exchange contracts
    
    
    1,261
    
    
    
    89
    
    
    
    7
    
    
    
    
    
    
    
    Cross-currency swaps
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Currency swaps
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    15
    
    
    
    83Interest rate futures contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Option agreements
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Electricity forward contracts (1)
    
    
    255
    
    
    
    159
    
    
    
    61
    
    
    
    
    
    
    
    
 
 (1)
    
    Notional amount GWh Note 33. The adoption of IAS 32 and IAS 39
  ASSETS
 Effect ofadoption of IASDec 31, 2004
    
    32 and IAS 39
    
    Jan 1, 2005( in millions)Non-current assetsIntangible assets
    
    
    585
    
    
    
    
    
    
    
    585Property, plant and equipment
    
    
    649
    
    
    
    
    
    
    
    649Financial assets
    
    
    239
    
    
    
    (19
    )
    
    
    220Total non-current assets
    
    
    1,473
    
    
    
    (19
    )
    
    
    1,454Current assetsInventories
    
    
    692
    
    
    
    
    
    
    
    692Receivables
    
    
    1,033
    
    
    
    13
    
    
    
    1,046Cash and cash equivalents
    
    
    372
    
    
    
    
    
    
    
    372Total current assets
    
    
    2,097
    
    
    
    13
    
    
    
    2,110Assets held for sale
    
    
    
    
    
    
    
    
    
    
    Total assets
    
    
    3,570
    
    
    
    (6
    )
    
    
    3,564
 F-62




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 SHAREHOLDERS EQUITY AND
LIABILITIES
 Effect ofadoption of IASDec 31, 2004
    
    32 and IAS 39
    
    Jan 1, 2005( in millions)EquityShare capital
    
    
    232
    
    
    
    
    
    
    
    232Other shareholders equity
    
    
    758
    
    
    
    7
    
    
    
    765Minority interests
    
    
    5
    
    
    
    
    
    
    
    5Total equity
    
    
    995
    
    
    
    7
    
    
    
    1,002LiabilitiesNon-current liabilities
    
    
    1,109
    
    
    
    (22
    )
    
    
    1,087Current liabilities
    
    
    1,466
    
    
    
    9
    
    
    
    1,475Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    Total liabilities
    
    
    2,575
    
    
    
    (13
    )
    
    
    2,562Total shareholders equity
and liabilities
    
    
    3,570
    
    
    
    (6
    )
    
    
    3,564
 
      
 
 
 F-63




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Note 34. Principal subsidiaries
  % of
    
    
    
    
    
    Researchexternal net
    
    
    
    
    
    andCountry
    
    sales
    
    Production
    
    Sales
    
    developmentMetso Paper Oy
    
    Finland
    
    
    15.9
    
    
    X
    
    X
    
    XMetso Minerals Industries Inc.
    
    USA
    
    
    8.1
    
    
    X
    
    XMetso Brazil Indústria e Comércio Ltda.
    
    Brazil
    
    
    6.3
    
    
    X
    
    X
    
    XMetso Paper USA Inc.
    
    USA
    
    
    5.5
    
    
    X
    
    X
    
    XMetso Minerals (Australia) Ltd.
    
    Australia
    
    
    3.9
    
    
    X
    
    XMetso Paper Sundsvall AB
    
    Sweden
    
    
    3.1
    
    
    X
    
    X
    
    XMetso Automation USA Inc.
    
    USA
    
    
    3.0
    
    
    X
    
    X
    
    XMetso Minerals (France) SA
    
    France
    
    
    2.5
    
    
    X
    
    X
    
    XMetso Lindemann GmbH
    
    Germany
    
    
    2.4
    
    
    X
    
    X
    
    XMetso Minerals (Tampere) Oy
    
    Finland
    
    
    2.4
    
    
    X
    
    X
    
    XValmet Automotive Oy
    
    Finland
    
    
    2.2
    
    
    X
    
    X
    
    XMetso Minerals (Canada) Inc.
    
    Canada
    
    
    2.2
    
    
    X
    
    XMetso Paper Pori Oy
    
    Finland
    
    
    2.2
    
    
    X
    
    X
    
    XMetso  SHI Co. Ltd.
    
    Japan
    
    
    2.0
    
    
    X
    
    XMetso Minerals (Johannesburg) (Pty) Ltd.
    
    South Africa
    
    
    1.6
    
    
    X
    
    XMetso Automation Oy
    
    Finland
    
    
    1.6
    
    
    X
    
    X
    
    XMetso Paper Karlstad AB
    
    Sweden
    
    
    1.4
    
    
    X
    
    X
    
    XMetso Texas Shredder Inc.
    
    USA
    
    
    1.4
    
    
    X
    
    XMetso Paper Ltd.
    
    Canada
    
    
    1.4
    
    
    X
    
    X
    
    XMetso Minerals (UK) Ltd.
    
    Great Britain
    
    
    1.1
    
    
    X
    
    X
    
    XMetso Minerals Espana SA
    
    Spain
    
    
    1.1
    
    
    
    
    XMetso Panelboard AB
    
    Sweden
    
    
    1.1
    
    
    
    
    X
    
    XMetso Minerals (Chile) SA
    
    Chile
    
    
    1.0
    
    
    X
    
    XMetso Minerals (Mexico) SA de CV
    
    Mexico
    
    
    0.9
    
    
    X
    
    XMetso Minerals (Norway) A/S
    
    Norway
    
    
    0.8
    
    
    X
    
    XMetso Paper Valkeakoski Oy
    
    Finland
    
    
    0.8
    
    
    X
    
    X
    
    XMetso Minerals (Germany) GmbH
    
    Germany
    
    
    0.8
    
    
    
    
    XMetso Minerals (Austria) GmbH
    
    Austria
    
    
    0.7
    
    
    
    
    XMetso Minerals (Kiruna) AB
    
    Sweden
    
    
    0.7
    
    
    
    
    XMetso Automation Pte Ltd.
    
    Singapore
    
    
    0.7
    
    
    
    
    XMetso Minerals (India) Private Ltd.
    
    India
    
    
    0.7
    
    
    X
    
    XMetso Endress+Hauser Oy
    
    Finland
    
    
    0.7
    
    
    
    
    XMetso Paper GmbH
    
    Germany
    
    
    0.6
    
    
    X
    
    XMetso Minerals (Sweden) AB
    
    Sweden
    
    
    0.6
    
    
    X
    
    XMetso Automation GmbH
    
    Germany
    
    
    0.6
    
    
    X
    
    XMetso Panelboard Oy
    
    Finland
    
    
    0.6
    
    
    
    
    X
    
    XMetso Minerals Systems AB
    
    Sweden
    
    
    0.6
    
    
    X
    
    XMetso Automation S.A.S
    
    France
    
    
    0.5
    
    
    X
    
    XMetso Paper (China) Co. Ltd.
    
    China
    
    
    0.5
    
    
    X
    
    XMetso Minerals (Sala) AB
    
    Sweden
    
    
    0.5
    
    
    X
    
    X
    
    XMetso Minerals (Singapore) Pte Ltd.
    
    Singapore
    
    
    0.5
    
    
    X
    
    XMetso Paper Como S.p.A
    
    Italy
    
    
    0.5
    
    
    
    
    XMetso Foundries Jyväskylä Oy
    
    Finland
    
    
    0.5
    
    
    X
    
    XMetso Minerals (Italy) SpA
    
    Italy
    
    
    0.5
    
    
    
    
    XMetso Paper (Thailand) Co. Ltd.
    
    Thailand
    
    
    0.4
    
    
    X
    
    XMetso Minerals (Belux) SA
    
    Belgium
    
    
    0.4
    
    
    X
    
    XMetso Minerals Japan Co. Ltd.
    
    Japan
    
    
    0.4
    
    
    
    
    XMetso Minerals (Peru) SA
    
    Peru
    
    
    0.4
    
    
    X
    
    XMetso Minerals (Hong Kong) Ltd.
    
    China
    
    
    0.4
    
    
    
    
    XMetso Automation do Brasil Ltda.
    
    Brazil
    
    
    0.4
    
    
    X
    
    X
 F-64




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 % of
    
    
    
    
    
    Researchexternal net
    
    
    
    
    
    andCountry
    
    sales
    
    Production
    
    Sales
    
    developmentMetso Automation KK
    
    Japan
    
    
    0.4
    
    
    
    
    XMetso Automation Max Controls Inc.
    
    USA
    
    
    0.4
    
    
    X
    
    X
    
    XMetso Minerals (Finland) Oy
    
    Finland
    
    
    0.3
    
    
    X
    
    X
 Note 35. Business area and geographic information
 Corporate structure
   Metso Paper
  Metso Minerals
 Metso Automation
 Metso Ventures
 Corporate Office and other
    F-65




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
      2004
 CorporateMetso
    
    Metso
    
    Metso
    
    Metso
    
    Office and
    
    Discontinued
    
    Elimi-
    
    MetsoPaper
    
    Minerals
    
    Automation
    
    Ventures
    
    other
    
    operations(4)
    
    nations
    
    total( in millions)External net sales
    
    
    1,550
    
    
    
    1,365
    
    
    
    493
    
    
    
    194
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,602Intra-Metso net sales
    
    
    9
    
    
    
    1
    
    
    
    42
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    (88
    )
    
    
    Net sales
    
    
    1,559
    
    
    
    1,366
    
    
    
    535
    
    
    
    230
    
    
    
    
    
    
    
    
    
    
    
    (88
    )
    
    
    3,602Other operating income and
expenses, net
    
    
    (20.4
    )
    
    
    0.4
    
    
    
    (3.8
    )
    
    
    (1.4
    )
    
    
    14.6
    
    
    
    
    
    
    
    
    
    
    
    (10.6
    )Share in profits and losses of
associated companies
    
    
    3.7
    
    
    
    0.3
    
    
    
    0.5
    
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.8Reversal of Finnish pension
liability (1)
    
    
    39.8
    
    
    
    4.9
    
    
    
    13.7
    
    
    
    14.6
    
    
    
    2.3
    
    
    
    
    
    
    
    
    
    
    
    75.3Operating profit (loss)
    
    
    48.0
    
    
    
    105.2
    
    
    
    69.6
    
    
    
    (6.2
    )
    
    
    (17.1
    )
    
    
    
    
    
    
    
    
    
    
    199.5% of net sales
    
    
    3.1
    
    
    
    7.7
    
    
    
    13.0
    
    
    
    (2.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.5Depreciation and amortization
    
    
    53
    
    
    
    26
    
    
    
    11
    
    
    
    11
    
    
    
    4
    
    
    
    10
    
    
    
    
    
    
    
    115Gross capital expenditure
(including business acquisitions)
    
    
    33
    
    
    
    24
    
    
    
    6
    
    
    
    16
    
    
    
    14
    
    
    
    6
    
    
    
    
    
    
    
    99Non-cash write-downs (2)
    
    
    43
    
    
    
    15
    
    
    
    7
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66Intangible assets and property,
plant and equipment
    
    
    403
    
    
    
    564
    
    
    
    62
    
    
    
    94
    
    
    
    50
    
    
    
    61
    
    
    
    
    
    
    
    1,234Investments in associated companies
    
    
    12
    
    
    
    1
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17Available-for-sale equity
investments(3)
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    11Inventories and other non-interest
bearing assets
    
    
    703
    
    
    
    667
    
    
    
    203
    
    
    
    51
    
    
    
    33
    
    
    
    52
    
    
    
    
    
    
    
    1,709Interest bearing assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    440
    
    
    
    
    
    
    
    
    
    
    
    440Deferred tax assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159
    
    
    
    
    
    
    
    
    
    
    
    159Total assets
    
    
    1,119
    
    
    
    1,232
    
    
    
    269
    
    
    
    146
    
    
    
    691
    
    
    
    113
    
    
    
    
    
    
    
    3,570Non-interest bearing liabilities
    
    
    796
    
    
    
    520
    
    
    
    134
    
    
    
    107
    
    
    
    33
    
    
    
    33
    
    
    
    
    
    
    
    1,623Interest bearing debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    935
    
    
    
    
    
    
    
    
    
    
    
    935Deferred tax liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    16Total liabilities
    
    
    796
    
    
    
    520
    
    
    
    134
    
    
    
    107
    
    
    
    984
    
    
    
    33
    
    
    
    
    
    
    
    2,574Capital employed
    
    
    323
    
    
    
    712
    
    
    
    135
    
    
    
    39
    
    
    
    642
    
    
    
    80
    
    
    
    
    
    
    
    1,931Orders received
    
    
    1,726
    
    
    
    1,566
    
    
    
    570
    
    
    
    213
    
    
    
    
    
    
    
    
    
    
    
    (86
    )
    
    
    3,989Order backlog
    
    
    946
    
    
    
    560
    
    
    
    176
    
    
    
    66
    
    
    
    
    
    
    
    53
    
    
    
    (43
    )
    
    
    1,758
 
 (1)
    
    Reversal of Finnish pension liability (TEL) is included in operating profit(loss). See Note
7 for further information.(2)
    
    Other non-cash items recorded in Metso Paper include 15 million of bad debt expense related
to Papiers Gaspésia and 10 million related to the 2004 restructuring program.(3)
    
    Corporate Office and other includes treasury stock of 1 million.(4)
    
    For more information on discontinued operations see Note 13 F-66




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 CorporateMetso
    
    Metso
    
    Metso
    
    Metso
    
    Office and
    
    Discontinued
    
    Elimi-
    
    Metso2005
    
    Paper
    
    Minerals
    
    Automation
    
    Ventures
    
    other
    
    operations
    
    nations
    
    total( in millions)External net sales
    
    
    1,692
    
    
    
    1,733
    
    
    
    545
    
    
    
    251
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,221Intra-Metso net sales
    
    
    10
    
    
    
    2
    
    
    
    39
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    (84
    )
    
    
    Net sales
    
    
    1,702
    
    
    
    1,735
    
    
    
    584
    
    
    
    284
    
    
    
    
    
    
    
    
    
    
    
    (84
    )
    
    
    4,221Other operating income and expenses,
net
    
    
    (4.6
    )
    
    
    6.7
    
    
    
    (0.9
    )
    
    
    3.4
    
    
    
    7.4
    
    
    
    
    
    
    
    
    
    
    
    12.0Share in profits and losses of
associated companies
    
    
    2.3
    
    
    
    0.2
    
    
    
    0.5
    
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.3Reversal of Finnish pension
liability (1)
    
    
    3.2
    
    
    
    0.4
    
    
    
    0.8
    
    
    
    0.6
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    5.1Operating profit (loss)
    
    
    90.9
    
    
    
    177.6
    
    
    
    80.7
    
    
    
    10.8
    
    
    
    (25.0
    )
    
    
    
    
    
    
    
    
    
    
    335.0% of net sales
    
    
    5.3
    
    
    
    10.2
    
    
    
    13.8
    
    
    
    3.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.9Depreciation and amortization
    
    
    47
    
    
    
    28
    
    
    
    10
    
    
    
    12
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    102Gross capital expenditure (including
business acquisitions)
    
    
    34
    
    
    
    55
    
    
    
    11
    
    
    
    15
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    121Non-cash write-downs
    
    
    10
    
    
    
    5
    
    
    
    3
    
    
    
    0
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    20Intangible assets and property,
plant and equipment
    
    
    379
    
    
    
    592
    
    
    
    66
    
    
    
    97
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    1,178Investments in associated companies
    
    
    14
    
    
    
    1
    
    
    
    4
    
    
    
    0
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    20Available-for-sale equity investments
    
    
    1
    
    
    
    1
    
    
    
    0
    
    
    
    0
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    12Inventories and other non-interest
bearing assets
    
    
    758
    
    
    
    962
    
    
    
    197
    
    
    
    91
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    2,032Interest bearing assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    499
    
    
    
    
    
    
    
    
    
    
    
    499Deferred tax assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163
    
    
    
    
    
    
    
    
    
    
    
    163Total assets
    
    
    1,152
    
    
    
    1,556
    
    
    
    267
    
    
    
    188
    
    
    
    741
    
    
    
    
    
    
    
    
    
    
    
    3,904Non-interest bearing liabilities
    
    
    823
    
    
    
    661
    
    
    
    142
    
    
    
    110
    
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    1,804Interest bearing debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    788
    
    
    
    
    
    
    
    
    
    
    
    788Deferred tax liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    20Total liabilities
    
    
    823
    
    
    
    661
    
    
    
    142
    
    
    
    110
    
    
    
    876
    
    
    
    
    
    
    
    
    
    
    
    2,612Capital employed
    
    
    329
    
    
    
    895
    
    
    
    125
    
    
    
    78
    
    
    
    653
    
    
    
    
    
    
    
    
    
    
    
    2,080Orders received
    
    
    1,993
    
    
    
    1,936
    
    
    
    580
    
    
    
    324
    
    
    
    
    
    
    
    
    
    
    
    (88
    )
    
    
    4,745Order backlog
    
    
    1,267
    
    
    
    852
    
    
    
    179
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    (52
    )
    
    
    2,350
 
 (1)
    
    Reversal of Finnish pension liability (TEL) is included in operating profit(loss). See Note
7 for further information. F-67




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 CorporateMetso
    
    Metso
    
    Metso
    
    Metso
    
    Office and
    
    Discontinued
    
    Elimi-
    
    Metso2006
    
    Paper
    
    Minerals
    
    Automation
    
    Ventures
    
    other
    
    operations
    
    nations
    
    total( in millions)External net sales
    
    
    1,934
    
    
    
    2,172
    
    
    
    556
    
    
    
    293
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,955Intra-Metso net sales
    
    
    13
    
    
    
    2
    
    
    
    57
    
    
    
    39
    
    
    
    
    
    
    
    
    
    
    
    (111
    )
    
    
    Net sales
    
    
    1,947
    
    
    
    2,174
    
    
    
    613
    
    
    
    332
    
    
    
    
    
    
    
    
    
    
    
    (111
    )
    
    
    4,955Other operating income and expenses,
net
    
    
    (1.2
    )
    
    
    5.9
    
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    5.8Share in profits and losses of
associated companies
    
    
    1.6
    
    
    
    0.1
    
    
    
    0.8
    
    
    
    (1.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9Reversal of Finnish pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating profit(loss)
    
    
    110.2
    
    
    
    286.0
    
    
    
    86.7
    
    
    
    1.7
    
    
    
    (27.4
    )
    
    
    
    
    
    
    
    
    
    
    457.2% of net sales
    
    
    5.7
    
    
    
    13.2
    
    
    
    14.1
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.2Depreciation and amortization
    
    
    47
    
    
    
    30
    
    
    
    10
    
    
    
    14
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    105Gross capital expenditure (including
business acquisitions)
    
    
    321
    
    
    
    70
    
    
    
    9
    
    
    
    7
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    408Non-cash write-downs
    
    
    8
    
    
    
    12
    
    
    
    2
    
    
    
    7
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    29Intangible assets and property,
plant and equipment
    
    
    859
    
    
    
    615
    
    
    
    62
    
    
    
    83
    
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    1,657Investments in associated companies
    
    
    14
    
    
    
    1
    
    
    
    4
    
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    19Available-for-sale equity investments
    
    
    1
    
    
    
    2
    
    
    
    1
    
    
    
    0
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    15Inventories and other non-interest
bearing assets
    
    
    1,156
    
    
    
    1,164
    
    
    
    240
    
    
    
    90
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    2,663Interest bearing assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    376
    
    
    
    
    
    
    
    
    
    
    
    376Deferred tax assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    228
    
    
    
    
    
    
    
    
    
    
    
    228Total assets
    
    
    2,030
    
    
    
    1,782
    
    
    
    307
    
    
    
    173
    
    
    
    666
    
    
    
    
    
    
    
    
    
    
    
    4,958Non-interest bearing liabilities
    
    
    1,413
    
    
    
    833
    
    
    
    158
    
    
    
    118
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    2,597Interest bearing debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    830
    
    
    
    
    
    
    
    
    
    
    
    830Deferred tax liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    57Total liabilities
    
    
    1,413
    
    
    
    833
    
    
    
    158
    
    
    
    118
    
    
    
    962
    
    
    
    
    
    
    
    
    
    
    
    3,484Capital employed
    
    
    617
    
    
    
    949
    
    
    
    149
    
    
    
    55
    
    
    
    534
    
    
    
    
    
    
    
    
    
    
    
    2,304Orders received
    
    
    2,139
    
    
    
    2,630
    
    
    
    717
    
    
    
    332
    
    
    
    
    
    
    
    
    
    
    
    (113
    )
    
    
    5,705Order backlog
    
    
    2,165
    
    
    
    1,254
    
    
    
    276
    
    
    
    96
    
    
    
    
    
    
    
    
    
    
    
    (54
    )
    
    
    3,737
  Other
    
    Other
    
    
    
    
    
    South and
    
    
    
    
    
    RestNordic
    
    European
    
    North
    
    Central
    
    Asia-
    
    of the
    
    Elimi-
    
    MetsoYear
    
    Finland
    
    countries
    
    countries
    
    America
    
    America
    
    Pacific
    
    world
    
    nations
    
    total( in millions)2004
    
    
    312
    
    
    
    301
    
    
    
    888
    
    
    
    757
    
    
    
    286
    
    
    
    829
    
    
    
    229
    
    
    
    
    
    
    
    3,6022005
    
    
    352
    
    
    
    484
    
    
    
    1,064
    
    
    
    889
    
    
    
    485
    
    
    
    735
    
    
    
    212
    
    
    
    
    
    
    
    4,2212006
    
    
    341
    
    
    
    283
    
    
    
    1,378
    
    
    
    1,012
    
    
    
    685
    
    
    
    991
    
    
    
    265
    
    
    
    
    
    
    
    4,955
 F-68




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  Other
    
    Other
    
    
    
    
    
    South and
    
    
    
    
    
    RestNordic
    
    European
    
    North
    
    Central
    
    Asia-
    
    of theYear
    
    countries
    
    countries
    
    America
    
    America
    
    Pacific
    
    world
    
    Total( in millions)2004
    
    
    210
    
    
    
    420
    
    
    
    141
    
    
    
    75
    
    
    
    526
    
    
    
    23
    
    
    
    1,3952005
    
    
    353
    
    
    
    523
    
    
    
    158
    
    
    
    96
    
    
    
    331
    
    
    
    31
    
    
    
    1,4922006
    
    
    148
    
    
    
    738
    
    
    
    144
    
    
    
    123
    
    
    
    470
    
    
    
    51
    
    
    
    1,674
  Other
    
    Other
    
    
    
    
    
    South and
    
    
    
    
    
    RestNordic
    
    European
    
    North
    
    Central
    
    Asia-
    
    of the
    
    Elimi-
    
    MetsoYear
    
    Finland
    
    countries
    
    countries
    
    America
    
    America
    
    Pacific
    
    world
    
    nations
    
    total( in millions)2004
    
    
    429
    
    
    
    529
    
    
    
    36
    
    
    
    169
    
    
    
    22
    
    
    
    40
    
    
    
    9
    
    
    
    
    
    
    
    1,2342005
    
    
    357
    
    
    
    523
    
    
    
    15
    
    
    
    192
    
    
    
    38
    
    
    
    44
    
    
    
    9
    
    
    
    
    
    
    
    1,1782006
    
    
    704
    
    
    
    615
    
    
    
    43
    
    
    
    148
    
    
    
    67
    
    
    
    73
    
    
    
    7
    
    
    
    
    
    
    
    1,657
  Other
    
    
    Other
    
    
    
    
    
    
    South and
    
    
    
    
    
    
    RestNordic
    
    
    European
    
    
    North
    
    
    Central
    
    
    Asia-
    
    
    of the
    
    
    Elimi-
    
    
    MetsoYear
    
    Finland
    
    
    countries
    
    
    countries
    
    
    America
    
    
    America
    
    
    Pacific
    
    
    world
    
    
    nations
    
    
    total( in millions)2004
    
    
    54
    
    
    
    10
    
    
    
    11
    
    
    
    9
    
    
    
    8
    
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    972005
    
    
    49
    
    
    
    9
    
    
    
    13
    
    
    
    15
    
    
    
    14
    
    
    
    5
    
    
    
    2
    
    
    
    
    
    
    
    1072006
    
    
    65
    
    
    
    9
    
    
    
    15
    
    
    
    15
    
    
    
    17
    
    
    
    8
    
    
    
    2
    
    
    
    
    
    
    
    131
 Note 36. Lawsuits and claims
  Pending asbestos litigation
  F-69




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Other claims
    
 Subpoena from U.S. Department of Justice requiring Metso to produce documents
  Note 37. New accounting standards
 IFRS 7
   IFRS 8
   Note 38. Events after balance sheet date
 Metsos business areas
   F-70




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  Note 39. Differences between International Financial Reporting Standards and U.S. GAAP
  Year ended December 31,2004
    
    2005
    
    2006Reconciliation of net incomeProfit attributable to equity shareholders in accordance with IFRS
    
    
    143
    
    
    
    236
    
    
    
    409U.S. GAAP adjustments:a) Business combination, net
    
    
    (21
    )
    
    
    (18
    )
    
    
    (18
    )b) Svedala: purchase accounting, net
    
    
    (7
    )
    
    
    (7
    )
    
    
    (6
    )d) Reversal of liabilities recognized in connection with a
business combination
    
    
    (3
    )
    
    
    
    
    
    
    e) Capitalized development costs
    
    
    (1
    )
    
    
    (1
    )
    
    
    (3
    )f) Fair value of financial derivatives
    
    
    3
    
    
    
    (1
    )
    
    
    3g) Employee benefit plans
    
    
    (91
    )
    
    
    (17
    )
    
    
    (5
    )h) Early retirement plans
    
    
    
    
    
    
    
    
    
    
    1i) Restructuring costs
    
    
    (7
    )
    
    
    1
    
    
    
    j) Net investment hedge
    
    
    1
    
    
    
    
    
    
    
    k) Fees on bond exchange
    
    
    (2
    )
    
    
    0
    
    
    
    0l) Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    (1
    )m) Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    (1
    )p) Discontinued operations
    
    
    (41
    )
    
    
    2
    
    
    
    q) Miscellaneous items
    
    
    1
    
    
    
    0
    
    
    
    r) Stock compensation
    
    
    0
    
    
    
    (1
    )
    
    
    (0
    )Deferred tax effect of U.S. GAAP adjustments
    
    
    27
    
    
    
    3
    
    
    
    1Net income in accordance with U.S. GAAP
    
    
    2
    
    
    
    197
    
    
    
    380Income from continuing operations
    
    
    57
    
    
    
    178
    
    
    
    380Discontinued operations:Income from Discontinued operations, net of income tax expense
tax expense of 5 million and tax expense of 0 million for the
years ended December 31, 2004 and 2005, respectively
    
    
    17
    
    
    
    1
    
    
    
    Income (Loss) on disposal of Discontinued operations, net of
income tax expense of 9 million and tax benefit of 0 million
for the years ended December 31, 2004 and 2005, respectively
    
    
    (72
    )
    
    
    18
    
    
    
    Net income (loss) on Discontinued operations
    
    
    (55
    )
    
    
    19
    
    
    
    Net income in accordance with U.S. GAAP
    
    
    2
    
    
    
    197
    
    
    
    380Basic and diluted earnings (loss) per share:Continuing operations
    
    
    0.42
    
    
    
    1.27
    
    
    
    2.68
 F-71




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Year ended December 31,2004
    
    2005
    
    2006Discontinued operations
    
    
    (0.41
    )
    
    
    0.14
    
    
    
    Total basic and diluted earnings (loss) per share
    
    
    0.01
    
    
    
    1.41
    
    
    
    2.68Weighted average number of common shares outstanding under U.S.
GAAP (in thousands):Basic
    
    
    136,190
    
    
    
    139,639
    
    
    
    141,581Diluted
    
    
    136,192
    
    
    
    139,665
    
    
    
    141,600
 As of December 31,2005
    
    2006( in millions)Reconciliation of shareholders equityEquity attributable to shareholders in accordance with IFRS
    
    
    1,285
    
    
    
    1,468U.S. GAAP adjustments:a) Business combination, net
    
    
    59
    
    
    
    41b) Purchase accounting, net
    
    
    (30
    )
    
    
    (36
    )d) Reversal of liabilities recognized in connection with a
business combination
    
    
    (3
    )
    
    
    (3
    )e) Capitalized development costs
    
    
    (2
    )
    
    
    (5
    )f) Fair value of financial derivatives
    
    
    5
    
    
    
    (7
    )g) Employee benefit plans
    
    
    (114
    )
    
    
    (92
    )h) Early retirement plans
    
    
    
    
    
    
    1k) Fees on bond exchange
    
    
    (1
    )
    
    
    (1
    )l) Goodwill impairment
    
    
    (44
    )
    
    
    (45
    )m) Amortization of goodwill
    
    
    85
    
    
    
    84o) Translation difference
    
    
    (32
    )
    
    
    (44
    )q) Miscellaneous items
    
    
    0
    
    
    
    0r) Stock compensation
    
    
    (0
    )
    
    
    (1
    )Deferred tax effect of U.S. GAAP adjustments
    
    
    31
    
    
    
    42Shareholders equity in accordance with U.S. GAAP
    
    
    1,239
    
    
    
    1,402
 a) Business combination, net
    F-72




---



##### Table of Contents



METSO


Notes to Consolidated Financial Statements  (Continued)


Year ended December 31,2004
    
    2005
    
    2006( in millions)Net incomeDepreciation of buildings and structures
    
    
    (5
    )
    
    
    (5
    )
    
    
    (6
    )Depreciation of other tangible assets
    
    
    (19
    )
    
    
    (20
    )
    
    
    (20
    )Write down of fixed assets
    
    
    (10
    )
    
    
    
    
    
    
    Disposal of fixed assets
    
    
    3
    
    
    
    
    
    
    
    Deferred taxes
    
    
    10
    
    
    
    7
    
    
    
    8Total
    
    
    (21
    )
    
    
    (18
    )
    
    
    (18
    )
 As of December 31,2005
    
    2006( in millions)Shareholders equityHistorical goodwill of Rauma
    
    
    (15
    )
    
    
    (15
    )Land and water areas
    
    
    1
    
    
    
    1Buildings and structures
    
    
    62
    
    
    
    56Machinery and equipment
    
    
    52
    
    
    
    32Current liabilities
    
    
    (12
    )
    
    
    (12
    )Deferred taxes
    
    
    (29
    )
    
    
    (21
    )Total
    
    
    59
    
    
    
    41
  
  Opening
    
    
    
    
    
    Accumulated
    
    Closingbalance
    
    Decreases
    
    depreciation
    
    balance( in millions)Year 2005:Land and water areas
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Buildings
    
    
    82
    
    
    
    
    
    
    
    (20
    )
    
    
    62Machinery and equipment
    
    
    126
    
    
    
    
    
    
    
    (74
    )
    
    
    52Total
    
    
    209
    
    
    
    
    
    
    
    (94
    )
    
    
    115Year 2006:Land and water areas
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Buildings
    
    
    82
    
    
    
    
    
    
    
    (26
    )
    
    
    56Machinery and equipment
    
    
    126
    
    
    
    
    
    
    
    (94
    )
    
    
    32Total
    
    
    209
    
    
    
    
    
    
    
    (120
    )
    
    
    89
  F-73




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 b) Svedala: purchase accounting, net
   in millionsGoodwill
    
    
    711Land and buildings
    
    
    34Other tangible assets
    
    
    15Patents
    
    
    7Brand names
    
    
    58Customer value
    
    
    67Order backlog
    
    
    30Inventories
    
    
    10Liability for pensions under SFAS87 and SFAS106
    
    
    (28
    )Deferred taxation on the above adjustments
    
    
    (56
    )Total purchase consideration
    
    
    848
  Purchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchaseaccounting
    
    
    
    
    
    
    
    
    
    
    
    
    
    accountingadjustments at
    
    Decreases/
    
    Accumulated
    
    Translation
    
    adjustments atbeginning of year
    
    Increases
    
    amortization
    
    differences
    
    end of year( in millions)Brand names(1)
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    14Customer value
    
    
    60
    
    
    
    
    
    
    
    (48
    )
    
    
    (0
    )
    
    
    12Patents(1)
    
    
    6
    
    
    
    
    
    
    
    (4
    )
    
    
    (0
    )
    
    
    2Land and water areas(1)
    
    
    10
    
    
    
    (0
    )
    
    
    
    
    
    
    (0
    )
    
    
    10Buildings(1)
    
    
    9
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    (0
    )
    
    
    5Other tangible assets(1)
    
    
    14
    
    
    
    (1
    )
    
    
    (9
    )
    
    
    (0
    )
    
    
    4Deferred taxes
    
    
    (33
    )
    
    
    1
    
    
    
    18
    
    
    
    1
    
    
    
    (13
    )Total
    
    
    81
    
    
    
    (2
    )
    
    
    (45
    )
    
    
    (0
    )
    
    
    34
 
 (1)
    
    In the year of acquisition, Metso recorded the following purchase accounting adjustments
under IFRS (as gross values): 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.The amortization periods for the assets recognized in the purchase price allocation are: Buildings
    
    20 yearsOther tangible assets
    
    8 yearsPatents
    
    Average of 9 years and 5 monthsCustomer value
    
    From 40 months to 80 months depending
on the type of customer group
 F-74




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  Year ended December 31,2004
    
    2005
    
    2006( in millions)Difference between net income under IFRS and U.S. GAAPAmortization of customer value under U.S. GAAP
    
    
    (10
    )
    
    
    (10
    )
    
    
    (9
    )Difference between amortization of other intangible assets
    
    
    0
    
    
    
    0
    
    
    
    0Deferred taxes
    
    
    3
    
    
    
    3
    
    
    
    3Total difference between net income for continuing
operations under IFRS and U.S. GAAP
    
    
    (7
    )
    
    
    (7
    )
    
    
    (6
    )Difference of cumulative effect on shareholders equity
between IFRS and U.S. GAAP after disposals
    
    
    (23
    )
    
    
    (30
    )
    
    
    (36
    )
 c) Aker Kvaerner Pulping and Power: purchase price, net
   
 
  in millionsTechnology
    
    
    55Customer value
    
    
    69Order backlog
    
    
    30Other intangible assets
    
    
    6
  Technology, Power
    
    From 5 to 7 yearsTechnology, Pulping
    
    15 yearsCustomer value
    
    From 11 to 12 yearsOrder backlog
    
    Average between 6 to 24 monthsOther intangible assets
    
    From 5 to 10 years
 
   
 F-75




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 d) Reversal of liabilities recognized in connection with a business combination
   
 e) Capitalized development costs
  
  
 f) Fair value of financial derivatives
   2004
  
  F-76




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 
 
 
 2005
 2006
    2005
    
    2006( in millions)Adjustment to reconcile from IFRS to U.S GAAP net income and
balance sheet:Income, net of taxes of 3 million and (0) million, respectively
    
    
    8
    
    
    
    (2
    )Balance sheet:Embedded derivatives asset(liability)
    
    
    5
    
    
    
    (7
    )Shareholders equity:Reversal of hedge reserve, net of taxes of (1) million and 2
million, respectively
    
    
    3
    
    
    
    (4
    )Adjustment to retained earnings, net of taxes of 3 million and
0 million, respectively
    
    
    (7
    )
    
    
    1
  F-77




---



##### Table of Contents



METSO


Notes to Consolidated Financial Statements  (Continued)


2005( in millions)Adjustment to reconcile from IFRS to U.S GAAP net income and balance sheet:Income, net of taxes of 0 million
    
    
    0Balance sheet:Fair value of current portion of long-term bond (liability) reversed
    
    
    1Shareholders equity:Reversal of hedge reserve, net of taxes (1) million
    
    
    2Adjustment to retained earnings, net of taxes 1 million
    
    
    (2
    )
  
      
 Cumulative differences
  Gross
    
    Tax
    
    Net( in millions)Changes in fair values recognized through 2004 U.S.
GAAP earnings:Continuing Operations
    
    
    3
    
    
    
    (1
    )
    
    
    2Discontinued Operations
    
    
    (4
    )
    
    
    1
    
    
    
    (3
    )Shareholders equity difference as at December 31, 2004
    
    
    2
    
    
    
    (1
    )
    
    
    1Recognition of forwards at fair value in retained
earnings under IFRS:
    
    
    (3
    )
    
    
    1
    
    
    
    (2
    )Changes in fair values recognized through 2005 U.S.
GAAP earnings:Continuing Operations
    
    
    (1
    )
    
    
    (0
    )
    
    
    (1
    )Reversal of hedge reserves
    
    
    7
    
    
    
    (2
    )
    
    
    5Shareholders equity difference as at December 31, 2005
    
    
    5
    
    
    
    (2
    )
    
    
    3Changes in fair values recognized through 2006 U.S.
GAAP earnings:Continuing Operations
    
    
    3
    
    
    
    (1
    )
    
    
    2Cumulative reversal of hedge reserves
    
    
    (15
    )
    
    
    5
    
    
    
    (10
    )Shareholders equity difference as at December 31, 2006
    
    
    (7
    )
    
    
    2
    
    
    
    (5
    )
 F-78




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 g) Employee benefit plans
 Pensions and other postretirement benefits
   
       
     
    F-79




---



##### Table of Contents



METSO


Notes to Consolidated Financial Statements  (Continued)


Pension and post-retirement benefits,Pension benefits, domestic
    
    foreign2004
    
    2005
    
    2006
    
    2004
    
    2005
    
    2006( in millions)
    
    ( in millions)Service cost
    
    
    9
    
    
    
    10
    
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    6Interest cost
    
    
    6
    
    
    
    5
    
    
    
    3
    
    
    
    19
    
    
    
    20
    
    
    
    20Expected return on plan assets
    
    
    (0
    )
    
    
    (1
    )
    
    
    (0
    )
    
    
    (13
    )
    
    
    (15
    )
    
    
    (15
    )Net amortization
    
    
    (1
    )
    
    
    (1
    )
    
    
    (3
    )
    
    
    2
    
    
    
    3
    
    
    
    4Employee contributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    
    14
    
    
    
    13
    
    
    
    6
    
    
    
    14
    
    
    
    14
    
    
    
    15Special adjustments:SFAS No. 88 events
    
    
    
    
    
    
    (6
    )
    
    
    0
    
    
    
    (11
    )
    
    
    (2
    )
    
    
    0Other adjustment
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    Grand total net periodic benefit cost
    
    
    18
    
    
    
    7
    
    
    
    6
    
    
    
    10
    
    
    
    12
    
    
    
    15
  Pension and post-Pension benefits, domestic
    
    retirement benefits, foreign2005
    
    2006
    
    2005
    
    2006( in millions)
    
    ( in millions)Change in benefit obligationBenefit obligation at beginning of year
    
    
    104
    
    
    
    69
    
    
    
    335
    
    
    
    416Service cost
    
    
    10
    
    
    
    6
    
    
    
    6
    
    
    
    6Interest cost
    
    
    5
    
    
    
    3
    
    
    
    20
    
    
    
    20SFAS No. 88 events
    
    
    (5
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    0Participant contributions
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Amendments
    
    
    (3
    )
    
    
    0
    
    
    
    0
    
    
    
    0Increase in coverage
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    3Acquisitions
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    15Actuarial loss (gain)
    
    
    (38
    )
    
    
    (1
    )
    
    
    35
    
    
    
    5Benefits paid
    
    
    (4
    )
    
    
    (5
    )
    
    
    (20
    )
    
    
    (20
    )Currency effect
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    (24
    )Benefit obligation at end of year
    
    
    69
    
    
    
    81
    
    
    
    416
    
    
    
    422
 F-80




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Pension and post-retirementPension benefits, domestic
    
    benefits, foreign2005
    
    2006
    
    2005
    
    2006( in millions)
    
    ( in millions)Change in plan assetsFair value of plan assets at beginning of year
    
    
    10
    
    
    
    8
    
    
    
    169
    
    
    
    224Actuarial return on plan assets
    
    
    (2
    )
    
    
    0
    
    
    
    20
    
    
    
    23Company contribution
    
    
    4
    
    
    
    6
    
    
    
    22
    
    
    
    23Participant contribution
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Settlements
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    Acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Benefits paid
    
    
    (4
    )
    
    
    (5
    )
    
    
    (20
    )
    
    
    (21
    )Increase in coverage
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    2Currency effect
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    (17
    )Fair value of plan assets at end of year
    
    
    8
    
    
    
    7
    
    
    
    224
    
    
    
    236Funded status reconciliationFunded status
    
    
    (61
    )
    
    
    (74
    )
    
    
    (192
    )
    
    
    (186
    )Unrecognized transitional obligations (asset)
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    Unrecognized prior service cost
    
    
    (13
    )
    
    
    
    
    
    
    3
    
    
    
    Unrecognized actuarial (gain) loss
    
    
    (34
    )
    
    
    
    
    
    
    79
    
    
    
    Prepaid (accrued) benefit cost
    
    
    (108
    )
    
    
    (74
    )
    
    
    (110
    )
    
    
    (186
    )
  Pension and post-retirementPension benefits, domestic
    
    benefits, foreign2005
    
    2006
    
    2005
    
    2006( in millions)
    
    ( in millions)Current liability
    
    
    (8
    )
    
    
    (5
    )
    
    
    (13
    )
    
    
    (8
    )Non current liability
    
    
    (100
    )
    
    
    (69
    )
    
    
    (162
    )
    
    
    (178
    )Other assets
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    Minimum Pension Liability
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    Funded status
    
    
    (108
    )
    
    
    (74
    )
    
    
    (110
    )
    
    
    (186
    )
  
  Before
    
    
    
    
    
    Afterapplication of
    
    Effect of
    
    application ofSFAS158
    
    application
    
    SFAS158Liability in the
balance sheet for
pension benefits
    
    
    298
    
    
    
    (22
    )
    
    
    276Prepaid
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Deferred taxes, net
    
    
    (86
    )
    
    
    15
    
    
    
    (71
    )Net liability
    
    
    196
    
    
    
    (7
    )
    
    
    189Impact to Accumulated
Other Comprehensive
income
    
    
    (46
    )
    
    
    22
    
    
    
    (24
    )Deferred taxes
    
    
    15
    
    
    
    (3
    )
    
    
    12Net amount included in
Other Comprehensive
income
    
    
    (31
    )
    
    
    19
    
    
    
    (12
    )
 F-81




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 
  Domestic
    
    Foreign( in millions)Actuarial loss (gain)
    
    
    (1
    )
    
    
    (4
    )Prior service cost (credit)
    
    
    0
    
    
    
    0Less actuarial gain (loss) recognized in income
    
    
    1
    
    
    
    (4
    )Less prior service cost (credit) recognized in income
    
    
    2
    
    
    
    (0
    )Less transitional obligation (asset) recognized in income
    
    
    
    
    
    
    Currency loss (gain)
    
    
    
    
    
    
    (5
    )First year adjustment to accumulated other comprehensive income
    
    
    (47
    )
    
    
    29Amounts included in other comprehensive income
    
    
    (45
    )
    
    
    16
  Domestic
    
    Foreign( in millions)Net actuarial loss (gain)
    
    
    (33
    )
    
    
    67Prior service cost (credit)
    
    
    (12
    )
    
    
    2Net transition obligation (asset)
    
    
    
    
    
    
    Total accumulated other comprehensive income
    
    
    (45
    )
    
    
    69Deferred taxes
    
    
    12
    
    
    
    (24
    )Total accumulated other comprehensive income, net of taxes
    
    
    (33
    )
    
    
    45
  Domestic
    
    Foreign( in millions)Net actuarial loss (gain)
    
    
    (1
    )
    
    
    2Prior service cost (credit)
    
    
    (2
    )
    
    
    1Net transition obligation (asset)
    
    
    
    
    
    
    Total expected amortization
    
    
    (3
    )
    
    
    3
  F-82




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Pension and post-Pension benefits,
    
    retirement benefits,domestic
    
    foreign2005
    
    2006
    
    2005
    
    2006( in millions)Accumulated benefit obligation
    
    
    56
    
    
    
    59
    
    
    
    324
    
    
    
    335Fair value of plan assets
    
    
    8
    
    
    
    7
    
    
    
    193
    
    
    
    202Projected benefit obligation
    
    
    68
    
    
    
    71
    
    
    
    342
    
    
    
    350Fair value of plan assets
    
    
    8
    
    
    
    7
    
    
    
    193
    
    
    
    202
  Pension and post-retirementPension benefits, domestic
    
    benefits, foreign2004
    
    2005
    
    2006
    
    2004
    
    2005
    
    2006(%)Discount rate
    
    
    5.25
    
    
    
    5.00
    
    
    
    4.50
    
    
    
    6.02
    
    
    
    5.71
    
    
    
    5.05Rate of compensation increase
    
    
    3.00
    
    
    
    3.22
    
    
    
    3.77
    
    
    
    3.55
    
    
    
    3.68
    
    
    
    3.39Rate of pension increase
    
    
    
    
    
    
    2.30
    
    
    
    2.10
    
    
    
    
    
    
    
    0.91
    
    
    
    0.89Expected return on plan assets
    
    
    
    
    
    
    5.40
    
    
    
    5.40
    
    
    
    8.04
    
    
    
    7.64
    
    
    
    7.81
   Pension and post-retirementPension benefits, domestic
    
    benefits, foreign2005
    
    2006
    
    2005
    
    2006(%)Discount rate
    
    
    4.50
    
    
    
    4.50
    
    
    
    5.05
    
    
    
    5.32Rate of compensation increase
    
    
    3.77
    
    
    
    3.70
    
    
    
    3.39
    
    
    
    3.68Rate of pension increase
    
    
    2.10
    
    
    
    2.10
    
    
    
    0.89
    
    
    
    1.30
    
   
   
  F-83




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Asset category
    
    2005
    
    2006(%)Equity securities
    
    
    50
    
    
    
    50Bonds
    
    
    45
    
    
    
    43Other
    
    
    5
    
    
    
    7
   Pensionplans
    
    Other plansYear
    
    ( in millions)2007
    
    
    18
    
    
    
    82008
    
    
    18
    
    
    
    82009
    
    
    19
    
    
    
    82010
    
    
    19
    
    
    
    82011
    
    
    20
    
    
    
    920122016
    
    
    109
    
    
    
    45
 h) Early retirement cost
     
 i) Restructuring costs
 2003 Restructuring program
 F-84




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 
  2004
Restructuring program
 
 Cost accruals under U.S. GAAP for restructuring plans
  As of December 31,2005
    
    2006( in millions)Balance as at January 1
    
    
    27
    
    
    
    15Translation difference
    
    
    1
    
    
    
    0Additions to current year reserves
    
    
    4
    
    
    
    Adjustments to prior year reserves
    
    
    (1
    )
    
    
    (1
    )Amounts paid / charged to the reserve
    
    
    (16
    )
    
    
    (6
    )Balance as at December 31
    
    
    15
    
    
    
    8
  
 2006 Aker Kvaerner Remedy related restructuring
  ( in millions)Early retirement costs
    
    
    7Termination and exit costs
    
    
    5Lease
    
    
    1Accrued restructuring costs
    
    
    13
  F-85




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  j) Net investment hedge
   
  k) Fees on bond exchange
     
  
     
  l) Goodwill impairment
   F-86




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
    
 
  
 m) Amortization of goodwill
   
 F-87




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  Paper
    
    Automation
    
    Minerals
    
    Ventures
    
    Discontinued
    
    Total( in millions)2005:Translation difference
    
    
    8
    
    
    
    1
    
    
    
    19
    
    
    
    0
    
    
    
    
    
    
    
    28Increases
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    4Decreases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    (8
    )As of December 31, 2005
    
    
    80
    
    
    
    25
    
    
    
    330
    
    
    
    9
    
    
    
    
    
    
    
    4442006:Translation difference
    
    
    (6
    )
    
    
    (2
    )
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (17
    )Increases
    
    
    289
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    293Decreases
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (9
    )As of December 31, 2006
    
    
    362
    
    
    
    23
    
    
    
    325
    
    
    
    1
    
    
    
    
    
    
    
    711
 n) Investments
  Gross
    
    GrossU.S. GAAP
    
    unrealized
    
    unrealized
    
    Marketcost
    
    holding gains
    
    holding losses
    
    value( in millions)December 31, 2005
    
    
    179
    
    
    
    2
    
    
    
    (0
    )
    
    
    181December 31, 2006
    
    
    28
    
    
    
    2
    
    
    
    (0
    )
    
    
    30
  
  o) Translation difference
   As of December 31,2005
    
    2006( in millions)Goodwill
    
    
    (30
    )
    
    
    (41
    )Brand names
    
    
    (1
    )
    
    
    (2
    )Customer value
    
    
    (1
    )
    
    
    (1
    )Patents
    
    
    (0
    )
    
    
    (0
    )Land and water areas
    
    
    (1
    )
    
    
    (1
    )Buildings
    
    
    (0
    )
    
    
    (0
    )Other tangible assets
    
    
    (0
    )
    
    
    (0
    )Deferred taxes
    
    
    1
    
    
    
    1Total
    
    
    (32
    )
    
    
    (44
    )
 F-88




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 p) Discontinued operations
     Year ended December 31,2004
    
    2005( in millions)Net sales
    
    
    394
    
    
    
    26Operating profit
    
    
    24
    
    
    
    1Net income
    
    
    17
    
    
    
    1
 q) Miscellaneous items
  r) Stock compensation
 2003A options program
   
 F-89




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
  Year ended December 31,2004
    
    2005Net incomeas reported
    
    
    2
    
    
    
    197Stock based compensation cost included
in the determination of net income, net
of taxes
    
    
    
    
    
    
    1Stock based compensation cost that
would have been included in the
determination of net income if the fair
value method was used, net of taxes
    
    
    (0
    )
    
    
    (0
    )Pro forma
    
    
    2
    
    
    
    198Basic and diluted earnings (loss) per shareas reported
    
    
    0.01
    
    
    
    1.42Pro forma
    
    
    0.01
    
    
    
    1.42
    
    F-90




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 2003A
    
    2003CNumber of stock options
    
    135,000
    
    100,000Subscription period
    
    April 1, 2006  April 30, 2009
    
    April 1, 2008  April 30, 2011Share subscription price per stock option
    
    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
subscription price as of
December 31, 2006 was 8.70.
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
subscription price as of
December 31, 2006 was 27.50.
The exercise price cannot be
below par value.Subscription
    
    One stock option gives the right to subscribe one share.
  Share ownership plan for 2006-2008
   
 
 Accounting for the compensation expense
  
 F-91




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
     
 s) Additional disclosures
 Deferred taxes
   As of December 31,2005
    
    2006( in millions)Non-current assetsTax losses carried forward
    
    
    172
    
    
    
    121Fixed assets
    
    
    10
    
    
    
    10Pension and other-post retirement benefits
    
    
    52
    
    
    
    18Other
    
    
    17
    
    
    
    64Valuation allowance
    
    
    (91
    )
    
    
    (10
    )160
    
    
    
    203Current assetsInventory
    
    
    24
    
    
    
    25Provisions
    
    
    30
    
    
    
    21Accruals
    
    
    30
    
    
    
    31Medical benefits
    
    
    7
    
    
    
    9Other
    
    
    4
    
    
    
    6Valuation allowance
    
    
    (46
    )
    
    
    (5
    )49
    
    
    
    87Current liabilitiesInventory
    
    
    (5
    )
    
    
    (12
    )(5
    )
    
    
    (12
    )
 F-92




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 As of December 31,2005
    
    2006( in millions)Non-current liabilitiesFixed assets
    
    
    (5
    )
    
    
    (5
    )Purchase price adjustments
    
    
    (57
    )
    
    
    (80
    )Other
    
    
    (2
    )
    
    
    (1
    )(64
    )
    
    
    (86
    )Deferred tax asset, net
    
    
    140
    
    
    
    192
 Intangible assets
    OtherBrand
    
    Customer
    
    intangibleNames
    
    Value
    
    assets
    
    Total( in millions)2005:As of January 1, 2005
    
    
    14
    
    
    
    57
    
    
    
    165
    
    
    
    236Translation difference
    
    
    0
    
    
    
    3
    
    
    
    1
    
    
    
    4Additions
    
    
    2
    
    
    
    
    
    
    
    20
    
    
    
    22Decreases
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )Accumulated
amortization expense
    
    
    
    
    
    
    (39
    )
    
    
    (87
    )
    
    
    (126
    )As of December 31, 2005
    
    
    16
    
    
    
    21
    
    
    
    82
    (1)
    
    
    1192006:As of January 1, 2006
    
    
    16
    
    
    
    60
    
    
    
    169
    
    
    
    245Translation difference
    
    
    (0
    )
    
    
    0
    
    
    
    (0
    )
    
    
    (0
    )Additions
    
    
    
    
    
    
    70
    
    
    
    130
    (2)
    
    
    200Decreases
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    (22
    )Accumulated
amortization expense
    
    
    
    
    
    
    (49
    )
    
    
    (94
    )
    
    
    (143
    )As of December 31, 2006
    
    
    16
    
    
    
    81
    
    
    
    183
    (1)
    
    
    280
 
 (1)
    
    Includes patents and licenses for a net book value of 40 million and 35 million for the
years ended December 31, 2005 and December 31, 2006, respectively.(2)
    
    Includes 91 million of intangible assets related to Aker Kvaerner Pulping and Power
business, see note c) on the acquisition       
 F-93




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 Securitization
    
 Customer tooling
  
 Service revenues
  Adoption of accounting standards
  t) Classification differences
 Presentation of unamortized transaction costs for debt
   F-94




---



##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
 u) Valuation and qualifying accounts
  Balance at
    
    Charged to
    
    
    
    
    
    
    
    
    
    Balance atbeginning
    
    cost and
    
    
    
    
    
    
    
    
    
    endof year
    
    expenses
    
    Deductions
    
    Other(1)
    
    of year( in millions)2004
    
    
    34
    
    
    
    12
    
    
    
    (4
    )
    
    
    (5
    )
    
    
    372005
    
    
    37
    
    
    
    1
    
    
    
    (9
    )
    
    
    6
    
    
    
    352006
    
    
    35
    
    
    
    10
    
    
    
    (6
    )
    
    
    (4
    )
    
    
    35
 
 (1)
    
    Includes foreign currency translation effects.  Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atbeginning
    
    
    
    
    
    
    
    
    
    
    
    
    
    endof year
    
    Additions
    
    Deductions
    
    Other(1)
    
    of year( in millions)2004
    
    
    67
    
    
    
    10
    
    
    
    (18
    )
    
    
    (2
    )
    
    
    572005
    
    
    57
    
    
    
    6
    
    
    
    (11
    )
    
    
    1
    
    
    
    532006
    
    
    53
    
    
    
    15
    
    
    
    (9
    )
    
    
    (5
    )
    
    
    54
 
 (1)
    
    Includes foreign currency translation effects.  Balance atbeginning of
    
    
    
    
    
    
    
    
    
    Balance atyear
    
    Deduction
    
    Increase
    
    end of year( in millions)2004Valuation allowance
    
    
    161
    
    
    
    (28
    )
    
    
    22
    
    
    
    1552005Valuation allowance
    
    
    155
    
    
    
    (34
    )
    
    
    16
    
    
    
    1372006Valuation allowance
    
    
    137
    
    
    
    (128
    )
    
    
    6
    
    
    
    15
 v) New accounting standards
  F-95




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##### Table of Contents



METSO
 Notes to Consolidated Financial Statements  (Continued)
    w)
Subsequent event
  F-96